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Behind the Devas-Antrix legal muddle

D SAMPATHKUMAR | Updated on January 22, 2018 Published on October 07, 2015

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A poorly drafted contract, and failure to move first on the choice of arbiter, has cost Antrix dearly

It can be nobody’s case that that Antrix, the marketing arm of the Indian Space Research Organisation (ISRO), in zeroing in on Devas Multimedia Pvt Ltd for monetising the S-Band spectrum that was going to be available to it, went about it in the most sensible way. The contract was awarded on a nomination basis on financial terms that would have been hard to justify.

But that is no basis for holding it to account for liquidated damages in excess of ₹4,000 crore as the arbitral panel appointed under the rules of the International Chamber of Commerce (ICC) has done.

The panel’s ruling is devoid of proper jurisdiction in the first place. That flaw had been compounded by defective arguments for concluding that there has been wrongful repudiation of performance obligations by Antrix and wholly arbitrary assumptions with regard to financial loss.

A pre-nuptial agreement

On jurisdiction, Antrix’s predicament is somewhat similar to that faced by a couple who enter into a pre-nuptial agreement.

The agreement, let us suppose, also had a clause on divorce which said that in the event of an irretrievable breakdown of the marriage, the parties to the agreement (pre-nuptial) would go through a divorce in India, invoking either the procedures laid down by the Roman Catholic Church or the civil law governing divorces in the State of Nevada in the USA, as the case may be.

For some reason (maybe poor advice from the respective lawyers!) the contracting parties have omitted to specify the circumstances under which a particular procedure out of the two specified, would apply.

For instance, they could have said that if the marriage had earlier been solemnised in a Catholic church then the former rules of divorce would apply while on the other hand if it had been a civil marriage supervised by a public official, then the latter would operate.

But as it happened, this was not codified. Mind you, it doesn’t matter if the grant of divorce under the Roman Catholic Church rules were just as liberal as the one granted by the courts in Nevada.

The fact of the matter is that there has to be a clear and unambiguous agreement between the two contracting parties on the rules/procedure that would be followed once the process of divorce is set in motion.

This is important because the final verdict should not be tainted by the charge one of the two parties to the dispute had indulged in ‘forum-shopping’ to his/her advantage! For that would have led to a perception that the ends of justice have not been fully served.

Antrix and Devas had a similar situation. They had agreed that their contractual relationship could face differences of opinion including a situation where one of the two parties wants to opt out of the contract altogether. They had thus incorporated a clause on arbitration.

The clause specified that the aggrieved party could demand the setting up of a panel of arbitration to rule on the dispute.

But, that clause also stipulated that such an arbitration could be conducted either in accordance with either the rules of the International Chamber of Commerce (ICC) or those specified by the United Nations as its model code of arbitration (UNCITRAL). The former contemplates the process being overseen by the International Court of Arbitration (ICA), Paris while the latter by the Permanent Court of Arbitration (PCA) located in The Hague.

But unfortunately there was no stipulation in the bilateral agreement as to the circumstances under which one of the two would be applied. Devas, which was the first to make the choice, opted for the former to which Antrix disagreed and instead, opted for arbitration under the UN rules.

Legally bound

It was under such circumstances that the matter went to the Supreme Court. The Court effectively said that where the contract contemplates two modes of resolution of a dispute, the one that has been invoked first would prevail.

Should jurisdiction be decided on the lines of duelling contests among cowboys in the ‘Wild West’ in the US where the first one to draw the gun wins? It is no surprise that Antrix with its ponderous PSU ways of decision-making was way behind Devas in the choice of the forum for dispute resolution.

To be fair to the Supreme Court, it did clarify that it was not ruling on the legal merits of Devas’ action in invoking the jurisdiction of the ICC before consulting Antrix but confined itself to remarking that under the circumstances, it was the most expedient thing to do.

That of course, did not absolve the arbitration panel of ruling on its own competence to judge the issue. What then was its rationale for the ICC panel to rule in its favour (competence to judge the complaint) given that the two parties to the dispute were clearly not in agreement as to the choice of the forum?

What were the legal precedents or some superior judicial principle on which it arrogated to itself the competence to adjudicate when theoretically it would not be in the picture at all, if the choice of rules were that of UNCITRAL? The arbitrators referred to the precedents cited by Antrix (the ruling given the Supreme Court of Lebanon and courts in China) which held as inoperative, any clause on arbitration which contemplated operation of one of two sets of arbitral rules.

It then referred to the precedent cited by Devas wherein the arbitration panel, which was constituted under the UN rules of arbitration, had ruled that the jurisdiction that would prevail is the one that is invoked first by either of the two parties of the dispute. Going purely by the number of precedents cited, that is still 2:1, in favour of the position argued by Antrix.

First off the block

So what tilted the case in favour of the Devas’ position in the minds of the ICC-anointed arbitrators? As it happens, it relied on an earlier ruling given by a panel constituted under the ICC framework which too endorsed the ‘first-off-the-block’ principle.

Evidently the arbitral panel which seems to think that decisions under the ICC rules have judicial weight that even if not quite amounting to gold, should at least count as equal to two, thus overriding opinions of a judiciary of the second largest economy in the world and that of the Supreme Court of Lebanon!

The panel should have been sensitive to the charge that it was being a judge in its own cause by relying on a ruling given by an earlier panel operating under the ICC rules.

The least that the present panel could have done is it to give its own reasoning as to why it thinks that the opinion of the Supreme Court of Lebanon or that of the Chinese court be discarded in favour of a notion that it is quite competent to try the case.

This is the first of a two-part article. The final part will appear tomorrow

Published on October 07, 2015
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