Govt may go in for legal challenge to Vodafone, Cairn arbitration outcomes

New Delhi The Indian government may mount a challenge against the arbitration awards passed against it over retrospective taxation levy on Cairn Energy and Vodafone Group.

Sources privy to the development said that as both the arbitration cases have gone against the government and the Cairn Energy award also makes the government liable for damages, the order may be challenged at appropriate fora.

The government was waiting for outcome of the arbitration initiated against it for levy of over Rs 10,000 crore retrospective tax on Cairn Energy before finalising its stand on a similar tax dispute case with Vodafone Group where an international arbitration court has ruled against it and in favour of the telecom company.

A Finance Ministry statement on Wednesday (after the Cairn Energy arbitration order) said that it will be studying the award and all its aspects carefully in consultation with its counsel and then consider all options and "take a decision on further course of action, including legal remedies before appropriate fora".

In the Cairn Energy case, the international arbitration tribunal ruled that India's tax claim of Rs 10,247 crore in past taxes over internal reorganisation of Cairn's India business was not a valid demand.

In a statement, Cairn said that the tribunal has awarded damages of $1.2 billion along with interest and costs.

The development came as a major setback for the Indian government after Vodafone Group Plc had won an international arbitration case against the Indian government in September.

Sources said that the government wanted to take a uniform stand challenging arbitration orders in both the cases so it waited for the outcome in Cairn Energy tax dispute case. Now as things stand where it is, sources said, necessary legal challenge would be mounted in both the case after further consultations.

As reported by IANS earlier, thee government was evaluating options on its loss in arbitration case against Vodafone Group over retrospective tax demand of more than Rs 20,000 crore.

The options included bringing a new law to withdraw the 2012 amendment to settle its tax dispute with Vodafone after the Permanent Court of Arbitration (PCA) at The Hague ruled in favour of the company.

The other options, sources said, was to look at challenging the PCA award in its entirety or confining the challenge to sovereign immunities as claimed by Vodafone Plc under the India-UK Bilateral Investment Protection Agreement (BIPA) and the Netherlands-India Bilateral Investment Treaty (BIT).

Sources said that the government was looking at all options, taking view on which move would be the best course that settles the dispute once and for all, along with limiting the loss to the exchequer, if it is to be incurred.

Now with clarity emerging in both the cases, legal challenge looks the suitable outcome but alternate options would also be explored.