THE Indian government appears determined to play tough in its dispute with oil and gas firm Cairn Energy, which could face a further long wait for resolution of an affair which has been dragging on since 2014.

Edinburgh-based Cairn Energy said it is set to record a $216m (£162m) write down of the valuation of its holding in India’s Vedanta after the country’s government sold off some of its shares in the natural resources firm.

The government effectively took control of Cairn’s holding as it tried to enforce a $1.6bn tax claim against the company.

Cairn said it was possible the government may sell off more of the company's remaining three per cent holding in Vedanta leaving it facing the prospect of making further provisions.

Cairn is vigorously contesting the claim. The company insists it has paid all taxes due in India, where it made bumper finds under founder Sir Bill Gammell.

It is seeking $1.3bn damages from the Indian government as the two sides prepare for the dispute to be decided by an international arbitration panel in the Hague.

The hearings are expected to start on 20 August and to last for two weeks.

The Arbitral Tribunal will issue a binding and internationally-enforceable award after concluding its deliberations.

“The drafting and issuance of such an award typically takes several months,” cautioned Cairn.

“In this case, taking into account the delays already suffered by Cairn, the Tribunal has stated that it will endeavour to issue its award as expeditiously as possible.”

The Indian government’s action sends a clear signal it does not intend to back down in the dispute, in spite of facing severe criticism in some quarters.

The government is also embroiled in a tax dispute with Vodafone dating from 2012, which has gone to arbitration.

Critics say the disputes could frighten off potential investors from the country.

The dispute with the Indian government has taken up valuable management time and cost Cairn millions in legal fees over the years.

However, the company is in a much stronger position than it was in the early stages of the dispute.

Cairn is generating significant amounts of cash after starting production last year from North Sea fields it bought into under the leadership of Simon Thomson, who succeeded Sir Bill in 2011.

Mr Thomson has emphasised the company could make significant payouts to investors if it won the Indian dispute.

In November 2015 Mr Thomson accused the Indian government of forcing Cairn firm to shed around 40 per cent of its workforce because of the tax claim, which he said was spurious.

He said then that Cairn had been required to axe jobs and sell off assets to save cash after the company found itself unable to sell the remaining interest in its former subsidiary in India.

The Cairn India business owned the fields the group found under Sir Bill.

Vedanta bought a controlling stake in Cairn India for $5.4bn in 2011. It acquired the remainder of the business in April. Cairn was left with a 5% stake in Vedanta.

The company’s holding in Cairn India was worth around $1bn when the dispute started in 2014. This concerns events leading up to an initial public offering of shares in Cairn India in 2006.

The Indian government has seized $155m dividends due to Cairn and withheld a $234m tax refund in respect of another matter.

Cairn’s stake in Vedanta was worth $1.1bn at December 31.

The $216m provision would trigger a non-cash accounting charge.

Cairn Energy shares closed up 5.6p at 238p.