India’s poor compliance with investment awards

The decision of the Canadian court sullies India’s reputation globally as an attractive investment destination and spooks foreign investors

The roller-coaster ride of the interminable Devas saga continues. In the latest twist, Canadian courts have permitted the attachment of Air India’s assets on the plea of foreign shareholders of Devas Multimedia. The order seizing assets of Airports Authority of India has been set aside. These investors are trying to recover more than $1.1 billion that India owes them under the bilateral investment treaty (BIT) arbitration award, which the government has not complied with.

Since 2011, approximately 20 BIT arbitrations have been initiated against India before different investor-State dispute settlement (ISDS) tribunals (Shutterstock)

The Devas story started in 2005. Devas Multimedia signed an agreement with Antrix — a commercial arm of the Indian Space Research Organisation (ISRO) — to provide multimedia services, using leased S-band satellite spectrum to be provided by Antrix. In 2011, the United Progressive Alliance (UPA) government hastily annulled this agreement on the ground that it needed the S-band satellite spectrum for national security and other societal purposes. The unofficial reason to abrogate the deal was that the government got cold feet when allegations of corruption in the Devas deal started flying thick and fast.

This abrupt annulment triggered several legal disputes internationally. India spent a massive amount of money and resources defending these claims but to no avail. India lost all the cases, both commercial and treaty-based arbitration. Yet, India continued to brazen it out — launching an investigation against Devas, leading to an order to liquidate the company by the National Company Law Tribunal, and refusing to comply with the BIT awards.

The decision of the Canadian court sullies India’s reputation globally as an attractive investment destination and spooks foreign investors. As Devas investors chase assets, owned by India’s public sector undertakings (PSUs) in multiple jurisdictions, this is an appropriate occasion to step back and ask the larger question of how India fares when it comes to State compliance with BIT awards.

The short answer is that India’s record is abysmal. Since 2011, approximately 20 BIT arbitrations have been initiated against India before different investor-State dispute settlement (ISDS) tribunals. From the data publicly available, an award has been rendered in nine cases. India has prevailed in three of these cases while losing six. The disputes that India lost include cases brought by leading global corporations such as Vodafone, Deutsche Telekom, Cairn Energy, and Nissan.

Most of these ISDS claims arose against India due to its capricious behaviour symptomatic of bad governance.

The Australian company, White Industries, sued India in 2010 because the Indian judiciary failed to get its act together in deciding on the enforceability of White’s commercial award against Coal India. The foreign shareholders of Devas and Deutsche Telekom initiated claims because the executive cancelled spectrum licences without following due process. Vodafone and Cairn Energy dragged India to BIT arbitration because the executive and the legislature, acting unpredictably, in 2012, amended the tax law retroactively, nullifying the decision of the Indian Supreme Court. Nissan took India to arbitration in 2016 because one of the state governments did not stand by the assurances provided to attract investments once the investors moved in.

The only instance when India promptly complied with an adverse ISDS award was in the case of White Industries. In the cases involving Vodafone and Cairn Energy, India dragged its feet at almost every stage of dispute adjudication. Initially, India refused to join the arbitration proceedings by failing to appoint an arbitrator. India wrongly argued that taxation matters cannot be arbitrated.

Specifically, in the case of the Cairn Energy arbitration, the president of the International Court of Justice had to intervene and order India to appoint an arbitrator. India also endeavoured to judicially injunct international tribunals from carrying on with the arbitration. When none of this worked, India rejected the Vodafone and Cairn Energy awards. This forced Cairn, like the Devas shareholders, to initiate legal proceedings to attach Indian assets in several jurisdictions. Finally, last year, after a lot of water had flown under the bridge, India corrected the blunder committed in 2012. It agreed to return the principal amount, not the interest, on the taxes collected.

While this has settled the cases with Vodafone and Cairn Energy, the critical point is India’s reluctance to accept that it amended the law to abide by its international law obligations. The undoing of the retroactive tax amendment was presented as a domestic legal reform to correct the slip-ups of the UPA-2 government. Internationally, India has stuck to its guns about taxation matters being outside the scope of BIT arbitration despite overwhelming evidence proving the contrary.

True, India is not the only country that has refused to comply with BIT awards. According to an empirical study published in the ICSID Review — a leading journal in international investment law — the following countries top the non-compliance list: Venezuela (12), Libya (6), Russia (4), Argentina (4), and Kyrgyzstan (3). Most of these countries are abysmally ranked in the World Justice Project’s Rule of Law index. India will surely not like to be clubbed with these countries internationally, and should reconsider its approach. The country’s global reputation, belief in rule of law and assets of India’s PSUs abroad are all too precious to be sacrificed at the altar of a few million dollars.

Prabhash Ranjan is professor and vice-dean, Jindal Global Law School, O P Jindal Global University

The views expressed are personal