Companies
Cairn versus India: What lies ahead
Summary
Cairn Energy Plc has secured a French court order to freeze Indian assets in France after India challenged an award of over $1.2 billion to Cairn. What are the previous instances of firms attaching government property as part of international arbitration awards? Mint takes a look.
Cairn Energy Plc has secured a French court order to freeze Indian assets in France after India challenged an award of over $1.2 billion to Cairn. What are the previous instances of firms attaching government property as part of international arbitration awards? Mint takes a look.
What is the Cairn dispute?
India’s dispute with Cairn relates to restructuring of the firm’s India business in 2006-07. The tax claim was raised under the United Progressive Alliance government when Cairn was about to sell its final 10% stake in Cairn India Ltd to Vedanta Resources Ltd in 2014. The tax demand invoked a 2012 change in the Income Tax Act that was retroactive. The department attached Cairn’s residual stake, received dividend on it and later sold the majority of it. Cairn began international arbitration in 2015 and won $1.2 billion in damages plus interest and costs last year, totalling more than $1.7 billion. India has appealed against it.
Why do investors go after public assets?
Asset attachment is pursued as a way of monetizing the arbitration award won against a government. Cairn has registered the arbitration award in several nations, including the US, UK, Singapore, France and the Netherlands for enforcement. The award is enforceable against India-owned assets in the more than 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Funds of Indian public sector undertakings (PSUs) in foreign banks can be frozen. Properties or assets owned by Indian state-owned banks or PSUs can also be seized.
Can Cairn attach Indian embassies/consulates?
No. Embassies and consulates are “inviolable" according to the provisions of the 1961 Vienna Convention. However, other assets such as an Air India aircraft or money in bank accounts in France or other countries where the arbitration award has been registered could be seized or frozen. Any symbol of Indian “soft power" would be an easy target.
Have there been such cases in the past?
A notable case was in 2012 when an Argentine naval vessel with more than 200 sailors on board was seized in Ghana as part of an attempt by the US hedge fund Elliott Capital Management to collect on bonds that the Argentinian government had defaulted on in 2001. The ship, ARA Libertad, was seized after an injunction of a Ghanaian court following an application by Elliott’s subsidiary, NML Capital. Around 93% of Argentina’s $100 billion in defaulted bonds were restructured in 2005 and 2010.
What are some of the other similar cases?
In May 2018, ConocoPhillips got court orders to seize Venezuela’s state oil company PDVSA’s assets on a $2 billion plus interest arbitration award, forcing PDVSA to withdraw its vessels from Caribbean waters. PDVSA agreed to settle for $2 billion. In 2020 December, a British Virgin Islands’ court ordered attachment of holding companies of Roosevelt Hotel in Manhattan and Scribe Hotel in Paris, owned by Pakistan International Airways, on an award of $4 billion plus interest to the Tethyan Copper of Australia.
