Cairn dispute: Govt sees no threat to privatisation of Air India

Once Air India is sold to private buyer, Cairn's claim will be defeated: Official

Cairn Energy’s attempt to sue Air India in the US will not affect the national carrier’s privatisation, which will take off without any disruptions, according to a top government official. The sale of the airline to a private buyer will defeat Cairn Energy’s claim that it is legally indistinct from the sovereign, he said.
 
In the divestment process of a public sector company, legal issues always crop up, and the government is equipped to handle them, the official said. “Cairn Energy is trying to pressurise the government to recover their dues, and trying to conclude that Air India’s assets are Government of India’s (GoI) assets.”
 
Air India is a separate entity, and GoI and the airline will challenge the claims once the summons are received, he said.
 
On Friday, Cairn filed a lawsuit in the US District Court for the Southern District of New York, seeking to make Air India liable to a $1.2-billion arbitration that was awarded to the UK oil and gas major. “It should be held jointly and severally responsible for India’s debts, including from any judgment resulting from the recognition of the award,” the lawsuit argued.
 
The official said: “It is only at the pre-disinvestment stage that this view can emerge, that the liability will fall on Air India. The claim is not against Air India, and if its shares are transferred to a private entity (the new buyer), the claim of the airline being indistinguishable from GoI will fall through.”
 
Handling the issue is the problem of the current management of Air India and the government, “and not the problem of private bidders”, he said.
 
The ‘Representation and Warranties’ clause in the share purchase agreement also protects the new buyer, as it states that government’s shares are unencumbered and there are no other liabilities, and “everything is cleared”.  However, if the court rules in favour of attaching assets of Air India, which is unlikely, then the sale may get hampered, said the official quoted above.

 
Only a notice has been issued by the US Court and is yet to be received by Air India, and the airline has 60 days to file its reply.
 
Issuance of a notice does not imply that the court has ruled in favour of attaching the airline’s assets, the official said. The government and Air India will challenge this together, he added.
 
“They are trying to attach properties of public sector banks, Oil and Natural Gas Corporation, and other public sector companies, considering them the same as the sovereign, which they aren’t. The government has already filed an appeal challenging the $1.2-billion arbitration award in favour of Cairn at The Hague,” the official said.
 
An inter-ministerial committee, coordinated by the Department of Revenue, has also been formed to devise the government’s legal strategy.
 
Simultaneously, the divestment process of the national carrier would continue, the official said. Bidders have been conducting due diligence and had sought additional time as the pandemic has restricted mobility. The extension has been granted by the government.
 
The government was expecting the financial bidding process to complete by June, but it may be extended to September due to the disruption caused by the second wave of the Covid-19 pandemic, the official said.