Antrix Deal: Devas Deserves To Be Wound Up, Says Appellate Tribunal

The Chennai Bench of the National Company Law Appellate Tribunal has approved the liquidation of Devas Multimedia Pvt., a company with a $1.3-billion award against Antrix Corp., the commercial arm of ISRO and a company wholly-owned by the Indian government.

The order came in an appeal filed by Devas against the May 25 order of the National Company Law Tribunal at Bengaluru. The tribunal had ordered liquidation of Devas on grounds that the company was incorporated in a fraudulent manner to siphon funds to dubious foreign accounts.

A division bench of Justice M Venugopal and VP Singh have upheld the NCLT's order.

This tribunal believes every benefit or advantage that has accrued to Devas has been through acts of fraud or suppression or fraudulent misrepresentations. None of these can survive as fraud vitiates everything. - NCLAT Chennai

The dispute dates back to 2005 when Devas and Antrix entered into a contract to lease space segment capacity on two satellites, which was later annulled by Antrix.

Subsequently, Devas invoked the India-Mauritius Bilateral Investment Protection Agreement. It won arbitration proceedings before the International Chamber of Commerce in 2015, resulting in an award of $1.3 billion against Antrix. Even as Devas' application to enforce the award was pending before the Delhi High Court, the government via Antrix initiated winding up proceedings against it.

Fraud Goes To The Root Of The Matter

The NCLAT relied on Section 271 (c) of the Companies Act, 2013, which provides for winding up of a company in case of fraud.

The appellate tribunal pointed to various clauses of the 2005 agreement between Devas and Antrix and held that:

• The services under the agreement couldn't have been delivered in India due to absence of a policy framework and licensing regimes for such services at that time.

• Devas didn't own or have the right to use the necessary technology which could deliver the services under the agreement.

• The agreement has been signed in complete contravention of the SATCOM Policy, 2000.

• Devas had siphoned off amounts which were meant to be used for services under the agreement.

Shareholders Equally Guilty

The appellate tribunal also ruled that it's clear that the investors and shareholders of Devas essentially controlled its board and through it, conducted the affairs of the company. They also automatically become accountable for the fraudulent actions of Devas, it held.

It's also strange that the 2005 agreement was authenticated by a mere article clerk of the company, who had no background in science and technology.

Jay Newman, a senior adviser to Devas shareholders, in an e-mailed response to BloombergQuint said even a cursory examination of the NCLAT proceedings reveals them to be a sham, with the Indian government acting as judge, jury, and executioner to terminate the very existence of its creditor, Devas. Shareholders of Devas will not be deterred, but potential investors in India should be forewarned: India is risky and unpredictable, he said.