A Scottish energy company is using foreign courts to seize Indian assets

Cairn Energy and India are embroiled in a 10-year tax battle.
Cairn Energy and India are embroiled in a 10-year tax battle.
Image: Parth Sanyal / Reuters
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Cairn Energy won a French court order today (July 8) to seize 20 Parisian residential properties owned by the Indian government. But the oil and gas company is on the hunt for more assets: Air India planes, real estate, money—anything to make up the $1.7 billion that it aims to recoup from India.

The sum, which is the fallout of a 10-year-long tax dispute, was awarded to Cairn as damages by an arbitration tribunal in the Hague last December. India has filed an appeal against the verdict in a Dutch court. But in the interim, Cairn has lawyered up and filed cases in courts in the US, the UK, France, Singapore, Canada, and the Netherlands, to get orders to impound Indian assets in those jurisdictions.

The French court order is a relative rarity in how quickly and emphatically the verdict was delivered. Usually, ordering the seizure of a country’s sovereign assets is a flammable move, and courts take their time to execute and enforce such orders. But as the web of cross-border finance and trade has grown more complex, the stakes have ballooned, and squads of specialty lawyers have begun to fight for more orders like the one granted to Cairn.

Cairn vs. India’s decade-long tax squabble

The dispute between Cairn and the Indian government arose after the Scottish company restructured its Indian operations. In 2011, it sold a major chunk of its holdings to Vedanta, the mining giant. The following year, India changed its tax rules in a way that allowed it to retrospectively tax past deals, and the government charged Cairn $1.4 billion in capital gains taxes from a 2007 share float on the Bombay Stock Exchange. India’s tax authorities also seized Cairn India shares worth around $1 billion.

Cairn tried to pursue the matter first in India’s courts, before turning to arbitration in 2015. After it won its award last year, Cairn began scouting for Indian assets that it could sue for. In the US, the company asked a court to declare Air India as an “alter ego” of the Indian state, so that it could seize some of its planes. (Cairn doesn’t have precedent on its side here. Just this past February, in a $20 million arbitration award dispute that bore parallels to the Cairn-India imbroglio, a court in the US declined to consider Tajik Air as Tajikistan’s alter ego.)

The assets that Cairn decided to go after included cash in the Indian state’s bank accounts. In early May, according to a Reuters report, India instructed state-run banks to pull out funds from their foreign-currency “nostro” accounts. A nostro account, in banking jargon, is an account that an Indian state-run bank may hold in a private bank in a different country.

How can a company seize a country’s property overseas?

Cairn argues that, since India is a party to a 1959 treaty on arbitration awards, it must abide by the Hague court’s decision. If it fails to do so, the treaty—in theory—permits Cairn to petition local courts for asset seizures, as it has been doing.

In practice, though, these petitions aren’t always easy to win. In one landmark case, a tribunal ordered Russia to pay a German businessman named Franz Sedelmayer $2.35 million in 1998. It took Sedelmayer eight years to convince a German court to let him take over a Russian property in Germany. He wouldn’t even have known the building, an apartment complex in Cologne, was owned by Russia, in fact, if he hadn’t had friends in the KGB.

Such seizures conflict with a longstanding concept called “sovereign immunity,” which protect a country’s assets abroad from legal action unless the assets are commercial entities themselves. In 2012, this concept rose into dramatic prominence after a court in Ghana impounded a training ship owned by Argentina’s navy and berthed then in the Ghanaian port of Tema.

The court had been petitioned by a US hedge fund named NML Capital, which was owed $1.6 billion by Argentina after the country defaulted on its debt in 2001. The episode grew fierce. When Ghanaian officials tried to move the ship, its crew pulled out guns. Two months later, though, Argentina won its ship back in a court appeal, arguing that the ship was a military vessel and not a commercial one, and that it therefore enjoyed sovereign immunity.

In its bid to seize Indian assets, Cairn has hired the same lawyer that NML Capital used to eventually win its legal pursuit of its Argentinian debt. Cairn can also draw hope from a few other recent cases.

Last December, a copper company won an order from a British Virgin Islands court to seize hotels in New York and Paris that were owned by the Pakistan government, in return for dues owed by Pakistan International Airlines. Last year, a French court impounded a luxury jet belonging to the Republic of the Congo, to pay a construction firm that was owed money; subsequently, the company also received $30 million from a French bank account belonging to the Republic of the Congo’s state-owned oil firm.