Bhaskar Explainer: Cairn seizes India’s assets worth more than Rs 176 crore, know-how, and when the dispute started

There is a dispute between the UK petroleum company Cairn Energy and the Indian government over the retrospective tax (tax applied before the date of passing of any law). According to a report in the Financial Times, Cairn Energy has seized 20 properties of the Indian government in Paris, France. Cairn Energy has seized this property on the orders of a French court. The estimated value of this property is being told about 20 million euros, about 176 crore rupees. Today we are going to tell you what is the dispute between Cairn Energy and Government of India and how long this dispute is going on…

When did the controversy start?

The tax dispute pertains to the reshuffle of its business by the Indian subsidiary of Cairn Energy in 2006-07. The tax demand from Cairn Energy was made during the United Progressive Alliance (UPA) government. As part of a business reshuffle, Cairn sold its last 10% stake in its Indian subsidiary Cairn India Limited to Vedanta Resources Limited in 2014.

How did the tax dispute start?

The Central Government had amended the Income Tax Act in 2012. Under this, the tax was demanded from Cairn. The income tax department had attached the remaining stake of Cairn for collection of tax. The Income Tax Department also took dividend for this stake and later sold a large part of it. Cairn filed the case in the International Court of Arbitration in 2015. In December 2020, the arbitration court ruled in favor of Cairn. The arbitration court ordered the Indian government to pay Cairn Energy $1.2 billion in damages. Adding interest and costs, this amount rises to $1.7 billion. The Government of India has filed an appeal against the decision of the Arbitration Court.

Why was the property of the Indian government confiscated?

Seizing property is the best way to enforce an arbitration award won against any government. Cairn Energy has filed cases in several countries to enforce the arbitration award. Countries like USA, UK, Singapore, France and Netherlands are prominent in this. India had signed into law the Recognition and Enforcement of Foreign Arbitral Awards at the 1958 New York Convention. Under this, property located in more than 160 countries of India can be confiscated to enforce any arbitration award. Under this law, for the enforcement of arbitration award, the funds of public sector banks deposited in foreign banks, property or property of public sector banks or companies can be confiscated.

Has this happened in any country before?

Yes. In 2012, an Argentinian shipwreck with 200 sailors was seized in Ghana. In 2001 the Argentine government failed to pay the bonds. The US hedge fund Elliot Capital Management took this action to recover these bonds. The ship was seized following a Ghanaian court order on an appeal by NML Capital, a subsidiary of Elliot Capital. Argentina defaulted on payment of about 93% of the $100 billion bond amount. These bonds were restructured in 2005 and 2010.

Other Major Cases of Property Seizure

  • In May 2018, the court ordered the seizure of more than $2 billion in assets of Venezuela’s state-run oil company PDVSA. This order was given by the court on the appeal of ConocoPhillips to implement the arbitration award. PDSVA later agreed to pay an amount of $2 billion.
  • In December 2020, the Court of the British Virgin Islands ordered the seizure of the assets of Pakistan International Airways to enforce the arbitration award. This included the Rosevelt Hotel in Manhattan and the Scrib Hotel in Paris. The order was given by the court to enforce the arbitration award of over $4 billion by Thethian Copper of Australia.

Will the Indian Embassy and Consulate also be able to be seized?

No. As per the provisions of the Vienna Convention of 1961, the Embassy and Consulate of any country cannot be seized to enforce an arbitration award. However, other assets such as Air India aircraft or bank account deposits in France or property or funds located in other countries can be confiscated or confiscated.

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