“An order has been passed by a French court freezing certain Indian government properties in the case pertaining to Cairn Energy,” minister of state for finance Pankaj Chaudhary told Rajya Sabha in a written reply. “For handling enforcement proceedings, an international law firm, with relevant experience, has been engaged. In consultation with its counsel team, the government is taking all appropriate legal steps to protect its interest.”
Weeks after UK-based Cairn Energy secured a French court order to seize about 20 Indian government properties worth Rs 177 crore in Paris, the government on Tuesday confirmed the development and said it has roped in an international law firm to handle the enforcement proceedings.
“An order has been passed by a French Court freezing certain Indian Government properties in the case pertaining to Cairn Energy,” minister of state for finance Pankaj Chaudhary told Rajya Sabha in a written reply. “For handling enforcement proceedings, an international law firm, with relevant experience, has been engaged. In consultation with its counsel team, the government is taking all appropriate legal steps to protect its interest.”
The properties in question mostly comprise flats used by the Indian government establishment in France. The company’s move was in line with its declared plan to recover “$1.7-billion dues” from New Delhi by attaching assorted Indian assets overseas, including real estate and Air India planes. This followed a December 2020 international arbitration award overturning levy of Delhi’s retrospective taxes.
However, Cairn is keeping the options open for a conciliatory settlement of the tax dispute with the Indian government. Calling the France episode a “necessary preparatory step” towards taking up the ownership of the properties, a company spokesperson recently said that the firm still preferred to reach an “agreed, amicable settlement” with New Delhi to close the matter.
The finance ministry on July 8 said the government had then not received any notice, order or communication, in this regard, from any French court.
If the company manages to attach the Central Paris properties, it will be the first asset freeze application to succeed among many filed by Cairn in different countries to enforce the arbitration award.
Earlier, during discussions between finance ministry officials and Cairn Energy CEO Simon Thomson and his team here in February 2021, the government had asked Cairn to settle the dispute using the Vivad se Vishwas scheme; under the scheme, the company will have to pay around half the amount due sans interest and penalties in cases where the tax department has lost a case in a forum and filed an appeal, as the instant one.
Even before the arbitral award was pronounced, India had seized and sold shares of Cairn in its erstwhile India unit, confiscated dividend due and withheld tax refunds (totalling Rs 7,600 crore) to recover the taxes it felt were due.
Delhi’s 2012 law empowering itself to make tax demands concerning cross-border deals all the way back to 1962 citing ‘underlying Indian assets’ was exposed as a misadventure for the second time in a little over three months, on December 24, 2020. On that day, the Permanent Court of Arbitration at The Hague not only invalidated India’s $2.74-billion 2015 tax claim on Cairn Energy Plc, but also ordered the government of India to return up to $1.4 billion in funds withheld, interest and costs, to the firm. A similar September 2020 verdict was delivered by the same tribunal in favour of telecom major Vodafone (Now Vodafone-Idea in India) in a high-profile retrospective tax dispute with India. The Hague Court held in both cases India was in breach of the relevant Bilateral Investment Treaties (BITs).
The government, of course, filed an application in The Hague court on March 22, 2021, seeking the setting aside of the arbitral award that favoured Cairn. However, since the tribunal has affirmed its jurisdiction over the Cairn case despite the existence of the India-UK BIT, the chances of a reversal of the order in a review is remote. Virtually, a reversal is possible only if mala fide in the award is established.
The Cairn tax dispute arose as in 2006-07, as a part of internal rearrangement through a firm in European tax haven of Jersey, Cairn UK transferred shares of Cairn India Holdings to Cairn India. Later, India retrospectively raised a demand of capital gains tax on Cairn UK.