Cairn moves world ar­bi­tra­tion panel against div­i­dend freeze

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UK’s Cairn En­ergy plc has pe­ti­tioned an in­ter­na­tional ar­bi­tra­tion tri­bunal against bil­lion­aire Anil Agar­wal-led Vedanta Ltd with­hold­ing its div­i­dend for the last three years de­spite the tax author­i­ties say­ing that there is no at­tach­ment in force. The Hague (Nether­lands)-based three­mem­ber Tri­bunal, which was con­sti­tuted to de­cide on Cairn’s plea against In­dia slap­ping a Rs 10,247-crore ret­ro­spec­tive tax de­mand and freez­ing its as­sets, would hear the pe­ti­tion.

In­come Tax De­part­ment of­fi­cials are, how­ever, cut up with Cairn En­ergy for tak­ing up the is­sue with the ar­bi­tra­tion panel as there is no longer any at­tach­ment or­der and the div­i­dend pay­ment is a mat­ter be­tween Vedanta and the Bri­tish MNC. “Cairn In­dia/ Vedanta ap­proached the tax de­part­ment, both ver­bally and in writ­ing on mul­ti­ple oc­ca­sions, seek­ing a writ­ten or­der so that they can con­tinue to with­hold the div­i­dend due to Cairn En­ergy. We did not re­spond to them,” a se­nior of­fi­cial said.

When con­tacted, a Vedanta spokesper­son said, “The div­i­dends due to Cairn En­ergy plc for the last three years are ly­ing in an un­paid div­i­dend ac­count as they were sub­ject to an at­tach­ment or­der (U/S 281B) by the Tax De­part­ment. “We would like to re­it­er­ate that these div­i­dends are not avail­able for use by Cairn (now Vedanta).”

Of­fi­cials said that they had lifted the freeze on the div­i­dend pay­ment by Cairn In­dia on March 31, 2016, when its 281B or­der ceased to be in ef­fect. This has also been com­mu­ni­cated in writ­ing to the in­ter­na­tional ar­bi­tra­tion panel. Cairn In­dia is the erst­while sub­sidiary of Bri­tish Cairn En­ergy, which it sold to Vedanta in 2011. The Bri­tish firm still holds holds a 9.8 per cent stake in Cairn In­dia but has not been paid share­holder div­i­dend for the last three years, to­talling about $100 mil­lion.

Of­fi­cials said that there was a pro­vi­sional freeze on Cairn En­ergy re­ceiv­ing div­i­dends as well as sell­ing its resid­ual stake in Cairn In­dia dur­ing the pen­dency of as­sess­ment pro­ceed­ings af­ter a draft tax de­mand of Rs 10,247 crore was raised on Jan­uary 22, 2014, us­ing ret­ro­spec­tive tax leg­is­la­tion.

“Af­ter the pass­ing of the fi­nal as­sess­ment or­der on Jan­uary 25, 2016, the pro­vi­sional at­tach­ment of these as­sets was ex­tended up to March 31, 2016, where­upon the or­der un­der sec­tion 281B ex­pired,” said an­other of­fi­cial.

The Vedanta spokesper­son said: “Cairn En­ergy plc has also been in touch with us and we have been re­spond­ing to their mails/ let­ters shar­ing our predica­ment in view of the no­tice now is­sued to them post the or­der of the In­come Tax Tri­bunal for pay­ment of tax li­a­bil­ity by June 15, 2017.”

Cairn En­ergy, which is the only com­pany whose as­sets have been frozen for a ret­ro­spec­tive tax de­mand, had pre­vi­ously ap­proached Sebi against Cairn In­dia/ Vedanta Ltd not pay­ing div­i­dend for the last three fi­nan­cial years.

The of­fi­cial said that be­sides the or­der on div­i­dend, Cairn En­ergy is also seek­ing an in­junc­tion from the ar­bi­tra­tion panel against the In­come Tax De­part­ment ini­ti­at­ing pro­ceed­ings to re­cover Rs 10,247 crore in ret­ro­spec­tive tax.

Within weeks of the tax tri­bunal ITAT up­hold­ing the levy of ret­ro­spec­tive tax on the 2006 trans­fer of shares by the UK firm to a newly cre­ated In­dian unit, Cairn In­dia, the de­part­ment had on March 31 is­sued a fresh de­mand no­tice of Rs 10,247 crore and set June 15 as the time to pay the tax, fail­ing which it would ini­ti­ate re­cov­ery pro­ceed­ings.

Cairn En­ergy is con­test­ing the tax de­mand through in­ter­na­tional ar­bi­tra­tion and has not par­tic­i­pated in the amnesty scheme the Govern­ment floated last year, by promis­ing to waive in­ter­est and penalty if the prin­ci­pal tax is paid. Fear­ing that the tax de­part­ment would pro­ceed to take over or sell its resid­ual 9.8 per cent stake in Cairn In­dia (now Vedanta Ltd), con­fis­cate the Rs 1,500 crore of in­come tax re­fund due and $100 mil­lion of div­i­dend in­come af­ter June 15, the Bri­tish firm ap­proached the same ar­bi­tra­tion tri­bunal, seek­ing a stay on the In­dian govern­ment’s ac­tion, they said.

The of­fi­cial said that the tax de­part­ment is con­test­ing the very ju­ris­dic­tion of the panel to give di­rec­tions to a sov­er­eign na­tion. In­dia, of­fi­cials said, is con­test­ing that the tax can­not be ar­bi­trated un­der bi­lat­eral in­vest­ment pro­tec­tion treaties and no in­ter­na­tional ar­bi­tra­tion panel can de­cide on the leg­isla­tive power of In­dia’s Par­lia­ment to frame tax laws.

Cairn has re­sorted to ar­bi­tra­tion un­der the In­dia-uk bi­lat­eral in­vest­ment pro­tec­tion treaty.

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