The Supreme Court on Monday cleared the decks for winding up of Devas Multimedia at the instance of ISRO’s commercial arm Antrix, as it affirmed the findings of the National Company Law Appellate Tribunal (NCLAT) that Devas was set up for a “fraudulent and unlawful purpose” of “unjust enrichment”.
Signing off on the first case of winding up of a firm on the ground of fraud under India’s 2013 Companies Act, the top court also called three international arbitral awards in favour of Devas “infected with the poison of fraud”, raising questions about the arbitration proceedings initiated by the company.
Devas and its shareholders currently hold arbitral awards to the tune of ₹15,000 crore against Antrix, and through it the Union of India over the 2011 cancellation of a deal between the two firms. India has not paid any money yet to Devas and has challenged the arbitral awards. It will likely cite the apex court’s order in some of the challenges.
Devas and Antrix signed a contract in 2005 under which Antrix had to build and launch two ISRO satellites and lease S-band satellite spectrum on them to Devas, which in turn would use it to provide its internet services. However, after reports of procedural and regulatory irregularities in the deal emerged, Antrix cancelled the contract in 2011 by invoking the force majeure (extraordinary circumstances) clause, prompting Devas to approach arbitral tribunals for damages.
Devas and its shareholders maintained that Antrix, which is a corporate entity wholly owned by the Centre (it is the commercial arm of the Indian Space Research Organisation), sought liquidation of the company in India only to deprive Devas of the arbitral awards passed by a Delhi-seated International Chamber of Commerce (ICC) Tribunal and by the Permanent Court of Arbitration (PCA) under two bilateral investment treaties (BIT).
But a bench of justices Hemant Gupta and V Ramasubramanian rejected these contentions, emphasising that the arbitral awards are products of a fraud.
“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 infected with the poison of fraud,” said the bench in its 134-page judgment.
The court noted that Antrix is a “victim of fraud” and hence the motive behind its action is neither an impediment nor relevant for the purpose of adjudicating its winding up plea against Devas. The bench added that although it is not certain whether winding up of Devas would send a wrong message to the community of international investors, it is sure that “allowing Devas and its shareholders to reap the benefits of their fraudulent action” would send a wrong message that “investors can hope to get tens of thousands of crores of rupees” through such means in India.
“It is a case of fraud of a huge magnitude which cannot be brushed under the carpet, as a private lis… the claims of Devas and its shareholders are also on the property of the Government of India. The space segment in the satellite proposed to be launched by the Government of India, is the property of the Government of India,” said the bench, finding favour with the winding up petition by Antrix.
The court added: “The officials of the Department of Space and Antrix were in collusion and that it was a case of fence eating the crop…the formation of the firm, namely, Devas Multimedia Pvt Ltd. was for a fraudulent and unlawful purpose is clearly made out.”
Jay Newman, a senior advisor to Devas shareholders, said: “Today’s decision is not a setback, nor is it a surprise. It was scripted for months. The government will now appeal to global courts waving the NCLT ruling as yet another bogus excuse to evade payment.”
Still, while some termed the judgement another instance of India seeking to act against unfavourable arbitral awards, government officials familiar with the matter pointed to comments in the NCLT ruling and the Supreme Court’s order on the very incorporation of Devas being a “fraud”.
In its verdict on Monday, the top court upheld the order delivered by NCLAT in September 2021 which in turn confirmed the findings of the National Company Law Tribunal (NCLT) issued in May 2021. Both NCLAT and NCLT found sufficient justifications for ordering liquidation of Devas on the ground of fraudulent conduct of its affairs under the 2013 Act. The winding up petition before the NCLT, Bangalore, was initiated by Antrix on January 18, 2021 – four days after receiving an authorisation from the Centre in this regard.
Devas, its ex-directors and shareholders opposed Antrix’s plea alleging the winding up request on the grounds of fraud was filed after an inordinate delay, besides the argument that lack of an advertisement of the plea vitiated the proceedings before NCLT.
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