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Delhi High CourtIndian Cases

Bharti Mobinet Limited, Bharti Telenet … vs Dss Enterprises Pvt. Ltd. on 7 May 2004

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Delhi High Court
Bharti Mobinet Limited, Bharti Telenet … vs Dss Enterprises Pvt. Ltd. on 7 May, 2004
Equivalent citations: 111(2004)DLT554, 2004(75)DRJ95, [2005]60SCL473(DELHI)
Author: Mukundakam Sharma
Bench: Mukundakam Sharma
JUDGMENT

Mukundakam Sharma, J.

1. This application is filed by the applicant-objector under Rule 6 read with Rule 9 of the Company (Court) Rules, 1959 praying for exercise of the inherent powers of this Court for recalling and setting aside the order dated July 29, 2003 whereby this Court approved and granted sanction to the scheme of arrangement.

2. Two-fold grounds have been advanced by the counsel appearing for the objector-respondent in support of the prayer for recalling and setting aside the said order. The first submission which was advanced was that the petitioner-M/s. Bharti Mobinet Limited, who filed the Company Petition No. 167/2003 connected with C.A. (M) No. 41/2003, did not come to this Court with clean hands and did not disclose all material facts and in fact they perpetrated fraud on this Court and, therefore, this order is liable to be set aside, quashed and recalled. The second submission was that the said petitioner got shares transferred to it and got sanction of the scheme envisaging such transfer from this Court in violation of the order of injunction passed in various proceedings and, therefore, also the said order is required to be recalled.

3. I heard the counsel appearing for the parties in respect of the aforesaid contentions raised. In order to appreciate the said contentions it would be necessary to set out herein certain material facts which are disclosed from the pleadings of the parties and on which heavy reliance was placed by the counsel appearing for the parties in support of their contentions.

4. On March 3, 1992, a company known as Skycell Communications Limited (for short `Skycell’) was incorporated at Madras, inter alia, with the object of providing cellular services. On August 12, 1992, a Joint Venture Agreement was entered into amongst (1) Compton Greaves Limited (for short `CGL’), (2) DSS Enterprises Pvt. Ltd. (for short `DSS’), (3) Bell South International (for short `Bell South’), and (4) Millicom International Cellular S.A. (for short `Millicom’) whereby the aforesaid four companies, inter alia, agreed to subscribe to the share capital of Skycell. Their shareholding pattern originally was as follows:-

CGL – 40.5% Bell South – 24.5% Millicom – 24.5% DSS – 10.5% The shareholding of CGL, Bell South and Millicom have since been acquired by Bharti Televentures Ltd. (for short `Bharti’). Skycell continued to provide cellular services in the city of Chennai but suffered heavy losses and at that stage the shareholders of Skycell agreed to divest their shareholding. On October 5, 1999, a Memorandum of Understanding (MOU) was entered into between Bharti on the one hand and CGL and DSS on the other hand for purchase of CGL’s and DSS’s shareholding in Skycell. On November 25, 1999, a share purchase agreement was entered into between CGL and Bharti whereby CGL agreed to sell its entire shareholding in Skycell to Bharti. On December 14, 1999, the Board of Directors of Skycell approved and resolved in favor of proposed sale of respective shareholding of DSS and CGL to Bharti. Bell South filed two applications in the Madras High Court some time in February 2000 against Skycell and the other shareholders and obtained an ex parte order of injunction dated February 8, 2000, restraining CGL from transferring its shares. The Ministry of Communications, Department of Telecommunication, upon request of Skycell conveyed to Skycell on February 16, 2000 its approval of the change in equity structure of Skycell, i.e., sale of 40.5% shares held by CGL to Bharti. At this stage, DSS filed a suit for permanent injunction along with an application under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure against CGL, Millicom, Bell South and Skycell before the District and Sessions Judge, Delhi, which was registered and numbered as Suit No. 115/2000. In the said suit, an ex parte ad interim injunction was granted on March 30, 2000 and CGL and DSS were restrained from transferring, selling, creating any third party interest and Skycell was restrained from registering the transfer of shares in any manner till April 24, 2000. The order sheet of the said suit, which is filed, discloses that subsequent thereto there is no specific order of the court extending or continuing the said order till August 11, 2000, when an order was passed continuing the order dated March 30, 2000. Similar order also came to be passed on the subsequent date of the suit, i.e., August 24, 2000. On April 6, 2000, the Madras High Court disposed of petition under section 9 of the Arbitration Act filed by Bell South and granted a status quo order for four months. On April 24, 2000, Bell South appeared in Suit No. 115/2000 and the matter was adjourned on April 24, 2000 to May 22, 2000. However, no order was passed by the Additional District Judge on the said date extending the ex parte interim injunction. In the meantime, Bharti filed appeals before the Madras High Court against the order of the learned Single Judge passed on April 6, 2000 whereupon leave to appeal was granted on July 24, 2000. A meeting of the joint venture partners of Skycell was held at Chennai on May 3, 2000 as directed in the order dated April 6,2000. In the said meeting it was agreed by the joint venture partners that CGL, DSS and Bell South will sell their entire shares in Skycell to Bharti and the same was communicated to the Bharti on the same day and Bharti agreed to purchase the shares of Bell South, CGL and DSS in Skycell. On July 13, 2000, the board of directors of Skycell passed a resolution and adopted it by circulation on August 3, 2000 inter alia for the proposed sale of shares in Skycell by Bell South and DSS to Bharti. Pursuant to the resolution taken in the meeting of the joint venture partners, transaction between Bharti and CGL was concluded and the entire 40.5% shareholding of CGL in Skycell was transferred by CGL to Bharti. Bharti filed a suit for permanent injunction against Bell South in this Court being Suit No. 7917/2000. On August 28, 2000 this Court passed an order and restrained Bell South from disposing of its shares in Skycell to any party except Bharti. On March 30, 2000, August 11, 2000, and August 24, 2000, three interim orders were passed by the Additional District Judge in Suit No. 115/2000 which were challenged by CGL and Skycell being FAO Nos. 346 and 347/2000. In the meantime, Bharti also filed a suit for permanent injunction being Suit No. 1957/2000 titled Bharti Televentures Ltd. v. DSS Enterprises Pvt. Ltd. The suit suit was, however, withdrawn later on. FAO Nos. 346 and 347/2000 were disposed of by a common order passed on September 13, 2000 whereby all orders passed by the Additional District Judge were set aside and the parties were directed to appear before the Additional District Judge’s court and directions were given to dispose of the application for stay in Suit No. 115/2000 within a prescribed time period after observing that status quo be maintained with respect to the shareholding of Skycell as on August 24, 2000 for the said prescribed time period. In the meantime, Bell South filed a review application against the order passed by this Court on August 28, 2000 disposing of I.A. No. 7917/2000 directing a restraint order to Bell South from disposing of its shares in Skycell to any party except Bharti. Two other suits came to be filed – one by Bharti being Suit No. 2202/2000 and the other by Satwant Singh being Suit No. 930/2000 which was filed on behalf of Skycell. On December 13, 2000, the High Court of Delhi ordered the parties to maintain status quo in respect of the management of Skycell in Suit No. 2202/2000. On December 19, 2000, Suit No. 1957/2000 was taken up and in the said suit an order was passed directing the DSS to maintain restraint in respect of the shares held by it in Skycell. The Division Bench of Madras High Court allowed the appeals filed before it and as an interim arrangement pending suit, appointed Mr. Justice K.A. Swami, a retired Chief Justice of Madras High Court, as Chairman of the Boad of Skycell, who assumed charge of his office on April 5, 2001. As against the aforesaid order passed by the Division Bench, Bell South, Millicom and DSS filed Special Leave Petitions before the Supreme which were, however, later on withdrawn.
5. On September 28, 2001, tenth annual general meeting of Bharti Mobinet Limited was attended by the representatives of Millicom, Bell South, Bharti. However, DSS did not attend the meeting. In the said annual general meeting a resolution was adopted changing the name of the company to Bharti Mobinet Limited from Skycell Communications Limited, and also from expanding the share capital of the company from from Rs.63 crores to Rs.125 crores. Bharti withdrew the suit on October 4, 2001, whereas Bell South and Millicom withdrew the Special Leave Petitions filed by them against the order of the Madras High Court dated March 27, 2001 in the month of October 2001. Thereafter, the shares were transferred from Bharti to Bharti Cellular Ltd. On October 13, 2001, the Board of Directors by circulation adopted resolutions relating to transfer of shares in dematerialised form from Bharti to Bharti Cellular Ltd. The nominee director of DSS also participated in the said proceedings but he opposed the said resolution, but the aforesaid resolution was passed and adopted in the said meeting. Extraordinary General Meeting was held on November 5, 2001 and the share capital of Bharti Mobinet Ltd. was increased from Rs.125 crores to Rs.140 crores. Consequently, the shareholding of DSS in Bharti Mobinet Ltd decreased to less than 5%. On an application filed by Bharti, this Court by order dated November 21, 2001 allowed the withdrawal of Suit Nos. 1727/2000 and 2202/2000. Suit No. 930/2000, wherefrom an appeal was preferred and disposed of by interim order dated March 27,2001, was also withdrawn. On March 20, 2002, a meeting of the Board of Directors of Skycell was held. DSS was represented in the said meeting through Mr. Satwant Singh who attended the said meeting. In the said meeting, the Board took notice of the circular resolution adopted on October 31, 2001 relating to transfer of shares in dematerialised form, transfer of shares from Bharti to its nominees, and shares held by Bharti Cellular in electronic form. Mr. Justice K.A. Swami, who was appointed the Chairman, submitted his report before the High Court of Madras on June 20, 2002 wherein he recorded as follows:-

“(i) Millicom and Bellsouth “filed letters before the Hon’ble Supreme Court in the aforesaid SLP’s stating that they have transferred their entire stake in Skycell Communications Limited in favor of Bharti Televentures Limited and they have ceased to be members of the Joint Venture Agreement and accordingly the JVA stands terminated in so far as they were concerned. The letters were accepted by the Hon’ble Supreme Court and the SLP’s”.
(ii) “It may also be noticed by this Hon’ble Court that Mr. Satwant Singh of DSS did not raise any objection to the letters circulated by Bellsouth and Millicom before the Hon’ble Supreme Court specifically stating that the Joint Venture Agreements stands terminated.”

(iii) “The resultant effect was that the Joint Venture Agreement concerning Bellsouth, Millicom, Crompton Greaves Limited stood terminated. Consequently DSS alone has been asserting that the JVA continues, even though in law there cannot be a unilateral Agreement.”

Suit No. 931/2000, wherefrom an appeal was preferred and disposed of by interim order dated March 27, 2001, was withdrawn on September 9, 2002. On July 29, 2003 this Court sanctioned the scheme of arrangement between M/s. Bharti Telenet Ltd, M/s. Bharti Mobinet Limited and M/s. Bharti Cellular Limited. Even Suit No. 115/2000 was dismissed by the Civil Judge on August 4, 2003 in which earlier appeals, namely, FAO Nos. 346 and 347 of 2000 were preferred. After the aforesaid scheme of arrangement was sanctioned by this Court, on August 4, 2003 the present objector filed the present application.

6. The question, therefore, that arises for my consideration, in the light of the aforesaid facts, is whether there was any non-disclosure of material facts which were required to be disclosed by the applicant/petitioner while filing the application seeking for sanction of the scheme of arrangement. The next issue which would also arise for consideration is whether the scheme of sanction and transfer of shareholdings in respect of which the aforesaid scheme of arrangement was made was in violation of the interim order passed by the Court. However, before entering into the aforesaid contention I would like to mention a few facts which are relevant and connected with the pleas that are sought to be raised in this application.

7.The application which is filed in the present case is under Rule 6 read with Rule 9 of the Companies (Court) Rules praying for exercise of inherent powers of this Court. It is an admitted position that there is a remedy of appeal provided as against the order sanctioning the scheme of arrangement. However, the prayer that is made in this application is to recall the said order by exercising the inherent powers and to rehear the application for sanction. It, however, cannot be disputed that in case a fraud is committed upon the court while passing the order giving sanction to the scheme of arrangement, in that event the court always has an inherent power to recall the said order provided it is proved that a fraud has been committed. It is also settled proposition of law that inherent powers of the court have to be used sparingly with circumspection only in order to prevent miscarriage of justice. It is also settled law that these powers are generally not to be used when adequate remedy is available to the parties. Reference was made in this regard to the decision of the Supreme Court in S.P. Chengalvarya Naidu v. Jagannath, , wherein the Supreme Court has held as follows:-

“.. It is the settled position of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/decree – by the first court or by the highest court – has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings.”
8. The aforesaid judgment could be applicable in the case of a proven fraud. The question that arise is whether in the facts and circumstances of the case such proven fraud is made out in this case. It is submitted by the counsel appearing for the applicant of the present application that it was necessary for the petitioner to disclose to all the shareholders in the meeting which was held pursuant to the orders of this Court and also in the subsequent application which was filed seeking for sanction of the scheme all material facts including that of pendency of the aforesaid litigations in the various courts. The submission was that non-disclosure of the said facts amounted to fraud. What are the material facts to be disclosed in the meeting seeking for approval of the scheme and also in the application filed seeking for grant of sanction to the scheme, would differ from facts to facts. In the decision of Tata Oil Mills Co. Ltd. and Hindustan Lever Ltd, (1994) 3 Com. Cases 46, the Bombay High Court has held that section 393(1)(a) does not require disclosure of all the material facts, it only requires explanation of material interest involved. In United Bank of India Ltd. v. United India Credit and Development Co. Ltd, (1997) 4 Com. Cases 689, the Calcutta High Court has held that unless and until it could be shown that the shareholders have been misled by the statements made in the explanatory statements or any objection is raised regarding the notice by any of the shareholders, the court would not accept a contention that the explanatory statements were misleading or insufficient. The Supreme Court in Hindustan Lever Employees’ Union v. Hindustan Lever Ltd, (1995) 83 Com. Cases 30, has held as follows:-

” where considering the overwhelming manner in which the shareholders, the creditors, the debenture holders, the financial institutions, had supported the scheme and had not complained about any lack of notice or lack of understanding of what the scheme was about, it would not be right to hold that the explanatory statement was not proper or was lacking in material particulars.”
9. The meeting of the shareholders and creditors were held pursuant to orders of this Court. The representative of the present objector, who has filed the present application, was also present when the resolution for transfer of shares was accepted, and in that view of the matter, therefore, there was acquiescence on the part of the said objector in respect of resolution No.3 adopted in the meeting of the Board of Directors even in spite of objection raised by the said objector. Transfer of shares to Bharti was made on August 7, 2000 which was approved by the Board of Directors of Skycell and others like ICICI and the concerned Ministry. The order of ad interim injunction as passed on March 30, 2000 was operative till April 24, 2000 after which date it was not extended till August 24, 2000 when the order was again extended. The Division Bench in FAO 346/2000 passed an order on September 13, 2000 to the effect that status quo as on August 24, 2000 shall be maintained in respect of shares of CGL in Skycell. It is, therefore, established that CGL transferred its shares prior to the relevant date and, therefore, such share transfer could not be said to be in violation of the injunction order of the Court. It is disclosed from the records that no application alleging violation of any interim injunction was moved by the objector. As a matter of fact no such violation was alleged by the said objector till the present application was filed in this Court. It is an established fact that the parties understood and accepted the transfer of shares to Bharti. The aforesaid share transfer from Bharti to Bharti Cellular which is a 100% subsidiary was done on September 1, 2001. It is also disclosed from the records that CGL transferred all the shares to Bharti on August 7, 2000, whereas an order was passed by the Additional District Judge on August 24, 2000 restraining the defendants from passing or confirming any resolution at the meeting of the Board of Directors or otherwise. When the aforesaid order was, therefore, passed, the said order apparently became infructuous. Even subsequent thereto in the FAOs 346 and 347/2000 a common order was passed on September 13, 2000 whereby the impugned order was set aside and a direction was issued for maintenance of status quo as on August 24, 2000 in respect of the shareholding of the objector in Skycell and that no further steps would be taken by it in that regard till its objections are considered by the trial court and appropriate orders passed thereon within the prescribed time fixed. Even the suit in respect of which the aforesaid appeals were filed has also been dismissed. In the context of the aforesaid facts I am of the considered opinion that it cannot be held that the decision taken for propounding a scheme of arrangement proposing transfer of shares and approval of the same in the meeting of the Board of Directors which was approved and sanction given by this Court to the aforesaid scheme of arrangement was passed in violation of the interim orders of the High Court as also of the District Court.

10. Having held thus, let me now examine the merit of the other submission of the counsel for the objector. It was submitted that it was necessary for the petitioner to disclose at the time of convening the meetings of shareholders and creditors the informations regarding pendency of the litigations in the various courts. The meetings were convened in terms of the orders of this Court. In the said meetings the scheme was approved by the required majority. The dispute which is sought to be raised by the objector, being a shareholder, is in the nature of inter se dispute between two groups of shareholders. The objector was fully aware of the pending litigations in the various court. In Miheer H. Mafatlal v. Mafatlal Industries Ltd, , the Supreme Court has held that the fact that there exists a family dispute regarding shareholding is not at all relevant for taking a decision to approve the scheme. In the said judgment the Supreme Court has held as under:-

“….. The equity shareholders of the transferee-company had to decide in their commercial wisdom whether it is worthwhile to have a larger body of shareholders on account of the merger so that apart from the shareholding of the transferee-company its objects would also get diversified and its field of operation would be enlarged with the prospect to hike in the dividend available to these shareholders after the economic and industrial activities of both the companies so amalgamated would get elongated and whether the value of their shares in such consolidated companies were likely to get a boost in the stock market. This was the commercial decision which the equity shareholders of the transferee-company had to take. For taking this informed decision they were least concerned whether 5% shareholding of appellant in the company remained or did not remain within him in future. Consequently, if Arvind Mafatlal’s suit ultimately succeeded before the Bombay High Court and the appellant lost in his counter-claim that would have no effect whatsoever on the informed decision which the equity shareholders were called upon to take while approving the scheme in question.”
11. The objector was present in the meeting of the shareholders and raised objection against the scheme. However, even in spite of such objection the required majority approved the scheme in the meeting of the shareholders. Section 393(1)(a) of the Companies Act does not ordain disclosure of all material facts. Clause (a) not only enumerates the categories of particulars, but it deliberately makes a departure by omitting any reference to materials facts. Informations regarding pending litigations between shareholders were not such informations which were required to be specifically mentioned in the communications issued to the shareholders and creditors. Non-mentioning of such informations, in my considered opinion, did not vitiate the scheme. No case of fraud is made out in the facts and circumstances of the present case. This court found the scheme as a whole to be just, fair and reasonable and, accordingly, granted sanction to the scheme.

12. In the light of the aforesaid discussions, I hold that the application filed by the objector is misconceived and without any merit and is, accordingly, dismissed.