A Delhi High Court judgement, issued on August 29, 2022, set aside an arbitral award delivered in 2015 by the International Chamber of Commerce (ICC) in the protracted Antrix-Devas dispute. While the August verdict has been called a significant ‘win’ for the Indian government, it also presents an opportunity to ascertain how India can avoid such situations in the first place.
The ICC proceedings were part of an international commercial arbitration (ICA) between two companies: Antrix Corporation Ltd, a government-owned commercial arm of the Indian Space Research Organisation (ISRO), and Devas Multimedia Pvt Ltd, an Indian entity with foreign shareholders. The ICA proceedings also led to two treaty-based investor-state arbitrations (ISA) where the Indian government was sued directly by foreign investors (including Deutsche Telekom, under the India-Germany Bilateral Investment Treaty).
Taking cue from an earlier Supreme Court judgement issued in January this year, the August verdict refers to certain fraudulent aspects of the 2005 satellite deal involving Antrix and Devas.
However, neither in its ICA defence, nor in the two BIT-based ISA proceedings, did Antrix/India invoke corruption or the corresponding criminal investigation related to former ISRO officials (conducted by the Central Bureau of Investigation and the Enforcement Directorate since 2014) to justify the cancellation of contract.
While it is debatable whether the tribunals concerned would have declined jurisdiction on the basis of corruption alone, it would not have been the first time if they did, whether under ICA or ISA (although Devas might then have invoked the doctrine of estoppel, arguing, for example, that India ought to be ‘estopped’ from citing breaches of its own law as a jurisdictional challenge — because India had endorsed the investment).
In fact, some ISA tribunals have refused to hear the merits of treaty-based claims when the underlying contract was based on corruption, even if such corrupt acts were perpetrated by government officials. Ironically, this arbitral trend has been criticised because it provides an incentive for rogue states to engage in (and/or tolerate) corrupt activity — if only to set up a watertight defence later, when sued.
In the Devas-Antrix saga there are things happening at several levels. After the Delhi High Court verdict, there is action against Devas and former officials of ISRO, bolstered by ED findings. The determination of fraud by the Supreme Court and Delhi High Court is unsurprising. The consequences will likely be (a) optics, and (b) leveraging to settle the payment terms later. However, since the domestic court verdict will have limited impact upon international law obligations, a corporate settlement (to stem the tide of government asset seizures abroad) might be supplemented with counter-attacks on individuals connected with the underlying corruption. While the former can be done outside India, the latter can proceed within the domestic legal regime.
Earlier this year, Malaysia’s failure to prevent a $15-billion award (despite the presence of a controversial sole arbitrator) to the heirs of the former Sulu Sultanate under a colonial-era territorial grant serves as a sobering lesson, including for India. While there were several instances of faulty strategy in Malaysia’s defence, just like the Sulu ‘sultans’ who managed to get Petronas assets seized in Luxembourg, investors in Devas also continue to seize Indian government assets in multiple jurisdictions. Further, just as Malaysia initially refused to participate in the Sulu arbitral proceedings, citing lack of jurisdiction, Antrix too challenged the ICC’s jurisdiction and did not appoint an arbitrator. The result was similar: a domestic backlash against international arbitration even as an award was nonetheless issued, and both countries continuing to seek innovative ways of reversing the verdicts. Both countries realised the extent of damage caused — economic, political, and reputational — too late.
More importantly, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which India has ratified like most other countries, enables investors to enforce arbitral awards when they win, including through the seizure of state-owned assets in countries that have ratified the convention. Accordingly, when the August verdict came out, Devas was seizing Antrix assets in the US.
The key takeaway for India is that it must put regulatory strategies in place — instead firefighting each time with its back to the wall.
India needs to think about what sort of sovereign it wants to be in the eyes of the international investment community; second, it must be proactive in global investment debates, including making its position on key issues clearly known; and third, it must develop a consistent stance towards dispute resolution related to international investment.
India has terminated several investment treaties or allowed them to lapse — a strategic response to adverse awards in ISA cases. Nevertheless, prior investments — made before treaties were terminated — will stay protected for an additional period due to ‘sunset’ clauses.
(The writer is a lawyer with S&R Associates, a law firm)