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Why Delhi HC set aside $562 mn international arbitration award ISRO’s Antrix had to pay Devas

Delhi HC Monday said the September 2015 award by International Chamber of Commerce 'suffers from patent illegalities and fraud and is in conflict with the public policy of India'.

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New Delhi: In a big relief to the Centre, the Delhi High Court Monday set aside a September 2015 award asking government-owned Antrix Corporation Limited, which is the commercial arm of ISRO, to pay more than $562.5 million to Bengaluru-based firm Devas Multimedia Private Limited for terminating its satellite deal with Devas in 2011.

Justice Sanjeev Sachdeva ruled that the award “suffers from patent illegalities and fraud and is in conflict with the public policy of India”.

At the heart of this dispute is a contract signed in 2005 between Antrix and Devas. Under this contract, Devas was to provide multimedia services to mobile platforms in India using the S-band spectrum transponders on two ISRO satellites, built at a cost of Rs 766 crore.

In simple words, under the contract, Antrix was to build, launch, and operate two satellites and lease spectrum capacity on those satellites to Devas. Devas was to then use this capacity to provide digital multimedia broadcasting services across India.

However, the agreement was terminated in February 2011, after the Cabinet Committee on Security (CCS) decided to deny the orbital slot in S-band to Antrix for any commercial activities and to restrict it to military use.

The termination by the Manmohan Singh-led UPA government came amidst reports of manipulation, fraud, and allegations that the deal was part of a “quid pro quo” between Antrix officials and Devas.

In January this year, the Supreme Court upheld orders passed by the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), approving the winding up of Devas. The Delhi High Court judgment now heavily relies on the orders passed by the NCLT, NCLAT, and the Supreme Court, to point out instances of fraudulent behavior by Devas.

What was the ‘fraud’ that made Delhi HC set aside the award, why was the award against India’s public policy, and what patent illegality did the arbitral tribunal commit? ThePrint explains.

Also Read: Antrix-Devas case: What was the dispute & why SC upheld NCLAT order to wind up Devas for fraud

What was the contract for?

Under the 2005 agreement, Devas agreed to pay Antrix an ‘upfront Capacity Reservation Fees’ of $20 million per satellite, and lease fees of $9 million to $11.25 million per annum. The lease term was twelve years.

In 2006 and 2007, Devas paid two installments for the satellites. Devas also obtained approvals from the Foreign Investment Promotion Board (FIPB) between May 2006 and September 2009 and brought an investment of around Rs 579 crore into India.

However, in February 2011, the Cabinet Committee on Security decided to deny the orbital slot in S-band to Antrix for any commercial activities and to annul the contract.

This committee consisted of the Prime Minister, Minister of Defence, Minister of Home Affairs, Minister of External Affairs, and Minister of Finance. It is the highest authority within India for matters relating to internal and external security and defence. Antrix then terminated the agreement on the ground of “force majeure” (unforeseen circumstances that prevent a party from fulfilling a contract).

Devas refused to accept the termination. It demanded that either the agreement should be performed, or that it should be paid damages of $1.6 billion. Devas took the dispute to the International Chamber of Commerce (ICC). An arbitral tribunal at the ICC then found that the termination by Antrix amounted to wrongful repudiation of the contract. It, therefore, directed Antrix to pay $562.2 million to Devas, along with interest.

In response, Antrix filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court, seeking to set aside the arbitral award passed by the Tribunal.

What was the ‘fraud’, why was it against India’s public policy

While the arbitration was going on at the ICC, the Central Bureau of Investigation (CBI) registered an FIR against Devas and Antrix on 16 March 2015. A chargesheet was filed in August 2016.

The Enforcement Directorate also submitted its report in the case in 2015 and filed a chargesheet in 2018 under the Prevention of Money Laundering Act (PMLA) against a former managing director of Antrix and five Devas officials, alleging that Devas had siphoned off 85 per cent of its Rs 579 crore foreign funding to the US under various claims.

Taking note of such allegations, the orders passed by the NCLT, the NCLAT, and the  Supreme Court pointed out several instances that showed fraudulent behavior on the part of Devas. For instance, the orders had held that the very incorporation of Devas was with “fraudulent intention to grab the prestigious contract in question, in connivance and collusion with the then officials of Antrix”.

These orders pointed out that Devas was incorporated on 17 December 2004 and was able to obtain the contract on 28 January 2005, less than 45 days from the date of its inception. This meant that at the time of entering into the contract, Devas neither had the minimum experience, nor the qualification for such a contract, the orders noted.

The NCLT ruled that Devas was formed for an “unlawful object”, and accepted Antrix’s allegations of money laundering. It ruled that the point of forming Devas was to bring foreign funds into India and then siphon these off by diverting them to foreign countries, into dubious accounts. Mentioning the 2005 agreement, Devas had brought in an investment of Rs 579 crore to India, but had “siphoned off” over 85 per cent of that amount outside the country, the orders said.

Other such factors included the fact that the agreement was signed without any auction or tender process, the services that Devas offered did not exist at the time of signing the agreement or after it, and that Devas did not even hold the necessary intellectual property rights for offering these services.

Taking note of these findings, the Supreme Court observed in its January order, “If the seeds of the commercial relationship between Antrix and Devas were a product of fraud perpetrated by Devas, every part of the plant that grew out of those seeds, such as the agreement, disputes, arbitral awards, etc. are all infected with the poison of fraud. A product of fraud is in conflict with the public policy of any country including India.”

The Delhi High Court, relying on such observations, reiterated these findings, and set aside the arbitration award Monday, ruling that it goes against the public policy of India.

What was the patent illegality?

In its judgment, the high court noted that the tribunal had interpreted certain clauses of the agreement without taking into account the pre-contractual negotiations between the two parties. Generally, tribunals use these negotiations to ascertain the intention of the parties about the meaning of the clauses while entering into the agreement.

It further opined that the tribunal had overlooked the provisions of the contract that said that the agreement would not be binding on Devas or Antrix, unless and until Antrix receives all the requisite governmental and other regulatory approvals. Therefore, since Antrix did not receive the orbital slot in S-band because of the CCS’s decision, the agreement was not binding.

Additionally, the high court also found some of the tribunal’s findings “self-contradictory”. It, therefore, ruled, “The arbitral tribunal has incorrectly excluded the evidence pertaining to the pre-contractual negotiations which it could not have and has thus committed a patent illegality in the award.”

“Further, as noticed hereinabove, the Arbitral Tribunal has committed patent illegality in the award as findings on some issues are contradicted by the findings on other issues and are also contradicted by the reasoning given to reach the said conclusions,” it added.

(Edited by Siddarth Muralidharan)

Also Read: Devas fraud was a treacherous compromise with India’s security. SC verdict teaches many lessons

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