THE chief executive of Cairn Energy, Simon Thomson, has called for a speedy resolution to a $1.6 billion (£1bn) tax dispute in India that he said had caused big problems for the firm and rattled investors.

Mr Thomson said the Indian government should join the arbitration process Edinburgh-based Cairn hopes will end a stand off that has dragged on since January last year.

The Indian Government slapped a retrospective tax demand on the company then concerning events leading up to the flotation of its former Indian subsidiary in 2007.

"Our expectation is that the government responds quickly to send a message to the international investor community that it is for resolving tax issues through the judicial progress quickly," Mr Thomson told the Press Trust of India news agency.

He added: “Cairn has sold assets and cut its workforce by 40 per cent and international investors have suffered, that's why a move to go to arbitration can help restore confidence."

Cairn, which made bumper finds in India, has been prevented from selling the company’s remaining 10 per cent stake in its former subsidiary in India while the dispute continues. With the stake valued at around $760m, the restriction has deprived Cairn of cash it could use to fund activities in other areas such as West Africa.

The dispute has weighed on Cairn’s share price and heightened concern among international investors about the risk of investing in India.

Referring to events leading up to the flotation of Cairn India, Mr Thomson noted: "What we have done is within our legal rights and following the law. Our reorganisation had been approved by several authorities in India. We have done absolutely the correct thing. We paid all taxes and dues."

Cairn sold a 10 per cent stake in the Catcher field in the North Sea to Dyas for up to $182m last September.

Last year Cairn axed the jobs of around 90 employees and contractors following a restructuring.