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

Supreme Court verdict upholding NCLT decision to wind up Devas has dented ISRO's credibility. But govt should not start treating every start-up with suspicion.

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In a strongly worded indictment of the Devas Multimedia Private Limited, the Supreme Court bench of Justices Hemant Gupta and V. Ramasubramanian dismissed the appeal filed by Devas and upheld the finding of the National Company Law Tribunal. “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, the disputes, arbitral awards, etc., are all infected with the poison of fraud,” the bench noted.

The Supreme Court’s verdict upholding the decision of NCLT to wind up Devas has not only exposed one of the massive frauds committed during the United Progessive Alliance (UPA) government, but also dented the credibility of the otherwise unblemished reputation of India’s premier space agency, the ISRO.

The entire case holds a number of lessons for the present and future governments when it comes to dealing with national resources, assets and intellectual property rights. More importantly, the Devas case exposes the chinks in our security armour.

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

More than just a fraud

The Devas case is not just a case of economic fraud. It is a serious security breach, a treacherous compromise with India’s security, crass indifference of the political class towards scientists, and above all putting a cap on the country’s quest to tap outer space resources. The Devas fraud is a fit case to show how national resources cannot be bartered away for a few extra dollars.

The 2005 agreement between the government-owned commercial arm of ISRO, Antrix Corporation and a private entity, Devas (Digitally Enhanced Video and Audio Services) provided a 12-year lease of 90 per cent transponder space on two satellites, G-SAT6 and G-SAT6A, which were yet to be launched at the time of the contract. Of the 150 MHz of space that ISRO owned in the S-band spectrum, Devas, the Bengaluru-based start-up, was allowed the use of 70 MHz to launch satellite-based applications on mobile devices for a payment of $300 million in 12 years.

The fine print of the agreement mentioned that a major part of the cost of the two satellites and the cost of their launch will be borne by the government entities, which is from taxpayers’ money. Now, satellite launch can fail, resulting in expenses that can only be written off. Even after the successful launch, there is no guarantee that the objects in outer space would function as designed in the workshop. There are no repair shops out there in the space. Neither the Union Cabinet nor Parliament was consulted, much less informed.

Scientists from the ISRO had raised these and some other uncomfortable questions but the UPA government ‘just took note of the concerns’ and did precious little to do course correction. Finally, the CAG report flagged some serious financial and procedural irregularities. The ISRO, on its part, pointed out serious flaws in the agreement and expressed its discomfort in going ahead with it.

After dithering for some time, the UPA government headed by Dr Manmohan Singh finally annulled the agreement in February 2011 fearing further embarrassment and corruption charges in addition to the 2G scam. Ironically, even at this stage very little was being done to protect the country’s security and strategic interest or insulate the government from financial losses. In 2014, the Narendra Modi government initiated an inquiry, which revealed that the ‘sweetheart deal’-type Antrix-Devas agreement was used by the Devas to raise foreign investments and then siphon off funds.

Also read: Cairn, Vodafone, Devas cases show India can’t treat outsiders like it treats its own people

India missed out on tech

S-band spectrum granted to ISRO by the International Telecommunication Union (ITU) in the 1970s falls between L and C band and has wider footprint capabilities without being affected by vagaries of weather and atmospheric changes, though it has certain shortcomings. Satellite radio technology was developed in the US in the late 1990s, and eventually launched in the early 2000s, with the promise of niche programming and crystal clear, digital reception from coast to coast providing audio (radio) services through satellite to the subscribers.

Scientists in the ISRO were apprehensive of losing the rights over the use of S band and hence decided to share it with DoT for terrestrial use. Probably at this stage, the idea of making commercial use of the S band was floated and this could have resulted in the Antrix-Devas agreement.

While one of the two satellites meant for use of S band failed, the market was getting populated with CDMA, GSM and terrestrial signal-based television channels. A digital spectrum would have left these technologies far behind and provided huge business potential.

One important lesson out of this episode is that technology changes rapidly and the regulatory bodies need to keep pace with this metamorphosis. Start-ups working on innovative technological ideas may be wary of sharing it in public and would like to have early return on investments. As for ISRO, there should have been greater due diligence before awarding a million dollars worth of contract to a company with an annual turnover of Rs 5-10 crore. There is no guarantee that such a scenario will not arise in future. Is the government prepared to deal with it?

Also Read: Moon lander, GSLV, end of PSLV’s 24-yr streak — what ISRO’s 3 ‘failures’ in 4 yrs mean

Too many lessons

Another serious aspect of the Devas case is the slackness with which the UPA government dealt with the issues arising out of the siphoning off of the funds, change of the company’s operational headquarters and issues related to jurisdiction. A change in the holding pattern of a company can result in serious breach of national security, not to mention financial loss.

In the case of Devas, in 2008, Deutsche Telekom got 17 per cent stake for about $75 million, Columbia Capital and Telecom Ventures became another international investor and Larry Babio, a former vice-chairman of Verizon, and Gary Parsons, a former Chairman of SiriusXM, were on its board.

The UPA government was also informed that the advisers of Devas included top officials of the US government like the former Secretary of State Madeleine Albright; former Security Adviser Sandy Berger; and US Chamber of Commerce chairman Thomas Donohue Sr., who were reportedly in touch with the government at that time.

While the Supreme Court has done enough damage control, much more needs to be done and many more lessons need to be learnt. Governments and national agencies dealing in strategic assets must exercise greater caution, but should also avoid the impulse to resort to knee-jerk action and begin treating every start-up with suspicion.

The author is the former editor of ‘Organiser’. He tweets @seshadrichari. Views are personal.

(Edited by Prashant)

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