On May 23rd 2021, Sunday, the finance minister said that India has challenged an international arbitration tribunal asking it to return U.S. dollar 1.2 billion to UK’s Cairn Energy Plc on grounds that it had never agreed to arbitrate over a national tax dispute.
The government appointed a judge on the three-member arbitration panel and fully participated in the proceedings against India seeking rupees 10, 247 crore in bank taxes from Cairn, The Mistry said the tribunal improperly exercised jurisdiction over a national tax dispute that the Republic of India has never offered or agreed to arbitrate.
India claimed that it had seized and sold shares of the company in its erstwhile India unit confiscated divided you and withheld tax refunds to recover the tax demand it had levied two years after passing a law in 2012 that gives it powers to levy tax retrospectively.
The said company then invoked arbitration under the India UK bilateral investment treaty. In December 2020 the state company won an award which held the levy of taxes using the 2012 law unfair on the company and the tribunal asked the Government of India to return dollar 1.2 billion and also the cost of interest.
The finance minister said that, “the 2006 reorganization of Cairn’s India business for listing on the local bourses as an abusive tax avoidance scheme that were a gross violation of Indian tax laws, thereby depriving Cairn’s alleged investment of any protection under the India UK bilateral investment treaty.”
The avoid improperly ratifies the companies schemes to achieve double non taxation, which was designed to avoid paying taxes anywhere in the world, a significant public policy concern for governments worldwide, Also the government on March 22 challenged the arbitration award in the court in The Hague which is the seat of the arbitration.
Whether a court in The Hague can go into merits of levy of taxation by the Indian government over a corporate amalgamation scheme is still vague.
According to the precedence, Challenges to international arbitration award are restricted to tribunal not following due process.
The tribunal that went into the company’s challenge consisted of three judges, one judge each being named by the company and the Indian government and the third neutral presiding officer.
The three-member panel unanimously overturned the tax and asked India to return the value of shares sold, dividend seized and tax refund withheld, along with the interest and cost that comes to dollar 1.72 billion.
With India refusing to pay, the said company registered the award in nine jurisdictions including the US, the UK, Canada and Singapore and has started a process to recover the money from government owned entities.
In the beginning of this month the said company filed a plea in a court in New York for declaring Air India as India’s alter ego so it can be forced to pay the award.
To this, the Department of Revenue in the Ministry of Finance said that “the Indian government is vigorously defending its case in this legal dispute. It is a fact that the government has filed an application on March 22nd, 2021 to set aside the highly flawed December 2020 international arbitration award in The Hague Court of Appeal”
Moreover, it is said that the proceedings before The Hague court is pending and the government is committed to pursuing all legal avenues to defend its case in this dispute.
The said company’s CEO and its representatives have approached the government for discussions to resolve the matter.
The statement also included that, constructive discussions have been held and the government remains open for an amicable solution to the dispute within the country’s legal framework.
If the New York court were to recognize Air India as the alter ego of the Indian government, then Cairn can seek attachment or seizure of its assets in the US such as airplanes, immovable assets and bank accounts to recover the amount it was awarded by the arbitration tribunal.
Even if the said company succeeds in getting Air India recognized as the alter ego of the Indian government, it would not mean that the airline’s assets will fall into the hands of the British firm. It just means that the company can seek seizure of any asset Air India may have in the US, but there may not be many such assets.
The only trouble that could be is that when an Air India airplane lands at any US airport the British company would be able to move court and get that attached before it flies out.