Devas Multimedia Private Limited vs Antrix Corporation Limited

DEVAS MULTIMEDIA PRIVATE LTD. ... APPELLANT(S)

Versus

ANTRIX CORPORATION LTD. & ANR. ... RESPONDENT(S)

WITH

CIVIL APPEAL NO.5906 of 2021

JUDGMENT

V. Ramasubramanian, J.

1. Challenging an order of winding up passed by the National Signature Not Verified Digitally signed by

Company Law Tribunal under Section 271(c) of the Companies Act, Jayant Kumar Arora Date: 2022.01.17 15:58:40 IST Reason: 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,

DEVAS2 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 apply4. 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 circumstances7. 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 272. Petition for winding up tions for winding up (1) ………..

(1) …………. (2) ……….. (2) …………. (3) The Registrar shall be enti­ (3) …………. tled to present a petition for (4) …………. winding up under section 271, (5) Except in the case where he except on the grounds specified is authorised in pursuance of in clause (a) of that section: clause (f) of sub­ section (1), the Provided that the Registrar shall Registrar shall be entitled to pre­ obtain the previous sanction of sent a petition for winding up a the Central Government to the company only on the grounds presentation of a petition: specified in clauses (b), (c), (d), (e) Provided further that the and (f)] of section 433: Central Government shall not Provided that the Registrar shall accord its sanction unless the not present a petition on the company has been given a ground specified in clause (e) reasonable opportunity of aforesaid, unless it appears to making representations. 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

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.

Arora8 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 Liquidator10,

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 Liquidator12, 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 Liquidator13, 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

11th 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 Ltd15 , 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 India16, 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 Jaiswal17. 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

99 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

109 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

110 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

111 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

112 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

113 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

114 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

115 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,

116 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

117 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

118 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

119 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 ASURAS23). 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

120 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

121 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

122 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

125 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 104th 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

127 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,

128 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

133 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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