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TMI Blog2011 (7) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... T who would decide the same in accordance with law after hearing both the parties. Since the Transferee Company has used the overlapping licences without any prior permission of DOT from 5-2-2010 till date in contravention of the Licence and Merger Guidelines, it is directed that it shall be open to DOT to pass any order for such breach. Needless to say, any order passed by DOT can be challenged by Idea before any competent Court or Tribunal. To avoid inconvenience to public at large, DOT is directed to ensure that cell phone customers of the two overlapping licence areas namely, Punjab and Karnataka are provided regular and uninterrupted services like in the past. Moreover, as simultaneous demerger scheme has been withdrawn, paragraphs 2.4, 2.13, 2.14, 2.19, 17.3 as well as the last two sentences in para 1.7 of the sanctioned scheme are deleted. - CO. APPLS. NOS. 578-579 & 611 OF 2011 IN CO. PETITION NO. 403 of 2009 - - - Dated:- 4-7-2011 - MANMOHAN, J. Dr. A.M. Singhvi, Neeraj Kishan Kaul, C. Vaidyanathan, Sandeep Singhvi, Gopal Jain, Manjul Bajpai, Rishi Agarwala, Ankit Shah, Aneesh Patnayak, Rajiv Kumar, A.S. Chandhiok, Ms. Maneesha Dhir, Ritesh Kumar, K.P.S. Kohl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the LICENSEE Company . 1.3 The merger of Indian companies may be permitted as long as competition is not compromised as defined in condition 1.4 (ii) . 1.4 The licensee shall also ensure that: ( i )Any change in share holding shall be subject to all applicable statutory permissions. ( ii ) No single company/legal person, either directly or through its associates, shall have substantial equity holding in more than one Licensee Company in the same service area for the Access Services namely; Basic, Cellular and Unified Access Service. ' Substantial equity' herein will mean equity of 10 per cent or more' . A promoter company/Legal person cannot have stakes in more than one Licensee Company for the same service area ** ** ** 6. Restrictions on Transfer of Licence' 6.1 The licensee shall not, without the prior written consent as described below of the licensor, either directly or indirectly, assign or transfer this licence in any manner whatsoever to a third party or enter into any agreement for sub-licence and/or partnership relating to any subject-matter of the licence to any third party either in whole or in part i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or intra service area Merger are relevant. The relevant extract of Merger Guidelines, 2008 is reproduced hereinbelow:- "No. 20-100/2007-AS-I Government of India Ministry of Communications and Information Technology Department of Telecommunications Sanchar Bhawan, 20, Ashok Road, New Delhi 22nd April, 2008 Subject : Guidelines for intra service area Merger of Cellular Mobile Telephone Service (CMTS)/Unified Access Services (UAS) Licences The intra service area Merger of CMTS/UAS Licences shall be permitted as per the guidelines mentioned below for proper conduct of Telegraphs and Telecommunication services, thereby serving the public interest in general and consumer interest in particular: 1. Prior approval of the Department of Telecommunications shall be necessary for merger of the licence .. ** ** ** 17. "Any permission for merger shall be accorded only after completion of 3 years from the effective date of the licences .." [Emphasis supplied] 6. It is pertinent to mention that Spice had licences for six different areas which were overlapping with Idea. While four out of the six overlapping licences were non-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed to DOT. The said scheme is disclosed to DOT for the first time on 23-6-2009. 14. In fact, from the documents on record it is apparent that in May, 2009 petitioner-companies had filed four 'mirror schemes' in the High Courts of Gujarat and Delhi. While two schemes are filed seeking sanction of scheme of amalgamation of Spice with Idea, the other two demerger schemes are filed with a view to transfer the overlapping six licences to independent third parties namely, Vitesse Telecom Private Limited and Claridges Communications Private Limited. The intent behind filing the four schemes is to ensure that the merged company does not hold more than one operative licence for any particular area. 15. However, neither in the merger application being CA(M) 99/2009 nor in the demerger application being CA(M) 98/2009 filed in this Court copies of licences or Merger Guidelines, 2008 or correspondence exchanged between the parties are placed on record. 16. On 18-5-2009, this Court allows the first motion demerger application being CA(M) 98/2009 by directing convening of meetings of equity shareholders, secured and unsecured creditors of Spice. The said meetings are directed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot become effective for any reason whatsoever." [Emphasis supplied] 23. It is pertinent to mention that during the course of hearing of merger petition, the Regional Director (Northern Region) relies upon DOT's letter dated 9-6-2003 pertaining to internet service and thereafter, this Court observes that written approval of licensor should be obtained after scheme is sanctioned by this Court. The relevant portion of this Court's order dated 5-2-2010 is reproduced hereinbelow:- "21. The Regional Director, while referring to Para 5.2 of the Scheme regarding transfer of licences of the transferor company to the transferee company, has submitted that the transferee company may be directed to obtain the necessary approvals from the Ministry of Telecommunications for transfer of licences after the sanction of the Scheme by this Court, since the Ministry of Telecommunications vide letter No. 820-1/2003-LR dated 9-6-2003 has clarified that the licencee may transfer the licence with prior written approval of the licensor, even in the case of Scheme of Amalgamation under section 391/394 of the Companies Act, 1956. 22. In response to the above objection, the petitioner/transferor com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding de-merger of 2 over lapping licences. M/s. Spice Communications Limited having UAS Licence in Punjab and Karnataka, M/s. Idea Cellular Limited also hold UAS licences with effective date of 25 January, 2008, which is less than 3 years and M/s. ICL holds CMTS Licences in Andhra Pradesh, Maharashtra, Haryana and Delhi where M/s. Spice Communications Ltd. (SCL) also holds UAS licence with effective date 29-2-2008 and 3-3-2008, which is less than 3 years. Therefore, as per licence condition 17 of intra circle merger guideline dated 22-4-2008 merger of companies cannot be permitted." According to him, the suppression of aforesaid letters is deliberate, with an intent to obtain transfer of licences and merger of petitioner-companies. 28. Mr. Chandhiok further submits that both the petitioner-companies have not only suppressed the aforesaid letters but also the Licence Agreements and Merger Guidelines, 2008, under which prior permission of DOT for merger of companies is mandatory. He places on record various letters exchanged between the parties to show that petitioner-companies have suppressed that they were in the midst of discussion of various options with DOT including simul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellants had paid the total decretal amount to his master Chunilal Sowcar. Without disclosing all these facts, he filed the suit for the partition of the property on the ground that he had purchased the property on his own behalf and not on behalf of Chunilal Sowcar. Non-production and even non-mentioning of the release deed at the trial is tantamount to playing fraud on the court. We do not agree with the observations of the High Court that the appellants-defendants could have easily produced the certified registered copy of Ex. B-15 and non-suited the plaintiff. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party." 30. Mr. Chandhiok further submits that without prior permission of DOT, the petition for merger of petitioner-companies could not have been filed before this Court. In this connection, he draws the attention of this Court to clauses 1.3, 1.4 and 6 of Licence which, according to him, entail that prior to merger of companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be entertained in the appeal and that they will have to go for a separate proceeding by way of filing a suit to challenge the order. We would like to mention here that when the appeal is admitted under the law, appeal amounts to the continuation of the original proceeding. Therefore, when the appeal is the continuation of the original proceeding, it is open for a party to show that the party which has obtained an order or seeking an order has played or playing fraud on the court. When there is an allegation of fraud, it must be always remembered that there could not be a direct proof of fraud. The fraud will have to be inferred from the various circumstances which have to be brought on record by a party. Each circumstance may not be sufficient to prove a fraud, but all the circumstances taken together may indicate the fraud. It is always open to a party to show to the court that the party which is seeking an order in his favour is playing fraud on the court. Similarly, it must be also mentioned that the provisions of sections 391 and 392 confer wide powers on the courts and those powers are exercisable not at the time of making order under section 391 but also at any time th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave rethinking on the said scheme and to get reapproval for the said scheme. Therefore, in the circumstances, there is no alternative other than rejecting the scheme of arrangement and amalgamation. Thus, we hold that the present appeals will have to be allowed and the schemes put forth by the petitioner in Company Petition Nos. 90/86 and 91/86 will have to be rejected." 34. On the other hand, Dr. A.M. Singhvi, learned senior counsel for petitioner-companies submits that DOT has no locus standi to file the present applications as it is neither a shareholder nor a creditor of erstwhile Spice. He further submits that the case set out by learned ASG during the course of arguments that DOT is a creditor of Idea is an afterthought inasmuch as this fact has not been averred in the applications filed by DOT. He also points out that DOT has never claimed to be a creditor and it never approached this Court at the initial stage even though it was well aware of the merger process since its inception. According to him, mere condition for payment of periodic licence fee and/or spectrum charges does not make DOT a creditor of Idea/Spice. He further submits that even assuming that the DOT i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d states that, if required, this Court may issue necessary clarifications protecting the interest of both petitioner-companies as well as DOT. 38. Dr. Singhvi also submits that DOT has suppressed material facts and has approached this Court with unclean hands while filing the present proceedings. He contends that DOT has suppressed the petitioners' letter dated 25-1-2010 sent in reply to the DOT's letter dated 7-1-2010 wherein the petitioner-companies have clarified that the DOT has no jurisdiction in respect of merger of companies. He emphasises that DOT has suppressed from this Court the factum of meeting held on 7-8-2008 between senior officers of DOT and petitioner-companies wherein all points regarding merger guidelines and licence conditions were exhaustively considered. Since considerable emphasis is laid by Dr. Singhvi on the Minutes of Meeting dated 7-8-2008, this Court had asked learned Additional Solicitor General to produce the DOT's file. The Minutes of Meeting dated 7-8-2008 are reproduced hereinbelow:- "Reference note from pre-page. 2. A meeting was held on 7th August, 2008 under the chairmanship of Secretary (T) attending by Member(T), DDG(AS-I) and DDG(AS-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er violates Intra-Circle Merger Guidelines. Further, the case for surrender of license or refund of entry fee should not be considered. 8. In the second letter dated 21st July, 2008, it has been stated that the merger and acquisition should not take place in blatant violation of existing policy norms and a proper investigation be initiated and policy compliance made mandatory at all costs. 9. The issue regarding merger of licences was discussed as indicated in paras 4 and 5 above. Further, surrender of licence is permitted and there is no bar. However, the entry fee is not refundable in any case. A draft reply to the Hon'ble MP on the above lines is placed below 20/C. Submitted for kind consideration and approval of proposal in para 9 please. Sd 20/8/08 (P.K. Mittal) DDG(AS-II) DDG(AS-I) Sd 20/8/08 Member(T) Sd 20/8 Secretary Sd 22/8/2008 Hon'ble MOC IT Sd 28/8/2008." 39. In fact, Dr. Singhvi points out that DOT has suppressed from this Court that the same Department had permitted Idea to participate in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced hereinbelow:- "The question then arises whether the Scheme is to be maintained. In deciding this question, we have to keep in mind the fact that the Scheme was sanctioned as far back on 24th December, 1987. The banks were well aware that the Scheme has been so sanctioned. They did not immediately move to have the Scheme set aside. After the Scheme was sanctioned, the lead bank carried on corresponding with ASE. A meeting of the consortium of banks was held where, except for Citi Bank and New Bank of India no other bank objected to the Scheme having been sanctioned. Thereafter two banks, namely, Bank of Baroda and Central Bank participated in the proceedings before the BIFR. After almost a year these two banks asked for a guarantee from ASE. This came to be refused by a letter dated 16th January, 1989. It is only thereafter that these two banks filed the suit on 29th June, 1989. They filed their appeal on 9th March, 1990. They took out an application for condonation of delay three years thereafter. Undoubtedly delay has been condoned, but the facts still remain that in the meantime, third party rights have been created to the knowledge of the bank. In our view, it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties at length, this Court would first like to examine the extreme stand taken by both the parties, namely, DOT's submission that the present petition for merger could not have been filed before this Court and petitioner-companies' submission that that this Court cannot make the sanction for merger of companies conditional upon any statutory or regulatory permission. 47. On an analysis of sections 391 to 394 of the Act, this Court is of the view that it alone has the exclusive jurisdiction to decide the issue of arrangement of companies. In fact, it has been repeatedly held by various courts that sanction under sections 391 to 394 of the Act is a 'single window clearance' for the purposes of the Act and there is no need for filing applications under the Act for instance for change of name of company or alteration of memorandum/articles of association except for reduction of capital in certain circumstances which requires a special procedure. This is because the procedure under sections 391 to 394 is so elaborate that if separate independent applications under the Act are insisted upon, it would result in unnecessary duplication of applications and would be cumbersome. The law o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/amalgamation is sanctioned by this Court. The requirement of prior permission of DOT for transfer of licences (under clause 6.1) is of utmost importance when licences of overlapping areas are to be transferred like in present case and that too, when some of the licences are not three years old. In fact, Idea's own understanding was that merger of companies would mean transfer of licences as would be apparent from Idea's own letters dated 25-6-2008, 15-7-2008 and also the application filed in the Demerger Scheme. 51. Consequently, this Court is of the opinion that permission of DOT is required prior to scheme of amalgamation coming into force since the effect of the said scheme is that licences of Transferor/Spice will stand transferred to Transferee/Idea. This Court is of the view that merger of companies does not result in merger of licences but all merger/amalgamation of companies necessarily results in transfer of licences for which prior permission is required under clause 6.1 of the Licence. Accordingly, the submission of petitioner-companies that the issue of merger of companies is separate, distinct and extraneous to the terms of the licence and merger guidelines, is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that after the meeting dated 7-8-2008, Transferee/Idea not only filed the Scheme for Demerger to facilitate transfer of overlapping licences to third parties namely, Vitesee Telecom Private Limited and Claridges Communications Private Limited but also accepted spectrum in the years 2008 and 2009 in licences it proposed to surrender. In fact, on 1-12-2008, much after the alleged consensual meeting dated 7-8-2008, Idea had sought prior permission of DOT for demerger of two overlapping licences. If permission had been granted by DOT on 7-8-2008 as claimed by the petitioner-companies, then it is not understood as to why Idea sought prior permission for demerger in 2008. Even the demerger plan was given up by petitioner-companies after they obtained sanction for merger of Spice with Idea. 58. It is also not understood as to how DOT's consent in August, 2008 could be claimed for transfer of overlapping licences to Idea when the Scheme itself proposed by Idea and sanctioned by this Court on 5-2-2010 states in para 17.3 that the said Scheme is conditional on approval/sanction of demerger of overlapping licences of Spice and Idea to third companies namely, Vitesse Telecom Private Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant passage from Lazarus Estates Ltd. v. Beasley and after referring to S.P. Chengalvaraya Naidu v. Jagannath reiterated that fraud avoids all judicial acts. In State of A.P. v. T. Suryachandra Rao this Court after referring to the earlier decisions held that suppression of a material document could also amount to a fraud on the Court. It also quoted (at SCC p. 155, para 16) the observations of Lord Denning in Lazarus Estates Ltd. v. Beasley that : (All ER p. 345 C) No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. 22. According to Story's Equity Jurisprudence, 14th Edn., Vol. 1, para 263 : Fraud indeed, in the sense of a Court of Equity, properly includes all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust, or confidence, justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another. 23. In Patch v. Ward Sir John Rolt, L.J. held that : "Fraud must be actual positive fraud, a meditated and intentional contrivance to keep the parties and the court in ignorance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from obtaining any relief. This rule has evolved out of the role of the Court to deter a litigant from abusing the process of Court by deceiving it. 64. But the suppressed fact/document cannot be an irrelevant one. It must be a material one in the sense that had it not been suppressed, it would have had effect on the merits of the case. It must be a matter which is material for the consideration of the Court, whatsoever decision the Court may ultimately take. 65. Consequently, one in turn has to examine the scope and ambit of the jurisdiction of the Company Court under sections 391 to 394 of the Act. Proviso to section 391(2) of the Act states ―provided that no order sanctioning any compromise or arrangement shall be made by the [Court] unless the [Court] is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the [Court], by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st adverse to that of the latter comprising the same class whom they purported to represent. 8.That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9.Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 31-5-2010 addressed to DOT stated in this regard you may note that our Punjab Service area, as stated in our application for 2.1 GHz auction, license held by Spice Communications Limited stands amalgamated into Idea Cellular Limited through a Court process as per provisions of the license agreements, which process of amalgamation has been completed. The DoT has already been informed about the same. Hence the Letter of Intent for Punjab too may be has to be in favour of IDEA Cellular Limited. Further, Idea's Managing Director vide letter dated 21-12-2010 addressed to DOT stated therefore we were surprised when we received a letter from the DoT dated 7-1-2010 saying the merger of the companies cannot be permitted (18 months after our merger announcement and 16 months after our meeting with DoT - this letter came soon after we confirmed the approval of Hon'ble High Court). The same was evidently wrong and uncalled for, considering the advise for approval given earlier and given that merger of companies is not in the DoT's domain, and was appropriately responded by us. In fact on the contrary, upon us informing DoT about completion of the Court process of amalgamation, the DoT ough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f material and relevant documents from this Court. 72. Also, just because petitioner-companies state that DOT was constantly kept informed of all developments, it cannot be said that there is no suppression from this Court. 73. Dr. Singhvi's submission that DOT has indulged in suppression is misconceived on facts. In fact, DOT has brought to surface the fraud played by the petitioner-companies upon this Court by non-filing of Licences, Merger Guidelines, 2008 and the correspondence exchanged between the parties. 74. The petitioner-companies' challenge to the locus of DOT to file the present applications is also untenable in law. DOT is an interested/necessary party as it is both a Licensor and a Regulator. It is pertinent to mention that at the second motion stage in any scheme of arrangement, the Company Court invites objections from the public at large, if any, to the proposed scheme and the petitioner-companies' are obliged in law to disclose to this Court objection if any received by them to the Scheme of Arrangement. 75. In any event, in the present case, this Court is of the opinion that Mr. Chandhiok's submission that grave prejudice has been caused to DOT by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inferior. It can be challenged in any court even in collateral proceedings." 77. However, the present applications for recall of sanction order dated 5-2-2010 have been filed after a delay of thirteen months. There is no plausible explanation for the delay except for the submission that Government's decisions are 'proverbially slow'. 78. In fact, today, the 'situation at the ground' is that Spice has lost its entity after having been dissolved without following the process of winding up and all its employees have become employees of Idea. The assets and liabilities of Spice have got vested in Idea. The shares of erstwhile Spice have also been delisted from the relevant stock exchange. Further, some of the shareholders of erstwhile Spice, who had received the shares of Idea, would have also transferred the same to third parties. Consequently, today it is not possible for this Court to 'unscramble the eggs' by recalling in its entirety the order dated 5-2-2010 sanctioning the Scheme of Amalgamation. 79. It is also pertinent to mention that section 392 of the Act vests power with this Court to modify the scheme even after it has been sanctioned and the said modification c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rejection letters dated 7-1-2010 and 18-1-2010 issued by DOT and for not placing on record relevant and material documents like Licence, Merger Guidelines and correspondence exchanged between the parties. In the opinion of this Court, the suppression of aforesaid documents was not an innocent act especially in view of petitioners' own understanding of licences and merger guidelines as reflected in the contemporaneous correspondences. Accordingly, this Court, keeping in view the nature of petitioners' business, imposes costs of Rupees One Crore to be paid by Idea to DOT within six weeks. It is further directed that the Ministry of Corporate Affairs shall conduct a study with regard to special statutes, guidelines and licences applicable to super specialised companies like the petitioners and suggest remedial measures to ensure that no party can obtain sanction of a scheme of arrangement without placing on record material and relevant documents before the Court. In fact, both the Ministry and DOT must suggest remedial measures by which suppression of facts and documents can be detected at the earliest stage in a scheme filed under sections 391 to 394 of the Act including appointme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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