A court in Canada has ordered seizure of amounts collected by the International Air Transport Association (IATA) on behalf of Air India and the Airport Authority of India (AAI). Separate orders were passed on November 24 and December 21 on pleas by shareholders of Devas Multimedia Pvt. Ltd, who have filed multiple petitions to enforce arbitration awards against the Indian government. Around $6.8 million belonging to the AAI has been seized as a consequence of the order. The exact amount due to Air India that is held up due to the order is not known.
This comes soon after the Indian government smoked the peace pipe with foreign investors by reversing the retrospective application of the 2011 amendment that ropes in capital gains earned and received abroad emanating from the transfer of shares relating to Indian operating companies. Cairn Energy UK was threatening menacingly to invoke the alter ego principle under which Air India has become the favourite whipping boy of foreign investors. Air India with its worldwide presence and solid, visible assets in the form of aircrafts has been tantalising the foreigners at daggers drawn with the Indian government.
Cairn Energy armed with an arbitration order in its favour against the retrospective amendment on capital gains tax was all set to getting seizure orders against Air India from New York, Paris and other courts where the alter ego principle—if you can’t lay your hands on the Indian government’s cash to enforce arbitration award in your favour, then lay your hands on its alter ego i.e., companies controlled by the Indian government—holds sway. The Indian government seeing the writing on the wall and with a view not to rock the foreign investors’ boat, made a tactical retreat in the dawning realisation that discretion is the better part of valour. Bottomline—refund of capital gains tax to Cairn Energy.
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Looks as if Devas has been emboldened by what it perhaps thinks as the capitulation by the Indian government. It is time the international order is changed in so far as invocation of the alter ego principle is concerned. It smacks of gorilla tactics. In tax matters in particular it reeks of superiority complex on the part of foreigners. The Indian income tax law has a well laid down hierarchy of appeals culminating in the Supreme Court. A resident has to abide by it. How can a foreigner be allowed to mock at it with a smirk and call in the arbitrator? If you want to do business in India, you have to abide by the Indian laws.
What adds insult to injury is after wangling a favourable verdict from a foreign arbitrator, the foreigner resorts to gorilla tactics—applying for seizure of assets belonging to sitting ducks like Air India. The Canadian Court ought to have known that Air India is practically no longer owned by the Indian government with Tata's having acquired 100 percent of its equity. To be sure, the formal takeover is a few weeks away but the blasé order impinges on the rights of Tata's.
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It is one thing for a government to get a criminal hiding abroad extradited to face the law back home just as it is kosher for the Indian government to ask its foreign counterparts to freeze the assets of fugitives. But to order seizure of the assets of an Indian company albeit owned by the Indian government to enforce a foreign arbitration award against the Indian government tantamounts to interfering with the sovereign rights of the Indian government and its instrumentalities.
It is not only blatant but also smacks of strongarm tactics against the majesty of a democratic government. It is of a piece with a bank employing thugs to recover its dues from the borrower. India should not take it lying down. It is all right for Indian firms to submit themselves to foreign arbitration willy-nilly but the Indian government must not be seen genuflecting to foreigners and foreign arbitrators especially in circumstances the majesty of its own laws is undermined. Disputes subject to Indian Courts’ jurisdiction should be the admonition read out to them at the very outset.
— S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
Read his other columns here
(Edited by : Ajay Vaishnav)
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