British oil and gas exploration company Cairn Energy in a tax dispute case with India has dragged in Air India to enforce a $1.2 billion arbitration award. This has turned up the heat on India’s government to pay the sum of $1.2 billion plus interest and costs that Cairn was awarded by an arbitration tribunal in December.
Cairn, according to Reuters, filed the lawsuit on Friday in the US District Court for the Southern District of New York, seeking to make Air India liable for the judgment that was awarded to the company. The lawsuit argued that the airline as a state-owned company, is “legally indistinct from the state itself”. “The nominal distinction between India and Air India is illusory and serves only to aid India in improperly shielding its assets from creditors like Cairn,” the filing said.
This could potentially jeopardise India’s attempts to divest the state-owned carrier this year. The Centre had stated in December that it had received multiple expressions of interest after it moved to privatize the loss-making entity. However, a senior government official told Reuters that the government and Air India had not received any formal notice for such a suit. “As and when such notice is received, the government or concerned organization shall take all necessary steps to defend against any such illegal enforcement action,” he said and added that New Delhi has engaged a team ready to defend against any enforcement action initiated by Cairn anywhere in the world.
Since January, Cairn began taking steps to identify Indian assets overseas against which it could enforce the award including bank accounts, aircraft and even ships. It has also started registering its claim against India in courts in the United States, Britain, Netherlands and Canada. A company spokesman said Cairn was taking the necessary legal steps to protect shareholder interests in the absence of a resolution. “Cairn remains open to continuing constructive dialogue with the Government of India to reach a settlement,” he said.
However, an Indian official said talks between New Delhi and the British company are making “little progress”. He highlighted that India’s directive to state-run banks to withdraw foreign currency funds sitting overseas showed the government is worried that Cairn might quickly move to seize assets.