Cairn Drags Air India to U.S. Court Over Tax Spat With State

The energy company is asking a court in New York to deem the airline as “the alter ego of India”.

Cairn Drags Air India to U.S. Court Over Tax Spat With State
An Air India Ltd. aircraft prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Cairn Energy Plc is dragging the unprofitable, state-owned carrier Air India Ltd. to a U.S. court to seek payment of an arbitration award from the South Asian nation as part of a long-running tax dispute, according to a filing.

The energy company, which last year won an arbitration award for $1.2 billion plus interest, is asking a court in New York to deem the airline as “the alter ego of India,” the court filing said. It “should be held jointly and severally responsible for India’s debts, including from any judgment resulting from recognition of the Award.”

Officials at Air India were not immediately available for comment to Bloomberg. Local news wire PTI reported, citing unidentified sources, that the Indian government hadn’t received a court notice so far but was going to take all necessary steps to defend against such an enforcement action. India has also challenged last year’s arbitration award in a Hague court, PTI said.

Cairn added that it had also initiated proceedings in numerous other locations globally “seeking recognition and enforcement” of the award by an international arbitration tribunal in December that said India’s tax claim was not valid. It also asked the government to repay the funds, along with interest, to Cairn.

Refuses to Pay

“India continues to refuse to pay the amounts due,” Cairn said in the filing to the southern district of New York court Friday. Cairn’s award ruling marked India’s second loss in an international arbitration after a controversial legal tweak in 2012 that enabled the country to retrospectively tax companies for mergers and acquisitions going as far back as 1962.

The legal escalation also threatens to complicate India’s plans to sell its bleeding and indebted national flag carrier that has been on the block since 2017. The court filing may weigh on the financial bids, which were pushed back to September recently. Air India, saddled with a debt of 600 billion rupees ($8.2 billion), loses 200 million rupees every day, underscoring the urgency of the asset sale.

“Cairn is taking the necessary legal steps to protect shareholders’ interests in the absence of a resolution to the arbitral award,” it said in a statement Saturday. “Cairn remains open to continuing constructive dialogue with the Government of India to arrive at a satisfactory outcome to this long-running issue.”

The energy firm may also push global authorities to impound Indian assets if the country declines to honor the arbitration ruling, according to a letter the company sent to the Indian High Commission in the U.K. earlier this year.

Cairn said in March that it was considering three options, including talks with the Indian government, preparation for possible enforcement, and a potential to monetize the award, either partially or in full, to a third party.

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