‘Registrar’ does not fall into the category of ‘A person authorized by Central Government’: Karnataka High Court
‘Registrar’ and ‘a person authorized by Central Government’ are two different entities and entitling the Registrar with the power to present a petition to the Tribunal for the winding up of a company is valid and well within the scope of law. A single-judge bench comprising of Justice Dinesh Kumar, while adjudicating the matter in Devas Employees Mauritius Private. Ltd. V. Union of India &amp; Ors; [WRIT PETITION No.6191 OF 2021 (GM-RES)], dealt with a plea challenging the winding-up proceedings against a company. The petitioner held a certain number of shares in Devas Multimedia Pvt Ltd (respondents). The petitioner and the respondent entered into an agreement for the lease of space segment capacity on ISRO/Antrix S-Band Space Craft. As per the petitioner, various shareholders including Deutshe Telekom, an enterprise of the German Government had invested in the respondent company. The petitioner terminated the agreement on the ground that they were not happy with the services of the respondent company, in response to which the respondent initiated arbitration proceedings in ICC. The Arbitral Tribunal passed an award which imposed an amount of 10,000 crores on the petitioners. A petition was filed before NCLT to wind up the respondent company on the ground that the respondent company’s affairs were being conducted in a fraudulent manner and the persons involved in the company’s management have been guilty of fraud, misfeasance and misconduct. The petitioner also sought to declare Section 272(1)(e) of Companies Act, 2013 which states that a petition to the Tribunal for the winding up of a company shall be presented by the Registrar, as ultra vires to the Constitution of India. The learned counsel representing the respondents held that the Registrar of Companies and a ‘person authorized by the Central Government’ stand on the same footing. In the case of Registrar, before according sanction, Central Government is required to give an opportunity to the Company and the same is missing in the case of a ‘person authorized by Central Government’.
 W.P No.6191 2021 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF APRIL 2021 THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR WRIT PETITION No.6191 OF 2021A COMPANY INCORPORATED UNDER THE LAWS OF THE REPUBLIC OF MAURITIUS BEARING COMPANY NO.C087664 HAVING ITS REGISTERED OFFICE AT C O INTERNATIONAL PROXIMITY 5TH FLOOR EBENE ESPLANADE 24 CYBERCITY EBENE 72201 REPUBLIC OF MAURITIUS RERPESENTED BY ITS DIRECTOR MR. RAMACHANDRAN VISWANATHAN AGED ABOUT 53 YEARS ... PETITIONER BY SHRI. RAJIV NAYAR SENIOR ADVOCATE FOR SHRI. C.K. NANDA KUMAR ADVOCATE) THROUGH VIDEO CONFERENCE] AND : 1. UNION OF INDIA THROUGH MINISTRY OF CORPRATE AFFAIRS 5TH FLOOR A WING WWW.LIVELAW.IN W.P No.6191 2021 SHASTRI BHAWAN NEW DELHI 110 001 REPRESENTED BY ITS ANTRIX CORPORATION LTD REGISTERED OFFICE AT ANTARIKSH BHAVAN CAMPUS NEAR NEW BEL ROD BANGALORE KARNATAKA 560 094 REPRESENTED BY ITS AUTHORISED SIGNATORY CHAIRMAN AND MANAGING DIRECTOR EMAIL ID:cmd.ofnce@.antrix.co.in CONTACT NUMBER: +91 80 2217 8311 2. 3. DEVAS MULTIMEDIA PVT LTD IN PROVISIONAL LIQUIDATION) FIRST FLOOR 29 1 KAVERIAPPA LAYOUT MILLERS TANK BUND ROAD BANGALORE 560 052 REPREENTED BY ITS DIRECTOR ... RESPONDENTS BY SHRI. N. VENKATARAMAN ASG SENIOR ADVOCATE FOR SHRI. SAJI P. JOHN ADVOCATE FOR R2 THROUGH VIDEO CONFERENCE SHRI. M.B. NARAGUND ASG A W SHRI. M.N. KUMAR CGC FOR R1 THROUGH VIDEO CONFERENCE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT THAT SECTION 272(1)(e) OF THE COMPANIES ACT 2013 IS ULTRA VIRES THE CONSTITUTION OF INDIA 1950 ANNEXURE B AND DECLARE THAT THE SECOND PROVISO TO SC.272(3) OF THE COMPANIES ACT 2013 MUST BE READ TO BE APPLICABLE TO PETITION PRESENTED BY PERSONS FAILING UNDER S.272(1)(e) OF THE COMPANIES ACT 2013 I.E ANY PERSON AUTHORIZED BY THE CENTRAL GOVERNMENT IN THAT BEHALF ANNEXURE B AND ETC. WWW.LIVELAW.IN W.P No.6191 2021 THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 19.04.2021 COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY THE COURT PRONOUNCED THE FOLLOWING: Devas Employees Mauritius Pvt. Ltd. a Company incorporated under the laws of Republic of Mauritius has presented this writ petition with prayers to declare Section 272(1)(e) of Companies Act 2013 as ultra vires Constitution of India to declare that the second proviso to Section 272(3) of the Act must be read to be applicable to the petitions presented by persons falling under Section 272(1)(e) of the Act and to issue a writ of certiorari quashing sanction order dated January 18 2021 and consequently to quash all proceedings in C.P. No. 06 BB 2021 before NCLT1. Brief facts of the case are petitioner holds 3.48% shares in Devas Multimedia Pvt. Ltd. (hereinafter referred to as Devas ). On January 28 2005 Antrix Corporation Ltd. and Devas entered into an agreement for lease of space segment capacity on ISRO Antrix S Band Space Craft. According to the petitioner investments were brought into Devas from different shareholders including State owned Deutshe Telekom an enterprise of the German Government. 3. On February 25 2011 Antrix Corporation terminated the agreement. Devas initiated arbitration proceedings in ICC2. On September 14 2015 ICC Arbitral Tribunal passed an Award for USD 562.5 Million with interest thereon which according to the petitioner works out to about Rs.10 000 Crores and same is being enforced in several jurisdictions. The Central Government vide notification dated January 18 2021 has authorised the Chairman & Managing Director of Antrix Corporation to present a petition to wind up Devas. Accordingly Antrix Corporation has filed a Company Petition before NCLT Bengaluru. By it s order dated January 19 2021 NCLT has 2 International Chamber of Commerce WWW.LIVELAW.IN W.P No.6191 2021 admitted the petition and granted time to the respondents therein to file replies and appointed the official liquidator attached to this Court as provisional liquidator. Petitioner has challenged NCLT’s order before NCLAT3 Chennai in Company Appeal a winding up petition can be presented by persons specified in Section 272(1) of the Act which includes both Registrar and any person authorized by the Central Government . Section 272(3) provides that Registrar shall obtain previous sanction from the 3 National Company Law Appellate Tribunal WWW.LIVELAW.IN W.P No.6191 2021 Central Government to present a winding up petition. The second proviso to Section 272(3) mandates that Central Government shall not accord sanction unless Company has been given an opportunity of making representation in this case no opportunity was given to Devas prior to the accord of sanction by the Central Government the order passed by the Central Government authorizing the Chairman and Managing Director of Antrix Corporation to file winding up petition is malafide exercise of power the agreement between Antrix and Devas has been terminated on the ground of force majeure after taking opinion from the learned Additional Solicitor General and not on the ground of fraud the arbitral award passed by ICC is unanimous Shri. Nargund and Shri. Venkataraman learned Additional Solicitors General for the Union of India and Antrix Corporation argued opposing the petition. I have carefully considered rival contentions and perused the records. In the conspectus of facts of this case following points arise for consideration: WWW.LIVELAW.IN W.P No.6191 2021 1) Whether Section 272 is ultra vires Constitution of India and 2) Whether order dated 18.01.2021 needs any interference Re. Point No.1 Shri. Nayar has argued that both Registrar of Companies and a person authorized by the Central Government stand on the same footing. In the case of Registrar before according sanction Central Government is required to give an opportunity to the Company and the same is missing in the case of a person authorized by Central Government . Placing reliance on paragraph No.10 in Ram Dial and others Vs. The State of Punjab4 he argued that where one of the provisions provides for notice and hearing and the other does not it is drastic and arbitrary and on this ground the Apex Court has declared Section 14(e) of the Punjab Municipalities Act as unconstitutional. Shri. N.Venkataraman learned ASG has submitted that there is a classic distinction between the 4 AIR 1965 SC 1518 WWW.LIVELAW.IN W.P No.6191 2021 Registrar of Companies and a person authorized by the Central Government because Registrar is a regulator and stands on a different footing. 10. In Ram Dial the Apex Court was considering Section 14(e) and Section 16 of the Punjab Municipalities Act. Under Section 14(e) of the said Act the State Government in public interest could direct that a seat of a specified member whether elected or appointed shall be vacated on a given date. Section 16 of the said Act gave power to the State Government to remove any member of the Municipal Committee. Proviso to Section 16(1) of the said Act required the State Government to communicate the reasons for removal and provide an opportunity to the noticee to explain his stand. Thus the Punjab Municipality Act had two distinct provisions of which one provided for notice and the other did not. Both provisions dealt with removal of a member. In contradistinction in this case Section 272 of the Companies Act permits different category of persons to present a petition for winding up. WWW.LIVELAW.IN W.P No.6191 2021 The Registrar of Companies is privy to all information of the Company and when he proposes to move a petition for winding up under Section 271(c) of the Companies Act it shall be based on his opinion and satisfaction that the affairs of that Company were conducted in a fraudulent manner which is not the case of a person authorised by the Central Government. 11. Shri. Rajiv Nayar placed reliance on another authority Subramanian Swamy Vs. Director Central Bureau of Investigation and another5 and contended that discrimination cannot be justified on the ground classification. In the said authority the issue was whether classification be made creating a class of Government officers at the level of Joint Secretary and above on one hand and certain officials in Public Sector Undertakings on the other for the purpose of enquiry investigation into offences alleged to have been committed under the 578 81 83 93 137 157 206 208 209 and 248 of the Companies Act. Therefore I am persuaded to accept the submission of learned ASG that Registrar falls in a different category. 14. Shri. Nayar next relied upon paragraph No.255 in Delhi Transport Corporation Vs. D.T.C. Mazdoor Congress WWW.LIVELAW.IN W.P No.6191 2021 and others6 and paragraph No. 11 in Sultana Begum Vs. Prem Chand Jain7 and urged that proviso to Sec. 272(3) may be read to be applicable to petitions presented by any person authorised by the Central Government . In Delhi Transport Corporation case the issue is with regard to applicability of certain rules in case of retrenchment on account of in establishment and other circumstances such as probationary period. In Sultana Begum it is held that statute has to be read as a whole. As recorded hereinabove the Registrar being the Regulator falls in a distinct category and these authorities do not lead petitioner’s case any further. 15. Shri. Venkataraman learned Addl. SG has placed reliance on the following authorities and contended that sanction is an administrative act and therefore affording any opportunity of hearing is not contemplated at that stage: 6 1991 SuppSCC 600 7Superintendent of Police C.B.I.) Vs. Deepak Chowdhary and others8cid:1) Sultan Singh vs. State of Haryana and another9 paragraph No.4) cid:1) Designated Authority Ministry of Commerce Vs. Haldor Topsoe A S10 paragraphs No.24 & 25) cid:1) State of Maharashtra Vs. Ishwar Piraji Kalpatri and others11(paragraphs No.16 & 17) and cid:1) Asst. Commissioner Assessment II Bangalore and others Vs. Velliappa Textiles Ltd. and another12 paragraphs No.7 & 8). 16. In Velliappa Textiles the Apex Court has quoted Lord Reid’s statement in Wiseman Vs. Borneman13 that every public officer who has to decide whether to prosecute or raise proceedings ought first to decide whether there is prima facie case but no one supposes that justice requires that he should first seek the comments of the accused or 8Ltd. Vs. Municipal Corporation of Greater Bombay and others14. In this authority the Constitution Bench of Supreme Court of India has held as 14. To summarise: Where a statute providing for a more drastic procedure different the ordinary procedure ......... The fact that in such cases the executive will choose which cases are to be tried under the special procedure will not affect the validity of the statute. Therefore the contention that the mere availability of two procedures will vitiate one of them that is the special procedure is not supported by reason or authority." 18. Shri. Venkataraman also urged that the State enjoys a special status. In support of this contention he 14SCC 201 16 1989 SuppSCC 696 174 SCC 656 WWW.LIVELAW.IN W.P No.6191 2021 judgment. The Courts have only the power to destroy but not to reconstruct. When these are added to the complexity of economic regulation the uncertainty the liability to error the bewildering conflict of the experts and the number of times the Judges have been overruled by events self limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. 20. Shri. Venkataram also relied upon paragraph No.17 in K.B. Nagur Vs. UOI18 and contended that presumption of constitutionality is always in favour of legislation unless the contrary is shown. In this authority is also held as follows: 20. It is also a settled and deeply rooted canon of jurisprudence the process of constitutional adjudication the courts ought not to pass decisions on questions of constitutionality unless such adjudication is unavoidable. In this sense the courts have followed a policy of strict necessity in disposing of a issue. In dealing with issues of constitutionality the courts are slow to embark upon an unnecessary wide or general enquiry and should confine 1821. It is settled that when a provision of law is challenged Courts are required to exercise restraint and be cautious in striking down a provision. It may be profitable to note the decision of the Apex Court in Government of Andhra Pradesh and others Vs. P. Laxmi Devi 1 SCC 23 : AIR 1979 SC 83] SCC para 6 : AIR para 6. Also it is none of the concern of the court whether the legislation in its opinion is wise or unwise. 19DEVAS has the capacity and power to enter into and perform this Agreement in terms thereof ii) DEVAS has the ability to design Digital Multimedia Receiversiii) DEVAS has the ability to design Commercial Information Devicesiv) DEVAS has the ownership and right to use the Intellectual Property used in the design of DMR and CID v) The fulfillment of DEVAS obligations under this Agreement by DEVAS will not violate any Laws vi) DEVAS shall assign transfer and or sub let its rights and obligations hereunder in accordance with law. WWW.LIVELAW.IN W.P No.6191 2021 vii) DEVAS shall be solely responsible for securing and obtaining all licenses and approval for the delivery of Devas Services via satellite and terrestrial network." 24. He has submitted that Devas did not have the ownership of any intellectual property as the technical know how mentioned in the agreement was unknown in the world at that point of time. Thus all that Devas has done is bringing money into India under different channels and siphoning off a major portion of it. 25. Shri. Venkataraman has further submitted that CBI20 has investigated and filed charge sheet in 2016. The ED21 and Authorities under PMLA22 have also investigated into the matter. Letters of Rogatory have been issued to France USA and Singapore. The Director of petitioner s Company Shri. Ramachandran Vishwanath who is the deponent verifying the Affidavit annexed to the writ petition is an accused in Criminal Proceedings and he is 20 Central Bureau of Investigation 21 Enforcement Directorate 22 Prevention of Money Laundering Act 2002 WWW.LIVELAW.IN W.P No.6191 2021 avoiding service of summons sent to the very address mentioned in the Affidavit. Therefore petitioner has not come to this Court with clean hands. He submitted that Officers of ISRO the Chairman and Executive Director of Antrix Corporation and other Officers are also accused in the Criminal cases. 26. The Secretary of Department of Space will also be ex officio Chairman of ISRO and Antrix Corporation. The material on record discloses that on January 14 2021 the Chairman cum Managing Director of Antrix Corporation has written a detailed letter to the Secretary Ministry of Corporate Affairs giving chronological events and sought sanction to file winding up proceeding against Devas. It is stated in the letter that Devas had committed fraud in collusion with earlier Officers of Antrix Corporation Department of Space and ISRO and it has resulted in huge financial loss to the Government of India. WWW.LIVELAW.IN W.P No.6191 2021 27. It is further stated in the letter that in the year 2011 Newspapers reported a mega scam and fraud in the Department of Space and views of various Ministries were sought. They had replied that the Contract and subsequent transactions had involved serious contraventions and breach of laws and it was completely overlooked and a misrepresented Cabinet note was prepared seeking termination of agreement dated 28.01.2005. 28. While filing application before the FIPB 23 Devas had projected investments only as Internet Service Provider ISP) and the Department of Telecom had issued a license to Devas for ISP services only. The application filed before FIPB does not refer to multimedia services to be employed in the use of S Band transponder facility for which Antrix Corporation and Devas had entered into the agreement. It is further stated that Devas was incorporated with a Share capital of Rs.1 00 000 about one month prior to the 23 Foreign Investment Promotion Board WWW.LIVELAW.IN W.P No.6191 2021 agreement with Antrix Corporation and Devas itself had valued the Company at Rs.579 Crores. 29. It was argued by Shri. Nayar that Antrix Corporation is the judgment debtor. Therefore in order to avoid payment under the Arbitration Award the Antrix Corporation has chosen to seek liquidation of Devas and the request made by Antrix has been acceded in great hurry by according sanction. He contended that the aspect of fraud has been designed to deprive Devas of its legitimate dues. 30. Admittedly Antrix Corporation is fully owned by the Government of India and the Secretary of the Department of Space is the Ex officio Chairman of Antrix Corporation. It is no doubt true that agreement has been cancelled on the ground of force majeure and Devas has obtained an Arbitral Award. But at the same time the contents of the letter dated January 14 2021 written by the Antrix Corporation cannot be brushed aside. The Managing Director of Antrix Corporation has stated that with an WWW.LIVELAW.IN W.P No.6191 2021 Investment of Rs. 579 Crores Devas have provided ISP services for about 25 people and earned a revenue of Rs.80 000 . It is also stated that out of Rs.579 Crores Rs.233 Crores have been moved out towards litigation services and large sum of money has been transferred to the wholly owned subsidiary of Devas in USA. 31. Petitioner has annexed a copy of the Company filed by Antrix Corporation before NCLT as Annexure H to the writ petition. Averment with regard to siphoning of money reads thus: 13(dd). Monies to the tune of Rs.579 Crores were brought in and when the same were not being used for the stipulated ends the investment would be rendered illegal and loses the eligibility as a protected investment. 13(ee). The investment of Rs.579 Crores instead of being used to render internet services was used in the following manner that resulted in a case of Money Laundering: Around of Rs.75 Crores were sent out of India by creating a wholly owned subsidiary in the USA with the directors of Devas controlling the subsidiary. ii) Over Rs.180 Crores were sent out as payment towards business support services without receiving either WWW.LIVELAW.IN W.P No.6191 2021 assets or services and writing them off as losses in the iii) Over Rs.233 Crores moved out of India in the guise of litigation services. When the earlier payments were made as business support it resulted in service tax exposure on reverse charge basis. To avoid payment of such taxes the monies were laundered in the guise of litigation support services. iv) Rs.92 Crores remained in India out of which a sum of Rs.21 Crores was lying in fixed deposits which have been seized by the PMLA authorities and Rs.59 Crores was paid as upfront capacity fee to Antrix. The balance monies were paid out as salaries to the Directors of Devas." 32. It is the specific case of Antrix Corporation that there was collusion of its officials and it is narrated as 46. Because the officials of Antrix in collusion with the Respondents No.1 Company illegally and arbitrarily arrived at a separate pricing of spectrums including the lease charges to be paid by the Respondent No.1 company even when "Devas Services" which involved both Mobile Satellite Services and Broadcasting Satellite Services was absent from the price stipulation available at that time." "55. Because it is revealed that in 58th Meeting of the Board of Directors held on 17 03 2005 at Bangalore Mr.G.Madhavan Nair the then Chairman while welcoming WWW.LIVELAW.IN W.P No.6191 2021 the Directors informed the Board that Antrix had signed a contract worth US$ 144 Million with the Respondent for leasing of S Band Transponders over a period of 12 years. Ms. Veena S Rao the then Additional Secretary Department of Space being one of the Directors on the Board of Antrix was also present in the said meeting and as such she was aware of the agreement between Antrix and the Respondent No.1 Company for leasing of S Band Transponders an agreement which illegal and unenforceable. However the same was concealed before the 104th Space Commissioner meeting which was attended by the aforementioned persons forming part of the 58th Board Meeting of Antrix." 33. With regard to the valuation of the Company it is stated thus in the Company petition: 74. Because for a company with no commercial antecedent and hardly in vogue for more than six months the shares of the Respondent No.1 Company were sold at exorbitant rates as high as Rs.1.26 Lakhs per equity share. The officials of the Respondent No.1 Company were not able to give any valid justification to the investigating agencies for pricing the shares at such high premiums thus leading to the conclusion that the foreign investments were brought into India only fraudulent activities including money laundering. This is evident from the subsequent actions of the Respondent No.1 Company whereby Rs.487 Crores out of Rs.579 Crores investment were laundered out of Indian WWW.LIVELAW.IN W.P No.6191 2021 the US subsidiary of the Respondent No.1 34. The averment with transactions reads as follows: 79. Because of the Rs.579 Crores of foreign investment Rs.76 19 04 563 subscription investment in Devas America Inc and Rs.180 77 58 989 in the guise of service fee towards business support services were laundered out of India. Out of the Rs.180 Crores the Respondent No.1 Company paid around 40 crores for the period 2006 October 2010 for which there was no agreement at all. The agreement was entered into only in October 2010 with the US subsidiary. If one adds the share subscription of Rs.76 19 04 563 it would total upto Rs.256 96 63 544 had been paid to 2 of its directors. Other than 12 Crore spend over 11 years out of the 579 Crores the balance 568 Crores way lying as liquidity of which around Rs.487 07 78 278 that the existence of Contract dated 28.01.2005 was suppressed by the then officials from various Government Authorities while seeking approval for the project. It is also averred that a Cabinet note dated 17.11.2005 put up for the consideration of Union Cabinet WWW.LIVELAW.IN W.P No.6191 2021 suppressed the existence of Contract which had already been executed on 28.01.2005 and stated instead that ISRO was in receipt of "several firm expressions of interest" by different service providers for utilization of Satellite capacity. 36. It is further averred in the Company Petition that Devas a Company incorporated without any commercial antecedents and hardly in existence for six months had sold its shares at exhorbitant rates as high as Rs.1.26 Lakhs per share to foreign investors.14 AC 33725of the Companies Act. held in the negative. 53. Accordingly both points for consideration are 54. Resultantly this writ petition must fail and it is accordingly dismissed with cost of Rs.Five Lakhs payable in the name of the Registrar General of this Court within WWW.LIVELAW.IN W.P No.6191 2021 four weeks from today and Registrar General shall report compliance. 55. In view of the dismissal of this petition pending interlocutory applications if any do not survive for consideration and they stand disposed of. P.S. DINESH KUMAR) WWW.LIVELAW.IN W.P No.6191 2021 WRIT PETITION No.6191 OF 2021 (GM RES CT CSR WWW.LIVELAW.IN W.P No.6191 2021