In a setback to foreign telcos such as Sistema, Telenor, Attorney General Goolam Essaji Vahanvati today opined these players cannot claim damages from the Indian government under any bilateral investment promotion and protection agreement (BIPA), following cancellation of their telecom licences by a Supreme Court order.
“The claim of damages from the government is based on a complete misunderstanding of the Constitutional position prevailing in this country,” the attorney general said in his response to queries by the Department of Telecommunications (DoT). The AG had made it clear that “under the Constitution, there are separate powers between the legislature, the executive and the judiciary. BIPAs have been entered into by the government…the alleged losses which emanates out of orders passed by the court does not constitute a cause of action against the government.”
Earlier this year, DoT had sought the AG’s opinion on whether foreign telcos, whose licences got cancelled by a Supreme Court judgment in February, could take legal action against the government and claim damages under a BIPA.
The opinion of the AG comes as a blow to foreign telecom firms such as Sistema, Telenor, Loop Telecom as well as foreign investment funds such as Kaif Investments Mauritius and Capital Global Ltd (investors in Loop Telecom), which had sent legal notices to the government under a BIPA or Comprehensive Economic Cooperation Agreement (CECA). The players had been demanding damages under BIPA from the government for the losses they had to face after the cancellation of their licences. The licensees had also claimed refund from the government.
The AG has also ruled out refund of entry fee paid by the licencees. It is not in favour of including new clauses in the upcoming auctions, which require foreign players to indemnify that in case they succeed in the auction, they will not claim damages from the government. The AG also made it clear that foreign investors cannot invoke these bilateral treaties if the investors were found to have misrepresented facts which led to wrongful determination of eligibility criteria for getting the licences. Besides, the foreign investors cannot claim damages from the government, if the licences were terminated on account of violation of any of the licence conditions, such as not meeting the roll-out obligation.
DoT had also asked whether foreign entities that invested in domestic companies, whose promoters have been prosecuted on criminal charges, could claim damages. To this, AG said “the fact that the promoters are being prosecuted under criminal law is certainly a relevant factor with regard to the maintainability of the claim for damages by foreign investors.”
However, "this issue depends on whether foreign investors did a proper due-diligence before investing in domestic companies," which is a matter of evidence.
DoT had asked the AG to make it clear whether foreign investors can invoke these bilateral treaties from the date of licence cancellation or from the date the department moved a Presidential reference in the Supreme Court. It further wanted the AG to state whether foreign investors must first exhaust all other legal options before they can send notices under BIPA to the government.
To this, the AG said since some of the players have filed review petitions and curative petitions and the legal remedies are still pending, “no cause of action, can, in any case arise, till they are disposed of.”
The Supreme Court on February 2008 had cancelled 122 telecom licences granted to private players after 2008. Of these, many licences belonged to the foreign players or players where there are foreign investors. The government had received notices from as many as five players following the apex court judgment.
White and Case LLP, London, representing Sistema JSFC of Russia, had filed a case under BIPA for their investment in Sistema Shyam teleservices. Besides Sistema, other telecom firms had also served notices on the government under BIPA. Telenor Asia has also served a notice, under CECA with Singapore, for their investments in Unitech Wireless. The investors in Loop Telecom, Capital Global Ltd and Kaif Investment served notices under BIPA with Mauritius.
As part of the economic reforms programme initiated in 1991, the foreign investment policy of India was liberalised and negotiations undertaken with a number of countries to enter into BIPAs in order to promote and protect on reciprocal basis investment of the investors. India have so far (as on July 2012) signed BIPAs with 82 countries, out of which 72 BIPAs have already come into force and the remaining agreements are in the process of being enforced.
The objective of BIPA is to promote and protect the interests of investors of either country in the territory of the other country.