Cairn dispute: PSU banks not asked to withdraw foreign funds, says govt

The finance ministry on Sunday issued a strongly worded statement on media reporting on the Cairn Energy dispute. The statement was related to recent reports that claimed that the government ordered

state-owned banks to withdraw funds from foreign currency accounts in anticipation of their possible seizure by Cairn.

Two weeks back, media reports claimed that the government had asked public sector banks to be on high vigil against attempts to seize their overseas deposits as parts of efforts by Cairn to recover $1.2 billion it was demanding from India.

On May 7, Reuters reported that the finance ministry had issued guidance to PSU banks to withdraw funds held in 'nostro' accounts. Nostro accounts are accounts a bank holds overseas in another bank, in that country's jurisdiction. Such funds are typically used for international trade.

Reuters quoted a PSU bank official as saying, "There was an apprehension that some courts may take a drastic measure, saying whatever the offshore funds of the government of India, those may be taken over or frozen for the time being. Our assets are tantamount to assets of the government of India as we are owned by them.”

The finance ministry thrashed as false the "source based" reports on PSU banks being asked to withdraw funds. "... the Government of India said that these are totally incorrect reports which were not based on true facts. Certain vested parties appear to have orchestrated such misleading reporting, which often relies upon unnamed sources and presents a lopsided picture of factual and legal developments in the case,” the finance ministry said.

The finance ministry statement noted the government had raised several arguments for setting aside the December 2020 international arbitration award in favour of Cairn. The arguments include the international tribunal "improperly" exercising jurisdiction on a national tax dispute.

The finance ministry noted, "the CEO and the representatives of Cairn have approached the Government of India for discussions to resolve the matter. Constructive discussions have been held and the Government remains open for an amicable solution to the dispute within the country’s legal framework.”