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Supreme Court Upholds Winding Up Of Devas

Motive behind seeking winding up irrelevant once fraud is established, Supreme Court says while affirming Devas’ winding up

Cameras lined up outside the Supreme Court of India. (Source: PTI)
Cameras lined up outside the Supreme Court of India. (Source: PTI)

The Supreme Court of India on Monday upheld the winding-up order against Devas Multimedia Pvt., a company with a $1.3-billion award against Antrix Corp., the commercial arm of ISRO and a company fully owned by the Indian government.

The winding-up petition was filed against the company by Antrix Corp. in January last year.

The dispute dates back to 2005 when Devas and Antrix entered into a contract to lease space segment capacity on two satellites, which was later annulled by Antrix. As a result, Devas had invoked the India-Mauritius Bilateral Investment Protection Agreement and won both at the Permanent Court of Arbitration and International Chamber of Commerce.

In May, the Bengaluru bench of the National Company Law Tribunal ordered to wind up Devas on grounds that the company was incorporated in a fraudulent manner to siphon funds to dubious foreign accounts. The tribunal had held that Devas was incorporated with a fraudulent motive, and as such its existence in the eyes of law is void ab initio. Even after incorporation, the company resorted to fraudulent activities, the tribunal had noted.

This was upheld by the National Company Law Appellate Tribunal in September last year.

The case then landed in the top court, which on Monday, declined to interfere with the order of the tribunals and dismissed the appeals.

Top Court Rejected All Grounds Of Challenge To Winding Up

The reasons given by the NCLAT to conclude that the company should be wound up on grounds of fraud included:

  • The incorporation of Devas with the fraudulent intention to grab the contract in collusion with the then Antrix officials.

  • At the time of entering the contract, Devas didn't have the technology, infrastructure or the experience to deliver on the agreement.

  • The incorporation of Devas was with the objective to bring money into India and divert it by dubious methods.

  • Even at the time of the termination of agreement, Devas wasn't carrying out any business operations.

  • After bringing in an amount of Rs 579 crore into India, a major portion was taken out of the country.

The top court noted that it was only looking an the question of law in the case and it cannot re-appreciate the evidence. The lawyers for the company argued that the finding of the tribunals were perverse but failed to convince the top court.

These findings are actually borne out by documents, none of which is challenged as fabricated or inadmissible.
Supreme Court of India

No Merit In Argument Of Sending Wrong Message To Investors: Supreme Court

Devas also argued in the top court that the aim behind Antrix seeking the winding up of Devas was to deprive the company of the arbitral awards it had secured at various forums.

The company said that such attempts on the part of a corporate entity wholly owned by the Government of India would send a wrong message to the international investors.

The bench again didn't agree with this position.

The judgment said that if the fraud alleged by Antrix was established then the motive behind coming up with the winding up petition was irrelevant.

A product of fraud is in conflict with the public policy of any country including India, the judgement said.

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.
Supreme Court of India

The judgment authored by Justice V Ramasubramanian added that it doesn't know whether winding up of Devas will send a wrong message to the investors but allowing Devas to reap the benefits of their fraudulent actions may 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.
Supreme Court of India

Devas’ Efforts To Pursue Arbitration Award

At the time Antrix's winding-up plea was admitted by the tribunal, experts had told BloombergQuint that once the company is in the hands of the liquidator, the government could have a major say in how the affairs of Devas are conducted.

Even as Devas proceeds to be liquidated based on the apex court's ruling, the company's overseas shareholders are pursuing enforcement of arbitral awards in other countries.

Most recently, a Paris court awarded Devas' shareholders a lien on an apartment that houses the Indian deputy chief of mission. Just before this, Devas Mauritius Ltd., Devas Employees Mauritius Pvt. and Telecom Devas Mauritius Ltd. got a favourable order from the Superior Court in the district of Montreal, Quebec. The court has allowed the shareholders’ plea to seize property belonging to the Airports Authority of India and Air India, held by the International Air Transport Association.

It won arbitration proceedings before the International Chamber of Commerce in 2015, resulting in an award of $1.3 billion against Antrix. The PCA award directed India to pay $111 million plus interest and costs.

Devas has been using these favourable arbitral awards against India in foreign jurisdictions.