Setback for Devas Multimedia as Supreme Court upholds NCLAT order to wind up company

Devas has been locked in a decade-long legal battle against Antrix

In a setback for Devas Multimedia, the Supreme Court on Monday upheld the National Company Law Appellate Tribunal's order, which in September last year dismissed its petition against winding up of the company.

The Bengaluru bench of the National Company Law Tribunal (NCLT) had in May ordered the winding up of Devas. It had also appointed a provisional liquidator, saying Devas was incorporated with a fraudulent motive to collude and connive with the then officials of Antrix Corporation – the commercial arm of Indian Space Research Organisation – to get bandwidth from it by entering into an agreement in 2005.

The NCLT’s order was upheld by the National Company Law Appellate Tribunal in September.

On Monday, a bench of Justices Hemant Gupta and V Ramasubramanian while dismissing the Devas’ appeal against its winding up said that “we find all the grounds of attack to the concurrent orders of the NCLT and NCLAT to be unsustainable.”

The court said, “if the seeds of the commercial relationship between Antrix and Devas were a product of fraud perpetrated by Devas, every part of the plant that grew out of those seeds, such as the agreement, the disputes, arbitral awards etc, are all infected with the poison of fraud."

"A product of fraud is in conflict with the public policy of any country including India. The basic notions of morality and justice are always in conflict with fraud and hence the motive behind the action brought by the victim of fraud can never stand as an impediment,” the top court added in its 134-page judgement.

The court rejected the contentions that the actual motive was to deprive Devas of the benefits of a unanimous award passed by the ICC arbitral tribunal.

"We do not know if the action of Antrix in seeking the winding up of Devas may send a wrong message, to the community of investors. But allowing Devas and its shareholders to reap the benefits of their fraudulent action, may nevertheless send another wrong message namely that by adopting fraudulent means and by bringing into India an investment in a sum of Rs 579 crore, the investors can hope to get tens of thousands of crores of rupees, even after siphoning off Rs 488 crore," the court said.

The top court also did not appreciate the contentions of Devas' counsel Mukul Rohtagi that the criminal complaint was yet to be taken to its logical end and if the officials of Antrix and shareholders of Devas are acquitted after trial, the clock cannot be put back, in case the company was wound up.

“Attractive as it may seem at first blush, this contention cannot hold water, if scrutinised a little deeper. The standard of proof required in a criminal case is different from the standard of proof required in the proceedings before NCLT. The outcome of one need not depend upon the outcome of the other, as the consequences are civil under the Companies Act and penal in the criminal proceedings."

Antrix had annulled its 2005 contract to lease space segment capacity on two satellites in February 2011 after allegations of the deal being a quid pro quo “sweetheart deal” were raised. Devas then had invoked the India-Mauritius Bilateral Investment Protection Agreement and moved the Permanent Court of Arbitration (PCA), which directed India to pay $111 million with interest and costs. Devas had also won arbitration proceedings before the International Chamber of Commerce in 2015 that resulted in an award of $1.3 billion against Antrix.

While the CBI and Enforcement Directorate were asked to probe the deal in 2014, Antrix had moved a winding up petition against Devas in January last year. Investigating agencies CBI and Enforcement Directorate have also unearthed fraud in executing the agreement and have initiated PMLA proceedings. The Ministry of Corporate Affairs (MCA) had also initiated an investigation into the affairs of Devas Multimedia but the Delhi High Court had stayed the move.

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