In the latest development in an ongoing series of global disputes between two Indian based entities, the Supreme Court of India (the “Supreme Court”) has upheld a decision to set aside an International Chamber of Commerce (the “ICC”) arbitration award amounting to US$1.3 billion (including interest) on the basis of an earlier finding of fraud.
Background to the Supreme Court decision
The underlying ICC arbitration proceedings arose out of a 2005 contract between Devas Multimedia Private Limited ("Devas"), an Indian company whose majority shares were held by entities based in Mauritius and the United States, and Antrix Corporation Limited ("Antrix"), a company wholly owned by the Government of India and the commercial arm of India’s national space agency, ISRO (the "Contract"). Under the Contract, Antrix agreed to build, launch, and operate two satellites and lease spectrum capacity on those satellites to Devas, which Devas planned to use to provide digital multimedia broadcasting services across India. In February 2011, Antrix invoked force majeure and terminated the Contract on the basis that India's military needed to use the spectrum that had been leased to Devas.
In September 2015, a Delhi-seated ICC tribunal awarded Devas US$562 million in repudiatory damages, plus interest, following what was found to be the unlawful termination by Antrix of the Contract (the "ICC Award"). The termination of the contract also led Devas’ shareholders to initiate two bilateral investment treaty ("BIT") arbitrations under both the India-Mauritius BIT (CC/Devas v. India) and the India-Germany BIT (Deutsche Telekom v. India).
Set aside
Since the ICC Award in 2015, Devas has made many efforts to enforce the ICC Award against Antrix in various jurisdictions, such as the USA and the Netherlands, but without success. Concurrently to these attempts, Antrix successfully petitioned for the appointment of a provisional liquidator over Devas, following which India’s National Company Law Tribunal (“NCLT”) wound up Devas on grounds that it had been incorporated with fraudulent intention. This decision was also confirmed by the National Company Law Appellate Tribunal (“NCLAT”). Devas then challenged the NCLAT decision before the Supreme Court, which upheld the decision of the NCLAT, finding in January 2022 that Devas was formed for fraudulent and unlawful purposes.
More recently, Antrix challenged the ICC Award in the Delhi High Court on the basis that the Contract was null and void due to the Supreme Court’s earlier findings of fraud. In August 2022, the Delhi High Court set aside the 2015 ICC Award under Section 34 of India’s Arbitration and Conciliation Act, 1996 (the “Act”),on the basis that it suffered “from patent illegalities and fraud and is in conflict with the Public Policy of India”1.
In March 2023, following an appeal by Devas, the Division Bench of the Delhi High Court affirmed the findings of the judge of the Delhi High Court. The Division Bench found that, as a consequence of the earlier Supreme Court decision that the commercial relationship between Devas and Antrix was a product of fraud, the Contract, ICC Award and all other disputes arising out of the transaction were tainted by fraud2. Further, the Division Bench found that permitting Devas and its shareholders to reap the benefits of the ICC Award would amount to the Court perpetuating the fraud, which would be against all principles of justice, equity and good conscience3.
Unsurprisingly, Devas appealed the March 2023 decision of the Delhi High Court. On 6 October 2023, however, the Supreme Court rejected the appeal on the basis that the March decision did not “call for interference”.
Comment
This series of disputes is of note for the following reasons.
First, following the Supreme Court’s earlier finding of fraud, the Delhi High Court was keen to emphasise the notion that once a commercial relationship is tainted by fraud the consequences are pervasive and far reaching and, accordingly, the underlying transaction must be treated with disdain by courts. Further, and crucially, the proceedings that follow from that relationship are also tainted by fraud or as indicated by the earlier Supreme Court decision, “infected with the poison of fraud”4. Hence, these proceedings emphasise the gravity of any finding of fraud on connected transactions and disputes.
Secondly, by upholding the findings of the Delhi High Court, the Supreme Court has confirmed that an award tainted by fraud will be in conflict with the public policy of India, which is a ground on which an Indian Court will set aside an arbitration award under Section 34 of the Act. This is crucial as it aligns with what is an internationally recognised principle that fraud flies in the face of public policy and will rightly not be condoned.
Thirdly, this clear decision by the Supreme Court patently sounds the death knell for Devas’ attempts to enforce the ICC Award in India. Whilst the upholding of the Delhi High Court’s decision to set aside the ICC Award on the basis of the Supreme Court’s earlier findings of fraud may not mark the end of the road for the enforcement action more generally, globally it will, at the very least, add an additional layer to the overall factual matrix involved. This is not to mention that the costs exposure going forward, and the (likely) monumental costs incurred by Devas to date, in a global, multi-forum enforcement process of this scale will be a massive deterrent to continued enforcement action.
Finally, whilst this recent Supreme Court decision appears to be a decisive victory for Antrix in rebutting Devas’ attempts to enforce the ICC Award, problems for the Indian state continue in the form of ongoing BIT claims. At the date of this article, India has been ordered to pay Deutsche Telekom and the Devas entities substantial damages in the above-mentioned BIT claims, and there is a third BIT claim pending under the India-Mauritius BIT. The impact of these claims remains to be seen, but India is obviously keen to avoid investment treaty disputes and is sensitive to public perception and the visibility of disputes with foreign investors.
- Antrix Corporation Ltd v Devas Multimedia Private Ltd 2022, SCC OnLine Del 2622, para. 173.
- Devas Employees Mauritius Private Limited v Antrix Corporation Ltd and others, FAO(OS) (COMM) 289/2022, para. 114(f).
- Devas Employees Mauritius Private Limited v Antrix Corporation Ltd and others, FAO(OS) (COMM) 289/2022, para. 114(f).
- Devas Multimedia Private Ltd v Antrix Corporation Ltd and others, 2022 LiveLaw (SC) 57, para. 13.5.
Client Alert 2023-238
