Cairn case: FinMin asks PSU banks to be on high alert
A nodal officer has been appointed to deal with this subject in the finance ministry for escalating the matter to the competent authorities for further action, the sources added.
New Delhi: 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 $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 $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.
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 the Government of India but of the 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 further action, the sources added.
The sources also said banks are keeping enough funds in their nostro account so that they can carry on the 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 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 retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganization 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 $1.2 billion (over Rs 8,800 crore) plus costs and interest, which totals $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.
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