Cairn sues Air India in US to recover $1.2 billion retro tax award against govt

NEW DELHI: Scottish explorer Cairn Energy Plc has sued loss-making Air India in a US court to force recovery of a $1.2 billion international arbitration award it won in December against the Indian government’s retrospective tax claim, a move that could bog down disinvestment of the state-run national carrier.
Cairn filed the lawsuit in the US district court for the Southern District of New York, asking Air India to be declared as the “alter ego of Indian government” by virtue of control and “legally indistinct from the state-itself” as a state-owned company, agency reports said.
The petition also argued for Air India to be “held jointly and severally responsible for India’s debts, including from any judgment resulting from recognition of the (arbitration) award.”
“Cairn is taking the necessary legal steps to protect shareholders’ interests in the absence of a resolution to the arbitral award. Cairn remains open to continuing constructive dialogue with the Government of India to arrive at a satisfactory outcome to this long-running issue,” a Cairn spokesperson told TOI, confirming the lawsuit.
Government officials said they haven’t received any notice but have seen “some news reports in the media”. “Government/PSU (public sector unit) has not received any such notice. As and when any such notice is received, government/concerned organisation shall take all necessary steps to defend against any such illegal enforcement action,” one official said.
“It may be mentioned that the government has challenged the award in the case of Cairn in the appropriate court in the Hague and the Government is confident that the award will be set aside. The government has also engaged a counsel team, which is ready to defend against any enforcement action if and when initiated by Cairn anywhere in the world,” the official said.
The government had recently asked state-run banks to withdraw their overseas cash piles after Cairn said it will launch lawsuits in third countries to seize Indian government assets to recover the arbitration award.
Air India is currently the only Indian carrier flying non-stop to the US. It is unlikely that the carrier will immediately lose access to any of the planes, or other assets, in the US. But the lawsuit will cast a shadow over the submission of financial bids by the revised September deadline. Provisional figures presented to Parliament on March 25 estimated Air India’s losses in 2020-21 financial year at Rs 10,000 crore.
The dispute started with the Indian government in 2011 demanding from Cairn Rs 10,247 crore, plus interest and penalty, as tax on income from a restructuring of the company’s Indian operations before the 2006 IPO. The tax department also seized and sold the Scottish company’s residual shares in Cairn India, which had by then been bought by NRI Anil Agarwal’s Vedanta group.