The recent headlines got me a little puzzled -
This news comes after multiple rounds of talks were held between the finance ministry officials and Cairn Energy CEO Simon Thomson a few weeks back.
But this got me thinking, how can a company seize a country’s asset?
According to the news articles, this is possible because India has signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as New York Convention or New York Arbitration Convention. That Convention was ratified by India via The Foreign Awards (Recognition And Enforcement) Act, 1961.
Normally after winning an arbitration award, the winning party moves to court (normally in the country where the award has to enforced) to get the award recognized. In a different case, Vedanta Ltd. (formerly Cairn India) had won an arbitration award against GOI in 2011. To get that award recognized, they had moved to Delhi High Court in 2014 and ultimately Supreme Court last year allowed the enforcement of that award.
But in this specific case, Cairn Energy has instead moved to courts in various other jurisdictions (like the US, UK, Netherlands, Canada, France) to get their arbitration award recognized and enforced. This decision likely stems from the fact that there have been some unfavorable judgments regarding the enforcement of foreign awards recently as well as coercive action that was taken against Cairn Energy in the recent past (aka their shareholdings forcefully sold, their dividend seized and tax refunds stopped)
This isn’t the first time a company has threatened a country with asset seizures. In 2018, ConocoPhillips (a US-based oil explorer) had won a $2 billion arbitration award against Venezuela. As Venezuela failed to pay that award, ConocoPhillips started seizing all the assets they could get their hands on, eventually causing Venezuela to reach a agreement to pay the award. Later, that company also won another $8.7 billion arbitration award against Venezuela.
A more recent example is BroadSheet LLC (an asset recovery company) which won a $28.7 million arbitration award against a government agency of Pakistan. In that specific case, the company has gone ahead and asked for the seizure of Pakistani assets in the UK after agreed upon payment was not made to it.
Initial reports had suggested that India might give one of its oil fields in lieu of the award. I don’t believe actual asset seizures will happen in India’s case but it would be interesting to see how things pan out going ahead.
Update: - The Government passed Arbitration and Conciliation (Amendment) Act, 2021 in Rajya Sabha on 10th March 2021 -