Chronicle Of A Deal Undone
It has been nearly three years, but still no one knows on exactly what grounds the UPA government cancelled the now-infamous ‘S-band’ deal between Devas Multimedia and Antrix Corporation, the commercial arm of the Indian Space Research Organisation (ISRO). Spooked by the then unfurling 2G scam, and given that space comes directly under Prime Minister Manmohan Singh’s watch, the government cited “national needs” and the country’s strategic requirements as the reasons.
Under the deal signed in 2005, the government-owned Antrix Corporation would have provided S-band spectrum to Devas for providing satellite-based digital multimedia services in India. ISRO was also building two satellites for this project. All that’s history now. As things stand, Devas has filed a case in the International Court of Arbitration and Antrix is in for a potentially messy (and financially damaging) legal tangle.
Cornered thus, the government seems to be trying to put pressure on Devas to back out from the case. The company has been served with a showcause notice from the Registrar of Companies (RoC) as well as an income-tax claim even with its project being cancelled.
A lot of money is at stake. Devas’s arbitration could put a burden of $1.6 billion on Antrix (and, in turn, the government) in case it loses the case—hearings are expected to start in New Delhi in October. Antrix had lost a case challenging Devas’s arbitration in the Supreme Court in May this year.
The financial burden on the government, in fact, could be bigger considering that three of Devas’s investors—Columbia Capital/Devas (Mauritius) Ltd, Telecom Devas Mauritius Ltd and Devas Employees Mauritius Private Ltd—have pulled the GoI as well into the international arbitration citing breach of the Bilateral Investment Protection and Promotion Agreement (BIPPA). The hearings in this case would be held in The Hague in September next year. Another investor, Deutsche Telekom Asia, has also issued notices for similar arbitration. The combined damage the government could then face is around 3.5-4 billion dollars. This is besides the over 150 million dollars it has already spent on the two satellites built for the Devas project, which are lying unused.
In this scenario, it is natural for experts to regard the actions by various government agencies on Devas as pressure tactics being mounted by the government. In most of these notices, a case is being made out against Devas, going against normal practice. The I-T claim, for instance, has been built by disallowing the company’s claims of business expenses, and questioning the company’s payments to its parent organisation. The I-T claim is for Rs 34 crore while Rs 16.73 crore has been added as income.
Although the tax claim is legitimate under Indian tax laws, an I-T officer Outlook spoke to said that such claims are “not normal practice”. Most of such claims are made at the discretion of assessing officers who may not push forward such issues in other cases. “These orders are tenable under law but are not always passed. A lot of it is at the discretion of the assessing officers,” a senior official of the I-T department told Outlook on condition of anonymity. “Here clearly, the AO took a call on not allowing the business losses. In certain cases, we also generally impose (a claim) and then err and correct.”
Also, the I-T department often makes claims beyond the mandate of the case which are later turned down by appellate authorities and does not harm the person/entity being assessed in the long term, the officer said. What was left unstated is that such a manner of making excess claims is often used by the government or the department to harass or pressurise companies or individuals to force them to yield on other grounds.
Devas obviously insists that its expenses were genuine and were investments for building terminals for the projects, apart from paying the government for the two satellites ISRO was building for the project. “The deal was cleared by the FIPB after looking at all aspects and proposed investments. We have invested $130 million in building infrastructure and another $40 million for satellites. How can this not be business expenses? How can they seek tax on passive income and on interest income on promoter’s capital?” asks Ramachandran Vishwanathan, president and CEO, Devas Multimedia.
Moreover, in a bizarre move, Devas has also received a showcause from the Registrar of Companies, Karnataka, under which the company has been accused of acting in an unlawful manner. In a clear case of pressure tactic, the RoC says that since the contract has a provision under which it could be cancelled in case the company acted in an unlawful manner, the company must have acted unlawfully. Accordingly, the RoC sought to cancel the company’s existence in India by cancelling its incorporation.
The notice states that the force majeure clause in the Antrix-Devas agreement enables it “to cancel the contract, if the cancellation is on the basis of ‘public policy’ of the government, that part of the business undertaken by the company is for unlawful purpose and against ‘public policy’. Hence it is very clear that the company has acted in an unlawful manner and against public policy attracting the cancellation of incorporation certificate issued to the company.”
Devas claims they have got a stay on the RoC notice from the Delhi High Court and has bought time before their arbitration hearing in October. The I-T case, on the other hand, is now with the Dispute Resolution Panel of the I-T department which will look into the matter in its meeting in December. But since the panel rarely goes against the department, the matter is certain to go to the Income-Tax Appellate Tribunal which will take a final call on the matter. And it could be anyone’s game there.
That’s for the lawyers on both sides to battle out. Devas seems determined to go through the arbitration process in October and expects a favourable verdict by December this year. Unless, of course, the GoI springs more surprises.
While "Integrity" was mollifying his feminist leader with extortionist divorce laws, anti-male reservations, and so on, the dynasty leader was turning a blind eye to his under-hand deals ( or at best, inefficiency )
Shows what values, the powers-that-be, have.
And who else will pay a price for this but hard-working males, of course!
from which account will government pay money if Antrix lose this case?
Money looted from 2G scam, coal gate scam or they will reduce the amount of cheap food which will be given to 67% of the population under FSB?
The fate of Enron is before Devas. It is unlikely to prevail.
Government yet to make the nation know why the deal was cancelled. Was it because there was not enough kickbacks for the"powers that be" or any breach of national security. Government is bound to tell the nation its ulterior motives or its bonafide intentions.
The government cancelled Devas deal for fear scam? Or was the government scared of witch hunting by the media and the government role for legitimate from the beginning?
This is pathetic state of affair. What else the government has solely out of fear from media, political opponents and judiciary?
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