Devas etc dulls India’s investment appeal

Canadian court order in Antrix-Devas hurts India’s standing; such negative publicity could turn off investors

In late July 2021, the government confirmed that a French court had ordered the freezing of Indian assets in Paris on a petition by Cairn Energy.

The reported order by a Canadian court allowing Devas Multimedia to seize amounts collected by the International Air Transport Association (IATA), on behalf of Airport Authority of India (AAI) and Air India, is unfortunate. The orders are a fallout of the long legal fight between Devas and Antrix Corporation, the commercial arm of ISRO, and the Indian government. Although investors in Devas have international arbitration awards in their favour, New Delhi has disregarded these; Devas is staring at liquidation. While the Supreme Court’s verdict is awaited, the Canadian court’s directive would be seen as a setback for New Delhi, and the loss of reputation, while not irreparable, can be damaging.

It is an unseemly spectacle when a corporation takes on a nation and the world is watching. In December, 2020, India lost the case against Cairn Energy in the Permanent Court of Arbitration in The Hague which ruled India had erred in applying the retrospective tax. India appealed the award that had over-turned a levy of Rs 10,247 crore in back taxes.While New Delhi is well within its rights to appeal, countries aspiring to become economically stronger, and relying on some amount of foreign capital to get there, need to be careful not to wade into unedifying situations. We cannot be seen to be disrespecting verdicts from international courts and tribunals; such controversies are best avoided.

New Delhi has also appealed verdicts in cases with Vodafone Plc. Cairn Energy was particularly aggressive in its attempts to recover its dues; even as the Indian government awaited the hearing of its of appeal, the British oil explorer filed several cases across countries—including the US and the UK—seeking the implementation of the arbitration award; a favourable verdict in these could potentially allow it to identify commercial Indian assets that it could seize. In late July 2021, the government confirmed that a French court had ordered the freezing of Indian assets in Paris on a petition by Cairn Energy.

The government appeared to have been pressured to withdraw the regressive retrospective tax clause; it probably anticipated both a loss of face and resources in terms of legal costs. In early August 2021, a Bill was introduced in Parliament to scrap the provisions that were brought in by the UPA government in 2012. One had expected the Union government to resolve the Devas-Antrix feud over a terminated satellite lease deal, which has dragged on for a decade now. However, the government had reportedly rejected an offer from Devas’ shareholders to settle the dispute.

Devas now faces liquidation following an order from the Bengaluru NCLT in May 2021, and the upholding of this by the NCLAT, in response to a petition filed by Antrix Corporation. The NCLT said Devas had been incorporated with a motive to collude with officials of Antrix to obtain bandwidth.Such negative publicity cannot help. While FDI-flows into the country have been robust, over the past few years, they are below potential, and a big chunk has come into the e-commerce and digital space; little has come into the manufacturing sector for many years now.

After a 46% annual fall in April-June 2020-21 to $11.5 billion (during the first wave of the coronavirus pandemic), FDI recovered to $22.5 billion in Q1FY22—5% more than the quantum seen in Q1FY20.  Among the big beneficiary sectors are banking, finance, insurance, computer software and hardware, telecommunications, trading, and automobiles. To become a $5trillion economy, however, India must try and attract much bigger sums. That is not impossible, but it is necessary to have regulatory certainty and eschew tax terrorism. MNCs may be working on a China-plus-one strategy for their supply chains, but they need to be sure the government will honour international arbitral awards.

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