Devas imbroglio

With the Supreme Court upholding the winding up of Devas Multimedia, the Union Government has decided to use this judgment to fight the arbitration battle against the beleaguered private company and resist seizure of India’s overseas properties. The 2005 deal between Antrix, the commercial arm of the Indian Space Research Organisation, and Devas Multimedia epitomised large-scale corruption during the UPA’s decade-long rule. Under the agreement, multimedia services were to be provided to mobile users through the leased S-band satellite spectrum. It didn’t take long for the CBI and the Enforcement Directorate to smell a rat, even as the Ministry of Corporate Affairs initiated an investigation into Devas’ affairs but a stay was granted by the Delhi High Court. The government cancelled the deal in 2011 on the ground that the auction of the broadband spectrum was fraudulent and that the satellite spectrum was needed for national security and other purposes.

The annulment of the contract prompted Devas to take the arbitration route at the International Chamber of Commerce. Separate proceedings were initiated under the country’s bilateral investment treaties with Mauritius and Germany. India lost all three cases and has to pay an arbitration award of around $1.3 billion. Pushed to the brink by adverse rulings of international arbitration tribunals in the cases of UK telecom major Vodafone Group and oil producer Cairn Energy, the government enacted the Taxation Laws (Amendment) Act last year, nullifying the retrospective tax provisions that were introduced in 2012 — again during the UPA’s tenure.

The ruling NDA is justified in lashing out at its predecessor for the legacy disputes that are denting India’s reputation among international investors. Earlier this week, PM Narendra Modi showcased the country as an ideal investment destination, citing reforms implemented by his government — reduction in compliance requirements, doing away with retrospective taxation and simplification of the corporate tax rate structure. Such measures won’t achieve the best results unless the Devas tangle is sorted out at the earliest. The onus is on the government to resolve arbitration issues without loss of face so as to regain investors’ confidence.