Govt must respect contracts, arbitral awards

Each time the Indian government refrains from acknowledging an arbitration award and challenges it, the country’s reputation for respecting awards takes a knocking.

It is unfortunate India has rejected an offer from Mauritius-based investors of Devas Multimedia Pvt Ltd to settle a dispute over a terminated satellite lease deal between Devas and Antrix Corporation, the commercial arm of Isro. Indeed, the matter, which has dragged on for nearly a decade, is becoming increasingly mired in litigation. Last Tuesday, the Supreme Court (SC) turned down a plea by Devas to restrain the liquidator from taking any steps in relation to the arbitration pending before the Delhi High Court between the two. Devas had approached the HC, asking that the international tribunal award of $562.5 million—that it won in 2015—be enforced in its favour. In late October 2020, a Washington court upheld the arbitration award of the ICC and asked Antrix to pay Devas $1.2 billion.

According to a report in Mint, last month, a clutch of investors approached the government, hoping for an amicable settlement. However, the government continues to pursue the matter in the courts, having filed a winding up petition against Devas. In late May, the Bengaluru bench of the National Company Law Tribunal (NCLT) ordered Devas be liquidated on the grounds that it was incorporated in a fraudulent manner to siphon funds to dubious foreign accounts.

With the SC refusing to interfere at this stage, it is a serious setback for Devas. The liquidator could withdraw the company’s demand against Antrix; alternately, the court may refuse to enforce the arbitral award. The government’s line of reasoning has been that the arbitral tribunal improperly exercised jurisdiction over a national tax dispute that India never agreed was a subject of the arbitration.

Each time the Indian government refrains from acknowledging an arbitration award and challenges it, the country’s reputation for respecting awards takes a knocking. Last December, the British oil and gas explorer, Cairn Energy Plc (CEP), won an arbitration tribunal award of $1.2 billion plus interest and costs against India, but the government has decided to challenge it. A few months before that, in September, an international arbitration court at the Hague ruled the Indian government’s demand of Rs 22,100 crore in taxes from Vodafone Plc, by taking recourse to retrospective legislation, was in breach of a treaty between India and the Netherlands.

To be sure, the retrospective amendment to a section of the I-T Act had been made much earlier, in 2012—during the tenure of then finance minister Pranab Mukherjee. However, even as the amendment cost the UPA-2 its credibility, the NDA, worryingly, hasn’t remedied the situation. Indeed, the legal dispute between Cairn Plc and the Indian government has taken an ugly turn with the British oil major filing a lawsuit in New York, seeking to enforce the arbitral tribunal’s award by seizing assets of Air India. Such spats are unseemly. In the recent years, state governments too have made a habit of reneging on contracts, especially power purchase agreements in the renewable energy space, putting crores of rupees of investment at risk. Foreign investors looking to set up shop in India would be uncomfortable with such regulatory uncertainty. Indeed, local players too are apprehensive of policy flip-flops and of the absence of a level-playing field. In a country where ease of doing business is yet to improve to make it truly competitive, companies must at least be sure of the rules of the game. Vodafone and Cairn have made huge investments in India. Their capital must be respected.