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Devas to Seize Air India's Assets Abroad - Will the Tata Deal Be Affected?

Editor, TRANSFIN
Jan 4, 2022 1:59 PM 4 min read
Editorial

The new year can be very selective about who it brings joy to. 

If it's Devas Multimedia, then yes to the joy. If it's the Government of India, not so much!

Yesterday, a court in Canada authorised the seizure of assets belonging to the Airports Authority of India (AAI) and Air India in the Quebec province by Devas. 

Why? Well, it's a long story. Suffice it to say that a debt was owed and it wasn't paid and GoI enjoys nowhere close to the reputation of being a Lannister! ;)

All jokes aside, this development is yet another instance of Air India assets being seized abroad by parties to realise payments owed to them under international arbitration awards (e.g. Cairn, Vodafone). Since the Indian Government has strayed from paying, the aggrieved parties are taking matters (and the Government's jewels) into their own hands, quite literally. 

This time, it's Devas Multimedia, a company most infamous for its disputed and much-controversial deal with the ISRO-owned Antrix Corporation in 2005. 

Why is it seizing sovereign assets and, more importantly, is this going to affect Air India's disinvestment process? Let's find out. 

History 101

The year was 2005. Devas Multimedia and Antrix Corporation, the commercial (private) arm of ISRO and wholly-owned by the Indian Government, entered into a contract. 

As per the agreement, ISRO (through Antrix) was going to lease two communication satellites from Devas for 12 years for a sum of $300m. Plus, Antrix would provide Devas with: 

  1. 70 MHz of the S-band spectrum, and
  2. satellite transponders on lease 

For its digital multimedia services

The S-band (or space band) is a highly scarce segment that is traditionally reserved for strategic use. However, this deal seemed like an exception given the fact that the broader aim of the project was to provide broadband wireless services to the remotest corners of India. 

Nevertheless, the deal failed to go through following a series of reports that came to light in the media about gross irregularities in the agreement. Investigations and findings of audit reports uncovered serious discrepancies ranging from financial mismanagement, conflict of interest, non-compliance of rules and favouritism. All of this came to light in the heels of the 2G spectrum scam which had been widely publicised for its high-level corruption.

Although the UPA Government of the time cancelled the deal in 2011, upon investigation, no evidence of bribery (from Devas to Antrix, as alleged) was found. At least two different international arbitration courts (the International Chamber of Commerce and the Permanent Court of Arbitration (PCA) under the India-Mauritius Bilateral Investment Treaty) ruled against the wrongful termination of the deal by the Indian Government. 

The Government, however, didn't comply with either ruling. 

Interestingly, the National Company Law Tribunal (NCLT) ordered the liquidation of Devas on May 25th following a plea by Antrix (appeal pending in Supreme Court). So, in case you're wondering about who is seizing Air India assets, if Devas is a liquidated entity, then it is the overseas investors (and shareholders) of the company. 

 

The Cairn versus Devas Seizures

When Cairn began attaching Indian assets in France last year, it sent shockwaves in India mostly because people hardly expected Government property to be seized by private entities (the reverse is usually the norm).

Jurists and legal scholars presented theories ranging from state immunity to sovereign functionality to explain how Cairn's actions were an excess and unjustified. Additionally, the association of public sector enterprises (like Air India) and their international operations with the state remains open to legal interpretation in many jurisdictions. 

There is also the question of the instrument of payment. While Cairn decided to go after cash-rich bank accounts of GoI at first and then onto the commercial properties, Devas shareholders have opted to "garnish" Air India's assets. This means Devas is entitled to collect all air navigation charges (incurred during flights) and aerodrome charges collected by AAI in Quebec as well as internationally. 

Be that as it may, the truth remains that properties were attached and legal precedents were set for aggrieved entities in the future to follow suit if they weren't able to claim what's due from court orders.

Therefore, it's not a complete surprise to see Devas follow suit.

 

Tata's Tryst With Air India's Seized Assets

There is one key difference between the Cairn- and Devas-era when it comes to seizing Air India assets. With the Tata acquisition becoming final recently, the question of the airline remaining an "alter ego" of the Indian Government is crucial. How is it an alter ego if it's no longer a Government entity? 

Moreover, the Tatas have been explicitly granted indemnity from any past legal claims in the share purchase agreement with the Government. This is likely to throw a wrench in Devas's attempts to claim the airline's assets considering that privatisation renders the "alter ego" hypothesis moot. The transfer of control and ownership is, in effect, a likely saving grace for Air India as a change in promoter identity could sever sovereign ties and therefore free the airline from any obligations of the Government, by extension. 

 

Much Ado About Debt

National image aside, the continued attempts by entities to seize and attach Government properties abroad is a sign of hostility against private corporations that is far from investor-friendly. 

Although court battles between state and private entities may not be out of the ordinary, non-compliance with court orders is. Not only is it indicative of India's inadequate legal representation at global forums, the state's defiance from acknowledging and implementing orders of tribunals that it has voluntarily opted jurisdiction under, is a telling tale of deteriorating bureaucratic principles. It also sends a message to global investors about the eroding credibility of the state machinery and its inability to abide by its international pledges. 

Well, sooner or later, it will be time to pay up. For hell hath no fury like India's owed-and-unpaid arbitration claimants. 

FIN.
 

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