LONDON: Scottish oil and gas explorer, Cairn Energy plc has sacked nearly 40% of its employees as it faces capital constraints on not being able to sell $1 billion worth of stake, following a tax dispute in India. Cairn has laid off 100 employees across the board as a cost cutting measure, company sources said.

The company has not been able to sell its 9.8 per cent stake in Cairn India to raise funds for its exploration programme as income tax department has placed restrictions, pending resolution of a tax dispute.

"We didn't have access to capital and so had to do voluntary redundancy," a source said, adding "with this we have completed reorganisation of the company."

Cairn Energy, which was a long-term investor in India between 1994 and 2011, gave the country its largest onland oil discovery in Rajasthan which today accounts for 30 per cent of the domestic production.

In 2006, it transferred Indian assets into a subsidiary, Cairn India Ltd, which was listed on stock exchanges. This was approved by the RBI, FIPB and SEBI.

In 2011, it sold majority stake in Cairn India to Vedanta Group but continued to hold a residual minority interest.

In January last year, Cairn Energy received a notice from the income tax department citing the 2012 retrospective tax legislation and requesting information on the Group's reorganisation.

The company faces a potential tax demand on an alleged Rs 24,500 crore of capital gains it made when in 2006 it transferred all its India assets to Cairn India.

Sources said Cairn was encouraged by finance minister Arun Jaitley 's statement in July while presenting the Budget for 2014-15 that no new tax demand will be raised using the controversial retrospective tax law introduced in 2008.

While the I-T department has so far not raised a tax demand on Cairn Energy, it has ordered Cairn India not to allow the transfer of UK firm's residual stake. It also ordered that the shares cannot be pledged or mortgaged.

"Cairn has re-confirmed with its advisers that throughout its history of operating in India the Company has been fully compliant with and paid applicable taxes under the legislation in force at the time," the source said.

The income tax department had, in a January 22 order, held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places like Jersey, a tax-haven, to the newly incorporated Cairn India in 2006.

It, according to the I-T Department, received Rs 26,681.87 crore for the asset transfer against its entire investment of Rs 2,178.36 crore in the India business. STS