Setting aside of Arbitral award on the ground of patent illegality
Delhi High
Court has settled the legality of Antrix-- Devas Deal
The petition bearing no. OMP (Comm) 11 of
2011 captioned as Antrix Corporation Ltd
Vs Devas Multimedia Pvt Ltd, under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the Act) Antrix Corporation
Ltd ( In short “Antrix”) had prayed
for setting aside of the Arbitral award dated 14.09.2015 passed by the Arbitral
Tribunal constituted by the International
Chamber of Commerce allowing the claim of the Respondent – Devas Multimedia
Private Limited (In short “Devas”). The Delhi High Court was pleased to set aside the
arbitral award on the ground of patent illegality and against public policy of
India.
The gravamen of the case is that Antrix sought winding up of Devas under
Section 271(c) read with Section 272(1)(e) of the Companies Act, 2013 before
the National Company Law Tribunal (In short “NCLT‟) alleging that Devas was formed for a fraudulent and
unlawful purpose and its affairs had been conducted in a fraudulent manner. A Provisional
Liquidator was appointed by the NCLT on 19.01.2021, and by final order dated
25.05.2021 NCLT allowed winding up of “Devas”. The appeal was preferred by the
“Devas” before National Company Law Appellate Tribunal (In short “NCLAT”) and
the NCLAT had dismissed the appeal. The further appeal preferred by “Devas” including
by Devas Employees Mauritius Pvt. Ltd (DEMPL) against the order passed by
NCLAT, before hon’ble Supreme Court and the appeal before hon’ble Supreme Court
was also dismissed.
The present write up relates to the
challenge to arbitral award pronounced by Arbitral Tribunal. Contextually, though,
the orders passed by NCLT and NCLAT and Supreme Court in relation thereto are
significant. In view of winding of order having attained finality, “Devas” was
represented by official liquidator before the hon’ble High court in the
petition u/s 34 of Arbitration & Conciliation Act 1996. Devas Employees
Mauritius Pvt. Ltd (DEMPL) was permitted to oppose the petition as it was
alleged that official liquidator had not been adequately taking care of their
interest.
The above is the just the periphery of
broad canvas.
By the Impugned award dated 14.09.2015,
the Arbitral Tribunal has held that the termination of the Contract on the part
of Antrix amounted to wrongful
repudiation of the contract and accordingly Article 7(b) of the contract did
not limit “Devas” entitlement to alleged damages that it suffered by reason of “Antrix‟s repudiation of the “Devas Agreement”.
The Tribunal thus directed Antrix to
pay US$ 562.2 Million to “Devas” besides interest.
The High Court has held that the Judgments
passed by the National Company Law Tribunal dated 25.05.2021, National Company
Law Appellate Tribunal dated 08.09.2021 and the Supreme Court of India dated 17.01.2022
are significant. The principles of res
judicata and issue estopple are
worth noting. Under Section 57 of the Evidence Act, 1872, Courts have to take
judicial notice of all laws in force in the territory of India. The Judgment of
the Supreme Court of India has the force of law in terms of Article 141 of the
Constitution of India.
The history of case in NCLT &
NCLAT
It is a matter of record that Antrix sought winding up of “Devas”
under Section 271(c) read with Section 272(1)(e) of the Companies Act, 2013
before the NCLT alleging that “Devas” was formed for a fraudulent and
unlawful purpose and its affairs had been conducted in a fraudulent manner. The
NCLT vide its judgment dated 25.05.2021, while allowing the petition seeking
winding up of “Devas” specifically noticed the fraudulent activities on the
part of “Devas” and it is further held that the incorporation of “Devas” itself
was with fraudulent intention to grab prestigious contract in question from Antrix in connivance and collusion with
the then officials of Antrix. It
noticed that “Devas” was incorporated
on 17th December, 2004 and was able to obtain the Contract on 28th
January, 2005 in less than 45 days from the date of its inception. NCLT held
that it is a matter of fundamental economics, rather common sense that in order
to obtain a prestigious, sophisticated contract like the contract in question,
the concerned Company should possess adequate experience and infrastructure in
the field for a considerable period of time. The NCLT noticed that it was not
in dispute that “Devas”, at the time of entering into the contract, did not
possess the minimum experience even to qualify to participate in such a
contract, much less obtain it. It is further held that it had falsely contended
that it has experienced Scientists/Technical experts to get sophisticated
technology as were required to provide in terms of Contract in question. NCLT
was of the view that same was possible only with direct collusion and
connivance with the then officials of Antrix.
FACTual Matrix
It is noticed that Union of India came to
know about the fraud only in the year 2016, when the CBI investigated the issue
and thereafter initiated various proceedings by invoking various provisions of
Indian Penal Code, Prevention of Money Laundering Act, Foreign Exchange
Management Act etc., against “Devas”, its officials, and the then officials of
Antrix.In the face of long history of fraud, it is held by NCLT that fraud is
committed by “Devas” and its Management before and after its incorporation and
that “Devas” brought Rs. 589 crores into India, without doing any worthwhile
service/business in India and has siphoned off/diverted that money out of the
Country. except less than Rs. 100 Cr. under various heads in India. It also
noticed that World Space India Private
Ltd, which was alleged to be subsidiary of Devas, as some of its Directors
were working in that Company to render required technical service to “Devas”,
was incorporated on 05.06.1998. However, its name was struck off from Registrar
of Companies as it had failed to file the balance sheet and Annual returns for
the year 2007 – 08. Even the idea to incorporate “Devas” was with fraudulent
intentions coupled with mala fide
objects to enter into Agreement with “Antrix”
with no responsibility at all. It held that such a prestigious agreement with
Government Owned Company was got signed by a clerk, paying remuneration for the
same. It held that the Agreement itself would become void ab-initio and
would not create any legal rights, much civil rights to “Devas”. It held that
the unlawful object of “Devas” was to bring foreign funds into India and then
siphon off the same by diverting those funds to foreign countries, into dubious
accounts. Further, it did not have any commercial antecedent to enter into such
prestigious. The NCLT had also referred to the statement of financial position
and working results of Devas from 2010-11 to 2018-19. It has noticed that as
per Balance Sheets and Annual Reports filed with Registrar of Companies,
Karnataka, revenue (sale of services) for the years 2011 to 2014 are a mere Rs.
79,115/-, Rs. 58,429/-, RS. 36,489/- and Rs. 7,566/- respectively and Nil
for the years 2015 to 2019. Its fixed assets were negligible and totally nil
for the years 2018 – 19. Both Devas and DEMPL impugned the Judgment dated
13.11.2020 of the NCLT before the NCLAT. Both the members of the Bench of NCLAT
dismissed the appeals but rendered separate concurrent judgments both dated
08.09.2021.
PRELUDE TO ARBITRATION
It
may be noted that Antrix
is a Central Government Public Sector Enterprise and Government Company
incorporated under the Companies Act 1956 and is engaged, inter alia, in
the business of marketing and sale of products and services of Indian Space
Research Organisation (“ISRO”) to National and International customers. The
“Devas” is a limited liability company incorporated on 17.12.2004 under the
Companies Act 1956. The Contract was executed between Antrix and “Devas” only and neither the Department of Space- nor
ISRO nor any other governmental agency was a party to the Contract. As per the
contract executed on 28.01.2005, Antrix
was 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 return, “Devas” agreed to pay
to “Antrix” Upfront Capacity Reservation Fees (In short “UCRF”)
of US$ 20 Million per satellite, and lease fees of US$ 9 Million to US$ 11.25
Million per annum. The lease term was twelve years, with a right of renewal at
reasonable lease fees for a further twelve years.
In February 2011, the Cabinet Committee on Security took the
decision to deny orbital slot in S-band to Antrix
for any commercial activities and to annul the Contract. Pursuant, to the
decision of the Cabinet Committee on Security, on 23.02.2011, the Department Of
Space directed the Petitioner “Antrix” to notify the Respondent of the decision
of the Government of India regarding the termination of the Contract. The Antrix accordingly notified “Devas” on
25.02.2011 that the Contract was terminated inter alia citing Article 11
and Article 7(c) of the Contract. Post the termination by letter dated
25.02.2011, Antrix by its letter
dated 15.04.2011 tendered the UCRF that had been received from “Devas”.
However, “Devas” refused to accept the termination and instead claimed specific
performance of the contract and in the alternative claimed damages to the tune
of US$ 1.6 Billion.
The “Devas” had preferred a request for Arbitration dated
29.06.2011 with the International Court of Arbitration of the International
Chamber of Commerce (ICC Court) relying upon the ICC rules.
CONTENTION OF “DEVAS” before
Arbitral Tribunal
(1) Antrix was not entitled to terminate the
agreement under Article 7(c). It contended that Antrix was able to - and did - obtain the necessary
frequency and orbital slot coordination required for operating PS1, so Article
7(c) could not apply.
(2) Antrix was not entitled to rely on Article 11 (Force
Majeure) as the decision of the CCS to annul the agreement was not an “act
of or failure to act by any governmental authority acting in its sovereign
capacity” within the meaning of Article 11(b). It was contended that the CCS
decision was brought about by, and is otherwise attributable to Antrix‟s Own or its parent‟s actions.
(3) Antrix instigated the alleged Force Majeure Event, and thus it was not
beyond the reasonable control of Antrix within the meaning of Article 11(b). Moreover,
Antrix did not make all efforts to prevent it or mitigate its effects as
required by Article 11(b). The Article 11 permitted, the Unaffected Party
(Devas) to terminate the agreement in light of Force Majeure Events, not the
Affected Party (Antrix).
CONTENTION OF
“ANTRIX” before Arbitral Tribunal
(1) Even if it was not entitled to terminate
the agreement pursuant to Articles 7(c) or 11 of the contract, the decision of
the CCS rendered the agreement impossible to perform and therefore void under
section 56 of the Indian Contracts Act.
FINDING OF TRIBUNAL
The tribunal held that Antrix
was not entitled to terminate the Contract under Article 11 of the Contract and
also that Section 56 of the Contract Act did not apply and so it did not render
the contract void. Consequently, it held that the letter of Antrix dated 25.02.2011 notifying Devas
that the Contract was terminated inter alia citing Article 11 and
Article 7(c) of the Contract was wrongful repudiation of the Contract. It
further held that the limitation of liability clauses can apply to repudiatory
breaches, even if they do not refer to repudiation expressly. However, it held
that the parties‟ intention was to ensure that they did not
terminate the agreement in the event of any breach of, or disputes concerning
the agreement. Rather, the parties were to make all attempts to resolve their
differences and ensure that the agreement remained on foot. It held that
construing Article 7(b) so that it permitted Antrix to refuse to perform the agreement at will without
discussion or negotiations with Devas, and without incurring any liability for
Devas‟ loss or damage, would be entirely
contrary to that intention.
In the impugned Award, it is specified that there are a
limited number of available radio frequencies in the world, which are known by
names such as C, extended C band, Ku. and S-band. As radio
frequencies do not stop at national boundaries, governments have sought to
regulate their allocation through the International Telecommunications Union
(ITU), an agency of the United Nations.
The ITU is responsible for allocating available spectrum amongst its
member States. Once, it has allocated spectrum to a State, that State is then
free to distribute the spectrum in accordance with its national laws. In early
1970s, ITU had allocated the use of part of the S-band radio frequency in India to the Government of India and
Government of India allocated the right to use S-band in India to the
Department of Space. India had been allocated a total of 190 MHz of capacity by
ITU in the portion of the S-band encompassing frequencies between 2500 MHz and
2690 MHz. Pursuant to its national planning and to satisfy its national
requirements, India, internally, allocated the 190 MHz that had been identified
by the ITU. It allocated 110 MHz; (in frequencies 2500 – 2555 MHz for uplink,
i.e., earth-to-space transmissions, and 2635 - 2690 MHz for downlink, i.e.,
space-to-earth transmissions) for mobile satellite services (MSS), which are
services that permit two way communications. India allocated the remainder, in
frequencies 2555-2635 MHz, for downlink only and only for broadcast satellite,
services (BSS, i.e., the transmission of one-way signals from the satellite to
earth to multiple recipients, all of which can receive the signals provided
that they have the necessary antenna).
It is a known fact that India‟s space program, the S–MSS frequencies were utilised solely
for non-commercial, national strategic and societal purposes, including, for
example, military communications and educational and medical interactions. The
S –BSS band has been used only for non-commercial national interest purposes,
including by the national television corporation, Doordarshan / Prasar Bharati,
the national radio corporation. All India Radio, national weather forecasting
and national emergency warnings and communications. In the early 2000s, 40 MHz
of the S-MSS capacity (frequency ranges 2535-2555 MHz and 2635-2655 MHz) were
assigned by the Government for use in the terrestrial telecommunications
industry,
leaving 80 MHz of S-BSS and 70 MHz of S-MSS capacity for
satellite services. Devas
contended before the Tribunal that Antrix
did not have the right to terminate the Contract pursuant to Article 7(c) of
the Contract. Article 7(c) stipulates that Antrix
may terminate the Agreement in the event Antrix
is unable to obtain the necessary frequency and orbital slot coordination
required for operating PS1. As per “Devas” Antrix
was able to and did obtain the necessary frequency and orbital slot
coordination required for operating Primary Satellite I (PS1). The Tribunal has
held that Antrix was not required to
apply for frequency and orbital slot clearance from the Cabinet Committee on
Security (CCS) and thus it could not rely upon the CCS decision alone in order
to terminate the agreement pursuant to Article 7(c). The Tribunal further held
that even if the CCS‟ decision had the effect of annulling any
necessary clearance or approval that Antrix
had obtained, that would not be sufficient to enliven Article 7(c) as what was
required was “inability to obtain‟a relevant clearance
and not “inability to retain‟a clearance.
FINDING
OF THE HIGH COURT
The Delhi High court has held that Tribunal thus clearly
misdirected itself in rejecting the evidence of pre-contractual negotiations.
In arriving at its interpretation of Article 7 the Tribunal incorrectly
excluded from consideration the evidence of pre-contractual negotiations. Said
interpretation is clearly contrary to the intention of the parties as is
evident from the evidence that has been wrongly excluded by the Tribunal. The
Tribunal has held Antrix to liable on
the ground that it committed a material breach of the Agreement. It is held
that Tribunal has committed a patent illegality as the finding returned is
contrary to several findings returned by the Tribunal itself in this very
award. Detailing further, the Delhi High Court has held that while on the one
hand the Tribunal holds that the decision of the Cabinet Committee on Security
(CCS) to annul the contract was an act of a governmental authority acting in
a sovereign capacity and thus amounted to a Force Majeure event as
contemplated by the contract, still, the tribunal goes on to hold that Antrix is liable for wrongful
termination.
The High Court has held that once again a patent illegality
has been committed by the Tribunal as this finding is complete contrary to the
other finding returned by the Tribunal and as such cannot be accepted. There is
no dispute to the material placed by Antrix
with regard to the decision of the Department of Space as well as the
Cabinet Committee on Security. On the one hand the Tribunal rejected the
contention of “Devas” to disregard Antrix‟s distinct legal entity merely because it
was the government’s marketing arm or performed commercial
activities for government benefit and it also rejected the contention that Antrix itself instigated the Force
Majeure Event. However, on the other hand holds the CCS decision was beyond
Antrix‟s control once it was made but it could
have prevented the CCS from receiving a proposal to annul the Contract.
According to Delhi High Court the Tribunal has returned a perverse finding that “Further, since Dr Radhakrishnan (acting in his capacity as Chairman of Antrix) could have prevented the CCS from being asked to annul the agreement, Antrix could have effectively prevented the CCS from making that decision, which means that the CCS‟ decision was not beyond Antrix‟s reasonable control.”On the one hand the Tribunal holds that Dr. Radhakrishnan was not acting in his capacity as Chairman of Antrix and was acting in his capacity as Secretary of the Department of Space and/or Chairman of ISRO or the Space Commission on the other holds that he could have prevented CCS from taking the decision to annul the contract, if he had acted in his capacity as Chairman of Antrix. What the Tribunal is holding is that Dr. Radhakrishanan should have held back sensitive material pertaining to the security of the state from the CCS. As noticed hereinabove the Cabinet Committee on Security, comprised of the Prime Minister, the Minister of Defence, the Minister of Home Affairs, the Minister of External Affairs and the Minister of Finance and is the highest authority within India for matters relating to internal and external security and defence. The decision of the CCS is premised on the fact that there has been an increased demand for allocation of spectrum for national needs, including for the needs of defence, para-military forces, railways and other public utility services as well as for societal needs, and having regard to the needs of the country‟s strategic requirements. This decision has been recognised by the Tribunal as a decision taken by a government authority acting in its sovereign capacity. Returning these erroneous perverse findings, the Tribunal further goes on to hold that the termination on the part of Antrix amounts to a repudiatory breach on its part.The Supreme Court of India in HPA International v. Bhagwandas Fateh Chand Daswani, (2004) 6 SCC 537 referred to the observations of Lord Reid in the House of Lords‟ decision in Suisse Atlantique [Suisse AtlantiqueSociétéD‟Armement Maritime S.A. v. N.V. RotterdamscheKolen Centrale, (1966) 2 All ER 61:(1967) 1 AC 361 (HL)]: (All ER pp. 70 I – 71 A) “I think that it would be open to the arbitrators to find that the respondents had committed a fundamental or repudiatory breach. One way of looking at the matter would be to ask whether the party in breach has by his breach produced a situation fundamentally different from anything which the parties could as reasonable men have contemplated when the contract was made. Then one would have to ask not only what had already happened but also what was likely to happen in future. And there the fact that the breach was deliberate might be of great importance.” As noticed from Article 7(c) of the Contract parties had in their contemplation that Antrix had to obtain the orbital slot coordination and the CCS decided not to grant the orbital slot coordination to Antrix. Tribunal has held that the decision of the CCS in declining the grant of orbital slot to Antrix was a decision of a governmental authority in exercise of its sovereign function and amounted to a Force Majeure event and covered under article 11(b). Thus it could not have held that the alleged breach on the part of Antrix was deliberate.Further, the award suffers from patent illegality as the Tribunal had overlooked the provisions of Article 25 of the Contract that stipulates that the Agreement shall not be binding on DEVAS or ANTRIX until and unless ANTRIX receives all the requisite governmental and other regulatory approvals. Including those referred to in this Agreement. Admittedly. Antrix did not receive the orbital slot in S-band, which was a prerequisite for the provision of the “Devas” services. The High Court has held that the Judgments passed by the National Company Law Tribunal dated 25.05.2021, National Company Law Appellate Tribunal dated 08.09.2021 and the Supreme Court of India dated 17.01.2022 are significant. The principles of res judicata and issue estopple are worth noting. Under Section 57 of the Evidence Act, 1872, Courts have to take judicial notice of all laws in force in the territory of India. The Judgment of the Supreme Court of India has the force of law in terms of Article 141 of the Constitution of India.
