Cairn Energy has sued India’s Air India to enforce a $1.2 billion arbitration award that it won in a tax dispute against India, according to a US District Court filing. The move will increase pressure on government of India to pay the sum of $1.2 billion plus interest and costs that the British firm Cairn was awarded by an arbitration tribunal in December. The body ruled India breached an investment treaty with Britain and said New Delhi was liable to pay.
Cairn filed the lawsuit in the US District Court, seeking to make Air India liable for the judgment that was awarded to Cairn. The lawsuit argued that the carrier as 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 aid India in improperly shielding its assets from creditors like (Cairn)," the filing said.
However, a senior government official said the government and Air India had not received any formal notice of such a suit. "As and when any such notice is received, the government or concerned organisation shall take all necessary steps to defend against any such illegal enforcement action," the official said, adding that New Delhi has engaged a team ready to defend against any enforcement action initiated by Cairn anywhere in the world.
Cairn’s move could potentially jeopardise India’s attempts to divest the state-owned carrier this year. New Delhi said in December that it had received multiple expressions of interest after it moved to privatise the loss-making entity. The senior government official noted New Delhi has filed an appeal against the arbitration award, and added “the government is confident that the award will be set aside”.
Cairn had since January, however, begun taking steps to identify Indian assets overseas against which it could enforce the award including bank accounts, aircraft and even ships. It had also started registering its claim against India in courts in the United States, Great Britain, Netherlands and Canada.
Reuters last week reported that India had asked state-run banks to withdraw funds from their foreign currency accounts abroad, fearing Cairn might sue to seize the funds. Commenting on the suit, a company spokesman said that Cairn was taking the necessary legal steps to protect shareholder interests in the absence of a resolution. He said that "Cairn remains open to continuing constructive dialogue with the Government of India" to reach a settlement.
An Indian official said talks between New Delhi and the company were making "little progress" and noted that India's directive to state-run banks to withdraw foreign currency funds sitting overseas showed the government is worried that Cairn may move quickly to seize assets. It is unclear whether the suit against Air India could serve as a means for Cairn to seize Air India aircraft that land on US soil.
