India ‘asks state banks to withdraw cash held abroad in Cairn row’

India has asked state-run banks to withdraw funds from their foreign currency accounts abroad, two government officials and a banker said, as New Delhi fears Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute.

Cairn was awarded damages of more than $1.2bn plus interest and costs in December in a long drawn-out tussle with the Indian government over its retrospective tax claims.

While New Delhi has filed an appeal, the London-listed firm has started identifying Indian assets overseas, including bank accounts, that could be seized in the absence of a settlement, which Cairn says it is still pursuing.

The company has registered its claim against India in courts in the US, Britain, France, the Netherlands, Singapore and Quebec, moves that could make it easier to seize assets and enforce the arbitration award.

“Earlier this week a guidance was sent to state-run banks to withdraw funds from their nostro accounts,” one of the government officials, who asked not to be named, said adding that the finance ministry had issued the guidance.

A nostro account refers to an account a bank holds overseas at another bank in the currency of that jurisdiction.

Such accounts are used for international trade and to settle other foreign exchange transactions.

The finance ministry did not immediately respond to requests for comment.

A banker from one of India’s 12 state banks, who also asked not be identified, confirmed the ministry had sent the guidance and said the government was concerned courts abroad could order funds in their jurisdiction be remitted to Cairn.