UNDERSTANDING BITs TO BITE INTO INDIA’s ANTRIX-DEWAS FIASCO AT THE HAGUE

Recently India suffered setback at International Forum in case of Antrix Devas Multimedia deal. The root to this case lies in Bilateral investment treaties (“BITs”) which are international agreements establishing the terms and conditions for private investment by nationals and companies of one state in another state.

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Introduction

As the term itself suggests that it is a bilateral agreement i.e. it is Conventions between two states. India failed to honor its commitments under BITs and hence the penalty of $1Billion USD. To understand this case it is vital to understand what constitutes BITs. The bedrock of BITs is FCN or treaties that were based on Friendship, Commerce and Navigation (“FCNs”). FCNs required the host state to treat foreign investments on the same level as investments from any other state, including in some instances treatment that was as favorable as the host nation treated its own investments. FCNs also established the terms of trade and shipping between the parties, and the rights of foreigners to conduct business and own property in the host state.

The natural progression of FCNs culminated in BITs or Bilateral Investment Treaties. BITs exhorts host government to set standards for actionable conduct and claims in their treatment of investors from other states. These standard includes:

  • Most favoured Nation (MFN) treatment or National treatment-this essentially means fair and equitable treatment;
  • Protection from expropriation (Expropriation) is the act of a government in taking privately owned property, ostensibly to be used for purposes designed to benefit the overall public. In the United States, what is referred to as “eminent domain” provides the legal foundation for expropriation)?
  • Free transfer of means and full protection and security.

Adjudication Feature in BITs

One of the key features of BITs is that they allow for an alternative dispute resolution mechanism. The recourse is by way of International arbitration usually under the auspices of the ICSID (International Center for the Settlement of Investment Disputes). This is done to provide fair playground to the players. The matter is settled internationally and not in host country. This is imperative as as per UNCTAD database there are over 2,500 active BITs around world. India has signed its first BIT in 1994 with the United Kingdom. Since 1994, India has signed BITs with 75 States out of which 66 are already in force and 9 are yet to be entered into force.

Understanding Antrix Devas case

antrixdevasdeal

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 1. The Deal and the Dispute: M/s. Antrix Corporation Limited, an Indian Government Company incorporated under the Companies Act, 1956, and engaged in the marketing and sale of products and services of the Indian Space Research Organization (ISRO), entered into an Agreement with Devas Multimedia P. Ltd., on 28th January, 2005. Devas is an Indian Company and its investors includes some Mauritian investors. As per agreement 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. In 2011 a draft audit report of the CAG pointed out serious financial irregularities and favoritism. The then Union government decided to scrap the deal. This scrapping was sugar coated and 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.” On 25th February, 2011, Antrix terminated the Agreement with immediate effect in terms of Article 7(c) read with Article 11(b) of the Agreement in keeping with the directives of the Government, which it was bound to follow under Article 103 of its Articles of Association. By its letter dated 28th February 2011, the Respondent objected to the termination. On 15th April 2011, the Petitioner Company sent to the Respondent Company a cheque for Rs. 58.37 crores refunding the Upfront Capacity Reservation Fee received from Devas. The said cheque was, however, returned by Devas on 18th April, 2011, insisting that the Agreement was still subsisting.

2. International Attention: Before proceeding further, it will be interesting to look how this matter reached International arena and how BIT bite into it, for thus we have to look into some of the clauses of the agreement. Article 19 of the Agreement empowered Antrix to terminate the Agreement in certain contingencies. It also provided that the Agreement and the rights and responsibilities of the parties thereunder would be subject to and construed in accordance with the laws of India. Thus, the agreement it self provided that the domestic law would be the governing law of the Agreement. Further, Article 20 of the Agreement deals specially with arbitration and provides that in the event any dispute or difference arises between the parties as to any clause or provision of the Agreement, or as to the interpretation thereof, or as to any account or valuation, or as to rights and liabilities, acts, omissions of any party, such disputes would be referred to the senior management of both the parties to resolve the same within 3 weeks, failing which the matter would be referred to an Arbitral Tribunal comprising of three Arbitrators. It was provided that the seat of arbitration would be New Delhi in India. Accordingly Antrix wrote to Devas on 15th June, 2011, nominating its senior management to discuss the matter and to try and resolve the dispute between the parties. However, without exhausting the mediation process, as contemplated under Article 20(a) of the Agreement, Devas unilaterally and without prior notice to the Antrix, addressed a Request for Arbitration to the ICC International Court of Arbitration on 29th June, 2011, seeking resolution of the dispute arising under the Agreement. Through the unilateral Request for Arbitration, Devas sought the constitution of an Arbitral Tribunal in accordance with the ICC Rules of Arbitration, and nominated one Mr. V.V. Veedar, Queen’s Counsel, as its nominee Arbitrator, in accordance with the ICC Rules. Antrix was apprised of this development only on 5th July, 2011 upon receipt of a copy of the Devas’s Request for Arbitration forwarded by the ICC. By the said letter, Antrix was also invited to nominate its nominee Arbitrator. Instead of nominating its Arbitrator, Antrix, by its letter dated 11th July, 2011, once again requested Devas to convene the Senior Management Team meet on 27th July, 2011, in terms of the Agreement. Pursuant to such request, a meeting of the Senior Management Team was held, but Devas insisted that the parties should proceed to arbitration and did not discuss the issues in accordance with Article 20(a) of the Agreement. Despite the attempt to resolve the dispute through the Senior Management Team and despite the fact that Devas had already invoked the Arbitration Agreement by making a Request for Arbitration to the ICC and had also appointed its nominee Arbitrator under the ICC Rules, Antrix appointed Mrs. Justice Sujata V. Manohar, as its Arbitrator and called upon Devas to appoint its nominee Arbitrator within 30 days of receipt of the notice. Consequently, while Devas had invoked the jurisdiction of the ICC on 29th June, 2011, the Antrix subsequently invoked the Arbitration Agreement in accordance with the UNCITRAL Rules on the ground that Devas had invoked ICC Rules unilaterally, without allowing the Petitioner to exercise its choice. Having invoked the Arbitration Agreement under the UNCITRAL Rules, the Petitioner called upon the Respondent to appoint its Arbitrator within 30 days of receipt of the notice. On 5th August, 2011, Antrix wrote to the Secretariat of the ICC Court stating that it had appointed its Arbitrator, in accordance with the Agreement between the parties, asserting that in view of Article 20 of the Agreement, the arbitral proceedings would be governed by the Indian law, viz., the Arbitration and Conciliation Act, 1996. Devas did not reply to the Petitioner’s letter dated 30th July, 2011. However, the International Chamber of Commerce, by its letter dated 3rd August, 2011, responded to the Petitioner’s letter dated 30th July, 2011, and indicated as follows : “We refer to our letter dated 18 July, 2011, and remind the parties that the issues raised regarding the arbitration clause would shortly be submitted to the Court for consideration. All comments submitted by the parties will be brought to the Court’s attention. In this regard, any final comments from the parties may be submitted to us by 5 August, 2011. Should the Court decide that this arbitration shall proceed pursuant to Article 6(2) of the Rules, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself.”

3. Before Supreme Court of India: In such circumstances Antrix moved the application under Section 11(4) read with Section 11(10) of the 1996 Act, before the Hon’ble Supreme Court of India for a direction upon Devas to nominate its Arbitrator in accordance with the Agreement dated 28th January, 2005, and the UNCITRAL Rules, to adjudicate upon the disputes, which had arisen between the parties and to constitute the Arbitral Tribunal and to proceed with the Arbitration. This Arbitration Petition was dismissed by the Hon’ble Supreme Court[1].Aggrieved by the termination of agreement, Devas initiated two international arbitration. First, Devas and its shareholders commenced an international commercial arbitration against Antrix, with an International Chamber of Commerce (ICC) tribunal based in Paris, and Second, an investment-treaty arbitration instituted by the Mauritian investors of Devas, under the UNCITRAL arbitration rules in accordance with the BIT between Mauritius and India.

4. Final Observations:In adjudication, a Permanent Court of Arbitration (PCA) tribunal has found that the Government of India’s actions in annulling a contract between Devas and Antrix Corporation Ltd. and denying Devas commercial use of S-band spectrum constituted an expropriation. The PCA tribunal also found that India breached its treaty commitments to accord fair and equitable treatment to Devas’s foreign investors. This is a unanimous decision included the arbitrator appointed to the tribunal by India. In an earlier decision, an International Chamber of Commerce (ICC) tribunal in 2015 found unanimously that Antrix’s repudiation of the Devas-Antrix contract was unlawful, and awarded Devas damages and pre-award interest of approximately $672 million, plus post-award annual interest accruing at 18 percent until the award is paid in full. This comes to 1 billion USD in damages.

The Road Ahead

This ruling should make India think in larger perspective. India should be appraised that whenever foreign investment is involved each of its executive action and decision by higher judiciary has international ramifications. These treaties ought to be factored in while taking these decisions. Further, India needs to fine tue the broad provisions of BITs, as of now they are very broadly construed. India need to put qualifiers for MFN status. Even the latest 2015 Model BIT is aimed to immunize India from BITs claim but its not rationale as BIT tries to sniggle more benefits than becoming secluded from the world. 2015 Model treaty even asks investors to first exhaust domestic remedies before pursuing international claims, this is strong stance in a global economy.

In Antrix-Devas ruling it’s held that India breached its BIT commitments to accord ‘fair and equitable treatment’ to foreign investment. It is a case of expropriation. However, this could have been justified if the Government of India had followed the procedure or had paid compensation to the company. The only defense India could muster was ‘public purpose’. Though it is again highly debatable as how telecom-broadcasting spectrum, is a threat to national security. Further its difficult situation to decipher how and when a contractual dispute between two parties to blown up as Investment Treaty Dispute. In this case also, Antrix is commercial arm of ISRO can it’s contractual obligations come under the preview of ‘sovereign act of the State’?

Current Scenario

As per the news report India plans to block the enforcement of this award using the ‘public policy’ defense available under the New York Convention on the enforcement of foreign awards. The Central Bureau of Investigation (CBI) has filed charge sheet against former ISRO director and other senior officials on charges of criminal conspiracy to allow wrongful gains to tune of Rs 578 crores to Devas Multimedia.

Regarding BITs, India gave hyper reaction by unilaterally cancelling BITs with 50 countries including major investors like UK, Germany and France.  India wishes to negotiate new treaties based on its new model BIT. USA has expressed reservations over 2015 model BIT while EU has expressed its displeasure over unilateral termination arguing that EU member states cannot bilaterally negotiate the BIT with India because this power now vests with the European Union. As far as existing investments are concerned they will get 10-15 years of survival clause benefits however, new investment in India will have no protection under international law and consequently, Indian investment in these countries shall have no protection under international law in these countries. This is bound to create legal vacuum.

 

REFERENCES

1.     Bitten by the BITs, India looks to constrict its Model BIT http://kluwerarbitrationblog.com/2015/10/14/bitten-by-the-bits-india-looks-to-constrict-its-model-bit/

2.     An Antrix-Devas deal: The BIT Bites India! www.thecitizen.in/index.php/NewsDetail/index/4/8362/Antrix-Devas-deal-The-BIT-Bites-India

3.     PANEL FORMED IN BILLION-DOLLAR BIT CLAIM AGAINST INDIA http://indianlawyer250.com/news/article/28/panel-formed-billion-dollar-bit-claim-against-india/

4.     Antrix-Devas: A BIT of Protectionism http://thewire.in/57586/antrix-devas-a-bit-of-protectionism/

[1] 2013 (2) ARBLR 226 (SC)

 

Published :
September 9, 2016
Author:
Dr. Charu Mathur