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TMI Blog2018 (3) TMI 1783X X X X Extracts X X X X X X X X Extracts X X X X ..... Of the Licensing Authority. In case of any denial of merger of the licenses consequent upon the sanction of the Scheme it is for the Petitioner to seek appropriate remedy available to it under law against DOT. The approval of this Tribunal is conditional upon the requisite sanction and approval in accordance with the prescribed guidelines for transfer/ merger of various categories Of Telecommunication service Licenses/ authorization under Unified License (UL) on compromise/ arrangement and amalgamation of Companies by DOT which goes without saying and both the parties (i.e) the Companies or DOT will not be prevented from exercising their rights under due process of law and remedies as may be available to them in case of any grievance before the appropriate Tribunal or forum meant for the same in relation to the acts of each other. X X X X Extracts X X X X X X X X Extracts X X X X ..... tition for sanction of the Scheme of Amalgamation before the Tribunal, subsequent to the order of dispensation and convening of the meeting ordered by the Tribunal on 28.07.2017 and compliance of the same by the respective companies involved in the scheme. 3. As per the Scheme marked at Annexure-I, some of the salient features of the scheme are extracted as under:- 2. Transfer of Assets 2.1 Upon this scheme becoming effective and with effect from the Appointed Date, all assets of the Transferor Company, as are movable in nature or are in corporeal property or are otherwise capable of transferred by manual delivery or by endorsement and delivery shall stand transferred to and vested in the Transferee Company and shall become the property and an integral part of the Transferee Company (to the extent permissible under applicable law). The vesting pursuant to this clause 2.1 shall be deemed to have occurred by manual delivery or endorsement and delivery, as appropriate to the property being vested and titled to the property shall be deemed to have been transferred according. 3. Transfer of Liabilities 3. 1 Upon this scheme becoming effective and with effect from the Appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Official Liquidator, Income Tax Department through Asst. Commissioner of Income Tax, National Stock Exchange of India Limited, Bombay Stock Exchange Limited, Competition Commission of India, Securities and Exchange Board of India, Reserve Bank of India, Department of Telecommunications as well as Ministry of Electronics and Information Technology in compliance with the directions passed by this Tribunal vide order dated 07.11.2017 and in proof of the same acknowledgement made by the respective offices have also been enclosed. 6. Further, since the Transferee Company is a listed company, having its shares listed in National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE), notice has been order vide order dated 17.10.2017 to SEBI, NSE and BSE by the Petitioner/ Transferee Company on 09.11.2017. However none of these authorities have chosen to respond to the said notices. However it is represented that both the NSE and BSE vide their respective observation letters both dated 31.05.2017 prior to filing of the 1 st motion application before this Tribunal have granted No Objection so as to enable the Company to file the draft scheme before this Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the event Of the above said appeals going against the assesse/ Transferor Company by virtue of clause 7.1 of the Scheme, the tax liability will become that of the Transferee Company and born by it. Reference to clause 7.1 of Part B of the Scheme it is seen reads as follows :- "7.1 Upon this scheme becoming effective and with effect from the appointed date, all taxes and duties payable by the Transferor Company (including under the IT Act, Customs Act, 1962, Central Excise Act, 1944, State Sales Tax Laws, Central Sales Tax Act, 1956, VAT/Service tax and all other Applicable Laws) accruing and relating to the Transferor Company from the appointed date onwards, including but not limited to advance tax payments, tax deducted at source, minimum alternate tax, any refund and claims shall, for all purposes, be treated as advance tax payments, tax deducted at source or refunds and claims, as the case may be, Of the Transferee Company. ' It is also seen from the joint reply filed by the Petitioner Companies to the report of the Official Liquidator an undertaking to the following effect has been given at paragraph no. 14 to the following effect:- 14. That it is last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial to the interest of the members or public interest. The above observation of OL are taken on record and in relation to the tax arrears since it has been dealt with elsewhere in the order the said observation for the sake of brevity is not considered here. 12. In relation to the Regional Director, Northern Region an Affidavit dated 10.11.2017 has been filed before the Tribunal wherein the following observations at paragraph 10 which is as follows:- "10. It is respectfully submitted that the Registrar of Companies at para 31 of his report has inter alia stated as under: "It has been observed that the Transferor Company had accumulated losses of ₹ 56, 753 million as on 31.03.2017 and thus completely eroded its net worth. Further, its auditor has also provided following qualified opinion on the said Balance Sheet:- a) The Company has entered into a definitive agreement to combine its operations with Bharti Airtel Limited by way of 'Scheme of amalgamation' under the terms of section 230 to 232 of the Companies Act, 2013. The proposed Transaction is inter alia, subject to other regulatory and statutory approvals including but not limited to approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and net loss for year then ended; Considering above said qualified opinion, the auditors have concluded that these conditions indicate the existence of material uncertainty that may cast significant doubt on the company 's ability to continue as a going concern. The above facts together with Implementation Agreement and the proposed Scheme of Amalgamation thereon prima facie indicate that post amalgamation, the net worth of the Transferee Company may be reduced with carried forwarded losses of the Transferor Company. As the Hon'ble Tribunal has directed these companies to convene and hold separate meetings of the unsecured creditors of the Transferor Company and equity shareholders, secured and unsecured creditors of the Transferee Company for obtaining approval of the proposed Scheme of Amalgamation, thus, the report of this office has been prepared on the basis of Company Application moved by the companies under reference and subject to outcome of such meetings of equity shareholders and creditors of the respective companies. ' The Deponent respectfully submits that the observations of Registrar of Companies may be taken into consideration and the petitioner compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances the said objection of Regional Director is closed. 14. It shall be noted that pursuant to Guidelines issued by Ministry of Communication and Information Technology, Department of Telecommunication (DOT), dated 20.02.2014 for transfer/ merger of various categories of Telecommunication service Licenses/ authorization under Unified License (UL) on compromise/ arrangement and amalgamation of Companies that the licenser shall be notified for any proposal for compromise, arrangement anc amalgamation of companies as filed before the Tribunal or the Company Judge. At the IS motion stage itself were directions sought to be issued for the purpose of convening thc meeting of the shareholders/ creditors of the Petitioner Companies, it is seen that an advancc notice had been served upon DOT (Department of Telecommunication) and based upon sucl submission by the Petitioner companies of the scheme of arrangement to the DOT 01 02.06.2017 and 05.06.2017 as is evident from the separate letters/ replies both datec 05.07.2017 addressed to Petitioner companies sent by the Ministry of Communication Department Of Telecommunication (DOT) and also thereafter, by way of a corrigendun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entity undertakes to pay all future dues inclusive of anything remained unpaid of the past period by the M/S Bharti &TeIenor. d. The transfer/merger of licenses/ authorization held by ws Telenor shall be permitted after the merger is sanctioned and approved by NCLT as per Law in force; in accordance with the provisions, more particularly sections 391 to 394 of the Companies Act, 1956 or Companies Act 2013 as the case may be. e. Retention of spectrum hy the merged entity and the spectrum charges payable shall be governed by the guidelines in force at the time of the transfer of the licences. It is clarified that the validity period of the spectrum shall remain unchanged subsequent to such transfer of assets/ licences/ authorisation held by the Transferor (acquired) / Transferee Company (acquiring). f. The resultant entity should have up to 25% spectrum and 50% spectrum in a given band allocated to all licensees in respective service area. If as a result of merger, the total spectrum held by the relevant entity is beyond the limits prescribed, the excess spectrum must be surrendered within one year of the permission being granted. g. Market share of resultant entity sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has to be accorded sanctity. 17. That pursuant to the directions of the Tribunal, the Department Of Telecommunication (DOT) has filed a detailed affidavit dated 18.01.2018 before this Tribunal elaborating the conditions recorded in the said letteRs. The excerpts of the affidavit in tabulated form which are as follows:- DEMANDS RAISED BY THE DOT AGAINST THE MERGING ENTITIES SUBMISSIONS MADE BY DOT AGAINST THE DEMANDS (a) License Fee (LF) Demands towards ws Bharti Airtel Limited - ₹ 8310.53 Crores Demands based on the AGR are sub- judice before Hon'ble Supreme Court and the court in its order dated 29.02.2016 has recorded that the demands will continue to be raised as per the department's understanding. However, the same will not be enforced as per order dt 29.02.2016 (b) Spectrum Usage Charges Demands towards ws Bharti Airtel Limited - ₹ 1528.06 crores Demand cannot be enforced as per order dated 29.02.2016 (c) License Fee (LF) Demands towards M/S. Telenor (India) Communication Pvt. Ltd - ₹ 817.96 Crores Demand cannot be enforced as per order dated 29.02.2016 (d) Spectrum Usage Charges Demands towards M/S Telenor (India) Communication P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the approval shall be granted only after submission of the undertaking and at paragraph 17 il has been stated that the resultant entity also needs to replace the Bank Guarantee for the deferred payment of Transferor Company amounting to ₹ 200,45,84,952/- towards the instalment amount of auctioned spectrum. 18. That accordingly the Transferee Company has filed an Affidavit cum Undertaking in response to the detailed affidavit of DOT on 3 1.01.2018. The Transferee Company in its Affidavit cum Undertaking has stated the following:- "4. The Transferee Company undertakes that the demands stated in the DOT Affidavit for the Transferor and the Transferee Company, as set out in paragraphs 8 and 9 of the DOT Affidavit and referred to at Annexure A and B hereof, shall be discharged by it if and when the same becomes due and payable in accordance with law. Additionally, the Transferee Company undertakes to comply with the Merger Guidelines. including furnishing of the undertaking requested by DOT in the terms set out as above as and when called upon to do so by the DoT. 5. The DOT in paragraph 9(c) of the DOT Affidavit, has submitted that in accordance with the Merger Gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guidelines in relation to merger and which invited a conditional order/ sanction being passed by the Learned Single Judge has held as follows after elucidating the facts and pre-conditions laid therein and where DOT was the respondent therein:- At paragraph 2 as follows:- 2. According to the respondent, such a course of action was not permissible without specifically taking its prior approval and the amalgamation of Spice with the appellant was resorted to without the knowledge of or taking consent of or notice of the proceedings to the respondent. On coming to know of the sanctioning of the Scheme, the respondent moved an application for recall of orders dated 5.2.2010 and de-merger of the two companies. This application alongwith other miscellaneous application filed by the respondent has been decided by the learned Company Judge vide orders dated 4.7.2011. The learned Company Judge has recorded a finding that non-disclosure and suppression of material facts from the Court, while seeking sanction of the Scheme, amounts to fraud played upon the Court and the sanction of the Scheme was in contravention of the licence condition and merger guidelines. Notwithstanding this findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Licence Agreement, read in the light of the Merger Guidelines issued by the Government, the action of the government in refusing merger of the existing licences of Spice with the existing licences of the appellant is not appropriate. Thus, according to the appellant, even as per the terms of the Licence Agreement, the government is obliged to recognize the appellant as the licensee in place of Spice. The DOT contends otherwise. The DOT has refused the permission. It is a common case that this dispute is to be ultimately resolved by the TDSAT which is the appropriate forum. The matter is already before the TDSAT. At the same time, the scheme contains the class that on the amalgamation of Spice with the appellant overlapping licence of Spice would vest in the appellant. In such a situation, even with the production of the entire relevant material including Merger Guidelines, terms of the Licence Agreement as well correspondence exchanged between the parties, the Company Court could have imposed such other conditions. Here. Mr. Salve is right in his submission that the amalgamation of the companies would be different from the amalgamation of the licenses. (Bold and Italics supplied). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held at paragraph 77 to 78 in the said judgment as follows:- 77. Spectrum has been internationally accepted as a scarce, finite and renewable natural resource which is susceptible to degradation in case of inefficient utilisation. It has a high economic value in the light ofthe demand for it on account of the tremendous growth in the telecom sector. Although it does not belong to a particular State, right of use has been granted to States as per international norms. 78. In India, the Courts have given an expansive interpretation to the concept of natural resources and have from time to time issued directions, by relying upon the provisions contained in Articles 38, 39, 48, 48A and protection and proper Ilocation/distribution of natural resources and have repeatedly insisted on compliance of the constitutional principles in the process of distribution, transfer and alienation to private persons. 79. The doctrine of public trust, which was evolved in Illinois Central Railroad Co. v. People of the State of Illinois 146 U.S. 387 (1892), has been held by this Court to be a part of the Indian jurisprudence in M.C. Mehta v. Kamal Nath (1997) 1 SCC 388 and has been applied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emplated under the Scheme of Amalgamation for which sanction is sought for. However, in relation to Spectrum License and the like for which the Licensor is DOT, it is for the Licensing Authority to see whether both the companies abide by the guidelines including the guidelines prescribed for merger of two companies holding licenses granted by DOT and this Tribunal cannot enter into the same it being in exclusive domain Of the Licensing Authority. In case of any denial of merger of the licenses consequent upon the sanction of the Scheme it is for the Petitioner to seek appropriate remedy available to it under law against DOT. 23. At Paragraph 2.4 of Part B of the Scheme it is provided as follows in relation to the licenses:- "2.4 Without prejudice to the generality of the clauses mentioned above, the assets of the Transferor Company shall also include all permits, licenses including Unified Access Service License ("UASL ") and Unified License issued by the DOT, authorisation, spectrum, and any other licenses, approvals, clearances, authorities, quotas, allocations granted to the Transferor Company, all municipal approvals, permission for establishing cellular tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities and Exchange Board of India and the Stock Exchanges and all applicable compliances required under the Foreign Exchange Management Act, 1999 and the rules, regulations and guidelines issued thereunder as may be prescribed by the RBI, from time to time) including making the requisite intimations and disclosures to any statutory or regulatory authority and obtaining the requisite consent, approval or permission of the Competition Commission of India, DOT or any other statutory or regulatory authority, which by law may be required for the implementation of this Scheme or which by law may be required in relation to any matters connected with this Scheme. ' Clause 2.4 read with Clause 9.1 of the Scheme makes it abundantly clear that the Petitioner Companies are fully aware of this and in the Scheme itself has provided for it. 25. Thus, the approval of this Tribunal is conditional upon the requisite sanction and approval in accordance with the prescribed guidelines for transfer/ merger of various categories Of Telecommunication service Licenses/ authorization under Unified License (UL) on compromise/ arrangement and amalgamation of Companies by DOT which goes without say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with any other requirement which may be specifically required under any law. THIS TRIBUNAL DO FURTHER ORDER (1) That all the property, rights and powers of the Transferor Company be transferred without further act or deed to the Transferee company and accordingly the same shall pursuant to section 232 of the Act, be transferred to and vest in the Transferee company for all the estate and interest of the Transferor Company therein but subject nevertheless to all charges now affecting the same and save in relation to spectrum and such like National Asset/ National Resource which forms an asset category of its own and over which a license for its exploitation has been granted to the Companies involved in the Scheme by State sanction, here DOT or such other instrumentalities of Government of India and the rules and regulations goveming it. (2) That all the liabilities and duties of the Transferor Company be transferred without further act or deed to the Transferee company and accordingly the same shall pursuant to section 232 of the Act, be transferred to and become the liabilities and duties of the Transferee company; and (3) That all proceedings now pending by or against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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