Delhi HC refuses to stay arbitration invoked by Khaitan Holding against Centre over cancellation of 2G Licences in 2012

The Delhi High Court yesterday refused to grant an ad-interim stay on the arbitral proceedings commenced by Khaitan Holdings (Mauritius) Ltd against the Union of India, seeking compensation for the cancellation of its Unified Access Services Licences in 2012..The order was passed by a Single Judge Bench of Justice Prathiba M Singh in the Centre’s plea seeking an anti-arbitration injunction against the said proceedings initiated by Khaitan Holdings..The arbitral proceedings were invoked by Khaitan Holdings pursuant to the Bilateral Investment Treaty (BIT) between India and the Republic of Mauritius for the promotion and protection of investments..The arbitral dispute between Centre and Khaitian stems from the 2012 Supreme Court order cancelling 21 Unified Access Services Licences (UASL) granted to Loop Telecom. The licenses were cancelled in the aftermath of the CAG Report that unearthed the alleged Rs 1.76 trillion 2G scam..In spite of the fresh auction ordered by the Court, Loop Telecom chose not to participate in the subsequent bidding process and sought refund of the license fee paid by it to the Centre. The BIT mechanism was triggered in April, 2012 for compensation and in September 2013, notice of arbitration under Article 8.2 of the BIT Agreement was issued by Khaitan Holdings on the ground that it held 26.95% in Loop Telecom..Meanwhile, all 17 accused in the alleged scam were also acquitted by the Special CBI Court in December 2017..Subsequent to the judgment, Khaitan Holdings sought appointment of the Presiding Arbitrator by the Permanent Court of Arbitration as per the UNCITRAL Rules. The Presiding Arbitrator was thus appointed was appointed in May 2018. In December 2018, the Arbitral Tribunal confirmed the first date of hearing in the arbitration as January 28, 2019..The Centre therefore moved the High Court earlier this month seeking an anti-arbitration injunction..It challenged the arbitration proceedings on the ground that the the decision to cancel the licenses was rendered by the Supreme Court in public interest and that the there was no expropriation in absence of due process..It was also claimed that Khaitan Holdings is not a “genuine investor” as it is controlled by Indian citizens Ishwari Prasad Khaitan and Kiran Khaitan, and hence cannot invoke the BIT for initiating arbital proceedings. It also argued that the entire foreign investment, being through the automatic route, was subject to Indian laws under the UASL..Additionally, since Loop Telecom had already availed of its remedies against the cancellation of its licences under Indian law, the rights under the BIT stood waived, the Centre submitted..Khaitan argued that the Centre had acquiesced to the constitution of the Arbitral Tribunal when it participated in the arbitral proceedings without demur or protest. It also argued that Khaitan Holdings’ status as an ‘investor’ under the BIT Agreement is to be interpreted by the Arbitral Tribunal and not by the Delhi High Court..Rejecting the objections raised by the Centre for an ad-interim injunction, the Court observed that all the above grounds are those that can be decided by the Arbitral Tribunal..“The arbitration having been invoked in 2013 and the Tribunal having been constituted and being seized of the dispute, it is not for this Court to adjudicate on these issues. The above issues ought to be raised by the Republic of India before the Arbitral Tribunal, which under Article 21, would rule upon the same.”.It also stated that the proceedings cannot be termed as “being oppressive, vexatious or an abuse of process at this stage“..Holding that the continuation of arbitral proceedings is the rule and not the exception, it further observed,.“The continuation of the arbitral proceedings under the BIT, at this stage, may per se not be contrary to public policy. It is a principle of public policy that the Government has to honour its commitments including bilateral ones. The representations made by any state under either a bilateral or multilateral treaty is what holds the community of nations together. The adherence to treaties is therefore not just a contractual stipulation but a solemn commitment by a sovereign nation. Thus, the continuation of arbitral proceedings is the rule and not the exception.“.The Court also noted that BITs, being sui generis in nature, do not depend on the applicability, interpretation and adjudication under domestic laws..“Interference with the BIT dispute resolution mechanism in the case of a genuine investor dispute could lead to erosion of investor confidence and also dislodge the fundamental precincts on which BITs are based.”.The Court has nonetheless clarified that the observations made by it are “merely prima facie in nature and are not to be construed as an opinion on the merits of the matter.”.The prayer for ad-interim stay of the arbitral proceedings commenced by Khaitan Holdings under the BIT was thus accordingly rejected..The Centre was represented by Additional Solicitor General Sanjay Jain with Advocates Piyush Joshi, Anuradha R V, Sumiti Yadava, Lalia Philip, Prithvirat Chauhan and Yuvraj..Khaitan Holdings was represented by Senior Advocate Dayan Krishnan with Advocate Misha Rohatgi Mohta..The case will next be heard on March 5..Read the order: