The Indian government has asked a federal court in Washington to dismiss Cairn Energy’s suit seeking enforcement of a $1.2-billion arbitral award, saying it had sovereign immunity under US law. The UK’s Cairn had in May asked a US federal court to force Air India to pay a $1.2-billion arbitration award the firm had won in December.
The government on August 13 filed a ‘motion to dismiss’ petition in the US district court for the District of Columbia, saying it lacked subject matter jurisdiction in the dispute between Cairn and the Indian tax authority, according to a filing.
This comes a week after the government scrapped a law that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas, but business assets were in India. That rule had been used to levy a cumulative £11 billion of tax on 17 entities, including £1.03 billion on Cairn. Officials said rules for withdrawal of such tax demands are being framed.
“One of the requirements for dropping of the retrospective tax demands is that the parties concerned have to give an undertaking for withdrawal of all cases against the government/tax department. So, while all this is in process, the government is obligated to respond in any legal matter where there is a time bar for doing so,” an official said.
Cairn had challenged the tax demand before an international arbitration tribunal, which in December last year overturned the same and ordered the government to refund the money collected. The government initially refused to return $1.2 billion, forcing Cairn to take action to recover that money through a seizure of Indian assets overseas.
In May, it took flag carrier Air India to a US court and last month got a French court order to seize real estate belonging to the government in Paris. It had contended before the US court that Air India is controlled by the government and the airline should be liable for the arbitration award.
In response, the government filed a dismissal motion last week, citing protections afforded by the US Foreign Sovereign Immunities Act (FSIA). India said the court “lacks subject-matter jurisdiction under FSIA because India never waived its sovereign immunity and, likewise, never offered - let alone agreed - to arbitrate the present dispute with petitioners.“India also never ‘clearly and unmistakably’ excluded judicial review or delegated exclusive competence to decide these questions to an arbitral tribunal,” implying Cairn couldn’t satisfy any exception to sovereign immunity under the US law, it said. Officials said the government couldn’t have waited for the tax dispute to be closed in line with the new law and had to file a motion, failing which an adverse court order would have led to more embarrassment. Cairn had asked the US court in February to recognise and affirm the December 2020 award against India from the Netherlands-based Permanent Court of Arbitration.
Finance Minister Nirmala Sitharaman had said the rules that will lead to the scrapping of the retrospective tax demands made on companies such as Cairn Energy Plc and Vodafone Plc will be framed soon. The government has to refund about £810 million that it had collected using the retro tax law. The bulk of this - £790 million is to Cairn Energy alone.