French legal aid: Cairn Energy obtains an order to seize Indian assets

If the company succeeds in seizing the properties in central Paris, it will be the first request for an asset freeze to succeed among the many filed by Cairn in different countries to enforce the arbitration award.

India’s high-profile tax dispute with Cairn Energy took an embarrassing turn for New Delhi on Thursday, as the Scottish energy company obtained a French court order to seize some 20 Indian government properties in central Paris.

The properties, which mainly include apartments valued at over 20 million euros, are used by the Indian government establishment in France, PTI reported, citing people with “first-hand knowledge of the matter.”

The company’s move is in line with its stated plan to recover $ 1.7 billion “owed” to New Delhi by seizing various Indian assets abroad, including real estate and Air India planes, at the following an international arbitration award of December 2020 annulling the Delhi retrospective tax levy.

However, Cairn kept the options open for a conciliatory resolution of the tax dispute with the Indian government. Calling the latest move a “necessary preparatory step” for taking possession of the properties, a company spokesperson said the company still preferred to reach a “friendly settlement” with New Delhi to close the deal. case. The company has submitted a number of proposals to the government since February, she said. “However, in the absence of such a settlement, Cairn must take all necessary legal steps to protect the interests of its international shareholders,” the spokesperson told FE.

In response to the report, the finance ministry said the government had not received any notice, order or communication in this regard from any French court. “The government tries to verify the facts, and whenever such an order is received, appropriate legal remedies will be taken, in consultation with its lawyers, to protect the interests of India,” the ministry said.

The government also said the CEO and other Cairn officials approached it for talks to resolve the issue. Constructive discussions have taken place and the government remains open to an amicable solution to the dispute within the country’s legal framework, he added.

If the company succeeds in seizing the properties in central Paris, it will be the first request for an asset freeze to succeed among the many filed by Cairn in different countries to enforce the arbitration award. “Although Cairn is unlikely to evict Indian officials residing on these properties, the government cannot sell them after the court order,” PTI reported.

Earlier, in discussions between finance ministry officials and Cairn Energy CEO Simon Thomson and his team here in February 2021, the government asked Cairn to settle the dispute using the Vivad se Vishwas program; under this scheme, the company will have to pay about half of the amount owed without interest and penalties in cases where the tax department has lost a case in court and has filed an appeal, such as the first.

Even before the arbitration award was made, India had seized and sold Cairn shares in its former Indian unit, confiscated dividends owed and withheld tax refunds (totaling Rs7,600 crore) to collect taxes. that she felt were due.

Delhi’s 2012 law allowing itself to make tax claims regarding cross-border transactions since 1962, citing “underlying Indian assets”, has been exposed as a mishap for the second time in just over three months, the December 24, 2020. On this day, the Permanent Court of Arbitration in The Hague not only struck down India’s 2015 $ 2.74 billion tax claim on Cairn Energy Plc, but also ordered the Indian government return up to $ 1.4 billion in withheld funds, interest and fees, to the company. A similar September 2020 verdict was delivered by the same tribunal in favor of telecommunications major Vodafone (now Vodafone-Idea in India) in a high-profile retrospective tax dispute with India. The Hague tribunal ruled in both cases that India had violated the relevant bilateral investment treaties (BITs).

The government of course filed a petition in The Hague court on March 22, 2021, requesting the annulment of the arbitration award that favored Cairn. However, given that the tribunal asserted jurisdiction over the Cairn case despite the existence of the India-UK BIT, the chances of the order being set aside on a review are low. In practice, an annulment is only possible if bad faith in the award is established.

Cairn has reportedly identified $ 70 billion in Indian assets overseas for potential foreclosure. If the measures are successful, it would put India in alliance with Pakistan and Venezuela, which would face similar enforcement measures for non-payment of arbitral awards. Cairn also filed a complaint with the US District Court for the Southern District of New York, claiming that Air India is so controlled by the Indian government that it is an “alter ego”. He asked the court to hold the airline responsible for paying the arbitration award.

The Supreme Court of India last year rejected a government appeal to stop a $ 476 million award that Vedanta and Videocon won in January 2011. And while hearing the government’s appeal against the arbitration award of the $ 672 million that Devas Multimedia won in 2016 against Isro-arm Antrix Corporation, the fact that the SC asked Devas if he would be willing to forgo the interest component of the money owed to him suggests that the challenge might not hold up.

There are, on the other hand, cases where the SC has ruled against the execution of arbitral awards on the grounds that they were contrary to public order in India; this is the argument that the government advanced to the SC by asking for the sentence to be quashed.

In 2011, Cairn Energy sold the majority of its then Indian operations, Cairn India, to Vedanta. The Indian tax authorities, however, did not allow Cairn UK to sell 10% and attached the shares of Cairn India as well as the dividends that the company paid to its parent company. The Hague court also ordered the government to return the value of shares it had sold, dividends seized and tax refunds withheld. In fact, the government was asked to compensate the Edinburgh-based company “for the total damage suffered” as well as interest and arbitration costs.

Cairn’s tax dispute arose in 2006-07, as part of an internal redevelopment through a company in the European tax haven of Jersey, Cairn UK transferred shares of Cairn India Holdings to Cairn India. India later raised a capital gains tax claim on Cairn UK in retrospect amounting to $ 2.74 billion.

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