Seizing Indian assets won't be easy for Cairn Energy, say experts

The UK-based oil major Cairn Energy faces a long and arduous process if it wishes to follow through on its threat of seizing Indian sovereign assets in case of non-enforcement of the international arbitration award, said experts. Hence, there is little chance of seizure, given international arbitration norms, the experts added.

In fact, some government officials said Cairn’s best chance of getting the award enforced is to approach Indian courts, which could also take years. Besides, India is set to file an appeal at The Hague and will seek a stay on enforcement in the Dutch court. Based on that, India will contest the verdict in other countries, too.

Cairn said last week that the award, estimated to be around $1.7 billion ($1.2 million plus around $490 million in interest), 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. It added that the company would even go to court to seize the assets.

However, experts say enforcement of the award will face a passive hurdle in Article V of the NY Convention. “Cairn Energy will have to satisfy the test for recognition and en­forcement of awards under the NY Convention. Article V of the NY convention sets out the gro­unds on which enforcement may be resisted in foreign jurisdictions. These proceedings may take a few years,” said Mayank Mishra, partner, Ind­usLaw. Besides, Cairn will also face an active hurdle if the government challenges the award in the Netherlands. “Such co­urt may, pending the decision in the challenge proceedings grant stay of enforcement. Se­iz­ure of any sovereign asset in the meantime will be difficult.”

Surjendu Sankar Das, advocate on record, Supreme Court, and arbitration practitioner, said if the court where India appeals decides to entertain the proceeding, the award may not be enforceable as being ‘non-binding’ under the NY Convention in other jurisdictions. “In such a situation, the NY Convention allows the enforcing court to adjourn on the decision in enforcement pending such challenge proceeding,” he said, adding that it could also order the party to give suitable security on the application of the party claiming enforcement of the award.

Cairn has been building pressure on India to honour the award and has filed a case in the US, the UK, the Net­herlands, Canada, France, Sin­ga­pore, Japan, the UAE, and Cayman Islands. While courts in five countries, including the US, Canada and the UK, have given recognition to the arbitration. The oil major has also started the process of registering the award in Singa­pore, Japan, the UAE and Cay­man Islands. This will allow Cairn to petition for seizing of Indian assets such as aircraft, ships, bank accounts, etc, in those jurisdictions.

However, Pradeep Kumar Jain, partner, Singhania and Co, said seizing assets will not be easy. “Property of award debtor can be attached, but in this case it’s very tough as Cain can’t prove that the government of India won’t honour award after attainment of its finality or that the government will transfer assets to deprive Cairn,” said Jain. He added that since the government has decided to appeal, which will take another 6-12 month, this matter will not be resolved very soon and there is low possibility of attachment of assets during this period. The case pertains to the Rs 24,500-crore tax demand on capital gains made by the oil major in reorganising its Indian business in 2006-07.

Cairn CEO Simon Thom­son, who met top finance ministry officials last month, said last week that its shareholders expect the company to use its powers of enforcement to recover the award. A senior gov­ernment official pointed out that since India is not a signatory to the International Centre for Settle­ment of Invest­ment Disputes convention, India’s sovereign assets cannot be seized without a notice and an opportunity for India to respond.