London, Feb. 23 (PTI): Scottish oil and gas explorer Cairn Energy Plc has sacked nearly 40 per cent 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 the income tax department has placed restrictions, pending the 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 accounts for 30 per cent of domestic production.

In 2006, it transferred the Indian assets into a subsidiary, Cairn India Ltd, which was listed on the stock exchanges. This was approved by the RBI, FIPB and Sebi. In 2011, it sold a 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 2012.

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 the 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 operations in India, it has been compliant with and paid applicable taxes under the legislation in force at the time," the source said.