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The Devas case is not as black and white as the government claims

Finance minister Nirmala Sitharaman (Photo: ANI)Premium
Finance minister Nirmala Sitharaman (Photo: ANI)

If a company can be wound up on fraud charges that are established on most specious grounds, as we saw the Tribunal do, without these being tried and established in a criminal court, and the highest court of the land upholds such a proposition and treats international arbitral awards as inconsequential, India’s reputation as a safe place in which to do business would take a serious knock

Finance minister Nirmala Sitharaman held a press conference on the Devas case, essentially to breathe fresh life into a decade-old charge of corruption against the Congress and the alliance it led, the UPA, using the Supreme Court’s verdict okaying the winding up of Devas, a company that has won, in multiple international arbitration proceedings, substantial sums in damages and interest payable by the Government of India. Neither the finance minister’s charge nor the Supreme Court verdict she relied on is totally convincing.

To begin with, the incorporation of Devas in December 2004 was preceded by a memorandum of understanding (MoU) between the sponsors of Devas, Forge Advisors LLC, Virginia and Antrix Corporation, to create a partnership, signed on 28 July 2003, and a joint venture proposal dated 15 April 2004. These two preliminary steps to forming a company to launch Digitally Enhanced Video and Audio Services (Devas) were taken during the Vajpayee government’s tenure. The UPA took office in May 2004. Based on the recommendation of Dr Shankara of the Space Application Centre, it was decided that Devas would be incorporated not as a joint venture between Forge Advisors LLC and Antrix, but as an independent company that would partner with Antrix by leasing capacity on its satellite transponders. The company was incorporated in December 2004, and the agreement to lease capacity on Antrix’s satellite transponders was signed in January 2005.

In Para 12.8 of the Supreme Court ruling that finance minister Nirmala Sitharaman relied on to slam the UPA government as having been corrupt, it is held that “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 December ­2004, as a result of preliminary meetings held at Bangalore in March ­2003 and in USA in May ­2003, followed by the signing of the MoU on 28.07.2003, the presentation made on 22.03.2004 and the discussions held thereafter. The groundwork was clearly done during the period from March­ 2003 to December 2004 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."

That the company was formed subsequent to preliminary meetings and an MoU is ground for establishing fraudulent intent is an illogical proposition. If that proposition is, nevertheless, taken at face value, the fraud was conceptualised in 2003 and April 2004, when the BJP-led Vajpayee government was in place.

Some parts of the Company Law Appellate Tribunal order that the Supreme Court verdict relies on are absurd. “It is the stand of the ‘Appellant’, that the International Telecommunication Union (ITU) during the year 1970 granted a portion of ‘S-band frequencies’ to the Government of India, and in turn, the Government of India delegated the right to use that Spectrum to the Department of Space (DOS). Since the ‘Department of Space’ had failed to efficiently allocate the Spectrum, the Government of India by 2003 was at the risk of losing its right to the assigned Spectrum Space, which led the Government of India in relocating 40 MHZ of S[1]band Spectrum to the Department of Telecommunications for terrestrial use."

The appellant referred to is either Devas Multimeida Pvt Ltd, or the Devas Employees Mauritius Ltd, since both are listed as appellants and the quoted para does not specify who made this submission. It is even not clear that the appellant actually made this absurd proposition, as the tribunal is paraphrasing the appellant’s submission. The ITU does not assign spectrum to national governments. Spectrum over a nation’s territory belongs to the national government, and there is no fear of the government losing its right to the spectrum in case it does not use it. What the ITU does is suggest specific spectrum bands for specific uses, so as to harmonise spectrum use across countries. Even this is not binding, national governments can decide to assign whichever frequency band it chooses to whatever use.

Logical fallacies are then built on such factual fallacies. Fraud is detected in the company not possessing the technology it was set up to develop at the time of setting up the company. Shareholders of the company included two American venture capital firms, Columbia Capital LLC and Telecom Ventures LLC. Venture capital firms routinely invest in companies not because they have developed a technology but because the technology they propose to develop holds promise of making money and the team setting up the company holds the promise of execution capability. If the bar for non-fraudulence is the product or service to develop which capital is being raised being already in existence at the time of setting up the company, then all angel investors are M/s Bunty & Babli and early investors in Facebook and Google were conmen. Deutsche Telekom is another investor. That such investors meant to defraud the government is axiomatic for the government and the Supreme Court.

The Supreme Court dismissed the argument that fraud, charged in the CBI case initiated in 2016, has yet to be established by a trial court, on the ground that the tribunal has concluded there was a fraud and that the standard of evidence of a criminal case initiated by the CBI was different from that of a civil proceeding. This means that even if the court dismisses the charge of fraud brought by the CBI against Devas, the Supreme Court would still stick to its endorsement of winding up of the company on fraud grounds.

Company Law 2013 allows the government to wind up a company on just and equitable grounds, in the public interest. While no charge of fraud was raised when the UPA government cancelled Antrix’s lease of satellite transponders to Devas, essentially killing that company’s business model, the Supreme Court finds it expedient to allow the government to seek winding up of the company both on grounds of fraud and on just and equitable grounds.

If a company can be wound up on fraud charges that are established on most specious grounds, as we saw the Tribunal do, without these being tried and established in a criminal court, and the highest court of the land upholds such a proposition and treats international arbitral awards as inconsequential, India’s reputation as a safe place in which to do business would take a serious knock.

 

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