9911796707
TMI Blog2001 (3) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... s name, as by then, the company had become a public company under section 43A of the Companies Act, 1956 ( the Act ). The registered office of the company was later shifted to Chennai. 3. A joint venture agreement (JVA) was entered into on 12-8-1992 among Sky Cell, Crompton Greaves Ltd. (Crompton), Bellsouth International (Asia/Pacific) Inc. Atlanta, USA, (Bellsouth) Millicom International Cellular SA incorporated in Luxembourg (Millicom) and DSS Enterprises (P.) Ltd. (DSS), having its registered office at Delhi. DSS formerly known as Daljit Singh and Sons (P.) Ltd. has been the advisor to Bellsouth in its business activities in India in terms of an agreement dated 15-7-1986 as amended by a supplement agreement on 10-7-1993, under which DSS is entitled to receive and has been receiving $ 3,000 per month as fee from Bellsouth. Under the JVA, it was agreed that CGL would have 40 per cent of the shares of Sky Cell, Bellsouth 25 per cent, Millicom 25 per cent and DSS 10 per cent. In view of the policy of the Government of India, which required mobile cellular licensees to have not more than 49 per cent of foreign equity participation, the shareholding pattern was changed to 40.5 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity by a Person Resident Outside India) Regulations, 2000, under section 6(3)( b ) read with section 47 of the Foreign Exchange Management Act (Central Act No. 42 of 1999) which came into force on 1-6-2000; Schedule 1 to those regulations deals with Foreign Direct Investment Scheme. The cap of 49 per cent foreign direct investment is laid down in Annexure B to that Schedule. 7. The shareholders of the company, having regard to the severe strain on their own financial resources in having to keep funding this loss making company, had approached their bankers ABN Amro in 1998 to find a buyer to whom the shareholders could divest shareholdings at the most advantageous price. Bellsouth took the initiative in suggesting ABN Amro Bank as the suitable agency to find a buyer. A letter dated 8-7-1998, was sent by it to all the shareholders in that regard. An agreement with ABN Amro was also drawn up on 10-7-1998. The collective effort was subsequently abandoned in favour of bilateral deal between the shareholder and the prospective purchase. 8. Bellsouth as a result of such bilateral negotiation entered into an agreement with the other foreign shareholder, Millicom. In January, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings before the Company Law Board on account of disputes among the shareholding of DSS was referred to and the time for completing the sale extended. In that supplementary agreement, it was provided that Bharti was not bound to purchase the shares of CGL or DSS separately except at its own option. 11. The shares of DSS, however, could not be sold as DSS was indebted to a French bank,CAI, in the sum of about US $ 1.4 million plus interest for which Millicom had also stood guarantee, and the consent of Millicom for the sale of DSS shares which was essential in terms of the escrow agreement drawn up among Bharti, DSS, CAI, and Deusche Bank was not forthcoming. 12. On 25-11-1999, CGL entered into an agreement with Bharti for the sale of its 40.5 per cent stake, at the price set out in the agreement dated 5-10-1999. Millicom by their letter dated 18-2-2000 informed Sky Cell that they had no objection for the sale of CGL s shares to Bharti. Millicom also stated in that letter, inter alia, that "Millicom has previous experience of working with Bharti in New Delhi and believes that this change in ownership will be good for the business of Sky Cell. Our previous experience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L and DSS would sell their shares in Sky Cell to Bharti. CGL preferred an appeal against the order of 6-4-2000. That appeal was subsequently withdrawn. Bharti also obtained leave to appeal, and it also subsequently did not pursue that appeal. 16. During the pendency of that application of Bellsouth in this Court, DSS filed a suit in the Court of Additional District Judge, Delhi, against Sky Cell, CGL and others on 29-3-2000 and obtained an ex parte injunction valid till April, 2000, against the sale of CGL s shares to Bharti. The filing of that suit and the orders subsequently obtained in that suit were not disclosed to this Court, nor was it made known to CGL, Sky Cell and Bharti till 26-8-2000 at the meeting the Board of Sky Cell held on that day. Bellsouth though aware of that suit also had not disclosed the pendency of that suit. 17. On 4-5-2000,CGL wrote a letter to Bellsouth stating that it had been advised that instead of a single agreement among Bharti, CGL, Bellsouth and DSS, it was advisable that Bellsouth, DSS and CGL enter into separate agreements with Bharti, as the enterprise values being mentioned in the three agreements were not the same - the enterprise v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, Bellsouth by their letter of 7-8-2000, informed Bharti that Bellsouth was no longer negotiating with Bharti for a variety of reasons including the lack of consent of other shareholders to the proposed transaction between Bellsouth and Bharti. Bellsouth through their advocates on 5-8-2000, informed CGL that ". . . Bellsouth has not, either prior to or after the shareholders meeting of 3-5-2000, consented to any transfer of shares by CGL to Bharti.", and placed on record their refusal to consent to such transfer. 21. On 13-7-2000, notice convening the annual general meeting of Sky Cell to be held on 23-8-2000, was sent to the shareholders. The ordinary business to be transacted at the meeting was to consider and adopt the balance sheet as of 31-3-2000 as also the profit and loss account, to appoint directors in the place of K.K. Nohria and B.M. Suri who were retiring by rotation and had also offered themselves for reappointment. The special business was to consider the appointment as directors P.H. Rao and David Harris representing CGL and Millicom, respectively, and who had been appointed in casual vacancies earlier as directors. Nohria and Suri were nominees of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors representing CGL and by Mr. Unni, the director nominated by ICICI on the Board of the company. Six of the 11 directors having approved the resolution, the transfer was recorded in the books of Sky Cell, and Bharti s name entered in the register of members in the place of CGL. That fact was also later reported to the Registrar of Companies. Circular resolutions for appointing alternate directors to four of five directors representing CGL, were also approved by a majority of the directors on 7-8-2000. 25. On 5-8-2000, Bharti instituted a suit in the High Court at Delhi in CS No. 1727 of 2000 against Bellsouth for an injunction restraining Bellsouth from selling its shares to anyone other than Bharti. This suit is the first of the three suits filed by Bharti in the Delhi High Court. Interim injunction was obtained by it on 28-8-2000. A review petition to review that order, is said to be pending in that High Court. Later, on 6-9-2000, Bharti filed Suit No. 1957 of 2000 against DSS and in the suit, DSS has given an undertaking that it would not alienate the shares held by it in Sky Cell. Later, on 28 September, Bharti filed Suit No. 2002 of 2000 agianst Sky Cell, CGL, DSS, Bells ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minutes book on the instigation of P.H. Rao, K.L. Jain, Anil Nayar and Khullar and that they also withdrew from the meeting. The accounts are shown to have been adopted. Resolutions for re-appointment of Nohria and Suri as also the resolution for appointment of Rao as direcor as shown to have been not moved at all, but nevertheless put to vote by show of hands and rejected. The resolution for appointing Harris and that for re-appointment of auditors are shown to have been passed unanimously by show of hands. 28. Thereafter, a Board meeting which had been convened on 11 August, but had been adjourned to 19 August at the premises of Bharti at Delhi and was again adjourned to 26 August at the same venue, was held. Here again, there is serious disagreement as to what transpired at that meeting. According to the version of CGL, supported by Bharti, the meeting was presided over by Mittal, alternate director to Nohria, but some of the directors including Satwant Singh, Harris and some strangers who had been brought into the meeting by Singh left place after leaving on the table a typed resolution which stated that the meeting was being adjourned to the Oberoi Hotel. The point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alternate directors is said to have been made under circular resolutions sent by Satwant Singh on 24-8-2000, which resolutions are said to have been approved by majority on 25-8-2000. The resolutions are said to have been affirmed at the meeting on 26-8-2000. The minutes relied on by Satwant Singh are not part of the company s minutes book of the Board meetings. It is to be found in a new file, the only other minutes being that of 8-12-2000 meeting held after the order of the Single Judge, now in appeal. The notary who is shown to have been present at the meeting has not filed any affidavit. 31. The order of the Additional District Judge, Delhi, which had been produced by Satwant Singh on 26-8-2000, at Bharti s Office, where the Board meeting, even according to Satwant Singh, had commenced, was carried in appeal by CGL and Bharti in FAO No. 346 of 2000 and the orders of the District Judge were, in those appeals, set aside by the Delhi High Court on 13-9-2000 and the parties were directed to maintain status quo. Status quo as on the date so far as the shares held by CGL were concerned was that the transfer of those shares to Bharti had been approved by a majority of the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief sought for in the plaint were also sought by the plaintiff. 35. CGL also came to this Court on the heels of Satwant Singh and filed Suit No. 931 of 2000 claiming to have instituted that action in discharge of its fiduciary duty towards Bharti to whom it had sold the shares, and which sale was being claimed to be void by Bellsouth and DSS. The reliefs sought in that suit were - for a declaration that the annual general meeting of Sky Cell held on 23-8-2000 and the Board meeting held on 26-8-2000 under the Chairmanship of Satwant Singh, were illegal and void, for declaration that the notice dated 28-11-2000 for a Board meeting on 8-12-2000 issued by Satwant Singh was void and for an injunction against DSS, Bellsouth, Millicom, their nominee directors and agents from holding any Board meeting on 8-12-2000 or on any other day for considering the agenda circulated by Satwant Singh. Interim orders, injunctions and directions in line with the plaint prayers were also sought. 36. On 8-12-2000, a learned Single Judge of this Court, who considered the applications filed in C.S. Nos. 630 and 631 of 2000 made a common order restraining defendants 1 to 6 in CS No. 930 of 2000 from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Bellsouth, DSS and Millicom acting under the nominal leadership of Satwant Singh are entitled to the assistance of this Court in their attempts to gain complete control of Sky Cell excluding from the Board of Sky Cell all the directors who represented CGL on 22-8-2000, along with their alternates and by keeping out the Chief Commercial Officer and Company Secretary of Sky Cell who has been holding the office since 1995. 41. The case pleaded by them rests on the JVA by which all of them swear, the minutes of the AGM of Sky Cell said to have been held on 23-8-2000, and of the Board meeting of Sky Cell said to have been held on 26-8-2000 with Satwant Singh as Chairman. They also rely on CGL s claim that it has ceased to be a member of Sky Cell by reason of the completed transfer of its shares to Bharti. It is also their case that the transfer of CGL s shares to Bharti is void under article 7.6 of the JVA as the written consent of Bellsouth has not been given for that transfer, and that the dispute raised by them regarding the validity of that transfer is arbitrable under the clause 21 of the JVA, which provides for arbitration of all disputes among the JVA partners concerning th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 9 of the Arbitration and Conciliation Act, which culminated in the order dated 6-4-2000, stated that it was not against transfer per se, but that it did not have information about Bharti to make up its mind. By 3-5-2000, it obviously had such information, had accepted that Bharti would be suitable as a member of Sky Cell, and had agreed in principle to sell its own stake to Bharti. That it had also orally agreed to the sale of CGL s shares to Bharti is evident from the statement in the letter sent through its advocate of 5-8-2000 to CGL that . . . prior to or after the shareholders meeting of 3-5-2000 . . . it had not consented to the transfer of CGL s shares. It is significant that, it was not the stand of Bellsouth that at that meeting, it had not agreed to the sale of CGL s shares. 46. The restrictions of transfer of partner s shares set out in articles 3.6 and 7.6 of the JVA requiring the written consent of other shareholders are not incorporated in the Sky Cell s articles of association, even though Sky Cell is a party to the agreement. Transferability of shares in a company is governed by the provisions of the Companies Act and the articles of assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the law in India is that the restrictions should be in the articles, is for the arbitrators to decide in the event of the matter being referred to arbitration. 49. Bellsouth, DSS and Millicom cannot now assert that CGL has ceased to be a member, having regard to their own stand that the transfer is void. The JVA had not been terminated when the AGM was held on 23-8-2000, even though there is more than one version of what happened at that AGM. That JVA is even now in force.These three shareholders have asserted emphatically that every provision of the JVA binds each one of the parties thereto. They had under the JVA, in article 9(1)( e ), the duty to vote on their shares to elect individuals nominated by other shareholders. Their purported vote against the resolutions for the reappointment of Nohria and Suri and the appointment of Rao, was clearly in breach of the JVA. They cannot now ask for the assistance of the court to protect their violation of the JVA and enable them to gain complete control of the company by neutralising the rights of the holder of 40.5 per cent of the company s shares, under the JVA. Injunctive relief is not meant to protect breach, but is granted when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the Board of directors of Sky Cell. The actions taken by him on the basis of powers purportedly given at the meeting are prima facie actions which do not, in any way, bind Sky Cell. 55. The dismissal of Venkataraman by Satwant Singh on the basis of an alleged resolution at that meeting is prima facie not valid. Venkataraman is entitled to continue to function as Chief Financial Officer and Company Secretary. 56. Satwant Singh cannot hold himself out as the Chairman and Managing Director of Sky Cell, as he has prima facie not been lawfully appointed to that position. The right claimed by him to manage the company is not one which can be protected by an injunction, as no such right has accrued to him in law. Such a right cannot be recognized on the basis of self-serving record created by him, which record also does not establish that a lawful meeting of the Board of Sky Cell had taken place on 26-8-2000, under his Chairmanship. The Suit No. 930 of 2000 brought by him in the name of Sky Cell prima facie would not bind Sky Cell. 57. The balance of convenience also is clearly in favour of interim reliefs being refused in the application for such reliefs fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores of rupees. DSS does not have the means to do so. Millicom which initially accepted Bharti s entry has apparently been lured into the Bellsouth s camp for reasons best known to it. 60. Satwant Singh s suit in the name of Sky Cell and interim reliefs sought therein are also wholly lacking in bona fides. It is obvious that the strategy of Bellsouth and DSS aided by Millicom is to neutralise 40.5 per cent of the shares of Sky Cell, not to give any representation for those shares on the Board of Sky Cell using the office of Chairman and managing director, gain managerial and financial control of Sky Cell, induct additional directors on the Board of Sky Cell, and then divest their holding together so that their buyers can gain control of over 51 per cent of the shares, give the go- by to the JVA, and obtain complete control of the company. One of the items in the agenda for the meeting on 8-12-2000 convened by Satwant Singh is the induction of additional directors. The minutes of the meeting of his group held on 8-12-2000 include a resolution to convene an extraordinary general meeting to remove two directors representing CGL, their other directors, according to Satwant Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he weakest of the four partners with 10.5 per cent. Singh cannot do anything in Sky Cell without the support of Bellsouth and Millicom. DSS is also indebted of Millicom which has guaranteed the loans obtained by DSS to acquire a stake in Sky Cell. Satwant Singh and DSS, thus, are not independent agents but are wholly dependent upon Bellsouth and Millicom for getting anything done in the Board of Sky Cell. Allowing Singh to be the Chairman and the managing director is to allow Bellsouth and Millicom to be in effective managerial control of the company. The court aid cannot be invoked for bringing about such a situation. 64. Satwant Singh appears to be a seasoned litigant, but not a fair litigant. He resorted to the Court of the Additional District Judge at Delhi in March, 2000, to aid Bellsouth s effort and give it a second line to fall back on in the event of this Court s vacating the injunction against CGL. He did not disclose these proceedings to Sky Cell, CGL or Bharti till 26-8-2000 when he wanted to rely on another order from the same court obtained behind their back to stall the confirmation of CGL s sale to Bharti. 65. The real leading actor in the legal battle in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny continues to be managed by Rao as Managing Director. With a view to ensure that control of the Board of Sky Cell is not usurped by one or the other camp, we consider it appropriate to appoint a neutral competent third party as Chairman of the Board of Sky Cell. Mr. Justice K.A. Swami, former Chief Justice of this High Court, is appointed as Chairman. He shall preside over all meetings of the Board of Sky Cell. He shall not vote on any of the resolutions except in case of a tie. 68. The Board of directors of Sky Cell shall comprise of all those who were directors immediately prior to the disputed AGM of 23-8-2000. Persons who had been appointed as alternate directors prior to that date shall also be entitled to function as such. The powers of the Board with regard to the business activities of the company shall be exercised in conformity with the JVA. Meetings of the Board may be convened only with the consent of the Chairman. The Board meetings shall be held normally at Chennai, and when permitted by the Chairman at any other place. All the directors as also the officers and staff shall provide all the informations, records and assistance as may be desired by the Chairman. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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