Arbitration Awards and The Public Interest

Relevance: Way forward for India in the Cairns Energy case

Synopsis: Recently, a court in Paris allowed Cairn Energy to freeze assets of Government of India in Paris in a tax dispute. Similar developments are possible in the US from actions by Cairn and Devas Multimedia. Thus, an objective, analytical approach to pursuing or resisting claims and arbitration awards is advisable.

Options before India

The choice before India are:

1. to litigate continuously
2. to accept the award
3. to negotiate a settlement

Accepting the award

Accepting the award has the following consequences:

• Political – state appears to be weak if it accepts the award
• Social – it indicates selling out of public interest to business entities
• Economic – it could lead to more such cases such as Vodafone case, Vedanta case,  Devas Multimedia case etc. which hurts public exchequer.

Implications of a non-resolution

Resolution would enable reallocation of India’s energies — our political, administrative, and judicial resources, and society’s productive capacity and mind-share — to more constructive purposes.

Additional considerations include substantial, continuing damage to India’s business reputation for not honoring agreements and awards, and for resorting to repeated appeals.

The indirect costs and collateral damage are enormous, such as to the telecom and energy sectors since 2012, to affected companies and employees, to the investment climate, and the cascading effects through the economy.

Suggestions

• Mindset change: The mindset will have to change for a more open approach, objective analysis, and decisions based on facts and reason. Cairn, Vodafone, and Devas have reportedly shown willingness to settle.
• Evaluate pros and cons: The government should seriously consider evaluating the pros and cons of asset seizure and indirect damages, compared with other options, including possible settlements.

Conclusion

By ending these disputes quickly and well, we can hope to build a more reasonable and stable business and investment environment, and better business practices.