India is again at the centre of an investor-state dispute settlement (ISDS). After the setback in the White Industries arbitration in 2011-12, an international tribunal this week penalised the countrywith a $1 billion monetary compensation in the annulled Antrix-Devas deal .
The investment treaty arbitration seated at the Permanent Court of Arbitration in the Hague has held India liable for expropriating the investments made by some Mauritian investors of Devas Multimedia, a Bangalore-based enterprise, in pursuance of a contract that they concluded with Antrix, the commercial arm of the Indian Space Research Organisation.
Legal claims made by the investors were on the basis of a Bilateral Investment Treaty (BIT) between the Republic of Mauritius and India.
An illicit indenture
A contract between Antrix and Devas concluded in 2005 was the root of the dispute. Devas acquired a 12-year lease of two ISRO satellites to be operated in the S-band spectrum to broadcast high speed internet on mobile devices.
After six years into the agreement, an investigative report published by BusinessLine and The Hindu in February 2011 brought out the impropriety in striking the deal.
Later in the same year, in the wake of a draft audit report of the CAG that pointed out serious financial irregularities and favouritism, the Centre decided to scrap the deal.
Interestingly, the official reason for the termination of the contract was that the country needed the S-band, a scarce resource, for larger ‘national and strategic’ purposes.
Eventually, in 2013, Devas initiated two international arbitration proceedings premised on the termination of the contract.
First, Devas and its shareholders commenced an international commercial arbitration against Antrix, with an International Chamber of Commerce (ICC) tribunal based in Paris, resulting in a penalty of $672 million for the ‘unlawful’ annulment of the contract by Antrix.
Second, an investment-treaty arbitration instituted by the Mauritian investors of Devas, under the United Nations Commission on International Trade Law arbitration rules in accordance with the BIT between Mauritius and India.
Now, as the enforcement proceedings against Antrix for the ICC award are on in different countries, India has been slapped with another international award.
The arbitral award is still not available in the public domain. The tribunal reportedly found India guilty for its actions in annulling the contract and denying Devas commercial use of S-band spectrum.
According to the tribunal, the measures constituted ‘expropriation’, and India breached its BIT commitments to accord ‘fair and equitable treatment’ to foreign investment.
On a prima facie assessment, it appears to be an errorless ruling on account of India’s executive action, as it’s clear that the government neither followed any procedure nor did they compensate the company, which could have justified the termination of the deal under the relevant BIT provision on expropriation.
Now, the only presupposition is about the failure of ‘public purpose’ argument in India’s defense. Also, one wonders how could telecom-broadcasting spectrum, even though it is a scarce natural resource, represent a security interest?
What is important to watch out is the political fallout of this international decision against India.
Strangely enough, India has had three investment arbitrations with Mauritian companies so far. Apart from the present award and the earlier Dabhol power project case, an arbitration with Khaitan Holdings Mauritius Ltd is pending.
No doubt, the convention on the avoidance of double taxation with Mauritius has been a major trouble for India from the perspective of both taxation and investment law.
Even though the recently-signed protocol amending the convention would solve the tax treaty abuse and thus benefit the Indian revenue authorities, the shell companies with a mere mail box address in Mauritius would remain a problem in the context of investment law unless the definition of ‘investors’ and ‘investment’ in the BIT is made strict.
Besides, it is a difficult situation when a claimant disguises an archetypal contractual dispute as an investment treaty dispute. Ironically, certain other investors of the company have won an ICC arbitration worth millions of dollars, less than a year ago.
It would have been a tricky task for the tribunal to adjudicate on whether the contract made by the ‘commercial’ arm of the Indian space agency constitutes a ‘sovereign act of the State’.
What India can do
Alas, India cannot afford to openly rebuff this international decision as China did against the recently pronounced South China arbitration award. It is mainly because of the strong enforcement mechanism of the ISDS.
Nevertheless, it would be intriguing to watch whether India would try to block the enforcement of this award using the ‘public policy’ defence available under the New York Convention on the enforcement of foreign awards.
Although India has made notable changes, both judicially and legislatively, on the treatment of foreign arbitral awards, the only legal route available to thwart this award is to challenge it before a Dutch (place of arbitration) court or try to resist the enforcement in any possible forum, including Indian courts.
The writer is a non-resident research fellow with the Centre for Public Policy Research, Kochi and a doctoral candidate in law at the National University of Singapore