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Devas Multimedia Private Ltd. vs Antrix Corporation Ltd. & Anr.

Civil Appeal · 2022 INSC 49Decided 17 Jan 2022
Civil Appeal No. 5906 of 2021
Hemant Gupta · V. Ramasubramanian

Background

Antrix Corporation (the commercial arm of ISRO, wholly owned by the Government of India) entered into a 2005 agreement to lease valuable S-band satellite spectrum capacity to Devas Multimedia, a private company incorporated barely a month earlier, for a proposed multimedia broadcast service ("DEVAS") to be delivered via satellite to mobile devices. Antrix terminated the agreement in 2011 citing a government policy decision (force majeure) not to allocate S-band spectrum for commercial use. Devas won a large arbitration award against Antrix (an ICC award of USD 562.5 million, later plus two Bilateral Investment Treaty awards against India), but the CBI separately registered a criminal case alleging the entire deal was a fraud, and the Government of India authorised Antrix to seek winding up of Devas under company law. The National Company Law Tribunal (NCLT) ordered Devas wound up for fraud, and the NCLAT upheld this; Devas (through its ex-director) and one shareholder (Devas Employees Mauritius Pvt Ltd) appealed to the Supreme Court.

Decision Breakdown

The Supreme Court examined in detail how Section 271(c) of the 2013 Companies Act (winding up on the ground of fraud, either in the company's formation or in the conduct of its affairs) differs from the older 1956 Act framework, and rejected each of the appellants' grounds one by one, including alleged procedural defects (lack of advertisement before winding up, denial of cross-examination), limitation, and Antrix's supposed "estoppel" from alleging fraud after having signed and later arbitrated the contract. On the merits, the Court found the evidence supported the Tribunals' conclusion that Devas was formed for a fraudulent purpose (the "DEVAS technology," "DEVAS services" and "DEVAS device" central to the deal never actually existed, either at signing or later) and that its affairs were conducted fraudulently, including securing licences for unrelated purposes (ISP/IPTV) to justify the deal, siphoning roughly 85% of its ~Rs. 579 crore investment out of India, and manipulating internal government committee minutes and cabinet notes to push the project through. The Court held that a company's fraudulent origins taint everything that flows from it, including any arbitration awards obtained downstream, and that the pendency of a separate, still-ongoing criminal trial does not prevent civil winding-up proceedings, since the standards of proof and consequences of the two are different. The appeals were dismissed, with no order as to costs.

Lesson Learnt

Where a company's very formation and dealings are shown to be built on fraud, an entity's later legal victories (such as arbitration awards) built on that same fraudulent foundation cannot shield it from being wound up; and shareholders who benefited from and had representation in the company's fraudulent conduct cannot escape responsibility merely by claiming ignorance.

Official source (sci.gov.in)View Judgment (PDF)

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