If Fraudulent Affairs Of Company Are Continuing, Right To Seek Winding Up Becomes Recurring : Supreme Court In Antrix-Devas Case

The Supreme Court on Monday dismissed an appeal filed by Devas Multimedia challenging the orders passed by the NCLT and NCLAT allowing the winding up on a petition filed by ISRO's commercial arm Antrix Corporation Ltd. A bench comprising Justice Hemant Gupta and Justice V Ramasubramanian dismissed the appeals filed by Devas Multimedia and its shareholder Devas Employees Mauritius Pvt Ltd.Background of the MatterIn May, the NCLT Bengaluru bench ordered the winding up of Devas observing that it was incorporated in a "fraudulent manner to carry out unlawful purposes" and its management resorted to "fraudulent activities" in relation to the commercial contract with Antrix. In September 2021, the National Company Law Appellate Tribunal upheld the NCLT's order of winding up.Before the Supreme Court the Appellants had assailed the impugned judgement on seven grounds- Breach of mandatory requirement of advertisement before winding up; winding up petition barred by limitation; Estopped from pleading fraud; denial of permission for cross examination; erroneous finding of fact; application of incorrect standard of proof on the question of fraud and erroneous conclusions regarding the consequences of fraud. The judgement authored by Justice V Ramasubramanian dismisses the appeal undertaking a point by point analysis of the seven grounds. Advertisement of Company Petition It was contended by the appellants that the failure to comply with the requirement of advertising the petition for winding up would vititiate the entire proceedings. Senior Advocate Arvind P Datar had argued on behalf of the appellants that under Rule 7 of the 2020 Rules there was no option available to NCLT but to order the advertisement of the petition. The Court undertook a detailed analysis of Rule 5 of the Companies (Winding up) Rules, 2020 and notes that the purpose of advertisement is to provide an opportunity to all the stakeholders to either support or oppose the proceedings and to serve as a warning to all those dealing with the company so that they would know there there is an element of risk involved. The Court also notes that advertisement has been said to cause more harm to the company than the benefits it brings. The Court notes: "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." (7.14) Further, the Court reiterates the observation in IDBI Bank Ltd v the Official Liquidator (2020) 15 SCC 517 that failure to publish an advertisement is not something that would lead to an automatic dismissal of the petition for winding up. Further, the Court notes that under Rule 35 of the National Company Law Tribunal Rules, 2016 the Tribunal has the power to even dispense with any advertisement. It notes: "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." 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. 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." (Paras 7.26-7.28) In the case at hand, the Court notes that the company does not have any creditors or customers who have had dealing with the company and thus there were no stakeholders who were prejudiced by the failure of NCLT to order the publication of the advertisement of petition. In this light, the Court finds itself "unable to sustain the argument that the failure of the Tribunal to order the publication of an advertisement rendered the entire proceedings unlawful." Limitation It was argued by the appellants that the petition under Section 271 (c ) were barred by limitation as Article 137 of the Schedule to the Limitation Act which prescribes a period of limitation of 3 years would be applicable to the present case. It was argued by Senior Advocate Mukul Rohatgi that since the date of ...

If Fraudulent Affairs Of Company Are Continuing, Right To Seek Winding Up Becomes Recurring : Supreme Court In Antrix-Devas Case

Sneha Rao

"The main departure of the Companies Act, 2013 from statutory regime of the Companies Act, 1956 is specific inclusion of fraud 'directly' as a circumstance in which a Company could be wound up"

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