Battle of a Scottish company to seize aircraft from the national airline of India

A Scottish company with 180 employees seizing the planes of India’s national airline may seem like an unlikely scenario.

But Cairn Energy seeks the authority to do so precisely in the latest twist in a legal saga that tests the will of British Prime Minister Boris Johnson to defend British companies while trying to reach post-Brexit trade deals .

Cairn, which has annual revenues of less than $ 400 million but whose investors include BlackRock and Vanguard, is asking Air India in New York to enforce an award against New Delhi of $ 1.2 billion plus interest, 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 therefore “is jointly… Responsible for India’s own debts and obligations,” an action it could prepare. the way for American marshals to seize the carrier’s planes.He has even hired lawyer Dennis Hranitzky, who in 2012 helped take an Argentine naval ship in Ghana as part of a long battle between US hedge fund Elliott Capital Management and Buenos Aires.

The Cairn Prize was made by an international tribunal in the Netherlands in December. If complied with, it could lead to bonus returns to Cairn shareholders and invigorate a business held back for years by a confrontation that has forced it to leave assets, lay off staff and limit investments.

But five months later, the government of Indian Prime Minister Narendra Modi has shown no sign that it plans to pay.

The case is one of several between Western companies and New Delhi. Vodafone also became involved in a dispute with the Indian tax authorities, who demanded 3 billion euros in arrears.

It comes at a sensitive time in UK-India relations. Countries last month sketched a “2030 roadmap” to strengthen ties in areas such as trade and defense. London expects to start negotiations on a full trade deal this autumn.

The battle is based on a 2012 law that allowed New Delhi to retrospectively impose taxes on cross-border transactions in which the underlying assets were located in India.

In 2014, Cairn was banned from selling its remaining 10 per cent stake to the former Cairn India subsidiary as authorities launched a tax investigation. The following year he was slapped with one $ 1.6 billion in tax bill.

Cairn initiated proceedings under the bilateral investment treaty between the United Kingdom and India to force the withdrawal of the tax claim and seek compensation for the financial losses. Most of its remaining shares in Cairn India, which later merged with Vedanta, were sold by the Indian tax authorities.

Johnson did not mention the dispute during a call last month with Modi. The UK’s line is that it is not involved in investor-state legal proceedings in 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 cannot defend the interests of British companies … just in the hope that he can smooth the way to a future trade deal,” said Emily Thornberry, trade secretary for the shadow.

The Scottish government said it would ensure that “Scottish and other economic interests are made clear to the British government before and during any future discussions with the Indian government on a free trade agreement”.

Cairn, who has identified $ 70 billion in global Indian assets that could be pursued, insists he remains “open to continuing a constructive dialogue with the government of India.”

International arbitration experts suggest that other Indian-owned assets, such as shares and bank accounts, could be easier targets, and that the maneuver against Air India, which the Modi government is trying to privatize, was designed to have maximum impact. .

“They are trying to reach an agreement,” said an international arbitration lawyer, who described Cairn’s action as “aggressive”.

Satvik Varma, a New Delhi-based lawyer, said Cairn had few options because Indian courts do not recognize international arbitration awards granted under bilateral investment treaties. “Cairn also responds to its shareholders and, after receiving a award, must do its utmost to demand execution,” he said.

One of Cairn’s major shareholders said, “That’s a lot of money; in the end you might have to be aggressive.”

Rasmi Ranjan Das, joint secretary of the finance ministry, told the Financial Times that New Delhi was in dialogue with Cairn. “The government is open to a friendly deal,” but it had to be “within India’s 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 over the tax dispute in India. And he said Air India was a legally independent entity that had “no responsibility to pay amounts under Cairn’s arbitral award or any other of India’s alleged debts or obligations.”

Cairn said he had “full confidence” in his position.

Lawyers suggest that the next logical step would be for India to ask New York to “suspend” Air India proceedings pending the challenge of the trial in The Hague.

The tax battle has severely affected Cairn, whose shares were worth more than £ 8 in 2012 when India’s retrospective law was introduced, but is now trading at around € 165 million, although the shares are also ‘have been affected by factors such as falling oil prices. 2014 and 2020.

Aside from downsizing and selling assets in the early years of the dispute, observers say uncertainty about the concession has limited Cairn’s ability to compete for assets. Size is becoming increasingly important for independent oil and gas companies that are out of fashion with equity markets.

“It simply came to our notice then [London-listed] Harbor Energy and Energean and these [larger independent oil and gas companies] they will be the winners because they will be big enough for investors to worry about, ”said Nathan Piper, an analyst at Investec.

Cairn “has been trying to get the business going since 2015.” . but they haven’t really been able to get it because of the uncertainty or not of whether you have $ 1 billion. ”