The government has told state-run banks to report any notification on the seizure of assets, worried about the wider fallout of an international court’s order for India to pay $1.2 billion in damages to Cairn Energy.
The effort is to try and stop any asset seizure by companies invoking bilateral investment protection treaties (BITs) as it could lead to a “damaging precedent", said a person privy to the development.
India asserts that damages cannot be sought under these treaties on tax matters, which are a sovereign function.
In February, the US District Court for Columbia issued a notice to the Indian government on a petition filed by Cairn Energy Plc and Cairn UK Holdings Ltd for enforcement of the arbitral award, court documents showed.
The award, given by the Permanent Court of Arbitration (PCA) at The Hague in December 2020, is for $1.2 billion, plus interest and cost.
“State-run banks have been asked to inform the finance ministry of any notification from any party regarding claims over assets. There is no instruction to withdraw funds from any account," said the person cited above.
The arbitration award has received attention at the highest level in the government, given the financial implications and the questions they pose on India’s sovereign right of taxation.
India’s bilateral investment protection deals were meant to increase the comfort and confidence of investors by assuring a level-playing field and non-discrimination in all matters while providing for an independent forum for disputes by arbitration
However, with investors invoking these clauses to seek damages, the government in 2015 terminated 73 such treaties to negotiate fresh ones that exclude taxation from their purview.
A second person, a government official, said that an analysis was done on whether bilateral investment treaties (BITs) have helped India.
“We have done an analysis. There is no correlation between BITs and the investments coming to the country. Today, we hardly have any BITs. But look at the flow of FDI and FPI (foreign direct and foreign portfolio investments) into the country. It is much higher," the official said.
“Investors take a calculated risk. Now, if you curtail sovereign authority, that is not fair. Not just India, most of the Western world has done away with BITs because this has become a source of arbitration, which no one likes."
Emailed queries sent to the finance ministry on Friday and Cairn Energy on Monday remained unanswered till press time.
India earlier offered to settle the dispute with Cairn Energy under the Vivad se Vishwas direct tax dispute settlement scheme.
The deadline for signing up under the scheme has now passed.
India’s dispute with Cairn is over an internal re-organization of the company’s India business in 2006-07 prior to its initial public offering. According to Cairn, the Indian government seized residual shares in Cairn India Ltd (acquired by Vedanta Resources) as well as a tax refund due to the British company, together amounting to approximately $1.4 billion.
The government alleges that Cairn did not pay taxes anywhere in the world on the gains that it made in India from the re-organization.
No comments:
Post a Comment