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US court refuses to stay proceedings in NCLT to liquidate Devas Multimedia

The court of Western District of Washington in Seattle refused to stay the proceedings in a National Company Law Tribunal (NCLT) bench in Bengaluru in a March 29 order, despite issuing a temporary restraining order in the matter on February 24.

By: Express News Service | New Delhi |
Updated: April 2, 2021 7:56:36 am
Devas Multimedia and Antrix Corporation signed an agreement on January 28, 2005 for ISRO to lease two communication satellites for 12 years at a cost of Rs 167 crore to Devas Multimedia.

CITING THE need to preserve international comity, a US federal court has refused to impose a stay on proceedings initiated in India by Antrix Corporation – the ISRO’s commercial arm – to liquidate Devas Multimedia Pvt Ltd, which has been awarded a $1.2 billion compensation by an international arbitration forum over a failed 2005 satellite deal.

The court of Western District of Washington in Seattle refused to stay the proceedings in a National Company Law Tribunal (NCLT) bench in Bengaluru in a March 29 order, despite issuing a temporary restraining order in the matter on February 24.

Three foreign investors in Devas Multimedia, and US subsidiary Devas Multimedia America Inc, approached the US court expressing fears of Devas Multimedia entering an agreement with Antrix Corporation on compensation payment in the wake of the latter moving to liquidate the Bengaluru-headquartered Devas Multimedia in the NCLT.

“Although substantial evidence suggests that collusive conduct may be afoot, thereby frustrating this court’s interests in prevent[ing] vexatious or oppressive litigation in a foreign forum and in protect[ing] [its] jurisdiction, the court concludes that the interests in preserving international comity should carry great weight in this case,” US federal judge Thomas Zilly said in his order, refusing intervention in the proceedings in India.

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Earlier in a February 24 temporary order, the court had stated that Devas Multimedia and “its shareholders, directors, officers, agents, employees, and legal representatives, are prohibited from taking any action with respect to the award” of $ 1.2 billion confirmed by the US court in November 2020 “without first obtaining the approval of the court”.

Explained

Antrix-Devas deal that was scrapped

Devas Multimedia and Antrix Corporation signed an agreement on January 28, 2005 for ISRO to lease two communication satellites for 12 years at a cost of Rs 167 crore to Devas Multimedia. The deal was annulled by the UPA government in February 2011 in the backdrop of the 2G scam and allegations of a sweetheart deal in allocation of the S-band spectrum to Devas Multimedia.

The court has also allowed three foreign investors in Devas Multimedia – CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, Telecom Devas Mauritius Limited and Devas Multimedia America Inc – to intervene on behalf of Devas Multimedia in an appeal filed by Antrix Corporation against the confirmation of the $ 1.2 billion compensation award.

The foreign investors and the US subsidiary of Devas Multimedia moved US courts after reportedly learning that an effort was being made to abort the payment of the compensation by getting Devas Multimedia declared as a fraudulent entity. The foreign investors claimed that India’s Law Ministry has issued an ordinance amending the Indian Arbitration and Conciliation Act of 1996 to allow courts to stay an arbitration award if it is proven that an “arbitration agreement or contract which is the basis of the award… was induced or effected by fraud or corruption”.

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They claimed that the NCLT appointed a government official as “provisional liquidator” of Devas Multimedia following a plea by Antrix, which moved a liquidation plea after it was ordered to compensate for the failed 2005 satellite deal.

The US federal court stated that it issued a temporary restraining order on legal proceedings in India in February to prevent Devas Multimedia from being “unfairly liquidated” and that new briefings suggest that the intervenors of Devas Multimedia are actively participating in legal proceedings in India.

“The court is satisfied that intervenors’ participation in the proceedings in India may work to mitigate any threat of irreparable harm to them or petitioner. Further, in the event the award is set aside by the Supreme Court of India, respondent will still be required to file a motion in this court to vacate the confirmation order and judgment, and intervenors will have an opportunity to respond to any such motion,” judge Zilly stated. “Because the court concludes that intervenors have not sustained their burden to show a likelihood of irreparable harm in the absence of the injunctive relief they seek, and that international comity concerns counsel against a preliminary injunction, the court denies the motion for a preliminary injunction.”

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The US federal court also denied a motion moved by the NCLT appointed provisional liquidator M Jayakumar to intervene seeking a stay on proceedings in the US court.

Devas Multimedia and Antrix Corporation signed an agreement on January 28, 2005 for ISRO to lease two communication satellites for 12 years at a cost of Rs 167 crore to Devas Multimedia. The latter, a start-up firm, was to provide multimedia services to mobile platforms in India using the space band or S-band spectrum transponders on ISRO’s GSAT 6 and 6A satellites built at a cost of Rs 766 crore by ISRO. The deal was annulled by the UPA government in February 2011 in the backdrop of the 2G scam and allegations of a sweetheart deal in allocation of the S-band spectrum to Devas Multimedia.

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First published on: 02-04-2021 at 03:29:37 am
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