Cairn Energy sues Air India over $ 1.2 billion in arbitration

A Scottish energy company has launched a lawsuit aimed at allowing it to seize the planes of the state-owned company Air India, in a tax dispute with the Narendra Modi government.

Cairn Energy is asking Air India in the US to apply an interest reward of more than $ 1.2 billion (now worth more than $ 1.7 billion) in one of the disputes between Western companies and New Delhi.

The lawsuit, filed Friday in the southern district of New York, seeks to establish that Air India is “the alter ego of the Republic of India and is therefore jointly and severally liable for the debts and obligations of India itself.”

This is a legal process that could lead to Cairn Energy attempting to seize aircraft and other assets as part of a lengthy tax dispute, although talks to resolve the case continue.

The Edinburgh company has identified $ 70 billion in Indian-owned assets worldwide that could be pursued, including in London.

If the New York case demonstrates that Air India’s assets are exposed to the dispute, Cairn Energy believes it should set a precedent for other state-owned assets. The New York legal system is the focus of the company’s efforts because of its background in resolving such international disputes.

UK Prime Minister Boris Johnson is under pressure from the Labor opposition party to defend Cairn Energy and other companies in dispute with India.

Labor says Johnson is staying calm because he is desperate to reach a trade deal with Modi. A Conservative official said he did not believe Johnson raised the Cairn Energy case in a video conference with Modi this month.

Johnson agreed in his video call with Modi an “enhanced trade partnership,” both sides say they are looking for a full free trade agreement that would remove barriers to trade and investment.

But some Western companies argue that the Modi government is not complying with existing trade agreements. Vodafone, one of the largest companies in the UK, has been embroiled in a complex dispute with India’s tax authorities, demanding € 3 billion in arrears. An international arbitration tribunal ruled in favor of Vodafone, but New Delhi appealed the decision.

Devas, a satellite company based in India and the United States, has also been dragged into a legal dispute with Indian authorities.

“We cannot be in a position where Boris Johnson cannot defend the interests of British companies in the hope that it can smooth the way to a future trade deal with India,” said Emily Thornberry, Labor’s spokeswoman .

The UK government said it hoped “a resolution would be found soon” between Cairn Energy and the Indian government, but that it “did not comment on legal proceedings in which it is not a party”. He pledged to help British companies that wanted to invest in India.

In December, an international tribunal ordered India pay Cairn $ 1.2 trillion in connection with a retrospective tax dispute, New Delhi tried to charge the company. The Modi government has challenged the process.

India’s finance ministry did not respond to a request for comment, although local media quoted an anonymous official as saying the government would take all measures to defend itself.

Under a law passed in 2012, India retroactively demanded $ 1.4 billion from Cairn Energy in tax payments related to the floating of the British group of its Indian subsidiary on the Bombay Stock Exchange in 2007.

An arbitral tribunal found that India had breached its obligations under the UK-India Bilateral Investment Treaty in 2014 when tax officials confiscated the remaining 10% stake in Cairn Energy from the subsidiary, which sold the Vedanta.

Nirmala Sitharaman, India’s finance minister, last month overturned the court ruling.

Speaking a an event organized by the Financial Times and Indian Express, he said: “International arbitrations questioning India’s sovereign right to tax are a cause for concern and, to this limited extent, we are concerned that it sets a wrong precedent.”

Cairn Energy said it was “taking the necessary legal steps to protect the interests of shareholders in the absence of a settlement of the arbitral award.”