New Delhi: An international arbitration court has delivered a blow to the Indian government, ruling that it had unfairly terminated a contract awarded to Bengaluru-based Devas Multimedia Pvt. Ltd by the commercial arm of the Indian Space Research Organisation (Isro).

The Permanent Court of Arbitration (PCA) in the Hague, the Netherlands, ruled that India was liable to pay compensation to Devas for cancelling the contract and award of spectrum to the company on grounds of national security.

“The award of the tribunal is being examined and legal recourse, as deemed fit, will be taken," the Indian government said in a statement issued by the department of space. “The tribunal has said that government of India’s essential security interest provisions of the treaty do apply in this case to an extent. The limited liability of compensation shall be limited to 40% of the value of the investment."

The PCA ruled that India had acted “unfairly" and “inequitably" in annulling the contract.

It’s the second verdict by an international tribunal to go against the government. In September, the International Court of Arbitration (ICA) of the International Chamber of Commerce (ICC) unanimously ruled in Devas’s favour and found Antrix Corp. Ltd, the commercial arm of Isro, liable for unlawfully terminating the Devas-Antrix agreement in 2011.

ICA directed Antrix, the commercial arm of Isro, to pay $672 million, or 4,435.20 crore, in damages to Devas Multimedia.

“In 2015, the ICC tribunal found that Antrix’s repudiation of the Devas-Antrix contract was unlawful. Devas was awarded approximately $562.5 million in damages plus pre-award simple interest. With the interest included, Antrix owed Devas more than $672 million as of September 2015. Since then, post-award interest of 18% per annum has accumulated, such that Antrix presently owes Devas more than $750 million on the ICC award," said Ramachandran Viswanathan, president and CEO, Devas Multimedia.

The PCA, in its ruling delivered on Monday, also “found that India breached its treaty commitments to accord fair and equitable treatment to Devas’s foreign investors", Devas said in a statement on Tuesday.

“PCA has ruled on jurisdiction and liabilities and not ruled on damages. That phase will now commence. That is yet to be determined," said Viswanathan.

Devas and Antrix entered into an agreement in January 2005, under which the former was to lease as much as 70 megahertz of S-band spectrum from two satellites that were to be launched by Isro.

As part of the deal, Devas was to pay Antrix around $300 million for the right to use the spectrum for 12 years, extendable by an additional 12 years.

Devas intended to use the spectrum to provide audio, video and broadband services using a mix of satellite and terrestrial technology.

Devas was collateral damage to the 2G scam after some procedural lapses were discovered in how the deal between Antrix and the company was structured. The United Progressive Alliance government of the day didn’t want a repeat of the 2G scam and quickly scrapped the deal.

“Devas committed to partner with Antrix on a hybrid satellite-terrestrial infrastructure project to bring nationwide satellite/terrestrial broadband wireless access and audio-visual services to India. With today’s PCA award, two international tribunals have now unanimously agreed that financial compensation should be paid after the annulment of Devas’s rights," Devas chairman Lawrence T. Babbio said in a statement.

“Other courts in France and the United Kingdom have agreed that the award against Antrix ought to be enforced. We prefer a mutually agreeable resolution of this matter. But until that occurs, Devas and its investors will continue to press their claims before international tribunals and in courts around the world," added Babbio.

Viswanathan seconded the idea of a mutually agreeable resolution. “Not only the company but shareholders are of the view that this matter has to be resolved. Even investors want that."

The September ruling by the ICC tribunal was for breach of contractual obligations, said Anirudh Wadhwa, partner at Wadhwa Law Chambers. In this case, the PCA has cited breach of bilateral investment treaty obligations, making the verdict enforceable against assets of the Indian government in any country that is a signatory to the New York Convention.

The convention, which came into force in June 1959, was meant to enable recognition and enforcement of international arbitral awards.

“A bilateral investment treaty is between a state and investors which have been expropriated as the government terminated the contract without compensating reasonably," Wadhwa said. “It seems difficult for the Indian government to challenge this judgement due to lack of valid grounds."

Ajay Lele, a space expert and senior fellow at the Institute for Defence Studies and Analyses, said that PCA’s judgement was on expected lines.

“India had cancelled the contract in haste owing to unnecessary political and media pressure," Lele said.

“The contract entered into by Antrix was correct. The lack of understanding on space, terrestrial spectrum and the entire hullabaloo created due to the political scenario going on back then led to this," he said.

Tuesday’s government statement also referred to a show-cause notice served to Devas by the Enforcement Directorate for suspected violation of foreign exchange regulations and said the agency was investigating Devas under the Prevention of Money Laundering Act, 2002.

“As you are probably aware that there are in excess of a dozen investigations. To date, no wrongdoing has been found against Devas," said Viswanathan.

Former Isro chief G. Madhavan Nair and three other scientists were blacklisted by the government because of suspected wrongdoing in the controversial Antrix-Devas deal.

Space scientist Roddam Narasimha, who was a member of a panel that probed the deal and quit the Space Commission in 2012 to protest against the action taken against Nair, said the panel had found no evidence that the agreement had been struck to benefit “anybody’s self-interest".

The deal had been signed to give India access to technology that was not available in the country “and that it would be in India’s interest to do this and preferably through private enterprise".

“There was nothing contrary to this principle that was actually done," Narasimha said on Tuesday.

PTI and Mint’s Sharan Poovanna contributed to this story.

My Reads Logout