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2022 (1) TMI 774
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....ny in liquidation, namely, Devas Multimedia Private Limited, through its ex Director has come up with an appeal in Civil Appeal No.5766 of 2021 and one of the shareholders of the company in liquidation, namely, Devas Employees Mauritius Private Limited (hereinafter referred to as DEMPL) has come up with another appeal in CA No.5906 of 2021. 2. We have heard Shri Mukul Rohtagi, learned senior counsel appearing for the company in liquidation, Shri Arvind P. Datar, learned senior counsel appearing for the shareholderappellant, Shri N. Venkataraman, learned Additional Solicitor General appearing for Respondent No. 1 herein, which is the company which moved the Tribunal for winding up the company in liquidation and Shri Balbir Singh, learned Additional Solicitor General appearing for the Union of India. 3. Brief Background 3.1 The first respondent in these appeals, namely, Antrix Corporation Limited (hereinafter referred to as Antrix), incorporated on 28.09.1992 under the Companies Act, 1956, is the commercial arm of the Indian Space Research Organisation (ISRO for short) which is wholly owned by the Government of India and coming under the administrative control of the Departm....
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....SBand satellite with a ground space segment to be leased to the joint venture. In return, ISRO and Antrix were to receive lease payments of USD 11 million annually for a period of 15 years. 3.5 The concept of DEVAS, as indicated in the penultimate paragraph of the Executive Summary of the proposal dated 15.04.2004, was based upon the evolution and performance of similar services in other markets such as XM Radio and Sirius Radio in the United States and Mobile Broadcasting Corporation's multimedia services via satellite in Korea and Japan. 3.6 It appears that pursuant to the aforesaid proposal, several meetings were held between the representatives of Forge and ISRO/Antrix and a Committee headed by one Dr. K.N. Shankara, Director of SAC (Space Application Centre) was constituted to examine the proposal. 3.7 On 17.12.2004 Devas Multimedia Private Limited, (hereinafter referred to as 'Devas' or the 'company in liquidation') was incorporated as a private company under the Companies Act, 1956. Immediately thereafter, Antrix entered into an Agreement with the said company on 28.01.2005. The Agreement was titled as "Agreement for the lease of space segment capacity on ISRO/Antri....
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....ities. 3.12 This termination led to Devas initiating a commercial arbitration in India before the ICC Arbitral Tribunal. Independently, the Mauritius investors initiated a BIT arbitration under the IndiaMauritius Bilateral Investment Treaty and the German Company by name Deutsche Telecom, initiated a BIT arbitration under the IndiaGermany BIT. ICC Arbitral Tribunal passed an Award on 14.09.2015 directing Antrix to pay Devas, a sum of USD 562.5 million with simple interest @ 18% p.a. The Government of India suffered similar awards in the other 2 BIT Arbitral proceedings also. 3.13 In the meantime, the Central Bureau of Investigation (CBI) filed a First Information Report on 16.03.2015, against the company in liquidation namely Devas, as well as the officers of Devas and Antrix, for offences under Section 420 read with Section 120B of IPC and Section 13(1)(d) read with Section 13(2) of the Prevention of Corruption Act, 1988. It was followed by a chargesheet filed on 11.08.2016 and a supplementary chargesheet on 08.01.2019. Similarly the Enforcement Directorate filed a report in ECIR No.12/BGZO/2015. 3.14 Therefore, Antrix made a request to the Ministry of Corporate Affairs, ....
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....lished; 4.2 DEMPL, which is the appellant in the second appeal before us and which holds 3.48% of the issued equity share capital of the Company in liquidation, assails the impugned orders broadly on the following grounds:12 (i) The question of locus of a small shareholder to oppose winding up has been decided by both Tribunals contrary to law; (ii) Findings recorded against shareholders on the question of fraud, have been so recorded without making them a party and without giving them an opportunity of hearing; (iii) Inapplicability of the theory of useless formality to mandatory requirements such as advertisements before ordering winding up. 5 Defence 5.1 The impugned orders are sought to be defended by Shri N. Venkataraman, learned Additional Solicitor General appearing for Antrix, broadly on the following grounds: (i) Detailed findings recorded by the Tribunal on 8 different types of fraud committed by Devas, both in the formation of the Company and in the manner in which the affairs of the Company were carried out, which cannot be assailed in an appeal under Section 423 of the Companies Act, 2013. (ii) The Agreement dated 2....
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....6 Act. This Section contained a list of nine circumstances in which a company may be wound up. Fraud (i) either in the formation of the company or (ii) in the conduct of affairs of the company or (iii) on the part of persons concerned in the formation of or the management of its affairs, was not one of the circumstances stipulated in Section 433 of 1956 Act. 6.2 Though Section 433 of the 1956 Act did not include fraud as one of the circumstances in which a company may be wound up, there was still an indirect reference to fraud. Section 439(1) of the 1956 Act provided a list of seven persons who were entitled to file an application for the winding up of a company. Under clause (f) of subsection (1) of Section 439, an application for winding up shall be presented by "any person authorized by the Central Government in their behalf" in a case falling under Section 243. 6.3 Section 243 of the 1956 Act empowered the Central Government to cause a petition for winding up to be presented, in cases covered by subclause (i) or sub clause (ii) of Clause (b) of Section 237. Section 243 of the 1956 Act read as follows: " 243. Application for winding up of company or an order under....
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....business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose; (ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members ; or (iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company." 6.5 Thus a combined reading of Sections 439(1)(f), 243 and 237(b) of the 1956 Act shows that, (i) fraud in the formation of the company; (ii) fraud in the conduct of affairs of the company; and (iii) fraud on the part of the persons engaged in the formation or conduct of the affairs of the company, though not listed as some of the circumstances under Section 433 of the 1956 Act, w....
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.... or (iii) where there is justifiable lack of confidence, which may give rise to a petition for winding up on just and equitable clause, there have also been other cases at least before the Courts in England, some of which are listed in paragraph 360 of Volume 16 of the Fifth Edition (2017) of the Halsbury's Laws of England. Two of them are (i) where the company is a bubble company; and (ii) where the company is fraudulent in its inception and carries on at a loss without a capital of its own. 6.9 But traditionally, fraud committed by a company on outsiders or the fact that the company acted dishonestly to outsiders, was not a ground for winding up in English Law. A useful reference may be made in this regard to Re Medical Battery Co. (1894) 1 Ch. 444 Services and Markets Act; or (iii) any information under the Criminal Justice Act, 1987, where a question relating to investigation through public examination came up. It was held therein that the relevant provision was not intended to apply to a case where the charges were about the commitment of fraud in the course of business with the outside world and not connected in any way with the promotion or formation of the company. 6.....
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....n that under Section 443(2), the court may refuse to make an order of winding up, on just and equitable ground, if some other remedy was available to the persons seeking winding up. Section 443(2) of the 1956 Act reads as follows: " 443. Powers of tribunal on hearing petition xxxxxxxxxxxxxxx (2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy." Therefore, despite the fact that fraud was available, albeit indirectly, as a circumstance for the winding up of a company, even under the 1956 Act, its link to just and equitable clause was little problematic because of section 443(2). 6.14 Coming to the 2013 Act, provisions similar to subclauses (i) and (ii) of clause (b) of section 237 of the 1956 Act, are to be found in subclauses (i) and (ii) of clause (b) of section 213 of the 2013 Act. They employ the same language for the purpose of....
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....fact, section 271 of the 2013 Act (along with sections 270 and 272) got amended even before they were notified under Section 1 (3) of the Act to come into force. 6.17 In other words, Section 271 as it originally stood in the 2013 Act, listed six circumstances in which a company may be wound up. Inability to pay debts was one of those six circumstances. But by Act 31 of 2016, 'inability to pay debts' got deleted from the list of circumstances Now the inability of a company to pay its debts is a ground for initiation of CIRP. If CIRP fails, winding up can be resorted to. Section 271 of the 2013 Act, as it now stands after 2016, reads as follows: "271. Circumstances in which company may be wound up by TribunalA company may, on a petition under section 272, be wound up by the Tribunal,( a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (c) if on an application made by the Registrar or any other person aut....
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....vided that the Registrar shall not present a petition on the ground specified in clause (e) aforesaid, unless it appears to him either from the financial condition of the company as disclosed in its balance sheet or from the report of a special auditor appointed under section 233A or an inspector] appointed under section 235 or 237, that the company is unable to pay its debts: Provided further that the Registrar shall obtain the previous sanction of the Central Government to the presentation of the petition on any of the grounds aforesaid. (6) The Central Government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any. 272. Petition for winding up (1) ........... (2) ........... (3) The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds specified in clause (a) of that section: Provided that the Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition: Provided further that the Central Government shall not accord its sanction unless the company has be....
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....te cases. 6.24 Having seen the distinguishing features between the 1956 Act and the 2013 Act, with regard to the question of availability of fraud as a ground for the winding up of a company, let us now take up for consideration, the grounds of attack to the impugned orders one after another. 7. Advertisement of the Company Petition Admittedly, the petition for winding up, in this case, was never advertised nor even ordered to be advertised, either upon the admission of the petition or anytime thereafter. It is therefore contended by the appellants that the failure to comply with this requirement which is mandatory, vitiates the whole proceedings. 7.1 Under the 1956 Act regime, the mode of proceedings to be held for winding up of a company, was prescribed by the Companies (Court) Rules, 1959 issued in exercise of the powers conferred by subsections (1) and (2) of Section 643 of the 1956 Act. Rule 10 of these 1959 Rules prescribed that all applications under the Act, unless otherwise provided by the Rules or permitted by the Judge, shall be made (i) either by a petition; or (ii) by a Judge's summons. Rule 11(a) contains a list of about 23 types of applications under the ....
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...., 3, 4, 22 and 23 of Rule 11(a). A petition for winding up falls under item No.15 of Rule 11(a). Therefore, Rule 23 has no application to a petition for winding up. 7.4 Rule 24 deals with advertisement of a petition. But Rule 24(1) begins with the words "where any petition is required to be advertised". Therefore, Rule 24 will also have no application unless there is any provision in the Act or the Rules which require the petition to be advertised. 7.5 Part III of the 1959 Rules contains special provisions relating to proceedings for winding up. This part comprises of Rules 95 to 338. Rule 95 requires a petition for winding up to be in Form No.45, 46 or 47. Rule 96 speaks about admission of petition and directions as to advertisement. It reads as follows: " 96. Admission of petition and directions as to advertisement Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the c....
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....nguage employed in Rule 7 of the 2020 Rules, it is contended by Shri Arvind P. Datar, learned senior counsel appearing for DEMPL, that there is no option available to NCLT but to order the advertisement of the petition. Rule 7 begins with the words "subject to any directions of the Tribunal, notice of the petition shall be advertised". These words, in the contention of the learned senior counsel for DEMPL, indicate the availability of a limited elbow space to the Tribunal to issue directions about the newspaper in which the advertisement is to be issued and the particular edition (State, Regional or National Edition) in which the advertisement shall be published. In other words, his contention is that ordering the publication of an advertisement is mandatory, but smaller things such as the particular newspaper, particular edition etc., are left to the discretion of the Tribunal to be exercised in the form of directions. 7.9 Before we test the correctness of the above argument, it may be necessary to look at the anatomy of Rule 5 which prescribes the procedure to be followed by the Tribunal, upon the filing of a petition for winding up. The step by step procedure prescribed in Ru....
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....taken by the High Court that the Court must, as soon as the petition is admitted, advertise the petition is contrary to the plain terms of Rule 96. Such a view, if accepted, would make the Court an instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised, the business of the Company is bound to suffer serious loss and injury." 7.13 The decision is National Conduits (P) Ltd. (supra) was followed in Cotton Corporation of India Limited vs. United Industrial Bank Ltd. & Ors. (1983) 4 SCC 625 In fact, the argument of the companies sought to be wound up in Cotton Corporation of India Limited (supra) was that "the presentation of winding up petition coupled with advertisement thereof in newspapers, has certain serious consequences on the status, standing, financial viability and stability and operational efficiency of the company." While dispelling the apprehensions so expressed, this Court relied upon the decision in National Conduits (P) Ltd. (supra) to say that the apprehensions stood removed by taking a view that advertisement is not automatic. 7.14 Therefore, the way in which the requirement of advertisement has been viewed by ....
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....it is called on in court on the day originally fixed for the hearing thereof, or any day to which the hearing has been adjourned, or (4) if appearing, does not apply for an order in terms of the prayer of his petition or where in the opinion of the court there is other sufficient cause for an order being made under this rule, the court may, upon such terms as it may think just, substitute as petitioner any creditor or contributory who, in the opinion of the court, would have a right to present a petition, and who is desirous of prosecuting the petition." 7.17 In the light of the aforesaid Rule 101 also, it was held in IDBI Bank Ltd., that the requirement of advertisement was mandatory. While coming to the said conclusion, the Madras High Court also took note of the difference of opinion in this regard between the High Courts of Allahabad and Gujarat on the one hand and the High Court of Delhi on the other hand, with respect to the power of the Court to dispense with the publication of advertisement in the official Gazette. Paragraphs 53 to 55 of the decision of the Madras High Court in IDBI Bank Ltd. is reproduced for easy reference as follows: ....
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....dered by the Company Judge. Therefore, it is clear that publication of advertisements is mandatory. Irrespective of whether the Court has any discretion to dispense with the publication in the Gazette or not, the publication of advertisements at least in newspapers is mandatory and the failure of the petitioning creditor to comply with this requirement despite a positive order to that effect, is fatal to his petition. 55. In Falcon Gulf Ceramics Ltd vs. Industrial Designs Bureau {1996 (86) CC 207 (Raj.)}, a Division Bench of the Rajasthan High Court set aside an order of winding up passed by the Company Court, on the sole ground that the winding up order was not preceded by an advertisement. The Division Bench of the Rajasthan High Court held in that case that advertisement of a petition was imperative in view of the provisions of Rule 96 read with Rule 99. For holding so, the Division Bench of the Rajasthan High Court relied upon paragraph 1463 of Halsbury's Laws of England (4th Edition), which stated that noncompliance with these provisions is a ground on which the Court shall reject the petition. After citing the relevant passage from the decision of the Supreme Cou....
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....interest in prosecuting the petition further and abandons the proceedings without carrying out the advertisement. This question assumed significance in the light of the fact that the failure of one petitioning creditor cannot result in serious prejudice to a whole body of creditors, in a proceedings in rem. 7.20 The above decision of the Division Bench of the Madras High Court in Pradeep D. Kothari was assailed before this Court. While upholding the decision of the Division Bench, in its decision in IDBI Bank Ltd. vs. the Official Liquidator (2020) 15 SCC 517, this Court held as follows: "14.3. Against this backdrop, the crucial question that arises for our consideration is whether a winding up petition can be dismissed solely on the ground lack of a prosecuting creditor under Rule 101, or whether the Company Court has the power to direct the publication of an advertisement by the Liquidator of the company, especially in cases where other unsatisfied creditors still remain. For answering this question, it is important to bear in mind that winding proceedings are proceedings in rem and have an impact on the rights of people, in general. Thus, it is mandatory to advertise....
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....he petitioning creditors as per Rule 101." 7.21 Thus even in a case where the Court took a view that advertisement is mandatory, not only in view of the prescription contained in the Rules, but also in view of the specific order passed by the Company Court at the time of admission, directing the publication of the advertisement in specified newspapers, this Court did not see the failure to publish an advertisement as something that would lead to the automatic dismissal of the petition for winding up. This is for the reason that the advertisement of a petition for winding up is perceived to be something that worked at cross purposes, sometimes beneficial to several stakeholders as it provides an opportunity of hearing to them and sometimes as a measure of harassment of the company. There are cases where the companies themselves have opposed the advertisement of the petition on the ground that the same would harm their reputation and cripple their commercial activities. There are also cases where the failure to advertise has led to some of the creditors not having any notice of the proceedings and thereby suffering prejudice. This is why another Bench of the Madras High Court held....
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....xercise of the powers conferred by Sections 468 and 469, the Central Government issued the Companies (Winding Up) Rules 2020. Similarly, the Central Government issued another set of Rules called the National Company Law Tribunal Rules, 2016 (for short "NCLT Rules 2016") in exercise of the powers conferred by Section 469. 7.25 Rule 35 of the National Company Law Tribunal Rules, 2016 deals with advertisement of petitions. It reads as follows: " 35. Advertisement detailing petition. (1) Where any application, petition or reference is required to be advertised, it shall, unless the Tribunal otherwise orders, or these rules otherwise provide, be advertised in Form NCLT3A, not less than fourteen days before the date fixed for hearing, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situate, and at least once in English language in an English newspaper circulating in that district. (2) Every such advertisement shall state; (a) the date on which the application, petition or reference was presented; (b) the name and address of the applicant, petitione....
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....mplied with, the Tribunal has an option (i) either to dismiss the petition; or (ii) to give such further directions as it may think fit. Subrule (6) confers power upon the Tribunal even to dispense with any advertisement. 7.29 In other words, what was not specifically available in black and white, under the 1956 statutory regime, namely the power to dispense with any advertisement, is now made available specifically under the statutory regime of 2013. 7.30 In the case on hand, the company in liquidation was incorporated on 17.12.2004, the Memorandum of Association of the Company was subscribed to by two persons by name D. Venugopal and M. Umesh. They subscribed to 9000 equity shares and 1000 equity shares respectively @ Rs. 10 per share. Subsequently six individuals by name Ramachandran Vishwanathan, Paresh Shah Natwarlal, James Fox, MG Chandrasekar, Abhishek Jain and L Clarence Irving were issued with equity shares on 31.12.2005. Thereafter, two corporate entities, namely, Columbus Capital Devas (Mauritius) Ltd. and the Telecom Devas Mauritius Ltd., were issued Optionally Convertible Preference Shares and equity shares. Subsequently, two other companies by name Deutsche Tele....
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....At................................. In The Matter ofLtd (Give The Name of The Company) (Company incorporated under Companies Act,.................... ) Company Petition No...../20........ ...................'Petitioner Before the Hon'ble Mr. Dated............ Winding up Order Upon the petition of................. presented on the day of......... .20 , upon hearing Shri ...............representative for the petitioner Shri representative for the creditors (or contributors) supporting the petition, Shri............................. representative for the creditors (or contributors) opposing the petition, and Shri..................... representative for the company, upon reading the said petition, the affidavit of A.B., filed the ......................day of.................. 20 verifying the said petition, the affidavit of x.y., filed the ....... day of............... 20 ..... the (state or union territory) paper publication of the advertisement of the said petition this Tribunal doth order: *(1) That the said company be wound up by this Tribunal under the provisions of the Companies Act, 2013; and (....
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.... the order shall be served and the persons if any to whom notice shall be given of the further proceedings in the liquidation and such further directions as may be necessary. 20. Advertisement of order. Save as otherwise ordered by the Tribunal the order for the winding up of a company by the Tribunal shall within fourteen days of the date of the order be advertised by the petitioner in a newspaper in the English language and a newspaper in vernacular language widely circulating in the State or the Union territory where the registered office of the company is situated and shall be served by the petitioner upon such person if any and in such manner as the Tribunal may direct and the advertisement shall be in Form WIN 14". 7.35 Rule 19 mandates the Tribunal, at the time of making of the winding up order or any time thereafter to give directions to the petitioner as to the advertisement of the order. This is why paragraph 4 of FORM WIN 11 forms part of the operative portion of the FORM. 7.36 In so far as the reference to advertisement contained in the preamble of FORM WIN 11 is concerned, it is merely one of the several items that the Tribunal may take into account for ....
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.... which a suit or application is founded is concealed by the fraud of any such person as aforesaid; or (c) the suit or application is for relief from the consequences of a mistake; or (d) where any document necessary to establish the right of the plaintiff or applicant has been fraudulently concealed from him, the period of limitation shall not begin to run until plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it; or in the case of a concealed document, until the plaintiff or the applicant first had the means of producing the concealed document or compelling its production: Provided that nothing in this section shall enable any suit to be instituted or application to be made to recover or enforce any charge against, or set aside any transaction affecting, any property which- (i) in the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know, or have reason to believe, that any fraud had been committed, or (ii) in the case of mistake, has been purchased....
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....ber (Technical) of NCLAT, in his separate but concurring opinion, dealt with the question of limitation, from paragraphs 2 to 13. In sum and substance, the Member (T) of NCLAT held (i) that the fraud alleged by Antrix was not a singular act which was transactionspecific; (ii) that the petition for winding up was based upon a series of acts of fraud, unearthed over a long period of time; (iii) that though the CBI filed a first chargesheet on 11.08.2016, a supplementary chargesheet was filed on 8.01.2019; (iv) that a complaint was lodged under the Prevention of Money Laundering Act, 2002 alleging financial frauds, only on 24.12.2018; and (v) that in cases of this nature, the date of discovery of the first act of fraud among a series of acts of fraud, cannot be taken to be the date on which the right to apply accrued in terms of Article 137 of the Schedule to the Limitation Act, 1963. 8.5 The above view taken by NCLAT is a plausible view and does not suffer from any perversity. The above view cannot be said to be completely contrary to law. However, we will independently deal with this issue, so that the myth of limitation is demystified. 8.6 The various provisions of the Compan....
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.... High Court to the Tribunal, such transfer was made subject to certain restrictions. One of those restrictions was that only those proceedings relating to winding up which are at a stage as may be prescribed by the Central Government, which may be transferred to the Tribunal. This restriction is found in the first proviso to Section 434(1). 8.10 Therefore, the Central Government issued a set of Rules known as the Companies (Transfer of Pending Proceedings) Rules, 2016. These Rules (except Rule 4 which relates to voluntary winding up) came into force with effect from 15.12.2016. Rule 5 of these Rules prescribes the stage at which alone, a petition for winding up under Section 433(e) of the 1956 Act could be transferred to NCLT. Similarly Rule 6 prescribes the stage at which the petitions for winding up filed under Clauses (a) and (f) of Section 433 of the 1956 Act could be transferred. 8.11 What is important to note from the above discussion is (i) that while Sections 270 to 272 of the Companies Act, 2013 came into force on 15.11.2016, Sections 7, 9 and 10 of IBC came into force on 1.12.2016 and the Rules relating to transfer proceedings came into force on 15.12.2016;....
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....barred, it is incongruous to say that a petition for winding up was maintainable in respect of such a debt. Therefore, the test applied in Jignesh Shah was not new but what was so obvious. In fact, on the date on which a petition for winding up was filed on the file of the Bombay High Court in Jignesh Shah, the civil suit for enforcement of the contract with an alternative claim for damages was pending. If the plaintiff had waited for a decree in the suit and thereafter moved a petition for winding up on the basis of the decree, Section 434(1)(b) of the Companies Act, 1956 would have come into play and the winding up petition could not have been held in Jignesh Shah to have been time barred. Since the plaintiff in the suit moved an application for winding up even during the pendency of the suit, limitation had to be naturally counted on the basis of the original cause of action mentioned in the civil suit, with reference to Section 434(1)(a). 8.14 As we have seen earlier, Section 434 of the 2013 Act read with the Companies (Transfer of Pending Proceedings) Rules, 2016 apply only in respect of three types of proceedings for winding up, namely, (i) proceedings on the ground of ina....
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.... the Limitation Act, 1963 in different cases. In Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank Ltd (2021) 7 SCC 313 , this Court held that Sections 14 and 18 will apply to cases filed under section 7 or 9 of IBC. Again in Laxmi Pat Surana vs Union Bank of India (2021) 8 SCC 481, this Court held :"Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgement, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgement of the debt, from time to time, for institution of the proceedings under Section 7 of the Code." 8.20 Thereafter, the question whether the entries made in the balance sheets of a corporate debtor would amount to acknowledgement of a liability under section 18 of the Limitation Act came up for consideration in Asset Reconstruction company vs Bishal Jaiswal (2021) 6 SCC 366. After referring to the judgment of the Calcutta High Court in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff AIR 1962 Cal 115,....
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....ered by an allegation of fraud and corruption. Fraud and corruption were discovered only later and by the time the discovery was made, the attempts to reap the fruits of fraud had reached the pinnacle. These attempts continue even till date and this falls squarely within Section 271(c). Therefore, the contention that the petition was barred by limitation was rightly rejected by the Tribunal and we have no reason to take a different view. 9. ESTOPPEL 9.1 The next ground of attack to the impugned orders is that Antrix is estopped from pleading fraud and seeking winding up of Devas, in view of the fact, (i) that the letter of termination dated 25.02.2011, of the Agreement dated 28.01.2005 was not on the ground of fraud but by invoking the force majeure clause; (ii) that in the proceedings before the arbitral Tribunals, no allegation of fraud was ever raised; and (iii) that the Auditor's reports of Antrix for all these years, contained a statement that no fraud was committed on Antrix. 9.2 The contention of the appellants is that under Section 19 of the Indian Contract Act, 1872, an agreement vitiated by fraud is not void but only voidable at the option of the party who is a v....
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....as been noticed or reported during the year and if so, the nature and the amount involved. 9.8 But the question is as to whether all the above would lead to an inference of estoppel against Antrix. The fact that the Agreement dated 28.01.2005 was not terminated on the ground of fraud, through the letter dated 25.02.2011, cannot take the appellants anywhere. The earliest First Information Report for the offences under Section 420 read with Section 120B of the IPC was filed by the CBI only on 16.03.2015. The officers of Antrix as well as officials of the Government were also implicated in the FIR for offences under the Prevention of Corruption act, 1988. Therefore, the appellants cannot set up a plea of estoppel on the ground that the termination of the Agreement in the year 2011 was not on the ground of fraud, when the discovery of fraud itself was many years later. 9.9 For the very same reason, the failure of Antrix to plead fraud in the ICC arbitration proceedings, cannot also operate as estoppel. The arbitral proceedings commenced in the year 2013 and the award itself was passed on 14.09.2015. Antrix cannot be expected to plead fraud in the arbitral proceedings, even before....
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.... in subsection (12) if it is done in good faith." 9.12 If the auditors of a company fail to make a report in terms of Section 143(12), despite having knowledge about the fraud, they may become liable for penal consequences under Section 448 read with Section 447 of the Companies Act, 2013. But the failure of the auditors to make a report as required by Section 143(12) or as required by the order issued under Section 143(11), cannot operate as estoppel against the company. The auditor's report can neither be taken as gospel truth nor act as estoppel against the company. The statement in the auditor's report, is as per the information given to them or as per the information culled out to the best of their ability. 9.13 The reliance placed upon Section 19 of the Indian Contract Act, 1872 to raise the plea of estoppel may not wholly be correct. Section 19 of the Indian Contract Act, deals with only one type of fraud namely, a fraud perpetrated on a party to secure his consent to an agreement. Section 19 begins with the words "when consent to an agreement is caused by coercion, fraud.....". Frauds other than those used to induce the consent of a party to an agreement, are not cove....
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....y holding that the case did not require any oral evidence. Therefore, in the memorandum of grounds of appeal before NCLAT, the appellants raised a specific ground that the omission on the part of the Tribunal to afford an opportunity of crossexamination, vitiated the final outcome. But NCLAT upheld the view taken by NCLT. 10.2 Therefore, it is contended on behalf of the appellants that (i) allegations of fraud, as a rule, warrant a fullfledged trial and proof; (ii) that in the light of the specific bar of jurisdiction of Civil Courts under Section 430 of the Companies Act, 2013, NCLT was obliged to scan the allegations of fraud very carefully, by allowing parties to lead evidence and crossexamine the witnesses; (iii) that the Tribunal is conferred with the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908, in respect of the summoning and enforcing of the attendance of any person and examining him on oath, under Section 424(2) of the Companies Act, 2013; (iv) that Rules 52 and 135 of the National Company Law Tribunal Rules, 2016 make it clear that the Tribunal has the power to summon the appearance of any witness, crossexamine him on oath and even....
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....amination was fatal. 10.6 The Tribunal classified the allegations made by Antrix into eight categories. In sum and substance, they revolve around, (i) the offer of a nonexistent technology; (ii) misrepresentation about the possession of intellectual property rights over a device; (iii) violation of SATCOM policy; (iv) securing of an experimental licence fraudulently; (v) manipulation of the minutes; and (vi) the trail of money brought in through FIPB approvals. 10.7 All the averments forming the foundation of the allegations of fraud, from the point of view of the Indian Evidence Act, would fall under only two categories, namely, (i) positive assertions requiring persons making those assertions to prove them; and (ii) negative assertions. 10.8 A party alleging the nonexistence of something, cannot be called upon to prove the nonexistence. It is the party who asserts the existence or who challenges the assertion of non existence, who is liable to prove the existence of the same. 10.9 In the case on hand, Antrix asserted that Devas offered services which were nonexistent, through a device which was not available and that even the socalled intellectual property rights over....
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....Devas also continued their arguments in the main company petition and concluded the same on 10.05.2021. On 10.05.2021, NCLT reserved the judgment. 10.12 Incidentally, it must be pointed out that the writ appeal filed by the DEMPL came up for hearing before the Division Bench of the High Court of Karnataka on 12.05.2021. The Division Bench directed the matter to be listed on 19.05.2021 with a condition that the costs as awarded by the learned Single Judge should be paid on or before the said date. 10.13 On 25.05.2021, the NCLT passed final orders, after which DEMPL withdrew the writ appeal on 27.05.2021. 10.14 It is clear from the above timeline of events that the application for crossexamination was moved by Devas after conclusion of the arguments on the side of Antrix in the main petition itself, and that too after the unsuccessful attempt made by one of its shareholders to assail the constitutional validity of the statutory provisions. Therefore, the Tribunal was right in rejecting the request for crossexamination. 11. LOCUS STANDI OF THE SHAREHOLDERS 11.1 The next ground of attack to the impugned orders is that despite the petition for winding up containing specific ....
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....etition was taken up by NCLT on 19.01.2021 for the first time, Devas Multimedia Private Limited, which is the company in liquidation appeared through counsel and opposed the petition and also sought sufficient time to file reply. Therefore, NCLT did not have to go through the formality of ordering notice before admission, as a battery of counsel appeared for Devas, raised preliminary objections and also sought time to file response. The Tribunal passed a detailed order dated 19.01.2021 admitting the company petition and appointing a provisional liquidator even while granting time to the company to file its reply. In paragraph 5 of the detailed order dated 19.01.2021, the preliminary submissions made by the company in liquidation against the admission of the company petition, are recorded. 11.5 The order dated 19.01.2021 admitting the company petition became the subject matter of an appeal before NCLAT at the instance of the company in liquidation. Therefore, on 8.02.2021 when the company petition came up for hearing, it was adjourned to 16.02.2021 and, thereafter, to 2.03.2021. On 2.03.2021, DEMPL which is a shareholder filed a petition for impleadment. It is true that this appl....
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.... doubtful. Faced with the sudden threat to their livelihood, the workers' Unions sought to implead themselves as party to the winding up proceeding. Therefore, the decision rendered in National Textile Workers' Union's case has to be understood in the context in which it was rendered. 11.9 It is true that the dismissal of the appeal filed by DEMPL, by NCLAT on the ground of maintainability may not be correct. Section 421(1) of the Companies Act, 2013 enables "any person aggrieved by an order of the Tribunal", to file an appeal. To say that DEMPL cannot be taken to be a person aggrieved, may be farfetched. But on that sole ground, the impugned order cannot be set aside. 11.10 We have seen from the memorandum of grounds of appeal filed by DEMPL before NCLAT and the memorandum of grounds of appeal filed by DEMPL before this Court that their objections to the petition for winding up are just the same as those of the exDirector of the company in liquidation. In fact, before us, the exDirector of the company in liquidation was represented by Shri Mukul Rohtagi, learned senior counsel and DEMPL was represented by Shri Arvind P. Datar, learned senior counsel. While the learned senior....
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.... Antrix, as a result of a fraudulent and criminal conspiracy between the persons in management of the affairs of the company and the officials of Antrix/Government of India, to award a lease of scarce and valuable Sband spectrum, without obtaining necessary approvals and without following applicable norms and procedures; (iii) that the persons incharge of the formation as well as the management of the affairs of Devas did not possess the necessary technical knowhow or the intellectual property rights for the provision of what was claimed as "Devas Services", either at the time of signing of the agreement or even till date; (iv) that despite not being in possession of either the technology or the device, the company was pushing Antrix and the Government of India to launch the satellite; (v) that as part of the conspiracy, the Agreement dated 28.01.2005 was terminated by Antrix by a letter dated 25.02.2011 by invoking the force majeure clause; (vi) that it made things easy for Devas to initiate an arbitration before the ICC Arbitral Tribunal, apart from the initiation of the two BIT Arbitrations by the shareholders of Devas, (vii) that when the criminal conspiracy, fraud and corrupt ....
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....nd a sum of Rs. 59 crores was paid to Antrix towards upfront capacity fee; (xxi) that some of the then officials of Antrix and the Government of India were parties to the fraudulent and unlawful purpose for which Devas was created and the fraudulent manner in which the affairs of the company had been conducted; (xxii) that the persons including investors and the shareholders concerned in the formation and the management of its affairs have been guilty of fraud, corrupt practices and money laundering and that therefore the company was liable to be wound up. 12.4 On the basis of the pleadings, the documents produced and the submissions made, NCLT recorded the following findings namely, (i) that the incorporation of Devas was with fraudulent intention to grab the prestigious contract in question, in connivance and collusion with the then officials of Antrix; (ii) that it is not in dispute that at the time of entering into the contract, Devas did not have the technology, infrastructure or experience to perform their obligations under the Agreement; (iii) that one of the subscribers to the Memorandum of Association of the company in liquidation was an Auditor by name Shri M. Umesh, w....
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.... been conducted; (x) that Devas obtained IPTV licence as part of ISP licence, which has nothing to do with what was offered as DEVAS services; (xi) that the agreement dated 28.01.2005 made no reference of IPTV; (xii) that undeniably, Devas services cannot be provided with ISP licences; (xiii) that after bringing an amount of Rs. 579 crores into India, a major portion was taken out of India; (xiv) that the only business activity carried on by Devas was to provide ISP services in a particular locality in Bangalore for a few residents and that too for a short duration, which made Devas earn a revenue of Rs. 80,000/; (xv) that the diversion of Rs. 489 crores and Rs. 58 crores for non ISP purposes is violative of ISP licence, which comes squarely within the ambit of Section 271(c); (xvi) that Devas fraudulently approached FIPB through the ISP route to avoid scrutiny by Department of Space; (xvii) that the investors of Devas actually became shareholders and they also had their nominees on the Board of Devas; (xviii) that therefore these persons were also guilty of the conduct of the affairs of Devas in the manner stated; (xix) that the Share Subscription Agreement dated 06.03.2006 entere....
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.... could not have been reached by any reasonable standards. 12.8 The following undisputed facts emerge from the documents placed before the Tribunal. The authenticity of these documents were never in question or denied: (i) An agreement of a huge magnitude, for leasing out five numbers of C X S transponders each of 8.1 MHz capacity and five numbers of S X C transponders each of 2.7 MHz capacity on the Primary SatelliteI (PSI), was surprisingly and shockingly entered into by Antrix with Devas, without same being preceded by any auction/tender process. It appears from the letter dated 27.09.2004 sent by DEVAS LLC, USA to Shri K.R. Sridhara Murty, Executive Director of Antrix with copies to Dr. G. Madhavan Nair, Chairman, ISRO and others that Shri Ramachandran Viswanathan, met the then Chairman of ISRO and other officials in Bangalore in April2003 and they met once again in Washington D.C. during the visit of the then Chairman of ISRO. These meetings, which were not preceded by any invitation to the public for any Expression of Interest, culminated in a Memorandum of Understanding dated 28.07.2003. Though it is not clear where the MoU was signed, there are indications that i....
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....pects and time schedule. According to the Report submitted by this Committee, DEVAS was conceived as a new national service expected to be launched by the end of 2006 that would deliver video, multimedia and information services via high powered satellite to mobile receivers in vehicles and mobile phones across India. The catch here lies in the fact that while it was possible to deliver some of these services via terrestrial mode, it was not possible at that point of time to provide this bouquet of services via satellite. Even today satellite phones are beyond the reach of a common man. Mobile receivers or devices which can simply receive audio and video content are different from mobile phones, which are capable of providing a two way communication. The technology for providing the services through mobile phones was not in existence at that time, which is why the proposal made by Forge Advisors included an expectation that such a service may be launched by the end of 2006. It was with this expectation/promise that an Agreement was entered into on 28.01.2005 but this socalled new national service was never launched as promised in 2006. The launch of the services was not linked to t....
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....ich FIPB approvals were taken but showcased as those sufficient for fulfilling the obligations under the Agreement dated 28.01.2005 demonstrated that the affairs of the company were conducted in a fraudulent manner. This is fortified by the fact that a total amount of Rs. 579 crores was brought in, but almost 85% of the said amount was siphoned out of India, partly towards establishment of a subsidiary in the US, partly towards business support services and partly towards litigation expenses. We do not know if the amount of Rs. 233 crores taken out of India towards litigation services, also became a part of the investment in a more productive venture, namely, arbitration. The manner in which a misleading note was put to the cabinet and the manner in which the minutes of the meeting of TAG subcommittee were manipulated, highlighted by the Tribunal, also shows that the affairs of the company were conducted in a fraudulent manner. Thus, the second limb of Section 271(c), namely, the conduct of the affairs of the company in a fraudulent manner, also stood established. (xi) SATCOM Policy perceived telecommunication and broadcasting services to be independent of each other and a....
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....er of NCLAT that the allegations are prima facie made out, that a company cannot be ordered to be wound up on the basis of prima facie findings. The standard of proof required for winding up of a company cannot be prima facie. 12.10 But we do not think that the appellants can take advantage of the use of an inappropriate expression by NCLAT. The detailed findings recorded by the Tribunal show that they are final and not prima facie. Merely because NCLAT used an erroneous expression those findings cannot become prima facie. 13. Miscellenous Grounds 13.1 Apart from the above main grounds of attack, which we have dealt in extenso, the learned senior counsel for the appellants also made a few supplementary submissions. One of them was that a lis between two private parties cannot become the subject matter of a petition under Section 271(c). But this argument is to be rejected outright, in view of the fact that 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. In fact, the shareholders have secured two awa....