Dss Enterprises Private Ltd. vs Bharti Mobinet Limited
2005 Latest Caselaw 767 Del

JUDGMENT

Madan B. Lokur, J.

1. The Appellant, DSS Enterprises Private Ltd. (hereinafter referred to as DSS) is aggrieved by orders dated 29th July 2003 and 7th May 2004 passed by the learned Company Judge in C.P. No. 167 of 2003.

2. The facts of the case, as presented to us, appeared somewhat complicated necessitating a hearing of the appeal on several dates, that is, 10th, 14th, 15th, 21st, 22nd and 23rd February, 2005 when judgment was reserved. However, on reflection we find the issue raised is rather undemanding, though compounded by large stakes and complicated by an extremely voluminous reply with affidavit and annexures running into over 1200 pages.

3. The trigger is the sanctioning of a Scheme of Arrangement between Bharti Telenet Ltd., Bharti Mobinet Ltd. and Bharti Cellular Ltd. by the learned Company Judge by an order dated 29th July 2003. According to DSS, sanction was obtained without disclosing all material facts to the learned Judge, thereby playing a fraud upon the Court. DSS says that this was later brought to the notice of the learned Judge by means of an application dated 4th August 2003 being C.A. (M) No.41 of 2003, but unfortunately that application was dismissed by the impugned order dated 7th May 2004

4. At this stage, it is necessary to focus on the grievance of DSS and this is best accomplished by reproducing what it has said in its application dated 4th August 2003. Paragraphs 1 to 8 of the application are relevant in this context, and they read as follows: -

"1. That the Respondent has filed the above Petition under Section 391 to 394 of the Companies Act, 1956 for approving the Scheme of Arrangement between Bharti Telenet Limited, Bharti Mobinet Limited and Bharti Cellular Limited. The said matter was listed for hearing on the 29th July, 2003.

2. That M/s. DSS Enterprises Private Ltd. Herein called the Objector entered into the Joint Venture Agreement dated 12th August, 1992 along with Crompton Greaves Ltd., Millicom International Cellular S.A. and BellSouth International (Asia/Pacific) Inc./ to provide cellular services in the area of Chennai (India). The said company was known by the name of SkyCell Communications Ltd. (hereinafter referred to as "SkyCell"), which is also a signatory to the JVA. The Objector is the registered holder of 10.5% equity capital in the SkyCell Communications Ltd. now known as Bharti Mobinet Ltd. A copy of the JVA dated 12th Aug 1992 is annexed herewith as Annexure A-1.

3. The Parties to the above mentioned JVA dated 12th August 1992 had agreed that no one would transfer their shareholding in SkyCell without the prior written consent of the Parties to the said JVA.

4. That M/s. Bharti Tele-Ventures Ltd (hereinafter referred to as "Bharti") was desirous to buy the shareholding of the Objector and Crompton Greaves Ltd. and therefore two MOUs were signed and the same were inter alia subject to obtaining the prior written consent to the other shareholders in terms of the Joint Venture Agreement. Subsequently, when one of the shareholders, namely, BellSouth International refused to give its consent to the sale of shares to Bharti, the Objector Company in order to safeguard its interest inter alia filed a Suit, being Suit No.115 of 2000 before the Learned District Judge at Tis Hazari Court, Delhi. Vide the said Suit the Objector inter alia prayed for a decree of permanent injunction restraining Crompton Greaves Ltd from selling, transferring or creating any third party right in the shares held by the said Company in SkyCell. The Learned ADJ vide an Order dated 30th March, 2000 was pleased to restrain Crompton Greaves Ltd. from transferring, selling or creating any third party interest or registering the transfer of shares in any manner till 24th April, 2000. The said Order was confirmed by the Learned ADJ on 11th and 24th August, 2000.

5. That aggrieved by the aforesaid Order of the Hon'ble ADJ, Crompton Greaves Ltd. and SkyCell (without authority) filed Appeals being FAO Nos.346 of 2000 and 347 of 2000 before the Hon'ble Delhi High Court. Crompton Greaves Ltd. alleged that on 7th August, 2000, transactions between them and Bharti had been concluded and the entire 40.5% shareholding held by them in the SkyCell had been transferred in favor of Bharti. The Hon'ble High Court vide its Order dated 13th September 2000 disposed of the sai Appeals observing inter alia that Status Quo as on 24th August, 2000 shall be maintained in respect of the shareholding of Crompton Greaves Ltd. in the SkyCell and no further steps should be taken in this regard till the objections are considered by the Trial Court and appropriate Orders passed thereon. It is submitted that the said Application is still pending before the Hon'ble ADJ and the Orders dated 13th September 2000 have neither been set aside nor varied. A copy of the said Orders dated 13th September 2000 are annexed herewith and marked as Annexure A-2 Colly.

6. That it is submitted by the Objector Company that even assuming though not admitting that the Bharti had stepped into the shoes of Crompton Greaves Ltd. in respect of shareholding held by them in the SkyCell, Bharti could not transfer the shares to any third party.

7. That in October 2001 the name of SkyCell Communications Ltd. was unauthorisedly / illegally changed to Bharti Mobinet Ltd.

8. That in the year 2003 the Respondent / Transferor No. 2 Company filed a Petition under Section 391 to 394 of the Companies Act wherein a Scheme of Arrangement has been filed by which the Respondent / Transferor No.2 Company would merge / amalgamate into Bharti Cellular Ltd. It is submitted that all the above facts and the Orders of the Hon'ble High Court have been suppressed by the Respondent / Transferor No.2 Company from this Hon'ble Court. The Objector submits that there cannot be any Amalgamation or Merger without the consent of the Objector, as the shareholders in the Respondent / Transferor No.2 Company are governed by inter alia the JVA dated 12th August 1992 and this fact has also been suppressed from this Hon'ble Court."

5. In effect, therefore, the grievance of DSS is confined to the non-disclosure of proceedings in Suit No. 115 of 2000 pending before a learned Additional District Judge in Delhi and the order dated 13th September 2000 passed by a learned Single Judge of this Court in FAO Nos. 346 and 347 of 2000 arising out of interlocutory orders passed in Suit No. 115 of 2000. DSS has raised some other grounds in the application, but none of them were agitated before us.

6. The necessity of transcribing the grievance of DSS in its own words is because during the hearing of the appeal, learned counsel for DSS adverted, in considerable detail, to proceedings taken out in the Madras High Court, which are also said to have been fraudulently suppressed from the learned Company Judge. But, as seen from the relevant extract of the application dated 4th August 2003, there is no grievance about non-disclosure of proceedings in the Madras High Court. It may be mentioned that even he rest of the application makes no mention of any proceedings in the Madras High Court.

7. After the conclusion of hearing in the appeal, we were handed over a document captioned "SHORT NOTE ON BEHALF OF APPELLANT" which contained, additionally, a grievance about the effect that sanctioning the Scheme would have on DSS.

8. The oral submissions and the short note travel well beyond the pleadings of DSS in its application filed before the learned Company Judge. We do not think it appropriate to enlarge the scope of the initial controversy and, therefore, propose to take no notice of the contentions of learned counsel for DSS relating to these two aspects, particularly the proceedings in the Madras High Court.

9. Now the facts. On 3rd March 1992 a company by the name of Skycell Communications Ltd. (Skycell) was incorporated in Delhi with the object of providing cellular services. It was initially a private limited company, but it later became a public company with its registered office in Madras.

10. On 12th August 1992 a joint venture agreement (JVA) was entered into between Crompton Greaves Ltd. (CGL), Bell South International (Asia/Pacific) Inc. (BSI), Millicom International Cellular S.A. (Millicom) and DSS. These four companies agreed to subscribe to the share capital of Skycell in the following proportion:

   CGL      - 40.5%
BSI      - 24.5%
Millicom - 24.5%
DSS      - 10.5% 
 

11. The JVA between the parties was accepted and implemented by each of them, and there is no dispute about that. Among the significant terms of arrangement between the four parties was that no other person or entity would be allowed to subscribe to the shareholding of Skycell unless it was agreed to in writing by all four of them.

12. It appears that Skycell was licensed to provide cellular services in Madras, but it suffered heavy losses. Apparently because of this, sometime in October-November 1999, CGL and DSS sought to sell their shareholding in Skycell to Bharti Televentures Ltd. (BTV). In early December 1999, BSI objected to the proposed transfer of shares, but it seems that CGL decided to go ahead with its plans. This led BSI to take recourse to proceedings in the Madras High Court. One set of proceedings led to another, but as mentioned above, we are not concerned with any of these proceedings.

13. DSS was also aggrieved by the proposal of CGL to divest its shareholding in favor of BTV, despite the objections of BSI. Consequently, in March 2000, DSS filed a suit in the District Court in Delhi for a permanent injunction restraining CGL from creating any third-party rights in its shares held in Skycell. This suit was registered as Suit No. 115 of 2000. The prayers in the plaint were as follows: -

"(a) issue a decree of permanent injunction restraining defendant no.1 from selling, transferring and/or creating any third party rights in shares held by defendant no.1 in defendant no.4 company save and except in accordance with the Articles of Association of the company, and in particular, Articles 10 and 11 thereof.

(b) issue a decree of permanent injunction restraining defendant no.4 from registering any transfer of shares save and except with the prior written consent of the Plaintiff and in accordance with the Articles of Association of the company.

(c) award costs.

(d) Pass such further order/orders as this Hon'ble court may deem fit in the given facts and circumstances of the case."

14. By an ex parte ad interim order dated 30th March 2000 a learned Additional District Judge restrained the parties from creating any third-party interest or registering the transfer of shares in Skycell in any manner till 24th April 2000. The interim order was not formally extended on 24th April 2000 when the matter was listed, nor was it extended on the subsequent date of hearing that is 22nd May 2000. Thereafter, it appears that DSS moved an application before the learned Additional District Judge woe passed an order on 11th August 2000 to the effect that the order dated 30th March 2000 would continue till 7th November 2000 (the next scheduled date of hearing).

15. In the meanwhile, on 7th August 2000 a majority of the Board of Directors of Skycell, being the nominees of CGL (and one Mr. Unni, a director nominated by ICICI) passed a resolution transferring the 40.5% shares of CGL in favor of BTV. On the basis of this resolution BTV's name was entered in the Register of Members of Skycell.

16. On 24th August 2000 an application for injunction was filed by DSS in Suit No. 115 of 2000. This application was taken up for hearing on the same day and the following order passed: -

"Present : Counsel for the plaintiff.

File taken up on the application u/o 39 rule 1 and 2. It is stated that the defendants are going ahead with the confirmation of the transfer of shares in the meeting of the Board of Directors. It is made clear that the order dated 30.3.2000 will continue to operate between the parties. Any resolution for transfer of shares in violation of the Court order will amount to contempt. So the defendants are hereby restrained from passing or confirming any resolution at the meeting of the Board of Directors or otherwise. Order be given dusty. Fixed on 7.11.2000. Resolution dated 7.8.2000 is hereby stayed, no confirmation.

Sd/-

ADJ"

17. It appears that CGL and BTV came to know of the orders dated 30th March 2000, 11th August 2000 and 24th August 2000 passed in Suit No. 115 of 2000 for the first time on 26th August 2000. They immediately challenged these orders in this Court by filing FAO Nos. 346 and 347 of 2000 respectively.

18. On 13th September 2000, a learned Single Judge heard both the appeals and while disposing them of, passed a brief order in the appeal filed by CGL (FAO No. 346 of 2000), the operative portion of which reads as under: -

"Impugned orders are set aside. Status quo as on 24.8.2000 shall be maintained in respect of Appellant's shareholding in Skycell and no further step shall be taken by it in this regard till its objections are considered by Trial Court and appropriate orders passed thereon within the prescribed time fixed.

Appellant shall have two weeks from today to file objections to the stay and Respondent No.1-3 three day to file rejoinder if any. Trial Court is directed to dispose of the stay matter under law within one week thereafter after hearing parties. Parties to appear before Trial Court on 18.9.2000."

19. We are of the opinion that status quo as on 24th August 2000 meant that the transfer of shares of CGL in favor of BTV as on 7th August 2000 was not to be disturbed. Incidentally, this is also the interpretation given to the order dated 13th September 2000 by a Division Bench of the Madras High Court in its decision dated 27th March 2001 in O.S. Appeal No. 390 to 394 of 2000. DSS challenged the order of the Division Bench of the Madras High Court by filing SLP (C) No. 9295-9302 of 2001 in the Supreme Court but that SLP was withdrawn on 21st April 2003. We, therefore, take this understanding of the order dated 13th September 2000 as conclusive and binding on the parties.

20. As already mentioned above, the grievance of DSS is that the contents of this order dated 13th September 2000 were fraudulently not disclosed to the learned Company Judge when the application for sanctioning the Scheme of Arrangement was moved.

21. Before examining the validity of the grievance of DSS, it may be mentioned that between May and October 2001, BTV purchased the entire shareholding of BSI and Millicom in Skycell. Thereafter BTV sold its shareholding in Skycell to Bharti Cellular, and sometime in between, Skycell changed its name to Bharti Mobinet Ltd.

22. The application for sanctioning the Scheme of Arrangement was moved in the Company Court under the provisions of Sections 391 to 394 of the Companies Act, 1956 (the Act) by Bharti Telenet, Bharti Mobinet and Bharti Cellular sometime in early 2003. Notice of the petition was duly published in the newspapers on 21st May 2003, but DSS did not file any application in the Company Court alleging any fraud on the part of any of the applicants. On 29th July 2003, the learned Company Judge sanctioned the Scheme noting the affidavit of the Regional director, Department of Company Affairs that one shareholder (quite clearly DSS) had voted against the Scheme of Arrangement, while the overwhelming majority had voted in its favor.

23. It is only thereafter, on 4th August 2003 that DSS filed an application before the learned Company Judge objecting to the Scheme of Arrangement on the ground that material information was not disclosed in the sanction application.

24. It is interesting to note that on that very day, a learned Civil Judge dismissed Suit No. 115 of 2000 filed by DSS, which dismissal has not challenged by DSS. While dismissing the suit, the learned Civil Judge held in paragraph 19 of his order as follows: -

"The High Court of Delhi through its order dt. September, 13, 2000, referred above, had set aside the impugned orders, and directed parties to maintain status-quo in respect of Appellant's share holding in Sky Cell as on 24.8.00 and as pointed out by L. Counsel for Def. No.1, the latter had transferred its shares in Def.No.4 in favor of BTL on 7-8-00. Def.No.1 did not remain owner of the said shares as on 24-8-00, having sold the said shares in favor of BTL. Treating all these facts at length, in my opinion, the contract between Def.No.1 and BTL for the sale/purchase of shares of Def.No. 1 had already been concluded on 7-8-00, when there was no injunction order in operation. The suit of plaintiff has become infructuous. The plaintiff has not filed any application for amendment on pleadings, consequent of said transaction, in such a way, application U/o 39 Rule 1 and 2 CPC has also become infructuous. The suit of plaintiff is dismissed. File be consigned to Record room."

25. During the course of hearing, learned counsel for DSS cited S.P. Chengalvaraya Naidu (Dead) v. Jagannath (Dead), (1994) 1 SCC 1, Satish Khosla v. Eli Lilly Ranbaxy, 1998 (44) DRJ 109 (DB), Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1996) 4 Comp LJ 22 (Guj) and Miheer H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506 to contend that a litigant must come to the Court with clean hands, that fraud vitiates all acts and that a duty is cast upon a Court to ensure that a litigant is fair to the Court and places all relevant information before the Court to enable it to take a decision that is just and fair to all parties to the case and, in the case of a company petition, to the shareholders and creditors of the company. No one doubts these propositions and so we do not find the necessity of elucidating or embarking on a discussion of these well-settled principles.

26. In view of the submissions of learned counsel for DSS, it is necessary to point out that there is a difference between non-disclosure of material information to the shareholders and creditors of the three companies that are parties to the Scheme of Arrangement and non-disclosure of material information to the Company Court. The grievance of DSS is about the non-disclosure of material information to the Company Court.

27. At the initial stage, the learned Company Judge could not be expected to know about the proceedings in Suit No. 115 of 2000. Assuming that the applicants for sanctioning the Scheme had fraudulently suppressed the existence of Suit No. 115 of 2000, was it not the duty of DSS to bring this fact to the notice of the learned Company Judge at the earliest? Admittedly, DSS failed to bring the pendency of that suit to the notice of the learned Judge at any time before the Scheme was sanctioned on 29th July 2003. Why DSS failed to perform its obligation in this regard has not been explained. It is quite easy to make an allegation of fraud, but the burden of proving it is on the person who makes it and that burden it quite heavy. Moreover, the person alleging fraud must not leave any doubt about his bona fides or his conduct. In this respect, we are of the view that DSS has not passed the test.

28. In any event, the facts of the case make it absolutely clear to us that on 7th August 2000, when a majority of the Board of Directors of Skycell passed a resolution transferring the 40.5% shares of CGL in favor of BTV, CGL walked out of the affairs of Skycell, as it were. The order dated 13th September 2000, on its plain reading, shows that it did not change this position in any manner whatsoever. The consequence of this would be that the subsisting dispute reduced itself to one inter se the shareholders of Skycell about adherence to the Articles of Association of Skycell.

29. The question that would, therefore, arise is was it essential for this inter se dispute between shareholders, the subject matter of proceedings in Suit No. 115 of 2000 and the order dated 13th September 2000 to have been disclosed to the learned Comp any Judge? Quite frankly, the answer to this would only be that as far as the suit was concerned, it became infructuous if the decision of 7th August 2000 remained, without the prayer being amended. As regards the order dated 13th September 2000, on a plain and obvious interpretation thereof, there was nothing particular contained therein that should have been brought to the notice of the learned Company Judge, in order to rebut the wild allegation of fraud levelled by DSS.

30. We are of the view that the conduct of DSS was also such that it believed that the contents of the order dated 13th September 2000 were inconsequential in so far as the further affairs of Skycell were concerned. This is because DSS did not, at any point of time subsequent to 13th September 2000, attempt to take any advantage of the said order. The shareholding of Skycell had undergone a major change in 2001 and if the order dated 13th September 2000 intended that some sort of a status quo (other that what we understand) should prevail in the affairs of Skycell, DSS did not move against anybody for violation of that order. On the contrary, on 31st May 2003 DSS filed an application for injunction in Suit No.115 of 2000 in which a specific prayer was made for directing the defendants therein to maintain status quo with respect to the shares held by CGL in Skycell to enable DSS to take recourse of arbitration in terms of Article 21 of the JVA. Such an application was clearly not necessary if an order of status quo with regard to the shareholding of Skycell existed as submitted by learned counsel for DSS.

31. Finally, we are of the view that the dispute raised in Suit No. 115 of 2000 was nothing more or less than a private dispute between a group of shareholders. We fail to appreciate how the existence of this dispute was relevant for the sanctioning or otherwise of the Scheme of Arrangement. CGL had transferred its shareholding in Skycell to BTV, and this was duly recorded, if not accepted, by Skycell. There was no restraint on BTV in dealing further with the shares. In fact, BTV did further deal with the shares by transferring them to Bharti Cellular. None of these facts were incorporated, by way of an amendment, in the plaint in Suit No. 115 of 2000 " nor were these transactions alleged to be in violation of the order dated 13th September 2000. Under the circumstances, it is difficult to accept the view of learned counsel for DSS that these developments were necessary to be brought on record for the purposes of enabling the learned Company Judge to sanction (or refuse to sanction) the Scheme of Arrangement, but that these very developments were not necessary for the effective disposal of Suit No. 115 of 2000.

32. I, therefore, find no error in the order dated 29th July 2003 passed by the learned Company Judge sanctioning the Scheme of Arrangement. We also uphold the order dated 7th May 2004, though for different reasons and on different grounds.

33. The appeal is dismissed with costs of Rs.11,000/- to the Respondent.