In January 2014, we received notice from the Indian Income Tax Department (IITD) requesting information relating to the Group reorganisation in 2006. The IITD attached the 10% shareholding in Cairn India Limited, then valued at approximately US$1 billion.
The company received a draft assessment order from the IITD in March 2015 and subsequently filed a Notice of Dispute under the UK-India Bilateral Investment Treaty in order to protect its legal position and shareholder interests.
The company commenced international arbitration proceedings against India in 2015 following the retrospective taxation actions undertaken by the IITD in 2014.
More than five years later on 22 December 2020, the international Tribunal made a unanimous award in favour of Cairn.
The Tribunal found that the Government of India’s actions beginning in 2014, by the previous administration, were in breach of its obligations under the UK-India Bilateral Investment Treaty. Addressing the jurisdiction of the arbitration, the tribunal ruled that the dispute was within the scope of the Treaty and other relevant legal parameters.
It further ruled that the application to Cairn of the retrospective tax amendment introduced by the GoI was “grossly unfair” and in breach of the “Fair and Equitable Treatment" standard of the Treaty.” In a ruling which is final and binding on both parties, it awarded to Cairn damages equal to the enforcement actions taken against it, being US$1.2 billion plus interest and costs. The total now payable and due is now more than US$1.7 billion.
The Tribunal panel stated in its award ruling: “The issue at stake is thus not a matter of domestic tax law; it is rather whether the fiscal measures taken by the State, valid or not under its own tax laws, violate international law.”
Cairn remains in ongoing dialogue with the Government of India on fulfilment of award payment and this engagement continues in parallel with pursuing options of enforcement and monetisation of the Award to safeguard shareholders’ rights.
On 30 March, Cairn announced it had received notice that the GoI had petitioned the Dutch Court of Appeal to set aside the arbitration award issued pursuant to the UK-India Bilateral Investment Treaty which was granted unanimously in favour of Cairn. Cairn has full confidence in its position and will continue to take all steps necessary in order to protect the interests of its shareholders.
To date, Cairn is pursuing the Government of India in multiple jurisdiction, primarily focused on regions with high value assets. Last month the company filed a petition with the courts in the Southern District of New York, seeking judicial confirmation that Air India, the national carrier, can be classed as the alter ego of the Indian state and thereby jointly liable for the arbitral award. The arbitration award has also been registered in many other jurisdictions, including the US, UK, Canada, Singapore, Mauritius, France and the Netherlands.
Cairn in India
Cairn first invested in India in the 1990s when it became one of the first international companies to participate in the country’s oil and gas industry. our investment in India saw the company transform the Ravva oil and gas field, which was producing at c.3,000 barrels of oil per day (bopd) when we took over operatorship in the mid 1990s. Within 18 months, production had increased to 50,000 bopd. Ravva is still in production more than two decades later, having produced more than 365 million barrels of oil equivalent (boe), significantly higher than the original estimates, while production is now expected to extend into a fourth decade.
We subsequently transformed India’s oil and gas industry with the discovery of the Mangala oil field in Rajasthan in January 2004. It was one of the biggest ever hydrocarbon discoveries in India and was quickly followed by the additional Bhagyam and Aishwarya oil discoveries nearby. Today, Mangala, Bhagyam and Aishwarya fields together have gross reserves of ~ 2.2 billion boe.
The company ultimately made more than forty discoveries in the area. We constructed the world’s longest heated pipeline (c.600km) to take the crude from the Mangala Processing Terminal to the coast, with production commencing in August 2009. A decade later, the terminal still provides more than a third of India’s entire crude oil production.
The fields have had a significant economic impact on the local economy. As well as directly creating thousands of skilled jobs, they have stimulated growth in other sectors, meaning that the Barmer district of Rajasthan (home to Mangala, Bhagyam and Aishwarya fields) now boasts an average income 40% higher than the national average and is the second largest contributor to Rajasthan’s GDP. In the last decade, Our discoveries have generated revenues of more than US$20 billion for the state and national government.
The issue is an unfortunate conclusion to a 20-year investment in India where we have been a model corporate citizen and created a legacy asset which is seen as an example of what can be achieved through partnerships and foreign direct investment.