In the latest, Cairn Energy Plc of Britain has secured a French Court order to seize about 20 properties of the Indian Government in France to recover a part of the USD 1.7 billion arbitration award.
The French Court, on June 11, ordered Cairn Energy’s take-over of the Indian Government properties, mostly comprising flats; and the legal process got completed on the evening of July 7, 2021.
An arbitration panel had in December 2020 ordered the Indian Government to return USD $1.2 billion-plus interest and the penalty to Cairn Energy after revisiting a retrospective tax demand.
However, with the Government of India not honouring the demand, Cairn Energy moved in multiple jurisdictions overseas to recover the amount due by seizing the assets of the Indian Government. Read below to understand the dispute and why the Indian Government needs to return USD 1.2 billion to Cairn Energy.
What is the dispute between Cairn Energy and the Indian Government?The dispute between the Government of India and Cairn Energy stems from the much-debated retrospective taxation issue. 15 years ago, in 2006-2007, Cairn UK, as part of an internal rearrangement process, had transferred shares of Cairn India Holdings to Cairn India. Income tax authorities had thus decided that since Cairn UK has made capital gains, it must pay the capital gains tax up to Rs. 24,500 crores. However, the firm interpreted the Indian laws on capital gains differently and refused to pay. Due to this, several rounds of litigation at the High Court and the Income-Tax Appellate Tribunal (ITAT) followed. Cairn Energy lost the case at ITAT and a case on the valuation of capital gains is pending before the Delhi High Court. While Cairn Energy had sold the majority of its India business, Cairn India, to mining giant Vedanta in 2011, income-tax authorities of India barred it from selling about 10%, because of the pending taxation issue and also froze the payment of dividends by Cairn India to Cairn Energy. |
Arbitration award won by Cairn Energy:
India’s retrospective tax was introduced in 2012 and made any capital gains resulting from the transfer of shares from a foreign entity whose assets were located in India taxable from 1962.
In 2014, the tax department raised the issue with Cairn Energy and the company had responded by taking the matter up with the international arbitration panel in the following year.
| In December 2020, a three-member international arbitral tribunal ruled a verdict that the Government of India was in breach of the guarantee of fair and equitable treatment which was against the India-UK bilateral treaty, and that the breach has caused a loss to the Energy Company of Britain. The tribunal awarded Britain’s Cairn $1.2 billion in compensation that India was liable to pay. To enforce this award, Cairn moved a court in the South district of New York against Air India. While India challenged the arbitration award in the Netherlands. |
Why Cairn Energy is suing Air India?
The company has argued that Air India is the alter ego of India and that it must be held jointly and severally responsible for India’s debts, including those arising from the judgment.
As the national carrier, Air is India is wholly owned and controlled by the Indian Government and Cairn has cited that a principal-agent relationship exists between them.
Challenges in different jurisdictions:
Since the arbitration award of $1.2 billion in favour of Cairn Energy was delivered in Hague, India had moved an appeal to the Netherlands.
Cairn Energy, on the other hand, has chosen New York to sue India as it has located substantial assets that it can recover the compensation from in that jurisdiction.
Air India’s United States operations, specifically, are headquartered in the New York district. Cairn Energy has informed that court that it has initiated numerous proceedings all over the world seeking recognition and enforcement of the award.
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