PCA tribunal holds India liable for unlawful expropriation and FET breach under India–Mauritius BIPA
CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited., and Telcom Devas Mauritius Limited v. The Republic of India, PCA Case No. 2013-09
In a proceeding brought by three Mauritius-based shareholding companies of Devas Multimedia Private Limited (Devas)—an enterprise based in Bangalore, India—a tribunal seated at the PCA rendered an award on liability holding India liable for expropriating the investments made pursuant to a contract concluded between Devas and Antrix Corporation Ltd. (Antrix), the commercial arm of the Indian space agency. In particular, the tribunal found that the annulment of the contract by Antrix constituted expropriation and breach of FET under the India–Mauritius Bilateral Investment Promotion and Protection Agreement (BIPA).
Background and claims
In January 2005, Antrix and Devas entered into a contract concerning the licence of a frequency of satellite spectrum (S-band) to provide high-speed Internet services. In February 2011, Antrix terminated the contract based on a decision by India’s Cabinet Committee on Security (CCS) citing essential security interests.
Devas’s three Mauritian shareholders initiated arbitration against India under the UNCITRAL Rules and the India–Mauritius BIPA, claiming that the termination of the contract amounted to an expropriation of the claimants’ investments in India and constituted a denial of FET.
The termination of the contract also led Devas to initiate international commercial arbitration against Antrix. In September 2015, an ICC tribunal ordered Antrix to pay USD 562.5 million to Devas for damages caused by the wrongful termination of the contract, plus interest.
Definition of “investment” under the India–Mauritius BIPA
India raised a jurisdictional objection relying on the admission clause contained in the BIPA, which protects “assets invested and admitted in accordance with the laws and regulations of the host State,” but not “pre-investment activities” (Article 1(1)(a)). It argued that Devas’s failure to apply for the concerned licences and government approvals characterized all activities conducted by Devas as “pre-investment activities” and therefore not as investments within the meaning of the BIPA.
In the absence of any evidence, the tribunal could not accept India’s contention. In its view, the claimants’ shares, debentures and any other form of participation in Devas and their indirect partial ownership of Devas’ business assets do fall within the BIPA definition of “investment.” Consequently, it concluded that the claimants made investments covered by the BIPA.
India raises “essential security interests” defence
In its key defence, India argued that BIPA Article 11(3) entitles it to take measures to protect its essential security interests without incurring responsibility under the BIPA. In particular, it stated that the provision is self-judging and that the tribunal may not “sit as a supranational regulatory or policy-making body to review the policy decisions of the Cabinet Committee on Security” as national authorities “are uniquely positioned to determine what constitutes a State’s essential security interests in any particular circumstance and what measures should be adopted to safeguard those interests” (para. 214).
However, the tribunal rejected this argument. It held that, in the absence of any explicit language under Article 11(3) to grant to the state full discretion to determine what it considers necessary to protect its security interests, the clause is not self-judging. It clarified that, while India did 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 had to establish that the measure related to its “essential” security interests.
Next, the tribunal was faced with the difficult question of whether there was a genuine need for Indian military and security agencies to reserve S-band capacity or whether it was a pretext to concoct a force majeure event that would enable Antrix to terminate the contract on advantageous terms. By a majority, the tribunal ruled out that a portion of the measures were indeed part of “essential security interests” and would fall within the purview of Article 11(3).
However, it maintained that measures that were not reserved for military or paramilitary purposes would be subject to BIPA Article 6 on expropriation. On the basis of the evidence submitted, the majority concluded that a reasonable allocation of spectrum for the protection of India’s essential security interests would not exceed 60 per cent of the S-band spectrum allocated to the claimants. It held that the remaining 40 per cent could be allocated for other public interest purposes and were subject to the expropriation conditions under BIPA Article 6.
India’s measures lead to unlawful expropriation
The claimants argued that the coordinated measures adopted by various Indian agencies leading to the annulment of the contract resulted in the unlawful expropriation of their investments, in violation of BIPA Articles 6 and 7. According to them, their assets and rights, their indirect ownership of the contract and of the Devas system and business, and their pre-emptive contractual right to an S-band allocation were capable of being, and in fact were, directly and indirectly expropriated by India.
The tribunal concluded that the measures adopted by India, insofar as they did not relate to its essential security interests (40 per cent), amounted to unlawful expropriation and breach of due process under BIPA Article 6. Consequently, it held that the claimants are entitled to compensation for up to 40 per cent of the value of their investments in India.
India’s annulment of contract constitutes FET breach
The claimants contended that India breached FET. While India argued that the FET standard embodied in BIPA Article 4(1) does not go beyond the minimum standard required by customary international law, the claimants stated that a broad FET standard applies to the present case.
Relying on El Paso v. Argentina, the tribunal noted that investors’ legitimate expectations are central to FET under any investment treaty and that the claimants could not have had legitimate expectations that India would never invoke the “essential security interests” exception under BIPA Article 11(3). Further, it added that, since India did not inform the claimants about the CCS decision to annul the contract, it breached the good faith principle under international law and the FET standard under the BIPA.
Other claims dismissed
The tribunal dismissed the claims concerning the alleged unreasonableness and the discriminatory nature of the measures, as there was no evidence to suggest that the measures adopted by India were targeted at foreign investors or investments.
Award and costs
The tribunal, by a majority, rendered an award on liability, finding that the termination of the contract amounted to an expropriation of the claimants’ investments in India and constituted a denial of FET. Therefore, it ruled that India compensate the claimants for the part of the investment (40 per cent) that is not protected by India’s essential security interests.
David R. High’s dissent
Arbitrator David R. Haigh did not concur with the views of the majority over the “essential security” defence submitted by India. According to him, India’s only settled objective was to see that the contract would be annulled or terminated with as little cost as possible, and no determination on a reasonable allocation of spectrum to national security or other public purposes could have been made. Therefore, in Haigh’s opinion, the taking of the S-band spectrum was simply an expropriation for a public purpose, falling under BIPA Article 6.
Notes: The tribunal was composed of Marc Lalonde (president appointed by his co-arbitrators, Canadian national), David R. Haigh (claimants’ appointee, Canadian national) and Anil Dev Singh (respondent’s appointee, Indian national). The award is available at https://www.italaw.com/sites/default/files/case-documents/italaw9750.pdf and David R. Haigh’s dissenting opinion is available at https://www.italaw.com/sites/default/files/case-documents/italaw9751.pdf.
Gladwin Issac is a graduate of the Gujarat National Law University, India, and a contributor to IISD’s Investment for Sustainable Development Program.