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Cairn intends to seize Air India assets to recover the $ 1.7 billion award owed by Indian government Energy News, ET EnergyWorld


UK-based Cairn Energy Plc has filed a lawsuit in the US court that could potentially result in Air India’s assets overseas, such as aircraft, being seized to recover $ 1.72 billion from the Indian government, which is an international After the retrospective tax levy was repealed.

Cairn filed a lawsuit in the US District Court for the southern borough of New York on May 14, in which Air India’s declaration as the “alter ego of the Indian government” by control and as a state-owned company “was legally indistinct by the state itself “said three sources with direct knowledge of the development.

reported on March 28, 2021 that Cairn will file lawsuits to break the corporate veil to determine that certain government entities are India’s alter ego under Bancec to enforce the arbitration award.

The Bancec guidelines regulate when a judgment against a foreign state is enforceable against its authorities.

Sources said the May 14 lawsuit aimed to hold Air India responsible for the discharge of the arbitration award against the Indian government.

While Cairn said it “will take necessary legal steps to protect the interests of shareholders if there is no resolution to the arbitration award,” government sources said India will take all necessary steps to oppose such “illegal enforcement actions” To defend.

India will challenge the move on the grounds that the government has challenged the award in the competent court in The Hague and is confident that the award will be overturned.

According to sources, the government has also hired an advisory team ready to defend itself against enforcement actions.

While claiming that neither the government nor any network party had received such a notice, sources aware of the Cairn lawsuit said the case was not brought until Friday and that the authorities concerned would be notified in due course.

Government sources stated that the government / affected organization will take all necessary steps to defend itself against “such illegal enforcement actions” once such notification is received.

Cairn initially relocated courts in the United States, United Kingdom, Canada, France, Singapore, the Netherlands and three other countries to register the arbitration tribunal’s December 2020 decision nullifying the Indian government’s after-tax claim of 10,247 rupees and New Delhi was asked to return the tax value of stocks sold, confiscated dividends and withheld tax refunds to cover the tax claim.

After the courts in the U.S. and elsewhere recognized the arbitration award, the company has now started filing lawsuits to remove the corporate veil between the Indian government and its own companies such as oil and gas, shipping, aviation and Penetrate the banking sector, confiscate their foreign assets in order to recover the money awarded.

The lawsuit is similar to the lawsuit filed by Crystallex International Corp. against seizure of property of Petroleos de Venezuela, SA (PDVSA), Venezuela’s state-owned oil company, in Delaware several years ago after the Latin American country failed to pay the company $ 1.2 billion, which an arbitration tribunal took in place in 2011 from the company held and developed gold deposits had to pay.

Cairn has been determined to be seizing Indian assets in multiple jurisdictions in order to enforce the award.

“Cairn is taking the necessary legal steps to protect the interests of the shareholders if no decision is made on the arbitration award,” commented a company spokesman on the subject. “Cairn remains open to an ongoing constructive dialogue with the Government of India in order to achieve a satisfactory outcome on this longstanding problem.”

The Scottish company invested in the oil and gas sector in India in 1994 and made a huge oil discovery in Rajasthan a decade later. In 2006 it listed its Indian assets on the BSE. Five years later, the government passed a retroactive tax bill charging Cairn INR 10,247 crore plus interest and penalty for the restructuring associated with the IPO.

The state then expropriated and liquidated Cairns’ remaining stake in the Indian entity, confiscated dividends and withheld tax refunds in order to get back part of the claim.

Cairn challenged the move in an arbitration tribunal in The Hague, which awarded him USD 1.2 billion (over INR 8,800 crore) in December, plus costs and interest, which in December 2020 amounted to USD 1,725 ​​million (INR 12,600 crore).

The company, which previously said the ruling was binding and enforceable under international contract law, has since courted Indian government officials to get the money.

Its officials held three face-to-face meetings with then Finance Minister Ajay Bhushan Pandey and at least one video call with his successor, Tarun Bajaj, in February.

Treasury Secretary Nirmala Sitharaman reiterated last month that international arbitration over India’s sovereign right to taxation was setting a false precedent, but said the government was studying how best to resolve the problem.

The government, which has participated in international arbitration by the Scottish firm against retrospective taxation, has appealed the decision of the Hague-based tribunal.

The Indian government argues that taxes levied by a sovereign power should not be subject to private arbitration.

had previously reported that at meetings the company offered to forego $ 500 million from the $ 1.7 billion award and invest that amount in an oil, gas, or renewable energy project that will be run by The Indian government was identified after it rejected a government offer to be paid only a quarter of the award.

The $ 1.2 billion capital is to be paid and the interest and costs can be reinvested in India.

The Indian government, which appointed one of the three arbitrators in The Hague panel and has been fully involved in arbitration since 2015, wanted Cairn to resolve the issue through the now closed tax dispute settlement system, Vivad se Vishwas.

The Vivad se Vishwas program, which closed on March 31, provided for the tax case to be dropped if 50 percent of the claim was paid, which the company refused.

Even if the Indian government had agreed to the scheme, it would have to reimburse the British company about INR 2,500 crore. She said the value of the stocks seized and sold, the seized dividend and the withheld tax refund totaled over INR 7,600 crore, which was more than 50 percent of the INR 10,247 crore main tax claim.

Cairn, believing that the tribunal’s unanimous decision on Indian-owned assets was enforceable in more than 160 countries that signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, has hired assets. Tracking firms to investigate overseas assets that could be seized in order to get back the amount due.

According to sources, the assets that can be attached could range from airplanes to ships to oil and gas shipments and bank accounts of state-owned companies.

Cairn had previously said that the money ultimately belongs to its shareholders – which includes major investors like BlackRock, Fidelity and Franklin Templeton, and the unhealthy impact of India’s failure to honor the award will “hit the international investment community on a larger scale.”

Sources said the Indian government’s appeal to the Dutch court did not prevent Cairn from taking action in other jurisdictions to reclaim the full amount of the award.

The company is attempting through the US lawsuit to establish that the state-owned company is India’s alter ego under Bancec regulations, that is, to break the veil between the Indian government and them.

“Piercing the Corporate Veil” is a means of bringing liability on an underlying cause of action against a third party who would otherwise not be liable.

In this way, Cairn will attempt to break through the veil to shift liability for the payment of an existing judgment against the Republic of India to a third party who is not otherwise liable, i.e. state corporations or banks.