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How does the devas multimedia case cast a pathway for Indian corporate litigation


By

Sakshi Shairwal

Lokpal Hangal


The respondent, in this case, is Antrix Corporation Limited (hereinafter referred to as Antrix), Antrix is the commercial wing of the Indian Space Research Organisation (hereinafter referred to as ISRO), which is wholly owned by the Government of India under the Department of Space. ON 28.07.2003, Antrix entered into an MOU with Forge Advisors. The objective of the MOU was to make both parties strong and vital partners in implementing new satellite applications across various sections including education, media, agriculture, and telecommunications. In addition, the MOU’s intent was for Forge Advisors to provide a wide array of advisor services in the area of sales, business development, strategic negotiations, and other related areas.


On 22.03.2004, Forge Advisors proposed a joint venture in India called DEVAS (Digitally enhanced Video and Audio Services). This joint venture would be capable of delivering multimedia services through satellites to mobile devices in various market segments, consumer segment, commercial segment, and social segments. Under this proposal, ISRO and Antrix had the obligation to invest in one operational S-band satellite in return ISRO and Antrix would receive a lease payment of USD 11 million per annum for 15 years.


Devas Multimedia Private Limited was (hereinafter referred to as Devas) the company in liquidation was incorporated on 17.13.2004. Right after the incorporation, Antrix and Devas came into an agreement for a lease of space segment to develop a platform to deliver multimedia services originating from satellites to mobile receivers. Under the agreement, Antrix would be leasing out 5 numbers of C X S transponders each of 8.1 MHz capacity and 5 numbers of S X C transponders each of 2.7 MHz on the primary satellite to Devas within 30 months of the agreement, with 6 months as extra-time period. Article 7 of the agreement stipulated termination of agreement along with the consequences of such termination.


On 25.02.2011, Antrix terminated the agreement under force major stipulated under Article 7 (c) of the agreement. The reason stated by Antrix was, that the Government of India had implemented a policy not to provide orbital slots in S-band for commercial activities.


Devas went on to initiate arbitration before the ICC Arbitral Tribunal. Similarly, Mauritius investors initiated arbitration under India – Mauritius Bilateral Investment Treaty. A German Company, Deutsche Telecom, initiated arbitration under India – Germany Bilateral Investment Treaty. As a result of various arbitration proceedings, the Government of India was directed to pay USD 562.5 million with a simple interest of 18% per annum.


On 16.03.2015, the Central Bureau of Investigation (hereinafter referred to as CBI) filed a First Information Report against Devas, officers of Devas, and officers of 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. Therefore, Antrix was successful in seeking authorization to initiate proceedings under Section 271 (c) of the Companies Act on the basis Antrix filed a petition before the NCLT, Bengaluru bench on 18.01.2021 for winding up of Devas. On 19.01.2021, NCLT admitted the petition and appointed the Official Liquidator, and the Hon’ble High Court of Karnataka at Bengaluru was named the provisional liquidator.


Unhappy with the order Devas Employees Mauritius Private Limited (hereinafter referred to as DEML) filed an appeal in NCLAT; the same was disposed of with a direction to approach NCLT to raise their objections. Simultaneously, DEMPL filed a writ petition No. 6191 of 2021 challenging the validity of Section 271 (c) of the Companies Act, 2003 and quashing of the authorization granted by the Ministry of Corporate Affairs. The petition stood dismissed with costs on the grounds of abuse of process of law.


This particular case holds a major significance in corporate litigation. This dispute is one of the first of its kind in aerospace involving India’s space organization coupled with an allegation of fraud, corruption, winding up of a company, and international arbitration. One of the grounds for winding up devas was a fraud but before proceeding further it is important to look into the difference between Section 271 in the Companies Act, 2013 and the 1956 Act. Under the previous Act, there were two categories of winding up. By tribunal and the other was voluntary. The instances where the company could wound up were prescribed under Section 433 of the previous Act; this section gave out instances for the same. Fraud in either form of the company or in conducting affairs of the company, actions of the officers of the company. Section 243 of the 1956 Act empowered the Central Government to grant authorization for winding up Sections 235 to 251 of the Act titled Investigations empowers the government to investigate and look into the mattress if it is in the opinion the business of the company is being conducted for a fraudulent or unlawful purpose. A petition of winding up under Section 439 read with 237 of the Act of 1956 has to be on an equitable ground. Under Section 237 of the 1956 Act, the central government had the power to order an investigation while it is with the Tribunal under Section 213 of the 2013 Act. The main difference between the two Acts is the inclusion of fraud in the 2013 Act, which is a direct circumstance for a company to wind up. This was not present in the previous Act. The above information shows two ways for winding up on the ground of fraud. One is under Section 271 (c) by an authorized person by the government and under Section 224 (2) (a) based on a report of investigation.


The limitation of filing the winding-up petition was also a topic that was heavily discussed during this corporate litigation. It was contented by devas that the petition under Section 271 (c) was barred by limitation. The appellants argued the Limitation Act prescribes a period of 3 years for any application, the date of discovery was narrowed down by the date of the first charge sheet on 11.08.2016 but Antrix applied to the central government on 14.01.2021. The appellants place reliance on Jignesh Shah and Anr v. Union of India (2019 10 SCC 750) where the appellants contend that the petition for winding up should have been thrown out on the ground of limitation, even if we take the date of filing of the charge sheet alone as the date of knowledge of the alleged fraud. The technical member of NCLAT was of the opinion that the fraud alleged by Antrix was a transaction-based fraud not a single act and the winding-up petition was based on a number of acts it is also important to note that the CBI had filed a supplementary charge sheet. In addition, a complaint was lodged under the Prevention of Money Laundering Act 2002 alleging fraud only on 24.12.2018, the stand taken by the NCLAT is plausible and sets an important precedent in terms of corporate litigation and detection of fraud in the corporate domain.


Another important allegation that was addressed in its entirety was the locus standi of the shareholders. The Appellant was of the opinion that the NCLT, NCLAT, and the Hon’ble High Court of Karnataka at Bengaluru did not give the opportunity to the shareholders. The appellants placed reliance on National Textile Workers Union v. P. R. Ramakrishnan and Ors, it was contended that it would be contrary to every recognized principle of fair judicial procedure and violative of the rule of audi alteram partem which constitutes one of the basic principles of natural justice, to deny to the shareholders, the right to be heard before an order prejudicially affecting their interest was passed. But the NCLAT was of the opinion that the rights of the shareholders are limited to the extent of the election of the directors, voting in the meetings of the company, and distribution of dividends. Under the Companies Act, there is no scope for the impleadment of any shareholder. This case sets up a message to the investors and the officers of a company who think they can reap the benefits by indulging in fraudulent actions or by abusing the process of the law through litigation.




The article first published on Lexology.com and the same can be accessed here.





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