Legal tangle

The scrapping of the Antrix-Devas agreement involves complex legal questions.

in New Delhi

ON February 17, the Cabinet Committee on Security (CCS) decided to annul the Antrix-Devas deal on the basis of the recommendation of the Space Commission, although it was not revealed how the government planned to go through the process of annulment. Only a day earlier Prime Minister Manmohan Singh had, in an interaction with editors of television news channels, said that the government had not decided whether to invoke Article 7 or 11 of the Antrix-Devas Agreement or use both to annul it. How the government will handle the serious legal issues that are likely to result from each of these options is also not clear.

The agreement signed between Antrix Corporation Limited, the commercial arm of the Indian Space Research Organisation (ISRO), and Devas Multimedia Private Limited, Bangalore, on January 28, 2005, provides for the leasing of 90 per cent of the space segment capacity on two satellites by Antrix to Devas for 12 years.

According to a background note issued by ISRO on February 11, this would amount to 70 MHz at one of the three locations. (On the basis of approved allocations by the Department of Telecommunications, the Department of Space holds 80 MHz of S-band spectrum in three orbital locations and 70 MHz in four orbital locations (operable only at one location at a time) at locations designated by the International Telecommunication Union (ITU) for India.

The agreement provides for an upfront capacity reservation fee of $20 million per satellite and annual lease charges starting at $9 million per satellite. The amount payable by Devas is $300 million over a period of 12 years. There are also penalty charges to be paid by Antrix in case of late delivery of satellite or performance failures/service interruptions. To operationalise the agreement, Antrix committed itself to the development and launch of two satellites by ISRO, referred to as Primary Satellite-1 and Primary Satellite-2.

The ISRO background note also reveals that in December 2005 the Union Cabinet approved the building of the GSAT-6 satellite at a cost of Rs.269 crore following the approval given by the Space Commission in May 2005. In October 2009, the Space Commission approved the building of the GSAT-6A satellite at a cost of Rs.147 crore under its delegated powers. The launch cost of the satellites was Rs.350 crore. More important, the proposals of the Department of Space (DoS) in both the cases did not make any reference to their utilisation for the Antrix-Devas agreement. Accordingly, the background note says that the Government of India is under no obligation to utilise these satellites for the Antrix-Devas contract.

One-man committee

On receipt of complaints on the implementation of the agreement, the ISRO Chairman, who is also Secretary, DoS, set up a committee in December 2009, chaired by Dr B.N. Suresh (a former Member of the Space Commission), to review and examine the legal, commercial, procedural and technical aspects of the Antrix-Devas agreement.

The note claimed that, separately, the growth in the requirements for strategic and societal imperatives also became evident. The circumstances since 2005 had undergone a sea change. The last few years saw a tremendous demand for allocation of space-based spectrum, including for the S-band. This included the needs of defence, paramilitary forces, railways and other societal applications, all of which are dependent on the S-band, the note said.

On July 2, 2010, the Space Commission, when it came to know of the deal for the first time, directed the DoS to instruct Antrix to annul the agreement with Devas, in view of the priority to be given to the nation's strategic requirements, including societal ones. Article 7 of the agreement provides for termination of the agreement. Clause (c) provides for termination for convenience by Antrix, and reads as follows:

ANTRIX may terminate this agreement in the event ANTRIX is unable to obtain the necessary frequency and orbit slot coordination required for operating PS-1 on or before the completion of the pre-shipment review of PS-1. In the event of such termination, ANTRIX shall immediately reimburse DEVAS all the Upfront Capacity Reservation Fees and corresponding service taxes received by ANTRIX till that date. Upon such termination, neither party shall have any further obligation to the other party under this agreement nor be liable to pay any sum as compensation or damages (by whatever name called).

The satellites, PS-1 and PS-2, are still being developed by ISRO and have not yet been launched. No transponders have been given on lease to Antrix or Devas.

Article 3 (c) of the agreement provides the window of opportunity to Antrix to annul the agreement. Under this provision, Antrix shall be responsible for obtaining all necessary governmental and regulatory approvals relating to the orbital slot and frequency clearance. However, the background note claims that the orbital slot need not be compulsorily given to Antrix by ISRO/government. The Central government, it claims, is not duty bound to provide the orbital slot to Antrix for commercial activities, especially when there are strategic requirements.

The Ministry of Law and Justice opined that as per Article 7 (c) of the agreement, Antrix may terminate the agreement in the event it is unable to obtain the necessary orbital slot.

Therefore, the government, in exercise of its sovereign power and function, may take a policy decision to the effect that owing to strategic requirements, it would not be able to provide the orbital slot for operating PS-1 to Antrix for commercial activities. In that event, Antrix, in terms of Article 7 (c) read with Article 11 dealing with force majeure, may terminate the agreement and inform Devas accordingly.

Background note

The background note also referred to the opinion tendered by the Additional Solicitor General, Mohan Parasaran, that the annulment should be done through a policy decision taken at the level of the Government of India, acting in its sovereign capacity.

In his opinion, Mohan Parasaran points out that the Government of India, after the signing of the agreement, realised that it would take away most of the total S-band spectrum available. But Parasaran does not mention when exactly the government realised this. His opinion gives the impression that the government knew of the deal after it was signed, whereas the background note suggests that ISRO informed the DoS and the Law Ministry about it only sometime before July 2010. If the government knew of the deal in 2005 or subsequently, and realised that it would take away most of the total S-band spectrum available, it is inexplicable why it did not make this public immediately.

He then referred to the several strategic and societal services for which the S-band spectrum is crucial. The Integrated Space Cell of the Integrated Defence Services (IDS) headquarters in the Ministry of Defence has projected a need for 17.5 MHz in S-band to meet the immediate requirements of the armed forces, another 40 MHz during the 12th Plan period, and an additional 50 MHz during the 13th Plan period.

The armed forces have also projected the need to build S-band satellite capacity through GSAT-7S for national security-related mobile communications. He claimed that there were further demands for S-band transponders from the internal security agencies, namely, the Border Security Force, the Central Industrial Security Force, the Central Reserve Police Force, the Coast Guard, and the police for meeting their secured communication needs. He revealed that the Indian Railways had also projected S-band requirements for train tracking.

Severe penalty clauses for delayed delivery of the spacecraft and for performance failure/service interruptions, violation of the INSAT Coordination Committee (ICC) guideline of non-exclusiveness in leasing the capacity, and the contract enabling Devas to sublease the capacity without any approvals, which could give rise to security concerns, were the other grounds necessitating the annulment, Mohan Parasaran suggested in his opinion.

At its July 2010 meeting, the Space Commission took note of the fact that the ICC guidelines provide for the leasing of INSAT capacity for non-government users on a non-exclusive' basis, but in the Antrix-Devas agreement 90 per cent of the capacity was leased to a single party for the full lifespan of the satellite. Interestingly, Mohan Parasaran advised against reliance on Article 7 (c) of the agreement to annul the contract. According to him, the conditions stipulated in this clause could not be invoked at this stage (July 12, 2010, date of the opinion) for the purpose of terminating the contract. Curiously, he did not explain why.

He, instead, recommended use of Article 11 (a), relating to force majeure.

Article 11(a) provides that neither of the parties shall be liable for any failure or delay in performance of its obligations under the contract if the delay or failure is occasioned by force majeure as defined in the said Article and that it is incumbent upon either party seeking recourse to force majeure to give a notice of seven days of the event of force majeure having occurred to the other party.

Article 11(b) of the agreement defines force majeure in an inclusive manner. It has been defined to include any event, condition or circumstance that is beyond the reasonable control of the party affected and that despite all efforts by the affected party to prevent it or mitigate its effect (including the implementation of business continuation plan), such event, condition or circumstance prevents the performance by such affected party of its obligations mentioned herein.

The following events may be considered as force majeure events under the agreement: (i) explosion and fire; (ii) flood, earthquake, storm or other natural calamity or act of God; (iii)strike or other labour dispute; (iv) war, insurrection, civil commotion or riot; (v) acts of or failure to act by any governmental authority, acting in its sovereign capacity; (vi) changes in law and regulations; and (vii) national emergencies.

Of these, Mohan Parasaran has recommended to the government that it could invoke the events as defined under sections (v) and (vi).

He notes that when the agreement was entered into between Antrix and Devas in 2005, the circumstances were vastly different from what they are today. The governmental policies with regard to the allocation of satellite spectrum has undergone a sea change and there has been a tremendous demand for spectrum for national needs, including for the needs of the defence, paramilitary forces, the Railways and other public utility services as well as for societal needs.

He added: There can be no dispute whatsoever that the Government of India is the owner of satellite spectrum space and any policy taken by the Government of India with regard to allocation and use of S bandwidth, including those which are subject matter of contractual obligations, would fall within the doctrine of force majeure>, as envisaged in the very agreement between Antrix and Devas.

Mohan Parasaran specifically recommended that the decision to terminate be taken by the Government of India, rather than the DoS, in exercise of its executive power, as a matter of policy in other words, a policy decision having the seal and approval of the Cabinet and duly gazetted as per the Business Rules of the Government of India. This was because the provisions of the agreement expressly stipulate that for the force majeure event, to disable one of the parties to perform its obligations under the contract, the act must be an act by the governmental authority acting in its sovereign capacity. Several reasons exist to resort to this sovereign power for preserving the national interest, he suggested, but did not elaborate. In his view, the direction to Antrix to terminate the contract must come from the DoS on the basis of a governmental policy decision.

Contrary to claims made by Devas Multimedia, a note prepared by the DoS for the CCS points out that the company had plans to get into terrestrial broadband services in all major urban areas. Such a dispensation, it points out, might not ensure a level playing field for the other service providers using terrestrial spectrum, especially considering the significant demand for terrestrial S-band spectrum and the current trends on its price. Further indicting the agreement, the note states that Antrix would not have got enough revenues to compensate it for the cost of building and launching the satellite.

Compared with a total cost of Rs.766 crore, Antrix would have got revenues of Rs.1,350 crore over a 12-year period. However, it is debatable whether these could be considered as breaches of the contract by Devas.

Devas' options

Devas has threatened legal action if Antrix decides to terminate the agreement. The legal challenge by Devas, it appears, will revolve around some of these complex questions:

If Article 3 (c) read with Article 7 (c) in the agreement is invoked to build a wall of separation between Antrix and the government, and attribute Antrix's failure to obtain the required frequency and orbital slot to the government's refusal to grant the same to Antrix, the courts may be inclined to lift the corporate veil of Antrix to fix the responsibility on ISRO. Antrix's failure to obtain the necessary clearances owing to unforeseen factors (which the agreement seeks to protect) cannot be equated with the government's deliberate refusal to honour the agreement.

The doctrine of force majeure, the basis of Article 11 (b) in the agreement, can be sustained only when a fundamentally different situation has unexpectedly arisen after the conclusion of the agreement. Is it the case of the government that in 2005, when the agreement was signed, the phenomenal rise in the demand for allocation of spectrum for national needs in subsequent years could not be foreseen? If so, the government needs to substantiate its claim, rather than make bland assertions, as found in Mohan Parasaran's opinion.

If the government and ISRO find themselves in a terrible legal mess, it is partly owing to the veil of secrecy maintained over the agreement between 2005 and 2010, because of which the pros and cons of the agreement could not be discussed in the public domain before it was signed. Ironically, it is this obsession with secrecy that resulted in the inability to foresee the likely huge demand for spectrum allocation for national needs in different areas in 2005.