CASE
COMMENT
DEVAS
MULTIMEDIA PRIVATE LTD. Vs ANTRIX CORPORATION LTD. AND ANR.
CITATION:
SCC OnLine SC 46
AUTHOR:
Justice V. Ramasubramanian
BENCH:
Justice Hemant Gupta, Justice V. Ramasubramanian
DATE
OF JUDGEMENT: January 17, 2022
Appellant………………………………………………………......Devas Multimedia
Private Ltd.
Versus
Respondent……………………………………………………Antrix Corporation
Ltd. and Anr.
Introduction
Provisions
of Law Involved
Section 271 (c), 271 (e) of the Companies Act,2013
Section 17, Indian Contract Act, 1872
Companies Act, 1956
Companies Act, 2013
Issues
1.
Fraud
as a ground for winding up of a company under S.271 (c) of the Companies
Act,2013 and the difference regarding winding up under 1956 and 2013 Companies
Act.
2.
Whether
Advertisement before winding up of a company is necessary?
3.
Whether
the present petition against winding up of Devas is barred against Law of
Limitation?
4.
Whether
a company can be estopped from pleading fraud?
5.
Whether
Refusal to Commit Cross Examination in the present case is acceptable?
6.
Locus
Standi of Small Share Holders in winding up of the company
7.
Whether
Standard of proof applied by NCLT and NCLAT was not Acceptable?
Facts
of the case
The Respondent company in this case is Antrix
Corporation Ltd., which is the commercial arm of Indian Space Research
Organization (ISRO) which is owned by the Government of India and is controlled
administratively by the Department of Space.
On 28thJuly, 2003; Antrix entered into a
Memorandum of Understanding (MoU) with Forge Advisors, LLC which was a Virginia
based Corporation, The MoU involved Forge providing advisory services,
strategic partnership in areas of business development and corporate strategy,
launch of new services etc.
On22nd March, 2004; Forge proposed a
joint venture named DEVAS, a platform which will deliver multimedia and
information services via satellite to mobile devices tailored to the consumer,
commercial and social segments of the market. The proposal was given on 15th
April, 2004 it was this proposal which indicated the launch of joint venture
named DEVAS and an obligation on part of ISRO and Antrix to invest in one
operational S-Band Satellite with a ground space segment and USD 11 million to
be lease payments annually for a period of 15 years.
Devas Multimedia which was a Private Ltd. was
incorporated on 17th December,2004 and an agreement was formed
between Devas and Antrix on 28th January 2005 for the lease of
S-Band Space Segment. Antrix was also to lease out 5 CXS Transponders each of
8.1 MHz capacity and 5 SXC Transponders each of 2.7 MHz capacity on Primary
Satellite- 1 (PS-1). The fully operational PS-1 was to be delivered within 30
months of the agreement, with a further grace period of six months.
Devas from May 2006 till September 2009 brought an
investment of INR 579 crores subject to approvals from Foreign Investment
Promotion Board (FIPB). It also obtained a Internet service provider (ISP)
license from Department of Telecommunications on 2nd May,2008 and
permission to provide Internet Protocol Television (IPTV).
The January,2005 agreement was terminated by Antrix
on 25th February, 2011 under the Article 7(c) of the Devas-Antrix
2005 Agreement which provided for termination on the basis of Force Majeure. The reason for
termination was the government decision not to give orbital slots on S-Band for
commercial activities.
This termination led to filing of multiple
Arbitration cases initiated by investors of Devas, first in India under the ICC
Arbitral Tribunal, the Mauritius investors filed a BIT Arbitration under the
India- Mauritius Bilateral Investment Treaty and the German Company, Deutsche
Telecom, initiated a BIT Arbitration under the India-German BIT.
The ICC Tribunal passed an award of USD 562.5 million
with Simple Interest of 18% per annum in favor of Devas on 14th
September, 2015. The government of India also had to pay similar awards under
the other two BIT Arbitral proceedings.
The CBI in the meantime, filed an F.I.R on 16th
March,2015 against officers of Devas and Antrix for offences under Section 420
(Cheating and dishonest inducement resulting in delivery of property),120B
(Punishment for Criminal Conspiracy) of IPC and Section 13(1)(d) and a similar
charge sheet was filed by the Enforcement Directorate in 2015.
Thereafter, Antrix filed for winding up of Devas
under Section 271 (c) of the Companies Act,2013 after getting Authorization
from ministry of corporate affairs on 18th January,2021; on the
basis of this Authorization Antrix filed for dissolution on the same day before
the NCLT, Bengaluru. The order for the same was passed by the NCLT on 19th
January,2021, Against which DEMPL- which was an Investor in Devas filed an
appeal which was dismissed by the NCLAT. DEMPL simultaneously filed a writ
petition before Karnataka High Court challenging the Constitutional validity of
Section 272 (1)(e) of the Companies Act,2013 and praying for quashing of
Authorization of Antrix given by Ministry of Corporate Affairs. This Petition
was dismissed on 28th April,2021 and costs of 5,00,000/- was imposed
by the court on the ground of DEMPL being guilty of abuse of process of law.
The final order on 25th May,2021; the
NCLT directed the winding up of Devas.
Contentions
Arguments
given by the Appellant
The main contention of the Appellant is against the
winding up of Devas Multimedia Pvt. Ltd. The first Appellant i.e. Devas, has
contended that the order of winding up of Devas has breached the mandatory
requirement of advertisement before closure, that the winding up petition is
barred by limitation, Antrix is estopped from pleading fraud, Denial of
permission for cross examination thereby breaching the principles of natural
justice, erroneous conclusions, facts and incorrect standards of proof.
The other Appellant in this case, DEMPL, has
contended that it has the locus standi to oppose the winding up despite being a
small shareholder has been decided by both the tribunals contrary to law, the
allegations of fraud have not been decided following the principles of Natural
Justice and the Theory of Useless Formality to mandatory requirements such as
advertisement before winding up is wrongful.
Arguments
given by the Respondent
The Respondent in this case i.e. Antrix defends
these contentions on the basis that there are detailed findings recorded by the
Tribunal on Eight different types of Fraud by Devas. The Three components DEVAS Technology, DEVAS
Services and DEVAS Device discussed in the 28th January,2005
Agreement never existed at the time of formation of Devas, Execution of
Agreement, Termination of Agreement and even on the winding up of Devas. Large
Financial Fraud has been recorded and a clear violation of SATCOM Policy is
committed by the Appellant Company.
The Other Respondent in this case, i.e. the union of
India, has defended against these contentions on the grounds that the
Requirement of Advertisement before winding up is redundant under Section 271
(c), this particular case does not fall under the category of cases needing
cross examination, that the term fraud, fraudulent manner, fraudulent purpose
and unlawful purpose have been clearly distinguished and lastly the failed
attempt made by Devas regarding the Constitutional Validity of Section 271 (c).
Rational
1.
Fraud
as a ground for winding up of a company and the difference regarding winding up
under 1956 and 2013 Companies Act.
In the 1956 Act, fraud was not one
of the nine grounds laid down under Section 433 of the said act, for the
winding up of a company, the 2013 Act enlists Fraud in formation of company,
conduct of affairs of the company and on part of the person concerned with
formation and management of the company as the three types of ground of fraud
covered under Section 271.
The 1956 Act, However, under its
Section 237 allows an order to investigate by the central government if in its
opinion or that of company law board it is believed that the company is
involved in fraudulent activities. The Section 439 (1)(f) read with 273 (b)(i)
and (ii) states that winding up should be done on just and equitable grounds
and that if the court thinks that there is some other remedy available, then
they can refuse an order merely on the just and equitable ground under Section
443 of the same Act.
Coming to the 2013 Act, it is found
that the power to order investigation bestowed earlier upon the Central
government in the 1956Act, now lies with the Tribunal under Section 213 of the
2013 Act. The Section 224 of the 2013 Act, which is similar to Section 243 of
the 1956 Act, allows the Central Government to Authorize any person to file a
petition for winding up on the basis of report of an investigation done on just
and equitable grounds.
The Section 439(1) of the 1956 and
Section 272 (1) of the 2013 Act both provide a list of persons who can file a
petition for winding up which includes the company, any contributory, the
registrar or any person authorized by the central government on its behalf.
These Sections also use the term Authorization and Sanction as necessary in any
petition filing for winding up which should be preceded by an opportunity for
hearing whereas authorization does not require any prior representation from
the company. The two differ however when the procedure for winding up on the
basis of fraud is followed, the procedure listed under Section 271 (c) and (e)
are different.
2.
Whether
Advertisement before winding up of a company is necessary?
The winding up of the company was
never advertised in the present case.
Rule 96 and 99 of the Companies
(Court) Rules,1959 direct for Advertisement of petitions and even though the
1959 Act does not have a separate section for Advertisement, its Section 643
(2) delegated to the Rule making power of the central government.
The Section 468 (1) and (2) of
Companies Act,2013 empowers the Central government to make rules relating to
winding up, pursuant of which the central government has made the Companies
(Winding up) Rules, 2020, of which Rule 5 and 7 deal with Advertisement of
petitions. The Appellant has contended that the language used in Rule 7 means
that the tribunal has to mandatorily order the publication of advertisement and
details like the newspaper, edition etc. are left to the discretion of the
tribunal.
The court then looked at the
objective of Advertisement of petition and found that it is either to inform
the stakeholders so that they can oppose or support the proceedings or to the
general public as an alert to the riskiness of dealing with that company. The
court also noted that publishing of an advertisement would be contrary to the
benefit of the appellant company.
Also, under the Companies Act,2013;
the NCLT or the NCLAT are not bound by the Civil Procedure Code but by the
principles of Natural Justice.
The Sub Rules (5) and (6) of the Rule
35 of NCLT Rules,2016 show that as regards to advertisement, if not complied
the tribunal can dismiss the petition,give further directions or even dispense
with the advertisement.
The use of the term advertisement
in FORM WIN 11 under Rule 17(1) of Companies (Winding up) Rules, 2020 is merely
a part of the preamble as a requirement of what the Tribunal needs to take into
account before the proceedings and therefore, advertisement in not mandatory
merely because it is mentioned in the preamble.
3.
Whether
the present petition against winding up of Devas is barred against by the Law
of Limitation?
Section 433 of the Companies
Act,2013 makes the provisions of Limitation Act,1963 applicable to the
proceedings before the tribunal/appellate tribunal. The Appellant contended
that the limitation period of three years should be applied as under Article
137 to the Schedule of Limitation Act and the date of discovery of fraud
subject to Section 17 of the Limitation Act,1963 falls on 11th
August 2016, beyond which it could not have been postponed as this was the date
of filing of the CBI Charge sheet. The petition for winding up was filed on 18th
January 2021.
The respondent contended that a
supplementary charge sheet was filed by the CBI on 8th January,2019
and the complaint of financial fraud under Prevention of Money Laundering
Act,2002 was lodged on 24th December,2018.
The court observed that fraud was
not a ground under Section 433 of the 1956 Act and therefore, if the petition
for winding up was present and when the Insolvency and Bankruptcy code came
into force, such a petition would be transferred to the NCLT under the
Companies (Transfer of Pending Proceedings) Rules,2016. Antrix even of it
wanted to could not have gone for Insolvency resolution process under the IBC.
The object of limitations is not to extinguish the Right and therefore, the
limitation period can be extended. The termination on 25th
February,2011 was not triggered by an allegation of fraud and corruption,
rather those attempts continued well beyond its termination.
4.
Whether
a company can be estopped from pleading fraud?
Uner the Section 19 of the Contract
Act,1872 that the contract on the basis of fraud is voidable at the insistence
of the wronged party, Antrix never mentioned fraud as a reason for termination
of the agreement on 28th January,2005; as they terminated it on the
basis of Force Majeure, neither was
it mentioned in the Arbitral proceedings and the Auditor’s report.
The court noted that the discovery
of fraud occurred many years laterin 2011 and the scope of fraud in this case
was not only related to the obtaining of consent of Antrix but goes well beyond
the scope of Section 19 of the Indian Contract Act,1872 and therefore, Antrix
cannot be estopped from pleading Fraud.
5.
Whether
Refusal to Commit Cross Examination in the present case is acceptable?
Given that the Technology mentioned
in the agreement was not in possession of Devas and neither did it have the
necessary permissions to implement that technology. Devas then filed a petition
seeking to cross question the officials of Antrix which was denied and NCLT
justified it saying that there was no need of oral evidence which was upheld by
the NCLAT.
The Court found that the
contentions made by Antrix were regarding Non Existence of the Technology and
under the Law of Evidence, the assertion of existence of something can be
proved but those of non-existence of a thing cannot be proved. The Court upon
observing the time line found that the Application of Cross Examination was
moved by Devas when the arguments of Antrix were concluded and the court also took
note of the unsuccessful attempt made by DEMPL to question the constitutional
validity of Section 271 of Companies Act,2013.
6.
Locus
Standi of Small Share Holders in winding up of the company.
The NCLAT rejected DEMPL’s appeal
on the basis that a Shareholder’s Right is confined to the election of
Directors, Voting in company meetings, distribution of dividends and
distribution of surplus upon liquidation.
The Court found that the contentions
of the shareholders against winding up of Devas were similar to the main
company and therefore, the stakeholders were given a fair opportunity to put
forward their interests. The NCLAT’s dismissal of DEMPL ‘s appeal on the
grounds of maintainability was not correct and in violation of Section 421(1)
of the Companies Act,2013 as it provides redressal to any person aggrieved by
the Tribunal order, but that cannot be made as the sole ground of dismissal of
the order.
7.
Whether
Standard of proof applied by NCLT and NCLAT was not Acceptable?
The Prima Facie evidence found in
this case led to the concurrent findings by both NCLT as well as NCLAT. The
Evidence was found from documents, the validity of which have not been
challenged by the Appellants and the Evidence lead to concurrent findings and
is therefore, admissible and the standard of proof acceptable.
Though a company cannot be made to
be wound up on the basis of prima facie evidence, the erroneous term used by
the NCLAT order is prima facie but the detailed findings recorded show them to
be final.
Inference
Regarding the First Issue, it is found that the main
difference between these two acts is that while the 1956 Act merely alludes to
fraud as an indirect ground under Section 243 and 237 (b), the Section 271 of
the 2013 Act puts it as a separate ground for winding up of the company.
Further, the amended provisions of the 2013 Act after 2016 have removed
‘inability to pay debts’ as a ground for winding up which is there under the
1956 Act.
Similarity between these two acts is that they both
list the persons who can file an application of winding up and the procedure to
be followed during grant of permission to the filing of application of winding
up to be followed, the 2013 Act however, differs from this procedure, but only
under the ground of Fraud, and that the procedure in such cases differ
depending from case to case.
Regarding the Second Issue, it was found that the
order of advertisement arises out of a rule while the power to dispense with
the advertisement arises out of the statutory regime of 2013. Also, since all
the stakeholders were properly notified about the winding up, not advertising
was not found to be deterrent in the interests of any stakeholder. And,
therefore, the court concluded that the failure by the tribunal to not order
for advertisement does not render the entire proceedings unlawful.
The others were contentions based on facts and were
not found to be strong enough to lead to the dismissal of the NCLT or the NCLAT
orders.
Conclusion
The contention of fraud as projected by Antrix were established,
the motive of depriving Devas of its Arbitral Award or any other motive behind
the Antrix Action have no relevance. Even if the Action
of Antrix regarding winding up of Devas may send a wrong message to Investors,
the shareholders of Devas cannot be allowed to continue reaping the product of
Fraud.
The Court in conclusion held the grounds of attack
against orders of NCLT and NCLAT to be unsustainable and the appeals were
dismissed.
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