An international tribunal had in December 2020 unanimously ruled that India violated its obligations under the UK-India Bilateral Investment Treaty in 2014, when the Income Tax Department slapped a Rs 10,247 crore tax assessment using legislation that gave it powers to levy taxes retrospectively.
Following this, the Indian government took the principled stand that India will file an appeal against the Cairn arbitration award that has asked India to return $1.4 billion to Cairn Energy Plc.
The government source also said, “Cairn had set up a tax abusive structure and did not pay taxes anywhere in the world on the gains that it made in India. In the said case, it was well within India’s sovereign powers to redress the situation of Double Non-Taxation and tax abuse.” The Centre has walked the talk and challenged the December 2020 arbitration tribunal award in favour of Cairn in an appropriate court in The Hague.
India should stand its ground and not succumb to the Cairn Energy’s threat to move US, French and Dutch courts among others to seize Indian assets.
Cairn has already moved a New York Court with a prayer to allow it to seize Air India planes to recover what it claims are dues from the government of India on the ground that Air India is nothing but an alter ego of the government of India.
This is akin to piercing the corporate veil to find out who exactly controls a company. It is true that Air India belongs to the Indian government and hence its alter ego but is that enough for foreign judiciaries to interfere in the judicial powers and jurisdiction of Indian courts.
Air India is a company incorporated under the Indian law. It owes money to creditors, some of them secured. A US court order in favour of Cairns would upset the order of priorities in pecking order of repayment of dues besides upsetting the Indian government’s privatisation applecart.
More fundamentally, the Indian government’s stand is that certain matters are not arbitrable; one of them is tax. Indian income tax law provides for a well-defined hierarchy of appeals against the order of assessment culminating in appeals before the Supreme Court.
It can be nobody’s case that through the simple expedient of calling in the arbitrator, such hierarchy of appeals can be looked askance at or bypassed. Can an Indian company contesting huge demands from the assessing officer sustained by the Commissioner Appeals change the horse midstream and plump for an arbitrator?
Arbitration, especially on commercial matters, came into vogue to resolve bilateral disputes that did not impinge on third party rights. Tax matters impinge on the government budgets and therefore affect the citizens of the country.
It also introduces an element of invidious discrimination---those who can afford the fancy fees of arbitrator would plump for him while lesser mortals would willy-nilly offer themselves to the Indian hierarchy of appeals.
There are a few ‘peaceniks’ who advocate Indian government simply paying up Cairns quickly in the interest of making India a preferred destination for foreign investments.
They also aver that should the New York court order attachment of Air India assets, that would beget India the dubious distinction of being in the company of Pakistan and Venezuela---the last precedents for a similar action include the seizure of a Pakistan International Airlines plane in Malaysia this January over a dispute with an Irish company and a Venezuelan ship’s seizure ordered by a court in favour of U.S. company ConocoPhillips in 2018.
Both the arguments in favour of capitulating before Cairn’s high pressure tactics are specious.
For one India has already challenged the arbitration award in The Hague. The US court will not like to rock the boat in view of the principled stance taken by the Indian government in moving the right forum.
Furthermore the US courts know that India has an independent judiciary and hence is not in the same league as Pakistan and Venezuela. Intuitively, the US Courts may be disinclined to give their thumbs up to the gorilla tactics of impounding a company’s assets in the sobering knowledge that it lacks the jurisdiction to acquiesce in the act.
If the Indian government asserts itself to defend its judiciary the message would go out loud and clear---if you want to do business India, better comply with Indian laws and set store by its judiciary when the dispute impinges on fortunes of others beyond the bilateral rights of two parties in a commercial matter.
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