Cairn eyes India’s foreign assets to recover £1.2bn arbitration award
COMPANY MOVES COURT IN US TO MAKE AIR INDIA LIABLE FOR STATE’S DEBTS
LONDON-LISTED firm Cairn Energy has identified $70 billion (£49bn) of Indian assets overseas that could be seized in the absence of a settlement with the government.
Cairn plans to move courts from the US to Singapore for seizure of the assets in absence of Indian government’s refusal to honour an international arbitration award. It was in December last year the firm was awarded damages of more than $1.2bn (£0.8bn) plus interest and costs in a long drawn-out tussle with the Indian government over its retrospective tax claims.
Earlier this month, two government officials and a banker said India asked its state-run banks to withdraw funds from their foreign currency accounts abroad, as New Delhi fears Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute.
While New Delhi has filed an appeal, Cairn began to identify Indian assets abroad, including bank accounts, that could be potentially be seized in the absence of a settlement, which Cairn says it is still pursuing. The assets identified range from Air India’s planes to vessels belonging to the Shipping Corporation of India, and properties owned by stateowned banks to oil and gas cargoes of public sector units (PSUs), three people familiar with the matter said.
These assets are across several jurisdictions, they said without giving further details. “The Indian government naturally will challenge such seizure, but to save the assets it may have to pawn money equivalent to the value of assets in some financial security such as bank guarantee. The court will return such a guarantee to India if it does not find merit in Cairn’s case. But the surety will be passed on to Cairn if the court finds India had failed to honour its obligation,” a source said.
Cairn filed a lawsuit last Friday (14) in a New York court to get Air India recognised as the alter ego of India and that “it should be held jointly and severally responsible for India’s debts, including from any judgment resulting from recognition of the award”.
Once a court recognises Air India as the alter ego of the Indian government, Cairn can seek attachment or seizure of its assets in the US such as airplanes, immovable assets and bank accounts to recover the amount it was awarded by the arbitration tribunal.
Cairn 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, told Reuters in the first week of May, 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.
“There was an apprehension that some courts may take a drastic measure saying whatever the offshore funds of the government of India, those may be taken over or frozen for the time being,” the banker told Reuters. “Our assets are tantamount to assets of the government of India as we are owned by them.”
The Indian Banks’ Association, an industry body representing lenders, did not immediately reply to a request for comment. At least two state banks also did not respond, while others could not be reached outside of regular office hours.
Cairn said in February it was discussing several proposals with the government to find a solution. “Cairn continues to have constructive engagement with the government of India,” a spokesman for the company said when asked about the case earlier this month.
The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006, it listed its Indian assets on the Bombay Stock Exchange (BSE). Five years after that the government passed a retroactive tax law and billed Cairn `102bn (approximately £1bn), plus interest and penalty, for the reorganisation tied to the flotation.
The state then expropriated and liquidated Cairn’s remaining shares in the Indian entity, seized dividends and withheld tax refunds to recover a part of the demand. Cairn challenged the move before an arbitration tribunal in The Hague, which in December awarded it $1.2bn plus costs and interest, which totals $1.725bn (£1.2bn) as of December 2020.
The company, which previously said the ruling was binding and enforceable under international treaty law, has been since then courting Indian government officials to get the money paid. But the government has not agreed to pay. A company spokesperson said: “Cairn remains open to continuing constructive dialogue with the government of India to arrive at a satisfactory outcome to this long-running issue.”
India’s finance minister Nirmala Sitharaman had last month reiterated that international arbitration ruling on India’s sovereign right to taxation sets wrong precedent, but had said the government is looking at how best it can sort out the issue. The government, which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague based tribunal’s ruling.