Why India should honour the $1.2 bn arbitration award in Cairn's favour

 Back when global investors still believed Prime Minister Narendra Modi would keep his promise to end the previous regime’s “tax terror,” his newly elected government made a costly error. In March 2015, someone in India’s labyrinthine bureaucracy decided to send a revenue demand to U.K.’s Cairn Energy Plc — ruining Chief Executive Officer Simon Thomson’s birthday.

This March 10, Thomson has every reason to celebrate both his birthday and victory in a tortuous legal saga that ended right before Christmas with a $1.2 billion international arbitration award in Cairn’s favor. But there’s still one big glitch: The check that should have been in the bank by now isn’t even in the mail. That raises the unpleasant prospect of a private company having to legally seize sovereign property globally, a course of action some of its shareholders are starting to recommend.

“It would be truly unfortunate if this were the only path to resolution but in the absence of India adhering to the ruling, the company may be left with no other choice as it has a fiduciary duty to act,” says Stan Majcher, a portfolio manager at Los Angeles-based Hotchkis and Wiley Capital Management, which owns more than 2% of Cairn.

It’s been arduous and time-consuming for private firms to seek enforcement against Venezuela, Qatar, Lithuania and Tunisia. But when the sovereign in question is the world’s largest democracy and a rising economic power, things could get outright messy. For India, it will also be a PR disaster. After giving assurances that it would honor the verdict, not doing so makes New Delhi appear unpredictable and recalcitrant. “Cairn’s claim needs to be resolved, and nobody wants it resolved this way,” Majcher said in an email.
Maybe India is dragging its feet to explore some kind of an appeal, even though the arbitration panel in The Hague was unanimous, and the whole point of the exercise was to resolve the dispute with finality. Or perhaps politicians and bureaucrats are too distracted by the ongoing vaccination drive, the upcoming federal budget, this week’s farmers’ protests and other pressing matters.