India reportedly plans to contest these efforts. But the best option for the government is to honour the international arbitration award, pay up, accept Cairn’s offer to invest the entire proceeds in India, and move on, past charges of tax arbitrariness, past possible legal boobytraps for Indian enterprises that depress their market valuation. Continuing with the current state of uncertainty could potentially shave multiple times the Cairn settlement cost off the market value of listed State-owned companies, and undermine the move to divest Air India.
Apparently, Cairn has identified assets that range from AI’s aircraft to vessels owned by
and properties owned by State-owned banks to oil and gas cargoes of PSUs. The risk of having assets attached depresses share prices and also carries a reputational risk.
Pakistan and Venezuela faced similar enforcement action over the failure to pay arbitration awards. That is not the kind of company India should aspire to keep. Cairn’s case pertains to a business reorganisation in 2006 before its initial public offering (that resulted in its listing in January 2007) in which it consolidated assorted group hydrocarbon assets under , without a change in ultimate beneficial ownership, unlike in the Vodafone case. Cairn’s discovery of oil and gas, lowering fuel imports, deserves a better reward.