After Retro Tax, Modi Government Should Be Ready To Swallow Bitter Devas Pill Too

The Narendra Modi government swallowed its pride when it (belatedly) repealed the Vodafone retrospective tax legislation last year after facing repeated losses in international courts over the recovery of arbitration awards. It now has to swallow more than just pride in order to settle the arbitration award in the Devas Multimedia case. It is a case we have lost due to procrastination and sheer inability to present our case cogently in international fora.

Worse, the government has ensured the ultimate cost is several times more than the original award in favour of Devas, of just over half a billion dollars that was decided in 2015. In October 2020, a US Federal Court ruled that Devas and its shareholders now have to be paid $1.2 billion in compensation for cancellation of the deal in 2011. With courts in Canada and France now allowing Devas to seize assets owned directly or indirectly by the Indian government, insult is being added to financial injury.

While a Canadian court has allowed Devas to seize some cash belonging to the Airports Authority of India, in France a flat owned by the government is sought to be seized. While both decisions will surely be challenged – it is doubtful if dues owed by one company can be settled by seizing the assets owned by another entity under the same ownership – the reality is that India has suffered reputational loss largely due to its own sins of omission and commission. It must seek to settle the case as early as possible even while creating protocols to handle such cases in future.

Devas Multimedia entered into a deal in 2005, during the UPA era, with an ISRO subsidiary, Antrix Corporation, under which the latter agreed to launch two satellites and make available 70 Mhz of S-band spectrum for commercial use. But the deal was scuppered six years later, when the Manmohan Singh government came under pressure from the opposition about a possible “scam”. Allegations were made that proper processes and procedures were not followed while clearing the deal.

The Indian government, however, did not use “national security” as the reason for cancelling the deal; instead it made a vague claim about meeting the “needs of defence, para-military forces and other public utility services as well as for societal needs, and having regard to the needs of the country’s strategic requirements...” (read the details about where all India goofed here in this article).

Worse, when Devas took Antrix to arbitration under the International Chamber of Commerce (ICC), it chose not to appoint its own member to the panel, saying the ICC had no jurisdiction. It did not raise an objection even when ICC appointed a former Supreme Court Chief Justice, A S Anand, as Antrix’s nominee on the arbitration panel. The US court that rejected Antrix’s case in 2020 said that refusal to appoint an arbitrator or challenge the appointment of former CJI Anand as Antrix’s nominee amounted to forfeiture of Antrix’s right to do so.

The original arbitration award came in September 2015, a few months after Modi government took over, and well after the Central Bureau of Investigation (CBI) filed cases in March 2015 against some officials of ISRO and Antrix for various lapses. This was six years after some insiders in ISRO had leaked information in 2009 about the Devas-Antrix deal, and three years after the UPA government cancelled it in 2011 in the wake of the political uproar.

So where did the government – whether Manmohan Singh’s or Modi’s – goof up?

First, the deal should have been more carefully scrutinised at birth, especially when it was clear that Devas Multimedia was formed by some former ISRO employees backed by US venture capital. When ex-employees seek to enter into deals with their former employer (or its subsidiary, in this case), it should have raised red flags quickly about possible nexus and cronyism. It should have forced a closer scrutiny of the deal before it was cleared.

Second, when the deal was cancelled in 2011, the government should have entered into talks with Devas’s shareholders to explain why, and settle the costs at mutually agreed sums. By delaying, the Manmohan Singh government raised the eventual cost to the country, both reputationally and in monetary terms. The Modi government could have done the same thing and cut its losses, but it prevaricated and delayed the issue. It must share the blame.

Third, the Manmohan Singh government wasn’t paying attention when our own Supreme Court refused to stay the ICC arbitration in 2013. It should have seen this as a nudge to settle before things got out of hand, but it didn’t.

Fourth, as already stated, the ICC arbitration was lost partly by default, since the arbitrator appointed on behalf of Antrix neither had the government’s confidence nor its opposition. This is simply inexcusable.

Fifth, even when the US court upheld the award 15 months ago, the Modi government does not appear to have realised the reputational danger it was likely to face, given that foreign courts were willing to enforce the deal by confiscating government property – as Canadian and French courts have now done. These seizures may not be legal – they are about penalising the father for a son’s misdeeds – but international law on the culpability of governments for the acts of its wards is not clear.

Sixth, for a government that wants to sell Air India to the Tatas, this brings further reputational damage. Even though the sale of Air India to the Tatas contains government guarantees on dues owed before the effective sale date, if Air India is repeatedly dragged to foreign courts to enforce the Devas deal, not only the government, but the Tatas too would be worried about it. In just a few days from now, the government is set to formally transfer ownership of Air India to the Tatas, but what if the latter now gets second thoughts due to the overhang of litigation involving Air India assets? It is not about whether the Tatas will lose any money over it, but the hassle involved in rushing to foreign courts to prevent seizures cannot be very enticing to the Tatas, who anyway will have a tough time putting Air India back on its feet. Who needs litigation to add to one’s woes.

Seventh, even assuming corruption and hanky-panky is proved in Indian courts, the value of these verdicts will be questionable for it does not follow that the foreign shareholders of Devas were involved in this. At best, some Indian officials of ISRO and Antrix will spend anxious years trying to prove their innocence – and in jail if proven guilty. Endless court delays in India are no advertisement for the country’s respect for the rule of law.

Clearly, all this leads to only one conclusion: no matter what gets proved in Indian courts, the Modi government has to settle Devas as quickly as possible. It should be possible to cut deals that cost less than what the arbitration award specified. One could count on Devas shareholders being keen to get some of their money back, if there is some assurance of quick resolution, rather than fight endlessly in expensive foreign jurisdiction. It is also possible that settlement could mean compensation in kind, by allowing, say, place on some future satellites to be launched by Antrix or ISRO.

For India, the reputational damage far outweighs any monetary costs of settling the case. We can, anyway, choose to fight locally to bring the corrupt to book, assuming corruption can be proven. But it is best to cut one’s losses when the other party may be keen to salvage something of value quickly instead of digging in for an endless fight where all parties lose more.

Lord Shiva swallowed poison that emerged from the Samudra Manthan; the Modi government must swallow the award dredged up by the legal churn involving Antrix and Devas. It is difficult to make out who were the Devas or the Asuras in this deal.