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Fallout of the Antrix-Devas deal: Setback at The Hague, and the long, (probably) expensive trip ahead

What is the deal that India signed over a decade ago, chose to unilaterally scrap, and is as a result now being forced to defend itself in international Tribunals?

Written by Amitabh Sinha | Published: July 28, 2016 12:02 am
Devas, Antrix, Antrix devas deal, latest, isro latest news, devas deal, antrix deal, Permanent Court of Arbitration, India news Despite ISRO’s successes in launching satellites for other countries, Antrix’s profits are small compared to the damages. (Source: ISRO)

After a Rs 4,400 cr compensation bill last year, the Indian government has just been slapped with a fresh liability of what could be an even bigger amount. What is the deal that India signed over a decade ago, chose to unilaterally scrap, and is as a result now being forced to defend itself in international Tribunals? AMITABH SINHA explains.

What exactly has happened at The Hague on the case arising out of India cancelling its 2005 deal with Bengaluru-based Devas Multimedia on leasing out transponder space on its satellites?

It’s a long-running case, with several aspects and components. On July 26, an Arbitration Tribunal based in The Hague, Netherlands, ruled that the Indian government was liable to pay damages to Mauritius-based investors of Devas Multimedia, which had, in 2005, entered into an agreement with Antrix Corporation, the commercial arm of Indian Space Research Organisation (ISRO), to lease almost the entire transponder space on two of its satellites, and nearly half of the S-band spectrum under its control. Six years later, however, the government unilaterally cancelled the deal, and subsequently, the aggrieved parties went to court. Arbitration proceedings as provided for in the contract were also initiated. One of these proceedings resulted in a ruling in September 2015, when the International Court of Arbitration asked India to pay Devas Multimedia $ 672 million — nearly Rs 4,400 crore at that time — in damages for violating the terms of the 2005 contract. The second setback on Tuesday came on a separate claim for damages filed by the Mauritius-based CC/Devas (Mauritius) Ltd, one of the three companies that had invested in Devas Multimedia. The other two were Telecom Devas Mauritius Ltd, another Mauritius-based company, and Deutsche Telekom Asia Pte Ltd. Deutsche Telekom has made a separate plea for damages, which is yet to be decided.

What did CC/Devas (Mauritius) Ltd argue before the Arbitration Tribunal?

CC/Devas claimed that the Indian government’s termination of the ISRO-Devas agreement of 2005 had violated the India-Mauritius Bilateral Investment Promotion and Protection Agreement (BIPA), under which New Delhi was obligated to provide “fair and equal treatment” to Mauritius-based companies. In a statement issued on Tuesday, ISRO said the Arbitration panel had held that compensation, or damages, that the government was liable to pay in this case would be “limited to (only) 40 per cent of the value of the investment” by the shareholding company. The statement also said the Tribunal had dismissed the claims of the shareholding companies with regard to violations of “other provisions of the treaty” (BIPA), which included unreasonable or discriminatory measures (against the company) and violation of Most Favoured Nation treatment. It indicated that the award may be challenged: “The Government of India reiterates that it had invoked the essential security interests through a well-reasoned, valid and proper CCS (Cabinet Committee on Security) decision. The award of the Tribunal is being examined and legal recourse, as deemed fit, will be taken.” Antrix has already challenged the earlier award of Rs 4,400 crore in an Indian court, where the matter remains pending.

So what is the worst case scenario for Antrix and the government (which owns the company fully) in terms of potential cash payouts?

It is pretty bad. In 2014-15, Antrix reported a 17% growth in revenue, and a profit of Rs 205 crore, many times less than the September 2015 Tribunal Award in favour of Devas Multimedia. The Tribunal Award also provided for a payment of interest at the rate of 18% per annum until the full payment was made. In this week’s case, even 40% of the investment made by CC/Devas, which ISRO says it is liable to pay, could add up to over a billion dollars (over Rs 6,700 crore today), depending on how the investment is calculated. One way in which the company might want to calculate its investment could be in terms of the value of the S-band spectrum that Devas was supposed to get under the contract, sources said. And Deutsche Telekom too is learnt to have claimed more than a billion dollars.

But how did things come to this pass? Why was the deal with Devas scrapped to begin with?

Okay, so first, the agreement itself. In 2005, Antrix Corporation, the government-owned company that acts as the commercial arm of ISRO, signed an agreement with Devas Multimedia for a 12-year lease of 90% transponder space on two of its satellites, G-SAT6 and G-SAT6A, that were yet to be launched then. Also, of the 150 MHz space ISRO owned in the S-band spectrum (used for radar and satellite communications), Devas was allowed the use of 70 MHz to launch satellite-based applications on mobile devices. Devas, which had a few former ISRO scientists in its top management, was supposed to pay $ 300 million to Antrix over the 12-year period.The agreement sought to give first-mover advantage to Devas in the satellite telephony market. Satellite-based mobile services have a big advantage over terrestrial services because they do not require communication towers. Since signals are returned from the satellite in space, they are equally strong everywhere on land. Non-coverage and broken signals are non-issues. But satellite phones are expensive and currently available only to strategic or military users — it was Devas’s promise to make these services affordable for everyone.

Right, and then what went wrong afterward?

The agreement became publicly known in June 2010, after it was reported that ISRO had appointed a one-man internal committee to have a re-look at it. By that time, K Radhakrishnan had taken over as chairman of ISRO following the retirement of G Madhavan Nair in October 2009. Nair had been chairman in 2005, when the agreement was signed. The first whiff of scandal came in February 2011, when The Hindu reported the findings of a draft audit report that had pointed out serious irregularities in the agreement, including financial mismanagement, conflict of interest, non-compliance of rules, and favouritism. With the alleged 2G spectrum scam still unfolding, the Devas agreement, involving a different kind of spectrum, became yet another corruption talking point. ISRO, meanwhile, had already decided to annul the agreement, the matter having been discussed at a meeting of the Space Commission in July 2010. The actual announcement of the termination, however, was made in February 2011 after a meeting of the UPA government’s CCS, held a day after the contents of the draft report by the Comptroller and Auditor General of India (CAG) came to light. ISRO chief Radhakrishnan said the agreement was cancelled because the S-band, a scarce resource, was needed for larger “national and strategic” purposes. An ISRO note later said circumstances had undergone a “sea change” since 2005, and in subsequent years the demand for S-band spectrum had grown manifold. The CAG report, which was tabled in Parliament in May 2012, called the Antrix-Devas deal “a classic instance of failure of the governance structure in which selected individuals, some serving and some retired public servants, were able to successfully propel the agenda of a private entity by arrogating unto themselves, powers which they were not legitimately authorised to exercise”.

But doesn’t all this sound a little too simplistic?

There was clearly more to the cancellation than the increased requirement for S-band spectrum — which became evident in several investigations. Two committees, one headed by former Cabinet Secretary B K Chaturvedi, and another by former Central Vigilance Commissioner Pratyush Sinha, were appointed to examine the processes that were followed, and fix responsibility for lapses, if any. Both panels found procedural lapses, lack of transparency, and unjustified risk-taking in finalising the agreement. But neither committee suggested a quid pro quo between ISRO and Devas. The Chaturvedi committee rejected allegations that the agreement would have led to losses to the exchequer. An investigation under the Companies Act was launched against Devas, which, meanwhile, had approached the courts seeking damages for cancellation of the agreement. In 2015, the Central Bureau of Investigation registered a case against two Devas officials, former chairman M G Chandrasekhar and CEO R Viswanathan, and the former head of Antrix Corporation, K R Sridhar Murthi, for causing wrongful gains of Rs 578 crore to Devas. The statement issued by ISRO after the Tribunal’s decision on Tuesday also mentioned the show-cause notice issued by the Enforcement Directorate to Devas earlier this year for violation of the Foreign Exchange Management Act of 1999, as well as the CBI FIR alleging corruption. CBI has already examined the two former chairmen of ISRO, the distinguished space scientists G Madhavan Nair and K Radhakrishnan, in connection with the case.

And what has been the fallout of this whole business?

It is probably the most serious crisis that the widely respected ISRO has ever faced. Only once before has it been in a public scandal, when two senior scientists were accused, in 1994, of espionage — falsely, as it later turned out. The careers of the scientists were wrecked, but as an organisation, ISRO remained unscathed. But this fiasco has exposed institutional failings in an organisation that is often cited as an example of professional excellence. In terms of individuals, the worst impacted have been Madhavan Nair, the then executive director of Antrix, K R Sridhar Murthi, former Scientific Secretary in ISRO, A Bhaskaranarayana, and former director in ISRO’s Satellite Centre, K N Shankara. In 2012, all four — all retired by then — were barred from any government position in future. Institutionally, Antrix got a full-time chairman-cum-managing director — the ISRO chief was also Antrix chief till then — the Satellite Communications and Navigations Programme Office was restructured into three separate wings, and a slot for a non-ISRO scientist was created in the Space Commission.

FIASCO

2005
Jan 28: Antrix, Devas sign deal

2009
Oct: Space Commission approves G-SAT6A; K Radhakrishnan takes over as ISRO chairman
Dec 8: ISRO constitutes B N Suresh committee to review agreement

2010
June 6: Suresh Committee submits report
July 2: Space Commission recommends termination of deal

2011
Feb, May: Government sets up B K Chaturvedi and Pratyush Sinha Committees

2012
Jan 13: Madhavan Nair, 3 others, barred from government jobs

2013
June: Arbitration begins; Devas claims $ 1.6 billion in damages

2015
Sept 29: Arbitration panel asks ISRO to pay Devas Rs 4,400 crore

2016
July 26: Tribunal rules India is liable to pay CC/Devas, an investor in Devas Multimedia, damages

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  1. PS Pradeep
    Jul 28, 2016 at 1:48 pm
    ONCE AGAIN THE TAX PAYERS ARE LOOTED WITH IMPUNITY
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    1. R
      RKD
      Jul 28, 2016 at 4:30 am
      Indian Government decision was 100% correct. UPA Gov should have grilled Ex-ISRO Chief Mr.G.Madhavan Nair in THIHAR and unmask the truth to public by now. Now who is responsible for getting adverse remark against Indian government from the foreign court. Still Mr.Nair is playing dirty game. Many scapegoats are in this deal. Mr.Nair is the main culprit. lt;br/gt;lt;br/gt;Why BJP gov not taking Ex-ISRO Chief into custody? Is JANA LOKPAL Bill required for that. Hope BJP Gov will take brave decision against all those criminal who made attempt for selling our country. We are confident on MODIji. Hope he will defend the case before appropriate court and save tax payers money. lt;br/gt;lt;br/gt;Please attach all ets of Ex-ISRO Chief Mr.G.Madhavan Nair and his agents. If BJP Gov is not taking Mr.Nair into custody AAP leader and Delhi Chief will score 100 % mark and he will sweep the country next election after highlighting these corruptions and pive atudes of BJP and UPA gov;. Act immediately. JAIHIND
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      1. S
        sreeram
        Jul 28, 2016 at 12:36 pm
        The real beneficiaries are Khangress and the money should be recovered from Khangress party funds.
        (0)(0)
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