Air India asks US court to dismiss Cairn petition, says it is premature

Air India has asked a New York court to dismiss a petition filed by Britain's Cairn Energy for seizure of its assets to enforce USD 1.2 billion arbitral awards against the Indian government, saying the litigation was premature as an appeal against the arbitration award was still pending.

The petition by the airline, which is separate to Indian government's plea in a Washington court seeking dismissal of Cairn's lawsuit to seek confirmation of the arbitral award, said the New York district court lacks jurisdiction to adjudicate a "mere hypothetical question" or one that depends upon contingent future events that may or may not occur.

Cairn first moved a court in the US District Court for the District of Columbia seeking confirmation of the arbitration award and then filed a petition in the New York court to seek declaration of Air India as "alter ego" of the Indian government and so it should be made liable to pay the $1.26 billion arbitral award.

An international arbitration tribunal in December last year set aside the levy of capital gains tax, using a 2012 retrospective legislation, on a 2006 reorganization of India business that Cairn carried before listing it on local stock exchanges. It ordered India to return the value of shares seized and sold, dividend confiscated and tax refund withheld to enforce levy.

With India refusing to pay, Cairn moved courts in the US.

"Cairn's petition to confirm the Award is pending in the District Court for the District of Columbia," Air India said in the August 23 petition seen by PTI.

It went on to state that the Indian government has filed before a court in The Hague -- the seat of the international arbitration tribunal -- a Motion to Stay and a Motion to Dismiss the arbitral award.

"In effect, the Complaint (by Cairn Energy) is a premature enforcement action dressed up as a declaratory judgment action, invoking this Court's federal jurisdiction to get a head start on executing the Award before the D.D.C. has had the opportunity to address the Republic of India's immunity defenses and its claims that the Award is not subject to enforcement under the New York Convention," Air India said.

"Such an attempt is improper, and the Complaint should be dismissed."

It sought dismissal on three counts - first because the court lacks jurisdiction "to issue a declaratory judgment because the alleged controversy is not ripe", second "Air India is immune from suit because none of the exceptions to sovereign immunity under the Foreign Sovereign Immunities Act (FSIA) applies to a premature collection proceeding of a hypothetical judgment, and third "the Complaint, which presupposes an enforceable judgment that does not exist, fails to allege a cognizable cause of action."

The Indian government had earlier this month asked the US District Court for the District of Columbia (DDC) to dismiss the case, arguing that it lacks jurisdiction since the country never agreed to arbitrate tax disputes. Meanwhile, litigation filed by New Delhi in the Netherlands to have the award set aside also remains pending.

"Cairn asks this court to issue a declaration that Air India, as alleged alter ego of [India], will be liable on a judgment that does not, and may never, exist," the airline said in the August 23 petition.

"Unless and until the court in the Cairn confirmation action determines the threshold question of the enforceability of the award against (India), whether Cairn can then enforce that judgment against Air India under an alter ego theory is purely academic and not ripe for adjudication."

This comes within weeks of the government enacting a legislation to scrap the tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas, but business assets were in India. That rule had been used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities, including Rs 10,247 crore on Cairn.

The Indian government and Air India are defending their positions as rules for withdrawal of such tax demands are in the process of being framed.

"One of the requirements for the dropping of the retrospective tax demands is that the parties concerned have to give an undertaking for withdrawal of all cases against the government/tax department. So, while all this is in process, the government is obligated to respond in any legal matter where there is a time bar for doing so," an official explained.

The government in the dismissal motion filed on August 13 before DCC, cited protections afforded by the US Foreign Sovereign Immunities Act of 1976.

India in the filing said the court "lacks subject-matter jurisdiction under the FSIA because India never waived its sovereign immunity and, likewise, never offered - let alone agreed - to arbitrate the present dispute with Petitioners".

"India also never "clearly and unmistakably" excluded judicial review or delegated exclusive competence to decide these questions to an arbitral tribunal", implying that Cairn couldn't satisfy any exception to sovereign immunity under the US law, the filing said.