Bilateral Investment Treaties : Devas Impact – UPSC GS3

What is the Devas issue?
Read Antrix-Devas Case Notes in GS3 – Technology
SC Verdict on Devas Case:
  • SC has confirmed that Devas was created for fraudulent purposes.
  • It neither had the technology nor IP rights when entering into the agreement with Antrix.
  • The court has also held that Devas did not obtain a license for the intended purpose, and Devas shareholders are guilty of this fraudulent conduct of business.
What will be the impact of SC’s judgment?
  • Devas’s domestic award pending challenge before the Delhi high court will now be set aside.
  • However, foreign awards are enforced under the laws of the country where the assets of the debtor are situated.
  • The enforcement of foreign arbitral awards is codified in the 1958 UN Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). India has also ratified the convention but with the condition.
Why India needs to amend its investment treaties?
  • Indian courts have found BIT awards are not strictly commercial but arise from sovereign guarantees. This is what helps the BIT award holders to target Indian assets overseas. For example, Devas’s foreign shareholders claim Indian assets abroad, citing their bilateral investment treaty (BIT) awards.
  • A Canadian court recently ordered the seizure of Air India and Airports Authority of India funds. Similarly, French court ordered the freezing of Indian assets.
  • According to government the Devas-Antrix deal was a fraud carried out under previous government, but this will not protect India’s foreign assets against BIT awards.
  • Also, calling investment fraud post facto doesn’t go well with India’s efforts to attract foreign investments.
  • Timing of the petition by Antrix and seeking findings of fraud after 10 years of termination of agreement raise questions. It will keep investors guessing if their investments will be called into question with a change in government.
Why interference of courts is not a viable option to resolve disputes?
  • Interference of courts can be defended only on the basis of provisions of the convention and enforcement of foreign awards can only be refused in very limited circumstances. For example, when it is contrary to public policy or if the underlying dispute is incapable of settlement by arbitration under the laws of the country where enforcement is sought.
  • SC has called Devas case a fraud which is in conflict with the “public policy of any country”. But it may not help, as “public policy” varies from country to country.
  • Indian law says that serious allegations of fraud cannot be settled through arbitration. However, it is not a universal law. For example, England has limited this exception to cases where the fraud relates directly to the arbitral agreement and not the transaction in general.
Way Forward:
GoI should amend the Arbitration and Conciliation Act to clarify that BIT awards shall be treated as commercial under Indian laws and be enforced in India.

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