A US-based investment giant has hit out at the Indian Government over its efforts to extract alleged tax arrears from Scottish oil and gas firm Cairn Energy.

India’s tax authorities are pursuing the Edinburgh-based company for $1.6 billion in taxes said to be owed in connection with the firm’s Indian division.

Cairn Energy continues to hold a $526 million stake in its Cairn India spin-off, but cannot sell it until the tax dispute is resolved.

The company filed an arbitration notice in March, but the Indian Government has allegedly refused to join, saying that tax matters are not subject to arbitration.

Hotchkis & Wiley Capital Management, one of the leading investors in Cairn Energy, has now called for the tax bill to be dismissed.

Stan Majcher, portfolio manager at the firm, said: “Cairn clearly followed the law, to the point that its reorganisation nine years ago was approved by the government of India.

“When the government changes the rules after the fact, it violates the most basic rules that support investment and growth.”

He added: “Repudiating retrospective laws and adopting international norms on taxation would allow the international investment community to see that the Modi government is delivering on its pre-election promise to eradicate so called tax terrorism.”