Cairn Energy has effectively seized Indian state-owned properties in Paris, in a dramatic escalation to force India to pay $1.7 billion awarded by an international tribunal over a tax dispute.
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In January, British firm Cairn Energy threatened to seize assets belonging to the Indian government, mainly planes and ships amid the tax dispute.
It said the targets could include bank accounts as well as mobile and immobile property, including the assets of public sector enterprises such as state-owned Air India, but not diplomatic assets.
In a warning letter to the Indian Prime Minister, Cairn Energy threatened the Indian government to honour the verdict in one of its longest-running, highest-profile corporate tax battles or face the consequences.
In the ruling (read below) Cairn described as “final and binding”, the tribunal ordered New Delhi to pay $1.2bn in damages, plus interest and costs, to compensate Cairn for the shares — long sold off by the tax department — as well as confiscated dividends.
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“The award can be enforced against Indian assets in numerous jurisdictions around the world for which the necessary preparations have been put in place,” the company said.
Cairn then started identifying assets it could seize if the Indian government doesn’t comply with the order. Sources said that these could include planes and ships.
Cairn said it had identified $70bn of assets around the world ranging from buildings to Air India aircraft that it may try to seize as long as the Indian government refuses to pay.
Cairn Energy then sued India’s flagship carrier Air India to enforce the $1.2 billion arbitration award.
Cairn filed the lawsuit in the U.S. District Court for the Southern District of New York, seeking to make Air India liable for the judgement that was awarded to Cairn.
The lawsuit argued that the carrier as a state-owned company, is “legally indistinct from the state itself.”
“The nominal distinction between India and Air India is illusory and serves only to aid India in improperly shielding its assets from creditors like (Cairn),” the filing said.
Meanwhile, Cairn Energy also filed cases in the US, the UK and the Netherlands courts to register the arbitration award as a preparatory action in case it was not paid by the Indian government.
The action is forced by Cairn’s shareholders which include big financial institutions such as BlackRock, Fidelity, Franklin Templeton, Schroders and Aviva.
Cairn Energy had in 2011, sold Cairn India to Anil Agarwal’s Vedanta Group, barring a minor stake of 9.8 per cent. It wanted to sell the residual stake as well but was barred by the I-T department from doing so.
Now, Cairn has secured a French court order to seize about 20 Indian government properties in France.
Its asset freeze application in Paris is the first to succeed. The company said it would effectively transfer the ownership of 20 properties valued at more than €20m, including in the 16th and 14th arrondissements.
Cairn said the freeze on the properties approved by the French Court, Tribunal Judiciaire de Paris, was a “necessary preparatory step to taking ownership of the properties and ensures that the proceeds of any sales would be due to Cairn”.
Cairn has hired lawyer Dennis Hranitz, who worked on the US hedge fund Elliott Capital Management dispute, which in 2012 seized an Argentine naval vessel in Ghana over a debt dispute.
Interesting, there were also reports that the Indian government would surrender Cairn the Ratna R-Series oil fields in the Arabian Sea or the Barmer oilfield in Rajasthan to settle the dispute.
“One option is to give Cairn one or more of the oil and gas fields that the government now owns after they are surrendered by operators for various reasons.
The government could give the Ratna and R-Series oil and gas field in the Arabian Sea that were taken away from Essar Oil-Premier Oil consortium in 2016 because contractual terms had changed. The Barmer oilfield in Rajasthan, which was originally discovered by Cairn Energy, could be another option,” said insider sources.
“It’s a win-win – the government settles it liability without paying a single penny or upsetting investor sentiments by not honouring the arbitration award through endless legal challenges and at the same time getting back an established exploration and production (E&P) firm back,” another source said.
Read the 582 page arbitration judgment below: