According to two government officials and a banker, India has instructed state-run banks to withdraw funds from foreign currency accounts, fearing that Cairn Energy would try to seize the funds following an arbitration decision in a tax dispute. In a long-running legal battle with the Indian government over retrospective tax claims, Cairn was paid damages of more than $1.2 billion, plus interest and expenses, in December.
Although New Delhi has filed an appeal, the London-listed company has begun identifying Indian assets abroad, including bank accounts, that could be confiscated if a settlement is not reached, which Cairn claims it is still working on. The corporation has filed suit against India in courts around the globe, including the United States, the United Kingdom, France, the Netherlands, Singapore, and Quebec, which may make it easier to seize assets and implement the arbitration award.
"Earlier this week a guidance was sent to state-run banks to withdraw funds from their nostro accounts," one of the government officials, who asked not to be named, told Reuters, adding that the finance ministry had issued the guidance.
"There was an apprehension that some courts may take a drastic measure saying whatever the offshore funds of the government of India, those may be taken over or frozen for the time being," the banker told Reuters. "Our assets are tantamount to assets of the government of India as we are owned by them."
The cases frightened foreign investors and dealt a blow to Manmohan Singh's administration, which lost power to Prime Minister Narendra Modi in a 2014 election. The government of Prime Minister Narendra Modi has stated that it will not make retrospective tax claims in the future, but it has defended pending cases.