Cairn to seize Air India assets to recover $1.7 bn award due from India govt

UKs Cairn Energy Plc has brought a lawsuit in the US court that potentially can lead to seizing of Air Indias overseas assets such as airplanes to recover USD 172 billion from the Indian government which an international arbitration tribunal had awarded after overturning levy of retrospective taxesCairn on May 14 filed a lawsuit in the US District Court for the Southern District of New York seeking declaration of Air India as the alter ego of Indian government by virtue of control and as a stateowned company it legally indistinct from the state itself three sources with direct knowledge of the development saidPTI had on March 28 2021 reported that Cairn will bring lawsuits to pierce the corporate veil to establish that certain stateowned entities are Indias alter ego under Bancec for enforcing the arbitration awardThe Bancec guidelines deal with determining when a judgment against a foreign state is enforceable against its agenciesAlso read Air India flight returns from Sydney with just cargo after crew member tests Covid19 positiveSources said the May 14 lawsuit seeks to make Air India liable for discharge of the arbitration award against the Indian governmentWhile Cairn said it is taking necessary legal steps to protect shareholders interest in the absence of a resolution to the arbitral award sources in the government said India will take all necessary steps to defend against any such illegal enforcement actionIndia they said will contest the move on grounds 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 asideSources said the government has also engaged a counsel team which is ready to defend against any enforcement actionWhile they maintained that neither the government nor any PSU has received any such notice sources aware of the Cairn lawsuit said the case has been brought only on Friday and notices in due course will come to the concerned authoritiesThe government sources said as and when any such notice is received the governmentconcerned organisation shall take all necessary steps to defend against any such illegal enforcement actionCairn had first moved courts in the US UK Canada France Singapore the Netherlands and three other countries to register the December 2020 arbitration tribunal ruling that overturned the Indian governments Rs 10247 crore demand in back taxes and ordered New Delhi to return the value of shares it had sold dividends seized and tax refunds withheld to recover the tax demandSubsequent to the courts in the US and other places giving recognition to the arbitration award the firm has now begun bringing lawsuits to pierce the corporate veil between the Indian government and its owned companies such as in oil and gas shipping airline and banking sectors to seize their overseas assets to recover the money awardedThe lawsuit is similar to the one brought by Crystallex International Corp to attach property of Petroleos de Venezuela SA PDVSA the stateowned oil company of Venezuela in Delaware couple of years back after the Latin American country failed to pay the firm USD 12 billion that an arbitration tribunal had ordered to pay in lieu of the 2011 seizing gold deposits held and developed by the firmIndian assets across several jurisdictions have been identified that Cairn will be seeking to seize to enforce the award sources saidCairn is taking the necessary legal steps to protect shareholders interest in the absence of a resolution of the arbitral award a company spokesperson said commenting on the issue Cairn remains open to continuing constructive dialogue with the Government of India to arrive at a satisfactory outcome to this longrunning issueThe Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan In 2006 it listed its Indian assets on the BSE Five years after that the government passed a retroactive tax law and billed Cairn Rs 10247 crore plus interest and penalty for the reorganisation tied to the flotationThe state then expropriated and liquidated Cairns remaining shares in the Indian entity seized dividends and withheld tax refunds to recover a part of the demandCairn challenged the move before an arbitration tribunal in The Hague which in December awarded it USD 12 billion over Rs 8800 crore plus costs and interest which totals USD 1725 million Rs 12600 crore as of December 2020The company which previously said the ruling was binding and enforceable under international treaty law has been since then courting Indian government officials to get the money paidIts officials have held three facetoface meetings with the then Revenue Secretary Ajay Bhushan Pandey in February and at least one video call with his successor Tarun BajajFinance Minister Nirmala Sitharaman had last month reiterated that international arbitration ruling on Indias sovereign right to taxation sets wrong precedent but had said that the government is looking at how best it can sort out the issueThe government which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively has appealed against The Hague based tribunals rulingThe Indian government argues that tax levied by a sovereign power should not be subject to private arbitrationPTI had previously reported that the company had in the meetings offered to forego USD 500 million out of the USD 17 billion award and invest that amount in any oil and gas or renewable energy project identified by the Indian government after rejecting a government offer to get paid just onefourth of the awardIt wants the principal of USD 12 billion due to be paid and the interest and cost can be reinvested in IndiaThe Indian government which appointed one of the three arbitrators on The Hague panel and fully participated in the arbitration proceedings since 2015 wanted Cairn to settle the issue through its nowclosed tax dispute resolution scheme Vivad se VishwasVivad se Vishwas scheme which closed on March 31 provided for dropping of tax case if 50 per cent of the demand was paid which the company rejected sources in the know of the development saidEven if it were to have agreed to the scheme the Indian government had to refund about Rs 2500 crore to the British firm they said adding the value of shares seized and sold dividend confiscated and tax refund withheld totalled to over Rs 7600 crore which was more than 50 per cent of the Rs 10247 crore principal tax demand raisedCairn which is of the opinion that the unanimous ruling of the tribunal was enforceable against Indianowned assets in more than 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has hired assettracing firms to investigate the overseas assets that could be seized to recover the amount dueSources said the assets that can be attached could range from airplanes to ships to oil and gas cargoes and bank accounts of stateowned entitiesCairn had previously said the money ultimately belongs to its shareholders which include large investors such as BlackRock Fidelity and Franklin Templeton and the ramifications of India not honouring the award will run across the international investment community more widelySources said the Indian government appeal in the Dutch court does not bar Cairn from taking action in other jurisdictions to recover the full amount of the arbitral awardThe company through the US lawsuit is seeking to establish that the stateowned firm is Indias alter ego under Bancec regulations that is to pierce the veil between the Indian government and themPiercing the corporate veil is a means of imposing liability on an underlying cause of action against a thirdparty which would not otherwise be liableBy this Cairn will seek to pierce the veil in order to shift liability for payment of an existing judgment against the Republic of India to a thirdparty that is not otherwise liable that is stateowned firms or banks