'Fraud Of Huge Size': SC Upholds Winding Up Of Devas Multimedia

The Supreme Court on Monday upheld the winding up of Devas Multimedia, saying “it is a case of fraud of a huge magnitude which cannot be brushed under the carpet".

A bench of Justices Hemant Gupta and V Ramasubramanian dismissed the appeal filed by Devas Multimedia Pvt Ltd and said when two forums namely NCLT and NCLAT have recorded concurrent findings on facts, it is not open to this Court to reappreciate evidence.

"If the seeds of the commercial relationship between Antrix and Devas were a product of fraud perpetrated by Devas, every part of the plant that grew out of those seeds, such as the Agreement, the disputes, arbitral awards, etc., are all infected with the poison of fraud.

"A product of fraud is in conflict with the public policy of any country including India. The basic notions of morality and justice are always in conflict with fraud and hence the motive behind the action brought by the victim of fraud can never stand as an impediment," the bench said.

The top court said it does not know if the action of Antrix Corporation, the commercial arm of the Indian Space Research Organisation (ISRO), in seeking the winding up of Devas may send a wrong message to the community of investors.

"But allowing Devas and its shareholders to reap the benefits of their fraudulent action, may nevertheless send another wrong message namely that by adopting fraudulent means and by bringing into India an investment in a sum of Rs 579 crores, the investors can hope to get tens of thousands of crores of rupees, even after siphoning off Rs 488 crore," the bench said.

The apex court refused to agree with the submission of Devas that the criminal complaint filed for the offences punishable under Section 420 read with Section 120B IPC, has not yet been taken to its logical end.

"It is contended that in case the officials of Antrix and shareholders of Devas are acquitted after trial, the clock cannot be put back if the company is now wound up. Attractive as it may seem at first blush, this contention cannot hold water, if scrutinised a little deeper.

"The standard of proof required in a criminal case is different from the standard of proof required in the proceedings before NCLT. The outcome of one need not depend upon the outcome of the other, as the consequences are civil under the Companies Act, 2013 and penal in the criminal proceedings," the bench said.

It also rejected the submission that the actual motive behind Antrix seeking the winding up of Devas, is to deprive Devas, of the benefits of a unanimous award passed by the ICC Arbitral tribunal and the two BIT awards and that such attempts on the part of a corporate entity wholly owned by the government would send a wrong message to international investors.

"We do not find any merit in the above submission. If as a matter of fact, fraud as projected by Antrix, stands established, the motive behind the victim of fraud, coming up with a petition for winding up, is of no relevance," the bench said.

The National Company Law Appellate Tribunal (NCLAT) had upheld the earlier order of the Bengaluru bench of the National Company Law Tribunal (NCLT), which had on May 25, 2021, directed the winding up of Devas Multimedia and appointed a provisional liquidator for the purpose.

The NCLT's direction came over a petition filed by Antrix Corporation, the commercial arm of the Indian Space Research Organisation (ISRO).

The NCLT had said Devas Multimedia was incorporated with a fraudulent motive to collude and connive with the then officials of Antrix Corporation to get bandwidth from it by entering into an agreement in 2005, which was subsequently cancelled by the government.

This order was challenged by Devas Multimedia and its shareholder Devas Employees Mauritius Private Ltd before the Chennai bench of NCLAT, which dismissed the petition.

According to Devas, what this agreement intended to achieve was first-of-its-kind and tremendous innovation. As a result, Devas introduced and utilised technologies like never before and was a huge revenue generator for Antrix.

Devas Multimedia was incorporated on December 17, 2004.

According to the winding-up petition filed by the commercial arm of ISRO before NCLT, the then officials of Antrix Corporation including its then chairman had executed a contract dated January 28, 2005.

This was terminated on February 25, 2011, as it was obtained fraudulently in connivance of the then officials and in accordance with the Agreement, which provides for termination on the ground of force majeure (unforeseeable circumstances).

It was stated in the said letter that the Government of India had taken a policy decision not to provide orbital slots in S­Band for commercial activities.

Investigating agencies CBI and Enforcement Directorate has unearthed fraud in executing the agreement, Antrix had said.

The CBI had later filed a charge sheet and ED had initiated PMLA proceedings.

The Ministry of Corporate Affairs (MCA) had also initiated an investigation into the affairs of Devas Multimedia but a stay was granted by the Delhi High Court.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)