TaxTMI 
TaxTMI 
2015 (9) TMI 190
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....nd II]. In the other petition (WPC 6892/2015) [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 Subjec....
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....mount of Rs. 5.5 billion in the Aircel-Maxis matter. iii. The CBI has charged Shri Dayanidhi 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. Bef....
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.....02.2015, the respondent issued a circular setting out the time line for existing permission holders to exercise their option for migrating to Phase-III. Both 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.....
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....cted as yet. In fact, the charges have not been framed by any court in any of the said three cases. And, it is only in the CBI case in the "Aircel-Maxis" matter that a charge-sheet has been filed. The other two cases are still 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 submi....
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.... control in such a situation must be in the hands of the wrongdoers. He relied upon Electronics Corpn. of India Ltd. v. Secy., Revenue Deptt., Govt. of A.P.: (1999) 4 SCC 458 (at page 464):- "15. A clear distinction must be drawn 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 separa....
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....vi) The company may be a "façade" even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the 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 t....
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....e Court referred to Regulation 28 of the Employees' Pension Regulations 1995, which had provided superannuation pension and Regulation 29 provided pension on voluntary retirement. After referring to series of decisions, the Court held thus: '31. It is also a well-recognised principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning 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....
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....estigating the case against them with respect to the alleged 300 illegal telephone lines. In these circumstances and the connection between the petitioner companies and the said two individuals, the government has, in keeping with the Policy Guidelines and the conditions stipulated in the NIA, taken a decision to deny security clearance to the petitioner companies. 15. With regard to the government'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....
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.... in guess work and hold that the inputs do not endanger the security of the Airport nor public interest demand that the ground handling operations of the petitioner be prohibited. These are matters which are better left to the authorities in charge of security of the vital installations as they are in-charge of laying down standards and norms for protecting and safeguarding them. They act in public interest and when no malafides 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 ref....
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....sideration in these writ petitions. We are not adjudicating on the validity of clause 3.8. Although prayers have been made seeking the quashing of clause 3.8, the main thrust of the arguments of Mr Sibal and Dr Singhvi was on the interpretation of clause 3.8 and whether the same has been applied correctly or not. In any event, since the petitioners have participated in the auction process, they cannot now challenge clause 3.8. So, to be clear, we are not examining the validity or otherwise of clause 3.8 of the NIA. 20. We also make 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....
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....t of piercing the corporate veil was considered in detail and after examining several decisions including those of courts in England it was concluded that the doctrine of piercing the veil allows the court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. But, the Supreme Court cautioned that this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or 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 co....