A Canadian court recently dismissed India’s sovereign immunity argument in a case where Devas and its shareholders are trying to enforce a 2020 bilateral investment treaty (BIT) award against India.
About the Bilateral Investment Treaties –
- BITs are agreements between two countries containing reciprocal undertakings for the promotion and protection of private investments made by nationals of the signatories in each other’s territories.
- They guarantee ’fair and equitable treatment’ that ensures foreign companies are not discriminated against and promise compensation in cases of breach of contract by both state and non-state entities.
- It also provides protection against illegal nationalisation and expropriation of foreign assets and other actions by a signatory of the BIT that may undermine the ownership or economic interest of a national of the other signatory.
- One of the main protections under a BIT is that it allows foreign investors to sue countries directly, by submitting claims for breach of the BIT to arbitration rather than to local courts.
It also supports the development of international law standards consistent with these objectives.
- The Deal — Antrix Corporation and Devas Multimedia entered into a transaction for leasing of S-Band spectrum to provide multimedia services to mobile platforms in India in 2005, but it was cancelled by Antrix in 2011 following the “2G scam” on grounds of “national security”.
- Devas was a startup company based in Bengaluru with investors from Mauritius and US.
- Antrix Corporation Limited is an Indian government-owned company (incorporated in 1992) under the administrative control of the Department of Space.
- It is a commercial and marketing arm of ISRO and provides major technical consultancy services and transfers technologies to industry.
- The award — Devas sued Antrix in International Chamber of Commerce (ICC) against the annulment and alleged that Antrix had improperly cancelled a contract to build satellites for Devas. Devas secured an award of over $560 million as damages.
- BIT claims — The government’s decision to revoke the contract prompted Devas’ foreign investors to bring separate BIT claims against India under the India-Mauritius BIT and India-Germany BIT, respectively. India lost both the disputes related to BIT claims against India by Devas.
- India’s standing — Against the two separate BITs, India maintained that the deal was cancelled in view of increasing demand for the S-band satellite spectrum for national security.
- Devas submission — Devas submitted that the actual motive behind Antrix seeking its winding up is to deprive the benefits of a unanimous award passed by the ICC, and the two BIT awards. It also said that such attempts on the part of a corporate entity wholly owned by the Government of India would send a wrong message to international investors.
- Antrix defence — Antrix argued that the contract from which the arbitral award arose was wholly vitiated due to acts of corruption, fraud and criminality committed by the erstwhile management of Antrix and Devas.
- Appeal for liquidation — Antrix with the authorisation of GoI, filed a petition in May 2021 before the National Company Law Tribunal (NCLT) for winding up of Devas on grounds of “fraud”. The petition was upheld by the apex court in 2022. The SC also held that the entire transaction was in conflict with the public policy of any country.
What is the issue now?
- In 2020, a BIT tribunal awarded compensation of more than $100 million to Devas’ investors.
- Since then, Devas’ shareholders are endeavouring to enforce this award in multiple jurisdictions, including Canada. This is being done by targeting the assets of public sector entities like $38 million from the Airport Authority of India (AAI) and US$17 million from Air India to recover their compensation.
- The Canadian court in this context recently rejected India’s argument for sovereign immunity from jurisdiction by applying Canada’s Sovereign Immunity Act (SIA).
About Canada’s Sovereign Immunity Act (SIA) –
The SIA makes a foreign state immune from the jurisdiction of Canadian courts, however being subject to certain exceptions. For instance, under Section 5 of the SIA, a foreign state is not immune from the jurisdiction of a court if the proceedings relate to commercial activity.
India’s argument –
India argued that BIT disputes arise due to the sovereign actions of the state and thus, unlike commercial arbitration disputes, are not commercial disputes. This is a credible argument as BIT disputes involve treaty breaches and have a public law character.
What is the Canadian Court’s ruling?
- The Canadian Court concluded that India’s decision to revoke the contract prevented the commercialisation of the Devas-Antrix deal, and thus the BIT dispute was essentially commercial in nature.
- The court also held that India cannot claim immunity from jurisdiction as it has signed the BIT containing an arbitration clause, participated in the arbitral proceedings with Devas, and is a party to the New York convention.
- This convention regulates the recognition and enforcement of international arbitration awards.
- These actions, according to the court, hence constituted a “clear and unequivocal” waiver of jurisdictional immunity on India’s part.
- The Canadian court, to strengthen its reasoning, cited a Delhi High Court case, KLA v. The Embassy of Islamic Republic of Afghanistan.
- Here the Delhi HC had held that an arbitration agreement between a foreign state and a party constitutes an implied waiver by the foreign state of its sovereign immunity.
- This implied that since arbitration is a binding and consensual mechanism of dispute settlement, there is no need to seek the consent of the state once again at the time of the enforcement of the award against it.
- Although the Delhi HC’s ruling was in the context of commercial arbitration, the Canadian court held that this logic also applied to BIT arbitration.
- The Canadian court hence refused to set aside the waiver exception on the ground that the Devas agreement was “tainted by fraud”.
- It also held that the SC judgment related to winding up of Devas Multimedia dealt with a completely different subject matter and thus was not relevant to the extant proceedings.
India has pinned its hopes on the SC judgment to contest Devas’s enforcement proceedings in all foreign jurisdictions, and thus the Canadian court ruling is a big blow. A glimmer of hope for India is the observation by the Canadian court that the SC decision may have some relevance in a future hearing on the merits of the enforcement. Hence, India is surely going to raise this argument again as the last word on this protracted legal ordeal is still awaited.
Source – The Indian Express
QUESTION – What is a ‘bilateral investment treaty’? How the recent BIT case of Antrix-Devas has put India in a tight spot with respect to the potential of BITs for India? Discuss in brief.