This article was originally published in Legal Era here.
Zuhair Farouki, Solicitor
India’s resilience could inspire other States to adopt the same approach
Recent developments in the Devas-Antrix dispute are an apt reminder to international arbitration practitioners that emerging victorious with a tribunal award against a State entity, especially in today’s climate where successful enforcement is anything but a foregone conclusion, does not necessarily win you the war. Without successful enforcement, the investor’s battle to obtain an award may be for nought, and the enforcement obstacles that States can erect give States leverage to settle claims at a substantial discount. It is therefore no wonder India is adopting a more defiant approach towards international awards made against it and we expect more States to implement similar tactics.
The Devas-Antrix dispute
In January 2005, Antrix, the commercial arm of state-owned Indian Space and Research Organisation, agreed to build, launch, and operate two satellites which Devas intended to use to provide communication services throughout India. Six years later Antrix pulled the plug, cancelling the deal on the grounds that the cancellation was a policy decision of the central government acting in its sovereign capacity. This prompted Devas to commence several legal actions for wrongful termination, including initiating ICC arbitration proceedings in June 2011.
In addition to the initial ICC tribunal concluding that Antrix wrongfully scrapped the deal and subsequently awarded Devas US$ 563 million plus interest, the Permanent Court of Arbitration at The Hague ruled against India itself for breaching its obligations under the Mauritius-India BIT (as Devas’ foreign investors included Mauritian shareholders).
However, despite more than nine years since the start of proceedings, including multiple tribunal awards in favour of Devas, enforcement still eludes Devas. India has shown considerable tactical nous in resisting enforcement of the ICC award, deploying an array of legal actions to fend off what the government perceives to be an injustice. In January 2021, the State-owned Antrix applied for and managed to persuade India's National Company Law Tribunal (“NCLT”) to remove Devas’ board and appoint a “provisional liquidator” to take over the company’s management.
Devas raised concerns that Antrix may attempt to force through a settlement of the ICC award with the company while under management of the liquidator, though the Attorney General of India was quick to state that mediation with Devas is not possible due to discovery of a serious fraud in the entire transaction leading to the impugned dispute.
India’s most recent chess move occurred In May, as NCLT ordered the winding up of Devas following a petition filed by Antrix. The NCLT ruled that Devas “was incorporated with a fraudulent motive”, and the Indian government could use this ruling to challenge enforcement on the basis that the Antrix-Devas agreement was concluded via fraud and corruption. The ruling also means that an official liquidator appointed by the NCLT can now progress any legal proceedings related to the awards Devas has already obtained.
It would not be surprising if this ruling is challenged on appeal by Devas’ shareholders as this back-and-forth battle for enforcement continues. This clash is indicative of both sides’ creative thinking and persistence, dramatically illustrating the fact that obtaining an award is only half the battle, and that, particularly in cases against State enterprises in sectors where the national interest is perceived to be engaged, enforcing an award may be a real challenge.
The Indian Government’s approach to enforcement in this case aligns with other recent highly publicised investor-state claims, further confirming India’s commitment to defending its interests on an international level. In September 2020, India lost an arbitration instigated by Vodafone following the retroactive imposition of taxes, which was deemed a breach by India of its obligations under the relevant BIT. Later the same year, an arbitral award in the region of US$ 1.2 billion was obtained by Cairn Energy against India over the retrospective levy of taxes.
It is anticipated that India will challenge both awards on the basis that taxation is a sovereign right, showing the government’s resolve to resist what it perceives to be unjust arbitral awards and will aggressively defend the State’s interests in the process. India’s resilience may stem from the confidence it has gained as a global economic player and that it does not need to rely on foreign direct investment, as further exhibited in 2017 when India initiated the cancellation of more than 58 extant bilateral investment treaties. India’s new Model BIT has been drafted with the hard-learned lessons of these disputes in mind.
The execution of this policy appeared to many as detrimental to investor confidence and as an impediment to future foreign direct investment, and some may question this policy in light of the pressure on the Indian economy resulting from the ongoing COVID-19 outbreak. Then again, there are those that question whether there is any correlation between robust investor protection and foreign direct investment. This may embolden States where alleged breaches of international investment agreements have not automatically deterred foreign investors, enabling the State to dispute arbitral awards whilst safe in the knowledge that foreign investment is unlikely to diminish. Either way, it will be interesting to observe what India does next, whether it holds its resolve, and how its economic recovery unfolds.
Many feel that the balance of power in Investor-State agreements favours investors too heavily, as it can be perceived that: investors are granted too much protection; States are punished too harshly; and the domestic interests of the States are not given enough credence. However, as exemplified by the strategy adopted by India in the Devas-Antrix dispute, the State is not powerless and can either rely on various tried and tested legal measures to defend its interests, or it can implement more innovative methods to successfully defeat claims or resist enforcement proceedings.