CC/Devas v. India (I)

By writ of 12 February 2019, the Republic of India filed an appeal against the judgment that the District Court of The Hague had issued between the parties on 14 November 2018. In a Statement of Grievances accompanied by exhibits, the Republic of India submitted nine grievances. In the Statement of Defence, Devas et al. challenged the grievances.

On 20 June 2000, a bilateral investment treaty (hereinafter referred to as "the Treaty") between the Republic of India and the Republic of Mauritius (hereinafter referred to as the "Contracting Parties") entered into force. The Treaty's object is to promote investments by Mauritian investors in India and investments by Indian investors in Mauritius. Article 8 of the Treaty provides for arbitration to resolve disputes between an investor from one of the Contracting Parties and the other Contracting Party.

Article 1(1)(a) of the Treaty defines 'investment' as follows:

"investment" means every kind of asset established or acquired under the relevant laws and regulations of the Contracting Party in whose territory the investment is made, and in particular, though not exclusively, includes:

"(i) movable and immovable property as well as other rights in rem such as mortgages, liens or pledges;"

"(ii) shares, debentures and any other form of participation in a company;"

"(iii) claims to money, or to any performance under contract having an economic value;"

"(iv) intellectual property rights, goodwill, technical processes, know-how, copyrights, trade-marks, trade-names and patents in accordance with the relevant laws of the respective Contracting Parties;"

"(v) business concessions conferred by law or under contract, including any concession to search for, extract or exploit natural resources;"

Article 11(3) of the Treaty provides the following regarding "essential security interests'"-.

"The provisions of this Agreement shall not in any way limit the right of either Contracting Party to apply prohibitions or restrictions of any kind or take any other action which is directed to the protection of its essential security interests (...). "

CCS Decides to Annul Antrix-Devas Deal

Cabinet Committee on Security (CCS) has decided to annul the Antrix-Devas deal. Following is the statement made by the Law Minister (..) on the decision taken by the CCS which met in New Delhi today:

"Taking note cf the fact that Government policies with regard to allocation of spectrum have undergone a change in the last few years and 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, the Government will not be able to provide orbit slot in S band to Antrix for commercial activities, including for those which are the subject matter of existing contractual obligations for S band.

In light of this policy of not providing orbit slot in S Band to Antrix for commercial activities, the [Devas Contract, added by this Court] shall be annulled forthwith."

On 3 July 2012, Devas et al. brought arbitration proceedings against India under Article 8 of the Treaty (hereinafter referred to as "the Arbitration"). The place of arbitration was The Hague.

In a Partial Award of 25 July 2016 (hereinafter referred to as "the Partial Award"), the Tribunal ruled as follows:

"(i) Unanimously, that the Claimants' claims relate to an "investment" protected under the Treaty;"

(ii) Unanimously, that the notice of termination of the Devas Agreement sent by Antrix to Devas constituted an act of State attributable to the Responden

"(iii) By majority, that the Tribunal lacks jurisdiction over the Claimants' claims insofar as the Respondent's decision to annul the Devas Agreement was in part directed to the protection of the Respondent's essential security interests;"

"(iv) By majority, that the Respondent has expropriated the Claimants' investment insofar as the Respondent's decision to annul the Devas Agreement was in part motivated by considerations other than the protection of the Respondent's essential security interests;"

"(v) By majority, that the protection of essential security interests accounts for 60% of the Respondent's decision to annul the Devas Agreement, and that the compensation owed by the Respondent to the Claimants for the expropriation of their investment shall therefore be limited to 40%> of the value of that investment;"

"(vi) Unanimously, that the Respondent has breached its obligation to accord fair and equitable treatment to the Claimants between July 2, 2010 and February 17, 2011;"

"(vii) Unanimously, that the Claimants' other claims shall be dismissed;"

(viii) Unanimously, that any decision regarding the quantfication of compensation or damages, as well as any decision regarding the allocation of the costs cf arbitration, shall be reserved for a later stage of the proceedings."

The Arbitration was subsequently continued in respect of the quantification of compensation or damages.

On 13 October 2020, the Tribunal handed down its final award, estimating the value of Devas Multimedia on 17 February 2011 at USD 740 million, and ordered the Republic of India to pay damages to each of Devas et al., equalling 40% of USD 740 million multiplied by the percentage of the stake that each of Devas et al. had in Devas Multimedia.

At first instance, the Republic of India claimed the setting aside of the Partial Award under Article 1065 of the Dutch Code of Civil Procedure ("DCCP") and an order for Devas et al. to pay the costs of the proceedings. Devas et al. raised a defence. In the judgment of 14 November 2018, the District Court denied the Republic of India's claim and ordered the latter to pay the costs of the proceedings. The most important findings of the judgment can be summed up as follows.

On appeal, the Republic of India has asked this Court to set aside the District Court's judgment and award its claims at first instance with an order for Devas et al. to pay the costs of the proceedings, including subsequent costs plus statutory interest. To that end, the Republic of India filed nine grievances against the District Court's judgment, which briefly put are as follows:

"a. there is no valid arbitration agreement;"

b. (...)

"c. the tribunal did not adhere to its mandate;"

"d. the reasons for the arbitral award are lacking;"

e. the award, or the manner in which it was made, is contrary to public policy.

The starting point for the application of Article 1065 DCCP is that the regular court must apply restraint in using its authority to set aside an arbitral award. One of the reasons for this requisite restraint is that proceedings based on Article 1065 DCCP should not be used as a disguised appeal, due to the public interest in effective arbitral proceedings. This is different when it comes to answering whether a valid arbitration agreement was concluded (Article 1065(1)(a) DCCP) and whether the arbitral award is contrary to public policy (Article 1065(1)(e) DCCP), which is, inter alia, the case if the fundamental right to be heard was not properly observed during the formation of the arbitral award. When answering these questions, the court must conduct a full review of the arbitral award. This Court does not share Devas et al.'s view that a full review of the tribunal's jurisdiction is not an issue if a State invokes the tribunal's lack of jurisdiction. This view is based on the incorrect idea that a State cannot rely on the fundamental character of the right of access to justice. This right is equally fundamental for States. This fundamental character means that the Tribunal's jurisdiction must be reviewed in hill (cf. Dutch Supreme Court, 26 September 2014, ECLI:NL:HR:2014:2837).

This Court concurs with the District Court that the Tribunal assumed, on the right grounds, that there was an 'investment' within the meaning of the Treaty and therefore it had jurisdiction to assess Devas et al.'s claims. Devas et al. acquired shares in Devas Multimedia, an Indian company. This thus falls under the "shares, debentures and any other form of participation in a company" as referred to at (ii) of the definition of "investment" in Article 1 of the Treaty. Devas et al. bought these shares with capital contributions of approximately USD 32 million, for which the Indian Foreign Investment Promotion Board had given its approval. Accordingly, Devas et al.'s investments were made with due regard to the "relevant laws and regulations" of the Republic of India, as required at (a) of the definition of "investment". As shareholders in Devas Multimedia, Devas et al. were the indirect owners of a number of "assets" which can also be regarded as an "investment" within the meaning of the Treaty, such as the rights under the Devas Contract with Antrix. Under this contract, Devas Multimedia leased capacity on two satellites for a 12-year period, making advance payments of USD 13 million per satellite. Examples of "investments" included in the Treaty cover, inter alia, "claims to (...) any performance under contract having an economic value" and "business concessions conferred (...) under contract". Devas et al.'s investments represent (or represented) significant value, as evidenced by the fact that DT Asia paid approximately USD 75 million for a 20% stake in Devas Multimedia in March 2008. The Republic of India's argument that the Tribunal should not just have reviewed the Devas Contract but the Devas project is irrelevant in light of this. The annulment of the Devas Contract certainly had implications for the Devas project, but that does not detract from the character of the investments as established above. Its argument that this was only a pre-investment therefore fails. It was not a pre-investment given that Devas et al. had made actual investments within the meaning of the Treaty.

The Republic of India argues that the Tribunal had used a definition of the term 'investment' that was far too broad. According to the Republic of India, aside from the definition of "investment" in the Treaty, five features of the autonomous concept of 'investment' that it derives from arbitral awards based on the ICSID Convention must also be satisfied: (i) a contribution in the host State in terms of resources (or financial resources), (ii) implementation of the activity concerned in the host State over a certain period of time, (iii) the assumption of risks by the investor, (iv) the expectation of profit or proceeds, and (v) if stated in the recitals of the treaty concerned, a contribution to the economic development of the host State. It can remain a moot point whether the Tribunal was obliged to apply this autonomous concept, because, as Devas et al. rightly argued, the five features mentioned by the Republic of India were satisfied by Devas et al.'s capital contributions and their use by Devas Multimedia: the capital contributions and the advance payments to reserve capacity on the satellites constitute a contribution in the host State, the lease of capacity on the satellite is for at least 12 years, risks are attached to the investments and the investments may yield considerable returns, given the amount that DT Asia was prepared to pay for a 20% stake in Devas Multimedia. It is acknowledged, in the Treaty's recitals, that investments may contribute to the economic development of the host State, but such contribution was not imposed as a requirement ("RECOGNISING that the promotion and protection of such investments will lend greater stimulation (...)'). It should in any event be assumed that investments of this scale in the telecommunications infrastructure may well contribute to the economic development of the Republic of India. This therefore satisfies the fifth feature. Although the way in which the District Court applied the Vienna Convention on the Law of Treaties is correct, the discussion that the Republic of India is keen to start on this, can remain undiscussed for this reason alone. For the record, this Court finds that India has raised insufficient well-founded arguments as to why the Tribunal should have applied a concept developed within the context of the ICSID Convention in deviation from the clear wording of Article 1 of the Treaty.

The doctrine of the "general unity of an investment operation", on which the Republic of India relied in this context, does not alter that conclusion. That doctrine means that a transaction which, in itself does, not qualify as an 'investment' within the meaning of the applicable investment treaty, may nonetheless be regarded as such if it forms part of an operation that as a whole is classified as an investment (cf. the judgment in CSOB v Slovakia of 24 March 1999, which is cited as a landmark judgment in this field in the Schreuer and Kriebaum article, At What Time Must Legitimate Expectations Exist?, Liber Amicorum Thomas Wilde, p. 271 (Exhibit G-59 of Devas et al.)). The Tribunal found that Devas et al.'s capital contributions and the advance payments to reserve capacity on the satellites are, in themselves, to be regarded as 'investments' within the meaning of the Treaty. In that case, reliance on the doctrine of the "general unity of an investment operation" is not required to classify these investments as such. The Republic of India wrongly derives an argument from this doctrine that an investment is only an 'investment' within the meaning of the Treaty once the full investment operation has been completed and all the necessary licences to accomplish the goal of the investment have been obtained.

The Republic of India moreover claims that the Tribunal violated its mandate (Article 1065(1)(c) DCCP) and its obligation to provide reasons (Article 1065(1)(d) DCCP) by not engaging in a reasoned discussion of or by not making reasoned rulings on the eight essential defences of the Republic of India relating to the term 'investment' (subdivided into two groups of three and five essential defences). This Court must apply restraint in assessing the reliance on these grounds for setting aside. This Court may only set aside the Partial Award on one of these grounds if the Tribunal failed to rule on an essential defence or if a ruling by the Tribunal was devoid of any reasoning.

According to the Republic of India, the Tribunal did not discuss its defence that only Devas et al.'s project as a whole, and not Deval et al.'s shareholding or assets such as the Devas Contract, qualified as an 'investment' within the meaning of the Treaty. The District Court rejected this submission with reference to paras. 199 to 210 of the Partial Award. This Court shares the District Court's view that the Tribunal did discuss this defence in those paragraphs. In paras. 199 to 210 of the Partial Award, the Tribunal considered that Devas et al.'s stake in Devas Multimedia and Devas et al.'s indirect ownership of the Devas Contract could be regarded as 'investments' within the meaning of the Treaty. In that context, the Tribunal found as follows: "(...) the Tribunal finds deficient the Respondent's argument that the Claimant's activities were "only pre-investment activities" because their investment was the alleged right to proceed with the Devas project pursuant to the Devas Agreement and because said project could not proceed without the WPC License, which Devas had no right to receive under the Devas Agreement". This finding was explained in the subsequent findings. In other words, the Tribunal did address this defence of the Republic of India. In setting aside proceedings, the Court may not review the Tribunal's assessment of the merits. The Court may simply review whether the Tribunal discussed an essential defence. And the Tribunal did do so here. The Tribunal's reasoning is not so incomprehensible that it can be said that all reasoning was lacking.

The Tribunal had also allegedly paid insufficient attention to the Republic of India's defence that Devas Multimedia could not have rolled out satellite-only services without a WPC licence. According to the Republic of India, the Tribunal rejected this defence without providing any reasons. That is incorrect. The Tribunal found as follows: "[o]n the basis of the evidence received by the Tribunal, it is satisfied that, even without a WPC license, Devas could have rolled out satellite-only services" (para. 209 of the Partial Award). The Tribunal mentions the evidence submitted in the Arbitration in para. 181 of the Partial Award. In fact, the Tribunal also took note of the documents filed by the parties relating to this matter after the hearing (see paras. 46 to 54 of the Partial Award). As evidenced by the finding cited, the Tribunal based its decision in part on this evidence. The Court may not review the evaluation of the evidence by the Tribunal on the basis of Article 1065 DCCP. What is more, the question of whether Devas Multimedia could have rolled out satellite-only services without a licence was not decisive for the Tribunal's ruling that there was an 'investment' within the meaning of the Treaty.

According to the Republic of India, the Tribunal did not discuss its essential defence that Devas et al.'s shareholding and Devas Multimedia's indirect ownership of assets were not expropriated by the Republic of India and Devas et al. could not, therefore, rely on the Treaty in relation to these "assets". This objection is without merit. In para. 411 of the Partial Award, the Tribunal concluded that the property of Devas et al. had been expropriated within the meaning of Article 6(1) of the Treaty. The Tribunal thereby referred to its conclusion in para. 210 which is based on the findings in paras. 199 to 209. Evidently, the Tribunal found that the Republic of India's decision to annul the Devas Contract, as a result of which Devas Multimedia lost its rights to the spectrum on both satellites, could be equated with an expropriation of Devas et al.'s investments in Devas Multimedia. That finding, which discusses this defence, is not so incomprehensible as to amount to a lack of reasoning.

The final two essential defences that the Tribunal did not discuss, according to the Republic of India, relate to the lack of the WPC Licence. The Republic of India accuses the Tribunal of not elaborating its ruling that the lack of a right to a WPC licence might be relevant to the value of the investment but not to the question of whether there was an investment. That accusation is unjustified because the Tribunal based this ruling on the finding that a WPC licence was not needed for satellite-only services and that the right to the spectrum as such represented a value, since this meant that the spectrum could not be used by others (see para. 209 of the Partial Award). Finally, the Republic of India accuses the Tribunal of not providing reasons for its ruling that Devas Multimedia could still roll out satellite-only services without a WPC licence. That accusation was discussed and rejected in para. 5.16 above.

Article 11(3) of the Treaty provides that the Treaty cannot restrict a Contracting Party (in this case the Republic of India) in taking measures focused on the protection of its "essential security interests". In the Arbitration, the Republic of India did not rely on the Tribunal's lack of jurisdiction on the grounds of this article. Nor did the Tribunal interpret its reliance on this article as such in the findings of the Partial Award (cf. paras. 293 et seq. of the Partial Award). The Tribunal only found in the operative part of the Partial Award "(...) that the Tribunal lacks jurisdiction over the Claimants' claims inscfar as the Respondent's decision to annul the Devas agreement was in part directed to the protection of the Respondent's essential security interests." Unlike the District Court, this Court does not infer from this that the Tribunal had interpreted the Republic of India's submissions relating to the "essential security interests" as a jurisdictional defence. The fact is that the Partial Award's operative part must be interpreted in the light of the findings, and in those findings the Tribunal did not treat this as a jurisdictional defence. It is, at any rate, no longer in dispute between the parties on appeal that Article 11(3) of the Treaty does not relate to the Tribunal's jurisdiction but to an exception to the Treaty provisions for measures directed to the protection of "essential security interests".

According to the Republic of India, the Tribunal did not adhere to its mandate by applying the "essential security interests" provision to the S-band spectrum instead of to the decision to annul the Devas Contract. This Court does not share this view. After analysing the need to use the S-band spectrum for strategic/military objectives, the Tribunal considered as follows in para. 351 of the Partial Award: "But this is not the end of the matter. While the events related above provide helpful information concerning the administrative process followed both before and after the CCS decision, what is the determinant factor for the Tribunal is that decision itsef and whether it was directed to the protection of the Respondents essential security interests". This confirms that the Tribunal did take the decision to annul the Devas Contract as its starting point.

According to the Republic of India, the Tribunal also exceeded the bounds of the legal dispute by conducting a full review of the reliance on "essential security interests" rather than applying the requisite restraint. This objection is without merit, given that the Tribunal did in fact apply the requisite restraint. This is, inter alia, evident from the following findings of the Tribunal:

""243. While, in the present case, the Respondent does not have to demonstrate necessity in the sense that the measure adopted was the only one it could resort to in the circumstances, it still has to establish that the measure related to its essential security interests; it cannot there fore be any security interest but it has to be an essential one (...)"

244. In performing this analysis, however, the Tribunal has also no difficulty in recognizing the "vide measure of deference" mentioned by the Respondent."

Within the context of the restrained review of the Partial Award based on Article 1065(1)(c) DCCP, there is no scope for a substantive assessment of the division of the burden of proof by the Tribunal. This Court also notes that the Tribunal's ruling that the Republic of India had to "establish" that the decision to annul the Devas Contract was related to "essential security interests" is understandable (cf. para. 242 of the Partial Award). The fact is that the Republic of India relied upon a provision in which an exception was made to the protection of investments under the Treaty. The Tribunal thereby took account of the Republic of India's "wide measure of defence" by imposing strict requirements on Devas et al.'s defence (cf. para. 245 of the Partial Award).

The Republic of India also submits that, by fixing ex aequo et bono the part of the spectrum intended to protect "essential security interests" at a maximum of 60%, the Tribunal did not adhere to its mandate to decide according to the 'rules of law'. This objection lacks any basis in fact. Given the reasons for its decision, the Tribunal did rule according to the 'rules of law'. According to the paragraph in question (para. 373 of the Partial Award), the Tribunal did not base its determination of the part of the spectrum intended to protect "essential security interests" on an ex aequo et bono standard that differed from the one laid down by the Treaty. The mere fact that the Tribunal refers to a "reasonable allocation of spectrum" in this paragraph is insufficient in that regard. Reasonableness is, of course, likewise a factor in the assessment according to the 'rules of law'.

Finally, this Court dismisses the Republic of India's argument that the Tribunal added to the facts by basing its decision that no more than 60% of the S-band spectrum is intended to protect "essential security interests" on the finding that"(...) All around the world, governments are faced every year with very large demands for funds for various prcjects from their military establishment and, just as regularly, governments grant only a percentage of such requests." (para. 370 of the Partial Award). This argument is based on an incorrect reading of the Partial Award. As the first sentence of para. 373 of the Partial Award states, the Tribunal based its decision that no more than 60% of the S-band spectrum is intended to protect "essential security interests" on the evidence submitted to it and the fact that the Republic of India had already reserved to itself 10% of the spectrum available in the Devas Contract ("[o]n the basis of the evidence submitted to it as described above and bearing in mind that the Respondent had already reserved to itsef 10% of the spectrum in question (...)". Consequently, the Tribunal's decision was not, or not exclusively, based on the finding cited by the Republic of India.

According to the Republic of India, the Tribunal did not give reasons for its decision that no more than 60% of the S-band spectrum is intended to protect "essential security interests". That submission is incorrect. As held above, according to para. 373 of the Partial Award the Tribunal based the apportionment under the S-band spectrum on the evidence submitted to it and the fact that the Republic of India had already reserved to itself 10% of the spectrum available in the Devas Contract ("[o]n the basis of the evidence submitted to it as described above and bearing in mind that the Respondent had already reserved to itsef 10% of the spectrum in question (...)". On the basis of Article 1065(1)(c) DCCP, it is not up to this Court to decide whether that reason is correct in terms of its substance. The same goes for the additional lack of reasons argued by the Republic of India (Statement of Grievance, para. 457 et seq.). This Court need not comment on whether 100% of the S-band spectrum is now being used for military and paramilitary purposes. The fact is that this Court is merely required to review whether the arbitral award should be set aside, not to review the merits of the decision on the applicability of the essential security interests defence. The Republic of India's offer of evidence regarding the current use of the S-band spectrum is therefore irrelevant and it will be ignored.

Finally, the Republic of India submits that the Tribunal "condoned" Devas Multimedia's criminal acts in the Partial Award by classifying the Devas Contract as a valid and binding contract despite those acts. The Arbitral Award is therefore contrary to public policy and voidable pursuant to Article 1065(1)(e) DCCP, according to the Republic of India. This Court concurs with the District Court's decision that the reliance on this ground for setting aside fails because it has not been established in court that criminal acts played a role in the formation of the Devas Contract (para. 4.74 of the District Court judgment).

This Court:

"- upholds the District Court's judgment issued between the parties on 14 November 2018;"

- orders the Republic of India to pay the costs of the appeal proceedings, fixed on Devas et al.'s part at EUR 741 in court fees and EUR 3,342 in lawyer's fees, and EUR 163 in subsequent fees for its lawyer, to which EUR 85 will be added if this judgment has not been complied with amicably within fourteen days after being notified in writing and then being served, and determines that these amounts must be paid within 14 days after this judgment is pronounced or, as regards the amount of EUR 85, within 14 days after the date of service, failing which they will be subject to statutory interest, as referred to in Article 6:119 of the Dutch Civil Code, effective from the end of this period of 14 days.

- declares this judgment immediately enforceable as regards the cost order.

This judgment was issued by P. Glazener, J.J. van der Helm and D. Aarts and pronounced in open session on 16 February 2021 in the presence of the court clerk.