Cairn Energy: India asks state banks to withdraw liquidity held abroad following Cairn dispute, report finds

India has asked state-owned banks to withdraw funds from their foreign currency accounts, two government officials and a banker said, as New Delhi fears Cairn Energy will attempt to seize the money after a move to arbitration in a tax dispute. was awarded over $ 1.2 billion in damages plus interest and fees in December in a protracted battle with the Indian government over its retrospective tax claims.

As New Delhi filed an appeal, the London-listed company began to identify Indian assets abroad, including bank accounts, which could be foreclosed in the absence of a settlement, which Cairn says is suing. .

The company has filed its lawsuit against India in courts in the United States, Britain, France, the Netherlands, Singapore and Quebec, measures that could facilitate asset seizure and enforcement. of the arbitration award.

“Earlier this week, instructions were sent to state-owned banks to withdraw funds from their nostro accounts,” one of the government officials, who asked not to be named, told Reuters, adding that the ministry of Finances had issued the instructions.

A nostro account refers to an account that a bank holds abroad with another bank in the currency of that jurisdiction. These accounts are used for international trade and to settle other foreign exchange transactions.

The finance ministry did not immediately respond to requests for comment.

A banker at one of India’s 12 state-owned banks, who also asked not to be identified, confirmed that the ministry sent the guidelines and said the government was concerned that foreign courts could order the funds to their jurisdiction be returned to Cairn.

“There was apprehension that some courts could take a drastic step saying that whatever the Indian government’s offshore funds, these could be taken back or frozen for the time being,” the banker told Reuters. “Our assets are equivalent to the assets of the Indian government because we belong to them.”

The Association of Indian Banks, an industry body representing lenders, did not immediately respond to a request for comment. At least two state-owned banks also did not respond, while others could not be reached outside of regular business hours.

Cairn said in February he was discussing several proposals with the government to find a solution.

“Cairn continues to have constructive engagement with the Indian government,” a company spokesperson asked about the matter said Thursday.

But the second Indian government official said talks between New Delhi and Cairn were making little progress and the ministry’s request to banks showed the government fear the British company could move quickly to seize assets.

The dispute began after a previous Indian government decided to retrospectively impose a capital gains tax on certain companies, such as Cairn and telecommunications operator Vodafone Plc, which also brought the case to arbitration and won.

The cases scared foreign investors and dealt a heavy blow to the government of Manmohan Singh, which lost power in the 2014 elections for Prime Minister Narendra Modi.

Modi’s government has said it will not make retrospective tax claims in the future, but it has defended outstanding cases.