Cairn Energy’s latest salvo in its ongoing dispute with the Indian government is intended to ratchet up pressure on the latter. A few days ago, the company reportedly filed a case in a US district court to enforce the $1.2 billion arbitration award it won against India. On its part, the Centre is yet to disclose how it plans to take this matter forward. However, considering that it has filed an appeal at the Singapore seat of the permanent court of arbitration against the Vodafone order, going by the principle of consistency, it may file an appeal in the Cairn case as well — it has until March 21 to do so. But this would be a mistake. At a time when the government is trying to facilitate greater foreign investment in the country, not abiding by the arbitration ruling would send the wrong signal to the investor community.
The Centre’s contention has been that the matter is not in the domain of the bilateral investment treaty, and that the government has the sovereign right to impose taxes. However, the Permanent Court of Arbitration (PCA) at the Hague had noted that the demand made by the Indian government was in breach of fair treatment under the UK-India bilateral investment treaty. The tribunal’s order also highlighted the criticism by BJP leaders of retrospective amendments and international disputes — Arun Jaitley, for instance, had likened them to “tax terrorism”. Considering Cairn’s latest move, the government now runs the risks of its assets in other countries being seized. There is international precedent for enforcing such awards. In 2018, US oil firm ConocoPhillips seized assets (such as cargoes and terminals on several Dutch Caribbean islands) of the Venezuelan state-owned oil company to recover the $2 billion compensation awarded to it in arbitration, forcing the Venezuelans to subsequently announce that they were going to make amends.
Considering that in its 2014 election manifesto, the BJP had accused the UPA government of unleashing tax “uncertainty” in the country, a decision not to abide by the arbitration award will not be in line with its promise of facilitating a “non adversarial and conducive tax environment”. On Thursday, Simon Thomson, Cairn Energy’s CEO, met with government officials in order to bring this issue to a close. The government should accept the arbitration order instead of prolonging this issue, and bury the issue of retrospective taxation once and for all.