UK-headquartered oil and gas major Cairn Energy has filed a lawsuit in the US suing Air India in order to realise a $1.2 billion arbitration award it won in December 2020 over a tax dispute with the Indian government.
The development is seriously going to impact India’s international credibility at a time when the government wants more foreign investments to promote its ‘Make in India’ initiative.
The lawsuit filed in the US District Court aims to make Air India liable for the amount it won in the arbitration verdict. The energy major has argued that Air India is “legally indistinct from the state itself” as it is a company owned by the Indian government.
It reportedly states that “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.”
Cairn identifying Indian assets abroad
The British Company since January is on the lookout for Indian assets against which it can realise the arbitration award. The assets include bank accounts, ships and aircraft. It also moved courts in several countries including the UK, Singapore, Canada, the Netherlands and France to register its claim against India. Some of these countries have recognised the arbitration award opening the gate for the company.
Last week, India had asked state-run banks to withdraw funds from their foreign currency accounts abroad, fearing Cairn might sue to seize the funds, according to a news agency. Cairn had said previously it was pursuing a settlement with India, but in the interim, it has also been laying the grounds to seize Indian assets should talks fail.
Cairn worn international arbitration case
In December 2020, Cairn Energy won an international arbitration case against the Indian government over a tax dispute that had spooked investors concerned about retrospective tax claims on companies. The company which sold its stakes to Vedanta, an Indian company owned by Anil Agarwal, has oil and gas explorations in the desert of western Rajasthan.
The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and awarded Cairn damages of Rs 10,247 crore( $1.2 billion) plus interest and costs, the company had said in its statement.
Cairn took the case to arbitration in 2015 to fight against a demand in 2014 from the Indian tax department for Rs 102 billion rupees ($1.4 billion) in taxes it said were owed on capital gains related to the 2007 listing of its Indian unit.
In 2011, Cairn Energy sold its majority stake in Cairn India to Vedanta Ltd, reducing its stake in the Indian company to about 10 percent. The Indian government seized the remaining shares in 2014 after the tax complaint was made, as well as dividends Vedanta owed to Cairn Energy for its holdings in the Indian firm.
In 2018, Cairn Energy said it would write down the value of its investment in Vedanta after Indian tax authorities sold $216 million worth of its shares in the Indian mining company.
India appealed against verdict
The Indian government has already filed an appeal against the arbitration award in favour of Cairn in a court in The Hague. A government official told a news agency that the government or its entities are yet to receive any notice and would respond legally to any illegal enforcement action.
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