Finance Ministry asks PSU banks to keep high vigil on any attempt to seize funds by Cairn

The finance ministry has asked public sector banks (PSBs) to be on high vigil against any attempt being made to seize their overseas deposits to recover USD 1.2 billion that the UK's Cairn Energy plc has been awarded against India levying retrospective taxes, sources said.

Cairn had previously stated that it can seize Indian assets abroad if it is not paid USD 1.2 billion plus interest and cost that an international arbitration panel had awarded against levy of retrospective taxes.

Cash of Indian banks lying in nations such as the US and the UK are said to be easy target for seizing and enforcing the arbitration award.

Read | Centre fears Cairn Energy will seize offshore assets

To guard against such cash being taken over, the finance ministry has asked PSBs to be extra vigilant and immediately report back any attempt Cairn makes to legally attach the deposits, two sources aware of the matter said.

This will allow the Indian government to quickly take legal recourse to prevent the assets from being taken over, they said adding that this has been done out of abundant caution and funds with banks are not of Government of India but of public.

A nodal officer has been appointed to deal with this subject in the finance ministry for escalating the matter to the competent authorities for the further action, the sources added.

The sources also said banks are keeping enough funds in their nastro account so that they can carry on activity of trade finance and other overseas businesses.

A nostro account refers to an account a bank holds overseas at another bank in the currency of that jurisdiction. Such accounts are used for international trade and to settle other foreign exchange transactions.

Last year, Cairn Energy Plc won two high-profile international arbitrations over the levy of taxes on the UK-based company using legislation that gave India power to levy taxes with retrospective effect.

The UK-based firm 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 has not 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.

On the other hand, the government, which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague-based tribunal's ruling. The ruling asked the government to return the value of shares expropriated and liquidated, tax refunds withheld and dividend seized to recover a wrongly levied retroactive tax demand.

The Scottish firm 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 a 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, which in December awarded it USD 1.2 billion (over Rs 8,800 crore) plus costs and interest, which totals USD 1.725 billion (Rs 12,600 crore) as of December 2020.

The company has since then been in talks 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 previously reported that the company had in the meetings offered to forego USD 500 million out of the USD 1.7 billion award and invest that amount in any oil and gas or renewable energy project identified by the Centre after rejecting a government offer to get paid just one-fourth of the award.

It wants the principal of USD 1.2 billion to be paid and is open to re-investing the interest and cost 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.

The 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, the sources 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. 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, the sources added.

Cairn is of the opinion that the unanimous ruling of the tribunal was enforceable against Indian-owned assets in over 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The company has also hired asset-tracing firms to investigate the overseas assets that could be seized to recover the amount due.