NEW YORK CONVENTION- CAIRN ENERGY ARBITRATION CASE

• Be N By IAS, Delhi
• 08, Mar 2021

For: GS-3: Economy

CONTEXT:

• Cairn Energy has filed a case in a U.S. district court to enforce a $1.2 billion arbitration award it won in a tax dispute against India, ratcheting up pressure on the government to pay its dues.

NEWS IN DETAILS:

• Permanent Court of Arbitration Verdict: In December 2020, Permanent Court of Arbitration awarded the British firm damages of more than $1.2 billion plus interest and costs.
  • The tribunal ruled India breached an investment treaty with Britain and said New Delhi was liable to pay.
• Asking for Due Payment: Cairn asked the U.S. court to recognise and confirm the award, including payments due since 2014 and interest compounded semi-annually.
• Cairn’s efforts to recover dues: The case marked a first step in Cairn’s efforts towards recovering its dues, potentially by seizing Indian assets, if the government did not pay, a source with knowledge of the arbitration case told Reuters.
• Impact on India: “If Cairn wins the case, it will be a step towards attaching and seizing Indian assets overseas, especially in the U.S.”
• Cairn was identifying India’s overseas assets, including bank accounts and even Air India planes or Indian ships, that could be seized in the absence of a settlement.
• Cairn aims to enforce the award under international arbitration rules, commonly called the New York Convention, and recover losses caused by India’s “unfair and inequitable treatment of their investments”, the court filing showed.

WHAT WAS THE CASE?

• Cairn had challenged the Indian government seeking taxes over an internal business reorganisation using the 2012 retrospective tax law, under the UK-India Bilateral Investment Treaty.
• In 2011, Cairn Energy sold its majority stake in Cairn India to Vedanta Ltd, reducing its stake in the Indian company to about 10 per cent.
• In 2014, the Indian tax department had demanded Rs 10,247 crore ($1.4 billion) in taxes.

PERMANENT COURT OF ARBITRATION RULING:

The three-member tribunal also comprised a judge appointed by the Indian government.
It ruled:

1. India’s claim of Rs 10,247 crore in past taxes over a 2006-07 internal reorganisation of Cairn’s India business was not a valid demand.
2. India should pay the funds withheld along with the interest to the Scottish oil explorer for seizing dividend, tax refund, and sale of shares to partly recover the dues.
3. India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty.

‘NEW YORK CONVENTION’/ CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

• The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Arbitration Convention" or the "New York Convention", is one of the key instruments in international arbitration.
• It is considered the foundational instrument for international arbitration.
• Depositaries: Secretary-General of the United Nations.
• The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration.
• It was adopted by a United Nations diplomatic conference in 1958 and entered into force in 1959.
• The Convention requires courts of contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states.
• Nowadays many countries have adopted Arbitration laws based on the UNCITRAL Model Law on International Commercial Arbitration.

SOURCE: The Hindu

MCQs:
Q. Consider the following statements regarding NEW YORK ARBITRATION CONVENTION.

1. It is considered the foundational instrument for international arbitration.
2. It was adopted by a United Nations diplomatic conference in 1991.
3. It applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration

Which of the above statements is/are correct?

• a) 1 and 2 Only
• b) 2 and 3 Only
• c) 1 and 3 Only
• d) 1, 2 and 3

ANS: C