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TMI Blog1993 (10) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... N. Publications Limited, New Delhi, who have been awarded the contract. 2. A tender notice was published on 22 April, 1993 by the General Manager, Hyderabad Telecommunications (Hyderabad Telecom) inviting sealed tenders from competent agencies for printing, binding and supply of telephone directories in English for three annual issues starting from 1993. The notice said that the job involved compilation of given data into directory format, procurement of paper, printing, binding and delivery of the telephone directories to General Manager, Hyderabad Telecommunications free of cost at the specified distribution points. Besides this, the tenderer had to pay a royalty to General Manager, Hyderabad Telecommunications for each issue by clearly specifying the maximum royalty amount for each issue offered by him. The successful tenderer will be permitted to procure on his own classified advertisements and cover page advertisements . Then the notice said that the directory shall conform to the technical specifications given in the tender document. The tenderer should have experience in compiling, printing and supply of telephone directories to the large telephone systems with the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment of India with 40% equity owned by M/s. Integrated Information Pvt. Limited a wholly owned subsidiary of Singapore Telecommunications (Singapore Company for short). This Singapore Company is stated to be the world leader in the field of directory printing and publications having 28 years of directory publishing experience of the public telephone directories in Asian Region. The balance 60% equity of the first petitioner is stated to be held by M/s. Thompson Press (India) Limited; M/s. Living Media India Limited; Mr. Aroon Puric; World Media Limited and the other companies in the same group. The petitioners have described in detail the functioning of all the shareholders of the first petitioner claiming that they have rich experience in printing, publishing and marketing. They also said that Thompson Press and Living Media had printed and bound telephone directories for respective parties who had been earlier awarded contract for Delhi and Bombay. They said that the directories printed were for a network of six lakh lines, while the present tender contemplated printing of directories for a two lakh lines network. The first petitioner is claimed to possess the management exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, the authorities acted in an irrational, unreasonable and arbitrary fashion and also against the public interest in just only looking at the experience of the first petitioner itself; (2) On a proper reading of the tender submitted by the first petitioner it had to be read we the following companies, namely, Thompson Press, Living Media, Integrated Information Pte. Ltd. and World Media Limited and Aroon Purie poll their experience and their resources together in a joint venture in the name of the first petitioner . Alternatively, the authorities should have lifted the corporate veil of the first petitioner though in view of the above submission it might not arise. Still in the alternative it was submitted that the first petitioner was in the nature of partnership of the aforesaid companies and the person; (3) the question of public revenue and, thus, the public interest was involved and the tender of the first petitioner could not be rejected on hypertechnical pleas that the first petitioner itself had no experience. 7. Respondents 1 to 3, i.e. the authorities, have denied the allegations of the petitioners and affirmed their action in awarding the tender to the fourth res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do find mention in the records of the respondents. 8. The fourth respondent has supported the stand of the other respondents and has stated that the contract was rightly awarded to it. Criticising the high offer of royalty given by the first petitioner this respondent says that it was a sheer attempt of adventurism and the very enormity of the bid would make any reasonable man suspect the bona fides of the first petitioner. Then respondent further says that the first petitioner had also bid for the contract for Delhi directories for five years 1993-1998 where the number of subscribers was over seven lakhs as opposed to two lakhs in Hyderabad offering a royalty amount of ₹ 6 crores. For the Calcutta telephone directory also the first petitioner gave its bid offering ₹ 7 crores for a five years contract. Compared to this'the bid of the petitioner for ₹ 4.59 crores for a three years contract for Hyderabad, the fourth respondent says, shows that the petitioner has very little knowledge of the business and the enormity of the bid would make the contract commer- daily unavailable leading to severe losses and the possibility of default, as had happened in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised capital in the first petitioner. Thus, it was a case where the first petitioner would disinvest its equity to the extent to 40% which would go to the Singapore Company and the balance 60% of equity shall remain with the shareholders of the first petitioner. By letter dated 27 January, 1992 the Central Government conveyed its approval to the first petitioner for foreign collaboration as proposed, the item of activity covered by foreign collaboration was to be yellow pages directories. Foreign equity participation was to be 40% amounting to ₹ 2 lakhs in the paid up capital of ₹ 5 lakhs of the first petitioner. In this letter it is mentioned that this approval letter was to be made a part of the foreign collaboration agreement to be executed between the first petitioner and the Singapore Company. As to when this agreement was executed and what are its terms we cannot say as it has not been brought on record. There are some more facts of the first petitioner which may also be noted. The first petitioner was incorporated in the year 1961. It appears it was not doing any business till late and if we refer to the income-tax clearance certificate filed by the first petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt venture as such as alleged by the first petitioner, but there is only a certain amount of equity participation by a foreign company in the first petitioner. The authorities could not know the terms of the joint venture as alleged. It was submitted by Mr. Chidambaram that the Singapore Company may have experience of yellow page directories in the foreign countries but it had none in the Indian conditions. Yellow page is comparatively a new concept in the telephone directories. There are parties who are bringing out yellow page directories in-dependently of telephone directories. Under this concept of telephone directories containing yellow pages the party whose tender is accepted has to get revenue from advertisements in yellow pages and at times for some advertisements in white pages or some (sic) that and from that revenue cost of printing, compiling, binding, etc., is to be met and royalty amount also paid to the authorities. If a party cannot generate revenue from yellow pages it will certainly fail to bring out the telephone directories and would in unlikely-hood commit breach of the contract. No one was in any doubt thai telephone directory for Hyderabad Telecom was to be b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is blacklisted by a certain department of the Government and the directors of that company from another company the department can pierce the veil to find out who are in fact lurking behind the newly formed company, and thus, deprive the newly formed company to deal with the department. 16. As far as the first petitioner, a company, is concerned it cannot make the argument of piercing the veil either as a ground of attack or as a ground of defense. How can the first petitioner say that look I am not what I am, but I am Thompson Press, Living Media, World Media, Aroon Purie, etc. Under Section 34 of the Companies Act, 1956, on the registration of the memorandum of a company the Registrar of the Companies is to certify that the company is incorporated. From the date of incorporation mentioned in the certificate of incorporation the company shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of a incorporated company, and having perpetual succession and a common seal. Let us examine the argument of the petitioners from other angle. Can a creditor of the first petitioner proceed against its shareholders as well? C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern. The Supreme Court in Renusagar Power Company case again observed as under :-- It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It mus, however, depend primarily on the realities of the situation. The aim of the legislation is to do jutice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding.... 19. Nevertheless the fact remains that it has to be seen if from the share holdings of the company, the inevitable inference in any event is if the company is merely Mr. so-and-so in corporate form. 20. A company is an independent legal person distinct from its members. First petitioner is certainly carrying on its business independently of that of its shareholders. It is one thing to say that shareholders of a company have vast experience in the publication of telephone directories with yellow pages and it is entirely another thing if the company itself has that experience. Experience of a shareholder cannot be the experience of the company. Nor is the first petitioner agent of its shareholders. Palmer says (para 2.1508) that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s willing to lift the veil where the device of incorporation is used for some illegal or improper purpose. So, where a transport company sought to obtain licenses for its vehicles, which it was unlikely to obtain if it made application on its own behalf, by causing the application to be made by a subsidiary company to which the vehicles were to be transferred, the court refused to treat parent and subsidiary as independent bodies, and decided the application on the basis that they were one commercial unit. Similarly, where a vendor of land sought to avoid an action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere sham and made an order for specific performance against both the vendor and the company. However, a re-arrangement of a group of companies so as to minimise the extent of any future tort liability that could be enforced in respect of the group's activities is a proper use of the possibilities provided by company law and will not entitle the court to lift the corporate veil. Where a bankrupt obtained credit for himself through the Charade of a company, he com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n compulsorily acquired belonged to a subsidiary company. In the latter, a trade mark, owned by a Swiss subsidiary of an international group, was regarded as an asset of the group as a whole. On the other hand, the DHN Food Distribution case was distinguished in a similar compensation case by the House of Lords in Woolf son v. Strathclyde Regional Counsil, 1978 SLT 159, and the underlying principle of the separate corporate entity applied even in a group situation. In Adams v. Cape Industries Plc, (1990) 2 WLR 657, the Court of Appeal regarded all the cases in which the parent/ subsidiary distinction had been ignored as turning on the wording of particular statutes or contracts. It was denied that there was a general principle that all companies in group should be regarded as one. Nevertheless, this did not preclude treating, say, a subsidiary as the agent or the alter ego of its parent, provided the facts of the case justified such a conclusion. However, it would seem that the facts would have to reveal a very high degree of control by the parent over the subsidiary before a court would conclude that an agency relationship had been established. In the Cape Industries case, alth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Portsoken had to be regarded as the alter ego of its parent, the bank, but the other judges (Eve leigh and Brandon L.JJ.) preferred to found their judgments in favor of the bank on an estoppel created by the course of dealing between the parties. 21. The argument of Mr. Sarin sounded (nay, he asserted), as if the first petitioner was a partnership firm of its shareholders. This is against the basic tenet of a company under the Company Law. A company is a body corporate distinct from its members apart from certain exceptional cases enumerated in Palmer's Company Law though their number is growing , as above noted. 22. In Mrs. Bacha F. Guzdar, Bombay v. Commr. of Income-tax, Bombay , it was argued before the Supreme Court that the position of shareholders in a company was analogous to that of partners inter se. The court said that this analogy was wholly inaccurate. Partnership is merely an association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners. Such is, however, not the case of a company which stands as a separate juristic entity distinct from the shareholders. 22A. In the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , within the scope of the business, lo any extent (unless this authority is expressly excluded), whereas a member of a company, as such, has no power. 4. A partner cannot contract with the firm, whereas a member of the company can contract with the company. 24. It is not the case of the petitioners that first petitioner is a subsidiary of any holding company as that would have different implications. The contention appears to be that first petitioner is in fact Thompson Press, Living Media, World Media, Aroon Purie and others, and thus amalgamated with these companies. That again is not so. 25. We do not think that the authorities failed in their duty to look behind the facade corporate ness of the first petitioner. It was none of their duty. They rightly examined the experience, etc. of the first petitioner and came to the conclusion that it did not satisfy the eligibility conditions. We find no error in the approach of the authorities. 26. We also find no merit in the submission of the petitioners that since it was the question of public revenue the authorities should have pierced the veil of corporate ness of the first petition. For one, we do not think that the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The court said that looking for reasons in support of such action provided an opportunity for an objective review in appropriate cases both by the administrative superior and by the judicial process. The court commended itself to the view that when highest offers of the type in question were rejected reasons sufficient to indicate the stand of the appropriate authority should be made available and ordinarily the same should be communicated to the concerned parties unless there be any specific justification not to do so. It will, thus, be seen that non-communication of reasons is not fatal in alt circumstances. In the present case, the reasons existed on the record of the authorities that the tender submitted by the first petitioner was not in conformity with the condition of the tender and the first petitioner was found ineligible for award of the tender and its offer, therefore, could not have been accepted. We find that the third respondent acted in accordance with the terms laid down in the tender notice. The fourth respondent could not support the decision of the authorities in rejecting the tender of the first petitioner on any other ground except that given by the authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd K., ; Fertilizer Corpn. Kamagar Union (Regd.) Sindri v. Union of India, AIR 1981 SC 344; Rama and Shyam Co. v. State of Haryana, ; Haji T. M. Hassan Rawther v. Kerala Financial Corpn., ; Mahabir Auto Stores v. Indian Oil Corpn., and Shrilekha Vidyarthi v. State of U.P., and quoted the following passage from Kasturi Lal's case : It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest. The Government, therefore, cannot, for example, give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest to do so. Then the court said that there was nothing paradoxical in imposing legal limits on such authorities by court even in contractual matters because the whole conception of unfettered discretion was inappropriate to a public authority, who was expected to exercise such powers only for public good. The court in this case (Sterling Computer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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