Summary

I. INTRODUCTION

1. The present dispute arises out of tax measures applied by the Government of India to certain transactions undertaken in 2006 by the Claimants (the "2006 Transactions") in and around the time of their corporate reorganisation and the listing of a newly incorporated subsidiary, Cairn India Limited ("CIL"), on the Bombay Stock Exchange (the "BSE").

2. The tax measures were applied to certain share transfers following an amendment made in 2012 to Section 9(1)(i) of the Income Tax Act 1961 (the "ITA 1961" or "ITA") (the "2012 Amendment"). The Claimants maintain that the corporate reorganisation and the initial public offering (the "IPO") were at all times conducted with due adherence to the then-applicable Indian tax laws, and that by applying retroactively the 2012 Amendment to the 2006 Transactions, and subsequently taking enforcement measures against Cairn's investments, the Respondent breached its obligations under the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Promotion and Protection of Investments (the "UK-India BIT", the "Treaty", or the "BIT"). Cairn claims that the Respondent's actions have caused them significant damage.

3. The Respondent denies that the 2012 Amendment and the tax measures applied to the 2006 share transfers breaches the UK-India BIT. To the contrary, the Respondent argues that these transactions were taxable under Indian law even without the 2012 Amendment. In particular, the Respondent contends that the Supreme Court of India took an unduly formalistic approach to the "source" rule embodied in Section 9(1)(i) of the ITA (when it should have taken a purposive approach consistent with long-standing authority dating back at least to the 1940 decision of the Judicial Committee of the Privy Council in the Rhodesia Metals case) and, moreover, that the Claimants' corporate reorganisation and IPO were merely an elaborate guise to avoid paying tax in the first instance, and were in any event taxable in India in accordance with other provisions of Indian law. Accordingly, the Respondent alleges that Cairn owes approximately US$ 1.6 billion in capital gains tax and additional amounts accrued in interest and penalties following the Claimants' corporate restructuring. Consequently, the Government of India has taken certain enforcement measures against the Claimants and has proceeded with the forced sale of the Claimants' remaining assets in India.

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X. DECISION

2032. For the foregoing reasons, the Tribunal:

1. DECLARES that it has jurisdiction over the Claimants' claims and that the Claimants' claims are admissible;

2. DECLARES that the Respondent has failed to uphold its obligations under the UK-India BIT and international law, and in particular, that it has failed to accord the Claimants' investments fair and equitable treatment in violation of Article 3(2) of the Treaty; and finds it unnecessary to make any declaration on other issues for which the Claimants request relief under paragraph 2(a), (c) and (d) of the Claimants' Updated Request for Relief.2598

3. ORDERS the Respondent to compensate the Claimants for the total harm suffered by the Claimants as a result of its breaches of the Treaty, in the following amounts:

a. US$ 984,228,274.00 for the net proceeds that would have been earned from the planned 2014 sale of CIL shares, plus interest at a rate of US$ 6- month LIBOR plus a 6-month margin of 1.375%, compounded semi- annually on the net proceeds, from the following dates and until full payment thereof:

i. For the US$ 64,708,741.00 in lost net proceeds incurred in January 2014, pre-award interest from 31 January 2014;

ii. For the US$ 303,352,155.00 in lost net proceeds incurred in February 2014, pre-award interest from 28 February 2014;

iii. For the US$ 313,076,958.00 in lost net proceeds incurred in March 2014, pre-award interest from 31 March 2014;

iv. For the US$ 191,695,557.00 in lost net proceeds incurred in April 2014, pre-award interest from 30 April 2014;

v. For the US$ 111,394,863.00 in lost net proceeds incurred in May 2014, pre-award interest from 31 May 2014;

The Tribunal DENIES the Claimants' request for US$ 230,868,360.00 for the loss of the exemption from UK corporation tax;

b. US$ 240,645,158.81 for the withheld tax refund due with respect to AY 2012-13 (i.e., share sales to Vedanta), plus interest at a rate of US$ 6- month LIBOR plus a 6-month margin of 1.375%, compounded semi- annually from 30 June 2017 until full payment thereof; and

c. US$ 7,946,710.55 for the withheld tax refund due with respect to AY 2010-11 (i.e., share sales to Petronas), plus interest at a rate of US$ 6- month LIBOR plus a 6-month margin of 1.375%, compounded semi- annually from 30 June 2017 until full payment thereof;

4. DECLARES that the amounts awarded under paragraphs 3(a) and 3(c) above have been calculated on a net-of-Indian-tax basis, and that, accordingly, India may not deduct taxes in respect of payment thereof. The Tribunal DENIES this request for relief with respect to the amounts awarded under paragraph 3(b) above;

5. DECLARES that the tax demand against the Claimants in respect of AY 2007- 08, as set forth in the FAO (the "Demand") is inconsistent with the Treaty and the Claimants are relieved from any obligation to pay it, and ORDERS the Respondent to neutralise the continuing effect of the Demand, by permanently withdrawing the Demand and refraining from seeking to recover further the alleged tax liability or any interest and/or penalties arising from this alleged liability through any other means. The Claimants' request under para. 6(b) of their Updated Request for Relief is therefore rendered moot;

6. DECLARES that, as paragraph 6(b) of the Claimants' Updated Request for Relief has been rendered moot, the Claimants' request at paragraph 7 of their Updated Request for Relief (for a declaration that the Respondent is liable to compensate the Claimants for UK corporation tax paid by the Claimants on amounts awarded under Paragraph 6(b) of their Updated Request for Relief, as well as the Claimants' request for an order to pay into an escrow account an amount necessary to meet the estimated UK corporation tax due under Paragraph 6(b)) has likewise been rendered moot;

7. DECLARES that the Respondent's arguments on unlawful tax avoidance and Section 2(47)(vi) of the ITA are not found to be grounds for the Demand and, in any event, are not substantiated on the merits; and

8. ORDERS the Respondent to pay the Claimants' costs of arbitration and legal representation in connection with these arbitration proceedings, in the following amounts:

a. US$ 2,005,700.42 as reimbursement for the Arbitration Costs; and

b. US$ 20,389,413.97 towards their legal costs incurred in the arbitration proceedings.

Seat of arbitration: The Hague, the Netherlands Date: 21 December 2020
[signed]
Mr Laurent Lévy (Presiding Arbitrator)
Mr Stanimir A. Alexandrov
Mr J. Christopher Thomas QC