The battle of a Scottish company to seize the planes of the Indian national airline
A Scottish company with 180 employees seizing planes from the Indian national airline may seem like an unlikely scenario.
But Cairn Energy is seeking permission to do so in the latest twist in a legal saga that tests British Prime Minister Boris Johnson’s willingness to stand up for British companies as he seeks to secure post-Brexit trade deals.
Cairn, which has annual revenues of less than $ 400 million but whose investors include BlackRock and Vanguard, is suing Air India in New York to enforce a sentence against New Delhi of $ 1.2 billion plus interest, for a total of $ 1.7 billion.
The oil and gas company is trying to prove that Air India is an “alter ego” of the Indian government and that it is “therefore jointly.” . . responsible for India’s own debts and obligations, ”a move that could pave the way for US marshals to seize the carrier’s jets. He even hired attorney Dennis Hranitzky, who in 2012 helped seize an Argentine navy ship in Ghana as part of a protracted battle between US hedge fund Elliott Capital Management and Buenos Aires.
Cairn’s award was handed down by an international tribunal in the Netherlands in December. If enforced, it could generate handsome returns for Cairn shareholders and re-energize a company stuck for years in a struggle that has forced it to divest assets, lay off staff and limit investments.
But five months later, Indian Prime Minister Narendra Modi’s government has shown no sign of paying.
The case is one of many between Western companies and New Delhi. Vodafone also found itself embroiled in a feud with Indian tax authorities, which demanded € 3 billion in payment arrears.
This comes at a sensitive time in UK-India relations. Last month, countries presented a “2030 roadmap” to strengthen ties in areas such as trade and defense. London hopes to start negotiations on a full trade deal this fall.
The battle is rooted in a 2012 law that allowed New Delhi to retrospectively levy taxes on cross-border transactions in which the underlying assets were in India.
In 2014, Cairn was prohibited from selling its remaining 10% stake in the former Cairn India subsidiary after authorities launched a tax investigation. The following year, he was slapped with a $ 1.6 billion tax bill.
Cairn initiated proceedings under the UK-India Bilateral Investment Treaty to force the withdrawal of the tax claim and seek compensation for financial losses. Most of its remaining shares in Cairn India, which later merged with Vedanta, were sold by Indian tax authorities.
Johnson did not mention the dispute during a call last month with Modi. The UK line is that it does not get involved in investor-state legal proceedings to which it is not a party, although people familiar with the matter say previous administrations have raised the Cairn case.
“We cannot be in a position where Boris Johnson does not defend the interests of UK business. . . just in the hope that it will pave the way for a future trade deal, ”said Emily Thornberry, Labor shadow trade secretary.
The Scottish government has said it will ensure that “Scottish economic and other interests are made clear to the UK government before and during any future discussions with the Indian government about a free trade agreement”.
Cairn, who has identified $ 70 billion in Indian assets around the world that could be exploited, insists he remains “open to continuing a constructive dialogue with the Indian government.”
International arbitration experts suggest that other Indian-owned assets, such as stocks and bank accounts, might be easier targets, and that the move against Air India – which Modi’s government is trying to privatize – was designed to have maximum impact.
“They are trying to get a settlement,” said an international arbitration lawyer, who called Cairn’s action “aggressive.”
Satvik Varma, a New Delhi-based lawyer, said Cairn had few options as Indian courts do not recognize international arbitral awards made under bilateral investment treaties. “Cairn is also accountable to his shareholders and after obtaining a sentence he must do everything to seek execution,” he said.
One of Cairn’s top 15 shareholders said: “That’s a lot of money – at the end of the day you might have to be aggressive. “
Rasmi Ranjan Das, co-secretary at the Ministry of Finance, told the Financial Times that New Delhi remains in dialogue with Cairn. “The government is open to an amicable settlement” but that had to be “within the Indian legal framework,” he said. “The government’s position is that the tax is. . . a sovereign function.
He noted that Cairn was still involved in legal proceedings regarding the tax dispute in India. And he said Air India was a legally independent entity that had “no responsibility for paying any amounts under the Cairn Arbitral Award or any other alleged debt or obligation of India.”
Cairn said he had “full confidence” in his position.
Lawyers suggest the next logical step would be for India to ask New York to “stay” Air India’s proceedings pending a challenge to the proceedings from The Hague tribunal.
The tax battle took a heavy toll on Cairn, whose shares were worth over £ 8 in 2012 when India’s retrospective law was introduced, but are now trading at around 165 pence, although the stock has also been affected by factors such as the fall in oil prices of 2014 and 2020.
Besides downsizing and selling off assets in the early years of the conflict, observers say the uncertainty surrounding the award limited Cairn’s ability to compete for assets. Size is increasingly important for independent oil and gas companies that are no longer in fashion in the stock markets.
“Everybody knows that [London-listed] Harbor Energy and Energean and these [larger independent oil and gas companies] will be the winners because they will be large enough that investors care, ”said Nathan Piper, analyst at Investec.
Cairn “has been trying to move the business forward since 2015. . . but they haven’t really been able to do it because of the uncertainty whether or not you have $ 1 billion ”.
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