CAIRN ENERGY – AIR INDIA DISPUTE

CAIRN ENERGY – AIR INDIA DISPUTE

Subject: Economy

Context: Recently, the British oil company Cairn Energy Plc is suing Air India in New York to seize its assets to enforce the $1.2 billion arbitration award it won against the Indian government in a retrospective tax dispute.

Concept:

Cairn Energy-Air India dispute

• In 2020, a three-member international arbitral tribunal had ruled an unanimous verdict that the Indian government was in breach of the guarantee of fair and equitable treatment.
• It was against the India-UK bilateral treaty and that the breach caused a loss to the British energy company.
• It awarded Cairn $1.2 billion in compensation that India was liable to pay.
• The Cairn has moved a court in the South District of New York against Air India and India has also challenged the arbitration award in Netherlands.

Retrospective tax demand

• The arbitration was initiated by Cairn, similar to what Vodafone did for a breach relating to India’s 2012 retrospective amendments to tax laws.
• Retrospective Taxation is a combination of “retrospective” and “tax” where “retrospective” means taking effect from a date in the past and “tax” refers to a new or additional levy of tax on a specified transaction.
• It effectively allows a country to pass a rule on taxing certain products, items or services, and deals, and charge companies from a time before the date on which the law is passed.

Permanent Court of Arbitration (PCA)

• It was established in 1899 to facilitate arbitration and other forms of dispute resolution between states.
• It is an intergovernmental organization dedicated to serving the international community in the field of dispute resolution.

The PCA has a three-part organizational structure consisting of:

• Administrative Council that oversees its policies and budgets,
• Panel of independent potential arbitrators known as the Members of the Court, and
• Secretariat, known as the International Bureau, headed by the Secretary-General.