India pays Rs7,900 crore to Cairn for settling retrospective tax dispute; Vedanta stock in the fast lane

25 Feb 2022 , 01:21 PM

Cairn Energy Plc which is now known as Capricorn Energy PLC has announced that India paid an expected tax refund of Rs7,900 crore and net proceeds of $1.06 billion have been received. On Friday, Vedanta stock was trading higher.

In December 2020, Cairn won an international arbitration case against the Indian Government. The verdict comes in the wake of an arbitration case that the government lost to Vodafone over the retrospective legislation. The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and that compensation was due. The compensation involved a $1.2B arbitration award.

In 2006, Cairn decided to consolidate its Indian assets under a holding company Cairn India. As part of the decision, Cairn Energy transferred shares of Cairn India Holdings to Cairn India which resulted in the transfer of shares in non-Indian companies to an Indian holding company. Further, Cairn divested a 30% stake through an initial public offering (IPO) of Cairn India. Later, Vedanta Plc acquired most of Cairn Energy between 2009 and 2011. However, Cairn UK was not allowed to offload its 9.8% stake in Cairn India to Vedanta. In 2014, Cairn received a tax demand notice from India alleging capital gains earned on the reorganisation.

However, the seven-year-old retrospective tax dispute between the Indian government and Cairn has finally ended.

On Thursday, Cairn the now Capricon in a statement said, “Capricorn is pleased to confirm that the expected Indian tax refund of INR79 billion has now been paid and net proceeds of US$1.06 billion have been received.”

Capricon added, “a circular is expected to be issued in early March detailing the shareholder resolutions required in connection with the proposed shareholder return of up to US$700 million, comprising a US$500 million tender offer and US$200 million ongoing share repurchase programme.”

At around 1.17 pm, Vedanta was trading at Rs361.80 per piece up 7.07% on BSE. The stock was near the day’s high of Rs365.40 per piece.