Context

• In a major win for the Centre, the Delhi High Court has set aside order of International Chamber of Commerce(ICC) directing Antrix (commercial arm of ISRO) to pay damages of $560 million (Rs 15,000 crore) along with interest to, Devas Multimedia Private Limited.
• The arbitral award was passed by ICC in 2015 and directed Antrix to pay the sum as damages for allegedly illegally terminating its contract with Devas Multimedia. This order was upheld by the courts in the US.

The story so far

• The Deal: Antrix Corporation and Devas Multimedia entered into a transaction for leasing of S-Band spectrum to provide multimedia services to mobile platforms in India in 2005, but it was cancelled by Antrix in 2011 following the “2G scam” on grounds of “national security”.
  • Devas was a startup company based in Bengaluru with investors from Mauritius and US.
• The award: Devas sued Antrix in International Chamber of Commerce against the annulment and alleged that Antrix had improperly cancelled a contract to build satellites for Devas. Devas secured an award of over $560 million as damages.
• BIT claims: The government’s decision to revoke(cancel) the contract prompted Devas’ foreign investors to bring separate Bilateral Investment Treaty (BIT) claims against India under the India-Mauritius BIT and India-Germany BIT, respectively.
  • India’s standing: Against the two separate BITs, India maintained that the deal was cancelled in view of increasing demand for the S-band satellite spectrum for national security
• Devas submission: Devas submitted that the actual motive behind Antrix seeking its winding up is to deprive it of the benefits of a unanimous award passed by the ICC, and the two BIT awards.
  • It also said that such attempts on the part of a corporate entity wholly owned by the Government of India would send a wrong message to international investors.
• Antrix defence:  Antrix argued that the contract from which the arbitral award arose was wholly vitiated due to acts of corruption, fraud and criminality committed by the erstwhile management of Antrix and Devas.
• Inquiry: During the pendency of the ICC arbitration, CBI initiated an investigation into the transaction, charge-sheeted former ISRO chief G Madhavan Nair and filed an FIR alleging that the transaction has been orchestrated to defraud the state of its resources.
• Appeal for liquidation: Antrix with the authorisation of GoI, filed a petition in May 2021 before the National Company Law Tribunal (NCLT) for winding up of Devas on grounds of “fraud”. The petition upheld by the apex court on January 17, 2022.
• Appellate forum: The National Company Law Appellate Tribunal (NCLAT) also upheld the order of the Bengaluru bench of the NCLT, which had on May 25, 2021 directed the winding up of Devas Multimedia and appointed a provisional liquidator.
• SC dismissed Devas appeal: The Supreme Court, in its January 2022 judgment, while rejecting an appeal filed by Devas Multimedia against its winding-up order held that the entire transaction was in conflict with the “public policy of any country”.
  • It also rejected Devas’ contention that Antrix’s winding up petition was aimed at depriving it of the benefit of the earlier favourable arbitration awards.
• Devas’s pre-emptive move: Anticipating the setting aside of the ICC award by Delhi HC following the SC verdict, Devas shareholders initiated another BIT arbitration against GoI, which is yet to be concluded.
• Delhi HC ruling: The Delhi High Court, relying on the apex court's January 2022 ruling also noted that allowing investors of Devas to reap the benefits of a fraudulent would be antithetical to the rule of law.
  • The arbitral award goes against the economic policy of India along with being in contravention of the Foreign Investment Promotion Board (FIPB) rules and the Prevention of Money Laundering Act (PMLA).

BIT claims

• Delhi HC setting aside the ICC award must lead to an automatic vacation of all seizure orders passed by foreign courts in pursuance of enforcement proceedings initiated by Devas.
  • However, such an automatic inference would not follow in case of attachments following the BIT awards in favour of Devas

Road ahead

• New questions: The BIT arbitration now initiated by Devas shareholders against GoI following SC’s decision of winding up Devas raises interesting legal questions, including whether proceeds from an arbitral award can be treated as investment.
• Potent future allegations: Devas’s shareholders would most definitely allege that the impact of SC’s findings, in the setting aside of the ICC award, substantially deprived them of their rights to the money that would have accrued from the award.
• India’s image problem: The fact that the ICC award has been set aside, it only lends itself to India’s unfortunate image of belligerence against treaty claims.
  • India’s reluctance to return to negotiation in the matter also negates the positive steps the present dispensation had taken in settling the retrospective taxation disputes with Cairn and others.