India to offer indemnity to flag carrier bidder over Cairn claim

India is set to absolve bidders for its loss-making flag carrier from any liability arising out of a lawsuit filed by Cairn Energy Plc, which has claimed the state-run airline’s assets over a long-running tax dispute with the government, according to people familiar with the matter.

Prime Minister Narendra Modi’s administration will offer so-called indemnity to the financial bidders of Air India Ltd., which the government has repeatedly tried to sell without success, the people said, asking not to be identified as the matter is confidential. In the latest attempt, a group of bureaucrats cleared a final sale purchase agreement on Saturday, and that plan is likely to be approved by a group of ministers this week, they said. 

The government expects to receive financial bids by Sept. 15, junior Civil Aviation Minister V.K. Singh told parliament in July. Air India, unprofitable since a 2007 merger with state-owned domestic operator Indian Airlines Ltd., has total debt of 600 billion rupees ($8.2 billion) and loses 200 million rupees every day, straining government finances even as the South Asian nation’s budget deficit widens. 

A Finance Ministry spokesperson declined to comment.

Potential bidders for the airline—identified by local media as conglomerate Tata Group and the owner of local budget carrier SpiceJet Ltd.—may welcome any assurance from the government on not having to encounter any surprises on further liabilities. 

Cairn, which last year won an arbitration award for $1.2 billion plus interest over a controversial retrospective tax demand from the Indian government, has called Air India “an alter ego” of the country in a U.S. court, and held it responsible for the government’s liabilities, including any arbitration awards. Devas Multimedia Pvt., a company seeking over $1.2 billion it won in international arbitration from India over a dispute with state-run Antrix Corp., is also seeking to seize Air India’s assets abroad.

India last month approved legislation that will allow firms relief from the tax demands if they agree to drop litigation. The government is in talks with Cairn to settle the dispute, Revenue Secretary Tarun Bajaj said in a subsequent interview.