Friends, do you know that in one of the legal cases involving an Indian company, which was owned by the government, the International arbitration awards by the International Chambers of Commerce (ICC), and two under Bilateral Investment Treaties (BIT)-directed the UPA-led government to pay for sudden termination of contract amount totaling to Rs 15,000 Cr to USA based company.
History of the Case
The case is related to a deal between Antrix Corporation (Commercial arm of the Indian Space Research Organisation-ISRO) and Devas Multimedia. At the heart of the matter is a commercial dispute that arose between Antrix and Devas in Feb 20111, when the former annulled the 2005 agreement. Devas was to provide multimedia services to mobile platforms in India using S-band spectrum transponders on two ISRO satellites built at a cost of Rs 766 Cr. As per the records, in July 2003 Antrix entered into a memorandum of understanding (MOU) with Forge Advisors LLC, a Virginia, USA-based corporation, in evaluating and implementing major new satellite applications across diverse sectors including agriculture, education, media, and telecommunication.
A year later, Forge Advisors made a presentation proposing an Indian joint venture, to launch what came to be known as DEVAS (digitally Enhanced Video and Audio Services)- a platform to deliver multimedia and information services via satellite to mobile devices. In this Indian unit, an ex-employee of ISRO with links to various politicians and ministers was the main person. So in Jan 2005, a deal was signed by Devas and Antrix, as part of the deal, Devas would develop a platform capable of delivering multimedia and information services via satellite and Antrix would provide the space segment for offering the services. For this, ISRO leased two communication satellites for 12 years at a cost of Rs 167 to Devas. These satellites were built at the cost of 766 Cr by ISRO.
After this, Devas obtained approvals from the Foreign Investment Promotion Board and brought into India an investment of around Rs 579 Cr. Devas was also allotted a 2G spectrum for just Rs 1000Cr, whereas the same spectrum was sold to MTNL and BSNL for Rs 12,000Cr. But when the 2G controversy broke in 2011, Antrix in Feb 2005 terminated the agreement on the ground of ‘force majeure’ (unforeseen circumstances that prevent a party from fulfilling a contract).
The termination led Devas to initiate commercial arbitration before the ICC, etc as mentioned earlier. Much before these proceedings ended in adverse findings against India, the CBI had registered an FIR AGAINST Devas and Antrix on 16th March 2015. (please note that by that UPA rule had ended and Modi’s government was in power). A chargesheet was filed in Aug 2016. Even the Enforcement Directorate (ED) filed its report on the case in 2015.
In Jan 2021, Antrix made a request to the Ministry of Corporate Affairs to authorize it to file a winding-up petition before the National Company Law Tribunal (NCLT), which was accorded. A day later, NCLT appointed an official liquidator. Devas, however, questioned this order, before the Karnataka High Court, while its shareholders filed a writ petition challenging the constitutional validity of the Companies Act that allows winding up the companies.
Antrix claimed that persons in charge of the formation as well as management of Devas did not possess the necessary technical know-how or intellectual property rights, either at the time of signing of the agreement or even to date. Their aim was to commit fraud with the help of government officials and politicians. The Karnataka High Court upheld the order of NCLT. Devas took the matter to the Supreme Court (SC).
In the SC Devas claimed that the mandatory requirement of advertisement before ordering the winding up was not done by NCLT. Furthermore, it claimed that Antrix brought the fraud element at later stages, etc. Devas also said the question of fraud and hearing was in violation of the principles of natural justice since Devas was denied permission to cross-examine the Antrix officials. In rebuttal, Antrix and the government said that Devas was and is not equipped to provide the services for which it had entered into an agreement. There was manipulation of minutes of meetings and the nature of financial fraud was shocking. There is no question of advertisement for winding up proceedings when it is on the ground of fraud.
The counsels appearing for Devas in SC tried every trick in the books but the SC summed it up by saying that “ Allowing Devas and its shareholders to reap the benefits of their fraudulent action, may nevertheless send another wrong signal namely by adopting fraudulent means and bringing into India an investment of Rs 579 Cr, the investors can hope to get tens of thousands of crores of rupees, even after siphoning Rs 448 Cr.
With the SC upholding NCLT’s decision to liquidate Devas Multimedia, the central government moved further in the International courts. In mid-July 2023, for the first time, a foreign court recognized the Indian Supreme Court’s decision to liquidate Devas for fraudulent incorporation. The Hague Court in the Netherlands refused to enforce the ICC award against Antrix which is in excess of $ 1 billion dollars as of now. Earlier certain assets of Antrix and the Indian government were seized in USA, France, and Canada.
The Hague Court observed that “ It follows from all of foregoing that the Liquidation Judgment can be recognized in the Netherlands. This means that the legal consequences of the Liquidation Judgment must be recognized in the Netherlands. This means that the Dutch Court must assume that Devas has gone into liquidation and that a liquidator is in office. It is not a dispute between the parties under Indian law in case of liquidation, the appointed liquidator is exclusively authorized to act on behalf of the liquidated company, in this case, Devas. Hence the Hague Court can not enforce the ICC and BIT orders, which it says Antrix and the Indian government have to pay to shareholders of Devas.
Can you imagine if the Modi government did not come to power in 2015? The UPA government would have paid willingly the Rs 15,000 Cr to Devas shareholders, and god only knows how much kickback would have come to Indian officials and Politicians.
There may be many other such cases, that would have happened and never came into the limelight.
Waiting for your views on this blog.
Anil Malik
Mumbai, India
30th October 2023.