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Devas: On the Path to Expropriation

Today, the National Company Law Appeals Tribunal (NCLAT) will hear an appeal from Devas Multimedia and its shareholders seeking to overturn the unfounded decision of its subordinate tribunal, the NCLT, to wind up Devas.

The hearing comes soon after shareholders and investors of Devas Multimedia filed action in the U.S. District Court for Southern District of New York pursuing assets of Air India to satisfy the arbitration award owed by India to Devas’s shareholders.

These developments are the latest twists in the tale of India’s efforts to evade responsibility for sabotaging its contract with Devas, by inventing far-fetched fraud allegations as a pretext for government-appointed members of the NCLT to deny Devas its corporate existence.

How does the Modi government deal with a debt of more than $1.5 billion unanimously determined by an internationally respected arbitration tribunal and affirmed by courts in every jurisdiction where recognition has been sought? – by ‘terminating’ its creditor.

How did we get here?

The Indian government, on a “war footing”, began this process on May 25th by authorizing the marketing arm of its state-run space agency, Antrix, to petition for the liquidation of its creditor, Devas. Antrix then applied to a non-judicial, government-appointed board – the National Company Law Tribunal (NCLT) – to rule on that liquidation. Representing Antrix in the NCLT process was none other than India’s Solicitor General, Tushar Mehta, clearly demonstrating the government’s desires.

Unsurprisingly, the NCLT, whose members were appointed by the government of Prime Minister Modi, granted the government’s request. This gave the Indian government the right to dissolve Devas Multimedia Pvt Ltd. (DMPL or “Devas”), an Indian registered company, via yet another government employee, the official liquidator of Karnataka state. Further abandoning normal due process, the appellate body to the NCLT, the National Company Law Tribunal Appeals Tribunal (NCLAT) as well as the Supreme Court of India denied Devas’s request to stay the liquidation during the appellate process. The liquidator was expressly instructed by the NCLT to take steps to liquidate the company without delay. 

Why has the Indian government taken this path?

Devas is the holder of an ICC arbitral award finding that Antrix unlawfully terminated a 2005 agreement to build out an innovative hybrid satellite and terrestrial communications service throughout India. The ICC Award currently amounts to $1.2 billion with interest accruing daily.  By extinguishing Devas, the Modi government is on pace to extinguish the award.

During the NCLT proceeding, the Indian government explicitly admitted that the reason to liquidate is to prevent Devas from “enforcing the ICC Award.”

An attempt to mislead U.S. Courts?

If the Indian government’s scheme proceeds according to plan, the liquidation of Devas would render moot the recently-confirmed award by Judge Thomas Zilly of the U.S. District Court Western District of Washington.

However, the U.S. federal court appears to be wise to the Indian scheme, signaling that it will not  stand idly by while Antrix and the government liquidator conspire to vacate the judgment based upon collusive and unfair proceedings in India.

More recently, the U.S. Ninth Circuit Court of Appeals entered an order granting Devas shareholders and investors the right to intervene as full parties entitled to defend the ICC Award.

Analyzing the NCLT’s Liquidation Order ahead of July 8

Following is a point-by-point analysis of the NCLT’s liquidation order. These proceedings were an obvious sham from the start, entirely choreographed by the Indian government.

The NCLT’s findings include:

  • [T]he incorporation of Devas itself was with fraudulent intention to grab prestigious contract in question from Antrix in connivance and collusion with the then officials of Antrix.”  The sole piece of evidence provided to support this conclusion that the NCLT provided was the fact that “Devas was incorporated on 17th December, 2004 and was able to obtain the Contract on 28th January, 2005, i.e. in less than 45 days from the date of its inception.” Liquidation Order at 75.  In making this assertion, the NCLT ignored the uncontested record showing that Devas officials had negotiated the Agreement with Antrix for over two years before executing the Agreement. 
  • The NCLT claimed “it is not in dispute that Devas, at the time of entering into contract, did not possess a minimum experience even to qualify to participate in such a contract, much less obtain it.  However, it is falsely contended that it has experienced Scientists/ Technical experts to get sophisticated technology as were required to provide in terms of Contract in question.” Without explaining why, the NCLT asserts this was “possible only with direct collusion and connivance with the then officials of Antrix.” Liquidation Order at 75–76.  Indian authorities have presented absolutely no evidence of collusion; indeed, these charges were fabricated only after Devas and its shareholders launched arbitration proceedings against Antrix and the Republic of India.  The principals and investors behind Devas are internationally recognized leaders in telecommunications innovation, with long track records of success.
  • The NCLT found that the Agreement was not signed by the proper authorized parties, and were among several “relevant factors to be taken into consideration by the [NCLT], while deciding the case.” Liquidation Order at 89. Again, neither Antrix nor India contested the validity of the Agreement before the independent arbitration tribunals in any of the three arbitration proceedings arising out of the Agreement; these arguments were invented only in retaliation to Devas and its shareholders’ initiation of arbitration.  During the years that Devas devoted to the project, the leadership of Antrix and India’s space authorities up to ministerial level acted and performed as if the contract was duly executed and valid.
  • The NCLT attacks the ICC Award itself, as it notes that the Award found that the decision to annul the Agreement was “an act of a Governmental Authority acting in its sovereign capacity,” yet Devas “was able to obtain huge award and making all sorts of efforts for enforcement of such award.” Liquidation Order at 77.  The arbitration tribunal explicitly ruled that national sovereignty was not a valid basis for termination of the commercial contract.
  • Even though Antrix’s own 2016 and subsequent financial statements make no mention of fraud as would be required under auditing standards, the NCLT states this was not “conclusive proof” that there was no fraud. Liquidation Order at 81.
  • The NCLT plainly indicates that its reason for ruling with uncharacteristic urgency was to stop Devas from enforcement of the award and related judgments:  “When Antrix and Union of India have suffered huge ICC Award and are facing its enforcement proceedings, Devas, in all fairness, . . . should wait for the outcome of proceedings pending before Hon’ble Delhi against the validity of the Award.  Therefore, this [NCLT] would not permit Devas to succeed at both ends and its bounden duty is to protect public interest and uphold the law.  Since Devas is misusing the legal status conferred on it by virtue of its incorporation by filing various proceedings on un-tenable grounds in India and abroad to enforce ICC Award, it would be just and proper for [the NCLT] to decide matter as expeditiously as possible.”  Liquidation Order at 78 (emphasis added).

The Tribunal also offered the following commentary that only underscores its determination to aid the government in evading payment of the ICC Award:

  • Devas failed to show any cogent reasons as to why it should not be wound up and to keep its name on the Register of Registrar of Companies, Karnataka.  The only reason apparent on record . . . is that it wants to prosecute enforcement of the Award in question, in the name of Company, in the Courts in India and abroad, by abusing process of law.” Liquidation Order at 96

The NCLT further directed the Liquidator:

  • “to take expeditious steps to liquidate the Company in order to prevent it from perpetuating its fraudulent activities and abusing the process of law in enforcing the ICC Award.” Liquidation Order at 98–99.

Key facts that the Indian Government doesn’t want you to know

  1. The NCLT violated basic precepts of Indian law
    • Antrix’s petition violated section 272(3) of the Companies Act because it forbids the central government from consenting to the liquidation of a company without giving that company an opportunity to be heard. Liquidation Order at 20–21.
    • Antrix’s petition was barred by a statute of limitations. Liquidation Order at 43.
    • The NCLT was required – and failed — to publicly advertise Antrix’s Petition at least 14 days before the final hearing and consider any objections. Liquidation Order at 44–45.
    • The NCLT had no jurisdiction to determine whether the Agreement was fraudulent or not. Liquidation Order at 45.
  2. Antrix was transparently being used by the Indian government to wind up Devas
    • Antrix’s petition was a bad faith attempt to get out of paying Devas the award based on belated and false allegations of fraud, Liquidation Order at 21 and an attempt to harass Devas into giving up its right to the award. Liquidation Order at 24
    • The Indian government’s liquidation proceedings against Devas are a travesty of justice because the provisional liquidator is acting in Antrix’s interest and has neutered Devas’s ability to defend itself in proceedings around the globe by firing its counsel. Liquidation Order at 21–23
    • Antrix has not shown that the government was “kept in the dark” by anything related to the Devas Agreement or that any governmental officials acted improperly. Liquidation Order at 30
  3. The NCLT used false fraud allegations as a cover story to illegally eliminate Devas and to help Antrix/Indian government avoid paying its debts
    • Antrix failed to identify any act or omission by Devas causing harm to itself, its shareholders, its creditors, or any other person. Liquidation Order at 56–57
    • Antrix terminated the Devas Agreement based on a force majeure and not on any alleged fraud, which was invented after its force majeure argument failed in arbitration and the ICC Award was made, in a desperate new scheme to evade payment. Liquidation Order at 50
    • Antrix falsely impugns Devas’ shareholders as criminals from the start. Yet, Devas’s shareholders are well-known and experienced investors who would never have invested in an illegal sham entity. Liquidation Order at 30
    • Devas was a start-up company, incorporated as usual with minimal capital and predicated upon adding additional investors later; indeed, Deutsche Telekom was a substantial follow-on investor.  All money Devas spent was for lawful purposes. Antrix falsely alleges the normal behavior of a start-up was somehow evidence of money laundering. Liquidation Order at 46
    • Antrix falsely alleges that the Devas-Antrix Agreement was obtained “in connivance” with officials and did not follow required due diligence. In fact, the Agreement was validated by numerous governmental officials: on the Shankara Committee, the Antrix Board, and at a meeting of the Technical Advisory Group (“TAG”). Liquidation Order at 48–50
    • Antrix falsely alleged a scheme by Devas to circumvent legal approvals and procedures, but the terms of the Agreement itself disprove any arguments that Devas or Antrix intended to bypass procedural or approval requirements. Liquidation Order at 51  Devas’s successful experiments and receipt of approval for testing further support this point. Liquidation Order at 51–52
    • Antrix falsely alleged the Indian government was kept in the dark that a private company would use the duly allocated transponder capacity as part of the Agreement. But the evidence shows the Cabinet was fully aware that a private party was going to use the transponder capacity of the satellite for which approval was being sought and even then, the approval was granted. Liquidation Order at 50
    • To support its false fraud allegations, Antrix told the NCLT that the necessary technology to provide SDMB services was not available at the time of the Agreement. But Devas did possess the required experience to develop the necessary systems, and the technology required to do so was available at the time. Liquidation Order at 52–54
    • The money that Antrix alleges was “laundered” through India actually went to lawyers defending Devas. Liquidation Order at 54

What’s next?

The Indian government has clearly demonstrated its intent to weaponize its judicial system, “on a war footing”, to achieve its improper objectives. Tomorrow’s ruling of the NCLAT is all but a foregone conclusion.

But what happens when Devas is then liquidated? The company has no creditors. The shareholders are entitled to its remaining assets, in particular the arbitration award against Antrix. Will the Indian government follow the path to total expropriation?

Judges in the United States and elsewhere will not be fooled by such obvious sham tactics.