Comment

Rattling foreign investors

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On August 15 last year, Prime Minister Narendra Modi laid down his vision for an AtmaNirbhar Bharat Abhiyan (self-reliant India initiative). He said that India is emerging as a major destination for foreign direct investment (FDI) and is shifting its focus from ‘make in India’ to ‘make for the world’. In pursuit of this ambition, the Commerce Ministry recently reported that India attracted the highest ever FDI of $81.72 billion in 2020-21. However, several economists argue persuasively that the surge in FDI inflows is driven by unprecedented short-term portfolio investment inflows and a few major acquisition deals involving select corporations.

An important factor that propels investors to invest in foreign lands is that the host state will keep its side of the bargain by honouring contracts and enforcing awards even when it loses. But when the host state refuses to do so, it rattles the investors, shakes their confidence in the host state’s credibility towards the rule of law, and escalates the regulatory risk enormously. Sadly, to an extent, this has been India’s story over the last few years.

Defiance of awards

Last year, India lost two high-profile bilateral investment treaty (BIT) disputes to two leading global corporations — Vodafone and Cairn Energy — on retrospective taxation. The responsibility for these two adverse arbitral awards lies at the door of the United Progressive Alliance-2 (UPA-2) government that startlingly amended the tax law retrospectively after losing a case to Vodafone at the Supreme Court. The current government, instead of remedying the past mistake by honouring both the arbitral awards and restoring India’s lost credibility in the eyes of the investor community, continues to exhibit the same defiance. India has challenged both the awards at the courts of the seat of arbitration. While India is well within its rights to do so, it continues to maintain that it ‘never agreed to arbitrate’ a tax dispute – an argument that the Cairn tribunal rejected unequivocally, and rightly so.

As India drags its feet on the issue of compliance, Cairn has launched legal proceedings in the U.S. to enforce the arbitral award of $1.2 billion by seizing the assets of Air India. This not only puts Air India in dire straits, especially when the government is attempting to privatise it, but also harms India’s reputation in dealing with foreign investors.

The interminable Devas saga

The other set of high-profile BIT disputes which stick out like a sore thumb for India arose from the cancellation of an agreement between Antrix, a commercial arm of the Indian Space Research Organisation, and Devas Multimedia, a Bengaluru-based start-up, for the lease of satellite spectrum. The UPA-2 government annulled this agreement arbitrarily on the grounds of national security. This annulment led to three legal disputes — a commercial arbitration between Antrix and Devas Multimedia at the International Chambers of Commerce (ICC), and two BIT arbitrations brought by the Mauritius investors in Devas Multimedia under the India-Mauritius BIT and by Deutsche Telekom, a German company, under the India Germany BIT. India lost all three disputes. The ICC arbitration tribunal ordered Antrix to pay $1.2 billion to Devas after a U.S. court confirmed the award earlier this year. India challenged the Deutsche Telekom tribunal award in the Swiss Federal Tribunal (being the court of supervision of the arbitration) requesting for annulment, but lost the case.

After the ICC award, Indian agencies started investigating Devas accusing it of corruption and fraud. In what seemed to be a case of pulling a rabbit out of the hat, last month, the National Company Law Tribunal (NCLT) ordered the liquidation of Devas on the ground that the affairs of the company were being carried on fraudulently. Further, the NCLT directed the official liquidator to prevent Devas from perpetuating its fraudulent activities and abusing the process of law in enforcing the ICC award. This has led to Devas issuing a notice of intention to initiate a new BIT arbitration against India, sowing the seeds for complex legal battles again.

Indisputably, transgressions by foreign investors should be dealt with firmly. But a closer reading of these cases reveals that whenever India loses a case to a foreign investor, immediate compliance rarely happens. Instead, efforts are made to delay the compliance as much as possible. While these efforts may be legal, it sends out a deleterious message to foreign investors. It shows a recalcitrant attitude towards adverse judicial rulings. This may not help India in attracting global corporations to its shores to ‘make for the world’, as Mr. Modi correctly aspires.

Prabhash Ranjan will soon join the Jindal Global Law School as a Professor and Vice Dean. Pushkar Anand is an Assistant Professor of Law at Delhi University. Views are personal


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Printable version | Dec 1, 2021 3:56:49 AM | https://www.thehindu.com/opinion/op-ed/rattling-foreign-investors/article35026303.ece

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