Cairn Energy secures French court order to seize 20 Indian government properties

In a setback to India, Britain’s Cairn Energy Plc has secured a French court order to seize some 20 government properties in Paris to recover a part of the USD 1.7 billion due from New Delhi following an arbitration panel overturning levy of retrospective taxes. The centrally located properties mostly comprise of flats, valued at more than EUR 20 million, were used by Indian government establishment in France, three people with direct knowledge of the matter said.

The French court, Tribunal judiciaire de Paris, on June 11 agreed to Cairn’s application to freeze (through judicial mortgages) residential real estate owned by the Government of India in central Paris, they said adding the legal formalities for the same was completed on Wednesday evening. While Cairn is unlikely to evict the Indian officials residing in those properties, the government cannot sell them after the court order. A three-member international arbitration tribunal that consisted of one judge appointed by India, had in December last year unanimously overturned the levy of taxes on Cairn retrospectively and ordered refund of shares sold, dividend confiscated and tax refunds withheld to recover such demand.

With the Indian government refusing to honour the award, Cairn has moved to multiple overseas jurisdictions to enforce the award by seizing Indian assets. Last month, Cairn brought a lawsuit in the US District Court for the Southern District of New York pleading that Air India is controlled by the Indian government so much that they are ‘alter egos’ and the airline should be held liable for the arbitration award. Similar lawsuits are likely to be brought in other countries, primarily with high-value assets. The arbitration award has been registered in countries such as the US, UK, Canada, Singapore, Mauritius, France and the Netherlands. Cairn has identified USD 70 billion of Indian assets overseas for the potential seizure to collect award, which now totals to USD 1.72 billion after including interest and penalty.

Sources said the French court order affects some 20 centrally located properties, belonging to the Indian government, as part of a guarantee of the debt owed to Cairn. “This is the necessary preparatory step to taking ownership of the properties and ensures that the proceeds of any sales would be due to Cairn,” one of the persons said. Last month Cairn filed a petition with the courts in the Southern District of New York, seeking judicial confirmation that Air India, the national carrier, can be classed as the alter ego of the Indian state and thereby jointly liable for the arbitral award. Air India has time till mid-July to file a plea contesting the Cairn lawsuit, sources said. The Government of India, which participated in the arbitration proceeding over four years, has not accepted the award and has filed a ‘setting aside’ petition in a court in the Netherlands – the seat of the arbitration.

The move by Cairn is similar to a court in the British Virgin Islands ordering in December last year hotels in New York and Paris owned by Pakistan International Airlines to be used to settle a claim against Pakistan’s government by a Canadian-Chilean copper company. Crystallex International Corp had brought a similar lawsuit to attach the property of Petroleos de Venezuela, S.A (PDVSA), the state-owned oil company of Venezuela, in Delaware a couple of years back after the Latin American country failed to pay the firm USD 1.2 billion that an arbitration tribunal had ordered to pay in lieu of the 2011 seizing gold deposits held and developed by the firm. In 2012, Elliott Management, a buccaneering American hedge fund that held distressed Argentine bonds, seized a handsome tall ship belonging to Argentina’s navy. Recently, French courts ruled that a stifled creditor could seize a business jet belonging to the government of Congo-Brazzaville while it was being serviced at a French airport, as well as USD 30 million from a bank account of the country’s state oil company. In May, the finance ministry said that the tribunal “improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate”.

The ministry called the 2006 reorganisation of Cairn’s India business for listing on the local bourses as an “abusive tax avoidance scheme that was a gross violation of Indian tax laws, thereby depriving Cairn’s alleged investments of any protection under the India-UK bilateral investment treaty”. The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006 it listed its Indian assets on the BSE. Five years after that the government passed retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganisation tied to the flotation.