Cairn Power threatens to grab Indian belongings in over $ 1.2 billion tax dispute

Cairn Energy has threatened to seize Indian government assets if New Delhi fails to pay UK oil and gas producer $ 1.2 billion after losing a bitter dispute over retroactive taxes.

The warning in a letter from the Financial Times underscores pressure on Prime Minister Narendra Modi’s administration to honor the verdict in one of the longest-running and best-known corporate tax battles.

An international tribunal ruled unanimously in December that New Delhi had breached its obligations under the UK-India bilateral investment agreement in 2014 when income tax officials seized Cairn’s remaining 10 percent stake in Cairn India.

In a ruling, which Cairn described as “final and binding,” the Tribunal called for New Delhi to pay $ 1.2 billion in damages plus interest and expenses to Cairn for the shares long sold by the tax department as well to compensate for confiscated dividends.

However, in the month since the 582-page judgment was passed, Mr. Modi’s government has provided no indication of whether it intends to appreciate the judgment, despite payment being due immediately.

In the letter, Cairn said that its shareholders – including major financial institutions such as BlackRock, Fidelity, Franklin Templeton, Schroders and Aviva – “expect a speedy resolution, otherwise they expect Cairn to pursue the award in accordance with its contractual rights”. .

“The award can be enforced in many countries around the world against Indian assets for which the necessary preparations have been made,” added the company.

Although the letter did not specify when assets might be seized, individuals familiar with the situation could include bank accounts and mobile and immovable property, including the assets of public sector companies such as state-owned Air India, but not diplomatic assets .

Cairn’s fight against the Indian authorities is based on a 2012 law enforced by the previous Congress Party’s government that retroactively amended the country’s tax law. In 2014, the tax authorities cited the new law requiring unpaid fees from Cairn India’s corporate restructuring in 2006 to be claimed prior to going public.

People close to the situation said that since the court ruling in December, several Cairn shareholders, who represent about 30 percent of the company’s total stake, have been campaigning with the UK, US and Indian authorities to have the ruling recognized .

The Indian authorities declined to comment.

Analysts say New Delhi’s actions in this case will have far-reaching effects on its international image, as Modi’s own Bharatiya Janata party denounced the previous Indian government for so-called “tax terrorism”.

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“Investors are very careful about what decision India makes in this case,” said Richard Heald, Chair of the UK India Business Council. “Modi initially rated the retroactive tax situation very negatively. Now he has the opportunity to say that this case is closed. The question is, will he do that? “

India is not the first country to be affected by the seizure of its international assets.

In 2012, an Argentine naval ship was seized in Ghana when US hedge fund Elliott Management attempted to withdraw government bonds Argentina defaulted eleven years ago.

Elliott later raised $ 2.4 billion from the country after making a deal with reformist President Mauricio Macri.

In 2018, ConocoPhillips confiscated products from a PDVSA oil refinery in the Dutch Caribbean after the Venezuelan state oil company failed to comply with an international ruling that awarded Conoco US $ 2 billion in compensation in 2007 for the expropriation of its property.

Additional coverage from David Sheppard in London