Cairn wants compensation from India to make up for the decrease in the value of its holding due to a 10,247 crore ($1.5 billion) tax demand from the Indian Income Tax Department (ITD).
"International arbitration proceedings to resolve the retrospective tax issue in India have now formally commenced following the agreement between Cairn and the Government of India on the appointment of a panel of three international arbitrators under the terms of the UK-India Investment Treaty," said Simon Thomson, Chief Executive, Cairn Energy.
The government has stopped Cairn Energy from selling its 9.8% stake in Cairn India, and since the decision the value of Cairn Energy’s stake has plummeted from $1 billion to $384 million.
Laurent Levy, an arbitrator based in Switzerland, has been appointed as the presiding officer of the arbitration panel.
Cairn has named former Bulgarian minister Stanimir Alexandrov as its arbitrator in the dispute, with Singapore-based lawyer J Christopher Thomas representing India.
Cairn is confident in its case, which will be fought under the UK-India Bilateral Investment Treaty, it said in a statement.
“In addition to resolution of the retrospective tax dispute, its statement of claim to the arbitration panel will seek damages equal to the value of Cairn's residual shareholding in Cairn India Ltd at the time it was attached (approximately $1 billion)," the statement added.
