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Antrix-Devas case and PCA: BIPA with Mauritius needs to be relooked at

Lalit Shastri

The termination of Antrix-Devas Agreement leading to Arbitration by the PCA under the UNCITRAL Arbitration Rules and BIPA brings us to the core issue. Such bilateral agreements to promote and protect investments need to be re-looked at and revised with ex post facto effect. There cannot be bilateral agreements between countries that provide a protective shield and the possibility of massive gains in the form of compensation through arbitration to those involved in money laundering, corruption and criminal conspiracy.

Among the accused in the Antrix-Devas scam being prosecuted by the CBI on charges of corruption and criminal conspiracy, are the then director of Devas M G Chandrasekhar and Director of Devas Multimedia D Venugopal, who are linked to companies that have gone to the Principal Court of Arbitration (PCA) at The Hague as claimants demanding compensation from Government of India due to the termination of a contract for the provision of satellite-based services between Devas Multimedia and Antrix, have worked with ISRO in important capacities in the past.

The claimant companies are Devas (Mauritius) Limited, Devas Employees Mauritius Private Limited, Telecom Devas Mauritiius Limited. Republic of India is the respondent in this case (case no 2013-9. The arbitration concerns the termination of a contract concluded on January 28 2005 for the provision of satellite-based services. PCA is acting as registry in this arbitration being conducted under the UNCITRAL Arbitration Rules 1976.The basis of arbitration in this case is the Bilateral Investment Protection Agreement (BIPA) which entered into force during the Prime Ministership of Atal Bihari Vajpayee on June 20, 2000 between the Government of Mauritius and the Government of India for the promotion and protection of investments.

Venugopal, the Devas co-founder and Chief Technical Officer, is an Electronics and communications engineer specializing in satellite communications. He has worked at ISRO between 1980 and 1998.

Chandrasekhar, the former Scientific Secretary, ISRO, Member-Secretary of the Apex Management Council of ISRO and Director, Earth Observations Programme, left ISRO in December 1997 and became Chief Operating Officer and Executive Vice President of WorldSpace in 2000. Later, he became the Vice President, International Sales for GeoEye LLC in 2005; and subsequently that year joined Devas as Chairman of the Board of Directors.

Also facing trial in the Antrix-Devas case is Dr Madhavan Nair, the former Chairman of the Space Commission, ISRO, and Antrix. He was also Secretary Department of Space, Government of India from September 2003 to October 2009. The controversial agreement between Antrix and Devas was signed when he was Heading Antrix.

Antrix Corporation Ltd, an Indian corporation wholly owned by the Government of India, is under the administrative control of DOS and  operates as the commercial marketing arm of ISRO and DOS. Antrix was created to promote the commercial exploitation of India’s space program.

Devas (Mauritius) Limited was formed in 2006 and has its registered office in Port Louis, Mauritius. It is affiliated with Columbia Capital LLC, a venture capital firm based in Alexandria, Virginia.

Devas Employees Mauritius Private Limited was formed in 2009. It also has its registered office in Port Louis, Mauritius. It is a subsidiary of Devas Employees Fund US, LLC, a Delaware limited liability company with membership units owned by certain non-Indian Devas employees pursuant to an Equity Incentive Plan.

Devas Multimedia Private Limited, is an Indian company incorporated in Karnataka, Bangalore, India on 17 December 2004.

The three claimant companies that approached the PCA at The Hague hold shares in Devas and made their alleged investments in India through this company

Ramachandran Viswanathan, who headed Forge Advisors LLC, a U.S. company, is also the CEO of Devas.

A case was registered by the CBI on 16 March 2015 against the then Executive Director, Antrix Corporation Limited, Bengaluru; two Advisors of USA-based company; Bengaluru based private multi media company and other unknown officials of Antrix Corporation Limited /Indian Space Research Organization (ISRO)/Department of Space (DoS). It was alleged that during the period from 2004 to 2011 then Executive Director Antrix Corporation Ltd in criminal conspiracy with both Advisors of USA based company and others gave rights for delivery of Video, Multimedia and Information Services to Mobile receivers in vehicles & mobile phones via S-Band through GSAT-6 & GSAT-6A Satellites and Terrestrial systems in India, to ineligible company based at Bangalore in violation of the laid down guidelines pertaining to leasing of INSAT capacity. Consequently, alleged loss of Rs. 578 crore was caused to Government Exchequer.

Eighteen-months later on 11 August 2016, CBI had filed the chargesheet in the Court of Special Judge, CBI cases at the Patiala House Courts in New Delhi against G Madhavan Nair, K. R. Sridhara Murthi, former Executive Director of Antrix Corporation Ltd, Viswanathan Ramachandran,  the then Managing Director of Forge Advisors LLC and CEO of Bangalore based Devas Multimedia three of its ex-Directors, and then Additional Secretary, Department of Space; then Director, SCPO, ISRO under Section 120-B r/w 420 of IPC and Section 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988 and substantive offences for allegedly being party to a criminal conspiracy with an intent to cause undue gain to themselves or others by abusing official positions (by public servants) and causing loss to Antrix Corporation Ltd and ISRO by lease of INSAT Transponders capacity on GSAT 6 & 6A satellites to the accused Bangalore based Private Multimedia Company.

It is strange that the arbitration proceedings are currently on under the Principal Court of Arbitration at The Hague within the framework of the UNCITRAL Arbitration Rules and Bilateral Agreement between the Government of Mauritius and the Government of India. Question arises, how can PCA continue arbitration proceedings involving a group of claimant companies while their top brass stands accused and is facing trial on charges of criminal conspiracy and corruption linked with the Antrix-Devas Agreement?  Since the CBI charge-sheet has exposed the modus operandi of the accused named in this case,  it is pointless at this stage to arbitrate merely on technicalities revolving around the lofty goal of “promotion and protection of investments” under international rules. The CBI charge-sheet should be the force majeure to bring the arbitration proceedings at The Hague to a grinding halt.

The termination of Antrix-Devas Agreement leading to Arbitration by the PCA under the UNCITRAL Arbitration Rules and BIPA brings us to the core issue. Such bilateral agreements to promote and protect investments need to be re-looked at and revised with ex post facto effect. There cannot be bilateral agreements between countries that provide a protective shield and the possibility of massive gains in the form of compensation through arbitration to those involved in money laundering, corruption and criminal conspiracy.

The claimants who have gone to the PCA have emphasized that this is not a case based on a breach of contract, but rather a treaty claim. The Claimants are focusing on the rights ensuing to Devas from the Agreement. Government of India has responded by placing additional significance on Antrix’s “corresponding obligations” — arguing that they are limited in nature.

The Devas Agreement provided for the lease of transponder capacity on a first satellite “GSAT-6” and it also gave Devas the option to lease transponders on a second “GSAT-6A”. The Agreement provided for the lease of 75% of India’s S-BSS allocation

(30 MHz for each satellite, for a total of 60 MHz of India’s total of 80 MHz of S-BSS) and 10 MHz of the S-MSS allocated for use by Department of Space (DoS). Overall, it was agreed that 90% of the total bandwidth of the satellites was allocated to Devas, and the other 10% was allocated to DOS.

In the plea for arbitration, the claimants stressed that the Devas Agreement provided that the Leased Capacity would be a “Non-Preemptible service, except as specifically provided for in Article 7 9of the agreement),” which gave Devas the exclusive right to the Leased Capacity. The Claimants also have underscored that, under the Devas Agreement, Devas could assign the Leased Capacity at its sole discretion upon sixty days’advance notice to Antrix, which enabled Devas to undertake a range of transactions with investors.

Under the Devas Agreement, Devas was required to pay Antrix an upfront capacity reservation fee of the INR equivalent of USD 20 million, to be paid in three equal instalments, in order to reserve transponder capacity on the first satellite.The first such instalment was due upon notice from Antrix that it had received all necessary approvals for the capacity lease service for the satellite. Within 30 months of payment of the first installment of that fee (with a 6-month grace period), ISRO was required to deliver a fully operational and ready GSAT-6. Devas had to pay an upfront capacity reservation fee of the INR equivalent of USD 20 million to reserve transponder capacity on the second satellite as well. In addition to these upfront fees, Devas was also required to pay Antrix an ongoing annual lease fee for the transponders of the INR equivalent of USD 9 million, rising to the INR equivalent of USD 11.25 million once Devas became cash flow positive the Devas Agreement provided for “Delay Damages” of USD 416,666 per month (for a cap of USD 5 million after 12 months’ delay) if Antrix failed to deliver GSAT-6 within three years of the first upfront capacity reservation payment. It also provided that the failure to deliver GSAT-6 within four years from the first payment would be a material breach of the agreement.

Notwithstanding the water tight conditions specifying breach of agreement, the Devas Agreement also had Article 11 that provided that neither Devas nor Antrix was “liable for any failure or delay in performance of its obligations” in the event of a force majeure as defined in this Article. A force majeure event was limited to matters “beyond reasonable control of the party affected” which prevented performance “despite all efforts of the Affected Party to prevent it or mitigate its effects.”

The annulment of the Devas Agreement followed a policy decision taken by the Government of India to reserve a part of the electromagnetic spectrum known as the S-band “for national needs, including for the needs of defence, para-military forces, railways and other public utility services as well as for societal needs, and having regard to the needs of the country’s strategic requirements.” Part of that spectrum had originally been leased to Devas under the Devas Agreement for the purpose of offering broadband wireless access and audio-video services throughout India.

Government of India has argued before the tribunal that its policy decision was intended to satisfy the national security needs of the nation; that Devas had no right to proceed with the Devas Agreement uninterrupted by any governmental action; and that the Claimants have no claim under the Treaty.

On Jurisdiction and merits of this case, the Tribunal under the PCA, The Hague, on 25 July 2015 decided and awarded as follows:

(a) Unanimously, that the Claimants’ claims relate to an “investment” protected under the Treaty;

(b) Unanimously, that the notice of termination of the Devas Agreement sent by Antrix to Devas constituted an act of State attributable to the Respondent.

(c) By majority, that the Tribunal lacks jurisdiction over the Claimants’ claims insofar as the Respondent’s decision to annul the Devas Agreement was in part directed to the protection of the Respondent’s essential security interests;

(d) By majority, that the Respondent has expropriated the Claimants’ investment insofar as the Respondent’s decision to annul the Devas Agreement was in part motivated by considerations other than the protection of the Respondent’s essential security interests;

(e) By majority, that the protection of essential security interests accounts for 60% of the Respondent’s decision to annul the Devas greement, and that the compensation owed by the Respondent to the Claimants for the expropriation of their investment

shall therefore be limited to 40% of the value of that investment;

(f) Unanimously, that the Respondent has breached its obligation to accord fair and equitable treatment to the Claimants between July 2, 2010 and February 17, 2011.

(g) Unanimously, that the Claimants’ other claims shall be dismissed;

(h) Unanimously, that any decision regarding the quantification of compensation or damages, as well as any decision regarding the allocation of the costs of arbitration,shall be reserved for a later stage of the proceedings.

The Tribunal has already decided that the invocation of “force majeure” by Antrix is attributable to the State under Article 8 of the ILC Articles. The Claimants’ claim under “full protection and security” therefore has been rejected.

Regarding the alleged violation by the Government of India of the “full legal protection and security provision”, the Tribunal disagreed with the Claimants’ conclusion.

The Tribunal, by majority, has already concluded that, although extraneous factors may have played a role in the decision (to terminate the Agreement), the Government of India had reasonable justification of military and other societal needs to take that decision partly under Article 11(3) and partly under Article 6 of the Treaty.

The Tribunal has also taken the stand that it would be to no avail for the Government of India to argue that such strategic information could not be communicated to the Claimants. Indeed, the required disclosure would not entail informing the Claimants of the nature of those needs or revealing any secret information. The Government of India could and should have simply informed the Claimants that the Agreement was in jeopardy because of societal and strategic needs; it would then have been up to the Claimants to decide how much financial and other resources they were willing to put at risk.

Leaving aside the requirement of “utmost good faith” contained in the Agreement, The Tribinal has said that Government of India’s conduct constitutes a clear breach of the simple good faith required under international law and the Fair and Equitable Treatment (FET) clause of Article 2 of the Treaty; the Government of India must be liable for this wrongful behaviour and must compensate the Claimants for damages that they may have suffered thereby from July 2, 2010 to February 17, 2011, the date of the decision by the Cabinet Committee on Security (CCS) to reserve S-band for non-commercial, strategic use, prohibiting its use by all private parties, Indian and foreign.

One of the Arbitrators, David R. Haigh, disagreed on the determination by which the majority of  the Arbitrators – Marc Lalonde (Presiding Arbitrator) and Justice Anil Dev Singh – assessed and apportioned percentages to reflect as reasonable “allocations of spectrum directed to “essential security interests” and “other public interest purposes”.

After the Arbitral Tribunal had issued their award on Jurisdiction and Merits on 25 July 2016, the Government of India had reiterated that it had invoked the essential security interests through a well reasoned, valid and proper CCS decision. The Government had also asserted its commitment to pursue the larger national interests, including sovereign strategic security interests in this matter.

Simultaneously, the Enforcement Directorate, also issued a show cause notice to Devas for violation of FEMA, 1999 and investigations were on under Prevention of Money Laundering Act, 2002.

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