Cairn Energy has sued a US court suing Air India to enforce a $ 1.2 billion arbitration award it won in a tax dispute against India.
Since the award, Cairn Energy has identified Indian assets overseas in order to enforce the award. These assets included Air India, foreign state bank cash, and ships.
According to Reuters news agency, Cairn filed the lawsuit in the US District Court for the southern borough of New York on Friday to hold Air India liable for the judgment delivered to Cairn. The lawsuit argued that as a state-owned company, the carrier was “legally indistinguishable from the state itself”.
“The nominal distinction between India and Air India is illusory and only serves to help India inappropriately protect its assets from creditors like (Cairn),” the file reads.
On May 7, Reuters reported, citing two unnamed government sources and a banker India has asked state banks to withdraw money from their foreign currency accounts abroad.
This was because New Delhi “feared Cairn Energy might try to confiscate the money following an arbitration ruling in a tax dispute”.
ALSO READ | India urges state banks to withdraw cash held overseas in dispute over Cairn: report
The move to sue Air India is putting pressure on India to pay the $ 1.2 billion plus interest and costs that the British company received from an arbitration tribunal in December. The panel ruled India had breached an investment treaty with the UK and said New Delhi was liable to pay.
The government is reacting to Cairn Energy’s move
In response to Cairn Energy’s move to sue Air India in a US court, central government sources said that neither the government nor Air India received any notice of the matter.
The sources identified at the time a notice is received must be “take all necessary steps to defend against such illegal enforcement” by the government / organization concerned.
The sources added that the government has challenged the award in the competent court in The Hague and “is confident that the award will be overturned”.
That being said, India Today TV has learned that the government has also hired an advisory team ready to defend itself against any enforcement actions launched by Cairn Energy worldwide, if and when.
What is this award?
In December 2020, Cairn Energy received more than $ 1.2 billion in damages, plus interest and charges, in a protracted dispute with the Indian government over its retrospective tax claims.
While India was appealing, the London-listed company had begun identifying Indian assets overseas, including bank accounts, that could be seized without settlement.
According to Reuters, Cairn Energy has filed its lawsuit against India in courts in the US, UK, France, the Netherlands, Singapore and Quebec. These steps could “facilitate the seizure of assets and enforcement of the award”.
“Instructions were sent to state banks earlier this week to withdraw money from their nostro accounts,” Reuters reported, citing a government official. The guidelines were reportedly issued by the Treasury Department.
A nostro account refers to an account that an overseas bank has with another bank in the currency of that jurisdiction. Such accounts are used for international trade and for processing other foreign exchange transactions.
India’s appeal against the arbitral award
India Today TV reported about it in March India would appeal the arbitration award that went in favor of Cairn Energy.
Speaking to India Today TV, government sources said that “just in the event that enforcement proceedings are initiated, India is confident of addressing it and vigorously defending its interests and sovereign rights”.
Courts in five countries, including the US and the UK, have recognized an arbitral award asking India to return $ 1.4 billion to Cairn Energy, giving the UK oil company the opportunity to seize Indian assets in those countries.
The Cairn Energy question is an international arbitration award that was awarded in favor of the company. Cairn Energy had won the case before the tribunal after a dispute with the Indian tax authorities over a retrospective capital gains tax.
ALSO READ | India contests a $ 1.4 billion arbitration award in Cairn, fighting for the right to taxes
Earlier this year, Cairn Energy CEO Simon Thomson landed in Delhi to meet Treasury Secretary Nirmala Sitharaman. However, he was asked to meet then Finance Secretary Ajay Bhushan Pandey.
Later, when Thomson described the meeting as constructive, the Cairns government welcomed attempt to find a solution.
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