Antrix Devas Deal: Delhi High Court Upholds Single Judge's Decision Of Setting Aside 2015 Arbitral Award, Says Fraud 'Serious And Complex'

The Delhi High Court on Friday dismissed an appeal against single judge’s order setting aside a 2015 arbitral award by which Antrix Corporation Limited, commercial and marketing arm of ISRO, was required to pay US$ 562.2 million to Devas Multimedia Private Limited over wrongful repudiation of a contract.

A division bench of Chief Justice Satish and Justice Subramonium Prasad in its judgment on the appeal moved by Devas Employees Mauritius Private Limited said it is "well established" that Devas was incorporated with fraudulent intentions so that it could enter into the agreement with Antrix.

The court said it sees no perversity in Single Bench's decision to set aside the arbitral award on the grounds of fraud and it being with in conflict with the public policy of India. Permitting Devas and its shareholders to reap the benefits of the ICC Award would amount to the court perpetuating the fraud, said the court.

"Accordingly, the challenge to the Impugned Judgment by the Appellant, on the ground that the Ld. Single Judge could not consider the grounds of public policy and fraud under Section 34 fails," said the court.

Justice Sanjeev Sachdeva in August last year had allowed the plea filed of Antrix under section 34 of the Arbitration and Conciliation Act, 1996. The single judge held that the arbitral award dated September 14, 2015 suffered from patent illegalities and fraud and was also in conflict with the public policy of India.

Pertinently, while the arbitration proceedings were pending, Antrix had sought winding up of Devas before the National Company Law Tribunal alleging that Devas was formed for a fraudulent and unlawful purpose and its affairs had been conducted in a fraudulent manner. In 2021, a Provisional Liquidator was appointed by the NCLT and NCLT had allowed winding up of Devas.

The order of winding up was challenged before the National Company Law Appellate Tribunal, appeals for which were dismissed. Thereafter, the orders were assailed before the Supreme Court which upheld the order passed by NCLAT.

The division bench today said Devas could manage to enter intro agreement with Antrix only by conniving and colluding with the then officials of Antrix.

"The collusion between the officials of DoS and Antrix is borne out from the Note for the 104th Space Commission which did not contain any references to the Devas Agreement. The Cabinet Note dated 17.11.2005, which were prepared ten (10) months after the signing of the Devas Agreement, did not make any mention about Devas or the Agreement, but the cabinet proceeded on the basis that ISRO had received multiple expressions of interest from various entities. Therefore, the Cabinet was kept completely in the dark and material information was suppressed by Devas when Cabinet approval was obtained by Devas," said the court.

The court also said the Cabinet was misled to believe there are several firm expressions of interest before ISRO, even though the agreement was granted only to Devas.

"Devas has thus not only suppressed, but also misrepresented information in order to pursue its fraudulent activities in India," it added.

The court also said that Devas Agreement is an agreement of huge magnitude pertaining to the leasing out of transponders by Antrix, to Devas, on the Primary Satellite-I, without the same being preceded by any auction or tender process.

"It is also established that the minutes of the meeting of the Sub Comittee dated 06.01.2009 were manipulated and an experimental license was granted on 07.05.2009 and the original minutes were restored on 20.11.2009 after protest," it observed.

The court said the facts clearly establish that the fraudulent conduct of Devas begins from the very incorporation of the company and extends to the Devas Agreement, in its entirety, and all other actions pursued by it.

"The nature of fraud is so serious and complex that it not only resulted in the company being wound up under the Companies Act, 2013, but also led to a criminal investigation against the company and its officers. The Devas Agreement itself has been obtained through the process of fabrication of documents and misrepresentation and constitutes a clear case of fraud. Such is the extent of the fraud that it permeates through every agreement, transaction or award entered into by Devas. The fraud propagated by Devas is not only against Respondent No. 1, but against the State as a whole, inasmuch as it attempts to obtain monetary benefits from the State itself, by attempting to enforce an arbitral award, which itself is arising out of fraud. A fraud of such scale would certainly render the award to be in conflict with the public policy of India." 

The court said nothing prevented the Single Judge from relying on the findings of the Supreme Court and using them for the purposes of setting aside the award under Section 34 of Arbitration Act on the ground that the agreement itself was a product of fraud and, therefore, the making of award is automatically induced by fraud and corruption.

"The findings by the Apex Court, which is the highest Court of the land, could not have been ignored by the learned Single Judge and those findings would automatically become the findings of the learned Single Judge while considering an application under Section 34 of the Arbitration Act for which there was no necessity of a specific pleading," said the court.

The court said that Article 144 of the Constitution of India mandates every authority to aid in enforcing the orders and decrees of the Supreme Court. 

"The Apex Court in Civil Appeal No.5766/2021 has held that Devas was incorporated for fraudulent purposes and the affairs of the company were being conducted in a fraudulent manner, and therefore, the agreement, from which the present arbitration arises, was a product of fraud," it said.

The court added that after such finding by the apex court, it was not open for the single judge to to come to the conclusion that the award, which has been held to be a product of fraud, would still be enforceable in the country. 

"Such a finding by the learned Single Judge would be against the spirit of Article 144 of the Constitution of India," it said.

The court further said it is now well settled that the principle of 'fraud vitiates all solemn acts' is applicable not only to the primary proceedings, but also to all collateral proceedings that arise out of the same facts and circumstances. 

"A party which commits such fraud or deception cannot be permitted to reap its benefits, especially by taking advantage of the judicial process, including in subsequent or collateral proceedings, as doing so would result in the Court enabling the perpetuation of fraud. Such an interpretation would be absurd and would lead to disastrous outcomes," said the court.

The court concluded that it would be against the principles of justice, equity and good conscience to permit Devas to reap the benefits of the ICC Award, adding that allowing the same would amount to perpetuating the fraud by court.

On scope and binding nature of ratio decidendi and obiter dicta

The bench said that it is the ratio decidendi of a judgment which has the binding force of law under Article 141 of the Constitution of India and not the obiter dicta. An obiter may however carry considerable weight which ought to be examined by the subsequent judge, it added.

It added that a judgment is not to be read in the manner in which a statute is to be read, and thus a judgment may not explicitly spell out the ratio of a particular decision.

The court also said that it is not necessary for a judge to expressly state what the ratio of a particular decision is, it can be abstract in nature and must be inferred or interpreted by reading the judgment as a whole, and in certain cases, the pleadings of the parties.

“A judgment may be based on multiple reasons, in which case all such reasons assigned by a Judge for giving a decision would form a part of the ratio of the decision. The subsequent Judge cannot choose one reason to constitute the ratio of the judgment and leave out the other reasons. It is therefore inappropriate to take one or two extracts from a decision and treat them as being the ratio of a particular decision,” the court said.

On court’s power under section 34(2)(b) of Arbitration Act to set aside an award without any specific pleadings

The court noted that the phrase “the Court finds that” in sections 34(2)(b) and 34(2A) of the Act allows the court to look into the arbitral award and discover the grounds mentioned under both the provisions. 

It thus said that the phrase in questions enables the court to discover suo motu as to whether an award is in conflict with the public policy of India. 

“
As a corollary, having regards to Explanation 1(i) of Section 34(2)(b) of the Arbitration Act, it follows that the Court would also have the power to discover on its own whether the making of an award is induced or affected by fraud or corruption or is in violation of Section 75 or 81 of the Arbitration Act,” the court said.

The bench thus rejected the argument put forth by Devas that the court does not have the power under section 34 to suo motu discover grounds of public policy or fraud and set aside an arbitral award on that basis.

Background

A contract was entered into between Antrix and Devas on January 28, 2015 for the Lease of Space Segment Capacity on ISRO/Antrix S-band Spacecraft. The contract was executed between Antrix and Devas only and neither the Department of Space nor ISRO nor any other governmental agency was a party to the Contract.

As per the contract, Antrix was to build, launch and operate two satellites and lease spectrum capacity on those satellites to Devas, which Devas planned to use to provide digital multimedia broadcasting services across India. In return, Devas agreed to pay to Antrix Upfront Capacity Reservation Fees of US$ 20 million per satellite, and lease fees of US$ 9 million to US$ 11.25 million per annum.

Antrix notified Devas that the contract was terminated inter alia citing Article 11 [Force Majeure] and Article 7(c) [Termination for convenience by Antrix] of the Contract. Devas refused to accept the termination and instead claimed specific performance of the contract and in the alternative claimed damages to the tune of US$ 1.6 billion.

Antrix then proposed a meeting of the senior management in terms of Article 20(a) of the Contract. However Devas instead of agreeing to the same filed a request for Arbitration with the International Court of Arbitration of the International Chamber of Commerce.

Vide the impugned order, the Arbitral Tribunal had held that the contract between the parties did not limit Devas' entitlement to alleged damages that it suffered by reason of Antrix's repudiation of the agreement. The Tribunal thus directed Antrix to pay US$ 562.2 million to Devas besides interest.

The Arbitral Tribunal had held that the decision of declining the grant of orbital slot to Antrix was a decision of a governmental authority in exercise of its sovereign function and amounted to a Force Majeure event and covered under Article 11(b). Thus it could not have held that the alleged breach on the part of Antrix was deliberate.

Title: DEVAS EMPLOYEES MAURITIUS PVT. LTD v. ANTRIX CORPORATION LIMITED & ORS

Citation: 2023 LiveLaw (Del) 249

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