Devas case: Quebec court's order likely to be overturned, say legal experts

Indian legal experts have raised serious questions on the tenability of the interim order passed by a Quebec court for seizure of cash that the airport regulator Airports Authority of India (AAI) and national flag carrier Air India hold with the International Air Transport Association (IATA).
 
Already, over $30 million belonging to AAI has reportedly been seized by Devas Multimedia shareholders from the Montreal-headquartered airlines trade association.
 
"The amount is owed by an entity called Antrix Corp. but the court has ordered for the impounding of assets owned by Air India and AAI, which are owned by the same shareholders, i.e., the Government of India. If the assets are seized in this manner to pay off the liabilities of another legal entity, it would amount to a travesty of justice," Mumbai-based, aviation law expert and partner, Lumiere Law Partners, Vihang Virkar told Business Today.
 
The judgment could set a precedent where overseas assets of Indian multinational PSUs like ONGC could be targeted to pay off liabilities owed by another Indian government-owned entity, cautioned Virkar.
 
Without mincing words, Delhi High Court advocate Anu Mehta of Arbiters Law Firm, averred, "The judgment in question appears to be illegal, arbitrary, vexatious and in contravention to the basic tenets of law being violative of the principles of natural justice and is fit to be challenged and quashed at the appropriate court of appeal."
 
"Through misinterpretation and perversion, financial liability has sought to have been imposed or levied upon the purported judgment debtor even though the said party has no privity of contract with the plaintiff or claimant party," added Mehta who has previously represented Indian firms in cases involving Indian entities registered overseas.
 
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In 2005, the Indian Space Research Organisation (ISRO)'s commercial arm Antrix Corp. and Bengaluru-based startup Devas Multimedia had inked a satellite deal for offering hybrid satellite and terrestrial communication services throughout India. Following the deal, Deutsche Telekom had taken a 19.62 per cent stake in Devas Multimedia.
 
The agreement was, however, annulled by the United Progressive Alliance (UPA) government in 2011, citing security concerns.
 
In October 2020, a US court had asked Antrix Corp. to shell out $1.2 billion in compensation to Devas Multimedia. The company has since filed several arbitration petitions against the Indian government for confirmation of the compensation.
 
In arbitration involving demand for compensation, a defendant's assets can be seized to ensure enforcement of the award.
 
Immediate relief to AAI, AI unlikely
In an official statement, AAI denied being served any order by the Canadian court.
 
"However, IATA shared certain documents on AAI's request for suspending the transfer of amount collected on behalf of AAI. AAI is taking legal recourse to defend itself from the impugned order," the statement read.
 
Although the Canadian court has agreed to AAI and Air India's plea for an urgent hearing to decide if the seizure should continue or not, an immediate order is not likely.
 
"This is a matter of private international law involving important aspects of conflict of laws between countries. You have an international arbitration between an Indian entity and shareholders of another Indian entity. The resultant awards are sought to be enforced in an unrelated country, where an affiliate of the defendant coincidently has certain assets, which is the cash lying with IATA," argued Virkar.
 
The Canadian court will, therefore, take time to evaluate and form a view on whether assets under their jurisdiction can be proceeded against for debts owed by an affiliate of a defendant in international arbitration. If the current court does not rule in AAI and Air India's favour, they can first appeal to the Federal Court of Appeal and subsequently to the Canadian Supreme Court.
 
"If the Government of India, that owns Antrix Corp., has been ordered to pay Devas' shareholders, it should meet the obligation. The fact that AAI or Air India assets overseas are being targeted is an unfortunate repercussion of the government not honouring its obligations under the arbitration awards," Virkar added.
 
Time to revisit dispute resolution strategy

Legal experts are of the opinion that the Quebec court's order is liable to be overturned on technical grounds.
 
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"Based on the facts before us, I don't expect the courts in Canada to uphold the ability of the shareholders of Devas to attach AAI or Air India assets for an award payable by another corporate entity, since there appears to be no basis to lift the corporate veil, as there does not seem to be any fraudulent intent or improper divestment of assets by Antrix Corp or the Indian government," observed Virkar.
 
"It is against the law to make a party suffer an adverse order without giving it a reasonable opportunity to present and defend its case, clearly the judgment debtor was not given a fair hearing in gross violation of the principles of natural justice in the arbitrary exercise of authority and, thus, the judgment being perverse in law is liable to be set aside in appeal," asserted Mehta.
 
They also said the decision would push India to revisit its international investment obligations and dispute resolution strategies.
 
"The specific order from the Canadian court is one in a growing number of cases that are employing this new strategy of enforcement of awards through the attachment of property owned by foreign states. One of the approaches that most people would consider is to claim sovereign immunity. However, this is not an effective approach and it is not one that Indian courts promote either," said Mohit Saraf, Founder & Managing Partner at the New Delhi-based law firm Saraf & Partners.
 
He said the Quebec court ruling was similar to the July 2021 order passed by a French court for a freeze on the Indian government-owned residential properties in Paris in the Cairn Energy case, which has since moved to the stage of being settled amicably.
 
Terming the order as yet another instance of the "forum shopping phenomenon", Saraf held that countries would have to learn to grapple with it as more companies filed lawsuits in every favourable jurisdiction to optimise their risk mitigation.
 
"India must pursue a serious and thorough examination of its obligations and risks under various international treaties. It must also keep in mind its international obligations while developing domestic policies that may have repercussions that might affect the country, its public sector entities and their assets across the globe," he said.
 
The experts have, therefore, urged a calculated response on the government's part to stem the possibility of any serious repercussions arising out of the development going forward.

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