By Aditya Raghunath
Investing.com — It finally happened. On Friday, May 14, Cairn Energy PLC (LON:) filed a suit in the US District Court for the Southern (NYSE:) District of New York, claiming that Air India is liable in case the Indian government is not willing to pay the $1.2 billion arbitration award that it won in a tax dispute against India.
This includes the principal amount since 2014 and interest that has been compounding semi-annually.
Now, public sector banks (PSB) with operations outside India are on high alert, monitoring filings in courts to ensure they are not caught on the wrong foot in case Cairn files lawsuits against them. These banks include the likes of State Bank Of India (NS:), Punjab National Bank (NS:) and Bank of Baroda Ltd (NS:).
An Economic Times report quoted an unnamed PSB executive, “So far, we have not heard of any actions against the bank but we are well aware of Cairn’s move against Air India. Our teams are ready. In countries like the US and India, lawyers can track any fillings against their clients and that is also being done. We are on alert.”
Context: UK-based Cairn Energy’s India arm had made a huge oil discovery in Rajasthan in 2004. It listed its India arm in 2006. In 2012, the Indian government passed a retrospective law that said Cairn India (NS:) owed it Rs 10,247 crore in taxes, interest and penalties. When Cairn refused to pay, it seized its dividends and held back tax refunds.
Cairn contested this claim at the International Arbitration Court at The Hague and won. The Indian government owes Cairn $1.2 billion but hasn’t paid it. Cairn is claiming nationalized assets outside India.