India has lost a case at the Permanent Court of Arbitration in The Hague, which was brought against the government’s space marketing agency, Antrix, by its former partners at Devas Multimedia. This loss should be seriously studied, as it is a direct result of government action. Antrix is the commercial arm of the Indian Space Research Organisation, or ISRO. The previous government led by the United Progressive Alliance had cancelled in 2011 the agreement between Devas and Antrix, in which the latter leased to the former satellites operating in the S-band. Devas, using the satellites, would have set up satellite communications that would be used, among other things, to provide high-speed internet connections to mobile phones. However, after accusations about the deal surfaced, the government completely cancelled the contract. It is over this action that Devas has now won the arbitration.
It is now clear that in its outright cancellation of the project, the government failed to honour its international treaties. Honouring its treaties is the paramount duty of any national government. It is true that, at the time, the UPA government was under considerable pressure following corruption allegations across the board. In particular, the allocation of 2G spectrum licences had come under fire following an adverse report from the Comptroller and Auditor General of India. Such political considerations may have been the reason for ignoring bilateral treaties, but knee-jerk reactions that do not take into account future legal or diplomatic complications should have been avoided. There is also a lesson here for upcoming arbitration cases in which government action is involved. Several involve weighty tax issues in which the government has taken stands that it has been hesitant to reverse — whether or not because of the political costs is unclear. One involving Cairn Energy, in which the company has claimed substantial damages, is particularly pertinent.
The point of arbitration and of bilateral investment treaties is to provide succour and security to good-faith investors. As the Indian government seeks to scale up international investment in its effort to push its ‘Make in India’ programme, creating policy and tax certainty should be central to its agenda. Actions such as outright cancellation of contracts for political reasons go against the spirit of this effort. Investors will also be concerned that the Indian government is in the process of renegotiating several of bilateral investment treaties in a manner that leaves them with no recourse to international arbitration on taxation matters. The government should not respond to this adverse decision by doubling down on its attempts to avoid international arbitration. There is much rethinking thus for the government to do on three grounds. It should conclude project contracts and frame bilateral treaties carefully so that honouring them does not become a political risk; it should examine its current cases, and see whether there are grounds for settling; and it should re-examine its approach to bilateral investment treaties.
