Cairn threatens Indian asset seizures abroad in tax case

Cairn threatens Indian asset seizures abroad in tax case

U.K. energy major assures Centre it will move to freeze assets only if India fails to discuss payment of amount awarded by tribunal

A month after it won an international tribunal award of $1.2 billion in damages against India in the retrospective taxation case, U.K.-based Cairn Energy Plc has threatened that it may be forced to begin attaching Indian assets including bank accounts in different world capitals, unless the government resolves the issue.

In a letter to the Indian High Commission in London that was also sent to the Prime Minister’s Office, Ministry of External Affairs and the Finance Ministry this week, which The Hindu has seen, Cairn Energy’s top leadership has said that the “necessary preparations have been put in place” in order for the tribunal verdict to be “enforced against Indian assets in numerous jurisdictions around the world” if India fails to discuss paying the amount awarded.

Attaching planes, ships

According to sources, the assets already under consideration could include Embassy bank accounts, non-diplomatic premises, Air India planes and state-owned ships in several places including the U.K., Holland, France, Canada and the U.S., akin to similar action against the Pakistan International Airlines (PIA) plane that was seized in Malaysia earlier this month over a dispute with an Irish company, or the Venezuelan ship seizure ordered by a court in favour of U.S. company ConocoPhillips in 2018.

However, the letter stressed that Cairn would only consider this extreme option if the Indian government did not respond, as it was under pressure from its shareholders who “expect early resolution”. The letter also cited clauses in the U.K.-India Bilateral Investment Treaty, the UNCITRAL arbitration rules, and the New York Convention to which India is a signatory, that would be breached if India fails to pay the dues, which reportedly include about $220 million in accrued interest in addition to the $1.2 billion award. When asked, Cairn Energy CEO Simon Thomson said that the company’s legacy and partnership in India has been “severely damaged over the last seven years as a result of the retrospective tax dispute.”

“The Government of India has stated on multiple occasions that it would respect the legal process — our international shareholders now expect India to honour the award,” he said in a written response to The Hindu.

The three-member tribunal at the Permanent Court of Arbitration (PCA) at The Hague that had delivered its verdict on December 21, 2020 had held unanimously in favour of Cairn Energy Plc, and against the Indian government, ruling that the tax levied fell afoul of the bilateral investment pact, and also awarded Cairn $1.2 billion in damages for the tax authorities’ decision to take by force and subsequently sell the company’s shares, and freeze dividend payments as well as tax refunds, to recover the disputed tax dues.

Despite several representations to the NDA government, Cairn had been unable to have the penalties reversed and had decided to go to The Hague.

‘Under consideration’

The MEA did not respond to a request for a comment from The Hindu, but the government is understood to have conveyed to Cairn Energy officials that the “matter is under consideration”. Reacting to the PCA verdict in December, the Finance Ministry said the government would study the award and all its aspects carefully in consultation with its counsels and ‘take a decision on further course of action, including legal remedies before appropriate fora’.

In a similar arbitration case it lost against Vodafone, the government has filed an appeal in a Singapore court to defend the retrospective tax demand on the telecom firm, and officials have stressed that the government’s sovereign right to levy taxes cannot be questioned under bilateral pacts.

However, sources said that under the arbitral rules, Cairn Energy could proceed to enforce the award even while India mounts a challenge.

The issue was expected to be on the agenda during the visit of U.K. Prime Minister Boris Johnson to India this month, that had to be put off due to the Coronavirus pandemic, and had been discussed in some detail between former U.K. Prime Minister Theresa May and Prime Minister Narendra Modi during his visit to London in April 2018. Cairn officials met with Indian High Commissioner to the U.K. Gaitri Issar Kumar on January 20 as well to make the case for a resolution, citing that on each occasion, Mr. Modi, former Finance Minister (now deceased) Arun Jaitley, and other senior officials had promised to respect the outcome of the case.

“The money disputed and now adjudicated in the arbitration ultimately belongs to Cairn’s shareholders so the ramifications of the award and India’s honouring of it, go well beyond Cairn can itself, and run across the international investment community more widely,” the letter from Cairn to the government said, specifically mentioning its shareholders that included global investors BlackRock, Fidelity, Franklin Templeton, MFS, Schroeders, Legal and General, Aviva and Aberdeen Standard, indicating that not only would their actions impact India’s reputation if high-value assets are attached or bank accounts frozen, it could affect future foreign investment in the country.

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