The legal battle between the foreign investors of Devas and the Indian State just got murkier. When many predicted that the Supreme Court decision in January allowing for the winding up of Devas on the ground of fraud would finally bring curtains down on this sordid legal battle, the foreign investors of Devas have tried to pull a rabbit out of the hat. They have issued a fresh notice of arbitration to India under the India-Mauritius bilateral investment treaty, earlier this month. Importantly, India unilaterally terminated the India-Mauritius BIT on March 22, 2017. However, as per Article 13(3) of BIT, in case of unilateral termination, the investment that was made before the termination will continue to enjoy treaty protection for the next 10 years.
The new BIT claim essentially attempts to implicate India for its undue efforts to frustrate the enforcement of a commercial arbitration award that Devas had won against the state entity, Antrix back in 2015. When Antrix annulled the contract with Devas citing force majeure in 2011, the latter initiated a commercial arbitration against the former under the rules of the International Chamber of Commerce. The ICC tribunal ruled in favour of Devas ordering Antrix to pay $562.5 million as damages for wrongfully repudiating the contract. An American district court, in late 2020, dismissing all the contentions of Antrix, confirmed the 2015 commercial arbitral award in favour of Devas.
Devas’ principal claim now is that India has unlawfully expropriated its investment through the liquidation of Devas and its takeover by the liquidator, which, in turn, has not allowed the enforcement of the ICC award, which is Devas’ largest asset.
The ghost of white industries returns
The fresh BIT claim by Devas brings back the awful memories of a decade-old BIT case – White Industries v India – that triggered a complete overhaul of India’s approach towards BIT arbitration or investment treaty-based arbitration. Although the facts of the Devas case are different from the White Industries case, there is an uncanny similarity of non-enforcement of an ICC award, that has resurrected the ghost of White Industries. The White Industries case also involved the enforcement of an ICC award that White had obtained against Coal India, a state entity. But, the enforcement faced an inordinate delay with the matter gathering dust in the judicial files for over nine years. This led White to sue India under the India-Australia BIT. The BIT arbitration tribunal found India to be in breach of its international law obligations for failing to provide the investor “the effective means of asserting claims and enforcing investors’ rights”. The tribunal ordered India to compensate the investor.
In the BIT universe, there are several other examples of foreign investors successfully using treaty-based arbitration to hold countries accountable for their failure to enforce commercial awards. For instance, in a case initiated by Saipem, an Italian company, in 2009, an ICSID tribunal, under the Italy- Bangladesh BIT, found Bangladesh liable for ‘judicial expropriation’ due to the unwarranted annulment of an ICC arbitral award by the Supreme Court of Bangladesh to help Bangladeshi state petroleum company evading the payment of a commercial award. Likewise, in another case, Desert Line v Yemen, the State was held liable for coercing the investor to enter into a settlement, after the investor had obtained a favourable commercial arbitration award.
The ‘crossover’ remedy
Since these BIT cases essentially involve using an investment treaty-based arbitration, beyond the commercial arbitration regime, to enforce commercial arbitral awards and hold to account the recalcitrant actions of a domestic court (or the respondent state entity), critics label it as a ‘crossover’ phenomenon. Interestingly, the monetary compensation in those awards was much the same as the value of the original commercial arbitration awards, causing it to be called an appellate mechanism to enforce such awards.
The idea of a ‘crossover’ remedy to enforce commercial arbitration has also been recognised in the jurisprudence of the European Court of Human Rights, under which an award is considered as a property, and any illegitimate interference with an award can be held to be a violation of the right to property. However, unlike the property characterisation of an award, qualifying it as a protected investment under the BIT may prove problematic for the foreign investor because of a missing link between the original investment (i.e., the contract) and the dispute at hand.
As the existing arbitral practice suggests, treaty tribunals are reluctant to hold that a commercial arbitration award in and of itself constitutes a protected investment.
Yet, some arbitral tribunals accepted a view that “the ICC award crystallised the rights and obligations under the original contract, and thus constitute an investment” within the meaning of protected investment under the relevant BIT. Such a view is not indefensible considering the asset-based definition of investment under the India – Mauritius BIT that covers “claims to money, or any performance under contract having an economic value” among other things. Nevertheless, uncertainty persists over state liability in such circumstances, due to inconsistent treaty awards. Therefore, Devas’ claim is not as straightforward as it may appear.
India, on its part, can mount an argument of ‘illegality’ to challenge the jurisdiction of a BIT arbitration tribunal. Article 1(1) of the India – Mauritius BIT provides that “investment means every kind of asset established or acquired under the relevant laws and regulations of the Contracting Party in whose territory the investment is made.” In simple terms, this provision means that India has given its consent for BIT arbitration only for those foreign investments that have been made lawfully. Relying on the Supreme Court judgment, India can argue that since Devas was incorporated for fraudulent purposes, the investment was not lawful. This will be a strong argument. As the Supreme Court held in the Devas case: “if the seeds of the commercial relationship between Antrix and Devas were a product of fraud perpetrated by Devas, every part of the plant that grew out of those seeds, such as the agreement, the disputes, arbitral awards, etc., are all infected with the poison of fraud. A product of fraud is in conflict with the public policy of any country including India.”
To fortify its case, India should also strive to expeditiously complete its ongoing criminal investigations into the matter to establish criminal culpability.
In sum, one will have to wait and see, the future pathway that this case takes. However, one thing is certain, the last word on this saga is yet to be said. BloombergQuint