A French court has allowed UK-based Cairn to seize several Indian government properties in Paris
A French court has allowed UK-based Cairn to seize several Indian government properties in Paris

The government of India’s obstinate refusal to accept adverse verdicts in the international arena has culminated in the embarrassing prospect of it having its overseas assets seized in multiple jurisdictions. The latest setback is a French court freezing several properties in Paris, including the residence of the Deputy Chief of Mission in Paris, preparatory to them being sold off or otherwise disposed of, to enforce the UK-based Cairn Energy’s claim against the government.

An international arbitration tribunal at the Hague had ruled last year that the Indian government was “in breach of the guarantee of fair and equitable treatment” and awarded Cairn $1.2 billion in compensation. The dispute relates to a corporate restructuring carried out by Cairn Energy overseas, prior to an IPO in 2006-07. A tax demand was raised retrospectively, invoking the infamous retrospective amendment to the Income Tax Act carried out by the UPA government in 2012. Cairn has argued, successfully, that the retrospective demand was against international law and settled practice. Nevertheless, the government has doggedly maintained its claim, even seizing Cairn’s residual shares in Cairn India, as well as tax refunds amounting to $1.4 billion.

The retrospective amendment itself was introduced after the government lost a similar tax demand on Vodafone PLC, this time in our own Supreme Court. Instead of accepting the verdict, the government had amended the law with retrospective effect to legalise its action. At that time, the BJP, then in the Opposition, had termed it ‘tax terrorism’ and had vowed to do away with it if it came to power. Incidentally, Vodafone had also won an international arbitration award against the government.

Far from doing so, however, both the first and the current Narendra Modi-led BJP governments have inexplicably persisted in pursuing these demands. Cairn, under pressure from its shareholders to recover the money, has filed suits in five countries to seize government-owned assets, including Air India’s aircraft, and alarmingly, assets of Indian public sector banks overseas, leading to a panicky directive to the banks to ring-fence their assets from seizure.

In fact, Devas Multimedia, which has also won $1.2 billion in arbitral awards in multiple forums against the cancellation of its satellite broadband licences, has reportedly joined hands with Cairn, to try and seize Air India’s aircraft and other assets. This looming threat has already scuppered any chances of a quick sale of Air India and has cast a shadow over the valuation of other state-owned entities, including the Shipping Corporation of India, Indian Oil, ONGC and PSU banks. The threat of further global embarrassment is very real.

The government’s stubborn refusal to honour its own international treaties and guarantees, and recognise adverse rulings from courts whose jurisdiction it has already accepted, is indefensible. Its argument that this has to do with the sovereign right to tax does not hold water, as no court has questioned such sovereignty but only held the retrospective demands illegal. It should settle with not only Cairn but the others too, and re-establish India’s hard-won international reputation as a country governed by the rule of law. It also needs to live up to its poll promise and abolish the retrospective amendment, which has already caused incalculable harm to India’s global image.

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