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India’s Costly Satellite Problem

Sixteen years ago, Devas Multimedia Pvt Ltd entered into an agreement with the Indian Space Research Organization (ISRO) and the commercial arm of the space agency, Antrix, to build out a hybrid satellite and terrestrial communications service throughout India. Fulfilling all of its contractual obligations, Devas scaled up – both financially and technically, with world-leading investors, pioneers and technical experts specialized in communications and satellite technologies. Five years later, in 2011, India unlawfully terminated the agreement under a contrived “doctrine of force majeure.

Consequently, Devas and its related shareholders and investors – including the German telecom giant Deutsche Telekom – initiated multiple arbitration actions against Antrix.

  • The first action was initiated by Devas against Antrix before a tribunal seated in New Delhi under the rules of the International Chamber of Commerce (ICC). In September 2015, the ICC tribunal ruled in favor of Devas, ordering Antrix to pay $672 million for “unlawfully terminating” the agreement. This Award, which has with interest grown to over $1.2 billion, was confirmed and a judgment was entered against Antrix in November 2020 by the U.S. District Court for the Western District of Washington.
  • The second arbitration was commenced by Mauritius-based shareholders of Devas against the Republic of India under the India–Mauritius Bilateral Investment Promotion and Protection Agreement (BIPA).  The tribunal was seated at The Hague and administered by the Permanent Court of Arbitration, under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). In 2016, the UNCITRAL tribunal found India liable for “unlawful expropriation” of the Mauritian shareholders’ investments and “failure to provide fair and equitable treatment”. The tribunal issued its Quantum Award in October 2020, ordering India to pay the Mauritian shareholders damages totaling $160 million including accrued interest.
  • The third arbitration was brought by Deutsche Telekom, an investor in Devas, against the Republic of India under the 1995 Bilateral Investment Treaty between India and Germany, before an UNCITRAL tribunal seated in Geneva.  In 2017, this tribunal ruled that Devas had been intentionally misled by the Government of India throughout the process of the Agreement, which was wrongfully terminated. The tribunal found India had violated the 1995 Bilateral Investment Treaty between India and Germany by failing to provide fair and equitable treatment to Deutsche Telecom and its investments. In May 2020 the tribunal issued its final award to Deutsche Telekom totaling US$132 million plus interest until paid in full.

The Indian government’s capricious and unilateral decisions, made first under the UPA coalition government but continuing through this day under Prime Minister Modi, have cost India dearly in credibility, in depriving its people of advanced telecommunication and in cash. The combined awards now stand at more than $1.5 billion, with interest accumulating daily.

The Indian government has refused to honor its international treaty obligations by paying these awards arising from its unlawful termination of the agreement. To the contrary, the government has set itself on a “war footing” and weaponized its judiciary and other state institutions to exert force against Devas, including:

  • Changed its arbitration law to evade payment. At the direction of the Ministry of Law and Justice, the Indian Arbitration and Conciliation Act of 1996 was amended at the eleventh hour, a direct response to the U.S. federal court’s confirmation of the ICC award in favor of Devas.
  • Initiated tax proceedings that appear designed to generate new tax obligations, penalties, and interest large enough to offset the ICC award owed to Devas.
  • Antrix secured approval from Indian courts to appoint a government liquidator – incredibly, a debtor liquidating its creditor – who has moved quickly to disable Devas’ legal representation around the globe and to undermine the company’s primary asset, the ICC award.

Chilling Message to Foreign Investors

The Devas story is an extreme example of the disdain that the Indian government holds for foreign investors, even the most reputable, innovative and soundly capitalized. This is consistent with India’s termination of bilateral investment treaties with Germany, the UK and Mauritius among others.  Most extreme is the utilization of government legal and regulatory agencies to harass, threaten and persecute the leaders and employees of Devas, employing false accusations, simply because the company exercised its legal entitlement to pursue international arbitration in response to the government’s destruction of its investment.  

As economist and writer Tim Worstall wrote in Seeking Alpha, “what the government of India is doing to Devas is a good indication of how they’re going to try to play the conflicts between what the government of India desires to do and what the courts say it is legal for that government to do. The truth being that the government seems to want to do a lot which isn’t wholly and entirely legal – as the courts are saying… should be colouring our attitude toward doing business in India. Either through investment in an Indian company, or investment into India by a company we’re invested in. The truth of the matter being that we need to have serious concerns about the rule of law there. An absence of that rule of law being exactly the thing which should make us fearful for our money – to the point that we should probably not send it there.”

The implications for current and future investors in India cannot be overstated.  A capable and effective foreign investor is an enemy of the state. International treaties and their dispute resolution processes mean nothing. Your assets will be stolen, and your good name slandered.

When a government twists the rule of law into a means for retribution against those objecting to its own arbitrary decision-making and breach of contract, it is an unmistakable warning to global direct investors.

Devas will continue to fight for its rightful interests and for judicial decisions to be respected. In the meantime, the world is watching as the government of India demonstrates its true colors.