Cairn Energy has moved a US court suing Air India in order to enforce a $1.2 billion arbitration award that it won against India in a tax dispute case.
Ever since the arbitration award, Cairn Energy was identifying Indian assets abroad to get the award enforced. These assets included Air India, cash held by state-run banks abroad and ships.
According to news agency Reuters, Cairn filed the lawsuit on Friday in the US District Court for the Southern District of New York, seeking to make Air India liable for the judgement that was awarded to Cairn. The lawsuit argued that the carrier as a state-owned company, is “legally indistinct from the State itself”.
“The nominal distinction between India and Air India is illusory and serves only to aid India in improperly shielding its assets from creditors like (Cairn),” the filing said.
On May 7, quoting two unnamed government sources and a banker, Reuters reported that India has asked state-run banks to withdraw funds from their foreign currency accounts abroad.
This, the report said, was because New Delhi “feared Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute”.
ALSO READ | India asks state state-run banks to withdraw cash held abroad over Cairn dispute: Report
The move to sue Air India puts pressure on India to pay the sum of $1.2 billion plus interest and costs that the British firm was awarded by an arbitration tribunal in December. The body ruled India breached an investment treaty with Britain and said New Delhi was liable to pay.
Govt responds to Cairn Energy’s move
Responding to Cairn Energy’s move to sue Air India in a US court, central government sources said neither the government nor Air India have received any notice in this regard.
The sources said as and when a notice is received, the government/organisations concerned shall “take all necessary steps to defend against any such illegal enforcement action”.
The sources added that the government has challenged the arbitration award in the appropriate court in The Hague, and it is “confident that the award will be set aside”.
Apart from this, India Today TV has learnt that the government has also engaged a counsel team that is ready to defend against any enforcement action, if and when, initiated by Cairn Energy anywhere in the world.
What is this arbitration award?
In December 2020, Cairn Energy was awarded damages of more than $1.2 billion plus interest and costs in a long-drawn tussle with the Indian government over its retrospective tax claims.
While India has filed an appeal, the London-listed firm had started identifying Indian assets overseas, including bank accounts, that could be seized in the absence of a settlement.
According to Reuters, Cairn Energy has registered its claim against India in courts in the US, the UK, France, the Netherlands, Singapore and Quebec. These moves 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,” Reuters reported quoting a government official. The guidance was reportedly issued by the finance ministry.
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.
India’s appeal against arbitration award
In March, India Today TV reported that India would file an appeal against arbitration award that went in favour of Cairn Energy.
Speaking to India Today TV, government sources had said that “just in case enforcement proceedings are initiated, India is confident to address them and will strongly defend its interests and sovereign rights”.
Courts in five countries, including the US and the UK, have given recognition to an arbitration award that has asked India to return $1.4 billion to Cairn Energy, opening up the possibility of the British oil company to seize Indian assets in these nations.
The Cairn Energy issue involves an international arbitration tribunal award that went in the company’s favour. Cairn Energy had won the case at the tribunal after a dispute with the India’s revenue authority over a retroactively applied capital gains tax.
ALSO READ | India to contest $1.4 billion Cairn arbitration award and fight for right to tax
Earlier this year, Cairn Energy CEO Simon Thomson landed in Delhi to meet Finance Minister Nirmala Sitharaman in an attempted outreach, but was asked to meet the then finance secretary Ajay Bhushan Pandey.
Later, while Thomson termed this meeting as constructive, the government welcomed Cairn’s move to reach out for a resolution.
