Britain’s Cairn Energy Plc has secured a French court order to seize about 20 Indian government properties in France to recover a part of $1.7 billion arbitration award, sources said on Thursday.
According to a report in London's Financial Times, Cairn Enery said said it has frozen Indian state-owned properties in Paris, marking an escalation of the fight between the Scottish oil producer and the Indian government.
On June 11, the French court had ordered Cairn Energy’s take-over of Indian government properties in France, mostly comprising flats, valued at over Euro 20 million; and the legal process got completed on Wednesday evening.
Sources said the French court order affects some 20 centrally located properties, belonging to the Indian government, as part of a guarantee of the debt owed to Cairn.
"This is the necessary preparatory step to taking ownership of the properties and ensures that the proceeds of any sales would be due to Cairn," one of the persons said.
While Cairn is unlikely to evict the Indian officials residing in those properties, the government cannot sell them after the court order.
An arbitration panel had in December ordered the Indian government to return $1.2 billion plus interest and penalty to Cairn Energy after reversing a retrospective tax demand.
With Indian government not honouring the award, Cairn Energy has moved in multiple jurisdictions overseas to recover the amount due by seizing Indian government assets.
Cairn has identified $70 billion of Indian assets overseas for the potential seizure to collect award, which now totals to $1.72 billion after including interest and penalty.
While the finance ministry did not immediately offer comments on the matter, a Cairn spokesperson said: "Our strong preference remains an agreed, amicable settlement with the Government of India to draw this matter to a close, and to that end we have submitted a detailed series of proposals to them since February this year."
After Air India, Britain's Cairn Energy PLC had plans to target assets of state-owned firms and banks in countries from the US to Singapore as it looks to ramp up efforts to recover the amount due from the Indian government after winning an arbitration against the levy of retrospective taxes, PTI had reported earlier.
Cairn to bring lawsuits in several countries
A lawyer representing the company said Cairn will bring lawsuits in several countries to make state-owned firms liable to pay the $1.2 billion plus interest and penalties that are due from the Indian government.
Last month, Cairn brought a lawsuit in the US District Court for the Southern District of New York pleading that Air India is controlled by the Indian government so much that they are 'alter egos' and the airline should be held liable for the arbitration award.
A three-member international arbitration tribunal that consisted of one judge appointed by India had unanimously in December overturned levy of taxes on Cairn retrospectively and ordered refund of shares sold, dividend confiscated and tax refunds withheld to recover such demand.
The government of India, despite participating in the arbitration proceeding over four years, has not accepted the award and has filed a 'setting aside' petition in a court in Netherlands - the seat of the arbitration.
Pressed by its shareholders - some of whom are biggies of the financial world, Cairn is seeking to recover the award by confiscating assets and bank accounts of state-owned entities in foreign countries.
"The (arbitration) award is registered and either recognised or soon to be recognised in several countries, and Cairn will continue to ramp up enforcement proceedings around the world to pursue the value of the award for its international shareholders," he said.
He, however, refused to either name the companies that Cairn will target or the countries where lawsuits will be filed.
Cairn has already got the arbitration award registered and recognised in the US, the UK, Netherlands, France, Canada and Singapore.
In case of Air India, the national flag carrier has time till mid-July to file a plea contesting Cairn lawsuit, sources aware of the matter said.
The airline, which is in the process of being privatised, is likely to argue that it is a separate entity and not the alter ego of the Indian government and cannot be forced to pay for any liability of the government, they said.
Cairn has identified $70 billion of Indian assets overseas for potential seizure to collect award, which now totals to $1.72 billion after including interest and penalty.
The assets identified range from Air India's planes to vessels belonging to the Shipping Corporation of India, and properties owned by state banks to oil and gas cargoes of PSUs, the sources said.
Air India has time till mid-July to file a plea contesting the Cairn lawsuit, sources said.
Once a court recognises a state-owned firm or bank as the alter ego of Indian government, Cairn can seek attachment or seizure of its assets including bank accounts to recover the amount it was awarded by the arbitration tribunal.
Similar cases earlier
The move by Cairn is similar to a court in the British Virgin Islands ordering in December last year hotels in New York and Paris owned by Pakistan International Airlines to be used to settle a claim against Pakistan''s government by a Canadian-Chilean copper company, PTI said.
Crystallex International Corp had brought a similar lawsuit to attach property of Petroleos de Venezuela, S.A (PDVSA), the state-owned oil company of Venezuela, in Delaware couple of years back after the Latin American country failed to pay the firm $1.2 billion that an arbitration tribunal had ordered to pay in lieu of the 2011 seizing gold deposits held and developed by the firm.
In 2012, Elliott Management, a buccaneering American hedge fund that held distressed Argentine bonds, seized a handsome tall ship belonging to Argentina's navy.
Recently, French courts ruled that a stifled creditor could seize a business jet belonging to the government of Congo-Brazzaville while it was being serviced at a French airport, as well as $30 million from a bank account of the country's state oil company.
In May, the finance ministry said that the tribunal "improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate".
The ministry called the 2006 reorganisation of Cairn's India business for listing on the local bourses as "abusive tax avoidance scheme that was a gross violation of Indian tax laws, thereby depriving Cairn's alleged investments of any protection under the India-UK bilateral investment treaty".
The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006 it listed its Indian assets on the BSE. Five years after that the government passed retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganisation tied to the flotation.
(With PTI inputs)
