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Final whistle in the showdown?

Are you a shareholder of Cairn Energy? Well, then you can expect your bank account to weigh a tad bit heavier soon


Why?


The British giant promised to return up to $700 million to shareholders through a special dividend and a share buyback. This will happen after its long-standing dispute with the Indian Government comes to an end.


But wait, from where did India come in? Is India going to give the money to Cairn?
We have all the deets. Let’s drill in


Final whistle in the showdown?



What’s the backstory?


Like every high paced movie about financial highs and lows, this tale too has an interesting history. So let’s turn back time to the good old days. Okay, not good old, but yeah


In 2012 the Indian Government had introduced what is called “Retrospective Tax”. This move enabled the govt to tax companies for certain activities that went back as far as 1962. So yeah they could tax “retrospectively”.


Now, let’s go back a little more. In 2006 Cairn had undergone a restructuring while preparing for an IPO of Cairn India. By 2011, Cairn Energy had sold its majority stake in Cairn Indian to Vedanta Resources for USD 8.7B. In 2015, the Indian government stated that Cairn had made a capital gain of INR 24k crore while restructuring and the govt. slapped them with a draft tax assessment of INR 10,247 crore. Wow, that’s a lot of money


Needless to say, Cairn Energy wasn’t pleased with this and they proceeded to file a dispute In the International Court of Justice and several other courts as well. In 2020 a Dutch court ruling ordered the Indian Government to pay Cairn damages worth $1.2 billion. This decision was challenged by India and things started to heat up between the two parties


Cairn wasn’t the first one


Before Cairn there was another company that had to face a similar fate & that company is Vodafone. In fact, it was India’s spat with Vodafone that led to the emergence of “Retrospective Tax”.
So what’s the deal with Vodafone?


Vodafone had acquired Hutch for an $11 billion deal by acquiring the shares of an overseas subsidiary company in 2007. This deal was very profitable for Vodafone and it was raining money for them. However, the government wasn’t pleased and stated that the telecom giant owed  INR 22,100 crores including taxes and penalties. Touche


However, Vodafone was having none of it, they went to court and won the case against the Indian Government. However, post the loss, in an almost revenge like move, the Indian Government introduced the “ Retrospective tax” which paved the way for its dispute with Cairn a few years down the line. 


What changed?


From the looks of it, it seems like Cairn and the Indian Government don’t see eye to eye. But, there’s good news. The tide has finally turned. The Indian government has introduced an amendment that calls for burying the controversial retrospective Tax.


Also, the government has assured that it would refund the money that it had collected from this levy to parties like Cairn and Vodafone.


This move served as a peacemaker between Cairn and the Indian government because boy, things were getting heated up. Cairn has been pursuing options to seize Indian assets overseas as a means to recover the money that the Indian government owed as part of the court ruling. But with India’s promise of dispute settlement, Cairn looks to drop its ambition. Phew!


The move to repeal Retrospective Tax has been lauded by most circles. It is being seen as a reflection of India’s commitment to building a conducive business environment.


Looks like the final whistle in the showdown between India and Cairn has been blown and it is going to be about friendship and cooperation from now on. Fingers crossed


P.S. This announcement by Cairn was followed by a hike in its share price


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