The row between oil and gas exploration firm Cairn Energy and the Indian government over a retrospective tax bill has reached a flashpoint. A French tribunal has now allowed the oil firm to seize 20 properties owned by the Indian government in central Paris worth more than 20 million euros ($27.7 million), according to media reports.
The Indian government claimed it has not received any communication from the French court but is likely to seek legal remedies to protect the country’s interests.
Cairn had last month approached the French court to freeze properties owned by the Indian government in Paris and the court had completed legal formalities on Wednesday. The oil firm told CNBC-TV18 that its strong preference remains an agreed, amicable settlement with the government of India. “In the absence of settlement, will take all actions to protect international shareholders’ interest,” it added.
The Indian government had in 2015 penalized Cairn based on an Income Tax Act amendment done in 2012, which was retroactively applicable to foreign companies for “indirect transfers” of shares derived from its assets located in India.
The amendment was brought by the then United Progressive Alliance government to overturn a Supreme Court’s decision favoring Vodafone in a tax battle with the government. Many analysts had felt that the move would spook foreign investors and hurt investor sentiment in the long run.
Cairn had restructured its India unit in 2006, ahead of stock market listing in 2007. India alleged that Cairn had made capital gains ahead of its initial public offering and imposed a capital gains tax of 102 billion rupees ($ 1.36 billion) plus interest and penalty. Cairn had argued that its restructuring was in compliance with the laws in force during the 2006-07 period.
The oil firm took the issue to an international tribunal, which awarded the company $1.7 billion in costs and damages in December 2020. The investor-state dispute settlement tribunal had held India guilty of violating the fair and equitable treatment obligation of the India-UK bilateral investment treaty. The Indian government has appealed against this.
Earlier this year, Cairn CEO Simon Thomson had met Indian finance ministry officials to reach a settlement. Finance Ministry Nirmala Sitharaman had in March indicated that India will go for an appeal as its national sovereign authority to tax was being questioned.
Cairn had earlier said it has identified $70 billion of Indian assets overseas for the potential seizure to collect the arbitration award, including interests and penalty. In May, it had moved a court in New York against the national carrier Air India. Cairn contended that the airline was controlled by the Indian government and hence its assets should be seized to enforce the international tribunal’s arbitration award. It had also identified vessels belonging to the Shipping Corporation of India for seizure.
The arbitration award has also been registered in many other jurisdictions, including the US, UK, Canada, Singapore, Mauritius, France, and the Netherlands, Cairn added.
The Indian government has directed state-owned banks to safeguard their dollar deposits for fear that they could be seized.