Devas-Antrix Deal: When will the Ghosts of Fraud be Exorcised from the Aviation Sector?

Soumya Gupta* and Dr. Shouvik Kumar Guha**

Keywords: Devas-Antrix Deal – Arbitral Award – Corporate Fraud – Insolvency – Air India.

History of the Dispute

Given the increasing reliance of India on space-based assets and technology, especially for the communications sector, the Devas-Antrix dispute that seems like an ever-renewing source of controversies involving the misuse of political power and governance norms for profit-based ulterior motives, represents a black mark in the country’s aviation and space law spheres. The beginning of the Devas-Antrix debacle goes back to 2005 when an agreement was entered into by Antrix Corporation [‘Antrix’] and Devas Multimedia Private Limited [‘Devas’]. Antrix, established in 1992, was created to commercialize space products. Devas, short for Digitally Enhanced Video Audio Services, set up by former Indian Space Research Organization [‘ISRO’] engineers, and was developed for betterment of satellite communications in space. Devas also has foreign investors from Mauritius involved in the building of the company. The agreed terms were that Antrix will provide 70 MHz of the S-Band space segment to Devas for its digital multimedia services. The S-band space segment is generally used by security forces and government telecom entities and is scarce is global marketplace. Accordingly, Antrix would build, launch and operate two satellites GSAT-6 and GSAT-6A, and lease 90% of the satellite transponder capacity to Devas for its digital multimedia services. Devas agreed to pay a total of $300 million over twelve years to Antrix. Thus, the overall aim of the signed project was to provide broadband wireless services to the remote areas of India.

With a rather achievable and needful goal, both parties proceeded towards their respective duties. However, six years into operation, certain irregularities were noticed and highlighted by mainstream media like The Hindu – these included discrepancies such as financial mismanagement, conflict of interest, non-compliance of rules, and favoritism. Subsequently, February, 2011 witnessed the cancellation of the deal by the then Indian Prime Minister, Dr. Manmohan Singh, based on the ambiguously worded phrase security reasons Soon after that, allegations surfaced that the Antrix contract deal was tainted with corruption, which was not an out-of-the-box allegation against the United Progressive Alliance government. The decision to annul the deal was taken amidst the 2G scam and in the face of mounting claims that the deal involved the handing over of communication spectrum valued at nearly Rs 2 lakh crore for a mere pittance.

Chain of Arbitral Awards and Judicial Decisions

The uncalled and invalid abrogation of the deal had upset Devas, which led to a series of judicial decisions. The three legal disputes that arose from this were a commercial arbitration between the Antrix and Devas Multimedia at the International Chambers of Commerce [‘ICC’], and two bilateral investment treaty [‘BIT’] arbitrations brought by the Mauritius investors in Devas Multimedia under the India-Mauritius BIT [‘Devas tribunal’] and by German company Deutsche Telekom under the India Germany BIT [‘DT tribunal’]. India saw victory in none of the three international disputes. The ICC arbitration tribunal in 2015 ordered Antrix to pay $562.5 million-plus interest to Devas as damages for wrongfully repudiating the contract. A United States [‘US’] court recognized and confirmed the ICC award in 2021. India appealed against the decision of the Devas and DT tribunals before the Dutch and Swiss courts respectively but lost again. Thus, all the international proceedings had issued orders against India; however, in India there were a variety of other issues raised against Devas.

Cases and Investigations were filed against both the parties in India as well. The Department of Space [‘DoS’] said that the Central Bureau of Investigation has filed an FIR against Devas and other unknown public servants of Antrix/ISRO/DoS and it is presently under investigation. The Enforcement Directorate has launched an investigation against Devas and its directors and foreign subsidiaries under Prevention of Money Laundering Act and Foreign Exchange Management Act [‘FEMA’]. Devas Multimedia is suspected to have received foreign direct investment of Rs. 578.54 crore between May 2006 and June 2010 from various overseas investors, but the share subscription agreements it entered with them contained clauses contrary to the conditions specified in the approvals granted by Foreign Investment Promotion Board. Devas Multimedia was also charged with contravening the FDI regulations under FEMA for assuring foreign investors an annual eight per cent priority dividend in addition to other dividends on cumulative basis, and for one tranche of receipt of funds, issuing a security akin to an External Commercial Borrowing promising higher returns than the ceiling fixed by the Reserve Bank of India.

In October 2020, a US court asked Antrix to pay the damages after Devas investors approached it for enforcement of the award. The Canadian Court in this regard allowed Devas’ shareholders to seize an amount of over USD 30 million of the Airport Authority of India [‘AAI’] held by the International Air Transport Association [‘IATA’]. This US court order was put on stay by the Indian Supreme Court in November 2020. The Court also asked the Delhi High Court to hear arguments from Antrix against the enforcement of the award. Later, in January 2021, acting upon the advice of Ministry of Corporate Affairs, Antrix approached the Bangalore bench of the National Company Law Tribunal [‘NCLT’] in January 2021, to initiate a winding up petition against Devas under Companies Act. NCLT passed a judgment to wind up Devas on account of fraud during the original deal. Among the other contentions brought forth by Antrix, a key one was that its original agreement with Devas mentioned subsidiaries and associate entities like the DEVAS2 Technology, DEVAS Device and DEVAS Services, despite none of these entities ever being in existence throughout the existence of the original company. In September 2021, the National Company Law Appellate Tribunal [‘NCLAT’] upheld the NCLT judgment. Subsequently, one of the ex-directors of Devas Multimedia and DEMPL, a minority shareholder in Devas, challenged the NCLAT order before the Supreme Court. The latest development in the series of judgments and orders happened on January 17, 2022, where the Supreme Court upheld the NCLAT judgment on winding up Devas, and also the NCLAT finding that the entire company had been set up with fraudulent motives in connivance with certain officials from Antrix. In doing so, the Supreme Court also refused to entertain Devas’ argument that the current petition filed by Antrix had been done solely to deprive Devas of the benefits of the aforementioned international arbitral awards, or that Antrix’s petition is barred by limitation.

What Lies Ahead?

The trajectory of international judicial decisions show that Devas is armed with orders against India and has initiated proceedings in multiple jurisdictions to attach the assets of Indian public sector undertakings. Devas has witnessed success in courts of France and Canada. The Indian government is resolute to get Devas to wound up; however, it is not easy to get an irrevocable criminal conviction in this case. The Supreme Court judgment is helpful in challenging the attachment order on the basis that Devas-Antix contract violates international public policy since the contract was contaminated with fraud from the beginning. Generally, courts accord high deference to an arbitral award and refrain from delving into the merits of the case. Added to the fact is that India has already lost two cases emerging from violation of the BITs. This would mean that India will have to put up a tough fight in international courts. The end of the Devas-Antrix saga anytime soon seems bleak since both the parties are trying to make their best case using all legal aid available.

In response to the asset seizing order favoring Devas, the AAI in the beginning of the year announced that it would defend itself by taking legal recourse. These assets include, inter alia, air navigation charges and aerodrome charges collected on behalf of AAI. A huge battle lies ahead of AAI to defend its assets from getting attached. Earlier, Indian government did not choose the best legal way to defend itself in the tribunals. However, considering the huge amount at risk here, it is essential that AAI takes a sound legal step ahead, keeping in mind the consequences that could follow for an already pandemic-hit aviation industry. The initial developments so far seem promising, with the erstwhile Indian national carrier Air India already having won a judgment in its favour in February 2022 from the Quebec High Court in Canada, allowing it to challenge an earlier Canadian order to consider the airline as a representative of the Indian government and seize its funds to give effect to recovery of compensation, as awarded under earlier arbitral awards, by foreign shareholders of Devas. A similar challenge is also on its way at the United States Federal Court for the Southern District of New York. Meanwhile, with the shareholding of Air India having been transferred to the Tata Group of companies through the latter’s subsidiary Telace, arguments claiming the carrier as an alternative to the Indian government for recovery of said arbitral awards, are likely to face even greater opposition before any court of law.

* Student, B.A., LL.B. (Hons.), The West Bengal National University of Juridical Sciences

** Assistant Professor of Law (Senior Scale), The West Bengal National University of Juridical Sciences