Seizure of assets overseas

  Syllabus: General studies paper 3 (Economics)

Context:

Recently, britain’s cairn energy plc has secured an order from a french court authorising the freezing of 20 indian government properties in paris valued at over 20 million euros.

About the dispute:

The arbitration between india and cairn challenged the india retrospective taxation policy:

• In 2012, india brought in legislation mandating retrospective tax demands over deals going back to 1962 in which shares in non-indian companies were transferred to an indian holding company.
• In 2006-07, as a part of internal rearrangement, cairn uk transferred shares of cairn india holdings to cairn india.
  • Later, when cairn india divested roughly 30% of its shares through an initial public offering, mining conglomerate vedanta plc acquired most of cairn energy.
  • But cairn uk was not allowed to transfer its 9.8% stake in cairn india to vedanta.
• The income tax authorities then contended that cairn uk had made capital gains and slapped it with a tax demand of rs 24,500 crore.
• the supreme court of india had ruled against the retrospective reading of the law by tax officials in the case of vodafone.
• However, parliament passed a law mandating retrospective taxation over transfer of indian assets.
• This retrospective taxation, cairn argued, was in breach of the uk-india bilateral investment treaty.
  • This treaty had a standard clause that obligated india to treat investment from the uk in a fair and equitable manner.

Why cairn going after indian assets?

• In december 2020, athree-member international arbitral tribunal ruled unanimously that the indian government was in breach of the guarantee of fair and equitable treatment, and against the india-uk bilateral investment treaty.
  • The breach caused a loss to the british energy company and ordered compensation of $1.2 billion.
• The indian government is yet to accept the arbitration award.Cairn energy is going after indian assets overseas to recover the compensation.
• In may 2021, cairn began the process of extracting the $1.2 billion.

Why india has not accepted the award?

• Since the arbitration award was delivered in hague, india has moved an appeal in the netherlands.
• A similar arbitration verdict was delivered in september 2020 in favour of dutch telecom company vodafone.
• The award requires india to pay $5.47 million to vodafone as partial compensation.

The assets cairns going after:

• Cairn energy has so far registered the arbitration award in several countries, where it has identified indian assets worth over $70 billion.
  • This includes jurisdictions in the us, uk, canada, singapore, mauritius, france and the netherlands.
  • In the us, cairn energy has chosen new york to sue india because it has located substantial assets it can recover the compensation from in that jurisdiction.
  • Specifically, air india’s united states operations are headquartered in this district at 570 lexington avenue, new york

Indias option:

• It is the first one to succeed for cairn; the french court order boosts its chances in other jurisdictions.
• The assets will be tangled in a legal dispute and india will join a list of countries that includes pakistan, afghanistan whose assets were seized abroad.
• Unless it can be proved that the arbitration awards against india are mala fidein the appeals, the award can be enforced in foreign jurisdictions.
• However, a settlement between the two parties cannot be ruled out.

Indian precedent for such seizure of property:

• Seeking courts’ intervention in enforcement of arbitration awards against foreign states isfairly common.
• Recently, in a case filed by two indian private companies for enforcement of arbitral awards in their favour.
  • The delhi high court directed the embassies of afghanistan and ethiopia to file affidavits disclosing the assets owned and held by them in india.
  • The court held that:
    • A foreign state does not have sovereign immunity against an arbitral award arising out of a commercial transaction.
    • Further entering into an arbitration agreement constitutes waiver of sovereign immunity.
    • The agreement by the respondent to arbitrate the disputes would operate as a waiver of the said requirement.
    • When a foreign state enters into an arbitration agreement with an indian entity, there is an implicit waiver of the sovereign immunity, otherwise available to such foreign state, against the enforcement of an arbitral award.
    • The very underlying rationale of international commercial arbitration is that of facilitating international trade and investment by providing:
      • A stable, predictable, and effective legal framework within which commercial activities may be conducted to promote the smooth flow of international transactions and
      • By removing the uncertainties associated with time-consuming and expensive litigation.

https://indianexpress.com/article/explained/france-seizure-assets-cairn-energy-7397409/

Question: