New Delhi: An 11-year-long legal battle between the Indian Space Research Organisation’s (ISRO) commercial arm Antrix Corporation and Bengaluru-based firm Devas Multimedia finally concluded in the Supreme Court Monday. The apex court dismissed Devas’ appeal against a tribunal’s 2021 order that it should wind up operations on grounds of fraud.
At the heart of the matter is a commercial dispute that arose between Antrix and Devas in February 2011, when the former annulled a 2005 agreement with the latter. Under this agreement, Devas was to provide multimedia services to mobile platforms in India using the S-band spectrum transponders on two ISRO satellites built at a cost of Rs 766 crore.
Antrix had abruptly cancelled its 2005 deal with Devas in 2011 amid the 2G telecom controversy and reports emerging that the deal was part of a “quid pro quo” between Antrix officials and the company, which was established by former ISRO officials and a company called World Space. The annulment prompted Devas to institute arbitration proceedings, which resulted in adverse findings against India.
In January 2021, Antrix had approached the National Company Law Tribunal (NCLT), seeking liquidation of Devas on grounds that the company was incorporated with “fraudulent motive”. In May that year, the NCLT issued ordering the liquidation of Devas, which challenged this order in the National Company Law Appellate Tribunal (NCLAT), Bengaluru, which upheld the NCLT’s order in September. The case then moved to the Supreme Court.
In its petition before the NCLT, Bengaluru, Antrix had contended that its agreement with Devas spoke about the latter’s “components” — DEVAS2 Technology, DEVAS services and DEVAS device — which never existed either during the formation of Devas, or on the date of execution of the agreement, or on the date of its termination, and not even on the date of winding up of the company.
On Monday, a bench of justices Hemant Gupta and V. Ramasubramanian upheld the NCLAT’s finding that Devas was incorporated with “fraudulent motive to collude and connive” with some officials of Antrix for wrongful gains.
The SC order came on an appeal filed by an ex-director of Devas Multimedia and a minority shareholder (Devas Employees Mauritius Private Limited or DEMPL) in the firm. It questioned the basis of the NCLAT’s September 2021 judgment that found no infirmity in the NCLT’s May 2021 order allowing Antrix’s plea to wind up the Bengaluru-based company.
“If as a matter of fact, the fraud as projected by Antrix, stands established, the motive behind the victim of fraud, coming up with the petition for winding up, is of no relevance,” the SC bench ruled, rejecting Devas’ contention that Antrix’s winding up petition was aimed at depriving it of the benefit of unanimous favourable arbitration awards.
The arbitration awards — one at the International Chamber of Commerce (ICC) and two under Bilateral Investment Treaties (BIT) — directed the UPA-led central government of the time to pay Devas for the sudden termination of the agreement. While the ICC award is said to be for Rs 10,000 crore, the two BIT awards are for a total Rs 5,000 crore.
Armed with the SC order, the NDA-led central government is likely to defend itself in enforcement proceedings pending in foreign jurisdictions initiated at the behest of Devas to recover the dues in terms of the arbitration awards. In one such proceeding, a Canada court had in December 2021 allowed three investors of Devas to seize millions of dollars of Airports Authority of India (AAI) assets held by the International Air Transport Association (IATA).
ThePrint breaks down the entire controversy surrounding the deal and the reasons behind the SC ruling that rejected all grounds of attack raised by Devas against the NCLT and NCLAT orders.
Antrix-Devas deal and why it was annulled
In July 2003, Antrix entered into a memorandum of understanding with Forge Advisors LLC, a Virginia, USA-based corporation, intended 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.
A year later, 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) — a platform to deliver multimedia and information services via satellite to mobile devices.
The proposal indicated that the service conceived under Devas would be launched by the end of 2006. On 17 December 2004, Devas Multimedia Private Limited was incorporated as a private company, following which Antrix signed an agreement with it on 28 January, 2005. As part of the deal, Devas would develop a platform capable of delivering multimedia and information services via satellite and Antrix would provide the space segment for offering the services. For this, ISRO leased two communication satellites for 12 years at a cost of Rs 167 crore to Devas. These satellites were built at the cost of Rs 766 crore by ISRO.
Pursuant to this deal, Devas obtained approvals from the Foreign Investment Promotion Board between May 2006 and September 2009 and brought into India an investment of around Rs 579 crore. But when the 2G controversy broke in 2011, Antrix, on 25 February 2011, terminated the agreement on the ground of “force majeure” (unforeseen circumstances that prevent a party from fulfilling a contract).
This termination led Devas to initiate commercial arbitration before the ICC arbitral tribunal. Independently, its Mauritius investors initiated a BIT arbitration under the India-Mauritius Bilateral Investment Treaty and German company Deutsche Telecom also invoked BIT arbitration proceedings under the India-Germany BIT.
Matter moves to courts
Much before these proceedings ended in adverse findings against India, the Central Bureau of Investigation (CBI) had registered an FIR against Devas and Antrix on 16 March 2015. A chargesheet was filed in August 2016. Even the Enforcement Directorate filed its report in the case in 2015.
In January 2021, Antrix made a request to the Ministry of Corporate Affairs to authorise it to file a winding up petition before the NCLT, which was accorded on 18 January.
A day later, on 19 January 2021, the NCLT appointed an official liquidator. Devas, however, questioned this order before the Karnataka High Court, while its shareholder DEMPL filed a writ petition challenging the constitutional validity of the Companies Act that allows winding up of companies.
Antrix alleged that DEMPL’s petition was an attempt to delay the hearing before NCLT, and led the high court to quash both cases and impose a cost of Rs 5 lakh on DEMPL. By its 25 May order, NCLT directed winding up of Devas, which was upheld by NCLAT in September 2021, and now by the SC.
In its winding up petition, Antrix claimed that the persons in-charge of the formation as well as management of Devas did not possess the necessary technical knowhow or intellectual property rights of the services, either at the time of signing of the agreement or even till date.
It even alleged money laundering on the company’s part, giving details of how foreign investment was siphoned to offshore accounts.
Claims and counter-claims in SC
In its appeal before SC, Devas claimed NCLT and NCLAT breached the mandatory requirement of advertisement before ordering the winding up. Furthermore, it claimed that Antrix was estopped (barred) from pleading fraud at a belated stage and that its petition was barred by limitation.
“The erroneous finding of fact was on account of application of incorrect standard of proof on the question of fraud and the hearing was in violation of the principles of natural justice since Devas was denied permission to cross-examine Antrix officials,” the appeal stated.
In rebuttal, Antrix and the central government said that Devas was and is not equipped to provide the services for which it had entered into an agreement. There was manipulation of minutes of meetings and the nature of financial fraud was shocking, they added. Regarding the requirement of an advertisement, the Centre claimed it was not required when winding up is sought on the ground of fraud.
Limitation not applicable as fraud is basis of petition: SC
The SC found merit in the Centre’s assertion on the issue of advertisement and further held Devas did not have any creditors or customers who would get prejudiced by NCLT’s failure to order advertising of the winding up petition.
The court said that Devas was sought to be wound up not on the ground of its inability to pay, but fraud, adding that its shareholders were fully aware of this aspect as they had shown extreme urgency in enforcing the ICC arbitration and BIT arbitration awards.
On the point of limitation, SC rejected Devas’s contention that Antrix should have filed its petition within three years of the date when fraud was discovered. This date, according to Devas, is 11 August 2016, when the CBI had registered its case. Therefore, the petition ought to have been filed on or before 10 August 2019, the company said.
The SC however held that the parameter regarding limitation was not applicable in this case where fraud is the basis for a winding up petition. The date of commencement of the limitation period may not be static, the court ruled.
Devas’ argument that Antrix was estopped from pleading fraud because termination of the agreement between them was not triggered by this allegation, but the force majeure clause, also did not hold ground. On this, the court said that Antrix cannot be expected to plead fraud in the arbitral proceedings even before discovery of fraud.
The court did not accept Devas’ pleading that the auditors too did not point to fraud and said chartered accountants are not experts either in criminal law or in technology that formed the subject matter of agreement between the two companies.
Devas’ plea that it was not given a chance to cross-examine Antrix officials was held as an unfounded ground to attack NCLT and NCLAT orders. Antrix, the court added, had asserted that Devas offered services that were non-existent. Therefore, it could not have led any evidence to show non-availability of those things, either by subjecting their officials to cross-examination by Devas or oral evidence. It was incumbent upon Devas to demonstrate the availability of the services it promised to offer.
Those ducking CBI summons can’t claim they weren’t heard: SC
The next ground of attack by Devas was that despite the winding up petition containing specific allegations of fraud against its shareholders, the NCLT did not hear them.
The SC dismissed this contention and found merit in Centre’s arguments that Devas shareholders cannot be heard because they have ducked CBI summonses to avoid criminal prosecution in the case registered by the central probe agency.
“Taking advantage of their citizenship/residence abroad, these shareholders are prosecuting proceedings for the enforcement of ICC arbitral tribunal award and BIT award, 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,” the court said.
Lastly, the court rejected Devas’ claim that the dispute at hand was between two private entities. It said the agreement dealt with utilisation of government property and since the company has secured two arbitration awards against the government of India, the dispute cannot be brushed under the carpet as a “private lis” (private suit).
It also turned down the argument that the CBI case is still pending and in case it ends in acquittal, the clock cannot be turned back if the company is wound up now. The court described the argument “attractive” at “first blush”, but went on to add that it “cannot hold water, if scrutinised a little deeper”. According to the court, the standard of proof required in a criminal case is different from the standard of proof required in NCLT proceedings.
Summing up its reasons to affirm NCLAT’s finding, the SC said: “Allowing Devas and its shareholders to reap the benefits of their fraudulent action, may nevertheless send another wrong message namely that by adopting fraudulent means and by bringing into India an investment in a sum of Rs 579 crore, the investors can hope to get tens of thousands of crores of rupees, even after siphoning off Rs 488 crore.”
(Edited by Gitanjali Das)