India has asked state-run banks to withdraw funds from their foreign currency accounts abroad, two government officials and a banker said, as New Delhi fears Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute.
Cairn was awarded damages of more than $1.2 billion plus interest and costs in December in a long drawn-out tussle with the Indian government over its retrospective tax claims.
New Delhi has filed an appeal, the London-listed firm has started identifying Indian assets overseas, including bank accounts, that could be seized in the absence of a settlement, which Cairn says it is still pursuing. The company has registered its claim against India in courts in the United States, Britain, France, the Netherlands, Singapore and Quebec, moves that could make it easier to seize assets and enforce the arbitration award.
Earlier this week a guidance was sent to state-run banks to withdraw funds from their nostro accounts. A nostro account refers to an account a bank holds overseas at another bank in the currency of that jurisdiction. Such accounts are used for international trade and to settle other foreign exchange transactions.
The Indian Banks’ Association, an industry body representing lenders, did not immediately reply to a request for comment.
The dispute began after a previous Indian government decided to impose capital gains tax retrospectively on some companies, such as Cairn and telecoms operator Vodafone Plc, which also took its case to arbitration and won. The cases scared off foreign investors and dealt a blow to the government of Manmohan Singh, who lost power in a 2014 election to Prime Minister Narendra Modi.
Modi’s government has said it would not make retrospective tax claims in future but it has defended outstanding cases.
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