The Bite Back
- January 2005: Antrix, ISRO’s commercial arm, gets into a deal with Devas Multimedia private limited
- February 2011: The Manmohan Singh government cancels the deal abruptly, citing “national needs” as the reason. September 2015: The arbitration court asks Antrix to pay $672 million to Devas
- July 2016: Case filed by Devas at The Hague goes against government. Damages payable by the government likely to go above $ 1 billion
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T ill Monday morning, July 25, there was a faint hope for the NDA government that the Indian nominee in the Hague arbitration panel—former Rajasthan High Court chief Justice Anil Dev Singh—would rule in favour of the Indian government. By evening, those hopes were dashed when the panel handed a 3-0 verdict against the government in the Antrix-Devas dispute.
The Hague verdict has left the government red faced and staring at a fine that can go into billions of dollars. This is the second straight knock-out for the government in the Antrix-Devas case, after it was given a 3-0 verdict against it in the ICC arbitration in September last year. Clearly, the Manmohan Singh government’s cancellation of the Antrix-Devas deal in 2011 is coming home to roost and the present Narendra Modi government will have to bear a heavy burden for it.
This is not small change. Last September, the ICC arbitration resulted in a fine of $672 million in damages, which the government is yet to pay. At 18 per cent interest, by this September the government will have to pay up a good $800 million to Devas.
The quantum of damages for the current arbitration case will be decided in phase two of the arbitration. Going by the assessment of people involved in the case, the award could be anything between $1 and $1.5 billion. Devas’ investors—Columbia Capital, Telecom Devas Mauritius Ltd and Devas Employees Mauritius Private Ltd—had pulled the Indian government into the international arbitration, citing breach of the Bilateral Investment Protection and Promotion Agreement (BIPA).
The verdict is very clear. The Permanent Court of Arbitration (PCA) said that it had found that the government of India’s actions in annulling the contract between Devas and Antrix Corporation Ltd and denying Devas commercial use of S-band spectrum constituted expropriation. It also found that India breached its treaty commitments to accord fair and equitable treatment to Devas’s foreign investors.
The government was clearly caught off guard by the verdict. In a hastily released statement the Department of Space said, “The government of India reiterates that it had invoked the essential security interests through a well-reasoned, valid and proper CCS decision. The award of the tribunal is being examined and legal recourse, as deemed fit, will be taken. We also remain committed to pursue our larger national interests, including sovereign strategic security interests in this matter.”
The government could be staring at much bigger damages with another arbitration case, which is already underway, from Devas’s biggest investor, Deutsche Telekom (DT), which had put in $100 million in the venture. DT had brought in the case under the Germany-India bilateral investment treaty. The verdict of that case will be available in six-nine months and the award there is expected to be much bigger than this one.
“This really vindicates the position Devas has always taken with its shareholders that the cancellation was improper. Nonetheless, we are very hopeful and wish a constructive engagement with the government as we go forward to try to find a resolution to this dispute,” Devas CEO Ramachandran Vishwanathan told Outlook.
The genesis of the issue stems from the arbitrary cancellation of a deal signed in 2005 between Devas Multimedia and the Indian Space Research Organisation (ISRO)’s commercial wing Antrix, under which Antrix would have made available S-band spectrum to Devas for providing satellite-based digital multimedia services in India. ISRO was building two satellites for this project. It has already spent over $150 million on the two satellites, which are now lying unused.
No one knows on exactly what grounds the UPA government cancelled the deal, which was cleared by the Foreign Investment Promotion Board after looking at all the investments. Pushed to a corner by the 2G scam, and the fact that the Department of Space came under (former) prime minister Manmohan Singh, the government cancelled the deal, citing ‘national needs’ and the ‘country’s strategic requirements’ as the reasons.
There may be other drivers for the cancellation as well. Experts say Devas’s service would have been a game-changer as it would have competed with 4G. This was seen as a potential spoiler for operators, who were spending thousands of crores for 3G and the BWA/LTE spectrum.
“The deal was clear and all procedures were followed. Even the CAG had given it a clean chit in its final report. But the cancellation was not transparent or legal. Why it happened is a mystery. If you have to cancel a contract, you have to engage into a dialogue with the party on why it was being done. This did not take place,” former ISRO chairman G. Madhavan Nair, in whose tenure the deal was signed, told Outlook.
Hapless at having been left high and dry and after having made significant investments in the project, Devas approached international courts for arbitration. The government, through Antrix, challenged the arbitration at the Supreme Court, but the apex court ruled in Devas’s favour.
Having been cornered and being on the losing side in the arbitration, the government resorted to pressure tactics to force Devas to back out. Recently, the Enforcement Directorate issued a show-cause notice to Devas for violation of the Foreign Exchange Management Act 1999, and is further investigating the case under the Prevention of Money Laundering Act 2002. Not only that, the CBI has filed an FIR against Devas and the case is under investigation.
Before this too, the government had used similar tactics on Devas. Devas was served with a show-cause notice from the Registrar of Companies (RoC) Karnataka, as well as an income tax claim even after the cancellation of the project. However, Devas has managed to get a stay on most of these cases from the Karnataka and Delhi High Courts.
The government now plans to appeal against the Hague order, but that is not expected to change much in the arbitration process and its liability as the case against it is far too strong. Despite its manoeuvres against Devas, it may simply have to pay up. The fines are steep and the interest is mounting.
