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Devas Multimedia case: Why does India lose international arbitration cases?

Bureaucratic pig-headedness, information gaps and a flabby legal system make it easy for global litigants to seek Indian assets abroad

March 14, 2022 / 12:52 PM IST
When conducting arbitration internationally, global experts say ethics are important. (Photo by EKATERINA BOLOVTSOVA from Pexels)

When conducting arbitration internationally, global experts say ethics are important. (Photo by EKATERINA BOLOVTSOVA from Pexels)

Sarosh Zaiwalla, founder of Zaiwalla & Co., a London-based law firm specialising in international disputes, has an interesting story to narrate.

In the early 1980s, India was involved in over 150 international maritime arbitration cases, which had seats in London. The cases pertained to whether India was liable to pay compound interest as penalty on late payment to owners of ships chartered to collect wheat from US ports for delivery to India.

In 1982, Zaiwalla’s firm was appointed as the Indian government’s lawyer for these arbitration cases.

“We were able to turn things around for India and started to win arbitration cases,” Zaiwalla told Moneycontrol. “Interestingly, in 1982 itself, we won India’s first major challenge to an arbitration award in the House of Lords – the highest court in England. This matter concerned a ship called La Pintada. The issue surrounding this matter was whether India should pay compound interest on the delayed payment of freight and demurrage… thereafter, India continued to win many cases and the key to success was the committed involvement of the local Indian team and my legal team in London.”

But that was then. Of late, India has been losing face in international litigation, save some notable political ones like the Kulbhushan Jadhav case in the International Court of Justice against Pakistan. In high-profile business cases, pitted against strong global companies, India’s foreign assets are invariably under threat of seizure.


Open to talks

Take the Devas Multimedia case. Unfazed by the Supreme Court upholding the winding up of the company, shareholders of Devas Multimedia continue to seek the seizure of Indian government assets abroad to collect $1.2 billion the firm has been awarded by arbitration tribunals for cancellation of a satellite deal, but they are open to talks to settle the issue, their counsel said.

Matthew D McGill, partner at Gibson, Dunn & Crutcher and lead counsel for several Devas shareholders, was categorical in his assertion.

“The decision by the Supreme Court does not change anything. The Modi government and the Indian courts cannot rewrite the facts. Their flimsy allegations of fraud will never stand up in courts outside of India. A better approach for the Modi government would be to return to the negotiating table and continue with settlement talks,” he noted in a statement.

Read also: Air India wins nod to appeal against seizure ruling in Canada

Why did this happen?

“There are a combination of factors. One of the main reasons why India is at the receiving end of international arbitrations is that the jury that gives the decision is overwhelmingly white,” India’s former attorney general Mukul Rohatgi told Moneycontrol. “Most international tribunals are white and they have a bias against Indians. I have represented Devas and we were on pretty sure ground. I don’t believe that Indian arguments are flawed or there are information gaps. That is not the case.”

Devas shareholders are pursuing Indian assets abroad to recover the awards. They got a French court order for freezing Indian properties in Paris and got partial rights over funds maintained by India funds in Canada.

“We have already entered liens or obtained seizure and garnishment orders on tens of millions of dollars in Indian state assets,” a spokesperson for Devas Multimedia said. “We will continue to identify and seize state assets wherever we find them until India returns in good faith to the negotiating table.”

Besides securing a freeze on a Paris property of the Indian government, they have got a Canadian court order for seizure of about $23 million that Air India had with the International Air Transport Association, the spokesperson said.

Antrix-Devas agreement

In January, finance minister Nirmala Sitharaman said the government will use the Supreme Court ruling calling the 2005 Antrix-Devas agreement a fraud to counter the seizure of its properties overseas.

The Devas spokesperson said they expected use of the Supreme Court decision to uphold the National Company Law Tribunal liquidation order to attack Devas around the globe.

“However, we’re ready. Courts around the world will see through these sham proceedings,” the Devas spokesperson claimed.

Antrix Corporation, the government-owned commercial arm of the Indian Space Research Organisation, signed an agreement with Bengaluru-based Devas Multimedia for a 12-year lease of 90 percent transponder space on two satellites, G-SAT6 and G-SAT6A, which were yet to be launched.

Of the 150 MHz of space that ISRO owned in the S-band spectrum, Devas was allowed the use of 70 MHz to launch satellite-based applications on mobile devices. Devas, which had a few former ISRO scientists in its top management, was supposed to pay $300 million to Antrix over the 12-year period.

Read also: 15 points to help you understand the deal

The deal was cancelled in 2011 after allegations of it being a quid pro quo ‘sweetheart deal’ surfaced. In 2014, the Central Bureau of Investigation  and the Enforcement Directorate were asked to probe the deal.

Last year, Antrix approached the NCLT seeking liquidation of Devas. The NCLT ordered liquidation of Devas, observing that the company appeared to have been incorporated with fraudulent intentions. Devas appealed against that before the appellate tribunal, which, in September 2021, upheld the liquidation. Devas filed an appeal in the Supreme Court, which earlier this year upheld the appellate tribunal’s order on liquidation.

Devas Multimedia initiated arbitration against the annulment of the 2005 deal at the International Chambers of Commerce (ICC). Two additional arbitration cases were initiated – by Mauritius investors in Devas Multimedia under the India-Mauritius bilateral investment treaty (BIT) and by Deutsche Telekom under the India-Germany BIT. India lost all three disputes.

The commercial terminal award was for a total of $1 billion, while $93.3 million plus costs and interest was awarded against India under the arbitration case brought under the India-Germany BIT, the Union finance minister had said. About $111.2 million plus costs and interest was awarded in the case under the India-Mauritius BIT.

The Cairn case

Finance minister Sitharaman had accused the then Congress-led UPA government of undertaking a ‘fraud deal’ and allocating the rare S-band spectrum for a ‘pittance'.

Devas has precedents to follow. The UK’s Cairn Energy identified $70 billion of Indian assets abroad and began seizures in July 2021, starting with the same Paris property of the Indian government and targeted Air India to recover $1.2 billion that an international arbitration tribunal had awarded for levy of retrospective taxes.

The Devas spokesperson said the Cairn case had nothing to do with Devas.

“Cairn dropped their challenges as part of their settlement with the government. Devas shareholders will continue to enforce the arbitration judgements until they are paid. The Modi government was wise to settle with Cairn because it is futile to continue evading payment on arbitral awards that have been upheld in every instance,” he said.

The government enacted a new law in August last year to scrap all retrospective tax demands made on companies such as Cairn Energy and agreed to refund the money collected to enforce such demands. Cairn was entitled to a refund of Rs 7,900 crore following this.

Bureaucratic know-alls

So, why has India been losing arbitration cases lately?

“Most problems emanate because our bureaucrats act as know-alls,” said Ravi Singhania, managing partner of Singhania & Partners. “There are wide information gaps and lack of understanding among them and since there is no desire to learn, the attitude is what is good for Indian courts also apply to courts outside and to global tribunals. It does not work that way. Businessmen are keen on doing business in India and not indulge in endless litigation.”

Citing such cases, he said it’s not surprising that they are threatening to take over Air India and State Bank of India offices abroad, which is their way of getting back.

“Our courts may help you defend your assets inside the country, but outside there is no such defence. Some have even threatened to take over Indian missions, but obviously there is diplomatic immunity and so on. It sure gives the country a bad name. There is no doubt about it,” Singhania told Moneycontrol.

“The decision-making process in India is very bureaucratic and is also very slow,” Zaiwalla said. “This could be because of the lack of confidence on the part of those making the decisions. I recall for obtaining decisions from our Indian clients, I used to personally travel to India and explain to them face-to-face the need for and importance of the decisions which I required.”

“Many of our lawyers have a wrong understanding of law,” said Vikas Singh, a former Indian additional solicitor general, who is quite willing to put the spotlight on his profession. “Because of our bureaucracy’s insistence on doing it just one way, the underlying spirit is ‘We are the masters and therefore we are right’ and there are large understanding gaps. There is no concept of fairness as it exists in the West and judges don’t see things in the same light as they do it here. Judges in India are willing to accept and can pronounce their verdict on utterly hopeless cases.”

Vikas Singh takes the threats issued to take over Indian assets abroad like Air India and SBI very seriously.

“These are not empty threats. They intend to pursue it very seriously and they can do it all right,” he pointed out.

Beating the system

Lawyer activist Colin Gonsalves has another view. According to him, international arbitration is often a way to get around and beat the system.

“By agreeing upon a decision, two parties can bypass a national law and no one, including the Supreme Court, will say anything. No one will look at the interests of the third party, for instance, the public, which then has no say in the matter,” he told Moneycontrol.

Legal eagles also agree that the backlog of cases within the Indian court system does not support the practice of arbitration – which can be a handicap because parties agree to arbitration for a quick commercial decision. The delay caused by the backlog of cases does not help.

The enforcement of foreign arbitral awards in India is largely guided by the 1958 New York Convention. In India, it may take up to eight years for an award to be enforced that usually would take six months at an international institution.

So, is there a case of reform here?

“Yes, urgent reform is necessary,” Zaiwalla pointed out. “The challenge to an arbitration award under the New York Convention rules is a very limited one and it is up to the Indian judges to ensure that the limit is strictly maintained.”

When conducting arbitration internationally, global experts say ethics are important. It is trite law that parties agree to commercial arbitration to maintain confidentiality. This is one of the ethical requirements of international arbitration.

“The Indian courts should therefore honour this requirement unless there is any suggestion of fraud or dishonesty by one of the parties or there is a serious question of the integrity of one or more of the arbitrators,” the London-based attorney said.

Clearly, some reform is needed in an area about which people – including lawyers and senior government officials – don’t know a great deal.

Ranjit Bhushan is an independent journalist and former Nehru Fellow at Jamia Millia University. In a career spanning more than three decades, he has worked with Outlook, The Times of India, The Indian Express, the Press Trust of India, Associated Press, Financial Chronicle, and DNA.
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