Case analysis: Devas-Antrix within the purview of Auditor's Report under

Companies Act.
Project Report

Submitted to-

Mr. Amitesh Deshmukh

Assistant Professor

Submitted by-

Anam Khan

Semester – VIII, Section – B, Roll No. 14

B. A. LL. B. (Hons.)

Hidayatullah National Law University

Uparwara Post, Atal Nagar – 492002 (C.G.)

 ABSTRACT
The case of Devas Multimedia Private Limited v. Antrix Corporation Limited is an extremely
important and interesting case. The implications and complications of the case are manifold.
Although there are various aspects of this case, this project primary analyzes the case on the lines
of auditor’s report discussed under Companies Act, 2013. Of all the interesting facets involved in
the case, questions of law on the enforecement of foreign arbitral awards and the political agenda
has been of prime focus from a third person’s perspective. This has more than a decade long
tussle between a Bengaluru based start-up named Devas Multimedia and the Department of
Space’s commercial entitiy named Antrix. The case has been subject to various international
arbitrations and awards along with frequent visits to the Supreme Court in India as well. The
case is known to have sprouted from an issue as small as a seed but it has now grown massive
political roots along with various other aspects of Companies Law and International Arbitration.
This project deals primary with the concept of auditor’s report under Companies Act, 2013 and
how a recent judgement by the Supreme Court in this particular case has posed various questions
on the evidentary value of the Auditor’s report.
 CHAPTER 1

INTRODUCTION AND RESEARCH METHODOLOGY

1.1Introduction

The number of cases on corporate frauds are increasing with every rising sun. These frauds have
started becoming a great threat to the companies survival and growth. It is not only increasing
but increasing at an alarming rate. The Antrix case is known to be one of the biggest corporate
frauds in India. The backlash that are faced because of such incidents are-

 Investors losing confidence in stock markets

 Massive loss to the investors
 Impairment to the image and reputation of the company involved.
 Large scale financial stress because company fails to attract any more investors.

Antrix is the commercial arm of Indian Space Research Organization and Devas Multimedia was
a Bengaluru based start-up. There was an agreement between the two parties which said that
Indian Space Research Organization’s commercial arms Antrix was to build, launch and operate
two satellites. Contradictory to the provision which says 70 MHz of S-band spectrum is reserved
for security services, Devas was given access to the same. This is where the case sprouted.
Although the scope of the case is very vast, this project deals with Section 271(c) of Companies
Act, 2013 and evidentiary value of auditor’s report.

1.2 Review of Literature

 T.S.R Subramanian, “CAG: A Necessary Evil or a Bulwark” As the name suggests, this
paper talks about the story of development of the system of where the auditor’s report
starting losing it’s evidentary value around the world. The author focuses his attention on
how the history has contributed to alleged objectives of companies law. The author is of
the view that this case has exposed the blatant abuse of trust.

 Bharat Vasani,Varun Kanan, Rajshri Seal “SC’s decision in the Devas Antrix Case:
Does it dilute evidentiary value of the Auditor’s Report under the Companies Act?” This
 article comprehensively evaluates and explains the meaning and extent of a evidentiary
value of auditor’s report under Companies Act, 2013. It deals with the position of the
same in India and also discusses various judicial pronouncements delivered by the courts.

1.3 Research Objectives

The purpose of this study and the broad objective is to understand the concept of auditor’s report,
understanding the evidentiary value through the case of Devas-Antrix and its relevancy before
the court of law.

1.4 Research Questions

The following are the questions which this study aims to answer:

 Evidentiary value of auditor’s report under Companies Law.

 Scope and extent of corporate frauds under Section 271 (c) of Companies Act, 2013.

1.5 Research Methodology

In this kind of study, a descriptive approach has to be followed. While doing research on the
topic emphasis is made on the various aspects of the case of study. Being non-empirical in nature
the project follows a descriptive approach for explanation and interpretation. The author has
taken help of secondary data such as articles, journals, reviews and editorials, etc.

1.6 Organization of the study

The project has been divided into three chapters in order to facilitate a clear picture of the study.

 Chapter 1: Introduction and research methodology

This chapter briefly introduces the topic and structure of the study.

 Chapter 2: Understanding Auditor’s Report under Companies Act, 2013

This chapter discusses the concept of auditor’s report in detail.

 Chapter 3: Evidentiary value of Auditor’s report in Devas-Antrix case

This chapter makes detailed discussion of auditor’s report through a case law.
 Chapter 2: Understanding Auditor’s Report under Companies Act, 2013.

The Companies Act under Section 138 to 148 deals with accounts, auditors and audit. These
provisions are seen to have massive impact on the audit profession and on the future of a
company as well. This chapter briefly talks about some of the important provisions and concepts
relating to a auditor and audit of a company.

 Who is an auditor?

“ An auditor is an independent professional person qualified to perform an audit. In accounting, an

auditor is someone who is responsible for evaluating the validity and reliability of a company or
organization’s financial statements. The term is sometimes synonymous with “comptroller”.
”

Section 139 of the Companies Act deals with the procedure required for the appointment of an
auditor. One term of an auditor is 5 years long.

 What are the powers in the hands of an auditor

The auditor is a person who has the right to access the book of records holding the accounts. The
auditor has to sign the audit reports. Section 146 of the Companies Act, 2013 specifies that the
Auditor must be present in the general meeting of the company. The remunerations to be given
to the auditor is decided in the general meeting. Section 26 of the “Companies Act, 2013” states
that the prospecctus of the company must contain the name, address and other details of the
Auditor.

 What is meant by the Auditing Process?

“ Auditing or auditing is considered as a system of reviewing the records and activities of various
books of a company. Basically, auditing is the checking and inspection of accounts of various
books, followed by the physical checking of goods and inventories to ensure that all departments
of the company are following a documented system of recording transactions. Auditing is done
to ascertain the complete accuracy of the financial statements provided by the company. ”

 What is an Audit Report?

The report that is prepared by the Auditor after examining the accounts and financial statements
of the Company is called an Audit report. The auditor report shall also state:
“

(a)   Whether he has sought and obtained all the necessary information and explanations,

(b)  Whether proper books of account have been kept,

(c)  Whether company’s balance sheet and profit and loss account are in agreement with books of
accounts and returns. ”

 Audit report of a government company

“ The auditor of the government company will be appointed by the Comptroller and Auditor-
General of India and such auditor shall act according to the directions given by them. He must
submit a report to them which should include the action taken by  him and impact on accounts
and financial statement of the company. The Comptroller and Audit – General of India shall
within sixty days of receipt of the report have right to (a) conduct a supplementary audit and
(b) comment upon or supplement such audit report. The Comptroller and Audit – General of
India may cause test audit to be conducted of the accounts of such company. ”

 Fraud Reporting

“ If an auditor of a company, in the course of the performance of his duties as auditor, has reason
to believe that an offence involving fraud is being or has been committed against the company by
officers or employees of the company, he shall immediately report the matter to the Central
Government within such time and in such manner as may be prescribed. ”

 Objective of Auditing

The primary objective of auditing involves keeping a check on all the financial transactions and
nature of capital revenue.
  Types of Audit

 Auditing Standards in India

“ To ensure that the information in the financial statements is of high quality and acceptable
worldwide, the Auditing and Assurance Standards Board under the Council of Institute of
Chartered Accountants (ICAI) has formulated certain standards. These conform to international
standards issued by the International Auditing and Assurance Board (IAASB). Standards issued
by IAASB include: ”

 “ Standard of Quality Control (SQCs) – For all services under engagement standards.
These standards apply to all auditing firms that conduct audits and review historical
financial information and assurance and related service attachments ”

 “ Standards on Auditing (SAs) -For an audit of historical financial information. These

apply whenever an independent audit is conducted. ”
  Standards on Review Engagements (SREs) – To review historical financial information.

 “ Standards on Assurance Engagements (SAE) – For assurances other than audit and
review of financial information ”

 “ Standards on Related Services (SRSs) – For all attachments regarding the application of
agreed procedures for information, compilation attachments and other related services. ”

Chapter 3: Evidentiary value of Auditor’s report in Devas-Antrix case

The facts of this case are very basic-

In 2005 ISRO’s commercial arm, Antrix entered into a deal with a Bengaluru based start-up
named- Devas Multimedia. The former was supposed to lease two communication satellites for
“

12 years for ₹167 crore to Devas Multimedia. Devas, then a start-up firm, planned to provide
multimedia services to mobile platforms in India using space band (S-band) spectrum
transponders on satellites built for ₹766 crore by ISRO, recalled an Indian Express report. ”

“ However, in February 2011, amid the 2G scam, the UPA government annulled the deal, saying
the nation needed the S-band spectrum for security purposes. When the BJP came to power in
2014, the new government asked the Central Bureau of Investigation (CBI) and the Enforcement
Directorate (ED) to probe the deal. ”

“ Meanwhile, miffed by the cancellation of the order, foreign investors in Devas — German
telecom giant Deutsche Telekom, three Mauritius-based investors — and Devas itself went for
international arbitration against India, and sought damages for the annulled deal. ”

“ An arbitration award for $1.2 billion went in favour of Devas in 2015, for damages in lieu of the
Antrix deal cancellation. India declined to honour the ruling. ”
In October 2020, the Washington court confirmed the compensation for Devas. Earlier this year,
the three foreign investors in Devas Multimedia, as well as Devas Multimedia America Inc (a
subsidiary), approached the Washington court again, expressing fears of Devas entering into a
deal with Antrix.

 Evidentiary value of Audit report under Companies Act, 2013.

In recent events at the Supreme Court of India, the judgment brought forth the important
question of law about the evidentiary value of the auditor’s report and the role it plays in the
commercial scenario when a fraud a has been discovered. One ground of argument before the SC
“

was that Antrix was estopped from pleading fraud at a later stage since the Auditor’s Reports that
were filed by Antrix every year in the intervening period made no mention of any fraud
committed on or by the Company. ”

“ In fact, the auditors of Antrix had certified that they have not discovered any fraud on or by
Antrix during their audit. The Court accepted this contention as being factually correct and went
on to hold that Antrix was not esstopped from pleading fraud despite such lapses in its Auditor’s
Report. ”

“ Firstly, the observations may have the effect of unwittingly diminishing the evidentiary value of
such audit reports and diluting their sanctity. While as per the landmark English case of “Re
Kingston Cotton Mills”,1 an auditor is supposed to be ‘a watchdog and not a bloodhound’, the
investing public often expects auditors to play a much larger role in unearthing corporate fraud
and improving corporate governance practices. This expectation becomes even more pronounced
in light of recent corporate scandals, whose effects could have been avoided or mitigated had the
auditors exercised a greater degree of oversight and professional judgment. ”

1
(1896) 2 Ch 279 at 288, UK Court of Appeal.
“ Secondly, these observations may also set back the clock on recent judicial and regulatory efforts
to make the auditing profession more accountable by pinning liability on them in appropriate
case of corporate frauds. This trend can be noticed in cases such as ICAI v. Mukesh Gang2
where the Court held the auditor guilty of gross negligence and violation of auditing standards.
The Court held that in view of the gravity of the professional misconduct displayed by the
auditor, exonerating him would encourage others to indulge in similar unethical acts and raise
questions about the integrity of the auditing profession in general .”

“In Institute of Chartered Accountants v P.K. Mukherjee,3 the SC held that the audit process
was intended to protect the shareholders and the auditor is expected to examine the accounts with
a view to informing the shareholders about the company’s true financial position. Thus, the
auditor must act in the interests of the shareholders who are in the position of beneficiaries.
Accordingly, the Court held that the auditor is under a clear duty towards the beneficiaries to
probe into the transactions” and to report on their true character”.

In “Hindustan Lever Employees’ Union v Hindustan Lever Ltd”. 4 it was held that an auditor
must be independent of the company’s Board of Directors and is “expected to play the role of a
watch-dog on behalf of the shareholders of the company”.

Conclusion

“ The unintended fallouts of the SC’s observations when it refused to attach much significance to
the role of auditors in a company that has been accused of engaging in fraud. While we hold and
regard this as very true and important that auditors are neither criminal lawyers nor trained
technocrats. It is not possible for auditors of a company to play an important role in ensuring
financial hygiene in the dealings of a company, and in informing the shareholders about the true
financial position of the company. While auditors may not necessarily view themselves as being
responsible for actively sniffing fraud, the public and the regulators expect  them to play a more
proactive role in safeguarding the interests of the minority shareholders and general public,
2
2016 (6) ALT 606.
3
AIR 1968 SC 1104
4
(1995) 83 Com Cases 30
especially in cases where large sums of public money is involved in companies. This judgment
of the Apex Court may give discomfort to all the stakeholders who take major investment
decisions relying on the Audit Reports. ”

Bibliography

 Websites

https://taxguru.in/company-law/independent-auditors-report-companies-act-2013.html

https://taxguru.in/company-law/audit-and-auditors-companies-act-2013-relevant-
sections.html#:~:text=(2)%20The%20auditor%20shall%20make,this%20Act%2C%20the
%20accounting%20and

https://corporate.cyrilamarchandblogs.com/2022/01/scs-decision-in-the-devas-antrix-case-
does-it-dilute-evidentiary-value-of-the-auditors-report-under-the-companies-act/#more-5225

https://blog.ipleaders.in/role-of-auditor-under-new-companies-act-2013/