Deposits are customers’ money and not govt assets, hence can’t be attached: Lenders
Indian public sector banks with substantial presence abroad are legally ready to mount a challenge abroad to counter any efforts by Cairn Energy to attach their assets. The development comes on the back of Cairn Energy saying on Tuesday that it was taking all necessary action to access the $1.7 billion it was awarded by the international arbitration tribunal after overturning the retroactive tax demand slapped by the Indian government.
Given that deposits with overseas branches is public money and not a sovereign asset, attaching funds in such accounts is beyond the realm of rights of the said company, said people in the know.
Senior PSB chiefs said that the government had warned them of the possibility of Cairn attaching funds, and had asked the lenders to keep them (the government) informed. The government has nominated a person for prompt and co-ordinated response. The banks’ stand is clear — deposits money is not government money. It is customers’ money. So how can they attach it? In case something happens, banks will fight it legally, said the PSB chief cited above.
Besides legal advice, banks are in touch with Indian embassies and high commissions across the world to pursue matters.
Legal forums abroad will hear the banks’ side too, before giving a ruling on any attachment plea (by Cairn Energy).
The Scottish firm had 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.
The state then expropriated and liquidated Cairn’s remaining shares in the Indian entity, seized dividends and withheld tax refunds to recover a part of the demand.
Cairn challenged the move before an arbitration tribunal in The Hague (Netherlands), which in December awarded it $1.2 billion (over Rs 8,800 crore) plus costs and interest, which totalled $1.725 billion (Rs 12,600 crore) as of December 2020.
“In December last year the tribunal established to rule on our claim against the Government of India found in Cairn’s favour and awarded us damages of $1.2 billion plus interest and costs,” Cairn Energy CEO said at company annual shareholders meeting.
This ruling, he said, is binding and enforceable under international treaty law.
“Whilst India has sought to challenge the basis of the award through set-aside proceedings in the Dutch courts, we remain confident of our position and continue constructive engagement with the Government of India whilst at the same time taking all necessary actions to protect our rights to the award and access the value of it as early as possible,” he added.
While he did not elaborate, Cairn had previously threatened to seize overseas assets of state-controlled Indian firms to recover the money due to it.
Finance Minister Nirmala Sitharaman had last month reiterated that international arbitration ruling on India’s sovereign right to taxation sets the wrong precedent, but had said that the government is looking at how best it can sort out the issue.
The government, which participated in the international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague-based tribunal’s ruling directing the government to return the value of shares expropriated and liquidated, tax refunds withheld, and dividend seized to recover the wrongly levied retroactive tax.
The government argues that tax levied by a sovereign power should not be subject to private arbitration, Cairn had previously said the award is binding and it can enforce it by seizing overseas Indian assets.
Cairn has been engaged with the finance ministry to get the government to pay the award.
Its officials held three face to face meetings with the then Revenue Secretary Ajay Bhushan Pandey in February and at least one video call with his successor Tarun Bajaj.
PTI had reported that the company had in the meetings offered to forego $500 million out of the $1.7 billion award and invest that amount in any oil and gas or renewable energy project identified by the government after rejecting a government offer to get paid just one-fourth of the award.
It wants the principal of USD 1.2 billion due to it is paid and the interest and cost can be re-invested in India.
The Indian government, which appointed one of the three arbitrators on The Hague panel and fully participated in the arbitration proceedings since 2015, wanted Cairn to settle the issue through its now-closed tax dispute resolution scheme Vivad se Vishwas.
Vivad se Vishwas scheme, which closed on March 31, provided for dropping of tax case if 50 per cent of the demand was paid, which the company rejected, sources in the know of the development said.
Even if it were to have agreed to the scheme, the Indian government had to refund about Rs 2,500 crore to the British firm, they said, adding the value of shares seized and sold, dividend confiscated and tax refund withheld totalled to over Rs 7,600 crore, which was more than 50 per cent of the Rs 10,247 crore principal tax demand raised.
Cairn, which is of the opinion that the unanimous ruling of the tribunal was enforceable against Indian-owned assets in more than 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, has hired asset-tracing firms to investigate the overseas assets that could be seized to recover the amount due.
Cairn has already taken steps to have the arbitration award recognised in nine major jurisdictions such as the US, UK, France, the Netherlands, Singapore and Canada’s Quebec province, where Indian sovereign assets have been identified.
It hasn’t said what it might go after but assets could include Air India’s planes, vessels belonging to the Shipping Corporation of India and property owned by state banks.
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