Cairn Energy, the UK-based oil explorer, is seeking $1bn in compensation from New Delhi after the Indian revenue department barred a sale of the group’s Indian assets because of a .

The compensation claim came as part of Cairn Energy’s filings in an international arbitration case relating to New Delhi’s demand that the group pay $1.6bn in tax.

This is one of several high-profile cases of multinational companies contesting demands from Indian officials for payment of retrospective tax.

Edinburgh-based Cairn Energy’s tax dispute has its origins in a 2006 restructuring of its Indian subsidiaries before the flotation of Cairn India, through which the group tapped its lucrative oil reserves in the state of Rajasthan.

then sold a majority stake in Cairn India to Vedanta Resources for $6.5bn in 2011.

In 2014, the Indian revenue department barred Cairn Energy from selling its residual 10 per cent stake in Cairn India, citing potential tax liabilities. The department issued the $1.6bn tax demand against Cairn Energy last year.

In the arbitration filing Cairn Energy said New Delhi’s January 2014 order stopping the sale of its stake in Cairn India violated India’s investment treaty with the UK, which is supposed to protect against expropriation of assets.

In levelling the $1.6bn tax demand on Cairn Energy, Indian officials cited a .

This was pushed through India’s parliament after the country’s supreme court ruled in favour of Vodafone in its long-running dispute with the revenue department over capital gains tax it tried to levy on the UK telecoms group’s $10.9bn acquisition of Indian mobile operator Hutchison Essar in 2007.

The 2012 law, which essentially overturned the supreme court’s Vodafone ruling, allowed for the reopening of tax investigations of corporate deals dating back to 1962.

In its claim to an international arbitration panel, which is expected to start hearing evidence next year, Cairn Energy seeks an order that India withdraw the $1.6bn tax demand, and provide the group with $1bn in compensation, plus accrued interest, for the financial losses it says it has suffered.

In the event the arbitrators do not make such an order, Cairn Energy is seeking compensation of $5.6bn, which is what it says it would cost the group to comply with the tax demand and cover its other losses.

Cairn Energy, which carries out high risk oil explorations in emerging markets, says it has been hard hit by its inability to sell the 10 per cent stake in Cairn India.

It says the inability to cash out forced it to scale back its global investment plans, and lay off about 40 per cent of its workforce.

When he came to power in May 2014, prime minister Narendra Modi pledged to eliminate what his government had described as the “tax terrorism” started by the previous government on businesses operating in India.

Mr Modi’s administration promised it would not levy any new retrospective tax demands under the controversial 2012 law, though it still remains on the books.