Today I want to speak about an important judgment of Supreme Court. Often such a news item gets buried in the cacophony of election related news, but in the national interest, one has to understand the importance of this verdict.
Monday’s Supreme Court verdict in the Devas deal is related to India’s world image. The news item is simple: The Supreme Court on Monday dismissed the appeal filed by Bengaluru-based Devas Multimedia, and upheld the NCLAT (National Company Law Appellate Tribunal) order given in September last year. NCLAT had upheld the National Company Law Tribunal’s order asking the promoters to wind up the company. The apex court verdict makes it clear that Devas Multimedia must now undergo liquidation and the company will have to be wound up.
The SC bench comprising Justice Hemant Gupta and Justice V. Ramasubramaniam upheld the NCLAT order which stated that Devas was incorporated with “a fraudulent motive to collude and connive” with some officials of Antrix Corporation, the commercial arm of Indian Space Research Organization (ISRO). The Supreme court verdict has significant legal and political ramifications and it is likely that the Indian government may use it in its legal battle against an ICC (International Chamber of Commerce) arbitration award won by Devas, which is trying to enforce it by obtaining orders for seizure of India’s assets abroad.
Let me first explain the entire story about the Devas-Antrix deal. Devas Multimedia was a company started in 2004 by some former ISRO officials and World Space staff. The next year, on January 28, 2005, Devas and Antrix Corporation signed a deal under which ISRO was supposed to lease two communication satellites for 12 years at a cost of Rs 167 crore to Devas.
This start-up company was supposed to provide multimedia services to mobile platforms in India using the S-band spectrum transponders on two ISRO satellites built at a cost of Rs 766 crore by ISRO. In 2011, when the 2G telecom scam broke in the telecom sector, this deal was hurriedly cancelled by the then Manmohan Singh government.
There were allegations that allocating S-band spectrum was nothing but a “sweet deal” to help a fledgling firm. When Modi government came to power in 2014, the CBI was asked to probe the deal. In 2016, CBI filed a chargesheet against eight officials of Devas, Antrix and ISRO “for being party to a criminal conspiracy with an intent to cause undue gain to themselves or others by abusing official positions”.
Among the eight persons chargesheeted was former ISRO chairman G. Madhavan Nair. The CBI accused these officials for causing a loss of Rs 578 crore to the government. The Enforcement Directorate also filed a chargesheet under Prevention of Money Laundering Act against a former managing director of Antrix Corporation and five Devas Multimedia officials. The ED chargesheet claimed that 85 per cent of Rs 579 crore funding it received after the 2005 deal was transferred to USA under various pretexts.
After the Antrix-Devas deal was scrapped, the startup investors went for arbitration abroad. They filed for commercial arbitration before the ICC Tribunal in Netherlands and also for investment arbitration under India-Mauritius and India-Germany bilateral investment treaties. All these proceedings led to adverse awards given against India. In October, 2020, Devas obtained a Rs 835 crore arbitration award.
This led to courts in France and Canada ordering attachment of India’s assets in these countries to recover the dues. Canada even started seizing Airports Authority of India and Air India’s assets for recovery. These steps have severely dented India’s image abroad. Now that the Supreme Court has ordered liquidation of Devas Multimedia company describing it as fraudulent, India will have to fight its cases again. You will be surprised to find how the previous Congress-led UPA government used to take decisions that brought international disrepute to India.
In layman’s words, we can describe it like this: a person or a group of persons buys products from my shop, and then tries to sell me at prices ten times the cost. All, of course, with my permission. This is what the Government of India during Manmohan Singh regime did. UPA government gave away Rs 12,000 crore worth S-band spectrum to a company at a throwaway price of Rs 1,000 crore.
The deal was hurriedly cancelled after all hell broke loose. Now the same company is seeking compensation in thousands of crores from the Indian government. In trying to recover its compensation, this company wants to seize Indian government’s assets abroad. The case is more than 15 years old. When the UPA came to power in 2004, the game began, months after the new government took over.
A former ISRO official Dr M. Chandrashekhar set up a start-up company with the intent to rob the Indian government of its money. Investors from USA, Canada, France and Germany, and the aim was to obtain S-band spectrum from the government. The deal was signed with Antrix Corporation next year under which Devas was to build two satellites and provide digital and multimedia services in India. The startup company demanded S-band spectrum for Rs 1,000 crore in lieu of multimedia services, and the Centre agreed to provide S-band spectrum to the company.
On the other hand, the same government demanded Rs 12,500 crore for providing S-band spectrum to its own companies, BSNL and MTNL. The babus sitting in the corridors of government were clearly causing a huge loss to the exchequer. In the meanwhile, the startup company did not start any work, and, by 2011, the 2G telecom scam Rs 1.75 lakh crore broke. Since the Manmohan Singh government was tied up with the furore raised over 2G scam, it hurriedly cancelled the Antrix-Devas deal.
Devas went to International Chamber of Commerce ICC arbitration court, where hearings began. Manmohan Singh government did not even send its lawyer to represent India’s case before the arbitration court. ICC, on its own, appointed a lawyer to represent India, but strangely, our government did not even provide details of the case to the lawyer. Finally, ICC arbitration court ordered recovery of dues by attaching Indian government’s assets abroad. Cases were filed in the courts of USA, France, Germany and Canada by Devas investors.
By this time, Modi government came to power in 2004. It immediately ordered CBI and ED to prove the matter, and sent its lawyer to foreign courts. On Centre’s orders, Antrix Corporation requested NCLT to liquidate Devas Multimedia company, because it was set up with the intent to defraud the exchequer. NCLT ordered its liquidation, Devas appealed before NCLAT, but NCLAT upheld the order. Devas went to Supreme Court, and on Monday, the apex court dismissed its petition.
This, in short, is the story of Devas Multimedia deal. The apex court clearly said that when a company was set up with fraudulent intentions, there was no point in going through its claim for compensation. The Indian government can now go the ICC arbitration court and other foreign courts and place the Supreme Court’s verdict for quashing Devas’ claim for compensation.
The ICC arbitration court had ordered payment of 56.2 crore dollars to Devas from Indian government. Adding interest, it amounts to recovery of 1.2 billion USD or Rs 90 billion from India. Devas investors went to US Federal Court and obtained order in their favour. The French court also gave order in favour of Devas investors. A court in Canada also gave order favouring Devas and ordered attachment of Indian assets.
This is one of the legacies of Manmohan Singh government, which the present Modi government has to face. India’s international image has been brought to disrepute. The UPA government failed to include the ‘national security’ provisions while placing its case before foreign courts, and , in the process, lost all these cases.
This is big news because India’s international prestige is concerned. Nothing is more shameful than a company obtaining court orders to seize Indian government’s assets abroad. It is similar to, say, a company getting court orders to attach the Rail Bhavan or Shastri Bhavan. This has brought disrepute to India in international circles.
The questions that arise are: Why did the Congress government signed a deal with a company set up by former ISRO officials? Why did Manmohan Singh government took Rs 12,500 crore for S-band spectrum from its own company BSNL, but sold it for Rs 1,000 crore to Devas? When the deal was cancelled, why wasn’t the ‘national security’ clause not added? Had the UPA government added the ‘national security’ clause, the Devas petition would have been rejected by the ICC arbitration court.
The main question: Why didn’t our government fail to appoint a lawyer to present its case before ICC arbitration court? Why didn’t the then government initiate proceedings to liquidate Devas company?
These are not coincidences, this was ‘an experiment in corruption’ that failed. It goes to the credit of Narendra Modi government that it took timely steps and fought the case in Supreme Court. This is India’s first gain in the legal battle that will now continue in international courts. Let us hope the ICC arbitration court will review its verdict and order that a company set up for fraudulent purpose, has no right to seek compensation.