United States Court Refuses to Stay Liquation proceedings in NCLT Against Devas Multimedia
The Court of Western District of Washington in Seattle (US Court) on 29 March 2021, refused to stay the liquidation proceedings against Devas Multimedia in a National Company Law Tribunal (NCLT) despite issuing a temporary restraining order in the matter on 24 February 2021.
On 28 February 2005, Devas Multimedia and Antrix Corporation signed an agreement for ISRO to lease two communication satellites for 12 years at a cost of Rs. 167 crore to Devas Multimedia.
Antrix Corporation is a start-up firm, that provides multimedia services to mobile platforms in India using the space band or S-band spectrum transponders on ISRO's GSAT 6 and 6A satellites built at a cost of Rs. 766 crore by ISRO. The said deal was annulled by the UPA government in February 2011 in the backdrop of the 2G scam and allegations in the allocation of the S-band spectrum to Devas Multimedia.
Three foreign investors approached the US Court who had invested in Devas Multimedia and US subsidiary Devas Multimedia America Inc. The investors expressed concern over Devas Multimedia's agreement with Antrix Corporation on compensation payment as it was going to liquidate.
The foreign investors claimed that India's Law Ministry has issued an ordinance amending the Indian Arbitration and Conciliation Act of 1996 to allow Courts to stay an arbitration award if it is proven that an "arbitration agreement or contract which is the basis of the award was induced or affected by fraud or corruption".
The US Federal Court didn't entertain the plea for seeking a stay on liquidation proceedings initiated in India by Antrix Corporation i.e. the ISRO's commercial arm against Devas Multimedia Pvt. Ltd. The international arbitration forum has been awarded $1.2 billion compensation due to a failed 2005 satellite deal.
The US Court stated in it's order while refusing to interfere with the ongoing proceedings before the NCLT that "Although substantial evidence suggests that collusive conduct may be afoot, thereby frustrating this court's interests in preventing vexatious or oppressive litigation in a foreign forum and in protecting its jurisdiction, the Court concludes that the interests in preserving international comity should carry great weight in this case."
The US Court had passed an interim order on 24 February 2021 wherein it stated that Devas Multimedia and "its shareholders, directors, officers, agents, employees, and legal representatives, are prohibited from taking any action with respect to the award" of $ 1.2 billion confirmed by the US court in November 2020 "without first obtaining the approval of the Court".
It has also permitted three foreign investors in Devas Multimedia – CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, Telecom Devas Mauritius Limited, and Devas Multimedia America Inc – to intervene on behalf of Devas Multimedia in an appeal filed by Antrix Corporation against the confirmation of the $ 1.2 billion compensation award.
The US Court said that it issued an interim order restraining the legal proceedings in India to prevent Devas Multimedia from being "unfairly liquidated".
It added that "The Court is satisfied that intervenors' participation in the proceedings in India may work to mitigate any threat of irreparable harm to them or petitioner. Further, in the event the award is set aside by the Supreme Court of India, the respondent will still be required to file a motion in this court to vacate the confirmation order and judgment, and intervenors will have an opportunity to respond to any such motion."
The US Court concluded that "Investors have not sustained their burden to show a likelihood of irreparable harm in the absence of the injunctive relief they seek, and that international comity concerns counsel against a preliminary injunction, the Court denies the motion for a preliminary injunction."