TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 774
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....dia 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 Department of Space. 3.2 On 28.07.2003, Antrix ente....
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.... 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/Antrix SBand spacecraft by DEVAS". The preamble of the Agree....
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....ial 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, Government of India, on 14.01.2021 seeking authorization to initiate ....
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....l 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 28.01.2005 entered into between Antrix and Devas spoke about three components, namely, DEVAS Wherever there is a reference to the company in liquidation, we have used the....
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....ersons 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 section 397 or 398. If any such company or other body corporate is liable to be wound up under this Act and it appears to the Central Government from any such report as aforesaid that it is expedient so to do by reason of any su....
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....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, were still available for the winding up of the company, even under the 1956 Act. But there were 3 requirements to be satisfied. They are: (i) the perpetration of one or the other types of fraud mentioned above are reflected in a report of investigation; (ii) the petition under these provisions is t....
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....ry'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. 6.10 But the law has not remained static even in England. The Insolvency Act, 1986 was amended in England through the Companies Act, 1989 to incorporate Section 124A. Under Section 124A of the Insolvency Act, 1986, (i) the Secretary of State may seek the winding up of a company if he thinks that it is expedie....
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....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 ordering an investigation into the affairs of a company. But under section 237 of the 1956 Act, the power to order investigation was with the central Government, while it is with the Tribunal under Section 213 of the 2013 Act. Section 224 (2) of the 2013 Act is similar to Section 243 of the 1956 Act as it enables the Central Government to ....
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....mstances. 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 authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection t....
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....at 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 been given a reasonable opportunity of making representations. 6.20 It may be seen from the above table that the second proviso to subsection (5) of section 439 of the 1956 Act became the first proviso to subsection (3) of Section 272 of the 2013 Act and subsection (6) of Section 439 became the second proviso to subsection (3) of Section 272. They respectively prescribe, (i) that for presenting a ....
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.... 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 Act, which shall be made by way of petition. Rule 11(b) states that all applications other than those covered by Rule 11(a), shall be made by a Judge's summons. 7.2 After making a distinction between (i) applications to be made by way of a petition; and (ii) applications to be made by way of a Judge's summons in Rule 11, the Companies (Court) Rules, 1959 speaks about advertisement in Rules 23 and 24. Rules 23 and 24 of the Companies ....
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....art 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 company before giving directions as to the advertisement of the petition." Rule 99 deals with advertisement and it reads as follows: " 99. Advertisement of petition Subject to any directions of the Court, the petition shall be advertised within the time and in the manner provided by rule 24 of these rules. The advertisement shall be in Form No. 48." 7.6 It must be remembered that Chapter II of Part VII of the 1956 Act, did not contain a provision in itself, requ....
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.... 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 Rule 5 is as follows: (1) The petition should first be posted before the Tribunal for admission. 40 (2) The purpose of posting the petition for admission is threefold, namely, (i) fixing a date for hearing of the petition; (ii) issuing appropriate directions as to the advertisement to be published; and (iii) indicating the persons upon whom the copies of the petition are to be served. (3) On the date when the petition is posted for admission, the Tribunal may direct notice to be given....
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....nbsp;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 Courts is that advertisement causes more harm to the company than the benefit that it brings to the company. Hence the argument of the appellant in this case that the failure to advertise the petition was prejudicial to their interest, goes contrary to one of the important purposes of the advertisement and the chilling effect that it is supposed to have on the company. 7.15 It is no doubt true that in National Conduits, this Court was concerned with an appeal arising out of an order of the Delhi High Court, holding that once a petition i....
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.....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: " 53. In U.P. Twiga Fiberglass Ltd vs. Parekh Marketing Pvt. Ltd {1986 (59) CC 886}, a Division Bench of the Allahabad High Court considered on appeal, a question, among others, as to whether the nonpublication of the advertisement in the Gazette would be violative of Rule 24. In that case, the Company Judge ordered the publication of advertisements in one English Daily and one Vernacular Daily, but not in the Gazette. The Division Bench of the Allahabad High Court held that Rule 24(1) contains a rider "unless the Judge otherwise orders" and that Rule 99 also speaks about "subject to any di....
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.... 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 Court in National Conduits, the Division Bench held in para 16 of its decision that in the absence of advertisement and admission, the petition for winding up was bound to be rejected." 7.18 However, when the decision of the Company Judge in IDBI Bank Ltd. was assailed in an intracourt appeal, the Division bench of the Madras High Court held in Pradeep D. Kothari vs. IDBI Bank Ltd. 2018 (1) CTC 136 as follows: "31. Therefore, to our minds, two aspects would arise for consideration given the fact and circumstances obtaining in the instant case. First, if, winding up is not advertised, by the origin....
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...., 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 such proceedings so as to ensure that they receive the widest possible publicity and all relevant stakeholders have adequate notice. This implies that in a situation where the petitioning creditor fails to advertise the petition and no other creditor or contributory comes forward to prosecute it, Rule 101 should not be read in a manner that absolutely bars the continuation of a winding up petition. This is particularly so when there are unsatisfied creditors who should have been given an opportunity to prosecute the petition, but were deprived of the same due to the failure to advertise. Indeed, Rule 101 is only limited to ins....
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...., 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 in T. Narayanan vs. the Official Liquidator 2012 (1) MLJ 59, after taking note of the decision in National Conduits, as follows: "38. Assuming that the mandatory requirement was not complied with, the question falling for consideration is, can the noncompliance of procedural mandatory requirement would ipso facto vitiate the winding up order and stall further proceedings?. The next question falling for consideration is 'can the noncompliance of a procedural mandatory requirement be a ground to set aside the winding up order after three years, especially when the appellant had the opportunity of fighting out the litigation in the ea....
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....tised 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, petitioner and his authorised representative, if any; (c) the nature and substance of application, petition or reference; (d) the date fixed for hearing; (e) a statement to the effect that any person whose interest is likely to be affected by the proposed petition or who intends either to oppose or support the petition or reference at the hearing shall send a notice of his intention to the concerned Bench and the petitioner or his authorised representative, if any, indicating the nature of interest and grounds of opposition so as to reach him not later than two days previous to the day fixed for hearing. (3) Where the advertisement is being given by the company, then the same may al....
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....e. 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 Telecom Asia Plc. Ltd. and Devas Employees Mauritius Pvt. Ltd. were issued with equity shares. All these shareholders are aware of the winding up proceedings and the proceedings are fought tooth and nail by one shareholder DEMPL through Mr. Ramachandran Vishwanathan who was also a shareholder. Another individual shareholder by name MG Chandrasekar has filed one of the above appeals as the exdirector of the company in liquidation. Admittedly, the company in liquidation does not have any creditors or customers who have dealings with the company. In other words, there are no stakeholders who are prejudiced by the failure of NCLT to order the publication of advertisement of the petition. Though technically the Tribunal may not be correct in invoking....
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..........................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 (2) That the provisional liquidator or Company Liquidator as the case may be as liquidator of the company aforesaid forthwith take charge of all the property effects actionable claims and books and papers of the said company; **(3) That the provisional liquidator or Company Liquidator shall cause a sealed copy of this order to be served on the company by pre'paid registered post; (4) That the petitioner do advertise within fourteen days from this date a notice in the prescribed form of the making of this order in one issue (each) of. .. (here enter the newspaper or newspapers in which the order is to be advertised); (5) That the said petitioner do serve a certified copy of this order on the Registrar of Companies not later than one month from this date; and (6) That the cost of the said petitio....
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.... 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 passing a winding up order. The items mentioned in the preamble of FORM WIN 11 are, (i) the petition for winding up; (ii) the hearing of the representative for the petitioner; (iii) the hearing of the representative for the creditors or contributories supporting the petition; (iv) the hearing of the representative for the creditors or contributories opposing the petition; (v) the hearing of the representative of the company; (vi) the affidavits; and (vii) the paper publication of the advertisement of the petition. 7.37 Thus the preamble merely contains a list of several matters that may be taken into account by the Tribunal before passing an order of winding up. All those items need not necessarily be present in all cases. For instance, there may be cases where the petition may not be supported by all creditors or contributories. There may also be cases where the petition may....
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....ed 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 for valuable consideration subsequently to the transaction in which the mistake was made, by a person who did not know, or have reason to believe, that the mistake had been made, or (iii) in the case of a concealed document, has been purchased for valuable consideration by a person who was not a party to the concealment and, did not at the time of purchase know, or have reason to believe, that the document had been concealed. (2) Where a judgment debtor has, by fraud or force, prevented the execution of a decree or order within the period of limitation, the court may, on the application of the judgment creditor made after the expiry of the said period extend the period for execution of the decree or order: Provided that such application is made within one year from the date of the discovery of the fraud or the cessation of force, as the case may be." 8.2 The argument of Shri Mukul Rohatgi, learned Senior Counsel for the appellant is that ....
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.... 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 Companies Act, 2013, unfortunately came into force on various dates, in view of the leverage granted under Section 1(3) to the Central Government to appoint different dates for different provisions to come into force. Section 270 providing for the winding up by the Tribunal, Section 271 prescribing the circumstances in which a company may be wound up by the Tribunal and Section 272 stipulating the requirements of a petition for winding up, as they were originally enacted in the Companies Act, 2013, never came into force, since no notification under Section 1(3) of the Act was issued in respect of these three provisions. 8.7 However, the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016) received the assent of the President on 28.05.2016. Section 255 of this Code declared that the Companies Act, 2013 shall stand amended in the manner specified in the 11th Schedule to the Code. The existing provisions of Sections 270 to 272 of the Companies Act, 2013 were replaced by the ....
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....0 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; and (ii) what is provided for under the Companies (Transfer of Pending Proceedings) Rules, 2016 read with Section 434 of the Companies Act, 2013 and Section 239 of the IBC 2016 is the transfer of only three categories of petitions for winding up, namely, those that fall under clauses (a), (e) and (f) of Section 433 of the 1956 Act. 8.12 Keeping in mind the above statutory scheme, let us now see what happened in Jignesh Shah (supra), on which heavy reliance is placed. In Jignesh Shah, a suit for specific performance of an agreement with an alternative claim for damages, was filed by IL&FS, on 19.06.2013, on the ground that the cause of action, namely, the refusal to honour the commitment under the agreement arose on 16.08.2012. After more than two years of the date of the institution of the suit and after more than three years of the date mentioned in the plaint as the date of arising of the cause of action, the plaintiff in the suit issued a statutory notice under Sections 433 and....
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....3 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 inability to pay the debts, covered by Clause (e) of Section 433 of the 1956 Act; (ii) proceedings initiated by the company itself by a special resolution covered by Clause (a) of Section 433; and (iii) proceedings on just and equitable ground covered by clause (f) of Section 433. 8.15 As we have seen in Chapter 6 above, fraud was not included in Section 433 of the 1956 Act as one of the nine circumstances in which a company may be wound up. Under the 1956 statutory regime, a petition for winding up, even if triggered on the basis of an investigation report under section 237(b) read with section 243 and Section 439(1)(f), was required to be only on just and equitable ground under Section 433(f). Therefore, on the date on which IBC came into force, if a petition for winding up was pending under section 433 (e) or (f), it was liable to be transferred to NCLT by virtue of Section 434 of the 2013 Act read with the Companies (Transfer of Pending Proceedings) Rules, 2016. 8.16 But under the Companies Act....
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.... 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, this Court held in Bishal Jaiswal (i) that "though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so; and (ii) that the entries made in the balance sheets would amount to acknowledgement of liability depending upon whether such an entry qua any particular creditor is unequivocal or has been entered into with caveats in the form of notes that are annexed to or forming part of such financial statements" 8.21 The above decisions show that limitation is not always akin to a lighted matchstick to a train of gun powder. The date of commencement of the period need not necessarily be static. The date of commencement may keep changing depending upon the acts of omission and commission on the part of the party against whom the action is initiated. These acts of omission and commission constitute the bundle of facts, which determine the question whether an action is barred by limitation or not. 8.22 As we have pointed out elsewhere, the contours of fraud as del....
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....ellants 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 victim and that therefore the failure of Antrix, (i) to terminate the contract on the ground of fraud and/or (ii) to set up fraud as a defence to the arbitral proceedings operated as estoppel. In addition, the Auditor's statements in the Annual Reports, that no fraud was committed on Antrix, would give rise to a valid plea of estoppel. 9.3 Factually, the appellants are right in pointing out that the Agreement dated 28.01.2005 was terminated by a letter dated 25.02.2011 only by invoking the force majeure clause and that fraud was not set up as a defence in the arbitral proceedings. The appellants are also factually correct in pointing out from the Auditor's reports of Antrix dated 15.09.2012, 19.07.2016, 24.07.2017, 19.06.2020 etc., that there was a certification by the auditors to the effect that no fraud on or by the company has been noticed or reported during the course of the audit. In the Annexure to the Auditor's report dated 15.09.2012, the Auditors have stated: " According to the information and explanations gi....
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....2013 and the award itself was passed on 14.09.2015. Antrix cannot be expected to plead fraud in the arbitral proceedings, even before the discovery of fraud. 9.10 The Chartered Accountants/Auditors are not experts either in Criminal Law or in the technology that formed the subject matter of the Agreement between Antrix and Devas. The statement of Chartered Accountants are always qualified with certain riders such as "according to the information and explanations given to us in the course of our audit" or "to the best of our knowledge and belief and according to the information and explanations given to us". 9.11 In fact, the Companies (Auditor's Report) Order, 2015 which was superseded by another order in 2016 was issued by the Central Government in exercise of the power conferred by Section 143(11) of the Companies Act, 2013. Section 143(12) obliges the Auditor to report to the Central Government, if he has reason to believe that an offence of fraud of a particular dimension was being committed in the company by its officers or employees. Subsection (13) of Section 143 also provides immunity to the Auditors for furnishing a report to the Central Government, if it is done in good....
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....auds other than those used to induce the consent of a party to an agreement, are not covered by Section 19. In fact, the definition of fraud under Section 17 is also confined only to certain acts committed by a party to a contract. There are cases where a party may perpetrate a fraud either upon non-contracting parties or upon the Government or even upon the courts. The principle that fraud vitiates all solemn acts, will itself be rendered nugatory, if the understanding of fraud is confined only to the realm of contract. 9.14 In the case on hand, the fraud alleged by Antrix is not solely on the ground that their consent to the Agreement dated 28.01.2005 was vitiated by fraud. What is alleged in the petition for winding up are, (i) formation of the company for fraudulent or unlawful purpose; (ii) fraud in the conduct of the affairs of the company; and (iii) fraud on the part of the persons who were involved in the formation and/or in the management of affairs of the company. The fraud relatable to the agreement, is only one facet of the whole scheme of things. Therefore, we have to go beyond section 19 of the Contract Act. 9.15 In fact, the Explanation (i) under Section 447 of the....
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....power to summon the appearance of any witness, crossexamine him on oath and even issue commission for the examination of witnesses; and (v) that the Tribunals committed a gross error of law in recording findings on serious allegation of frauds, solely on the basis of affidavits and documents. Reliance is placed in this regard by the learned senior counsel for the appellants, on the decisions of this Court in Standard Chartered Bank vs. Andhra Bank Financial Services Ltd. and Ors. (2006) 6 SCC 94; Svenska Handelsbanken vs. Indian Charge Chrome and Ors. (1994) 1 SCC 502 and V. Ravi Kumar vs. State, Rep. by Inspector of Police, District Crime Branch, Salem & Ors. (2019) 14 SCC 568. 10.3 At the outset we should point out that the decision in Svenska Handelsbanken (supra) arose out of an interim order of injunction granted in a civil suit. The principle of law laid down in the said decision that mere pleadings cannot make out a case of fraud, is an offshoot of the time tested principle that pleadings cannot take the place of proof. Insofar as the decision in Standard Chartered Bank (supra) is concerned, the same arose out of proceedings before the special Court. One of those pro....
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....ilable and that even the socalled intellectual property rights over the device were not available. Therefore, obviously Antrix cannot lead evidence to show the nonexistence or nonavailability of those things, either by oral evidence or by subjecting their officials to crossexamination by Devas. Devas never produced before the Tribunals any device nor did they demonstrate the availability to Devas services. All that Devas wanted was, the crossexamination of the officials of Antrix. Any amount of crossexamination of the officials of Antrix could not have established the existence of something that was disputed by Antrix. 10.10 It is also interesting to note that the application for crossexamination was moved by Devas on 5.5.2021, after arguments in the main petition itself had commenced on 30.04.2021 and concluded on 3.05.2021 on the side of Antrix. The list of dates filed by Shri N. Venkataraman, Additional Solicitor General shows that on 19.01.2021, NCLT ordered the admission of the company petition and appointed a provisional liquidator. In fact this order was passed after hearing objections of the company. As against the order of admission, DEMPL filed an appeal before NCLAT. Bu....
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....despite the petition for winding up containing specific allegations of fraud as against the shareholders of Devas, NCLT did not give any opportunity to the shareholders. Even the application for impleadment filed by DEMPL which is one of the shareholders, pursuant to the leave granted by NCLAT, was taken up along with the main company petition and eventually rejected along with the main company petition. Therefore, DEMPL filed an independent appeal before NCLAT. Unfortunately, the Member (Judicial) of NCLAT dismissed the appeal, as not maintainable, on the ground (i) that the rights of the shareholders are confined to the election of Directors, voting in the meetings of the company, distribution of dividends and the distribution of surplus upon liquidation; and (ii) that the company in liquidation itself, through its exDirector, has independently filed an appeal as an aggrieved person. 11.2 Therefore, relying upon the decision of this Court in National Textile Workers' Union vs. P.R. Ramakrishnan & Ors. (1983) 1 SCC 228, it is contended that it would be contrary to every recognised principle of fair judicial procedure and violative of the rule of audi alteram partem which constitu....
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....ition for impleadment. It is true that this application was not independently dealt with and disposed of at that stage. However, the objections of DEMPL to the main company petition were just the same as the objections of the company in liquidation. Despite the fact that a provisional liquidator has been appointed on 19.02.2021 itself, the exDirector of the company in liquidation was permitted to file objections to the main company petition and also argue the same fully. 11.6 After the conclusion of the arguments on the part of Antrix to the main company petition, DEMPL even moved a writ petition challenging the constitutional validity of Section 272(1)(e) and the authorisation issued to Antrix. The writ petition was dismissed with costs and the writ appeal was withdrawn. 11.7 It will be clear from the above sequence of events that (i) despite NCLT not disposing of the impleadment petition before passing final orders; and (ii) despite NCLT dismissing the impleadment petition along with the main company petition, their objections to the main company petition have been dealt, along with the objections of the exDirector of the company in liquidation. In other words, the objecting sh....
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....nior counsel. While the learned senior counsel for the company in liquidation occupied the crease only for limited number of overs, the learned senior counsel appearing for DEMPL took the entire responsibility on his shoulders and played a very long innings. Therefore, it is not possible for us to set aside the order of winding up, on the sole ground that the shareholders application for impleadment as well as the appeal were rejected wrongly. 11.11 Before leaving the discussion on this ground of attack, we must also take note of one submission made by Shri N. Venkataraman, learned Additional Solicitor General. According to him, all the shareholders of Devas are arrayed as accused by the CBI in the criminal cases. But the CBI has not even been able to serve summons on them. Therefore, persons who are ducking/ avoiding summons in the criminal prosecution, cannot be heard to contend that they must have been heard in the petition for winding up. Taking advantage of their citizenship/residence abroad, these shareholders are prosecuting proceedings for the enforcement of (i) ICC Arbitral Tribunal Award in India; and (ii) BIT Awards overseas, even while making it impossible for CBI to s....
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....onspiracy, fraud and corrupt practices came to light, an FIR was lodged by the CBI on 16.03.2015; (viii) that a chargesheet was filed by CBI on 11.08.2016, both against the persons responsible for the formation and management of the affairs of the company in liquidation, as well as the officials of Antrix and Government of India; (ix) that a supplementary chargesheet was filed on 08.01.2019; (x) that a complaint was also registered under the Prevention of Money Laundering Act, 2002 on 24.12.2018; (xi) that the company which was formed with an authorized share capital Rs. 1,00,000/in December, 2004, managed to secure a contract for a stated consideration of an "upfront capacity reservation fee" in the region of US, $ 20 million per satellite, apart from annual license fee of around US $ 9 million per satellite; (xii) that the execution of such a contract and the award of a public largesse of such a huge magnitude was not through any public auction but by private negotiations held by the officials of Antrix with Forge Advisors of USA, (xiii) that after securing the contract, the company was able to sell its equity shares as well as OCP shares at a huge premium to foreign investors; (....
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....or by name Shri M. Umesh, whose Article Clerk by name Gururaj was the one signed the Agreement; (iv) that the Executive Director of Antrix who signed the Agreement of behalf of Antrix is one of accused in the criminal cases; (v) that the incorporation of Devas was with fraudulent motive and unlawful object, to bring money into India and divert it by dubious methods; (vi) that even after the termination of the Agreement, Devas was not carrying on any business operations; (vii) that the objective of Devas was hardly to do any business except grabbing Primary SatelliteI (PSI) and Primary SatelliteII (PSII), and that therefore the requirements of Section 271(c) stand satisfied. 12.5 The order of the Appellate Tribunal is in two parts; the first authored by Member (Judicial), and the second authored by Member (Technical). The Member (Judicial) noted, (i) that the company in liquidation failed to establish either the existence of technology or the ownership of intellectual property rights over the stated technology; (ii) that even according to the affidavit of Shri M. G. Chandrashekar, Devas had ample time to develop Devas Technology, meaning thereby that its nonexistence at that time w....
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....t dated 06.03.2006 entered into with the investors contains a recital as though appropriate licences have been validly issued or assigned to the company, though in fact the only licence namely ISP licence was obtained much later on 02.05.2008 and (xx) that therefore the formation of the company and the conduct of the affairs of the company were fraudulent and the persons concerned therewith were also guilty of fraud. 12.6 In his independent but concurrent opinion the Member (Technical) of NCLAT classified the items of fraud into eight categories. He first found that the company was formed and the Agreement was entered into with the stated object of providing a bouquet of services, which were nonexistent. The second category of fraud dealt with by the Member (Technical) related to the misrepresentation in the Agreement. The third category of fraud concerned the violation of SATCOM Policy. The fourth category was actually an extension of the third category which related to SATCOM Policy. The fifth category was about suppression and misrepresentation in obtaining the approval of the cabinet. The sixth category of fraud revolved around the ISP licence dated 02.05.2008, of which IPTV l....
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....tions that it was signed overseas; (ii) It must be noted here that a one man Committee comprising of Dr. B.N. Suresh, former Member of the Space Commission and Director of Indian Institute of Space Science and Technology, was constituted on 8.12.2009, long after the commencement of the commercial relationship, to look comprehensively into all aspects of the contract, both commercial and technical. According to the Report submitted by him in May2010, it was Forge Advisors, USA which made a presentation in March2003, on technology aspects of digital multimedia services to Antrix/ISRO, followed by a presentation in May2003 purportedly to the top management of Antrix/ ISRO. The MoU was signed thereafter; (iii) But the documents filed by the appellants themselves show that a power point presentation was made by Forge LLC on 22.03.2004, proposing an Indian joint venture to launch what came to be known as DEVAS (which perhaps ultimately turned out to be ASURAS According to Hindu Mythology, Devas are demigods and Asuras are demons). It was claimed in the said proposal that DEVAS platform will be capable of delivering multimedia and information services via satellite to mobile devices t....
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....ion of a Sband satellite by Antrix, at least at the time when negotiations took place; (v) Admittedly, FIPB (Foreign Investment Promotion Board) approvals taken by Devas during the period May2006 to September2009 were on the basis of the ISP (Internet Service Provider) license secured from the Department of Telecommunications on 02.05.2008 and IPTV (Internet Protocol Television) services license obtained on 31.03.2009; (vi) Therefore, the finding of the Tribunal, (a) that a public largesse was doled out in favour of Devas, in contravention of the public policy in India; (b) that Devas enticed Antrix/ISRO to enter into an MoU followed by an Agreement by promising to provide something that was not in existence at that time and which did not come into existence even later; (c) that the licenses and approvals were for completely different services; and (d) that the services offered were not within the scope of SATCOM Policy etc. are actually borne out by records; (vii) There is no denial of the fact that Devas offered a bouquet of services known as (a) Devas Services through a device called (b) Devas device in a hybrid mode of transmission, which is a combination of satellite and....
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....as not permitted by law. It is especially so since no deliberation took place with the Ministry of Information and Broadcasting. Moreover, unless ICC allocates space segment, to a private player, the same becomes unlawful. This is why the conduct of the affairs of the company became unlawful; (xii) That the officials of the Department of Space and Antrix were in collusion and that it was a case of fence eating the crop (and also allowing others to eat the crop), by joining hands with third parties, is borne out by the fact that the Note of the 104th Space Commission did not contain a reference to the Agreement. The Cabinet Note dated 17.11.2005 prepared after ten months of signing of the Agreement, did not make a mention about Devas or the Agreement, but proceeded on the basis as though ISRO received several Expressions of Interest. These materials show the complicity of the officials to allow Devas to have unjust enrichment; (xiii) It is on record that the minutes of the meeting of the Sub Committee dated 06.01.2009 were manipulated and the experimental licence was granted on 07.05.2009. Only thereafter, the original minutes were restored on 20.11.2009 and that too after prote....
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....te parties nor a private lis between a private party and a public authority. It is a case of fraud of a huge magnitude which cannot be brushed under the carpet, as a private lis. 13.2 Another contention raised on behalf of the appellants is that the petition under Section 271(c) should have been preceded, at least by a report from the Serious Fraud Investigation Office, which has now gained statutory status under Section 211 of the Companies Act, 2013. But this contention is unacceptable, in view of the fact that under the 2013 Act there are two different routes for winding up of a company on allegations of fraud. One is under Section 271(c) and the other is under the just and equitable clause in Section 271(e), read with Section 224(2) and Section 213(b). What was Section 439(1)(f) read with Section 243 and Section 237(b) of the 1956 Act, have now taken a new avatar under Section 224(2) read with Section 213(b). It is only in the second category of cases that the report of the investigation should precede a petition for winding up. 13.3 Yet another contention raised on behalf of the appellants is that the criminal complaint filed for the offences punishable under Section 420 rea....