Can Devas Make a Valid Case for Judicial Expropriation Against India?

In February 2022, three Mauritius-based investors of Devas Multimedia issued a fresh notice of arbitration to India under the India-Mauritius Bilateral Investment Treaty, 1998 (India-Mauritius BIT). The allegations under the notice, among other things, include unlawful and abusive measures against Devas, preventing it from enforcing an arbitral award obtained against Antrix Corporation, Indian Space Research Organisation’s commercial arm.

Devas’ aforesaid action follows from the setback it faced in January 2022 when the Supreme Court of India upheld an order passed by the National Company Law Tribunal (NCLT) directing the liquidation of Devas, thereby preventing the enforcement of an arbitral award in its favour. In light of the foregoing, the present post seeks to examine whether a valid case for judicial expropriation can be made against India under the India-Mauritius BIT.

Background of the Dispute

The dispute is a long-standing one that dates back to 2011 when Antrix terminated an agreement it entered into with Devas in 2005. The termination of the said agreement led to three distinct sets of arbitral proceedings—one commercial arbitration before an International Commercial Court (ICC) tribunal and two other investment arbitrations. Each of these proceedings resulted in an adverse award against India and Antrix.

The present claim under the India-Mauritius BIT stems from an order passed by NCLT in May 2021 directing liquidation of the company on the ground that the incorporation of the company was made with fraudulent intent to siphon funds to dubious foreign accounts; collusion between Antrix officials and Devas was also found. The NCLT order expressly directed the liquidator to liquidate Devas so that it is not able to enforce the award passed by the ICC tribunal (ICC Award) against Antrix.

This NCLT order was upheld by the National Company Law Appellate Tribunal (NCLAT) in September 2021 and eventually by the Supreme Court in January 2022 when it refused to interfere with the liquidation order and dismissed Devas’ appeal. Devas’ case in the arbitration notice (as before the Indian courts) is that the liquidation order has been passed with the wrongful intent to preclude Devas from enforcing the ICC Award.

Does the ICC Award constitute a protected ‘investment’ under the India-Mauritius BIT?

At the outset, in order to successfully make a claim for expropriation, Devas will have to establish that the ICC Award constitutes an ‘investment’ under the India-Mauritius BIT. According to Article 1(a)(iii), ‘investment’ is defined as an asset acquired under relevant laws of the State in whose territory the investment is made and includes monetary claims. The ICC Award, in this case, is final and binding on the parties and no challenge to the merits of the award can be made at this stage. Thus, the ICC Award is a proof of existence of a monetary claim in favour of Devas.

However, a possible roadblock for Devas is the ‘asset-centric’ definition of ‘investment’ which mandates the acquisition of the asset in question to be valid under Indian law. This traces the ‘investment’ back to the 2005 agreement entered into between the parties. The Indian courts have found the incorporation of Devas itself to be on fraudulent grounds and the 2005 agreement to be tainted by collusion between Antrix officials and Devas. Further, the Central Bureau of Investigation and the Enforcement Directorate had filed three charge sheets against Devas and Antrix in 2015 for offences such as fraud, corruption and criminal conspiracy under Indian laws and the matter is pending adjudication.

Thus, there are doubts over whether the ICC Award qualifies as a protected ‘investment’ acquired validly under Indian law in terms of the India-Mauritius BIT, given the criminal antecedents surrounding the commercial relationship between the parties.

Does India’s actions amount to judicial expropriation?

In arguendo, assuming that the ICC Award qualifies as a protected ‘investment’, the next assessment would be whether the actions of Indian courts amount to judicial expropriation under the India-Mauritius BIT. Article 6 of the India-Mauritius BIT relates to expropriation. A breach of this provision will arise in the event of an act of expropriation not being for public purposes, being discriminatory or without compensation.  

Devas’ case for expropriation may garner support from the decision in Saipem Spa v Bangladesh where the ICSID tribunal held that the actions of Bangladeshi courts deprived Saipem Spa from enjoying the benefits of an ICC Award and thus amounted to expropriation of Saipem Spa’s contractual rights crystallised by the said ICC Award. However, it was noted that a failure to enforce an award would not amount to expropriation per se and that an illegal action must be established.

Nevertheless, the Saipem ruling is often viewed as ‘controversial’ and, in my view, correctly so. The tribunal in Saipem adopted a ‘sole effect’ approach which entails relying on the effect of State action on the investment and not on the reasons behind undertaking such action. This is a rather low threshold to establish judicial interference as an act of indirect expropriation. The problem with this approach is that if it is applied strictly, any judicial decision refusing enforcement of a foreign award may be argued to amount to judicial expropriation. Another problem with following Saipem as a precedent is that it borders on exaggerating the role of such arbitral tribunals to be ‘supranational appellate bodies’ reviewing the legality of domestic judicial decisions.

A more balanced and nuanced position was adopted in GEA Group Aktiengesellschaft v Ukraine. The claimant in this case, a German investor, relied on the Saipem ruling in support of its position that ‘[n]onrecognition decisions rendered on grossly illegitimate grounds are tantamount to expropriation.’ While the ICSID tribunal held that an arbitral award in itself does not qualify as a protected investment under the relevant BIT, it qualified the Saipem decision by observing that judicial interference would amount to expropriation only when it is established that the interference is (a) discriminatory; (b) arbitrary or ‘egregious’; and (c) with the intent to thwart the investor from taking benefit of the arbitral award. Similar thresholds were laid down in Frontier Petroleum Services Limited v Czech Republic.

In view of the foregoing, it is important to note that specific powers have been granted to the NCLT under section 271 of the Companies Act, 2013 to pass an order directing liquidation in the event of fraud. In fact, the main departure of the 2013 Act from the earlier statutory regime of the Companies Act, 1956 is the specific inclusion of fraud as one of the circumstances in which a company could be wound up. Further, under Indian law, the NCLT is conferred with inherent powers to pass any orders ‘for meeting the ends of justice’. Thus, the NCLT’s order directing liquidation on the ground of fraud and corruption does not appear to be arbitrary or ‘egregious’, especially under the new regime of the 2013 Act.

It is also difficult to establish a case for Indian courts acting in a discriminatory manner, as orders directing liquidation on the ground of fraud and corruption have been passed on other occasions as well pursuant to the statutory powers conferred under the new regime of the 2013 Act. In fact, the actions of Indian courts seem to be aligned with the international consensus on fraud and corruption being violative of international public policy, as seen in Sorlec v Libya and Wells v Bravian. Thus, given the settled global position, a case for discrimination seems farfetched.

Further, it is important to reiterate here that the NCLT’s order has been reviewed and affirmed in two subsequent rounds of litigation and has been upheld to be valid under Indian law by the highest court in the country. Thus, a fresh inquiry and adjudication by the arbitral tribunal on the issue of fraud and corruption would amount to it acting as a ‘supranational appellate body’ which is impermissible.

Conclusion

Given the chequered history of the commercial relationship between Devas and Antrix being blemished by fraud and corruption, it may turn out to be an uphill task for Devas to establish that Indian courts have acted with a wrongful intent to deliberately prevent enforcement of the ICC Award. Furthermore, the fact that judicial expropriation is a concept which divides tribunals and commentators alike makes Devas’ claim further doubtful.

What remains to be seen is whether the arbitral tribunal in this case will adopt a cautious approach or whether it will follow an investor-oriented route by affirming India’s responsibility for its domestic courts’ alleged unlawful failure to enforce the ICC Award. However, given the conundrum surrounding the Saipem ruling, future tribunals must endeavour to remedy the deficiencies on this issue.

Ameya Vikram Mishra is an Associate at the Office of Justice AK Sikri.

The author would like to thank Anirudh Lekhi for his inputs to this post.