Cairn now moves arbitration panel against Vedanta’s dividend freeze

UK's Cairn Energy plc, which had earlier moved an arbitration tribunal in The Hague, Netherlands, against a Rs10,247-crore retrospective tax demand in India, has now moved the same tribunal against billionaire Anil Agarwal-led Vedanta Ltd for withholding its dividend for the last three years despite tax authorities lifting the freeze on its Indian assets.

The three-member tribunal will hear the petition this week despite Income Tax Department  officials advice against Cairn Energy taking up the issue with the arbitration panel.

I-T officials, however, said there is no longer any attachment order and the dividend payment is a matter between Vedanta and the British firm. ''Cairn India/Vedanta approached the tax department, both verbally and in writing, on multiple occasions seeking a written order so that they can continue to withhold dividend due to Cairn Energy. We did not respond to them,'' reports quoted a senior official as saying.

I-T officials said they had lifted the freeze on dividend payment by Cairn India (now Vedanta) on 31 March 2016 when its 281B Order ceased to be in effect. The same has been communicated in writing to the arbitration panel.

Cairn Energy Plc, which sold its Indian subsidiary, Cairn India to London-listed Vedanta in 2011, still holds 9.8 per cent stake in Cairn India but has not been paid shareholder dividend for the last three years totalling about $100 million.

Tax officials have clarified that the provisional freeze on Vedanta making any payments to Cairn Energy either by way of dividend or letting the company sell its residual stake in Cairn India during the pendency of assessment proceedings related to the Rs10,247 crore tax demand raised on 22 January 2014 stads lifted since 31 March 2016.

''After passing of the final assessment order on 25 January 2016, the provisional attachment of these assets was extended up to 31 March 2016, whereupon the order under section 281B expired,'' the official said.

Cairn Energy, however, has not been paid dividend for the past three years, including the two-year pendency of the asset freeze.

Cairn Energy is also seeking an injunction from the arbitration panel against the income tax department initiating proceedings to recover Rs10,247 crore in retrospective tax, a levy that has been upheld by yhe Income Tax Appellate Tribunal (ITAT).

Cairn Energy is contesting the tax demand through the international arbitration and has not participated in the amnesty scheme under which the government offered to waive interest and penalty if the principal tax is paid.

India is contesting that the tax cannot be arbitrated under the bilateral investment protection treaties and no international arbitration panel can decide on the legislative power of Indian Parliament to frame tax laws.