Devas Employees v. Union of India, 2021

Devas Employees v. Union of India, 2021

It’s a reminder that in the corporate world, what goes up must come down — especially if the rise defies gravity!

The Great Space Scam: When a Satellite Deal Turned into a Corporate Mystery

Imagine signing a multi-million dollar deal for space technology with barely enough money to buy a luxury car! That’s essentially what happened in this case, where a company formed with just ₹1 lakh capital managed to secure a massive satellite deal within weeks of its formation, leading to one of India’s most interesting corporate fraud cases.

Introduction

The case revolves around Devas Multimedia Private Limited, a company that seemed to master the art of turning minimal investment into astronomical returns — quite literally involving space technology. The matter reached the Karnataka High Court when Devas Employees Mauritius Private Limited, holding a modest 3.48% stake, challenged the government’s power to liquidate Devas.

Facts

In what reads like a corporate thriller, the sequence of events is remarkable:

• December 17, 2004: Devas is incorporated with a mere ₹1 lakh capital
• January 28, 2005: Within weeks, Devas signs a major satellite deal with Antrix (ISRO’s commercial arm)
• February 25, 2011: Antrix terminates the agreement
• The deal’s aftermath led to an international arbitration award of USD 562.5 million (approximately ₹10,000 crores) in favor of Devas

Issues

The court grappled with two main questions:

1. Is Section 272(1)(e) of Companies Act 2013 constitutional?
2. Should the government’s order dated January 18, 2021, authorizing Antrix to seek Devas’s liquidation, be interfered with?

Judgment

The court dismissed the petition with costs of ₹5 lakhs, essentially giving a green light to the liquidation proceedings. The judgment revealed what the court saw as a sophisticated financial scheme:

• Of the ₹579 crores invested in Devas:
• ₹233 crores went towards “litigation services”
• ₹180 crores disappeared as “business support services”
• ₹75 crores were transferred to a US subsidiary
• Only ₹80,000 was earned as actual revenue from services to about 25 people

Reasoning

The court’s logic was fascinating:

1. It found that Devas made incredible claims about owning intellectual property that didn’t even exist in the world at that time
2. The company’s valuation jumped from ₹1 lakh to ₹579 crores without any substantial business activity
3. The court noted that selling shares at ₹1.26 lakhs each for a six-month-old company with no commercial history was suspicious

Significance

This case serves as a textbook example of:

• Corporate fraud detection
• The government’s power to protect public interest
• The importance of scrutinizing rapid corporate valuations
• The intersection of corporate law with national security concerns

Conclusion

The judgment essentially tells us that in the corporate world, if something looks too good to be true — like a one-month-old company getting a massive space technology contract — it probably is. The court’s decision reinforces that corporate veil can be lifted when public interest and national security are at stake.

The case is particularly memorable for showing how a company started with ₹1 lakh capital managed to orchestrate a deal worth thousands of crores, only to have it all come crashing down when the authorities started connecting the dots. It’s a reminder that in the corporate world, what goes up must come down — especially if the rise defies gravity!