Can India invoke state sovereignty in Cairn Energy case?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : BIT

Mains level : Paper 2- State sovereignty

Context

Last year, an arbitration tribunal indicted India for breaching its obligations by imposing taxes retrospectively on Cairn. As a result, Cairn Energy has been attempting to seize Indian assets in several jurisdictions to recover $1.7 billion due from India.

How asset seizure order affects India?

  • This episode projects India as an unfriendly country for investors at a time when it wishes to project itself as a prime destination for foreign investment.
  • This episode puts India in the league of countries like Pakistan, Congo, Venezuela, Russia and Argentina, who have been part of attachment proceedings overseas due to their failure to comply with international arbitral awards.
  • Fighting cases will consume an enormous amount of time, money, and resources, in addition to attracting bad press internationally.

Understanding the doctrine of state immunity

  • State immunity is a well-recognised doctrine in international law.
  • It safeguards a state and its property against the jurisdiction of another country’s domestic courts.
  • Despite the universal acceptance of this doctrine, there is no international legal instrument in force administering its implementation.
  • Attempts are underway to create binding international law on the application of the rules of state immunity such as the United Nations Convention on Jurisdictional Immunities of States and Their Property (UNSCI).
  • However, this convention is yet to be ratified by 30 countries — the minimum number required to bring it in force, as per Article 30(1) of UNSCI.
  • India has signed the convention, but not ratified it.
  • The doctrine of state immunity has progressed from absolute immunity to restrictive immunity in which immunity is only for the sovereign functions of the state.

Can India invoke state immunity?

  • Most prominent jurisdictions follow the concept of restrictive immunity.
  • State immunity can be invoked to resist the seizure of sovereign assets, but not commercial properties. 
  • In the context of the execution of the investment treaty arbitration awards, properties serving commercial functions are available for seizure.
  • In the case of India, the most popular commercial property that foreign investors would target for attachment are the global assets of India’s public sector undertakings such as Air India.

Way forward

  • If India wishes to continue the case, it needs to carefully study the laws on state immunity in different jurisdictions where attachment proceedings are likely to come up.
  • A better option would be to admit that amending the tax law retrospectively was a mistake and comply with the international ruling.

Conclusion

At the time when India seeks to project itself as an attractive investment destination, such cases could be a setback. India needs to avoid such disputes in the future.

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