I-T dept blocks dividend to Cairn Energy

Cairn Energy Plc said on Monday the Indian income tax (I-T) department had issued an order to Vedanta Ltd, directing it to pay the government any sums that were due to the Edinburgh-based company.

Cairn said Vedanta owed it $104 million, including historical dividends of $53 million and a further dividend of $51 million after the merger of Cairn India and Vedanta.

The June 16 direction comes even as a tribunal on June 9 issued an order memorialising numerous confirmations from the Indian government that the dividends were no longer restricted and authorising the order be provided to Cairn India, now part of Vedanta.

Vedanta said it had advised banks, holding approximately ~666 crore in the dividend account to transfer the amount to the I-T authorities. “It may be recalled that the dividends due to Cairn Energy Plc for the last three years were lying in an unpaid dividend account as initially they were subject to an attachment order u/s 281B by the Tax Department and were not available for use by Cairn (now Vedanta Ltd),” Vedanta said.

In March, Cairn announced it had received confirmation from the Indian government through an international arbitration tribunal that dividends of $53 million due from Cairn India were no longer restricted and it requested immediate release of that sum.

“Notwithstanding this action by the GoI, international arbitration proceedings are progressing in respect of the group’s claim under the UK-India Bilateral Investment Treaty. Cairn is seeking full restitution for treaty breaches resulting from the expropriation of its investment in India in 2014, the attempts to enforce retrospective tax measures and the failure to treat the company and its investments fairly and equitably,” Cairn said in a statement.

The company said it had a “high level of confidence” in its case under the treaty in addition to resolution of the retrospective tax dispute. Its claim seeks damages equal to the value of the group’s residual shareholding in Cairn India at the time it was attached (approximately $1 billion).

The company commenced international arbitration against Indian tax authorities in 2015. The seat of the arbitration is The Hague in the Netherlands and final hearings for the tribunal are scheduled for January 2018.

Cairn UK Holdings Limited (“CUHL”), a direct subsidiary of Cairn Energy, received an assessment order from the Indian tax authorities relating to the intra-group restructuring undertaken in 2006 prior to the IPO of Cairn India.

It cited a retrospective amendment to the Indian tax law introduced in 2012 and claimed ~10,200 crore (approximately $1.5 billion) plus interest backdated to 2007 totalling ~18,800 crore (approximately $2.8 billion). The total assets of CUHL comprise the group's 9.8 per cent shareholding in Cairn, which has now been converted to a shareholding in Vedanta and any recovery by the Indian authorities will be limited to such assets, according to Cairn Energy.