Explained: Why UK firm Cairn Energy has sued AI, wants to seize assets

UK-based oil company Cairn Energy PLC has sued Indian carrier Air India in the US to enforce a $1.2 billion arbitration award it won against the Indian government in a tax dispute and initiate the seizure of the airlines’ assets.

Dispute and arbitration court’s ruling

Ruling that India has breached an investment agreement with Britain, a Permanent Court of Arbitration at The Hague in December had asked the Indian government to pay $1.2 billion plus interest and costs to Cairn Energy for applying retrospective tax on the oil company.

The court said that the taxation by the Indian government breached “the guarantee of fair and equitable treatment.” The total fine damages including cases rounded up to $1.7 billion.

Cairn’s lawsuit

Cairn Energy’s lawsuit against Air India is part of its measures to seize the latter’s assets worldwide. According to Reuters, Cairn filed the lawsuit in the US District Court for the Southern District of New York on Friday, seeking to make the airlines liable for the judgment.

The lawsuit said that Air India, being 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 air India in improperly shielding its assets from creditors like (Cairn),” the report quoting the submission in court said.

Cairn Energy’s chief executive Simon Thomson had recently told the company’s shareholders that the company was in talks with the Indian government while taking “all necessary actions to protect our rights to the award and access the value of it as early as possible”.

In its annual report published in March, Cairn Energy had said that the arbitration order is also enforceable against assets owned by India in more than 160 countries that are signatories to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

To speed up the process, the oil company has knocked the doors of courts in the US, the UK and three other countries and aims to seize Indians assets including bank accounts in those countries.

How the Indian government has reacted to it

The case will now increase pressure on India to pay the amount quoted by the arbitration tribunal.

Sources in the Centre told Indian Express that the government will take necessary steps against “any such illegal enforcement action” once sent a notice in this regard.

“There are some news reports in the media that Cairn has initiated some action against a PSU to enforce the award. Government/PSU has not received any such notice. As and when any such notice is received, government/concerned organization shall take all necessary steps to defend against any such illegal enforcement action,” the official told IE.

Another official told Money Control that Air India will release a statement “with all the facts” soon.

Reports say India in March had filed a petition against the arbitration order. The government will also pray for a stay on enforcement of the award filed by the oil company in a Dutch court and that in eight other countries including UK, Canada, the US and France.

The development comes even as India’s flagship yet loss-making carrier is heading towards being disinvested by the Centre. Currently, Air India flies planes between India and New York, Newark, San Francisco, Chicago and Washington DC in the US.