Another British firm threatens to seize India govt assets over taxes

Cairn Energy is threatening to seize Indian government assets following a US$1.2 billion award from a long-running corporate tax case, the BBC is reporting.

The UK-based energy firm was awarded damages last month by an international tribunal in a high-profile dispute with the Indian government.

Cairn has started identifying assets it could seize if the Indian government doesn’t comply with the order and pay up. Sources have said that these assets could include planes and ships.

The case was filed after Indian income tax officials seized Cairn’s 10% stake in its Indian subsidiary.

In December the international tribunal ruled unanimously that Delhi had violated the 2014 UK-India bilateral investment treaty. It ordered Delhi to pay damages, plus interest and costs, to compensate Cairn for the shares as well as confiscated dividends.

Even though payment was due immediately, Indian Prime Minister Narendra Modi’s government has given no indication of whether it intends to honour the verdict.

Cairn has sent a letter to Indian government officials, seen by both Reuters and the Financial Times, saying its shareholders “expect early resolution, failing which they will expect Cairn to pursue the award in conformity with its rights under the treaty. The award can be enforced against Indian assets in numerous jurisdictions around the world for which the necessary preparations have been put in place.”

Although the letter did not specify when assets might be seized, possible targets could include those owned by public sector enterprises such as state-owned Air India.

Cairn’s battle with Indian authorities stems from a 2012 law that changed the country’s tax regime retrospectively which tax authorities then used to claim unpaid dues stemming from Cairn India’s 2006 corporate reorganisation.

Cairn is not the only company to have challenged and won against India’s demands for taxes retrospectively in an international forum.

In September 2020, Vodafone Group Plc won an arbitration case against the government on similar grounds.

Experts say India’s international reputation is taking a severe beating as a result of these cases.

Modi famously promised to bring an end to “tax terror” after coming to power in 2014 but instead his government has been pursuing these tax claims in a bid to extract higher revenue.

For now, India seems unwilling to buckle under all the bad press. It has already challenged the Vodafone ruling in a Singapore court.

A similar move in the case of Cairn is not being ruled out but would further damage India’s record for contract enforcement, experts believe.