Devas-Antrix deal: Deutsche Telekom seeks security deposit as India seeks stay, citing fraud

German telecom major Deutsche Telekom, which has moved a US federal court for enforcement of an international compensation award of $135 million from the Government of India (GoI) over the failed 2005 Devas-Antrix deal, has sought the posting of the full amount as security by India even as the GoI has sought a stay in the proceedings, citing a case filed in a Swiss court against the compensation award.

In April 2021, Deutsche Telekom filed a petition in the satellite US District of court seeking confirmation of compensation of over $135 million (including interest) awarded by a Permanent Court of Arbitration in Geneva in 2020 over the annulment of a deal signed in 2005 by a Bengaluru based start-up Devas Multimedia (where Deutsche Telekom had stakes) and Indian Space Research Organization’s (Isro) commercial arm Antrix Corp.

The Indian government has now sought a stay on the case by citing ongoing cases in a Swiss federal court for revision of the earlier compensation award on the basis of court proceedings in India that have suggested fraud in the creation of the firm Devas Multimedia.

In filings on June 1 in the US District of Columbia court, Deutsche Telekom has questioned the fraud allegations made against the firm on the basis of proceedings in the National Company Law Appellate Tribunal in India and the Supreme Court of India. The firm has claimed that it was not a party to the alleged fraud on the basis of which Devas Multimedia was liquidated by the National Company Law Tribunal.

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“Through its deliberate actions, India is transforming itself from ‘a sovereign country with economic tendrils that cross the globe’ to ‘an insecure potential debtor that must be required to post security lest there be no assets to seize at a later date’. This weighs in favor of an order to post security,” the German telecom major has said in its US court filing, seeking a full security deposit from India in the event of the court imposing a stay on its efforts to enforce the $135 million compensation award .

The GoI in its application for a stay has stated that it has moved a Swiss federal court with new evidence that the creation of Devas Multimedia involved fraud as revealed by a Supreme Court of India order of January 2022 on the liquidation of Devas Multimedia.

“In its judgment, the Indian Supreme Court concluded that Devas had been formed ‘for a fraudulent and honest purpose’ and that ‘the affairs of the company were conducted in a fraudulent manner’, in violation of India’s 2013 Companies Act,” the GoI has informed the US court.

“Among other determinations, the Indian Supreme Court, the first judicial body to hear the fraud issues, concluded that Devas made fraudulent representations about its ownership of the intellectual property rights to the technology necessary to carry out the alleged investment, that the vast majority of funds purportedly “invested” in Devas were siphoned offshore, and that Devas’s shareholders were “fully aware” and responsible for Devas’s fraud,” states the Indian government filing in the US court.

Deutsche Telekom has argued that it was not a part of the formation of Devas Multimedia and that the German firm invested in the start-up after it was created.

“With the goal of preventing the enforcement of the final award, the appellate court (NCLAT) and Supreme Court both included dictous dicta that contradicted the NCLT’s finding that the alleged fraud did not implicate Devas’ shareholders, like petition, and instead attributed to responsibility to petitioner , even though a petitioner purchased its shares in Devas three years after the alleged fraud took place,” Deutsche Telekom has stated in its arguments.

The German telecom major has also argued that the Indian government has withdrawn from agencies like the International Air Transport Association after Deutsche Telekom obtained orders from a Swiss court in January this year to seize Indian deposits with the IATA.

“Petitioner obtained that attachment (IATA) on January 7, 2022. In response, on April 1, 2022, India withdrew from the IATA to prevent the attachment of additional funds. India’s attempt to put its assets beyond the reach of petition justifies denying the stay motion and ordering India to post security for the full amount of the award,” says the Deutsche Telekom plea.

“Specifically, India has withdrawn from the IATA after petition successfully attached India’s interest in funds held by the association and divested its interest in Air India in New York after award sought enforcement of the petition against Air India,” Deutsche Telekom has stated.

In a similar case filed in the same US court by three Mauritius-based investors in Devas Multimedia – seeking compensation of $111 million – the US court had ordered a stay on March 25.

The US court for the District of Columbia cited an appeal filed by the Indian government in a Dutch court against the October 2020 compensation award of $111 million to stay the plea for confirmation of the award as sought by three Mauritius based investors in Devas Multimedia.

Incidentally, the Mauritius investors obtained an order from a Canadian appeal court in Quebec, on April 29, for a stay on a January 8 order of a Superior Court of Quebec barring seizure of funds from the Airports Authority of India (AAI) deposited with the Montreal-headquartered IATA.

The order will reportedly enable the Mauritius investors in Devas Multimedia to seize an amount of nearly $55 million held by the IATA on behalf of the AAI and Air India.

The 2005 satellite deal between Devas Multimedia and Antrix Corporation has been caught in a maze of legal disputes since the deal was annulled by the UPA government in 2011.

Under the failed 2005 Antrix-Devas deal, Isro was supposed to lease two communication satellites for 12 years at a cost of Rs 167 crore to Devas Multimedia. The start-up was to provide multimedia services to mobile platforms in India using the space band or S-band transponders on Isro’s GSAT 6 and 6A satellites built at a cost of Rs 766 crore.

The deal was annulled by the UPA government in February 2011 amid the 2G crisis by citing the requirement of the S-band spectrum for security purposes of the country. After the NDA government came to power in 2014, the CBI and ED began serious investigations of the deal.

The Enforcement Directorate and the Central Bureau of Investigation in India are pursuing cases of money laundering and corruption against Devas and its officials.

After the cancellation of the deal, the foreign investors in Devas Multimedia – Deutsche Telekom, three Mauritius investors, and Devas Multimedia itself – approached various international tribunals seeking compensation for the canceled deal.

The NCLT in India ordered the liquidation of Devas Multimedia on May 25, 2021, citing fraudulence in its creation. The NCLT order was upheld by the Supreme Court of India on January 17, 2022.

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