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TMI Blog2013 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... eason, we feel that there was no case made out by the DoT for recall of the orders dated 05.2.2010 sanctioning the scheme. Even as per the contention of the appellant itself, sanctioning of merger scheme amounts only the merging company and not the licenses and therefore, the appellant itself maintains that for transfer of these licenses, prior permission of DoT is required. It is also recognized that there is a dispute on this issue inasmuch as, as per the appellant, it is entitled to get the license transferred in its name and the refusal of the Government on this account is not appropriate. This is a dispute which has to be resolved by the TDSAT and parties are already before the TDSAT. Therefore, it is for the TDSAT to give directions, including interim orders in this behalf. Dispute about transfer of licenses of Spice to Idea is concerned; the same shall be decided and determined by the TDSAT and the parties. It will also be open to the TDSAT to determine the arrangement in the interregnum. Appeal partly allowed - CO. APPEAL NOS. 42 & 67 OF 2011 - - - Dated:- 13-7-2012 - A.K. SIKRI, ACTG. AND RAJIV SAHAI ENDLAW, JJ. Harish N. Salve, Dr. A.M. Singhvi, C.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sanctioning order dated 5.2.2010 has been modified "to bring sanctioned scheme, in the present case, and in conformity with the Licence and Merger Guidelines, 2008". Consequently, the modification which is done is to the effect that; (i) The Six overlapping licenses of the Spice would not stand transferred or vested with the appellant till prior permission of DoT is obtained. Instead, till that time, these licenses shall stand transferred/vested with the respondent; (ii) The spectrum allocated for such overlapping licences shall also forthwith revert back to DOT; (iii) Since the appellant had used the overlapping licenses (which belonged to the Spice) without any permission of DoT from 5.2.2010 till date, in contravention of the License and Merger Guidelines, DoT (respondent) is permitted to pass any such order for breach. Permission however, is given by the learned Single Judge to the appellant to challenge the order of the DoT/respondent in the event the DoT refuses or grant transfer of licenses by filing appropriate proceedings before the TDSAT. The permission is also granted to challenge any order passed by the DoT/respondent qua the contravention of the License an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en approval of the Licensor to be granted on fulfillment of certain conditions. On 21.2.2004, the Department of Telecommunications issued guidelines for intra service area merger of CMTS/UAS Licenses. The appellant applied for UAS Licenses for Punjab and Karnataka in 2006. Spice applied for UAS Licenses for Haryana, Andhra Pradesh, Maharashtra and Delhi in 2006. After about 18 months from the date of the aforesaid applications, the appellant was granted UAS Licenses in the remaining service areas, which included UAS License in Spice Service Areas of Punjab and Karnataka with effect from 25.1.2008. In or around the same time, Spice was granted UAS License in Idea Service Areas i.e. Haryana, Maharashtra, Andhra Pradesh and Delhi with effect from 25.1.2008. The appellant in respect of Punjab and Karnataka Service area and Spice in respect of Haryana, Maharashtra, Andhra Pradesh and Delhi service area paid in total a sum of Rs. 842.75 crores towards Entry Fee and furnished the bank guarantees totaling Rs. 350 crores to DoT. 6. At the stage of using the UAS licenses to Idea and Spice with effect from 25.1.2008, Idea and Spice were both independent and unconnected companies. Consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Tribunal as per the law in force; in accordance with the provisions; more particularly Section 391 to 394 of Companies Act." Clause 16.1 of the UAS License Agreement provides that 'Licensee shall be bound by the terms and conditions of this Licence Agreement as well as by such orders/directions/regulations of TRAI Act as amended from time to time and instructions as are issued by the Licensor/TRAI. On 22.4.2008, DoT issued guidelines for inter service area Merger of Cellular Mobile Telephone Services (CMST)/United Access Services (UAS) Licenses (hereinafter referred to as the Merger Guidelines, 2008). Clause 1 of these Guidelines read as under:- "1. Prior approval of the Department of Telecommunications shall be necessary for merger of the licence. 2. Merger of licenses shall be restricted to the same service area." Clauses 10, 17, 18 of the Merger Guidelines, 2008 are also relevant and are reproduced below:- "10. Consequent upon the Merger of licences in a service area, the post merger licensee entity shall be entitled to the total amount of spectrum held by the merging entities, subject to the condition that after merger, licensee shall meet, within a period of 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inct from the merger of licenses and further that the Merger Guidelines do not bar transfer of licenses consequent upon the merger of the companies. After the decision on merger of two companies on 25.6.2008, on 17.10.2008 the appellant acquired 41.09% equity holding in Spice w.e.f. that day. While this correspondence between the appellant and DoT was going on, in May, 2009 the appellant and Spice had filed four 'mirror schemes' in the High Courts of Gujarat and Delhi. While two schemes were filed seeking sanction of scheme of amalgamation of Spice with the appellant, the other two demerger schemes were filed with a view to transfer the overlapping six licences to independent third parties namely, Vitesse Telecom Private Limited and Claridges Communications Pvt. Ltd. Admittedly, 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 licenses or Merger Guidelines, 2008 or correspondence exchanged between the appellant and DoT was placed on record. 10. On 18.5.2008, this Court allowed the first motion demerger application being CA(M) 98/2009 by directing convening of meetings of equity shareholders, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 5.2.2011 were filed. In these applications, the impugned order dated 4.7.2011 as mentioned above, have been passed. 13. It is now right stage for recording the gist of communication that was exchanged between the appellant and the DoT seeking approval of the merger of the two companies in the light of Merger Guidelines. As pointed out above, in the meeting of Board of Directors of two companies on 25.6.2008 the mode of merger of the two companies was approved. On the same day, letter dated 25.6.2008 was addressed by the appellant to the DoT. In the said letter, the appellant stated that scheme will entail:- Purchase by Idea of 40.8% of the shares held by MCorpGlobal Communications in Spice. A merger of Spice with Idea pursuant to section 391 to 394 of the Companies Act on the receipt of all necessary approvals. The merger will result in the vesting of the Spice Licenses in Idea. In this connection while Clause 17 of the DoT Merger Guidelines of April 22, 2008 regulates merger of licenses within first 3 years of the license, this will not apply to the present transaction since both Spice and Idea have existing licenses pursuant to which they have been pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocated for such licences would have to be surrendered. From the minutes of meeting it is clear that the demerger proposal was not discussed in the said meeting. Vide letter dated 1.12.2008 the appellant sought prior approval of DoT before filing a scheme under section 391 of Companies Act for proposed demerger of two overlapping licenses. Thereafter, DoT vide its two letters dated 5.5.2009 wrote to appellant and Spice Communications that it has come to the notice of the Department that in the six monthly FDI compliance letter dated 28.1.2009 of Spice that appellant holds 41.09% equity stake in Spice Communication. Vide letter dated 12.5.2009 appellant informed that it is holding the 41.09% equity in Spice Communication w.e.f. 17.10.2008. Vide another letter dated 12.5.2009 the appellant wrongly stated that it was in compliance with the policy that no single entity will hold more than 10% equity in more than one licensed company. Vide another letter dated 12.5.2009 the appellant wrote regarding approval of de-merger by DoT and stated that it has filed the restructuring scheme (for de-merger) in Gujarat High Court on 11.5.2009. Vide letter dated 12.6.2009, DoT sought information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to Idea Cellular Ltd. Vide letter dated 26.4.2010 it again sought the formal approval for transfer of licences. Vide letter dated 28.4.2010 the appellant requested for transfer of licenses held by Spice to appellant/Idea. Till this time the de-merger scheme of Spice Communication with Claridges Communication was pending and meeting was not being called at the behest of appellant and Spice. In the said pending petition an application was moved stating as under:- " the application filed by Spice before this Hon'ble Court for the proposed demerger of its overlapping UASLs would not be maintainable as Spice has already merged into the applicant company and the overlapping UASLs of Spice now vest in the applicant company by virtue of the Scheme of amalgamation " However, in this application also there was no mention of letters dated 7.1.2010 and 18.1.2010 by which permission of de merger was rejected by the DoT. Vide order dated 11.5.2010, the scheme of demerger was allowed to be withdrawn with liberty to move any fresh scheme of arrangement. In a letter dated 31.5.2010 related to 3G auction the appellant wrote to DoT that;- "for our Punjab Service area as stated in our appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opies of the licenses or correspondence exchanged between the parties were not placed on record. (b) The appellant had itself informed the DoT about the proposed merger with Spice with it and stated that it would be on receipt of all necessary approvals in letter dated 25.6.2008. The appellant had admitted that merger of the companies will result in vesting of spice licenses with the appellant. In various communications the appellant had reported that it would seek DoT prior written approval for transferring the overlapping licenses. (c) On 17.10.2008 without getting any prior permission, the appellant acquired 41.09% equity in Spice. This fact was informed to the DoT for the first time vide letter dated 28.1.2009. (d) Vide letter dated 12.5.2009 the appellant informed the DoT that it had filed a restructuring scheme for demerger between Idea and M/s Vitesse Telecom in the High Court of Gujarat on 11.5.2009 but the filing of amalgamation scheme of Spice with the appellant was not disclosed to DoT which was disclosed for the first time on 29.6.2009. (e) On 7.1.2010 and 18.1.2010 the DoT had communicated to the appellant that merger and demerger as proposed was impermissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances taken together indicate a fraud. 69. The 'design' of the petitioner-companies is also apparent from their subsequent conduct, i.e., after this Court had sanctioned the merger scheme. It is pertinent to mention that before the amalgamation scheme was sanctioned by this Court, Idea in its own affidavit had confirmed that approval of DOT would be taken after approval of scheme of amalgamation by this Court, but post merger the stand of Idea has been that DOT has no further say in the matter and only a formal approval of transfer of licenses is required which DOT is obliged under law to give. To illustrate, Idea vide its letter dated 31st May, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Court to arrive at a just decision. (See Sesa Industries Limited v. Krishna H. Bajaj Ors., [2011] 3 SCC 218). 71. Even if this Court examines the present case from this narrow and limited perspective, this Court finds that non-filing of licenses as well as merger guidelines and correspondence exchanged between the parties amounts to non-production of requisite material as contemplated under the proviso to Sub-section 2 of Section 391 of the Act and further that sufficient information was not disclosed to this Court so as to enable it to arrive at an informed decision. Consequently, this Court is of the view that there has been suppression of material and relevant documents from this Court." 19. It is not disputed, and cannot be disputed, that the material as pointed out above, was not placed before the Court by the appellant in the proceedings which led to the sanction of the scheme in question. Accepting this fact, the neat submission of Mr. Salve, learned Senior Counsel appearing for the appellant is that there was no necessity to disclose this material as it was not relevant in the proceedings under Section 391 read with Section 394 of the Companies Act. It was arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Licence Agreement. The order of the Court cannot and does not result in the merger of the licences- where the Transferee already holds a licence under a separate licence agreement for the same circle. The acceptance of the Transferee as a Licencee in place of the Licensor (as a result of merger of the Licences) would be a matter for the Government to decide-which decision would be governed by the licence Agreement, the existing policies and the law. It is emphatically asserted that as per the licence agreement (read in the light of the extant policy) the government is obliged to merge the existing licence of Spice (qua Punjab and Karnataka and four other non-operating licenses) with the existing Licence of the appellants, as per the licence agreement (read in the light of the extant policy), the Government now has to formally recognize the appellant as the licensee in place of Spice. Mr. Salve emphasized that as per the appellant, the Government has misdirected itself in law in the stand it has taken in the matter beginning with its letters dated 7.1.2010 and 18.1.2010. However, this difference and dispute between the Government and the appellant has to be resolved in a matter kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided that no order sanctioning any compromise or arrangement shall be made by the [Tribunal] unless the [Tribunal] is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the [Tribunal], 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 to 351, and the like.] (3) An order made by the [Tribunal] under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a company, which is being wound up, with any other company or companies, shall be sanctioned by the Court unless the Court has received a report from the Company Law Board, or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest: Provided further that no order for the dissolution of any transferor company under clause (iv), shall be made by the Court unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.] (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within [ thirty] days after the making of an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Court is backed up by the requisite majority vote as required by Section 391 sub-section (2). 3. That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4. That all necessary material indicated by Section 393(1)(a) is placed before the voters at the meetings concerned as contemplated by Section 391 sub-section (1). 5. That all the requisite material contemplated by the proviso of sub-section (2) of Section 391 of the Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation at all in the Company Petition seeking sanction of the scheme. We are of the opinion that these facts were very much relevant and material facts for the purpose of Section 391 to Section 394 of the Companies Act. Position would have been different, had the appellant disclosed these facts and taken the position that the Company Court is not required to go into the controversy generated by the DoT in refusing to grant permission for demerger. In that event, the Company Court could have issue notice to the DoT and heard on the issued as to whether non grant of such a permission for merger by the DoT was relevant or not. However, the appellant chose disclose this information at all even when there was a specific provision in the scheme that upon the sanctioning of the scheme and resultant merger, the overlapping licenses of the Spice would stand transferred to the appellant. Further, Mr. Chandhiok is right in his submission that the appellant itself understood the implication of Licence Agreement and Merger Guidelines, 2008 as per which prior permission of DoT for merger of the companies was mandatory and for this reason simultaneously with the decision of amalgamation the Spi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered by us while examining the plea of the DoT that the order sanctioning the amalgamation should have been revoked in its entirety. 27. With this, we revert to the plea of the DoT in its appeal. It is argued by Mr. Chandhiok, learned ASG that since fraud vitiates all actions and the effect thereof is that order obtained on fraud is null and void, there was no other options for the learned Company Court except to recall the sanction order of amalgamation of Spice with the appellant resulting into the dismissal of the company petition filed by the Spice and the appellant seeking sanction of the Scheme. It was also argued that once this legal position is accepted namely suppressing vitiates everything, lack of time between the sanction of the scheme and the filing of the application for recall of the order was immaterial. In such a situation, there was no question of simply modifying the sanction order. Mr. Chandhiok referred to the following two judgments in support of this contention: (i) Thomal Cook India Ltd. v. Hindustan Thrmo Prints Ltd. (In Liquidation) [1999] 3 Com. LJ 1 (Delhi). (ii) Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. [2011] 5 SCC 532. 28. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scramble the unscrambled eggs at this juncture, additionally on the aforesaid reason, we feel that there was no case made out by the DoT for recall of the orders dated 05.2.2010 sanctioning the scheme. 31. With this, we come to the various modification ordered by the learned Company Judge vide the impugned judgment to the sanctioning order dated 05.2.2010. These have already been reproduced above. We agree with all the modifications except one, viz., six overlapping licenses of Spice would vest with the DoT. No doubt, even as per the contention of the appellant itself, sanctioning of merger scheme amounts only the merging company and not the licenses and therefore, the appellant itself maintains that for transfer of these licenses, prior permission of DoT is required. It is also recognized that there is a dispute on this issue inasmuch as, as per the appellant, it is entitled to get the license transferred in its name and the refusal of the Government on this account is not appropriate. This is a dispute which has to be resolved by the TDSAT and parties are already before the TDSAT. Therefore, it is for the TDSAT to give directions, including interim orders in this behalf. 32. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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