Cairn Energy is increasing pressure on the Indian government to pay a $1.2 billion arbitration award after filing a lawsuit in the U.S.
In December, Cairn Energy announced it had prevailed in a long-running tax dispute with the Indian Government after an arbitration body awarded it damages of more than $1.2 billion plus interests and costs. The tribunal ruled India breached an investment treaty with the UK and said New Delhi was liable to pay.
However, the Indian government has been reluctant to pay up. As a result, Cairn asked a U.S. court to confirm the award, including payments due since 2014, according to a February 12 filing seen by Reuters.
“The case marked a first step in Cairn’s efforts towards recovering its dues, potentially by seizing Indian assets, if the government did not pay,” a source with knowledge of the arbitration case told Reuters.
If Cairn wins the case, it will be a step towards seizing Indian assets overseas, including bank accounts, Air India planes or Indian ships.
Cairn Energy’s chief executive Simon Thomson will meet senior Indian officials today to discuss the tax dispute, even as India prepares to appeal the $1.2 billion award in a Dutch court. India has till the end of March to file an appeal.
The only concession India is willing to offer Cairn is to settle the dispute through its Vivas se Vishwas scheme, under which the government will waive interest and penalty on the principal tax demand, local media in India reported. Although, there have been suggestions that India may offer Cairn oil fields, such as the Ratna R-Series in lieu of the $1.2 billion payment, in an effort to prevent the seizure of foreign assets in the case of a default.
Indeed, the Indian government is struggling to find revenues to boost its pandemic-battered economy and may not have the financial firepower to pay Cairn.
Cairn has also registered its claim against India in the Netherlands and France, informing regulators in both countries that they may receive court orders to seize some Indian assets, Reuters reported last month.
“We would request, along with others, that the Indian government move swiftly to adhere to the award that has been given,” Thomson said earlier this month.
“It is important for our shareholders who are global financial institutions and who want to see a positive investment climate in India. I am sure that in working together with the government we can swiftly draw this to conclusion and reassure those investors,” he added.
The dispute relates to a retrospective amendment of tax rules in 2012, which gave the government the authority to tax merger and acquisition (M&A) deals dating back to 1962 if the underlying asset was in India.
While the current government has chosen not to open fresh retrospective tax demands, it has continued to pursue old cases, including that against Cairn.
The tax row started in 2014-15 and centres on restructuring undertaken by Cairn ahead of the flotation of its Indian subsidiary in 2007.
The Indian Income Tax Department (IITD) restricted the firm from selling its shareholding in Cairn India, which was about 10% and worth £750m.
Following the merger in April 2017 of Cairn India and Vedanta, the shareholding was replaced by 5% equity in Vedanta.
The IITD later instructed the sales of 99% of Cairn’s shareholding and seized proceeds of £455m.
Cairn argued India was trying to retrospectively apply tax legislation introduced in 2012 to transactions made by the firm six years earlier.
It claimed compensation for losses of more than £1 billion resulting from the “expropriation of its investments in India in 2014, continued attempts to enforce retrospective tax measures and the failure to treat the company and its investments fairly and equitably.”