The Devas - Antrix Saga: A Scathing Indictment Of India's Poor Regulatory Governance
“India’s abysmal state capacity and capricious regulatory behaviour stands exposed to the international community at large.”
Will the Supreme Court ruling upholding the decision of the National Company Law Appellate Tribunal to wind up Devas because it was incorporated in a fraudulent manner be the final nail in the Devas-Antrix coffin? We don’t know yet. However, there are several facets of this interminable saga that require closer scrutiny. Here’s a quick background for those unversed with what is nothing short of a legal potboiler with multiple twists and turns.
The Devas story started in 2005. Devas Multimedia signed an agreement with Antrix—a commercial arm of the Indian Space Research Organisation—to provide multimedia services using the leased S-band satellite spectrum to be provided by Antrix. Seemingly everything was hunky-dory till allegations surfaced that the Devas-Antrix contract was tainted by corruption. The United Progressive Alliance government, already battling several corruption accusations, got cold feet. It hastily annulled the Devas-Antrix deal in 2011 but not explicitly due to the misgiving of corruption or fraud. The deal was cancelled on the ground that India needed the S-band satellite spectrum for national security and other societal purposes and thus, it could not provide the orbit slot in S-band for commercial activities to Devas via Antrix.
This annulment led to three legal disputes – a commercial arbitration between the Antrix and Devas Multimedia at the International Chambers of Commerce, and two bilateral investment treaty arbitrations brought by the Mauritius investors in Devas Multimedia under the India-Mauritius BIT (CC/Devas tribunal) and by German company Deutsche Telekom under the India Germany BIT (DT tribunal). India lost all three disputes.
The ICC arbitration tribunal in 2015 ordered Antrix to pay $562.5 million-plus interest to Devas as damages for wrongfully repudiating the contract. A United States court recognised and confirmed the ICC award last year. India appealed against the decision of the CC/Devas and DT tribunals before the Dutch and Swiss courts respectively but lost again.
Government’s Legal Strategy
When the National Democratic Alliance government came to power in 2014, in light of the prima facie evidence of wrongdoings, it ordered a criminal investigation into the Devas-Antrix deal. This was also the time when the hearings in the two BIT arbitrations started. The hearing on jurisdiction and merits in the CC/Devas case started in August 2014 with the award indicting India being issued in July 2016. Likewise, the hearing and submissions on jurisdiction and liability in the DT case started in late 2014 going up to early 2016. The DT tribunal holding India guilty of violating the India-Germany BIT issued its award in March 2017.
What is baffling is that India did not raise a jurisdictional objection on the ground of the Devas-Antrix contract being vitiated by corruption and fraud before either of the two tribunals despite launching a criminal investigation.
Perplexingly, the 2012 CAG report that tore apart the Antrix-Devas deal pointing to several anomalies was also not brought before the two tribunals though other Indian government reports were relied upon to make submissions.
It was only in October 2016 i.e. after the CC/Devas tribunal had issued its award, that India requested the tribunal to stay the proceedings to determine the damages pending the resolution by Indian judicial authorities of the charges framed by the CBI against Devas. However, the tribunal denied the request as the request was untimely. Moreover, the CC/Devas tribunal also said that India did not request relief during the hearings based on the alleged criminal activities of Devas under the Indian criminal laws. India made a similar request before the DT tribunal in October 2016 after the hearing was over. The DT tribunal too did not heed India’s request because it was both untimely and lacked merit.
India also appealed in the Dutch Court against the CC/Devas tribunal citing the criminal complaint against Devas as one of the grounds. However, the Dutch court, in 2018, rejected India’s claim stating that the criminal complaint “can only have legal consequences for the Devas contract if it leads to an (irrevocable) criminal conviction”. Till then India’s complaint was just a set of allegations. India’s bid to get the DT tribunal award set aside before Swiss courts on the same ground failed too.
Antrix-Devas Case: India To Use Supreme Court Order To Defend Position In Devas Arbitration
What Happens Next?
Armed with judicial victories, the foreign investors of Devas have initiated proceedings to attach the assets of Indian public sector undertakings in multiple jurisdictions. They have already tasted success in French and Canadian courts. The Indian government, on its part, has still not been able to obtain an irrevocable criminal conviction in the case. Getting a company to be wound up because it was incorporated fraudulently is not the same as establishing criminal culpability.
Nonetheless, India, armed with the Supreme Court judgment, would challenge the attachment proceedings in multiple courts. The argument would be that since the Devas-Antrix contract was contaminated with fraud, therefore it violates international public policy. However, to what extent would the foreign courts be willing to accept this argument remains uncertain and would vary from jurisdiction to jurisdiction. Generally speaking, courts accord high deference to an arbitral award and refrain from delving into the merits of the case. India already missed the bus on making a case on corruption and fraud before the two BIT tribunals.
However, in recent times in some jurisdictions, the courts have softened their stand of adopting a high deferential standard of review towards arbitral awards.
In 2020, the Paris Court of Appeal, in a case known as Libya v Sorelec, set aside two awards issued in favour of a French investor against the State of Libya because the underlying transaction was tainted by corruption and thus violated international public policy.
Series Of Errors
In sum, there are two key conclusions that one can draw from this saga.
First, the UPA government made a horrendous mistake of cancelling the contract without offering the correct reason. In trying to pull the wool over everyone’s eyes, it hid behind the cloak of national security. If Devas was established fraudulently for unlawful purposes, a fact now attested by the Supreme Court, then the UPA government should not have shied away from saying so upfront. Prima facie, there was material available.
Second, the mistake of the NDA government was its botched-up litigation strategy. It is difficult to fathom why it did not raise jurisdictional objections before the two BIT tribunals on the ground of fraud. Also, it should have shown greater vigour in conducting criminal investigations. A more proactive stand could have altered the outcome at international arbitral forums and foreign courts saving both taxpayer money and international embarrassment.
In both instances, it is India’s abysmal state capacity and capricious regulatory behaviour that stands exposed to the international community at large.
Prabhash Ranjan is Professor and Vice Dean, Jindal Global Law School, OP Jindal Global University. Views are personal.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.