British oil and gas firm Cairn Energy moved a US court to sue Air India to enforce a $1.2 billion arbitration award that it won in December last year over a tax dispute with India, according to news agency Reuters.
The lawsuit was filed in the US District Court for the Southern District of New York on Friday, 14 May, the Reuters report added. It seeks to make the flagship carrier liable for the amount it won in the judgement, arguing that Air India is a state-owned company and is therefore "legally indistinct from the state itself."
The report quoted the lawsuit, which states, "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)."
India had lost arbitration proceedings in December 2020 and was directed to pay $1.2 billion plus taxes to the oil and gas firm, which now amounts to about $1.7 billion. The payout is related to the Indian government's initial tax demand of Rs 10,247 crore on Cairn UK Holdings Ltd, on alleged capital gains that it made in 2006 when it reorganised businesses of its Indian holdings under Cairn Energy India Pty Limited.
The government’s tax claim has risen to over Rs 22,000 crore, including penalties and interests. This amount was partly recovered by the Income Tax department via the sale of seized Cairn assets in India. The arbitral award includes this amount as well as damages to be paid to Cairn Energy.
Since January this year, Cairn had begun attempts to identify Indian assets abroad against which it could enforce the award. These assets include aircraft, ships and even bank accounts. The organisation also moved to courts in the UK, Canada, Singapore, France, the Netherlands and three other countries to register its claim against India, some of which have recognised the arbitration award.
This recognition opens up the possibility of the firm seizing Indian assets in those countries if the government fails to pay up.
The central government has challenged the arbitration award and filed an appeal in the appropriate court in The Hague. A senior government official, requesting anonymity told Reuters, "As and when any such notice is received. The government or concerned organisation shall take all necessary steps to defend against any such illegal enforcement action."
Cairn Energy CEO Simon Thomson had visited India in February to discuss an out-of-court settlement with Union Finance Minister Nirmala Sitharaman, but met with former finance secretary Ajay Bhushan Pandey.
As per a report by India Today, Thomson later referred to the meeting as constructive, while the Indian government welcomed the move to reach out for a resolution.
The company said that it will continue to engage with the government of India for the arbitration award, while parallelly pursuing other options to monetise the award.
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