As per the case facts, the appellant challenged a winding-up order passed by the National Company Law Tribunal, which was confirmed by the National Company Law Appellate Tribunal. The winding ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5766 of 2021
DEVAS MULTIMEDIA PRIVATE LTD. ... APPELLANT(S)
Versus
ANTRIX CORPORATION LTD. & ANR. ... RESPONDENT(S)
WITH
CIVIL APPEAL NO.5906 of 2021
J U D G M E N T
V. Ramasubramanian, J.
1.Challenging an order of winding up passed by the National
Company Law Tribunal under Section 271(c) of the Companies Act,
1
2013 (for short the 2013 Act), which was confirmed by the National
Company Law Appellate Tribunal on appeals, the company in
liquidation, namely, Devas Multimedia Private Limited, through its
exDirector 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
2
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 entered into a Memorandum of
Understanding with Forge Advisors, LLC, a Virginia Corporation.
The intent, as spelt out in the MOU, was to make both parties
become “strong and vital partners in evaluating and implementing
major new satellite applications across diverse sectors including
agriculture, education, media and telecommunications”. Apart from
other things, the MOU contemplated Forge Advisors to provide a
broad array of advisory services that included nearterm tactical
projects in the areas of sales, marketing, business development,
strategic partnership negotiations and other related business areas
and long term projects in the areas of corporate strategy, market
3
opportunity assessment, business case development for new
services, launch of new application services etc.
3.3 On 22.03.2004, Forge Advisors made a presentation
proposing an Indian joint venture, to launch what came to be known
as “DEVAS” (Digitally Enhanced Video and Audio Services). It was
projected in the said proposal that DEVAS platform will be capable
of delivering multimedia and information services via satellite to
mobile devices tailored to the needs of various market segments
such as (i) consumer segment , comprising of entertainment and
information services to digital multimedia consoles in cars and
vehicles; (ii) commercial segment, comprising of high value
information services to Commercial Information Devices in
commercial transport vehicles; and (iii) social segment, comprising
of Developmental Information Services to Rural Information kiosks
in underserved areas.
3.4 The presentation dated 22.03.2004 was followed by a
4
proposal dated 15.04.2004. The proposal was to form “a strategic
partnership to launch DEVAS, a new service that delivers video,
multimedia and information services via satellite to mobile receivers in
vehicles and mobile phones across India”. The proposal dated
15.04.2004 indicated that 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 satellite to
mobile receivers in vehicles and mobile phones across India
1
. The
proposal contemplated the formation of a joint venture and an
obligation on the part of ISRO and Antrix to invest in one
operational 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
1 Paragraph 1 of the Executive Summary of the Proposal dated 15.04.2004
5
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 S
Band spacecraft by DEVAS”. The preamble of the Agreement stated
that Devas was developing a platform capable of delivering
6
multimedia and information services via satellite and terrestrial
system to mobile receivers, tailored to the needs of various market
segments and that Devas had, therefore, requested Antrix, space
segment capacity for the purpose of offering SDMB service, a new
digital multimedia and information service, including but not limited
to audio and video content and information interactive services,
across India that will be delivered via satellite and terrestrial system
via fixed, portable mobile receivers including mobile phones, mobile
video/audio receivers for vehicles etc.. What was to be leased out by
Antrix to Devas was 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
capacity on the Primary Satellite 1 (PS1). The leased capacity was
agreed to be delivered by Antrix to Devas from a fully operational
and ready PS1 within 30 months of the agreement, with a further
grace period of six months.
3.8 Article 7 of the Agreement contained provisions for the
termination of the Agreement by either of the parties, with certain
7
consequences to one or the other, depending upon the
circumstances under which termination was made.
3.9 It appears that Devas obtained approvals from Foreign
Investment Promotion Board (FIPB) during the period May 2006 to
September 2009. Pursuant to those approvals, Devas actually
brought into India, an investment of about INR 579 crores.
3.10 Devas also obtained an Internet Service Provider (ISP)
License from the Department of Telecommunications on 02.05.2008.
Devas then obtained permission from the Department of
Telecommunications on 31.03.2009 for providing Internet Protocol
Television (IPTV) Services within the scope of the terms and
conditions of ISP license. Devas claims to have conducted
experiments on the emerging technologies for satellite and terrestrial
system in September 2009.
3.11 However the Agreement dated 28.01.2005 was terminated
by Antrix by a Communication dated 25.02.2011, in accordance
with Article 7(c) of the Agreement, which provides for termination on
8
the ground of force majeure. 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.
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 India
Mauritius Bilateral Investment Treaty and the German Company by
name Deutsche Telecom, initiated a BIT arbitration under the India
Germany 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
9
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 proceedings under Section 271(c) of the
2013 Act for winding up Devas. Authorisation was given on
18.01.2021, on the basis of which Antrix filed a petition before the
National Company Law Tribunal, Bengaluru Bench on 18.01.2021
for the winding up of Devas.
3.15 On 19.01.2021, NCLT passed a reasoned order, after
hearing the counsel for Devas, admitting the company petition and
appointing the Official Liquidator attached to the High Court of
Karnataka at Bangalore, as the provisional liquidator.
3.16 Against the said order of NCLT admitting the company
petition, DEMPL filed an appeal, but the same was disposed of by
the NCLAT with a direction to DEMPL to seek impleadment before
10
NCLT and raise all objections.
3.17 DEMPL simultaneously filed a writ petition in W.P. No.
6191 of 2021 before the Karnataka High Court challenging the
constitutional validity of Section 272(1)(e) of the Companies Act,
2013 and praying for quashing the authorization dated 18.01.2021
granted by the Ministry of Corporate Affairs to Antrix to initiate
proceedings for winding up Devas. The High Court dismissed the
Writ Petition on 28.04.2021 and also imposed costs of Rs.5,00,000/
on DEMPL on the ground that they were guilty of abuse of process of
law.
3.18 By a final order dated 25.05.2021, NCLT directed the
winding up of Devas. Aggrieved by the order of winding up, Devas
filed one appeal and the shareholderDEMPL filed another appeal
before NCLAT. These appeals having been dismissed by NCLAT by
an Order dated 08.09.2021, the exDirector of the company as well
as the shareholder are on appeal before us.
4.Grounds of Attack:
11
4.1 The Company in liquidation, which is the appellant in one
appeal, assails the impugned orders of NCLT and NCLAT broadly on
the following grounds:
(i)breach of the mandatory requirement of advertisement
before ordering winding up;
(ii)winding up petition barred by limitation;
(iii)Antrix estopped from pleading fraud;
(iv)violation of the principles of natural justice due to the
denial of permission for cross examination.
(v)erroneous findings of fact;
(vi)application of incorrect standard of proof on the question
of fraud;
(vii)erroneous conclusions regarding the consequences of
fraud, assuming that fraud was established;
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
13
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
2
Technology, DEVAS services and DEVAS device,
none of which existed either on the date of formation of
Devas or on the date of execution of the Agreement or on
the date of termination of the Agreement and not even on
the date of winding up of the company.
(iii)Violation of SATCOM policy, manipulation of minutes of
meetings and the misleading Cabinet Note.
(iv)Shocking nature of the financial fraud.
5.2 Shri Balbir Singh, learned Additional Solicitor General
appearing for the Union of India defended the impugned orders
broadly on the following grounds:
(i) The requirement of an advertisement before winding up is
2 Wherever there is a reference to the company in liquidation, we have used the lowercase of the
letters in the word ‘Devas’ and wherever there is a reference to the technology and services
offered by Devas, we have used the capital letters in the word ‘DEVAS’
14
redundant in a petition under Section 271(c).
(ii)The question of fraud has to be addressed from the broad
parameters laid down, not only in Section 17 of the Indian
Contract Act, 1872, but also in Section 447 read with
Section 7 of the Companies Act, 2013 and keeping in
mind the distinction between fraud, fraudulent manner,
fraudulent purpose and unlawful purpose.
(iii)The attempt of Devas to challenge the constitutional
validity of Section 271(c) and its failure.
(iv)The case on hand not falling under the category of cases
where crossexamination was necessary.
6.Fraud as a ground for winding up and the difference
between 1956 Act and 2013 Act
Before we proceed to consider the specific grounds of challenge
to the impugned order, it is necessary to see the contours of Section
271 (c) of the Companies Act, 2013, as it is stated by the learned
counsel on both sides (i) that this is a new addition to the Compa
15
nies Act; and (ii) that this is the first case of winding up on the
ground of fraud. Therefore, a comparison of the provisions of 2013
Act with those of the 1956 Act may serve us better.
6.1 The Companies Act, 1956 spoke about two categories of
winding up, namely, (i) winding up by the Tribunal; and
(ii) voluntary winding up. The circumstances in which a company
could be wound up by the Court, were enlisted in Section 433 of the
1956 Act. This Section contained a list of nine circumstances in
which a company may be wound up. Fraud (i) either in the forma
tion of the company or (ii) in the conduct of affairs of the com
pany or (iii) on the part of persons concerned in the formation
of or the management of its affairs, was not one of the circum
stances 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
16
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 sub
section (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 such
circumstances as are referred to in subclause (i) or (ii) of
clause (b) of section 237, the Central Government may,
unless the company, or body corporate is already being
wound up by the Tribunal, cause to be presented to the
Tribunal by any person authorised by the Central
Government in this behalf –
(a) a petition for the winding up of the company, or body
corporate on the ground that it is just and equitable
that it should be wound up ;
(b) an application for an order under section 397 or 398,
(c) both a petition and an application as aforesaid.”
17
6.4 Section 243 forms part of a set of provisions from Sections
235 to 251 in Chapter I of Part VI of the Act. This cluster of provi
sions from Sections 235 to 251 is grouped under the Heading “In
vestigation”. Section 235(1) empowers the Central Government to or
der an investigation into the affairs of the company whenever a Re
port has been made by the Registrar under Section 234. Indepen
dent of Section 235(1), Central Government is empowered also
under Section 237 to order an investigation, if, in its opinion
or in the opinion of the Company Law Board (i) the business of
the company is being conducted for a fraudulent or unlawful
purpose or (ii) the company was formed for any fraudulent or
unlawful purpose or (iii) persons concerned in the formation of
the company or the management of its affairs have in connec
tion therewith, are guilty of fraud. Section 237 of the 1956 Act
reads as follows:
“237. Investigation of company’s affairs in other cases.
Without prejudice to its powers under section 235, the
Central Government –
18
(a) shall appoint one or more competent persons as
inspectors to investigate the affairs of a company and
to report thereon in such manner as the Central
Government may direct, if –
(i) the company, by special resolution ; or
(ii) the Court, by order,
declares that the affairs of the company ought to be
investigated by an inspector appointed by the Central
Government ; and
(b) may do so in its opinion or in the opinion of the
Tribunal, there are circumstances suggesting –
(i)that the 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
19
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 to be filed only by a person authorised by the Central
Government; and (iii) the petition should be premised on the ground
that it is just and equitable to wind up the company.
6.6 What is interesting to observe from section 243 (a) is that
a petition for winding up in terms of Section 439(1)(f) of the
1956 Act, read with Section 237(b)(i) and (ii), has to be on “just
and equitable” ground. Clause (a) of Section 243 of the 1956 Act,
enabled the Central Government (if upon receipt of a report about
the existence of the circumstances referred to in Section 237(b)(i)
20
and (ii), it appears to the Central Government that it is expedient to
do so), to authorize any person to present a petition for the winding
up of a company, not directly on the ground of fraud but actually on
the ground that it is just and equitable that the company should be
wound up.
6.7 It must be noted that just and equitable clause has
several facets. The origin of just and equitable clause in Company
law, is traceable to the law of partnership, which developed “the
conceptions of probity, good faith and mutual confidence
3
”. The
principle behind just and equitable clause, in the words of the
House of Lords is that “equity always does enable the Court to
subject the exercise of legal rights to equitable considerations”. In
other words, equitable considerations get superimposed on
statutorily governed legal rights under this clause.
6.8 It is well settled that the words “just and equitable” in the
legislation specifying the grounds for winding up by the Court, are
not to be read as being ejusdem generis with the preceding words of
3 Ebrahimi vs. Westbourne Galleries Ltd.; (1972) 2 WLR 1289
21
the enactment. They are not to be cut down by the formation of
categories or headings under which cases must be brought if the
enactment is to apply
4
. But apart from cases, (i) where there is
something in the history of the company or in the relationship
between the shareholders; or (ii) where there is functional deadlock
of a paralysing kind; 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
4 Para 359, Vol. XVI, Fifth Edition (2017) of Halsbury’s Laws of England.
22
reference may be made in this regard to Re Medical Battery Co.
5
,
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
expedient in the public interest to wind up the company and
(ii) if the court thinks it just and equitable to do so . Such
winding up may be based upon, (i) the reports of some investigations
under the Companies Act itself; or (ii) a report under the Financial
5 (1894) 1 Ch. 444
23
Services and Markets Act; or (iii) any information under the
Criminal Justice Act, 1987.
6.11 In Re Walter L. Jacob & Co. Ltd.
6
, the Court of Appeal
(Civil Division) was concerned with a case, where the Secretary of
State, after examining the books of the company in question, formed
an opinion that the company should be wound up in public interest.
Therefore, he filed a petition under Section 447 of the Companies
Act, 1985 for winding up on just and equitable ground under
Section 122(1)(g) of the Insolvency Act, 1986. The High Court
dismissed the petition. While reversing the decision and ordering the
winding up, the Court of Appeal held that the Court’s task in the
case of petitions for winding up in public interest, is to carry out a
balancing exercise, having regard to all the circumstances as
disclosed by the totality of the evidence. One of the arguments raised
in that case was that the company sought to be wound up did well
and that all clients to whom the company owed money except one,
had settled the matter with the company. While rejecting the said
6 (1989) 5 BCC 244
24
argument, the Court of Appeal emphasised that the Parliament had
recognised the need for the general public to be protected against
the activities of unscrupulous persons who deal in securities.
6.12 Thus, there was a shift even in the English Law, from the
conservative view that fraud committed by the company upon
outsiders was not available as a ground for winding up. However,
winding up on the ground of public interest was also linked to just
and equitable clause in England. This is perhaps why the law even
in India, for the winding up of a company on the ground of fraud,
was also linked to just and equitable clause under the 1956 Act.
6.13 But the mandate of Section 243 (a) of the Companies Act,
1956 to take recourse, in cases of fraud, to just and equitable
ground, was little incongruous. This is due to the reason 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
25
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
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
26
similar to Section 243 of the 1956 Act as it enables the Central
Government to authorize any person to file a petition for winding up,
on the basis of the report of any investigation. Here again, the
petition for winding up on the basis of the report of such
investigation, is to be on just and equitable ground by virtue of
clause (a) of subsection (2) of Section 224, which is similar to
clause (a) of Section 243.
6.15 The main departure of the 2013 Act from the statutory
regime of the 1956 Act, is the specific inclusion of fraud, directly as
one of the circumstances in which a company could be wound up.
Section 271 of the 2013 Act lists out the circumstances in which a
company may be wound up. What were clauses (a), (g), (h) and (i) of
Section 433 of 1956 Act have now become clauses (a), (b), (d) and (e)
of Section 271 of the 2013 Act, though not in the same order. In
addition, (i) conduct of the affairs of the company in a fraudulent
manner; (ii) formation of the company for fraudulent or unlawful
purpose; and (iii) persons concerned in the formation or
27
management of its affairs being guilty of fraud, misfeasance or
misconduct, have now been included in clause (c) of Section 271, as
some of the circumstances in which a company could be wound up.
In other words, fraud has now directly become (under the 2013
regime), one of the circumstances in which a company could be
wound up, though it also continues to be a ground indirectly, under
section 224(2) read with section 213 [as it was under Section 439(1)
(f) read with sections 243 and 237(b) of the 1956 Act] .
6.16 As a matter of fact, Section 271(1) of the 2013 Act, as it
was originally enacted, included the inability of a company to pay its
debts as one of the grounds for winding up. Therefore, the deeming
provision which was there in Section 434 of the 1956 Act found a
place as subsection (2) of Section 271 of the 2013 Act. But by the
Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016), “inability to
pay debts” has been deleted from Section 271. As a consequence,
the deeming provision in subsection (2) of Section 271 also stands
deleted. In fact, section 271 of the 2013 Act (along with sections 270
and 272) got amended even before they were notified under
28
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
7
. 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 Tribunal A company may, on a petition under sec
tion 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 or
der, decency or morality;
(c) if on an application made by the Registrar or any other
person authorised by the Central Government by noti
fication 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 con
cerned in the formation or management of its affairs
have been guilty of fraud, misfeasance or misconduct
in connection therewith and that it is proper that the
company be wound up;
7 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.
29
(d) if the company has made a default in filing with the
Registrar its financial statements or annual returns for
immediately preceding five consecutive financial years;
or
(e) if the Tribunal is of the opinion that it is just and
equitable that the company should be wound up.”
6.18 Just as Section 439(1) of the 1956 Act provided a list of
persons by whom an application for winding up may be filed,
Section 272(1) of the 2013 Act also provides a list of persons by
whom a petition for winding up may be filed. What is common to
both Section 439(1) of the 1956 Act and Section 272(1) of the 2013
Act, is that a petition for winding up may be filed by: (i) the
company; (ii) any contributory; (iii) the Registrar; and (iv) any
person authorized by the Central Government in that behalf.
6.19 Both Section 439(1) of the 1956 Act and Section 272(1) of
the 2013 Act use two important expressions, in relation to the
persons competent to file a petition for winding up and the
procedure to be followed. They are, (i) authorization; and (ii)
sanction. The circumstances in which an ‘authorization’ has to be
granted and the circumstances in which a sanction has to be
30
granted, are different. Similarly, the grant of sanction should be
preceded by an opportunity of hearing, but the issue of
authorization does not require any prior opportunity to the company
to make a representation. Sub-sections (5) and (6) of section 439 of the 1956 Act and
sub-section (3) of section 272 of the 2013 Act are presented in a table for easy reference:
439. Provisions as to applica
tions for winding up
(1) ………….
(2) ………….
(3) ………….
(4) ………….
(5 ) Except in the case where he
is authorised in pursuance of
clause (f) of sub section (1), the
Registrar shall be entitled to pre
sent a petition for winding up a
company only on the grounds
specified in clauses (b), (c), (d), (e)
and (f)] of section 433:
Provided 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 dis
closed in its balance sheet or
from the report of
a special audi
tor 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 Reg
istrar shall obtain the previous
272. Petition for winding up
(1) ………..
(2) ………..
(3) The Registrar shall be enti
tled 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.
31
sanction of the Central Gov
ernment to the presentation of
the petition on any of the
grounds aforesaid.
(6) The Central Government shall
not accord its sanction in pur
suance of the foregoing proviso,
unless the company has first
been afforded an opportunity
of making its representations,
if any.
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 sub
section (3) of Section 272. They respectively prescribe, (i) that for
presenting a petition for winding up, the Registrar requires previous
sanction of the Central Government; and (ii) that before granting
sanction, the Central Government should give a reasonable
opportunity to the company to make a representation.
6.21 Thus, in effect, the distinction between the procedure to
be followed by the Registrar and the procedure to be followed by
32
“any other person authorised by the Central Government”, for
presenting a petition for winding up, is maintained as such. If the
petition is to be filed by the Registrar, it should be preceded by 2
things namely, (i) a sanction; and (ii) an opportunity to the company
to object. If the petition is to be filed by “any other person”, there is
only one requirement namely that of authorization by the Central
Government by notification.
6.22 The above discussion would show that in contrast to the
1956 Act, the 2013 Act provides 2 different routes for the winding
up of a company on the ground of fraud. They are:
(i) winding up under clause (c) of Section 271 (directly on the
ground of fraud) by any person authorised by the Central
Government by notification; or
(ii) winding up under clause (e) of Section 271 (on the ground
that it is just and equitable to wind up) in terms of Section
224(2)(a) on the basis of a report of investigation under Section
213(b).
33
6.23 If the second route is taken, then the power of the
Tribunal to order winding up, may perhaps stand circumscribed by
subsection (2) of Section 273 which states that where a petition is
presented on just and equitable ground, 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 the other remedy. But the question whether such a
restriction could be applied to cases of fraud, established by reports
of investigation, may have to be tested in appropriate 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
34
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
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
35
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 (Court) Rules, 1959 read as follows:
“23.Summons for direction (a) Where a petition is
presented under paragraphs (1), (3), (4), (22) and (23) of Rule
11, an application shall, in every case, be made by summons
to the Judge in Chambers for directions as to the
advertisement of the petition, the notices to be served and
the proceedings to be taken. Except where, in any particular
case, a different form is prescribed by these rules, such
summons shall be in Form No. 4. (b) The summons shall be
posted for hearing before the Judge in Chambers at the next
Chamber sittings, and the Judge may make such orders
thereon and may give such directions as may seem to him
appropriate. (c) No summons for directions shall be
necessary in the case of other petitions, but the petition
shall, upon admission, be placed before the Judge in
Chambers for fixing the date of hearing and directions as to
the advertisement of the petition and the notices to be
served, and such other directions as may be necessary.
24. Advertisement of petition (1) Where any petition is
required to be advertised, it shall, unless the Judge
otherwise orders, or these rules otherwise provide, be
advertised not less than fourteen days before the date fixed
for hearing, in one issue of the Official Gazette of the State or
the Union Territory concerned, and in one issue each of a
daily newspaper in the English language and a daily
newspaper in the regional language circulating in the State
or the Union Territory concerned, as may be fixed by the
Judge. (2) Except in the case of a petition to windup a
company the Judge may, if he thinks fit, dispense with any
advertisement required by these rules.”
7.3 As could be seen from Rule 23, the summons for
36
directions as to advertisement of the petition, dealt with by Rule 23,
correlates only to 5 out of the 23 items listed in Rule 11(a). These 5
items mentioned in Rule 23, are those found in serial Nos.1, 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
37
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, requiring the
advertisement of a petition for winding up. But Section 643(1) read
with Clause (i) of Subsection (2) of Section 643 of the 1956 Act
delegated to the Rule making power of the Central Government, the
power to prescribe the mode of proceedings to be held for the
winding up of a company by the Court. Therefore it is the Rules that
speak about advertisement.
7.7 Coming to the rules framed under the 2013 Act, Subsec
tions (1) and (2) of Section 468 of the 2013 Act empower the Central
Government to make Rules providing for all matters relating to
winding up of companies. In exercise of the powers so conferred, the
38
Central Government has issued a set of Rules known as the Compa
nies (Winding up) Rules, 2020. Rules 5 and 7 of these Rules speak
about advertisement. These Rules read as follows:
“5.Admission of petitioner and directions as to
advertisement. Upon filing of the petition, it shall be
posted before the Tribunal for admission of the petition and
fixing a date for the hearing thereof and for appropriate
directions as to the advertisements to be published and the
persons, if any, upon whom copies of the petition are to be
served, and where the petition has been filed by a person
other than the company, the Tribunal may, if it thinks fit,
direct notice to be given to the company and give an
opportunity of being heard, before giving directions as to the
advertisement of the petition, if any, and the petitioner shall
bear all costs of the advertisement.
7.Advertisement of petition. Subject to any directions
of the Tribunal, notice of the petition shall be advertised not
less than fourteen days before the date fixed for hearing in
any daily newspaper in English and vernacular language
widely circulated in the State or Union territory in which the
registered office of the company is situated, and the
advertisement shall be in Form WIN 6.”
7.8 In view of the language 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
39
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 stepbystep 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 three
fold, 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 to the company
and also provide an opportunity of being heard before
giving directions as to the advertisement of the petition.
7.10 The essence of Rule 5 is to provide an opportunity of being
heard to the company sought to be wound up, even before directions
as to the advertisement of the petition are given. The last limb of
Rule 5 speaks about the discretion vested in the Tribunal to direct
notice to be given to the company and to give an opportunity of
being heard before giving any directions as to the advertisement of
the petition. This last limb of Rule 5 provides the clue about the
purpose of advertisement.
41
7.11 One way of looking at the requirement of an advertisement
is that it provides an opportunity to all the stakeholders such as
(i) creditors; (ii) workers; (iii) suppliers; (iv) customers; and (v) the
general public, either to support or oppose the proceedings for
winding up. There is also another way of looking at the object of
issuing an advertisement of the petition for winding up. The
advertisement serves as a warning/notice or red alert to all those
dealing with the company so that they know that there could be an
element of risk in dealing with the company.
7.12 After all, the winding up of a company is like the
insolvency of an individual. The advertisement of the petition for
winding up, not merely serves as an opportunity to support or
oppose winding up, but also harms the reputation of the company
and sends shock waves in the stock market, if it is a listed company
or among the stakeholders who have dealings with the company.
This is why an opportunity of being heard is contemplated in Rule 5,
before ordering the advertisement of the petition. This is exactly the
42
reason why this Court held in National Conduits (P) Ltd. vs. S.S.
Arora
8
as follows:
“xxxxx xxxxx xxxxx
The view 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.
9
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
8 AIR 1968 SC 279
9 (1983) 4 SCC 625
43
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 is admitted to file, the Court
is bound forthwith to advertise the petition. Interestingly, such an
order was challenged by the Company itself on the ground that
advertisement was prejudicial to them. While considering the
challenge, in terms of Rule 24(2), this Court held in National
44
Conduits (in paragraph 4) that a petition for winding up cannot be
placed for hearing before the Court, unless the petition is advertised.
7.16 In IDBI Bank Ltd. vs. the Official Liquidator
10
,
authored by one of us (VRS, J.) as a Company Judge in the High
Court of Judicature at Madras, it was held that Rule 99 of the 1959
Rules makes it mandatory for an advertisement to be issued and
that Rule 24(2) does not confer any power even upon the Company
Court to dispense with any advertisement, in the proceedings for
winding up. It was also pointed out in IDBI Bank Ltd. (supra) that
Rule 100(2) which prohibits the withdrawal of a winding up petition
before the date fixed in the advertisement for the hearing of the
parties, also provided a clue about the mandatory nature of the
requirement to advertise. In the aforesaid decision, Rule 101 which
provides for the substitution of a creditor or contributory in the
place of the original petitioner, upon his failure to advertise, was
also taken note of. Rule 101 of the Companies (Court) Rules, 1959
reads as follows:
10 2013(6) CTC 40
45
“Rule 101. Substitution of creditor or contributory for
original petitioner. – Where a petitioner. –
(1)is not entitled to present a petition, or
(2)fails to advertise his petition within the time prescribed
by these rules or by order of court or such extended time as
the court may allow, or
(3)consents to withdraw the petition, or to allow it to be
dismissed, or the hearing to be adjourned or fails to appear
in support of his petition when 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 pe
titioner 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
46
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 oth
erwise orders" and that Rule 99 also speaks about "subject
to any directions of the Court". A similar view with regard to
the power of the Company Court to dispense with the publi
cation of advertisement in the Government Gazette was
taken by a Division Bench of the Gujarat High Court in Plas
tisac P. Ltd vs. Gujarat Lease Finance Ltd {2000 (101) CC
334 (Guj.)}. But a Division Bench of the Delhi High Court
disagreed with the views expressed by the Allahabad and
Gujarat High Courts, with regard to the power of the Com
pany Court to dispense with the publication of advertisement
in the Official Gazette. In Lt. Col. R.K.Saxena vs. Imperial
Forestry Corporation {2001 (107) CC 401 (Del.)}, a Division
Bench of the Delhi High Court, after a careful consideration
of Rules 96, 99 and 24 held that "the publication of the ad
vertisement of a petition for winding up is mandatory, even
in respect of the Official Gazette". On the scope of the discre
tion conferred by Rule 99, the Delhi High Court held that the
discretion is limited only to the extent of deciding at what
stage the petition is to be advertised. The contention that the
Company Court has inherent powers by virtue of Rule 9 even
to dispense with the requirement of Rule 24, was also re
jected by the Delhi High Court on the ground that "if a
statute requires a thing to be done in a particular manner, it
shall be done in that manner or not at all".
54. Though there was a difference of opinion between the Al
lahabad and Gujarat High Courts on the one hand and the
47
Delhi High Court on the other hand, with regard to the
power to dispense with the publication of advertisement in
the Official Gazette, all these Courts were unanimous in
their opinion at least with regard to the mandatory nature of
the requirement of publication of advertisements, in one
English Daily and one Vernacular Daily as ordered by the
Company Judge. Therefore, it is clear that publication of ad
vertisements 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 Bu
reau {1996 (86) CC 207 (Raj.)}, a Division Bench of the Ra
jasthan 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 Divi
sion 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 cit
ing 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 re
jected.”
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.
48
IDBI Bank Ltd.
11
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 original petitioner as directed, can the Court direct the
PL to advertise the petition, having regard to the fact that the
proceedings are inter alia for the benefit of creditors at large
and not one single creditor ?
31.1. The answer to this poser, to our minds, has to be in af
firmative as there is no bar in the Rules which prohibits a PL
from advertising the Company Petition in such like circum
stances, though, ordinarily, in practice, Company Petitions
are advertised by the petitioner who institutes the action. As
alluded to above, the Rules do not bar the Company Court
from directing the PL to advertise the petition. The reason,
why we hold this view is plainly this, that, while, adver
tisement of the petition is compulsory as winding up
proceedings are proceedings in rem and therefore should
receive the widest of publicity enabling all stakeholders
to have notice of the proceedings, there is no such stipu
lation in the Rules that once, the winding up petition is
admitted by a Court, it can in no circumstances move
forward, unless an advertisement is taken out by the
original petitioner or a suitable substituent who fulfills
the qualifications provided in Rule 101(4).”
7.19 But the Judgment of the Company Judge of the Madras
High Court in IDBI Bank Ltd. and the Judgment of the Division
Bench in Pradeep D. Kothari, arose out of proceedings for winding
up, in which a specific order directing the publication of the
11 2018 (1) CTC 136
49
advertisement had been made by the Company Court at the time of
admission. However, the said direction was omitted to be complied
with, by the petitioning creditor. Therefore, the crucial question that
fell for consideration in that case was as to how a company Judge
should proceed, in circumstances where the petitioning creditor
loses 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
12
, 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
12 (2020) 15 SCC 517
50
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
instances where the petitioning creditor fails to advertise the
petition. However, there is nothing in the language of Rule
24, 96 or 99 to indicate that only such petitioning creditor
can advertise the petition. In our considered opinion, given
the absence of a specific provision mandating that the
petition can only be advertised by the petitioning creditor,
the Company Court has the discretion to direct the
publishing of an advertisement to secure the interest of other
creditors. In such situations, the winding up proceedings
cannot be dismissed, as it would frustrate the very objective
of securing the interest of all creditors.
14.4. In the light of this discussion, we find that it
would be unjust to dismiss the winding up petition in the
instant case solely on the ground that there is no other
person willing to substitute the original creditor in terms of
Rule 101. Here, due to the lack of advertisement of the
winding petitions, it appears that the secured creditors of
KOFL were constrained to approach the DRT for recovery of
their dues by filling OAs Nos. 139 of 2001, 978 of 2000 and
14 of 2002. Further, upon learning of the decision of the
Company Judge dated 04.10.2013, dismissing the winding
up petition, one of the secured creditors (SBI) also
approached the DRT to secure its interest. Based on this,
51
vide order dated 13.12.2013, the DRT had directed that the
amount to be returned to KOFL be attached so that the
banks have an opportunity to recover their dues from KOFL.
This clearly goes on to show that the secured creditors of
KOFL were relevant stakeholders who were affected by the
nonadvertising of the windingup petition. They should
have been called upon to indicate whether they would want
to step into the shoes of the 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
52
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
13
, 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 fur
ther proceedings?. The next question falling for considera
tion is ‘can the noncompliance of a procedural manda
tory 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
earlier round?’
39. The purpose of advertisement is to give an opportunity to
the creditors/debtors/Company to put forth their case be
fore the Court. Assuming that the procedural mandatory
requirement was not complied with, in our considered
view, it cannot be a ground to set aside the winding up
order after three years. As rightly contended by the
learned Senior Counsel for the Official Liquidator, to sus
tain the allegations of violation of principles of natural
justice, one must establish prejudice. When fairness is
shown and if the facts and circumstances indicate that
13 2012 (1) MLJ 59
53
the Company/contributory were put on notice and that
no prejudice was caused to them, the Company/contrib
utory cannot complain of any procedural irregularity.”
7.22 We may also have to take note of one more aspect. The
Companies Act, 2013 mandates the constitution of a National
Company Law Tribunal and a National Company Law Appellate
Tribunal to exercise and discharge such powers and functions as
may be conferred upon it by or under the Act. Section 424(1) makes
it clear (i) that the Tribunal and the Appellate Tribunal shall not be
bound by the procedure laid down in the Code of Civil Procedure,
1908, but shall be guided by the principles of natural justice; and
(ii) that subject to the other provisions of the Act and of any rules
made thereunder, the Tribunal and the Appellate Tribunal shall
have power to regulate their own procedure.
7.23 While Section 468(1) of the 2013 Act empowers the
Central Government to make Rules consistent with the Code of Civil
Procedure, providing for all matters relating to winding up, Section
469(1) empowers the Central Government generally to make Rules
54
for carrying out the provisions of the Act.
7.24 In exercise 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, petitioner and
his authorised representative, if any;
(c) the nature and substance of application, petition or
reference;
(d)the date fixed for hearing;
55
(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 also be placed on the website of the
company, if any.
(4) An affidavit shall be filed to the Tribunal, not less than
three days before the date fixed for hearing, stating whether
the petition has been advertised in accordance with this rule
and whether the notices, if any, have been duly served upon
the persons required to be served:
Provided that the affidavit shall be accompanied with
such proof of advertisement or of the service, as may be
available.
(5) Where the requirements of this rule or the direction of the
Tribunal, as regards the advertisement and service of
petition, are not complied with, the Tribunal may either
dismiss the petition or give such further directions as it
thinks fit.
(6) The Tribunal may, if it thinks fit, and upon an application
being made by the party, may dispense with any
advertisement required to be published under this rule.”
7.26 It may be seen from Subrule (1) of Rule 35 that the
procedure laid down in Rule 35 is applicable to cases “where any
application, petition or reference is required to be advertised.”
7.27 The requirement to advertise a petition for winding up
56
does not flow out of the statute, but flows out of the Rules. Since the
requirement to advertise a petition for winding up is stipulated in
Rules 5 and 7 of the Companies (Winding up) Rules, 2020, what is
prescribed in Rule 35 would cover even petitions for winding up.
7.28 If so understood, Subrules (5) and (6) of Rule 35 of the
NCLT Rules 2016 would throw light upon the controversy on hand.
Subrule (5) makes it clear that even in cases where the direction of
the Tribunal as regards advertisement has not been complied 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
57
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 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
58
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 “useless formality theory” in
cases of this nature, we can certainly apply the test of prejudice,
especially in the light of the serious nature of the allegations of
fraud, on the basis of which the company is sought to be wound up.
This is not a case where the company is sought to be wound up on
the ground of inability to pay debts or on just and equitable ground.
This is a case of fraud and all stakeholders are fully aware of the
proceedings and they have even shown extreme urgency in enforcing
an ICC Arbitration award and 2 BIT awards, before the conclusion of
the winding up proceedings. Therefore, we are unable to sustain the
argument that the failure of the Tribunal to order the publication of
an advertisement rendered the entire proceedings unlawful.
7.31 The Companies (Winding Up) Rules, 2020 contain a list of
Forms in which all the proceedings before the Tribunal are to be
couched. While FORM WIN 1 prescribes the format of a petition for
59
winding up by a person other than the company and Forms WIN 2,
WIN 3 etc., prescribe the formats of certain other things, FORM WIN
11 prescribes the format of a winding up order. The National
Company Law Tribunal is obliged under Rule 17(1) of the
Companies (Winding Up) Rules 2020, to prepare the order for
winding up in FORM WIN 11 with such variations as may be
necessary. On the basis of the contents of FORM WIN 11, it was
argued by the learned counsel for the appellants that paper
publication of the advertisement of the winding up petition is
mandatory.
7.32 FORM WIN 11 reads as follows:
FORM WIN 11
[See rule 17(1)]
Before The National Company Law Tribunal
Bench 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,
60
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
(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 petition shall be paid out of the
assets of the said company.
Dated this …...... day ….... 20.
(By the Tribunal)
Registrar
*Where the company ordered to be wound up is a Banking
Company or an Insurance Company add at the end of clause
(1) "and the Banking Companies Act, 1949' or 'and the
Insurance Act 1938" as the case may be.
** To be inserted only where the company is not the
petitioner.
7.33 The above FORM WIN 11 contains a reference to
61
advertisement, in two places. In the first place, it is found in the
preamble portion of the format, beginning with the words “upon the
petition…..”. In the second place, a reference to advertisement is
found in paragraph 4 of FORM WIN 11. While the advertisement
referred to in the preamble of FORM WIN 11, obviously relates to the
advertisement of the petition, the advertisement referred to in
paragraph 4 of WIN 11 relates to the advertisement of the making of
the order of winding up. It is needless to say that the advertisement
of the petition for winding up is different from the advertisement of
an order of winding up.
7.34 In so far as the advertisement of the order of winding up is
concerned, Rules 19 and 20 occupy the field. Rules 19 and 20 of the
Companies (Winding Up) Rules, 2020 read as follows:
“19. Directions on making winding up order. At the time
of making the winding up order or at any time thereafter the
Tribunal shall give directions to the petitioner as to the
advertisement of the order and the persons if any on whom
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
62
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 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
63
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 not be opposed by
all creditors or contributories. However, there is a mention in the
preamble about the hearing of the representatives of creditors
supporting or opposing the winding up petition. Therefore, we
cannot hold that merely because something is mentioned in the
preamble of Form WIN11, it becomes mandatory.
8.LIMITATION
8.1 The second ground on which the impugned orders are
assailed, is that the petition under Section 271(c) was hopelessly
64
barred by limitation. Section 433 of the Companies Act, 2013 makes
the provisions of the Limitation Act, 1963 applicable to proceedings
or appeals before the Tribunal or the Appellate Tribunal as the case
may be. Therefore, it is the contention of the learned senior counsel
for the appellants that Article 137 of the Schedule to the Limitation
Act, which prescribes a period of limitation of 3 years for any
application for which no period is prescribed elsewhere, is applicable
to the case on hand. The period of 3 years so prescribed, according
to the learned Senior Counsel for the appellants, in cases of fraud,
would start running from the date stipulated in Section 17 of the
Limitation Act, 1963. Section 17 reads as follows:
“17. Effect of fraud or mistake.—(1) Where, in the case of
any suit or application for which a period of limitation is pre
scribed by this Act,—
(a) the suit or application is based upon the fraud of
the defendant or respondent or his agent; or
(b) the knowledge of the right or title on 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 conse
quences of a mistake; or
(d) where any document necessary to establish the right
of the plaintiff or applicant has been fraudulently con
cealed from him,
65
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 appli
cant first had the means of producing the concealed docu
ment 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 af
fecting, 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 com
mitted, or
(ii) in the case of mistake, has been purchased for valu
able 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 pur
chased 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 judgmentdebtor has, by fraud or force, pre
vented the execution of a decree or order within the period of
limitation, the court may, on the application of the judg
mentcreditor 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 even assuming that the so called
66
fraud was incapable of being discovered with due diligence,
limitation would start running at least from the date of actual
discovery of the fraud. The date of actual discovery of fraud cannot
be postponed beyond 11.08.2016, which was the date on which a
charge sheet was filed in the criminal case, by the CBI before the
Special Court. Therefore, it is the contention of the learned senior
counsel for the appellants that the petition for winding up ought to
have been filed at least on or before 10.08.2019. However, Antrix
applied to the Government of India only on 14.01.2021 for the grant
of authorisation. The authorisation was issued on 18.01.2021 and
the petition for winding up was filed on 18.01.2021 (the same day).
Therefore, placing heavy reliance upon the decision of the three
member Bench of this Court in Jignesh Shah and Anr. vs. Union
of India and Anr.
14
, it is contended on behalf of the appellant 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.
14 (2019) 10 SCC 750
67
8.3 Before we consider the aforesaid contentions
independently, it will be useful to take note of the manner in which
the National Company Law Appellate Tribunal dealt with the
question of limitation and decided the same against the appellants.
8.4 The Member (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
68
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 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.
69
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 11
th
Schedule to
the Code. The existing provisions of Sections 270 to 272 of the
Companies Act, 2013 were replaced by the 11
th
Schedule read with
Section 255 of IBC. Section 255 of IBC came into force on
15.11.2016 vide S.O 3453(E) dated 15.11.2016. Consequently the
11
th
Schedule containing amendments to the Companies Act, 2013
also came into force on 15.11.2016. Sections 270, 271 and 272 as
they stand today, resultantly came into force on 15.11.2016.
8.8 In contrast, the provisions of Sections 4 to 32 of IBC came
into force on 1.12.2016 vide S.O 3594(E) dated 30.11.2016. The
provisions relating to Corporate Insolvency Resolution Process are
found in Sections 6 to 32 of IBC 2016. Sections 7, 9 and 10 of IBC
2016 provide for the initiation of Corporate Insolvency Resolution
Process, respectively by the financial creditor, the operational
creditor and the corporate applicant.
70
8.9 Section 434 of the Companies Act, 2013, as it was
originally enacted, provided for transfer of certain proceedings
pending before various forums on the date of coming into force of
the Act. Clause (c) of Subsection (1) of Section 434 provided for the
transfer of the winding up proceedings to the Tribunal, with a
mandate to the Tribunal to proceed to deal with those proceedings
from the stage before their transfer. IBC 2016, through the 11
th
Schedule, substituted a new provision in Section 434. Though the
newly incorporated Section 434 also provided under Clause (c) of
Subsection (1) for the transfer of winding up proceedings from the
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,
71
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; and
(ii)what is provided for under the Companies (Transfer
of Pending Proceedings) Rules, 2016 read with
72
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 434 of the 1956 Act, on 3.11.2015. After receipt of the reply
from the defendant, a petition for winding up was filed by the
73
plaintiff in the suit, against the defendant, on 21.10.2016 before the
Bombay High Court under Section 433(e) of the 1956 Act. This
petition for winding up was transferred by the High Court of Bombay
to the NCLT, by an order dated 1.02.2017, in terms of Section 434 of
the Companies Act, 2013 read with Rule 5 of the Companies
(Transfer of Pending proceedings) Rules, 2016. NCLT treated the
petition for winding up as a petition for corporate insolvency
resolution under Section 7 of IBC by a financial creditor and ordered
the admission of the petition. The order of admission was
unsuccessfully challenged before the NCLAT, whereafter, the matter
landed up before this Court. The view taken by NCLAT was that
since Section 7 of IBC 2016 came into force on 1.12.2016, the
winding up petition was within the period of limitation. It was this
view of NCLAT which was put to test before this Court in Jignesh
Shah.
8.13 In essence, Jignesh Shah was one under Section 433(e)
of the 1956 Act which related to inability of a company to pay its
74
debts. Therefore, unless the debt was a legally recoverable debt, on
the date on which a petition for winding up was filed, no petition for
winding up was maintainable. If a suit for recovery of such a debt
was already time 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
75
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 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
76
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, 2013, three different types
of fraud are included in Section 271(c), as the circumstances for
winding up a company. Such a winding up is independent of just
and equitable ground. Therefore, the parameters applicable to
winding up on the ground of inability to pay debts or on just and
equitable ground may not be applied blind fold to a case of fraud.
8.17 Antrix, which initiated the proceedings for winding up, is
neither a financial creditor nor an operational creditor nor a
corporate applicant. This is why Antrix have not and could not have
gone for insolvency resolution process, under the IBC, but taken
recourse to Section 271(c) of the Companies Act, 2013. Hence the
ratio in Jignesh Shah, as applicable to debts, whose recovery in
any case should not have been time barred on the date of initiation
77
of the proceedings for winding up/insolvency resolution process,
cannot have any application to the case on hand.
8.18 It is fundamental to the law of limitation that limitation
extinguishes the remedy and not the right. If the remedy of filing a
civil suit for the recovery of a debt stands extinguished by the Law of
Limitation, the creditor cannot make use of Section 433(e) of the
Companies Act, 1956. This is the premise on which this Court
decided Jignesh Shah.
8.19 After Jignesh Shah, this court was concerned with the
application of sections 14 and 18 of the Limitation Act, 1963 in
different cases. In Sesh Nath Singh v. Baidyabati Sheoraphuli
Cooperative Bank Ltd
15
, 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
16
, 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),
15 (2021) 7 SCC 313
16 (2021) 8 SCC 481
78
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
17
. After referring to the judgment of the Calcutta
High Court in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff
18
,
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
17 (2021) 6 SCC 366
18 AIR 1962 Cal 115
79
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 delineated in Section 271(c) of the Companies Act, 2013 cover
three aspects namely, (i) the affairs of the company being conducted
in a fraudulent manner; (ii) the company was formed for fraudulent
and unlawful purpose; and (iii) the persons concerned in the
formation and management of its affairs have been guilty of fraud,
80
misfeasance or misconduct in connection therewith. As rightly
pointed out by the Tribunal, a singular act of omission or
commission may constitute fraud and even a series of acts may
constitute fraud. A fraudulent act may be different from the
fraudulent manner in which an act is performed. The words “ the
conduct of the affairs of a company in a fraudulent manner” indicate
that the process was a continuing one. If the conduct of the affairs of
the company in a fraudulent manner is a continuing process, the
right to apply becomes recurring.
8.23 We must keep in mind the fact that apart from the
persons in charge of the management of the affairs of the company
in liquidation, the officials of Antrix as well as the officials of the
Department of Space are now facing prosecution not only for
offences under Section 420 read with Section 120B of the Indian
Penal Code, but also for offences under the Prevention of Corruption
Act, 1988 and the Prevention of Money Laundering Act. The
termination of the Contract on 25.02.2011, was not triggered by an
allegation of fraud and corruption. Fraud and corruption were
81
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.
82
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 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
83
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 given to us
in the course of our audit, we report that no fraud on or by
the Company has been noticed or reported during the course
of our audit.”
9.4 Similarly, in the Annual Report dated 19.07.2016, for
201516, it was reported by the Auditors as follows:
“To the best of our knowledge and belief and according to the
information and explanations given to us, we report that no
case of fraud has been committed on or by the Company or
by its officers or employees during the year.”
9.5 A statement similar to the one extracted above, also finds
a place in the Auditor’s report dated 24.07.2017, forming part of the
Annual Report 201617.
9.6 Even in AnnexureB Report dated 19.06.2020, the
Auditors have given a statement as follows:
“Fraud by company or its officers and employees
According to the information and explanation given to us,
there are no frauds reported by the company or any fraud
has been noticed or reported during the year. Accordingly,
the provisions of clause 3(x) of the said order are not
applicable.”
84
9.7 Under Clause (xxi) of paragraph 4 of the Companies
(Auditor’s Report) Order, 2003, issued in exercise of the powers
conferred by Section 227 (4A) of the Companies Act, 1956, there is a
prescription that the Auditor’s Report should contain a statement as
to whether any fraud on or by the company has 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
85
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 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
86
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
faith. Subsection (12) & (13) of Section 143 read as follows:
“143. Powers and duties of auditors and auditing
standards.
xxxx xxxx xxxx
(12) Notwithstanding anything contained in this section, if
an auditor of a company in the course of the performance of
his duties as auditor, has reason to believe that an offence of
fraud involving such amount or amounts as may be
prescribed, is being or has been committed in the company
by its officers or employees, the auditor shall report the
matter to the Central Government within such time and in
such manner as may be prescribed:
Provided that in case of a fraud involving lesser than
the specified amount, the auditor shall report the matter to
the audit committee constituted under section 177 or to
the Board in other cases within such time and in such man
ner as may be prescribed:
Provided further that the companies, whose auditors
have reported frauds under this subsection to the audit
committee or the Board but not reported to the Central Gov
87
ernment, shall disclose the details about such frauds in the
Board’s report in such manner as may be prescribed.
(13) No duty to which an auditor of a company may be
subject to shall be regarded as having been contravened by
reason of his reporting the matter referred to 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
88
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 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 noncontracting 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
89
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
companies Act, 2013 also defines fraud, but for the purposes of
Section 447. What is covered by Section 271(c) of the Companies
Act, 2013 is a fraud that goes beyond what lies in the realm of
contract or in the realm of the penal provisions of the Companies
Act, 2013. Hence the contention that Antrix was estopped from
pleading fraud, was rightly rejected by the Tribunal and we see no
reason to taken a different view.
10. Refusal to permit crossexamination
10.1 Another ground of attack by the appellants to the
impugned orders is that the foundation for the allegation of fraud
was the averment that Devas offered to provide goods and services
which were nonexistent both on the date of execution of the
agreement and on the date of its termination and that Devas was
90
also incapable and did not have the necessary permission/approvals
to provide such device/services. Contending that the question of
existence/availability of the technology has become a contentious
issue with both parties filing several affidavits, Devas filed an
application before NCLT seeking permission to crossexamine the
officials of Antrix. This application was taken up along with the main
company petition. While ordering winding up, by a final Order dated
25.05.2021, NCLT justified its action by 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
91
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 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.
19
; Svenska Handelsbanken vs. Indian
19 (2006) 6 SCC 94
92
Charge Chrome and Ors .
20
and V. Ravi Kumar vs. State, Rep. by
Inspector of Police, District Crime Branch, Salem & Ors.
21
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 proceedings was
under Section 111 of the Companies Act, 1956 which was
“somewhat summary in nature”. Therefore it was in that context that
this Court held that when a seriously disputed question of title
arises, the Company Court should relegate the parties to a civil suit.
But having admitted that under Section 430 of the Companies Act,
the jurisdiction of the Civil Court is barred, it is not open to the
20 (1994) 1 SCC 502
21 (2019) 14 SCC 568
93
appellants to rely upon this decision to say that the parties could be
relegated to a civil court.
10.4 Similarly the decision in V. Ravi Kumar (supra), arose
out of criminal proceedings under Section 482 Cr.P.C for quashing
the second complaint, after the withdrawal of the first complaint.
The High Court quashed the criminal complaint and while setting
aside the order of the High Court, this Court held that the
allegations of fraud and cheating, which prima facie constitute
offences under Section 420 IPC, have to be established through
evidence at the time of trial.
10.5 Thus the decisions relied upon by the appellants to drive
home the point that the Tribunal must have permitted cross
examination, have no relevance to the case on hand. However,
dehors those decisions relied upon by the appellants, let us see
whether the omission of NCLT to permit crossexamination was
fatal.
94
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.
95
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
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 cross
examination 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
96
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. But the same was
dismissed by NCLAT on 11.02.2021, with liberty to the DEMPL to
file an application for impleadment. DEMPL filed an application for
impleadment on 2.03.3021. They also filed a writ petition before the
High Court of Karnataka challenging the authorisation given by
Central Government to Antrix, as well as the constitutional validity
of Section 272(1)(e) read with Section 272(3) of the Companies Act,
2013. After hearing extensive arguments over several dates, the High
Court of Karnataka dismissed the writ petition by an Order dated
28.04.2021 with costs of Rs.5,00,000/ for abuse of process of law.
It was only thereafter that the company petition was taken up by
NCLT and arguments on behalf of Antrix was heard and concluded
on 30.04.2021 and 3.05.2021.
10.11 When the company petition was adjourned to 5.05.2021
for arguments on behalf of Devas, a twopronged strategy was
adopted by Devas. The first was to make DEMPL file a writ appeal
97
before the Division Bench of the High Court of Karnataka against
the order of the learned Single Judge upholding the constitutional
validity of the aforesaid provisions. Simultaneously, Devas filed an
application on 5.05.2021 to crossexamine the Managing Director
and Finance Director of Antrix. However, 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
98
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 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
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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.
22
, 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 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.
11.3 It is true that the petition for winding up was filed under
Section 271(c) alleging (i) that the affairs of the company have been
conducted in a fraudulent manner; (ii) that the company was formed
for fraudulent and unlawful purpose; and (iii) that the persons
concerned in the formation or management of its affairs have been
22 (1983) 1 SCC 228
100
guilty of fraud. But there is no scope either in the Act or in the Rules
for the impleadment of any shareholder as a respondent to the
petition for winding up. Rule 3(1) of Companies (Winding Up) Rules
2020 requires a petition for winding up to be in Form WIN 1 or Form
WIN 2. A look at these forms would indicate that there is no
provision for making any one, as the respondent in the petition.
Therefore, the question of impleading any shareholder at the time
when the petition for winding up was filed, did not arise.
11.4 Interestingly, Antrix sought the authorisation under
Section 272(1)(e) on 14.01.2021 and the Central Government
granted authorisation on 18.01.2021. On the very same day, the
petition for winding up was filed. When the petition 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
101
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 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
102
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 shareholder had an effective hearing
before NCLT. Though their appeal was rejected by NCLAT on the
ground of maintainability, their arguments for opposing the winding
up, which were just the same as that of the company, have been
103
considered. Therefore, the objection that an opportunity was not
given to the shareholders, is just theoretical, when in fact they were
heard.
11.8 It is true that in National Textile Workers’ Union
(supra), this Court took the law relating to locus standi by a leap
forward. But as seen from the facts of the said case, the petition for
winding up was triggered by one group of shareholders, both on the
ground that company was unable to pay its debts and on the ground
that it is just and equitable to wind up the company. The company
Judge before whom the winding up petition came up, granted an ex
parte injunction restraining company from borrowing any moneys
and from alienating and/or creating any charge or encumbrance
over any of the assets of the company. As a consequence, the
Employees’ Cooperative Stores, stopped issuing any provisions or
supplies to the workmen. The workmen were also prevented from
enjoying the benefits under the ESI scheme. The wages payable for
the following month itself became doubtful. Faced with the sudden
threat to their livelihood, the workers’ Unions sought to implead
104
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 far
fetched. 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
105
P. Datar, learned senior 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)
106
ICC Arbitral Tribunal Award in India; and (ii) BIT Awards overseas,
even while making it impossible for CBI to serve summons on them
for the past five years. It is not open to such persons to raise the
bogey of failure to afford an opportunity.
12. FINDINGS ERRONEOUS AND PERVERSE AND
THE STANDARD OF PROOF APPLIED INCORRECT
12.1 The next ground of attack to the impugned orders is that
the findings recorded by the NCLT which were approved by NCLAT
were completely perverse and erroneous and that the Tribunals
applied a completely incorrect standard of proof. In any case, the
findings were recorded to be only prima facie, which is not sufficient
to order the winding up of the company.
12.2 In order to test the correctness of the above contention, it
is necessary to take note of the averments on which Antrix built
their case for winding up, the response of Devas to the averments,
the findings recorded by NCLT and the findings recorded by NCLAT.
107
12.3 Briefly stated, the averments made by Antrix in their
petition for winding up were, (i) that Devas was incorporated as a
private limited company, on 17.12.2004, with an authorised share
capital of Rs.1,00,000/ divided into 10,000 equity shares of Rs.10/
each; (ii) that within a few weeks of incorporation, an Agreement
dated 28.01.2005 was entered into between the company and
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
108
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 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
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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; (xiv) that equity shares of a face value of Rs. 10/
were sold at the rate of Rs. 1.26 lakhs per share; (xv) that
interestingly, DT Germany which invested Rs. 430 crores through
DT Asia obtained only 19% share holding, while four Mauritius
investors obtained 37% share holding by investing Rs. 150 crores;
(xvi) that experimental licences were obtained by Devas by
manipulating the minutes of the meetings; (xvii) that FIPB approvals
were secured for the stated purpose of providing Internet services,
though the agreement was for rendering a hybrid service known as
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Satellite based Digital Multimedia Broadcasting Services (SDMB
Services, for short); (xviii) that the fact that such a hybrid
technology was not in existence at that time was suppressed from
FIPB as well as other authorities; (xix) that after showcasing the
inflow into India, of investment to the tune of Rs. 579 crores, the
company siphoned out of India, a sum of Rs. 75 crores for creating a
wholly owned subsidiary in USA, a sum of Rs. 180 crores towards
payment for business support services and sum of Rs. 233 crores
toward litigation services; (xx) that a sum of Rs. 92 crores alone was
kept in India out of which Rs. 21 crores was by way of Fixed
Deposits and a sum of Rs. 59 crores was paid to Antrix towards up
front 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
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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, 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
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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 was admitted;
(iii) that the company did not have a single approval, permission or
licence to render Devas services utilising Devas technology; (iv) that
the approval of the Space Commission for building a satellite for
Devas, was secured only after finalisation of commercial terms but
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without apprising the Space Commission of the same; (v) that even
in the cabinet note, prepared by the Department of Space on
17.11.2005 a full picture was not recorded; (vi) that there was a
contravention of the SATCOM Policy; (vii) that though the original
minutes of the meeting required Devas to secure a spectrum licence
from Wireless Planning Committee (WPC), after appearing before the
apex committee with requisite technical details, the minutes of the
meetings were manipulated later as though the company was
exempted from the requirement; (viii) that after objections about the
manipulations, the original minutes of the meeting came to be
restored, on 20.11.2009, but this happened only after the grant of
experimental licence on 07.05.2009; (ix) that in any case the
experimental licence was to establish Wireless Telegraph Station in
India under the India Telegraph Act, 1885, without which
experimental trials could not have 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
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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 entered into with the investors
contains a recital as though appropriate licences have been validly
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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,
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of which IPTV licence was a part, but which had nothing to do with
Devas Services. The seventh category related to the fraudulent
manner in which experimental licence was obtained and the eighth
category related to FIPB approvals and money trail. The Member
(Technical) found the formation of company, the conduct of the
affairs of the company and those persons concerned in the formation
and conduct of management of its affairs to be guilty of fraud.
12.7 Technically speaking, the appeal before us which is
under Section 423 of the Companies Act, 2013, is only on a question
of law. When two forums namely NCLT and NCLAT have recorded
concurrent findings on facts, it is not open to this Court to re
appreciate evidence. Realising this constraint, the learned Senior
Counsel for the Appellant sought to project the case as one of
perversity of findings. But we do not find any perversity in the
findings recorded by both the Tribunals. These findings are actually
borne out by documents, none of which is challenged as fabricated
or inadmissible. Though it is sufficient for us to stop at this, let us
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go a little deeper to find out whether there was any perversity in the
findings recorded by the Tribunals and whether such findings 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
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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 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
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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
23
). It was claimed in
the said proposal that DEVAS platform will be capable of
delivering multimedia and information services via
satellite to mobile devices tailored to the needs of various
market segments such as consumer segment, commercial
segment and social segment. This presentation dated
22.03.2004 was followed by a proposal dated 15.04.2004,
about which we have made a brief mention in paragraph
3.4 above. This proposal obliged ISRO/Antrix to invest in
one operational Sband Satellite with a ground space
segment to be leased to a joint venture between Forge and
23 According to Hindu Mythology, Devas are demigods and Asuras are demons
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Antrix. What was to be reserved for the joint venture was
97% of the space. The consideration receivable by ISRO/
Antrix upon such a lease, was to be US $ 11 million
annually for a period of 15 years. At least at this stage the
proposal to invest in an operational Sband satellite and
the lease of nearly the entire space of such satellite to a
joint venture, should have come to the public domain, to
see, (a) if the technology existed; and (b) if the proposal
was commercially viable. But it was not done;
(iv)On 14.05.2004, a Committee headed by one Dr. K.N.
Shankara, Director, Space Applications Centre was
constituted purportedly to examine the technical
feasibility, risk management including possibilities of
alternate uses of space segment, financial and market
aspects 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
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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
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the services was not linked to the provision 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
123
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 terrestrial
transmissions, and which is called (c) Devas Technology
but none of which existed at the relevant point of time or
even thereafter;
(viii)Devas did not even hold necessary intellectual property
rights in this regard though they claimed to have applied;
(ix)That the formation of the company, namely, Devas
Multimedia Private Limited was for a fraudulent and
unlawful purpose is borne out by the fact that the
company was incorporated in December2004, as a result
of preliminary meetings held at Bangalore in March2003
124
and in USA in May2003, followed by the signing of the
MoU on 28.07.2003, the presentation made on
22.03.2004 and the discussions held thereafter. The
ground work was clearly done during the period from
March2003 to December2004 before the company was
formally incorporated. Immediately after incorporation,
the Agreement dated 28.01.2005 was signed. Therefore,
the first ingredient of Section 271(c) of the Companies Act,
2013, namely, the formation of the company for a
fraudulent and unlawful purpose was clearly made out;
(x)The kind of licenses obtained such as ISP and IPTV
licenses and the object for which 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
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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
also mutually exclusive. Therefore, a combination of both
was not permitted by law. It is especially so since no
deliberation took place with the Ministry of Information
126
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 104
th
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
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experimental licence was granted on 07.05.2009. Only
thereafter, the original minutes were restored on
20.11.2009 and that too after protest.
(xiv) Admittedly, every one of the investors procured shares of
the company in liquidation and each shareholder had a
representative in the board of directors. Since the board
controlled the company, the directors were guilty of the
conduct of the affairs of the company in a fraudulent
manner. Since each shareholder had a representative in
the board, the shareholders had to take the blame for the
misdeeds of the directors;
(xv)Additionally, the shareholders were fully aware of the fact
that the application for approval dated 02.02.2006 to the
FIPB was for ISP services. But they entered into a Share
Subscription Agreement on 06.03.2006 for Devas
services. The Share Subscription Agreement discloses that
they were aware of the false statements contained in the
Agreement dated 28.01.2005. Therefore, the shareholders,
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who now want to reap the fruits of a tree, fraudulently
planted and unlawfully nurtured, cannot feign ignorance
and escape the allegations of fraud.
12.9 An argument was advanced by the learned senior counsel
for the appellants, on the basis of a statement contained in the order
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
129
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 awards against the Republic
of India under BIT. Therefore, it is neither a lis between two private
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
130
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 read with Section 120B IPC, has not yet been taken to
its logical end. Therefore, 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
131
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.
Moreover, this argument can be reversed like the handle of a dagger.
What if the company is allowed to continue to exist and also enforce
the arbitration awards for amounts totalling to tens of thousands of
crores of Indian Rupees (The ICC award is stated to be for INR
10,000 crores and the 2 BIT awards are stated to be for INR 5,000
crores) and eventually the Criminal Court finds all shareholders
guilty of fraud? The answer to this question would be abhorring.
13.4 Lastly, it was contended that the actual motive behind
Antrix seeking the winding up of Devas, is to deprive Devas, of the
benefits of an unanimous award passed by the ICC Arbitral tribunal
presided over by a former Chief Justice of India and the two BIT
awards and that such attempts on the part of a corporate entity
wholly owned by the Government of India would send a wrong
message to international investors.
132
13.5 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. 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.
13.6 We do not know if the action of Antrix 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 INR 579 crores, the
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investors can hope to get tens of thousands of crores of rupees, even
after siphoning off INR 488 crores.
14. Conclusion
Therefore, in fine, we find all the grounds of attack to the
concurrent orders of the NCLT and NCLAT to be unsustainable.
Therefore, the appeals are dismissed. However, without any order
as to costs.
…..…………....................J.
(Hemant Gupta)
.…..………......................J.
(V. Ramasubramanian)
NEW DELHI
JANUARY 17, 2022
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