In what could be a major embarrassment for India, Cairn Energy has taken the first step towards attempting to take over overseas assets of Indian government to enforce a $1.4 billion arbitration award by suing national carrier Air India, sources told ET Now.
Cairn Energy has moved a district court in United States to make Air India liable for the tax award given in favour of Cairn, sources said.
Cairn in its filing said Air India is an “alter ego” of Indian government. “Nominal distinction between India and Air India is illusory and serves only to aid India in improperly shielding its assets from creditors,” the source said reading from a filing made in the court.
The latest move by Cairn is not only an embarrassment for the government but could be a double whammy for Air India’s privatisation prospects which already looked challenging due to the devastating second wave of coronavirus that has hit the country. In December, the government had said that it had got multiple expressions of interest for Air India. The progress recently has been wobbly since the pandemic has made physical verification of assets challenging for bidders.
India has filed an appeal against the arbitration award. On the other hand, Cairn had started taking steps to identify Indian assets overseas against which it could enforce the award including aircrafts. Cairn has registered its claim in courts of U.S., Britain, Netherlands and Canada.
India has appointed a counsel to fight these cases across the globe. On Feb 9, Cairn Energy’s CEO Simon Thomson had said India should move quickly to adhere to the award given by the international arbitration court as it is important for “our shareholders, who are global financial investors that want to see a positive investment climate in India”.
Post that statement, Thomson met Indian government officials in North Block, but even though talks were said to be “constructive” by both parties, Cairn has further pursued different ways to get the money from the government.
The dispute that began after the previous Indian government decided to impose capital gains tax retrospectively on some companies, such as Cairn and telecoms operator Vodafone, which also took its case to arbitration and won. The cases had lead to drying up of foreign investment and dealt a blow to the Manmohan Singh government that ultimately lost power to Prime Minister Narendra Modi-led Bharatiya Janata party in 2014. Modi’s government has said it would not make retrospective tax claims in future but has deafened the case saying taxation is a sovereign right of the government.
Government’s response
There are some news reports in the media that Cairn has initiated some action against a PSU to enforce the award. Government/ PSU has not received any such notice. As and when any such notice is received, Government/concerned organization shall take all necessary steps to defend against any such illegal enforcement action. It may be mentioned that government has challenged the award in the case of Cairns in the appropriate court in the Hague and the Government is confident that the award will be set aside. The government has also engaged a counsel team which is ready to defend against any enforcement action if and when initiated by Cairn anywhere in the world.
