Half the funds are for unpaid tax, and as much again are said to be due in interest charges.

Vedanta has just filed a writ petition in the Delhi High Court against seeking of the order passed by the tax authorities be quashed.

It argues that the assessment from the Indian Income Tax Department related to a decision to amend the Indian Income Tax Act 1961 in 2012 that imposed retrospective tax on various prior transactions.

Vedanta says if it had to pay the tax, which is about one-third of Cairn India's market capitalisation, it would have serious consequences for the company's future.

Scotland's Cairn Energy, which sold a controlling 59.9% interest Cairn India to London-listed Bombay-based Vedanta Resources in 2010 for almost $9 billion, and which is trying to dispose of its remaining 10% share, has also received a tax demand of more than $US1.6 billion.

Both companies have filed a notice of dispute under the UK-India bilateral investment treaty, saying that allegations of a failure to deduct withholding tax on capital gains made Cairn during the reorganisation ahead of its market listing are false.

Cairn Energy CEO Simon Thomson said the bill was "very disappointing" after regular engagement with the Indian government over the past 14 months.

"Cairn has consistently confirmed that it has been fully compliant with all relevant legislation and paid all applicable taxes in India and we are confident of our position under the UK-India investment treaty," he added.

Vedanta and Cairn India have been advised by leading international counsel that the retrospective tax legislation passed is a violation of protections accorded to investors under the treaty.

India's finance minister Arun Jaitley has explained that New Delhi is "powerless" to stop the Cairn Energy case as it was started by the preceding regime and not the ruling Hindu nationalist BJP, Reuters reported.

The minister also defended India's overall tax regime.

"Our fairness has been partly misunderstood. The converse of tax terrorism is not a tax haven. Let it be clearly understood that India is not so vulnerable that every legitimate tax demand can be considered as tax terrorism, because we are not a tax haven and we don't intend to be one," Jaitley told the media this week.

Thomson also raised wider concerns about the Indian government's treatment of foreign investors in the country, implying that this case will damage the country's interests.

Cairn India's made biggest oil field, Mangala, in Rajasthan's Thar desert in in 2004. It now operates 28% of India's domestic crude oil production.

Combined Mangala, Bhagyam and Aishwariya fields have gross ultimate oil recovery of over one billion barrels.

To date, Cairn India has opened four frontier basins with numerous discoveries, 36 in Rajasthan alone.

Cairn India has a portfolio of nine blocks - one block in Rajasthan, two on the west coast and four on the east coast of India and one each in Sri Lanka and South Africa.

Oil and gas is being produced from Rajasthan, Ravva and Cambay.