$1.2-bn arbitral award: US court sets timelines for Cairn-India lawsuit

A federal court in Washington has set timelines for responses to be filed to an Indian government petition seeking dismissal of a suit by Britain's Cairn Energy that sought enforcement of a USD 1.2 billion arbitral award.

Judge Richard J Leon of the US District Court for the District of Colombia has given Cairn time till September 10 to file a response to the government's 'Motion to Dismiss' petition.

Thereafter, the Indian government can file a reply in support of its motion by October 1.

This can be countered by Cairn by October 20 and a further two months have been granted to the Indian government to file its reply in support of its motion, according to an August 25 order of the court.

The British firm had in May asked the US federal court to force Air India to pay the USD 1.26 billion arbitration award the firm had won in December.

The government on August 13 filed a 'Motion to Dismiss' petition saying the district court lacked subject matter jurisdiction in the dispute between Cairn and the Indian tax authority.

The move came within days of the government enacting a legislation to scrap a tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India.

That rule had been used to levy a cumulative of Rs 1.10 lakh crore of taxes on 17 entities, including Rs 10,247 crore on Cairn.

Officials said rules for withdrawal of such tax demands are in the process of being framed.

"One of the requirements for the dropping of the retrospective tax demands is that the parties concerned have to give an undertaking for withdrawal all cases against the government/tax department.

"So, while all this is in process, the government is obligated to respond in any legal matter where there is a time bar for doing so," an official explained.

Cairn had challenged the Rs 10,247 crore tax demand before an international arbitration tribunal, which in December last year overturned the same and ordered the government to refund the money collected.

The government initially refused to return the USD 1.2 billion, forcing Cairn to take action to recover that money through seizure of Indian assets overseas.

In May, it took flag carrier Air India Ltd to court in the US. Last month, it got a French court order to seize real estate assets belonging to the Indian government in Paris.

It had contended before the US court that Air India is controlled by the Indian government so much that they are "alter egos" and the airline company should be liable for the arbitration award.

In response, the government filed a dismissal motion citing protections afforded by the US Foreign Sovereign Immunities Act of 1976.

India, in the filing, said the court "lacks subject-matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA) because India never waived its sovereign immunity and, likewise, never offered - let alone agreed - to arbitrate the present dispute with Petitioners".

"India also never "clearly and unmistakably" excluded judicial review or delegated exclusive competence to decide these questions to an arbitral tribunal", implying that Cairn could not satisfy any exception to sovereign immunity under the US law, the filing said.

Cairn had asked the US court in February to recognise and affirm the December 2020 award against India from the Netherlands-based Permanent Court of Arbitration.