The group had been battling the Indian government for years over the cancellation in 2011 of a telecoms contract held by its company, Devas Multimedia. Having won a key tribunal decision ordering India to pay Devas more than $500mn in damages, plus hundreds of millions of dollars in interest, they hoped a compromise payout could be struck.
After two days of negotiations led to a provisional agreement for India to pay Devas “hundreds of millions of dollars”, the government suddenly walked away, without explanation, according to people familiar with the matter.
In an apparent U-turn, it is engaged in a public fight with Devas, repeatedly calling the original contract fraudulent and vowing not to pay up. Devas, whose shareholders include Deutsche Telekom as well as US investment groups Columbia Capital and Telecom Ventures, has won tribunal rulings ordering India to pay the group around $1.3bn.
The issue has become politicised in India, providing Modi’s ruling Bharatiya Janata party with a means of attacking the Congress party, its chief political rival, that struck the contract with Devas when it was in power between 2004 and 2014.
The government made the accusations of fraud as India was preparing for a series of state elections held in February and March, which the BJP went on to sweep, with further elections due later this year and national polls in 2024. The Congress party has denied any wrongdoing in the Devas deal, while Devas also denies fraud.
“One of the endeavours has always been to completely delegitimise the Congress party and whatever it did before 2014. The narrative is that before 2014 the country was run by a bunch of crooks who looted the country,” said Prabhash Ranjan, a professor at India’s Jindal Global Law School.
The Devas case “fits into that political narrative. It becomes another stick to beat the Congress party and the previous government,” he added.
The battle between Devas and India dates back to 2005, when the company, set up by a former Goldman Sachs banker, agreed to lease satellite spectrum from an Indian state-owned company called Antrix and pay more than $300mn to develop a broadband network across the country.
However, in 2011 a report by India’s comptroller and auditor general accused the government of overseeing non-competitive bidding for mobile phone spectrum licences that cost the exchequer billions of dollars in revenues.
Antrix cancelled the contract with Devas shortly afterwards, citing force majeure. The move came at a time when India’s government, then ruled by the Congress party, was embroiled in one of its biggest corruption scandals in years over the allegedly fraudulent allocation of telecom spectrum. A court cleared a former telecoms minister and several others of criminal wrongdoing in 2017.
In Devas’s case, Indian authorities did not cite fraud as a reason for the cancellation until years later. Those accusations, for which Devas says they have not so far provided evidence, came after the group had won a ruling at the International Chamber of Commerce in 2015. The ruling ordered India to pay $562mn in damages plus $100mn in interest.
The government’s position has been strengthened by India’s Supreme Court, which upheld an order to wind up Devas in January and cited allegations of wrongdoing to justify the decision.
At a press conference held shortly after the Supreme Court ruling, finance minister Nirmala Sitharaman called the deal a “fraud of the Congress , by the Congress, for the Congress”.
The rhetoric appears a far cry from the meeting in Paris that was attended by high-level delegates from both sides, with the French capital picked as a neutral venue.
For Devas, chief executive officer Ram Viswanathan was joined by Larry Babbio, the former president of Verizon and Devas chair, and Columbia Capital partner Jim Fleming, according to people familiar with the matter. The Modi government was represented by national security adviser Ajit Doval and Alur Seelin Kiran Kumar, former chair of the Indian Space Research Organisation.
Following the meeting, a deal was drafted which included a provision that all proceedings, including a probe by India’s Central Bureau of Investigation, be dropped. However, the Indian government abruptly stopped responding to Devas’s calls, according to people familiar with the matter.
Officials from India’s NSA, ISRO and finance ministry did not respond to requests for comment about the meeting.
“It’s perplexing to us that, having agreed to resolve this, . We still don’t have any explanation,” said Jay Newman, who headed hedge fund giant Elliott Management’s 15-year battle to force Argentina to pay out $2.4bn on its defaulted debt and who is advising Devas.
Irfan Nooruddin, professor of Indian politics at Georgetown University in Washington DC, said that the government would have seen few risks in ditching a possible settlement with Devas.
He added that the government was very effective at using “hypernationalism” when facing economic issues that threatened to damage it politically.
Newman said the incident was “most disturbing” for potential investors in India, adding he had “received a lot of calls from people who were looking at investments and wanted to know our experience”. It has also raised parallels with other foreign investor disputes in India, such as those with Britain’s Cairn Energy, now known as Capricorn Energy, and Vodafone over a retrospective tax provision introduced in 2012. Both companies had won international arbitration rulings against India. But in contrast to the Devas case, Modi’s BJP government last year scrapped the tax provision and moved to settle with Cairn and others, arguing that it was rectifying a historic mistake of the Congress party. Modi’s government argues that it has introduced foreign-investor friendly policies, along with scrapping the tax provision, that make India one of the most attractive investment destinations in Asia. At the Brics business forum last month, Modi touted his government’s reform drive and efforts to improve the ease of doing business. “Transformative changes are taking place in every sector,” he said. Devas, meanwhile, has been trying to keep up the pressure on India, targeting the potential seizure of state assets around the world, including a property in Paris’s upmarket 16th arrondissement. It now plans to try to secure a further international tribunal ruling, this time directly against the government of India rather than against Antrix, to make it simpler to target further assets. India, however, shows little sign of wavering. Speaking to foreign reporters earlier this year, finance minister Sitharaman ruled out coming to an agreement with Devas, citing the Supreme Court’s finding that it was a fraud. “Which country would love to settle with frauds? Tell me that,” she said. “No way.”