Humiliating seizure

Govt should have settled the Cairn case long ago

A French court has frozen 20 properties belonging to the Government of India in Paris, which, according to Cairn Energy, is a “necessary preparatory step to taking ownership” of these properties. The government has long been in dispute with Cairn Energy and has refused to respect adverse decisions at international arbitration. Cairn had previously threatened to attach and sell Indian properties abroad, including diplomatic residences and even Air India aircraft. Cairn is now trying to carry out this threat.

If indeed Cairn manages to take possession of and sell Indian properties in Paris — including the house, in an upmarket neighbourhood of the city, belonging to the deputy chief of mission at the Indian Embassy to France — then it would be an unprecedented humiliation and one for which the government has only itself to blame. The government has consistently downplayed the risk of ignoring international arbitration decisions, and it has provided just pro forma statements after every instance of Cairn taking legal action. Thursday’s statement that India would “take all necessary steps” and engage legal counsel can hardly be relied upon. It is worth noting that in the past the government of India has been criticised even by its own senior officials for not briefing lawyers of sufficient standing or seniority in such cases. Whether it is capable of fighting multiple court cases in the 160 jurisdictions where the arbitration ruling is enforceable to protect its properties from being attached is an open question.

What makes this worse is that Cairn Energy’s determination has been noted by other companies that have also been at the receiving end of the government’s unwillingness to accept adverse arbitration rulings. Devas Multimedia, for example, which has won $1.3 billion over cancelled satellite leases, has shown an interest in making common cause with Cairn — even as the government has ignored attempts to settle the cases. The degree of fallout from the government’s intransigence is unexpectedly large. Even the foreign exchange market was disrupted after public sector banks were ordered to “protect” their dollar-denominated assets — including NRI deposits — from confiscation, leading to an excess supply of dollars in the system. Cairn Energy itself is a small player; however, it might well sell its rights under the arbitration onward to a third party with more resources to pursue the claim. That would certainly be a nightmare scenario.

The government’s arrogance and inefficiency have led to this embarrassing situation. Arrogance, because it failed to understand that treaties freely entered into cannot simply be ignored; and inefficiency, because it has failed to pursue its legal options effectively and also was unable to foresee the consequences of a loss. Beyond the monetary loss is the hit to India’s status as an investment destination. Every time the government refuses to acknowledge legitimate payments to a company, yet more global investors are made aware of the catastrophic risks posed to their capital by investing in India. All the good work done by the government to reach out to investors and to improve the ease of doing business in India is undone by headlines indicating that it thinks itself above the rule of law. It is past time for the government to acquire some humility and recognise it is fighting a battle it cannot win.