British oil firm Cairn Energy Plc. on Tuesday said it has identified Indian sovereign assets overseas, which it can seize in the event of New Delhi failing to return over $1.7 billion that an international arbitration tribunal has ordered after rescinding a retrospective tax demand.
“Cairn is extremely confident that satisfaction of the award will be achieved either by negotiated settlement or by enforcement against Indian assets,” the firm said in its 2020 annual earnings statement.
The firm has moved courts in nine countries to get the arbitral award registered and recognised.
“The tribunal ruled unanimously that India had breached its obligations to Cairn under the U.K.-India Bilateral Investment Treaty and awarded to Cairn damages of $1.2 billion-plus interest and costs, which immediately became payable. The total due at the year-end was $1.7 billion,” it said.
The firm said it has engaged directly with the government of India regarding satisfaction of the award, which is also enforceable against Indian-owned assets in more than 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
“Cairn has already taken steps to have the Award recognised in certain major jurisdictions in which Indian sovereign assets have been identified,” the statement said.
PTI had on March 8 reported that the December 21 award from a three-member tribunal at the Permanent Court of Arbitration in the Netherlands has been recognised and confirmed by courts in the U.S., the U.K., Netherlands, Canada and France. Further, the firm has started the process to register the award in Singapore, Japan, the United Arab Emirates and the Cayman Islands.
“Cairn’s engagement with the Government of India on its arbitration award will continue in parallel with pursuing options of enforcement and monetisation of the Award in order to safeguard shareholders’ rights,” the statement noted.
The registration of the award is the first step towards its enforcement in the event of the government not paying the firm.
Once the court recognises an arbitration award, the company can then petition it for seizing any Indian government assets such as bank accounts, payments to state-owned entities, aeroplanes and ships in those jurisdictions, to recover the monies due to it.
So far the government has not directly commented on honouring or challenging the Cairn arbitration award, but Finance Minister Nirmala Sitharaman had last week indicated going in for an appeal.
The tribunal had on Dec. 21 ruled that the government breached an investment treaty with the U.K. and was therefore liable to return the value of shares it had seized and sold, dividend confiscated and tax refund stopped to adjust a Rs 10,247 crore tax demand.
Simon Thomson, Chief Executive, Cairn, said: “We have engaged with the Government of India regarding adherence to the ruling and we are pursuing all avenues to protect our shareholders’ rights to the value of the award”.
Cairn said the tribunal ruled that the dispute was within the scope of the Treaty and other relevant legal parameters.
“It further ruled that the application to Cairn of the retrospective tax amendment introduced by the Government of India was “grossly unfair”, discriminatory and in breach of the “Fair and Equitable Treatment” standard of the Treaty,” the statement said.
The tribunal, therefore, ordered the withdrawal of the tax demand in India and awarded to Cairn compensation equal to the value of the shares held in Cairn India Limited (subsequently merged with Vedanta Limited) seized by India in 2014 and withheld tax refunds due on other matters, totalling $1.223 billion-plus interest and costs, which is now payable.
“Interest is payable based on U.S. dollar six-month LIBOR plus a semi-annual margin of 1.375%, accruing from 2014, and the costs awarded totalled $22 million. The total amount due to Cairn on December 31, 2020, was $1.725 billion,” it said.
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