In a major setback, Indian government has lost arbitration to energy giant Cairn under the retrospective tax amendment to the law in a verdict that came late night on Tuesday. India has been asked to pay damages worth Rs 8,000 crore to the UK oil major. The verdict comes three months after India lost arbitration to Vodafone over the retrospective legislation.

The international arbitration tribunal ruled that India's tax claim of Rs 10,247 crore in past taxes over internal reorganisation of Cairn's India business was not a valid demand. In a statement Cairn said the tribunal has awarded damages of USD1.2 billion along with interest and costs.

The Finance Ministry said: "The government will be studying the award and all its aspects carefully in consultation with its counsels. After such consultations, the government will consider all options and take a decision on further course of action, including legal remedies before appropriate fora."

Cairn's claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands and the proceedings were under the registry of the Permanent Court of Arbitration.

Cairn Energy had in 2010-11 sold Cairn India to Vedanta. Post the merger of the two in April 2017, the UK firm's shareholding in Cairn India was replaced by a shareholding of about five percent in Vedanta issued together with preference shares.

Along with attaching its shares in Vedanta, the tax department seized dividends of around Rs 1,140 crore due to it from the shareholdings and set-off a Rs 1,590-crore tax refund against the demand.

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