Devas Multimedia Private Ltd. vs Antrix Corporation Ltd. & Anr.

(i) either to dismiss the petition; or (ii) to give such further directions as it may think fit – Sub-rule (6) of r.35 confers power upon the Tribunal even to dispense with any advertisement – Thus, 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 – In the case at hand, the company in liquidation did not have any creditors or customers who had dealings with the company – There were no stakeholders prejudiced by failure of NCLT to order publication of advertisement of the petition – This was not a case where the company was sought to be wound up on ground of inability to pay debts or on just and equitable ground – This was a case of fraud and all stakeholders were fully aware of the winding up proceedings – Therefore, failure of the Tribunal to order publication of an advertisement did not render the entire proceedings unlawful – Companies Act, 2013 – s.271(c) and 468 – Companies Act, 1956 – Companies (Winding up) Rules, 2020 – rr.5 and 7 – National Company Law Tribunal Rules, 2016 – r.35. Company Law – Winding up of a company – Petition u/s.271(c) of the Companies Act, 2013 – Challenged, for being barred by limitation – Held: 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 – If the conduct of the affairs of the company in a fraudulent manner is a continuing process, the right to apply becomes recurring – In the case at hand, fraud and corruption were 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 s.271(c) – Therefore, the contention that the petition was barred by limitation was rightly rejected by the Tribunal – Companies Act, 2013.

Company Law – Winding up of a company – Fraud as a ground for winding up – Petition under s.271(c) of the Companies Act, 2013 – Challenge to – On ground of estoppel from pleading fraud and seeking winding up – Held: In the case at hand, what was alleged in the petition for winding up were, (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 company – The fraud relatable to the agreement in question, was only one facet of the whole scheme of things – What is covered by s.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 of estoppel from pleading fraud, was rightly rejected by the Tribunal – Companies Act, 2013 – s.271(c).

Company Law – Winding up of a company – Fraud as a ground for winding up – Petition under s.271(c) of the Companies Act, 2013 – Order of winding up passed by Tribunal – Challenge to – On ground of violation of the principles of natural justice due to denial of permission for cross examination – Tribunal justified its action of omission to permit cross-examination holding that the case did not require any oral evidence – Held, on facts, the Tribunal was right in rejecting the request for cross-examination – A party alleging the non-existence of something, cannot be called upon to prove the non-existence – 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 – In the case on hand, Antrix asserted that Devas offered services which were non-existent, through a device which was not available and that even the so-called intellectual property rights over the device were not available – Therefore, Antrix cannot lead evidence to show the non-existence or non-availability of those things, either by oral evidence or by subjecting their officials to cross-examination 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 cross-examination of the officials of Antrix – Any amount of cross-examination of the officials of Antrix could not have established the existence of something that was disputed by Antrix – Also, it is clear from the time-line of events that the application for cross-examination was moved by Devas after 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 cross-examination. Company Law – Winding up of a company – Fraud as a ground for winding up – Petition under s.271(c) of the Companies Act, 2013 – Locus standi of the shareholders – Held: There is no scope either in the Act or in the Rules for impleadment of any shareholder as a respondent to the winding up petition – The objecting shareholders had an effective hearing before NCLT – Though their appeal was rejected by NCLAT on ground of maintainability, their arguments for opposing the winding up, which were just the same as that of the company, had been considered – Therefore, the objection that opportunity was not given to the shareholders, is just theoretical, when in fact they were heard – Companies (Winding Up) Rules, 2020 – r.3(1) – Companies Act, 2013.

Company Law – Winding up of a company – Fraud as a ground for winding up – Petition under s.271(c) of the Companies Act, 2013 – Order of winding up passed by Tribunal – Challenge to – On ground of erroneous and perverse findings and incorrect standard of proof – Held: On facts, there is no perversity in the findings recorded by both the Tribunals – These findings were actually borne out by documents, none of which was challenged as fabricated or inadmissible – Appellants cannot take advantage of the use of an inappropriate expression by NCLAT – Detailed findings recorded by Tribunal show that they were final and not prima facie – Merely because NCLAT used an erroneous expression those findings cannot become prima facie.

Company Law – Appeal against order of NCLT confirmed by NCLAT before Supreme Court – Re-appreciation of evidence – If permissible – Held: When two forums namely NCLT and NCLAT have recorded concurrent findings on facts, it is not open to the Supreme Court to re-appreciate evidence.

Company Law – Winding up of a company – Fraud as a ground for winding up – Petition u/s.271(c) of the Companies Act, 2013 – Contention that the petition u/s.271(c) should have been preceded, at least by a report from the Serious Fraud Investigation Office, which has now gained statutory status u/s.211 of the Companies Act, 2013 – Held: The contention is un-acceptable, in view 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 u/s.271(c) and the other is under the just and equitable clause in s.271(e), read with s.224(2) and s.213(b) – It is only in the second category of cases that the report of the investigation should precede a petition for winding up – Companies Act, 2013 – Companies Act, 1956.

Company Law – Winding up of a company – Fraud as a ground for winding up – Relevance of motive – Held: If as a matter of fact, fraud as projected, stands established, the motive behind the victim of fraud, coming up with a petition for winding up, is of no relevance – 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 motive behind the action brought by the victim of fraud can never stand as an impediment.

Dismissing the appeals, the Court

HELD: 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 formation of the company or (ii) in the conduct of affairs of the company 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. 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 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. [Para 6.1, 6.2][310-D-F]

2. 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 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. 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. 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). [Para 6.5, 6.13][312F-G; 315-B]

3. Coming to the 2013 Act, provisions similar to sub-clauses

(i) and (ii) of clause (b) of section 237 of the 1956 Act, are to be found in sub-clauses (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 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 sub-section (2) of Section 224, which is similar to clause (a) of Section 243. 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 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].[Para 6.14, 6.15][315-E-H; 316-A-C]

4. 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. 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 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. It is evident that the second proviso to sub-section

(5) of section 439 of the 1956 Act became the first proviso to sub-section (3) of Section 272 of the 2013 Act and sub-section

(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. Thus, in effect, the distinction between the procedure to be followed by the Registrar and the procedure to be followed by “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. [Para 6.18, 6.19, 6.20, 6.21][317-E-H; 318-E-H; 319A]

5. Coming to the rules framed under the 2013 Act, Sub-sections (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 Central Government has issued a set of Rules known as the Companies (Winding up) Rules, 2020. Rules 5 and

7 of these Rules speak about advertisement. 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. [Para 7.7, 7.10][321-H; 322-A, 323D-E]

6. 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. [Para 7.11][323-F]

7. 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 of the Companies (Winding up) Rules, 2020, before ordering the advertisement of the petition. [Para 7.12][323-G-H]

8. 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. [Para 7.14][324-E-F]

9. 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 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. [Para 7.21][330-CF]

10. Rule 35 of the National Company Law Tribunal Rules, 2016 deals with advertisement of petitions. It may be seen from Sub-rule (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.” The requirement to advertise a petition for winding up 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. If so understood, Sub-rules

(5) and (6) of Rule 35 of the NCLT Rules 2016 would throw light upon the controversy on hand. Sub-rule (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. Sub-rule (6) confers power upon the Tribunal even to dispense with any advertisement. 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. [Paras 7.25, 7.26, 7.27, 7.28 and 7.29][331-G; 333-B-E]

11. In the case at hand, the company in liquidation does not have any creditors or customers who have 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. 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, one is unable to sustain the argument that the failure of the Tribunal to order the publication of an advertisement rendered the entire proceedings unlawful. [Para 7.30][334-B; C-D]

12. 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. [Para 8.21][344-A; 345-A-B]

13. 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, misfeasance or misconduct in connection therewith. 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. [Para 8.22][345-B-E]

14. In the case at hand, fraud and corruption were 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 there is no reason to take a different view. [Para 8.23][345-F-G]

National Textile Workers’ Union v. P.R. Ramakrishnan & Ors. (1983) 1 SCC 228 : [1983] 1 SCR 922; Standard Chartered Bank v. Andhra Bank Financial Services Ltd. and Ors. (2006) 6 SCC 94 : [2006] 2 Suppl. SCR 1 and Jignesh Shah and Anr. v. Union of India and Anr. (2019) 10 SCC 750 : [2019] 12 SCR 678 –

distinguished.

V. Ravi Kumar v. State, Rep. by Inspector of Police, District Crime Branch, Salem & Ors. (2019) 14 SCC 568: [2018] 14 SCR 828 – held inapplicable.

IDBI Bank Ltd. v. the Official Liquidator (2020) 15 SCC

517 – relied on.

National Conduits (P) Ltd. v. S.S. Arora AIR 1968 SC 279; Cotton Corporation of India Limited v. United Industrial Bank Ltd. & Ors. (1983) 4 SCC 625 : [1983]

3 SCR 962; Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd (2021) 7 SCC 313; Laxmi Pat Surana v. Union Bank of India (2021) 8 SCC 481; Asset Reconstruction company v. Bishal Jaiswal (2021) 6 SCC 366; and Svenska Handelsbanken v. Indian Charge Chrome and Ors. (1994) 1 SCC 502 : [1993] 3 Suppl. SCR 323 – referred to.

IDBI Bank Ltd. v. the Official Liquidator 2013 (6) CTC 40; Pradeep D. Kothari v. IDBI Bank Ltd. 2018 (1) CTC 136; T. Narayanan v. The Official Liquidator, 2012 (1) MLJ 59 and Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff AIR 1962 Cal 115 – referred to.

Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 WLR 1289 and Re Medical Battery Co. (1894) 1 Ch. 444 and Re Walter L. Jacob & Co. Ltd. 89 5 BCC 244 – referred to.

Halsbury’s Laws of England (4th Edition) paragraph 1463 Para 359, Vol. XVI, Fifth Edition (2017) of Halsbury’s Laws of England – referred to.