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TMI Blog2015 (9) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015) [Digital Radio (Delhi) Broadcasting Limited & Anr v. Union of India] the petitioner no.1 has been and is currently running the Red FM 93.5 channel for Delhi [under Phases I and II]. The said FM channels are entertainment channels, inter alia, broadcasting songs. 2. Although other prayers have been made, the petitioners essentially seek the issuance of a writ of certiorari or such other writ, order or direction quashing the decision dated 15.07.2015 (in both petitions) denying security clearance to the petitioner no.1 and rejecting the application for pre-qualification for the e-auction of the first batch of private FM Radio Channels (Phase - III). The impugned letter dated 15.07.2015 in respect of the Mumbai company is reproduced hereinbelow (the letter dated 15.07.2015 in respect of the Delhi company is identical):- "No.N-38014/10/2015-FM/594 Government of India Ministry of Information and Broadcasting (FM Cell) Shastri Bhavan, New Delhi Dated the 15th July, 2015 To Mr. Rohit Lal, Vice President, M/s Digital Radio (Mumbai) Broadcasting Ltd, D 45, Sector 2, Gautam Budh Nagar, Noida-201301 Subject: Application for e-Auction of 135 Private FM Radio Channels in Fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maran for setting up 300 illegal telephone lines at the residence of Shri Kalanithi Maran to facilitate Sun TV services, thereby gaining an illegal pecuniary advantage of Rs. 443 cr. MHA has stated that the aforementioned economic offences are of serious nature adversely impinging upon economic integrity of the country. 2. In view of the denial of Security Clearance, the application of M/s Digital Radio (Mumbai) Broadcasting Ltd is rejected as it has failed to comply with the requirements of clause 3.8 of the NIA. 3. As per clause 5.2.4.5 of the NIA "The EMD will be returned following failure to pre-qualify, or following the end of the Auctions and after meeting all the necessary obligations under the Auction Rules, as applicable". Therefore the EMD amounting to Rs. 19,00,00,000/- submitted by M/s Digital Radio (Mumbai) Broadcasting Ltd through Bank Guarangee No.0003615PBG005467 dt. 20.03.2015 issued by Citi Union Bank Ltd., Mandaveli, Chennai is returned herewith in original. Encl: As above. Yours faithfully, Sd/- Ygendra Trihan Deputy Director (FM)" 3. Before we set out the submissions of the parties in respect of the impugned letter dated 15.07.2015, we need to mention c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner companies exercised this option. On 02.03.2015, the respondent issued the "Notice Inviting Applications No.N-38014/6/2013-FM" (hereinafter referred to as "the NIA") in respect of the "E-Auction of First Batch of Private FM Radio Phase-III Channels". The relevant clauses of the NIA are set out below:- "III Eligibility Criteria 3.1 Eligibility 3.1.1 Only Companies registered in India under the Companies Act, 2013 or under the previous Companies Act, 1965 shall be eligible for bidding and obtaining permission for FM Radio channels as per the provisions mentioned hereunder. 3.2 Disqualifications 3.2.1 The following types of companies shall not be eligible to apply:- a) Companies not incorporated in India. b) Any company controlled by a person convicted of an offence involving moral turpitude or money laundering/drug trafficking, terrorist activities or declared as insolvent or applied for being declared insolvent; xxxx xxxx xxxx xxxx xxxx 3.8 Security Clearance The company as well as all Directors on the Board shall be security cleared. Ministry shall take security clearance of the company as well as its Directors from relevant Government Authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll under investigation. So, the question of disqualification under clause 3.2.1(b) does not arise. Insofar as clause 3.8 is concerned, it was submitted by Mr Sibal that it only speaks of "the company" and its "directors", which expressions do not cover either Shri Dayanidhi Maran or Shri Kalanithi Maran or Sun TV. 8. Mr Sibal further submitted that there is no allegation against the Mumbai company that it has indulged in any activity which could be considered to be a security concern even in the so-called "economic integrity" sense. There is also no allegation against any of the directors of the of the Mumbai company. And, neither of the two abovenamed persons (i.e., the Marans) are directors or shareholders in the Mumbai company. He submitted that Shri Kalanithi Maran had an indirect interest in the Mumbai company to the extent of 21.6% but that, in any event, was not the controlling interest which was with the Rao-Reddy group (approx. 51%). He further submitted that there was no allegation whatsoever against the Rao- Reddy group which held the controlling interest in the Mumbai company. He submitted that in the context of article 19(2) of the Constitution of India, restrictions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n between a company and its shareholder, even though that shareholder may be only one and that the Central or a State Government. In the eye of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or entities that hold its shares. xxxx xxxxxx xxxxxx xxxxx 17. In Rustom Cavasjee Cooper v. Union of India [(1970) 1 SCC 248] it was held: (SCC p. 273, para 11) "11. A company registered under the Companies Act is a legal person, separate and distinct from its individual members. Property of the Company is not the property of the shareholders. A shareholder has merely an interest in the Company arising under its Articles of Association, measured by a sum of money for the purpose of liability, and by a share in the distributed profit." 18. In Heavy Engineering Mazdoor Union v. State of Bihar [(1969) 1 SCC 765] this Court held that an incorporated company has a separate existence and the law recognises it as a juristic person, separate and distinct from its members." Dr Singhvi also placed reliance on the following passages from Balwant Rai Saluja v. Air India Ltd.: (2014) 9 SCC 407 :- "70. The doctrine of "piercing the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particular wrong which those controlling the company had done. xxxx xxxx xxxx xxxx 73. The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of this Court in LIC v. Escorts Ltd. [(1986) 1 SCC 264] , while discussing the doctrine of corporate veil, held that: (SCC pp. 335-36, para 90) "90. ... Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc." 74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the court to disregard the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. (North Eastern Railway Co. v. Lord Hastings14) 32. The fundamental position is that it is the banks who were responsible for formulation of the terms in the contractual Scheme that the optees of voluntary retirement under that Scheme will be eligible to pension under the Pension Regulations, 1995, and, therefore, they bear the risk of lack of clarity, if any. It is a well- known principle of construction of a contract that if the terms applied by one party are unclear, an interpretation against that party is preferred (verba chartarum forties accipiuntur contra proferentem)'." 12. Mr Tushar Mehta, Additional Solicitor General of India, submitted that clause 3.8 was not a statutory provision but a term or condition of an auction. According to him, the respondent had the right to prescribe conditions for the auction. He further submitted that the government has the right to deal with bidders/participants fulfilling certain criteria. Moreover, clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's policy on security clearance, Mr Mehta submitted that the process of grant of clearance is not unguided, and is governed by policy. In terms of the policy, security clearance is sought from the concerned officials of Ministry of Home Affairs who are the experts in the field and are entrusted with the security of the nation. The Ministry of Home Affairs has kept the threshold for security clearance to entities/individuals at the level of prosecution and not of conviction for serious offences like corruption, money laundering, financial frauds etc., because of clear threats to national security emanating therefrom. This is embedded in clause 3.8 of the NIA which is distinct from the disqualification criteria specified in clause 3.2.1(b) which requires a conviction. So, while a company may not be disqualified under clause 3.2.1(b), it may still not qualify for the e-auction on account of the fact that it does not get a security clearance. 16. It was next contended by Mr Mehta that judicial review may be permitted only if the decision is mala fide. Since, no malafides or victimization has been pleaded by the petitioners, no case for judicial review is made out. Reliance is placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des are alleged, their actions ought not to be interfered." 17. On the aspect of interpretation of clause 3.8 of the NIA, Mr Mehta submitted that it cannot be given a narrow or restrictive meaning. A narrow interpretation of the word "Company" as used in Clause 3.8 would run foul to the object sought to be achieved. According to Mr Mehta, the expression "company and its directors" as used in Clause 3.8 of the NIA, necessarily requires the respondent to go into the question of ascertaining the ultimate ownership, control and management of the company, the identity of promoters, shareholders and subsidiaries, associated and inter-connected companies of the applicants. It was submitted that clause 3.8 by itself required the piercing of the corporate veil. A reference was made to the Supreme Court decision in Delhi Development Authority v. Skipper Construction Company: (1996)4 SCC 622 wherein it was held :- "28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke it clear that we are not touching upon the policy of requiring a security clearance. We are, as rightly pointed out by Mr Mehta, not sitting in appeal over the decision of the respondent as to the security angle assessment insofar as Shri Dayanidhi Maran or Shri Kalanithi Maran are concerned. We are also not called upon to comment upon, nor have we, as to whether the allegations/charges against the said two individuals and Sun TV are well founded or unfounded. Those would be decided in criminal proceedings. 21. So, the limited extent of judicial review is whether the security assessment in respect of Shri Dayanidhi Maran and Shri Kalanithi Maran is germane to the requirements of security clearance prescribed in clause 3.8 of the NIA. Clause 3.8 stipulates the requirement of a security clearance of the "company" as well as all its "Directors on the Board". Now, on a plain reading, this would imply that the company which has applied must be security cleared. Not only the corporate entity, which is distinct and separate in law, but also its Directors as individuals, distinct from the corporate entity, have to be security cleared. At the same time, the clause does not, on a plain r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. It was also held that the intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company and, therefore, the application of the doctrine would depend upon the peculiar facts and circumstances of each case. 25. There is no allegation that the petitioner companies were created as a camouflage to shield the persons exercising control over them from any liability. There is also no allegation that the petitioner companies themselves have indulged in any activities which could raise security concerns. In fact, both the petitioner companies have been operating their licenses under Phases I and II since 2002/2003. Even when the cases against the Marans were registered in 2011, the petitioner companies have continued to operate their respective radio channels without any objection concerning security issues. As pointed out by Mr Sibal, both these companies got extensions of their licenses by six months as recently as on 31.03.2015. Even then, no security concerns were raised in respect of the two companies. 26. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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