Devas Multimedia Private Limited v. Antrix Corporation Limited (2022) SCC OnLine SC 1130
Court: Supreme Court of India
Bench: Justices Hemant Gupta and V. Ramasubramanian
Date of Judgment: 17 January 2022
The Supreme Court’s ruling in this case is a landmark in clarifying the evidentiary value of auditor reports in corporate litigation. The dispute arose from a controversial contract between Devas Multimedia and Antrix Corporation, the commercial arm of ISRO, involving the lease of satellite transponders. Allegations of fraud, corruption, and diversion of funds led to the termination of the agreement and the initiation of winding-up proceedings against Devas Multimedia before the NCLT under Sections 241–242 of the Companies Act.
Facts
Devas argued that its financial statements, duly certified by statutory auditors, proved that the company’s operations were legitimate. It claimed that reliance on these professional reports established that there was no fraudulent intent. Antrix, on the other hand, contended that auditors’ opinions could not serve as conclusive evidence, especially where allegations of fraud and public interest violations were at stake.
Issue
The core legal issue before the Court was: To what extent should auditor reports and professional audit opinions be relied upon in corporate disputes, particularly when allegations of fraud and mismanagement arise?
Court’s Analysis
The Supreme Court acknowledged the significance of audit reports, describing them as professional assessments prepared by qualified experts. Such reports hold substantial evidentiary value and are useful in assessing the financial position of a company. However, the Court stressed several limitations:
Not conclusive proof: Audit reports are based on information provided by management and may not always detect fraud. They cannot be treated as final evidence of legitimacy.
Judicial duty to scrutinise: Courts and tribunals must independently evaluate whether fraudulent or prejudicial conduct exists, and they cannot abdicate this responsibility to auditors.
Public interest considerations: Where larger issues of fraud, mismanagement, or public interest are involved, the judiciary must look beyond audit certifications to examine the overall conduct of the company.
Parallel with Coulter: Similar to international jurisprudence, particularly the Coulter reasoning, the Court emphasised that while auditor reports are reliable and authoritative, they remain one piece of evidence, not the ultimate determinant.
Final Judgment
The Supreme Court upheld the decisions of the NCLT and NCLAT ordering the winding up of Devas Multimedia, holding that the company was incorporated and operated with fraudulent intent. The Court categorically ruled that auditor reports, though significant, cannot shield a company when other evidence establishes fraud and misconduct.
Holding: Auditor reports carry persuasive evidentiary value but are not conclusive. Courts must independently assess fraud and misconduct, and professional certifications cannot replace judicial scrutiny.
This judgment firmly reinforces that auditor opinions cannot override judicial determination. While auditors play a critical role in corporate governance, their reports are only one element of the evidentiary framework. Companies cannot rely solely on clean audit certificates to escape liability when larger questions of fraud and public interest arise.