An international tribunal ruled unanimously In December that New Delhi had violated its obligations under the UK-India bilateral investment treaty in 2014, when income tax officials seized Cairn’s residual 10 per cent stake in Cairn India. In a ruling Cairn described as “final and binding”, the tribunal ordered New Delhi to pay $1.2bn in damages, plus interest and costs, to compensate Cairn for the shares — long sold off by the tax department — as well as confiscated dividends. But in the month since the 582-page judgment was issued, Mr Modi’s government has given no indication whether it intends to honour the verdict, though payment was due immediately. In the letter, Cairn said its shareholders — including big financial institutions such as BlackRock, Fidelity, Franklin Templeton, Schroders and Aviva — “expect early resolution, failing which they will expect Cairn to pursue the award in conformity with its rights under the treaty”.

“The award can be enforced against Indian assets in numerous jurisdictions around the world for which the necessary preparations have been put in place,” the company added. Although the letter did not specify when assets might be seized, people familiar with the situation said targets could include bank accounts as well as mobile and immobile property, including the assets of public sector enterprises such as state-owned Air India, but not diplomatic assets.

Cairn Energy has threatened to seize Indian government assets if New Delhi fails to pay the UK oil and gas explorer $1.2bn after losing a bitter dispute over retrospective taxes. The warning, in a letter seen by the Financial Times, highlights the pressure on Prime Minister Narendra Modi’s government to honour the verdict in one of its longest-running, highest-profile corporate tax battles.

Cairn’s battle with Indian authorities stems from a 2012 law — pushed through by the previous Congress party government — that changed the country’s tax code retrospectively. In 2014 tax authorities cited the new law to claim unpaid dues stemming from Cairn India’s 2006 corporate reorganization before its initial public offering. People close to the situation said that since December’s court judgment, several Cairn shareholders — representing about 30 per cent of the company’s total shareholding — have been lobbying UK, US and Indian authorities to press for the verdict to be honored. Indian authorities declined to comment.

Analysts say New Delhi’s actions in the case will have wider ramifications for its international image, as Mr Modi’s own Bhartiya Janata party had denounced the previous Indian government for what it called “tax terrorism”.

“Investors are looking very carefully at what decision India makes in this case,” said Richard Heald, chairman of the UK India Business Council. “Modi was initially very negative on the retrospective tax situation. Now he has an opportunity to basically say ‘this case is closed’. The question is, is he going to do that?” India is not the first country to face seizure of its international assets. In 2012 an Argentine naval vessel was seized in Ghana as part of an attempt by US hedge fund Elliott Management to collect on sovereign bonds that Argentina had defaulted on 11 years previously. Elliott later collected $2.4bn from the country after striking a deal with reformist president Mauricio Macri. In 2018 ConocoPhillips seized products from an oil refinery owned by PDVSA in the Dutch Caribbean, after the Venezuelan state-owned oil company failed to honour an international judgment awarding Conoco $2bn in compensation for the expropriation of its assets in 2007.