Cairn arbitration award case: Govt gears up to stop Air India asset seizure

Seeks details from airline to assess impact on privatization

With Cairn Energy moving a US court to seize Air India’s assets, the Indian government is preparing the groundwork to contest the matter. The government has also sought details from the national carrier to gauge the development’s impact on its privatisation exercise.

The hearing of India’s appeal challenging the $1.2-billion arbitration award in favour of Cairn at The Hague is listed on September 1.

On Friday, Cairn filed a lawsuit in the US District Court for the Southern District of New York, seeking to make Air India liable for the judgment that was awarded to the UK oil and gas major. “It should be held jointly and severally responsible for India's debts, including from any judgment resulting from the recognition of the award,” the lawsuit argued

If the court recognises that Air India is "legally indistinct” from the state itself, Cairn can seek the attachment or seizure of its assets in the US to recover the amount it was awarded by the arbitration tribunal.

The government has sought details on assets of Air India that have been identified for seizure to prepare its legal recourse, and to assess the impact of the move on the carrier’s privatisation, said a senior government official.

The government has so far not received any official communication on the liability that would fall on Air India, but the development will impact the privatisation process as the airline has been dragged to court and is made liable for the government’s dues.

The Air India divestment process was nearing its completion with the draft share purchase agreement (SPA) and request for proposal (RFP) already shared with the qualified bidders, the official quoted above said.

Cairn Energy has identified assets worth $70 billion, which include Air India's planes, vessels belonging to Shipping Corporation of India, and properties owned by state-owned banks for potential seizure, to recover the $1.72 billion dues, news agency PTI reported.

Cairn has offered to invest the entire award money in India, which includes the principal amount of $1.2 billion and interest of $500 million, if the government agrees to enforce the award.

Responding on $70 billion assets being identified by Cairn, another official said the government is yet to receive formal notice of any such claims and "hence these reports are purely in the realm of speculation."

The government is well aware of its legal rights and will defend its case in courts should such proceedings materialize, the official said.

"It is equally confident of winning its appeal in The Hague. Cairn did not pay a single rupee tax anywhere in the world in respect of the impugned transactions. Cairn had also lost its appeal before the Income-tax Tribunal." 

In the US Court, India will likely contest the lawsuit on the grounds that the award is not recognised in the home country and that the award is already under appeal. “The appeal hearing is listed on September 1 at The Hague, so India may ask for some more time from the US court. It is just a matter of three to four months,” said a government source. He added that India had not yet received a notice from the US court.

New Delhi has not sought a stay on the award from a lower Dutch court. However, if it manages to get a stay on the implementation of the award from the US court, it may help India get a stay in other jurisdictions as well, such as the UK, Canada, and France.

The government will take all necessary steps to defend against any such illegal enforcement action, an official said. It has also engaged a counsel team to defend against any enforcement action, if and when initiated by Cairn Energy anywhere in the world.

In its appeal filed in March, India contested the stand taken by the Permanent Court of Arbitration at The Hague, that “it is not a tax dispute but a tax-related investment one”.

 “There is either an investment dispute or a tax dispute, but there is no precedent for something called an investment related-tax dispute,” said another official.

New Delhi appealed the verdict on the grounds of sovereignty and tax avoidance by the UK firm. India is learnt to have taken the stand that the government has the sovereign right to tax, and private individuals cannot decide on that. Besides, it falls outside the domain of a bilateral investment treaty and beyond the jurisdiction of international arbitration. Also, the government is learnt to have invoked international public policy, arguing that Cairn did not pay tax in any jurisdiction across the globe.

The government lost the international arbitration case to Cairn Energy Plc over the retrospective tax legislation amendment on December 21, 2020. The case pertains to the Rs 24,500-crore tax demand on capital gains made by the oil major in reorganising its India business in 2006-07.