Cairn Energy freezes Indian state-owned properties in Paris

Cairn Energy said it had effectively seized Indian state-owned properties in Paris, in a dramatic escalation of the tax dispute between the Scottish oil producer and the government of Narendra Modi.

Cairn’s move marks the latest attempt to force New Delhi to pay $1.7bn awarded in December by an international tribunal in The Hague.

The Edinburgh-based company, which has a market capitalisation of just £752m and only 180 employees, has identified $70bn of assets worldwide ranging from buildings to Air India aircraft that it may try to seize as long as India refuses to pay.

Its asset freeze application in Paris is the first to succeed. The company said the action was a “necessary preparatory step to taking ownership of the properties and ensures that the proceeds of any sales would be due to Cairn”.

It added that it would in effect be transferred ownership of 20 properties valued at more than €20m. Official documents seen by the Financial Times confirmed the Tribunal Judiciaire de Paris had authorised the freeze.

One of the properties, in the upmarket 16th arrondissement in the west of the French capital, has served as the residence of the deputy chief of mission at the Indian embassy, according to a 2018 tender document inviting “sealed bids . . . for polishing of wooden parquet of the whole flat”.

The dispute stems from a tax law passed in 2012 under which India demanded $1.4bn in retrospective payments from Cairn related to the UK group’s flotation of its Indian subsidiary on the Bombay Stock Exchange in 2007.

The Dutch tribunal found that when tax officials seized Cairn’s residual 10 per cent stake in the subsidiary, which it subsequently sold to Vedanta, India had violated its obligations under the 2014 UK-India bilateral investment treaty.

New Delhi is appealing against the international arbitration ruling but the finance ministry said it remained open to “an amicable solution”.

India’s finance ministry added on Thursday it had not received notice from the French court but was “trying to ascertain the facts” and would take legal action to “protect the interests of India”.

Cairn’s strategy is similar to that of US hedge fund Elliott Capital Management, which in 2012 seized an Argentine naval vessel in Ghana over a debt dispute. Cairn has even hired lawyer Dennis Hranitz, who worked on the Elliott dispute.

Tim Portwood, a partner at French law firm Bredin Prat specialising in international arbitration, said “India will almost certainly be able to claim sovereign immunity” over assets used for sovereign purposes.

“If they’re being sensible about this on Cairn’s side, they would be looking for assets worldwide to see what it is that they can seize,” he added. “Because the cost of proceedings in front of the French courts is nothing like the cost of the arbitration proceedings.”

However, Isabelle Michou, a partner at law firm Quinn Emanuel Urquhart & Sullivan in Paris representing Cairn, said “none of the properties subject to the Paris court order is protected by sovereign immunity. These properties are not associated with diplomatic functions but merely fall within private law management of real estate investment.”

Jacques Fourvel, a Paris-based lawyer and former judge, said: “If I was on either side of this case I’d go see my counterpart and say we should sit down around a table and find a solution.”

Analysts say New Delhi’s unwillingness to honour the international award follows a pattern of the Modi government’s refusal to acknowledge errors in governance.

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“This government is quite clear — they cannot admit they made a mistake even if it is staring you in the face,” Partha Mukhopadhyay, a senior fellow at New Delhi’s Centre for Policy Research, said recently.

Cairn has pushed for UK government support for its claim but has grown frustrated at the slow progress. The UK government has aggressively pursued a post-Brexit trade deal with India.

“Our strong preference remains an agreed, amicable settlement with the government of India to draw this matter to a close,” Cairn said, adding it had submitted “a detailed series of proposals to them since February this year”.

“However, in the absence of such a settlement, Cairn must take all necessary legal actions to protect the interests of its international shareholders.”