Cairn Energy has filed a lawsuit against Air India in a US court that could potentially lead to the seizure of the national carrier’s overseas assets as the British explorer goes on the overdrive to enforce a $1.7-billion arbitration award that it won in a tax dispute with the Indian government.

The move could also hit the privatisation of Air India, which has been hit by the second wave of the coronavirus.

A senior Indian government official said they have “not yet received a formal notice” from the suit filed by Cairn.

They added that “as and when any such notice is received, an existing high-level Inter-Ministerial Group will decide India’s response and the next step to defend the sovereign and Air India will be taken against any such illegal enforcement action’’.

The inter-ministerial group comprises senior officials from the finance ministry’s departments of economic affairs and revenue and from the external affairs and law ministries.

Cairn on May 14 filed a lawsuit in the US District Court for the Southern District of New York seeking declaration of Air India as the “alter ego of Indian government” by virtue of control and as a state-owned company it is “legally indistinct from the state itself,” according to a copy of the petition.

If Cairn wins the case, it can potentially seek the attachment or seizure of its assets in the US such as airplanes, immovable assets and bank accounts to recover the amount it was awarded by the arbitration tribunal.

The May 14 lawsuit seeks to make Air India liable for the discharge of the arbitration award against the Indian government. It said, “Air India is not a typical state-owned airline. By operation of its internal law and the Articles of Association under which Air India was created, India has full functional, administrative, and economic control over Air India and controls its operations through its Ministry of Civil Aviation”.

Indian government officials said the government has “engaged a counsel team which is ready to defend against any enforcement action if and when initiated by Cairn anywhere in the world”.

The Indian government official said the country has filed an appeal against the arbitration award, and expressed the confidence “that the award will be set aside”.

India has appealed against the arbitration award on the ground that taxation-related matters are not covered in its bilateral investment treaty with the UK under which the case was filed and therefore, the arbitration tribunal does not have the jurisdiction to rule on the matter. The arbitral award totals $1.7 billion after including interest and cost as of December 2020.

Air India did not comment on the development.

The latest move by Cairn is not only an embarrassment to the government but could be a double whammy to Air India’s privatisation, which already looks challenging because of the devastating second wave of the coronavirus that has hit the country.