Cairn Energy tax dispute | Indian government asks banks to protect dollars: Report

The Indian government has told the state-run banks to protect their dollar deposits amid a tax dispute with UK-based Cairn Energy Plc, people aware of the matter told Bloomberg.

Reportedly, India's foreign exchange market has been hit with the news and is now flooding with dollar deposits as state banks stay away from receiving the greenbacks in the forward market.

Following the trend, the one-month forward premium on Rupee-Dollar has risen as high as 10 percent on an annualised basis, making it double the average for the year.

Moneycontrol could not independently verify the report.

After winning the appeal in an arbitration tribunal in The Hague, the Scottish firm has threatened to seize Indian sovereign assets overseas which it can do so in the event of New Delhi failing to return over $1.7 billion that the arbitration tribunal has ordered after rescinding a retrospective tax demand.

The firm has moved courts in nine countries to get the arbitral award registered and recognised. Moreover, the firm said it has engaged directly with the government of India regarding satisfaction of the award, which is also enforceable against Indian-owned assets in more than 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.