Cairn Energy is suing state-owned carrier Air India in the US to enforce a $1.2bn award against the Indian government, a process that could lead to it seizing planes and other assets as part of a long-running tax dispute.

The lawsuit, filed in the southern district of New York, seeks to establish that Air India is “the alter ego of the Republic of India and therefore jointly and severally liable for the debts and obligations of India itself”.

An international tribunal in December ordered India to pay Edinburgh-based Cairn $1.2bn in connection with a dispute over retrospective taxes New Delhi sought to levy on the company.

Prime Minister Narendra Modi’s government has appealed the ruling, though it has said it is in talks with the UK oil and gas explorer.

Cairn previously warned that, if payment from New Delhi was not forthcoming, it would pursue Indian assets in jurisdictions around the world.

In the lawsuit, Cairn argued that any purported distinction between Air India and the state was designed to shield Indian assets from creditors.

A verdict in its favour would allow Cairn to seize assets including planes in the US, where Air India operates a number of long-haul flights. It could also complicate the Indian government’s hopes of privatising the flag carrier to help boost revenues squeezed by the pandemic.

India’s finance ministry did not immediately respond to a request for comment, though local media quoted an anonymous official as saying that India would take all steps to defend itself.

The dispute with Cairn, alongside a similar retrospective tax dispute with Vodafone, has proved damaging for India’s reputation as a foreign investment destination, an area Modi has sought to strengthen.

Under a law passed in 2012, India retroactively demanded $1.4bn in tax payments from Cairn related to the UK group’s flotation of its Indian subsidiary on the Bombay Stock Exchange in 2007.

An arbitration tribunal found that India had violated its obligations under the UK-India Bilateral Investment Treaty in 2014 when tax officials seized Cairn’s residual 10 per cent stake in the subsidiary, which it sold to Vedanta.

Nirmala Sitharaman, India’s finance minister, last month pushed back against the tribunal’s judgment.

“I’ve recently had a meeting with a representative of Cairn, and we are talking,” she told an event hosted by the Financial Times and Indian Express. “However, the international arbitrations questioning India’s sovereign right to tax is a matter of concern, and to that limited extent, we are worried that it sets a wrong precedent.”

Cairn said it was “taking the necessary legal steps to protect shareholders’ interests in the absence of a resolution to the arbitral award”.

“Cairn remains open to continuing constructive dialogue with the government of India to arrive at a satisfactory outcome to this long-running issue,” it added.

Other companies have gone after state-owned assets in order to settle commercial disputes. ConocoPhillips in 2018 seized products from an oil refinery owned by Venezuelan state-owned oil company PDVSA after it failed to honour an international award of $2bn in compensation for the expropriation of Conoco’s assets in 2007.