{"id":5586,"date":"2018-10-17T08:22:42","date_gmt":"2018-10-17T13:22:42","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=5586"},"modified":"2024-08-09T18:28:55","modified_gmt":"2024-08-09T16:28:55","slug":"pca-tribunal-holds-india-liable-for-unlawful-expropriation-and-fet-breach-under-india-mauritius-bipa-gladwin-issac","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2018\/10\/17\/pca-tribunal-holds-india-liable-for-unlawful-expropriation-and-fet-breach-under-india-mauritius-bipa-gladwin-issac\/","title":{"rendered":"PCA tribunal holds India liable for unlawful expropriation and FET breach under India\u2013Mauritius BIPA"},"content":{"rendered":"

CC\/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited., and Telcom Devas Mauritius Limited v. The Republic of India, PCA<\/span> Case No. 2013-09<\/h2>\n

In a proceeding brought by three Mauritius-based shareholding companies of Devas Multimedia Private Limited (Devas)\u2014an enterprise based in Bangalore, India\u2014a 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<\/span> under the India\u2013Mauritius Bilateral Investment Promotion and Protection Agreement (BIPA).<\/p>\n

Background and claims<\/h3>\n

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\u2019s Cabinet Committee on Security (CCS<\/span>) citing essential security interests.<\/p>\n

Devas\u2019s three Mauritian shareholders initiated arbitration against India under the UNCITRAL<\/span> Rules and the India\u2013Mauritius BIPA, claiming that the termination of the contract amounted to an expropriation of the claimants\u2019 investments in India and constituted a denial of FET.<\/p>\n

The termination of the contract also led Devas to initiate international commercial arbitration against Antrix. In September 2015, an ICC<\/span> tribunal ordered Antrix to pay USD 562.5 million to Devas for damages caused by the wrongful termination of the contract, plus interest.<\/p>\n

Definition of \u201cinvestment\u201d under the India\u2013Mauritius BIPA<\/h3>\n

India raised a jurisdictional objection relying on the admission clause contained in the BIPA, which protects \u201cassets invested and admitted in accordance with the laws and regulations of the host State,\u201d but not \u201cpre-investment activities\u201d (Article 1(1)(a)). It argued that Devas\u2019s failure to apply for the concerned licences and government approvals characterized all activities conducted by Devas as \u201cpre-investment activities\u201d and therefore not as investments within the meaning of the BIPA.<\/p>\n

In the absence of any evidence, the tribunal could not accept India\u2019s contention. In its view, the claimants\u2019 shares, debentures and any other form of participation in Devas and their indirect partial ownership of Devas\u2019 business assets do fall within the BIPA definition of \u201cinvestment.\u201d Consequently, it concluded that the claimants made investments covered by the BIPA.<\/p>\n

India raises \u201cessential security interests\u201d defence<\/h3>\n

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 \u201csit as a supranational regulatory or policy-making body to review the policy decisions of the Cabinet Committee on Security\u201d as national authorities \u201care uniquely positioned to determine what constitutes a State\u2019s essential security interests in any particular circumstance and what measures should be adopted to safeguard those interests\u201d (para. 214).<\/p>\n

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\u2014in the sense that the measure adopted was the only one it could resort to in the circumstances\u2014it still had to establish that the measure related to its \u201cessential\u201d security interests.<\/p>\n

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 \u201cessential security interests\u201d and would fall within the purview of Article 11(3).<\/p>\n

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\u2019s 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.<\/p>\n

India\u2019s measures lead to unlawful expropriation<\/h3>\n

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.<\/p>\n

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.<\/p>\n

India\u2019s annulment of contract constitutes FET breach<\/h3>\n

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.<\/p>\n

Relying on El Paso v. Argentina<\/a>, the tribunal noted that investors\u2019 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 \u201cessential security interests\u201d 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.<\/p>\n

Other claims dismissed<\/h3>\n

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.<\/p>\n

Award and costs<\/h3>\n

The tribunal, by a majority, rendered an award on liability, finding that the termination of the contract amounted to an expropriation of the claimants\u2019 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\u2019s essential security interests.<\/p>\n

David R. High\u2019s dissent<\/h3>\n

Arbitrator David R. Haigh did not concur with the views of the majority over the \u201cessential security\u201d defence submitted by India. According to him, India\u2019s 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\u2019s opinion, the taking of the S-band spectrum was simply an expropriation for a public purpose, falling under BIPA Article 6.<\/p>\n

Notes<\/em>: The tribunal was composed of Marc Lalonde (president appointed by his co-arbitrators, Canadian national), David R. Haigh (claimants\u2019 appointee, Canadian national) and Anil Dev Singh (respondent\u2019s appointee, Indian national). The award is available at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw9750.pdf<\/a> and David R. Haigh\u2019s dissenting opinion is available at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw9751.pdf<\/a>.<\/p>\n

Gladwin Issac<\/strong> is a graduate of the Gujarat National Law University, India, and a contributor to IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n