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Ya'll Nibbiars The National Company Law Tribunal (NCLT) earlier this week has ordered the winding up of the Devas Multimedia Private Ltd. (Devas), following a petition filed by the Antrix Corporation Ltd. (Antrix) – the commercial arm of India Space Research Organisation (ISRO). At the core of this dispute is a 2005 agreement between Antrix and Devas for the lease of satellite spectrum which was annulled in 2011 following the policy decision of the Indian government to reserve the S-Band for national and strategic purposes. Apart from the commercial arbitration at the ICC, the dispute between Antrix and Devas has also manifested two Bilateral Investment Treaty (BIT)-based arbitrations, CC/Devas v India, under India-Mauritius BIT, and Deutsche Telekom v India, under the India-Germany BIT. This piece dwells on the impact of the NCLT decision on the BIT arbitration awards, and the overall handling of BIT arbitrations by India.
Important to note here that the BIT arbitrations are conceptually and legally distinct from the commercial arbitrations under ICC, notwithstanding that they were conducted parallelly. The BIT tribunal in CC/Devas held the Indian government responsible for indirect expropriation, and violation of fair and equitable treatment (FET) standard of the BIT. In October 2020, it awarded $111.30 million plus interest in compensation to CC/Devas. In December 2017, the tribunal in Deutsche Telekom also held India responsible for the breach of FET contained in the India-Germany BIT, and in May 2020 awarded $101 million plus interest in compensation to the Deutsche Telekom which held 19 % shareholding in Devas. India challenged both these awards at their respective seats of arbitration – the CC/Devas award at the Hague District Court and the Deutsche Telekom award at the Swiss Federal Supreme Court. Both these courts have upheld the BIT awards. An important issue in a BIT arbitration is ‘whether the foreign investment has been made in accordance with the laws of the host state’. This requirement is also known as the legality requirement. In other words, an investment not made in accordance with the laws of the host state cannot seek the protection of the BIT. An investment made as a result of corruption and fraud would fall in that category. This objection can be raised by the host state to challenge the jurisdiction of the arbitral tribunal, and has been done in several BIT arbitration cases. In the CC/Devas arbitration, India did not raise a jurisdictional objection based on the grounds of corruption and fraud of Devas and the illegality of the investments made, until the tribunal finalised its award on July 25, 2016. It was only in December 2016 that India requested the suspension of arbitral proceedings related to compensation on the ground that the Central Bureau of Investigation (CBI) had filed chargesheets against several officials of Devas as well as the government for crimes under the IPC and Prevention of Corruption Act.
The Indian government made a similar request to the Deutsche Telekom tribunal in October 2016 seeking suspension of the arbitral proceedings, only after the hearing phase was over. The request was rejected by the tribunal which stated that it was untimely and against the procedural requirements. The core argument in both these requests was that if the charges are upheld in the court, the Antrix-Devas agreement would be void ab initio under Indian law, and the tribunal’s determination that the ‘Devas agreement was a valid and binding agreement and an ‘investment’ under the BIT could not be sustained’. This argument must have been raised as a preliminary objection to the jurisdiction of the tribunal, even though the investigations by CBI and Enforcement Directorate (ED) were ongoing and the chargesheet had yet not been filed.
The practice and jurisprudence related to dealing with corruption in international arbitration are far from settled, and still in the process of development, with divergent views, which could have been beneficial to India. As Lucinda Low notes, given the proliferation of international instruments and consolidation of obligations related to prevention, detection and remediation in both the public and private sectors, corruption has come to be accepted as an international and transnational public policy issue, and both BIT arbitration tribunals and commercial arbitration tribunals need to address the issues related to jurisdiction, admissibility, etc. arising out of the allegations of corruption. The Indian government would have had at least a shot at having the BIT arbitral proceedings stayed until the investigation was complete. It would have certainly put the Indian government in a relatively better position. This point was highlighted by the Swiss Federal Supreme Court in its decision of December 2018, on the set-aside proceedings related to Deutsche Telekom when it observed while holding the Indian government’s objection as time-barred – it is difficult to understand why the appellant did not mention these circumstances, which were indicative, at the very least, of suspicion of commission of criminal offences in its writings in the arbitration file, then during the hearing in April 2016, or its brief after inquiries of June 10, 2016, preferring to wait until October 24, 2016, to inform the tribunal.
Important to note here that the BIT arbitrations are conceptually and legally distinct from the commercial arbitrations under ICC, notwithstanding that they were conducted parallelly. The BIT tribunal in CC/Devas held the Indian government responsible for indirect expropriation, and violation of fair and equitable treatment (FET) standard of the BIT. In October 2020, it awarded $111.30 million plus interest in compensation to CC/Devas. In December 2017, the tribunal in Deutsche Telekom also held India responsible for the breach of FET contained in the India-Germany BIT, and in May 2020 awarded $101 million plus interest in compensation to the Deutsche Telekom which held 19 % shareholding in Devas. India challenged both these awards at their respective seats of arbitration – the CC/Devas award at the Hague District Court and the Deutsche Telekom award at the Swiss Federal Supreme Court. Both these courts have upheld the BIT awards. An important issue in a BIT arbitration is ‘whether the foreign investment has been made in accordance with the laws of the host state’. This requirement is also known as the legality requirement. In other words, an investment not made in accordance with the laws of the host state cannot seek the protection of the BIT. An investment made as a result of corruption and fraud would fall in that category. This objection can be raised by the host state to challenge the jurisdiction of the arbitral tribunal, and has been done in several BIT arbitration cases. In the CC/Devas arbitration, India did not raise a jurisdictional objection based on the grounds of corruption and fraud of Devas and the illegality of the investments made, until the tribunal finalised its award on July 25, 2016. It was only in December 2016 that India requested the suspension of arbitral proceedings related to compensation on the ground that the Central Bureau of Investigation (CBI) had filed chargesheets against several officials of Devas as well as the government for crimes under the IPC and Prevention of Corruption Act.
The Indian government made a similar request to the Deutsche Telekom tribunal in October 2016 seeking suspension of the arbitral proceedings, only after the hearing phase was over. The request was rejected by the tribunal which stated that it was untimely and against the procedural requirements. The core argument in both these requests was that if the charges are upheld in the court, the Antrix-Devas agreement would be void ab initio under Indian law, and the tribunal’s determination that the ‘Devas agreement was a valid and binding agreement and an ‘investment’ under the BIT could not be sustained’. This argument must have been raised as a preliminary objection to the jurisdiction of the tribunal, even though the investigations by CBI and Enforcement Directorate (ED) were ongoing and the chargesheet had yet not been filed.
The practice and jurisprudence related to dealing with corruption in international arbitration are far from settled, and still in the process of development, with divergent views, which could have been beneficial to India. As Lucinda Low notes, given the proliferation of international instruments and consolidation of obligations related to prevention, detection and remediation in both the public and private sectors, corruption has come to be accepted as an international and transnational public policy issue, and both BIT arbitration tribunals and commercial arbitration tribunals need to address the issues related to jurisdiction, admissibility, etc. arising out of the allegations of corruption. The Indian government would have had at least a shot at having the BIT arbitral proceedings stayed until the investigation was complete. It would have certainly put the Indian government in a relatively better position. This point was highlighted by the Swiss Federal Supreme Court in its decision of December 2018, on the set-aside proceedings related to Deutsche Telekom when it observed while holding the Indian government’s objection as time-barred – it is difficult to understand why the appellant did not mention these circumstances, which were indicative, at the very least, of suspicion of commission of criminal offences in its writings in the arbitration file, then during the hearing in April 2016, or its brief after inquiries of June 10, 2016, preferring to wait until October 24, 2016, to inform the tribunal.