CAIRN Energy is facing fresh complications in India as the country's government appears to have snubbed the company's efforts to resolve a $1.6 billion (£1bn) tax dispute.

A report in India said the government had objected to Edinburgh-based Cairn Energy's application to have the dispute dealt with by arbitration under the UK-India Investment Promotion and Protection Treaty.

The Economic Times said the Indian Finance Ministry claimed tax matters were not covered by the treaty.

Cairn Energy did not comment on the report. The company is understood to be confident the dispute will go to arbitration.

Cairn has always insisted it has paid all tax due in India, where it made bumper finds under the leadership of founder Sir Bill Gammell.

The company was landed with a $1.6bn tax bill by Indian authorities in March in a retrospective move concerning events leading up to the flotation of Cairn India business in 2007.

Cairn has been prevented from selling its remaining holding in the company's former subsidiary in India while the dispute drags on. The stake is valued at around $780 million (£500m).

The latest report may make disappointing reading for Cairn Energy, which has lobbied hard in India in the hope of resolving the dispute.

Separately Simon Thomson, who succeeded Sir Bill as chief executive in 2011, has collected Cairn Energy shares worth around £100,000 under a long term incentive programme.

The company said Mr Thomson had exercised his right to acquire 60,147 shares on Friday under the 2009 LTIP. The shares were awarded in 2012. The awards vested following the expiry of the applicable three-year performance period during which the company's total shareholder return was above the median ranking in the specified comparator group.

Mr Thomson has 572,783 shares in total. These were worth around £980,000 at yesterday's closing price of 170.9p.