A Scottish firm with solely 180 workers seizing the planes of India’s nationwide airline could seem an unlikely state of affairs.
However Cairn Vitality is in search of authority to just do that within the newest twist to a authorized battle towards the Indian authorities that spans three continents and has lasted seven years.
The oil and fuel firm launched authorized proceedings towards Air India in New York final month in an effort to implement a global arbitration tribunal’s ruling that New Delhi ought to pay the corporate $1.2bn plus curiosity to settle the historic tax dispute.
Because it seeks to safe a sum now value $1.7bn, Cairn is attempting to show Air India is an “alter ego” of India’s authorities and is “due to this fact collectively . . . chargeable for the money owed and obligations of India itself”, a transfer that might pave the best way for US marshals to grab the service’s jets.
The Edinburgh-based firm has even employed lawyer Dennis Hranitzky, who in 2012 helped seize an Argentine naval vessel in Ghana as a part of an extended battle between US hedge fund Elliott Capital Administration and Buenos Aires.
The dispute has its roots in Cairn’s 2006 restructuring of its profitable Indian operations, establishing Cairn India as a separate subsidiary that floated on the Bombay Inventory Alternate the next yr. The Scottish firm bought most of its stake in Cairn India to Vedanta for $6.5bn in 2011.
However in 2012 New Delhi launched a legislation permitting it to levy taxes retrospectively on cross-border transactions during which the underlying belongings had been in India, and in 2014 it accused Cairn of not paying tax associated to the 2006 restructuring.
Pending an investigation, the Scottish firm was barred from promoting its residual 10 per cent stake in Cairn India, then value roughly $1bn, and in 2015 it was slapped with a $1.6bn tax bill.
Cairn raised dispute proceedings underneath the UK-India bilateral funding treaty in an effort to power the withdrawal of the tax demand and search compensation for monetary losses. Most of its remaining shares in Cairn India had been seized by Indian tax authorities after which bought.
An international tribunal within the Netherlands dominated in Cairn’s favour in December. If enforced, the award might set off good-looking returns to Cairn shareholders and reinvigorate its enterprise.
Cairn has been held again for years by the tussle, which has compelled it to shed belongings, lay off employees and restrict investments. Its shares, value greater than £8 every in 2012, now commerce at about 165p, though the drop additionally displays different components such because the oil value crashes of 2014 and 2020.
However 5 months on, Indian prime minister Narendra Modi’s authorities has proven no signal it plans to pay up.
The case is one in every of a number of between western corporations and New Delhi. Vodafone additionally grew to become embroiled in a wrangle with India’s tax authorities, which demanded €3bn in back-payments.
It comes at a delicate time in UK-India relations, offering a check of Prime Minister Boris Johnson’s willingness to face up for British corporations whereas he seeks to strike post-Brexit commerce offers.
The nations final month outlined a “2030 road map” to strengthen ties in areas equivalent to commerce and defence. London hopes to begin negotiations on a full commerce settlement this autumn.
Johnson didn’t point out the dispute throughout a name final month with Modi. The UK line is that it doesn’t get entangled in investor-state authorized proceedings to which it’s not a celebration, though folks conversant in the matter stated earlier administrations have raised Cairn’s case.
“We can’t be able the place Boris Johnson is failing to face up for the pursuits of British companies . . . simply within the hope it could clean the trail to a future commerce deal,” stated Emily Thornberry, Labour’s shadow commerce secretary.
The Scottish authorities stated it might guarantee “Scottish financial and different pursuits are made clear to the UK authorities earlier than and through any future discussions with the Indian authorities a few free commerce settlement”.
Cairn, which has recognized $70bn of Indian belongings globally that could possibly be pursued, insists it stays “open to persevering with constructive dialogue with the federal government of India”.
Worldwide arbitration specialists counsel different Indian-owned belongings equivalent to shares and financial institution accounts may be simpler targets, and that the manoeuvre towards Air India — which Modi’s authorities is attempting to privatise — was designed to have most affect.
“They’re attempting to get a settlement,” stated one worldwide arbitration lawyer, who described Cairn’s motion as “aggressive”.
Satvik Varma, a New Delhi-based lawyer, stated Cairn had few choices as a result of Indian courts don’t recognise worldwide arbitration awards granted underneath bilateral funding treaties. “Cairn can be answerable to its shareholders and after it has an award it has to do all the things to hunt enforcement,” he stated.
A top-15 Cairn shareholder stated: “It’s some huge cash — on the finish of the day possibly it’s important to be aggressive.”
Rasmi Ranjan Das, a joint secretary within the finance ministry, instructed the Monetary Occasions that New Delhi remained in dialogue with Cairn. “The federal government is open to an amicable settlement” nevertheless it needed to be “inside the Indian authorized framework”, he stated. “The federal government place is that the tax is . . . a sovereign operate.”
He famous that Cairn was nonetheless taking part in authorized proceedings over the tax dispute in India. And he stated Air India was a legally unbiased entity that had “no duty to pay quantities underneath the Cairn arbitral award or some other of India’s alleged money owed or obligations”.
Cairn stated it had “full confidence” in its place.
Legal professionals counsel a logical subsequent step can be for India to use in New York to “keep” the Air India proceedings pending a problem to the tribunal course of in The Hague.
Other than slicing employees and promoting belongings within the early years of the dispute, observers stated uncertainty over the award has restricted Cairn’s potential to compete for belongings. Dimension is more and more essential for unbiased oil and fuel corporations which are out of style with fairness markets.
“Everybody is aware of that [London-listed] Harbour Vitality and Energean and these [larger independent oil and gas companies] are going to be the winners as a result of they’ll be large enough for traders to care about,” stated Nathan Piper, analyst at Investec.
Cairn “has tried to maneuver the enterprise ahead since 2015 . . . however they haven’t actually been capable of go for it due to the uncertainty or not of whether or not you’ve got $1bn”.
Twice weekly e-newsletter
Vitality is the world’s indispensable enterprise and Vitality Supply is its e-newsletter. Each Tuesday and Thursday, direct to your inbox, Vitality Supply brings you important information, forward-thinking evaluation and insider intelligence. Sign up here.