Cairn filed a lawsuit in a New York court on May 14 to recognize Air India as India’s alter ego and “hold it jointly and severally responsible for India’s debts”.
UK company Cairn Energy has identified $ 70 billion in Indian assets overseas for possible seizure in order to collect $ 1.72 billion from the government. If successful, India will be linked to Pakistan and Venezuela, which have taken similar enforcement actions for non-payment of arbitral awards.
Assets identified range from Air India aircraft to Shipping Corporation of India ships and state-owned bank properties to oil and gas shipments of power supplies, said three people familiar with the matter. These assets are located in multiple jurisdictions without providing further details.
Cairn plans to move courts in the US and Singapore over property seizures as the Indian government does not refuse to honor an international arbitration award. “The Indian government will of course contest such a seizure, but to save the property it may have to pledge money equal to the value of the property in a financial security such as a bank guarantee. The court will return such a guarantee to India if it does finds no merit. ” in Cairns case. But the guarantee will be passed on to Cairn if the court finds India has failed to meet its obligation, “a source said.
Cairn has received an international arbitration award nullifying retrospective taxation requesting New Delhi to recover the value of stocks sold, confiscated dividends and withheld tax refunds to reclaim those taxes – registered in US, UK, France, US. Netherlands, Singapore, Mauritius, Canada’s Quebec Province, Japan and United Arab Emirates.
Now it has started moving courts to obtain a statement that government agencies are India’s alter ego and they should be held liable for the discharge of the arbitral award if the government fails to make payments.
Cairn filed a lawsuit in a New York court on May 14 to recognize Air India as India’s alter ego and that “it should be held jointly and severally responsible for India’s debts, also based on a judgment resulting from the recognition of the award results in “.
Once a court recognizes Air India as the Indian government’s alter ego, Cairn can request the attachment or seizure of its U.S. assets such as aircraft, immovable property and bank accounts in order to recover the amount awarded by the arbitral tribunal.
The move is similar to a court in the British Virgin Islands that ordered last December that hotels in New York and Paris owned by Pakistan International Airlines should be used to settle a lawsuit by a Canadian-Chilean copper company against the Pakistani government .
Crystallex International Corp filed a similar lawsuit in Delaware several years ago to mortgage the property of Petroleos de Venezuela, SA (PDVSA), Venezuela’s state-owned oil company, in Delaware after the firm’s Latin American land was $ 1.2 billion had not paid The arbitral tribunal had ordered that payment be made in lieu of gold deposits held and developed by the company in 2011.
In 2012, Elliott Management, a buccaneering American hedge fund holding distressed Argentine bonds, seized a handsome tall ship from the Argentine Navy. Recently, French courts ruled that a suffocated creditor may seize a Congo-Brazzaville government business jet while it is being serviced at a French airport, as well as $ 30 million from a bank account of the country’s state-owned oil company.
While the Treasury Department has not yet commented on the Cairn move, sources said India will take all necessary steps to defend itself against such “illegal enforcement measures”.
India will challenge the move on the grounds that the government has challenged the award in the competent court in The Hague and is confident that the award will be overturned.
Sources said the government has also hired a legal team ready to defend themselves against any enforcement action. While they claimed neither the government nor any PSU had received such a notice, people informed of the Cairn lawsuit said the case was not brought until Friday and that the authorities concerned would be notified in due course.
The sources indicate that the government / affected organization is taking all necessary steps to defend itself against “such illegal enforcement actions” once such notification is received.
“Cairn is taking the necessary legal steps to protect the interests of the shareholders if no decision is made on the arbitration award,” commented a company spokesman on the subject. “Cairn remains open to an ongoing constructive dialogue with the Government of India in order to achieve a satisfactory outcome on this longstanding problem.”
The Scottish company invested in the oil and gas sector in India in 1994 and made a huge oil discovery in Rajasthan a decade later. In 2006 it listed its Indian assets on the BSE. Five years later, the government passed a retroactive tax bill charging Cairn Rs 10,247 crore plus interest and penalty for the reorganization associated with the IPO.
The state then expropriated and liquidated Cairns’ remaining stake in the Indian entity, confiscated dividends and withheld tax refunds in order to get back part of the claim.
Cairn challenged the move before an arbitration tribunal in The Hague, which in December awarded him $ 1.2 billion (over Rs.8,800 billion) plus costs and interest, which increased to $ 1.725 million as of December 2020 ( 12,600 billion rupees).
The company, which previously said the ruling was binding and enforceable under international contract law, has since courted Indian government officials to get the money. But the government has not agreed to pay.
Treasury Secretary Nirmala Sitharaman reiterated last month that international arbitration over India’s sovereign right to taxation was setting a false precedent, but said the government was studying how best to resolve the problem.
The government, which has participated in international arbitration by the Scottish company against retrospective taxation, has appealed the decision of the Hague-based tribunal. Sources said the appeal did not prevent the company from filing for the seizure of Indian assets.
“No assets may be seized in the Netherlands while the appeal is pending, but assets may be sought elsewhere,” a source said.