Air India has time till mid-July to challenge Cairn Energy lawsuit

Air India has time till mid-July to challenge the lawsuit failed by Britain’s Cairn Energy PLC demanding that a US federal court force the airline to pay a USD 1.26 billion arbitration award it had won against the Indian government in December 2020.

In a lawsuit filed with the US District Court for the Southern District of New York, Cairn had said Air India is controlled by the Indian government so much that they are alter egos. The company said the court should hold the national airline liable for the arbitration award.

A three-member international arbitration tribunal that consisted of one judge appointed by India had unanimously in December overturned levy of taxes on Cairn retrospectively and ordered refund of shares sold, dividend confiscated and tax refunds withheld to recover such demand. The government of India, despite participating in the arbitration proceeding over four years, has not accepted the award and has filed a setting aside petition in a court in The Netherlands, the seat of the arbitration.

Sources said that with Cairn seeking to recover the award from state-owned entities such as Air India, the government has said it will contest any enforcement. Air India has time till mid-July to file a plea contesting Cairn lawsuit. The airline, which is in the process of being privatized, is likely to argue that it is a separate entity and not the alter ego of the Indian government and cannot be forced to pay for any liability of the government.

Cairn has identified USD 70 billion of Indian assets overseas for potential seizure to collect award, which now totals to USD 1.72 billion after including interest and penalty. The assets identified range from Air India’s planes to vessels belonging to the Shipping Corporation of India and properties owned by state banks to oil and gas cargoes of PSUs. These assets are across several jurisdictions.

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The sources also pointed out that the energy company plans to move courts in the US to Singapore for seizure of the assets in absence of Indian government’s refusal to honor an international arbitration award. Once a court recognizes Air India as the alter ego of Indian government, Cairn can seek attachment or seizure of its assets in the US such as airplanes, immovable assets and bank accounts to recover the amount it was awarded by the arbitration tribunal.