India pleads for stay in Cairn arbitration matter

India pleads for stay in Cairn arbitration

 

 

An international arbitration panel at The Permanent Court of Arbitration at The Hague in the Netherlands, has rejected India’s income tax department’s plea to stay the proceedings invoked by British oil explorer Cairn Energy Plc against a Rs10,247 crore retrospective tax notice.

Livemint reports that the Indian Government sought the stay on the basis that it has been spending significant resources on the same matter in two arbitration proceedings at different fora, and that the other proceeding which had been initiated by Vedanta was at an advanced stage.

The Statement of Claim filed by Cairn in 2016 stated that the seizure of $1-billion worth of Cairn India shares under the retrospective amendment was in breach of the UK-India Investment Treaty obligations.

The controversy regarding the retrospective Amendment made to the Income Tax Act through Finance Act 2012 relating to the Cairn Case, are, inter alia:

Widely worded amendments to Section 9 that capital gains generated from share transaction between two non-resident entities resulting in indirect transfer of assets lying in India, would be taxable with effect from 1962 (the year of enactment of the Indian Income Tax Act). The effect of the amendment was that many transactions, which would otherwise not be considered as taxable,  capital gains were exposed to this retrospective change. This, now acts as a powerful deterrent for International Companies decisions on potential investment in India due to the unpredictability of Government actions in the future

A brief summary of the Cairn and Vedanta cases against the Indian Government in relation to the retrospective tax amendment:

In 2006, UK-based Cairn UK Holdings (Cairn Energy) sold its shares in Cairn India Holdings (a Jersey based company), which owned 9 subsidiaries in India, to a new company Cairn India (formerly subsidiary of Cairn UK Holdings). Cairn UK sold the majority stake in Cairn India to London-listed Vedanta Resources in 2011 and retained 9.8 per cent shareholding in the company.

In January 2014, the Income Tax (I-T) department carried out a survey at Cairn India and issued a 10,247-crores tax notice to Cairn UK Holdings (former parent company) under the retrospective amendment of 2012 on the grounds that capital gains tax was to be paid for the 2006 transaction involving indirect transfer of assets situated in India.

Further, in April 2014, the I-T department made a tax demand of Rs. 20, 495 crores from Cairn India.

In April 2015, Cairn India filed proceedings in the Delhi High Court against the tax demand I-T Department, and Vedanta Resources sought resolution of the dispute under the UK-India bilateral investment protection treaty through Arbitration and the seat of the arbitration panel was set in Singapore.

Subsequently, Cairn UK Holdings challenged the Final Assessment Order of the I-T Department, at the Delhi-bench of Income Tax Appellate Authority (ITAT), contesting this demand on the grounds that the retrospective amendment was bad in law and the 2006 sale of shares was an internal re-organisation of its India operations and did not get any capital gains out of the transaction.

Simultaneously in 2015, Cairn UK Holdings filed a Notice of Dispute under the UK-India Investment Treaty and the arbitration commenced in January 2016. Cairn UK has sought $1.05 billion in compensation for the loss of value its 9.8 per cent shareholding in its former subsidiary Cairn India following Income Tax Department raising the tax demand in January 2014 and that the expropriation of company’s property without proper compensation, denial of equitable treatment in respect of its investments and its right of free transfer of funds.

In 2016, the Finance Ministry had offered a direct tax dispute resolution scheme offering to waive interest and penalty if the principal tax amounts involved in disputes were paid,  Cairn India declined.

In March 2017, ITAT confirmed the tax demand including the payment of interest amount, against Cairn India (validating the amendment) and at the same time, both the former and current parent companies are fighting the dispute at different arbitration panels seeking protection of their respective positions.

Both companies allege that the retrospective tax legislation passed was a violation of protections accorded under the Bilateral Investment Treaty, and constituted a serious impingement of the protections therein. It is claimed that the ramifications of these decisions will have a great impact on not only Indian Arbitration but also in India’s trade relations with the UK as well as other countries

Read the article on http://www.livemint.com/Industry/jid8tU5o1PpqgkhJgqy4mI/Cairn-arbitration-International-panel-rejects-Indias-deman.html

Read more on the 2012 amendment at http://www.indianeconomy.net/splclassroom/149/what-is-the-controversy-related-to-retrospective-taxation-in-india/

Read the case progress on http://www.thehindubusinessline.com/companies/tax-row-vedanta-names-james-spigelman-to-represent-its-case/article8988413.ece

Find the Finance Bill 2012 here and the relevant amendment at Page 9 http://164.100.24.219/BillsTexts/LSBillTexts/asintroduced/Finance%20Bill,%20Eng..pdf

Weekly Indian Law & Legal Sector Updates 29th April 2017

Our weekly round up on Indian legal developments and the law.

 

Poor English results in SC setting aside Himachal HC order

Indian lawyers updates

The Tribune reported that an order of Himachal Pradesh High Court was set aside by the Indian Supreme Court as it was incomprehensible. The order of the High Court was remanded back to it for re-drafting. The message to Indian lawyers and the judiciary: keep it simple. 

Read the full article on The Tribune

http://www.tribuneindia.com/news/nation/poor-english-forces-sc-to-set-aside-himachal-hc-order/393851.html

 

 

The right to privacy & Aadhar Card issue needs to be settled by court: Attorney-General

Livemint reported that India’s Attorney General’s (A-G) comments on the legal issues of Aadhaar card. The A-G addressed the importance of Aadhaar in  social welfare schemes, the right to privacy, the criticism of Aadhaar and collection of biometrics and  the role of the Unique Identification Authority of India.

Read more about the interview   on Livemint  http://www.livemint.com/Politics/k8iqZg5Yxa6q1cfYKLSgmK/The-larger-question-on-privacy-needs-to-be-settled-by-court.html

 

 

Indian Goods & Service Tax reform “an act of courage”: IMF chief

India Today reports that the IMF Chief Christine Lagarde appreciated the Indian Government’s GST reform aimed at the creation of a uniform market by substituting the local levies with a federal tax regime. The political will of the present government in bringing the Indian bankruptcy law and demonetization was also acknowledged.

Full Article on India Today http://indiatoday.intoday.in/story/gst-reform-an-act-of-courage-imf-chief/1/934226.html

 

 

Corporate Affairs Ministry amends Indian Companies Act and adds new rules

Indian Corporate and Company law sees a major shift with the newly notified Section 234 of The Companies Act 2013. This widens the scope and ambit of mergers between Indian and Foreign companies. The Business World reported the change in law and its implications on the Indian Companies and the Corporate sector.

Find the Notification on http://www.mca.gov.in/Ministry/pdf/section234Notification_14042017.pdf  and the Amendment to the rules on http://www.mca.gov.in/Ministry/pdf/CompaniesCompromises_14042017.pdf

Read about the impact on Business World http://businessworld.in/article/Corporate-Affairs-Ministry-Tweaks-Companies-Act-Adds-New-Rules/21-04-2017-116794/

and in  The Economic Times
http://economictimes.indiatimes.com/news/company/corporate-trends/india-eases-rules-to-allow-merger-of-indian-companies-with-foreign-firms/articleshow/58249903.cms

 

 

WhatsApp Privacy Policy: Govt states to SC its Working on a Data Protection policy. 

Bloomberg Quint reported that the Attorney General of India (A-G) requested the Supreme Court to postpone the hearing of the Whatsapp privacy policy matter as the Telecom Regulatory Authority of India (TRAI) is of formulating a comprehensive data protection framework, which will be finalised in a few months and could potentially affect the case.

Read a brief history of the matter on Bloomberg Quint https://www.bloombergquint.com/technology/2017/04/18/whatsapp-privacy-policy-government-tells-supreme-court-its-working-on-data-protection

 

 

Trump order a future challenge for Indian immigration in the IT Sector 

The latest executive order of the US Government concerning immigration and the H-1B visa to further the ‘Hire American’ Policy and its impact on Indian IT firms’ hiring scheme in future. The Times of India report focuses on the immediate effect of the order and the profitability of the industry.

Full article on The Times of India http://timesofindia.indiatimes.com/business/india-business/trump-order-a-future-challenge-for-indian-it/articleshow/58273100.cms

 

 

Indian Arbitration: CJI advocates ” zero govt. role”  in arbitration process

The Hindu reported Justice J.S. Khehar, the Chief Justice of India (CJI), who delivered a speech at the inaugural ceremony of the Engaging Asia Arbitration Summit. The CJI spoke on the increasing potential of India in International Commercial Arbitration in the continent and the promotion of Alternative Dispute Resolution (ADR) methods by the government and the judiciary.

Find the full article on The Hindu on this link:  http://www.thehindu.com/news/national/india-becoming-hub-of-international-arbitration-cji/article18189439.ece

 

 

India and the European Union continue talks and trade 

The Hindu reported the visit of Federica Mogherini, High Representative of the European Union to India. It reported that this will boost ties between India and EU which were impacted by the on going Italian Marines issue.  It also reported a possible relaunch of ‘Joint working groups’ in the sector of Science & Technology and Defence.

To read more, : http://www.thehindu.com/news/national/india-eu-likely-to-resume-talks/article18161848.ece

 

 

Mondelez India bribery case may see top guns face off in the US

The Economic Times reported that a team from the US Department of Justice may visit Mondelez India to investigate the 7-year-old bribery and corruption case against Mondelez Inc under the USForeign Corrupt Practices Act regime, against each other, since one of them left the department and has been hired by Mondelez to fight the case.
Read the details of the case on The Economic Times http://economictimes.indiatimes.com/news/company/corporate-trends/probe-into-seven-year-old-mondelez-india-bribery-case-likely-to-conclude-by-month-end/articleshow/58287616.cms

 

 

Eight women’s panels seek stringent law on sham marriages by NRI’s

WebIndia123 reported that Women Commissions from 8 States of the country got together and insisted on a stricter law on the issue of sham marriages by Non Resident Indian bridegrooms at a national seminar organised jointly by the Punjab State Commission for Women and the National Commission for Women.

Find the full article on Webindia123 http://news.webindia123.com/news/Articles/India/20170420/3096774.html

 

 

Outsourcing Woes: Indian IT firms facing more US lawsuits with changing business environment

There is a worrying trend in  lawsuits against Indian IT firms over alleged breaches of contract and delayed service delivery in the outsourcing and IT sectors.  This report by the Business Standard analyses the effect of changing dynamics on business leading to the increase in lawsuits against Indian Companies and Corporates in this sector.

Read the full article on Business Standard http://www.business-standard.com/article/companies/indian-it-firms-face-more-lawsuits-with-changing-business-environment-117042100453_1.html

Italy Marines case: Italy send back envoy to India considered international arbitration

Italian defence Minister Federica Mogherini Thursday said Italy can send its ambassador back to India to assist lead the case of its two marines — The marines accused by Indian police suspect of killing two Indian fishermen in 2012 — towards international arbitration as bilateral efforts have failed. Continue reading

French firm Louis Dreyfus Armateurs give international arbitration notice on India

Louis Dreyfus Armateurs, a French shipping services and maritime transportation company, has served a notice for international arbitration to India after the firm pulled out from Haldia Port venture two years ago.

The company has invoked bilateral investment promotion and protection agreement (BIPPA) and the notice was served on March 31. Continue reading