The government will be studying the award and all its aspects carefully in consultation with its counsels, it said.
“After such consultations, the government will consider all options and take a decision on further course of action, including legal remedies before appropriate fora,” the finance ministry said.
The government’s statement followed that from Cairn Energy Plc which said that it had won the arbitration against the Indian government over a tax dispute arising from demand of $1.2 billion from tax department on listing of Indian operations back in 2007.
The oil-major said that the tribunal had announced the award unanimously following which the Indian government will have to pay the UK-based company damages of $1.2 billion and interest.
“The tribunal established to rule on its claim against the Government of India has found in Cairn’s favour,” Cairn Energy Plc said in a statement in response to a query from ET.
“The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and has awarded to Cairn damages of US$1.2billion plus interest and costs, which now becomes payable,” the company added.
The development comes close on the heels of Vodafone Group winning a separate arbitration on retrospective amendment to tax laws. India is yet to challenge the arbitration award.
In the case of Cairn Energy, the government can challenged the award as well.
“It is likely that the Indian government will review the arbitral award in detail before deciding on the next steps and perhaps prefer an appeal,” said Ravi S. Raghavan, tax counsel at Majmudar & Partner law firm.
However, experts added that the award by the tribunal was not likely to bring an end to all tax litigation around the indirect share transfer issue.
Cairn’s claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands and the proceedings were under the registry of the Permanent Court of Arbitration.
Cairn Energy had filed a dispute in 2015 against the demand raised by the tax department of Rs 10,247 crore relating to re-organisation of the group in 2006.
The income tax department had then said that Cairn UK Holdings, a fully owned subsidiary of Cairn Energy, had made capital gains of over Rs 24,000 crore before the public listing of Cairn India. They said that Cairn Energy effectively held 69% of Cairn India.
In 2011, Cairn India was sold to Vedanta Group, except for 9.8% stake. The residual stake sale was barred by the income tax department, and dividend payments by Cairn India to Cairn Energy were also frozen.