Delhi High Court
Delhi Integrated Multi Model ... vs Rakesh Aggarwal on 6 July, 2012
Author: Vipin Sanghi
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 08.02.2012
% Judgment delivered on: 06.07.2012
+ W.P.(C) 2380/2010 & C.M. No. 4767/2010 (for stay)
DELHI INTEGRATED MULTI MODEL TRANSIT SYSTEM LTD.
..... Petitioner
Through: Mr. Sandeep Sethi, Sr. Advocate with
Mr.Rajat Navet & Mr. Rajnish Gautam,
Advocates.
versus
RAKESH AGGARWAL
..... Respondent
Through: Mr. Pranav Sachdeva, Advocate.
AND
+ W.P.(C) 2381/2010 & C.M. No. 4770/2010 (for stay)
DELHI INTEGRATED MULTI MODEL TRANSIT SYSTEM LTD.
..... Petitioner
Through: Mr. Sandeep Sethi, Sr. Advocate with
Mr.Rajat Navet & Mr. Rajnish Gautam,
Advocates.
versus
SACHIN SAPRA
..... Respondent
Through: Mr. Rohan Thawani, Advocate.
CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI
W.P.(C) 2380-81/2010 Page 1 of 38
JUDGMENT
VIPIN SANGHI, J.
1. The present writ petitions have been preferred under Article 226
and 227 of the Constitution of India, to assail the Common order dated
05.03.2010 passed by the Central Information Commission (hereinafter
referred to as the "CIC") in Complaint no.
CIC/SG/C/2009/001472+001312 & Appeal No. CIC/SG/C/2009/000341,
whereby the CIC has held the Petitioner Company to be a "Public
Authority" under the Right to Information Act, 2005 (hereinafter
referred to as the "Act").
2. The facts leading to the filing of the present writ petitions are as
follows:
2.1 The petitioner company was incorporated on 19.04.2006 as a
Special Purpose Vehicle (SPV) by the Government of National
Capital Territory of Delhi (hereinafter referred to as the
"GNCTD"), for the purpose of implementing „Integrated multi-
modal transit Network Projects‟. The initial paid up share capital
of the petitioner company was Rs.7,30,39,000/- divided into
73039 equity shares of Rs.1,000/- each, and the same was
entirely held by GNCTD.
2.2 On 04.07.2007, a Shareholder‟s Agreement (SHA) was entered
into between the GNCTD and Infrastructure Development
Finance Company (hereinafter referred to as the "IDFC"),
wherein IDFC agreed to subscribe to the paid up share capital of
the petitioner Company to the extent of Rs. 7,30,39,000/-. After
the Subscription by IDFC to the equity shares of the petitioner
Company, the shareholding of GNCTD and IDFC was 73039
shares each. Six shares were held by six Government nominees.
This position continued till 13.10.2009. Thereafter, on
14.10.2009, 6 shares of the petitioner Company were subscribed
by IDFC, making its shareholding 50% in the petitioner company,
i.e. equal to that of the GNCTD.
2.3 The respondent in W.P. (C) in 2381/2010 vide e-mail dated
03.02.2009, addressed to the petitioner, sought details of
CPIO/APIO, First Appellate Authority etc. of the petitioner as the
same had not been provided for on the petitioner‟s website. The
petitioner vide its response dated 17.02.2009 claimed that it was
not a "Public Authority" within the meaning of the Act, and
therefore it did not have a CPIO, APIO etc.
2.4 Being aggrieved by the said response, the respondent filed a
complaint (referred to as Appeal No. CIC/SG/C/2009/000341)
before the CIC under Section 18 (1)(a) of the Act. Notice dated
29.07.2009 was issued to the Petitioner directing it to state
whether it fulfilled any of the criteria laid down in Section 2 (h) of
the Act. The petitioner vide its response dated 13.08.2009 stated
that it did not meet any of the criteria.
2.5 The Respondent in W.P. (C) 2380/2010, as Secretary of
„NyayaBhoomi‟, filed an RTI application under the Act on
03.09.2009, and sought certain information from the petitioner
Company. In reply to the said application, the petitioner
company claimed that the petitioner did not fall within the
definition of "Public Authority" in terms of Section 2(h) of the Act
and advised the respondent to direct his application/questions to
the Transport Department, GNCTD.
2.6 Aggrieved by the response, the respondent filed a complaint no.
CIC/SG/C/2009/001312 dated 10.09.2009 under Section 18(1) of
the Act before the CIC. The CIC issued notice dated 16.09.2009
to the petitioner, calling upon the petitioner to provide the
information as sought by the respondent and sought an
explanation from the petitioner for not supplying the information
within the mandated time, upon its prima facie observation that
the information has not been provided by the petitioner without
stating any reasons. The petitioner by its reply dated 05.10.2009
stated before the CIC that it was not a public Authority within the
Act, and that the Act was not applicable to it.
2.7 In the meantime, the respondent (in W.P. (C) 2380/2010) filed
another application dated 08.10.2009 seeking more information
from the petitioner under the Act. Petitioner vide its reply dated
13.10.2009, advised the respondent to take up his request with
the Transport Department, GNCTD, as the information sought
was available with and belonged to the Transport Department,
GNCTD.
2.8 In response to the petitioner‟s reply, respondent re-sent his
application vide letter dated 14.10.2009, wherein it was alleged
that the information as sought by him about the bus-clusters
pertained to the petitioner and not to the Transport Department.
It was also stated therein that the Respondent‟s application
should rather have been transferred under Section 6 (3) of the
Act to another public authority instead of being returned.
Petitioner in its response dated 16.10.2009, informed the
Respondent that his application has been returned since there
was no Public Information Officer in the Petitioner Company for
the purpose of transferring his application to another public
authority.
2.9 Aggrieved by the replies dated 13.10.2009 and 16.10.2009,
respondent (in W.P. (C) 2380/2010) filed a second complaint
before the CIC on 20.10.2009, which was registered as complaint
no. CIC/SG/C/2009/001472, wherein notice was issued to the
petitioner on 04.11.2009, directing the petitioner to appear
before the CIC on 16.12.2009.
2.10 The CIC, with reference to Complaint no. CIC/SG/C/2009/001312
& Appeal No. CIC/SG/C/2009/000341, vide notice dated
09.11.2009 called upon the petitioner to give reasons as to why
the petitioner was not a public authority when the Board of the
petitioner comprised four Directors nominated by the GNCTD out
of eight Directors. Petitioner clarified its position vide reply
dated 23.11.2009. The CIC, thereafter, issued notice of hearing
dated 18.12.2009 directing the parties to appear before it on
21.12.2009.
2.11 In Complaint no. CIC/SG/C/2009/001472, the petitioner appeared
before the CIC on 16.12.2009 and submitted that it was not a
public authority as it was not controlled by the appropriate
government. The replies dated 05.10.2009 and 23.11.2009 filed
by the petitioner were taken on record and the matter was
adjourned to 21.12.2009.
2.12 Eventually, on 03.03.2010, the parties appeared before the CIC
and made their submissions.
2.13 The CIC by its order dated 05.03.2010 held that the petitioner
company is controlled and substantially financed by the
Government and is, thereby, a "Public Authority" under the Act.
Consequently, it directed the petitioner to provide the
information as sought by the respondent.
3. Being aggrieved by the said order of the CIC, the petitioner has
preferred the present writ petitions.
4. Mr. Sandeep Sethi, learned senior counsel for the petitioner
contended that the conclusions arrived at by the CIC that the petitioner
was controlled and substantially financed by the Government is
perverse and without any basis.
5. Mr. Sethi submitted that the CIC erred in holding that the
petitioner company was substantially financed by the government
without there being any evidence to that effect before it. He submitted
that „shareholding‟ and „financing‟ are two different concepts, which
cannot be compared. Government‟s shareholding in the petitioner
company being 50% would not, by itself, mean that the Petitioner is
substantially financed by the GNCTD. It was further submitted that the
petitioner company has not been given concessional land or other
privilege, nor does it receive any grant or financial aid from the
government. Merely because one of the ancillary or incidental objects
of the petitioner is to receive grants from the government, the same
does not, in any manner, make the petitioner company fall within the
definition of "Public Authority" as defined under Section 2(h) of the Act.
The petitioner submitted that it is a professionally managed company
generating its own revenue and is paying salaries and other expenses
out of the funds generated by it out of its business activities, and the
Government does not provide any financial aid or assistance to the
petitioner company.
6. Learned senior counsel contended that the CIC erred in holding
that the GNCTD exercised significant control over the management of
the petitioner company on account of 50% of the Directors of the
petitioner company being GNCTD‟s nominees.
7. Mr. Sethi submitted that the said Directors are non-executive
Directors and the only executive Director is the Managing Director,
who is a nominee of the IDFC, and the substantial powers and control
of the petitioner Company are vested with him. The Directors of the
Government are not issuing any directions with regard to the day-to-
day affairs of the Company and are merely part time officers. It was
submitted that the CIC erroneously brushed aside the difference
between executive and non-executive directors, in coming to its
finding that the petitioner company is a body controlled by the
government.
8. Learned senior counsel submitted that in the absence of more
than 50% stake in the petitioner company, or management control of
the petitioner company with the GNCTD, the latter could not be held to
be in „control‟ of the petitioner company. It was submitted that the
provisions of the Shareholder Agreement entered into between IDFC
and GNCTD clearly demonstrate that the government is not in control
of the petitioner company.
9. It was further contended that the petitioner does not discharge
any public activity/function and/or provide public service to the general
public for it to be brought within the purview of the Act. It was
submitted that the petitioner company does not discharge any
business activity on behalf of the government and that the petitioner
company is totally a commercial organisation. Mr. Sethi submitted that
the Comptroller and Auditor General (CAG) had itself recognised that
the petitioner company had ceased to be a government company on
equity participation by IDFC and as such had discontinued audit of the
accounts of the erstwhile SPV.
10. Learned senior counsel substantiated his argument by placing
reliance on letter no. CAV/15-2006 dated 22.11.2007 of the „Office of
the Comptroller and Auditor General of India‟ issued to „The
Accountant General (Audit), Delhi‟ which states that the audit of the
Petitioner company for the year 2007-2008 had been withdrawn as the
Company ceased to be a Government Company on 01.08.2007.
11. Though, it appears that a plea of bias against the CIC, Mr.
Shailesh Gandhi was raised before the Chief Information
Commissioner, and is also pleaded in the writ petitions, no argument in
support thereof was advanced before this Court at the time of hearing
of this petition. Accordingly, the same is not being gone into by me.
12. Learned counsels for the respondents, on the other hand,
contended that the CIC has correctly held the petitioner company to be
a "public authority" as defined under section 2(h) of the Act as the
petitioner company is controlled and substantially financed by the
Government.
13. While placing reliance on the Judgment of this Court in Indian
Olympic Association vs. Veeresh Malik & Ors., W.P(C) No. 876 of
2007 decided on 07.01.2010, wherein it was held that- what amounts
to "Substantial" financing cannot be straight-jacketed into a rigid
formula of universal application, learned counsels for the respondents
submitted that the percentage of funding for the purposes of
"Substantially financed" is not "majority" funding. Even otherwise, it
was submitted that the GNCTD holds 50% shareholding in the
petitioner company and as such the petitioner is substantially financed
by the GNCTD.
14. It was submitted that the concept of „shareholding‟ cannot be
separated from „financing‟. Since each shareholder, i.e., GNCTD and
IDFC, hold equal portions of the capital of the company, the GNCTD
exercises authority and control over its affairs and the GNCTD has
"substantially financed" the petitioner company.
15. Counsels for the Respondents submitted that on account of the
fact that 50% of the Directors of the petitioner company are nominated
by the GNCTD, the management of the company is significantly
controlled by the Government. This is more so on account of the equal
shareholding of the GNCTD in the petitioner company with that of IDFC.
It was further submitted that the difference between executive and
non-executive directors is not relevant for the present purposes.
Reliance was placed on the definition of „Control‟ as provided for in the
SHA. It was pointed out that the Chairman is the nominee of the
GNCTD, and he is entitled to chair all meetings of the petitioner
company.
16. Learned counsels for the respondents placed reliance on the
SHA [Clauses 5.1, 5.2, 5.5, 5.6, 6(ii), 7.4 and 10.1] and the Articles of
Association (AOA) of the petitioner company, to submit that the
Government exercises significant control over the petitioner company.
Reference is also made to Section 74(2) of Schedule I Table „A‟ of the
Companies Act, which provides that in case of equality of votes, the
Chairman of the Board, if any, shall have a second or casting vote. It
was pointed out that the Chairman is the nominee of the GNCTD, and
he is entitled to chair all General Meetings of the Petitioner Company.
17. According to the respondents, as per Article III of the
„Memorandum of Association‟ (MOA), the main objects of the petitioner
company are primarily the performance of public functions, which
fortifies the fact that the petitioner company is a „Public Authority‟.
18. The counsels for the respondent placed reliance on the judgment
of this court in National Stock Exchange vs. Central Information
Commission, W.P. (C) No. 4748/2007 decided on 15.04.2010, wherein
the court took a similar view as taken by it in Indian Olympic
Association (Supra), to further their submission that the petitioner
company is a „Public Authority‟ under the Act.
19. The petitioner in rejoinder submitted that the Chairman of the
company has no voting rights. It was submitted that the CIC failed to
appreciate that the term „control‟ has not been defined under the Act
and from the available definition of the term, it was evident that it
meant either a stake in excess of 50%, or the management control of
the company, both of which did not exist in favour of the appropriate
government in the present case. To further his submission, Mr Sethi
relied upon the following definition of the term „control‟ as provided for
in „Words and Phrases‟ [Permanent Edition, Volume 9A, West
Publishing Company]:
"The word "control" means subject to authority, direct,
regulate, govern, and dominate. Madison Pictures V.
Chesapeake Industries, 147 N.Y.S. 2d 50, 55."
20. Learned senior counsel placed reliance on the balance sheet of
the petitioner company, for the year ending 31.03.2010, to reiterate
that the petitioner company is a professionally managed company
generating its own revenue and is paying salaries and other expenses
out of the funds generated by it in its business activities and that the
Government does not provide any financial aid or assistance to the
petitioner company.
21. It was submitted that the judgements relied upon by the
respondent have been stayed by the Division Bench, and are pending
adjudication before the Division Bench of this Court and the same,
therefore, cannot be relied upon by the respondents to counter the
submission of the petitioner herein.
22. Section 2 (h) of the Act, as published in the Official Gazette,
reads as under:
"2. In this Act, unless the context otherwise requires,--
x x x x x x x x x x
(h) "public authority" means any authority or body or
institution of self- government established or constituted--
(a) by or under the Constitution;
(b) by any other law made by Parliament;
(c) by any other law made by State Legislature;
(d) by notification issued or order made by the
appropriate Government,
and includes any--
(i) body owned, controlled or substantially
financed;
(ii) non-Government organisation substantially
financed,
directly or indirectly by funds provided by the
appropriate Government;" (Emphasis supplied).
23. The definition under consideration consists of two separate parts.
The first part specifies what the expression means, and the second
part, what it includes. The Parliament has expanded the meaning of
the expression "Public Authority" by adopting an inclusive definition of
the said expression.
24. In the case at hand, it is not in dispute that the petitioner
company does not fall within the first part of the definition of "public
authority". The question for determination is, whether the petitioner
company falls within the second part of the definition i.e. in clause (i)
thereof, i.e., whether it is a body owned, controlled or substantially
financed directly, or indirectly, by funds provided by the appropriate
Government.
25. The CIC by its impugned order has held the petitioner company
to be a public authority on the ground that it is a body controlled and
substantially financed by the Government.
26. To appreciate the meaning and scope of the terms "owned",
"controlled" and "substantially financed", it would appropriate to
examine and analyse them in the context of the Act, i.e. to say to
interpret the terms in the setting in which they occur.
27. B.K. Mukherjee, J. in Darshan Singh and Others v. State of
Punjab, AIR 1953 SC 83, stated the rule, as under:
"Words and phrases occurring in a statute are to be taken
not in an isolated or detached manner dissociated from the
context, but are to be read together and construed in the
light of the purpose and object of the Act itself."
28. To the same effect were the following observations of S.K. Das, J
in Pandit Ram Narain v. State of U.P. & Others, AIR 1957 SC 18:
"The meanings of words and expressions used in the Act
must take their colour from the context in which they
appear."
29. Applying the same principle in Mangoo Singh v. The Election
Tribunal, Bareilly and Others, AIR 1957 SC 871, he again stated:
"When the context makes the meaning of a word quite
clear, it becomes unnecessary to search for and select a
particular meaning out the diverse meanings a word is
capable of, according to lexicographers."
30. In a latter decision in Kehar Singh v. State (Delhi
Administration), AIR 1988 SC 1883, the Supreme Court observed:
"Words and Sections like men do not have their full
significance when standing alone. Like men they are better
understood by the company they keep."
31. In light of the abovementioned pronouncements the terms
"owned", "controlled" and "substantially financed" deserve to be
interpreted in the context in which they occur in the Act.
32. The Act had been enacted with the object of ensuring greater
and more effective access to information held by public authorities.
There was a need/requirement to make the Freedom of information
Act, 2002 (which now stands repealed by the Act) more progressive,
participatory and meaningful. The preamble to the Act, inter alia,
states:
"An Act to provide for setting out the practical regime of
right to information for citizens to secure access to
information under the control of public authorities,
in order to promote transparency and accountability
in the working of every public authority, the
constitution of a Central Information Commission and State
Information Commissions and for matters connected
therewith or incidental thereto.
WHEREAS the Constitution of India has established
democratic Republic;
AND WHEREAS democracy requires an informed
citizenry and transparency of information which are
vital to its functioning and also to contain corruption
and to hold Governments and their instrumentalities
accountable to the governed;
AND WHEREAS revelation of information in actual practice
is likely to conflict with other public interests including
efficient operations of the Governments, optimum use of
limited fiscal resources and the preservation of
confidentiality of sensitive information;
AND WHEREAS it is necessary to harmonise these
conflicting interest while preserving the paramountcy of
the democratic ideal;
NOW, THEREFORE, it is expedient to provide for furnishing
certain information to citizens who desire to have it."
(Emphasis supplied).
33. The Act, in recognition of the right to information vested in every
citizen, seeks to create a mechanism to enable access to the
information held by a public authority. One of the objectives is to
contain corruption and hold Government and its instrumentalities
accountable to the governed. Therefore, in each sphere of activity that
the government and its instrumentalities indulge in, subject to the
reasonable restrictions, the government and its instrumentalities are
bound to provide the information, inter alia, with regard to their
actions, performance, decisions, composition, incomes, expenditures
etc. to the citizens.
34. A Division Bench of this Court in LPA No. 501/2009 titled
"Secretary General, Supreme Court of India vs. Subhash
Chandra Aggarwal", dealing with the concept of „Right to
Information‟ under the Act observed as under:
"30. Information is currency that every citizen requires to
participate in the life and governance of the society. In any
democratic polity, greater the access, greater will be the
responsiveness, and greater the restrictions, greater the
feeling of powerlessness and alienation. Information is
basis for knowledge, which provokes thought, and without
thinking process, there is no expression. "Knowledge" said
James Madison, "will forever govern ignorance and a
people who mean to be their own governors must arm
themselves with the power knowledge gives. A popular
government without popular information or the means of
obtaining it is but a prologue to farce or tragedy or perhaps
both". The citizens‟ right to know the facts, the true facts,
about the administration of the country is thus one of the
pillars of a democratic State. And that is why the demand
for openness in the government is increasingly growing in
different parts of the world."
The Court, while explaining the importance and need of the
Right, referred to the following observation of the Supreme Court in
S.P. Gupta vs. Union of India, 1981 (Supp) SCC 87:
"65. The demand for openness in the government is based
principally on two reasons. It is now widely accepted that
democracy does not consist merely in people exercising
their franchise once in five years to choose their rules and,
once the vote is cast, then retiring in passivity and not
taking any interest in the government. Today it is common
ground that democracy has a more positive content and its
orchestration has to be continuous and pervasive. This
means inter alia that people should not only cast intelligent
and rational votes but should also exercise sound
judgment on the conduct of the government and the merits
of public policies, so that democracy does not remain
merely a sporadic exercise in voting but becomes a
continuous process of government - an attitude and habit
of mind. But this important role people can fulfil in a
democracy only if it is an open government where there is
full access to information in regard to the functioning of the
government."
After referring to a sea of judgments and scholarly excerpts, this
Court held as follows:
"60. The decisions cited by the learned Attorney
General on the meaning of the words "held" or
"control" are relating to property and cannot be
relied upon in interpretation of the provisions of the
Right to Information Act. The source of right to
information does not emanate from the Right to
Information Act. It is a right that emerges from the
constitutional guarantees under Article 19(1)(a) as
held by the Supreme Court in a catena of decisions.
The Right to Information Act is not repository of the
right to information. Its repository is the
constitutional rights guaranteed under Article
19((1)(a). The Act is merely an instrument that lays
down statutory procedure in the exercise of this
right. Its overreaching purpose is to facilitate
democracy by helping to ensure that citizens have
the information required to participate meaningfully
in the democratic process and to help the governors
accountable to the governed. In construing such a
statute the Court ought to give to it the widest
operation which its language will permit. The Court
will also not readily read words which are not there
and introduction of which will restrict the rights of
citizens for whose benefit the statute is intended."
(Emphasis Supplied)
35. In the aforesaid context, I shall now analyse the meaning and
scope of the clause (i) occurring in the second part of the Section 2(h)
of the Act, in so far as the same is relevant for the present purposes,
and the submissions of the parties.
36. As per the clause, a body owned by the appropriate Govt. would
be a "Public Authority". In case of a company, its ownership would
arise by virtue of a stake in the share capital of the Company, i.e., by
being a shareholder of the company. Ownership is a bundle of rights,
which would include the right to control the article/entity owned; to
deal with it in the manner the owner deems fit; to partake of its gains,
or suffer its losses - as, in a business. In the present context,
ownership of shareholding to the extent of 50% in the petitioner
company would, inter alia, mean that the GNCTD would have an equal
right, as the IDFC, to partake of the profits of the company equally with
IDFC in the form of dividends and to participate in all important
decision making processes in the petitioner company. If there are any
policy issues on which the two shareholders, i.e., IDFC and the GNCTD,
differ- they would have to be resolved either by consensus, i.e. mutual
agreement, or by a showdown at the general meeting of the petitioner
company. Reference may be made at this stage to Clauses 5.1, 5.2
and 6.1 and 6(ii) of the SHA, which read as follows:
Clause 5.1 of the SHA:
"The Company shall be managed and controlled by
the Board and the Board shall be responsible for the
overall policies and objectives and activities of the
Company..." (Emphasis supplied)
Clause 5.2 of the SHA: (Similarly provided for in Article 118 of the
AOA)
"The Board shall comprise of not less than 4 (four)
directors and not more than 12 (twelve) directors. Unless
otherwise agreed between the parties to this agreement,
GNCTD shall have right to nominate four (4)
directors and IDFC shall have the right to nominate
four 4 directors to the Board. There shall be one (1)
independent director, to be appointed on mutual
agreement between IDFC and GNCTD." (Emphasis
supplied)
Clause 6.1 of the SHA:
"(i) No obligation of the Company shall be entered
into, no decision shall be made and no action shall
be taken by or with respect to the Company in
relation to Fundamental Issues whether by way of
resolution by circulation or at a meeting of the
Board or any of the committees of the Board or the
shareholders of the Company, unless such
obligation, decision or action, as the case may be, is
approved by the affirmative vote of all the
Shareholders Directors. Except for matters relating to
Fundamental issues, all other resolutions and decisions of
the Board shall be approved by simple majority of Directors
present at the meeting. Provided, however, and in all
cases, that no matter or resolution shall be placed before
the general meeting of the shareholders of the Company
unless such matter or resolution is discussed, deliberated
and approved for placing before the shareholders by the
Board." (Emphasis supplied)
Sub clause (ii) of clause 6 of the SHA:
"(ii) The quorum for the meetings of the Board or any
adjournment thereof shall require the presence of one-third
(1/3) of the directors in office for the time being. No such
quorum shall be said to be complete unless atleast
one director representing each of GNCTD and IDFC is
present at such meeting... "
37. In the case of a showdown it is the GNCTD, which has an upper
hand. Reference may be made to Clauses 5.5 and 7.5(6) of the SHA,
which read as follows:
Clause 5.5 of the SHA: (Similarly provided for in Article 153 of the
AOA)
"The Company a non-executive Chairman appointed
by the Board, who shall be the Chief Secretary,
GNCTD, ex-officio. The term of the Chairman shall be co-
terminus with that of his term as the director of the
Company. In case Chairman is unavailable for a
meeting, one of the directors nominated by the
GNCTD on the board, present at that meeting may
be appointed by the Board as a Chairman for that
particular meeting. " (Emphasis supplied)
Sub-clause (c) of Clause 7.5 of the SHA:
"The Chairman of the Board shall preside as
Chairman of the general meetings of the Company."
38. As per Section 74(2) of Schedule I Table „A‟ of the Companies
Act, in case of a tie at a general meeting, the Chairman has a second
or a casting vote, which clearly tilts the scales in favour of the GNCTD.
The said provision reads as follows:
"In case of an equality of votes, the chairman of the Board,
if any, shall have a second or casting vote."
39. It is clear that while divesting its 50% stake in the petitioner
company, the GNCTD clearly intended to, and indeed retained ultimate
control by incorporating the above clauses in the SHA and AOA.
40. It is well-settled that the ultimate power in a company resides in
its general body. It is the general body which has the right and the
obligation to appoint the Directors on the Board to run the
management of the company. The Board of Directors are answerable
to the general body of members and the Directors can be removed by
the General Body from the Board, by following the prescribed
procedure under the Companies Act. As per clause 5.2, as extracted
above, the number of Directors of GNCTD and IDFC is equal.
Therefore, in the present context it cannot be said that either IDFC or
the GNCTD is the absolute owner of the petitioner company. At the
same time, it cannot be said that neither is the owner. They are both
joint owners of the petitioner company. In fact, in a closely held
company like the petitioner, which has practically only two equal
shareholders, the entity is in the nature of a partnership concern.
Mutual trust, confidence and consensus is just as important, as in a
partnership concern, in a company like the petitioner, as the lack of it
can often result in a deadlock or breakdown situation.
41. The concept of "ownership" in the context of Clause (i) of Section
2(h) of the Act, in my view, is not an absolute ownership of the body
concerned, by the appropriate Government. Keeping in view the
object of the Act, i.e. to bring about transparency in the working of all
Government bodies and other public authorities - which are having
governmental control, i.e. they are not private entities, the expression
"body owned ..... ..... ..... by the appropriate Government" has to be
given a wide meaning and interpretation. In my view, a 50%
ownership of the shares of a company of the appropriate Government,
coupled with the strategic control that follows such shareholding, and
which has been specifically incorporated in the SHA and AOA, is
sufficient to clothe the petitioner with the character of a public
authority under the Act.
42. The legislature, keeping in view the object and purpose of the
Act, did not restrict the ambit and reach of the expression "Public
Authority" to bodies "owned" by the Government, and even included
bodies which are "controlled" or "substantially financed" directly or
indirectly by the funds provided by the Government. Therefore, even if
the Government does not own a body, but controls or substantially
finances it- then too, such a body would be deemed to a be a "Public
Authority" for the purposes of the Act. The intent of the legislature
was therefore not to assign a restrictive meaning to the expression
"Public Authority".
43. The term „control‟ in common parlance denotes the ability to
regulate, exercise power or influence over a subject matter. Control in
relation to a body could be financial control, administrative control etc.
As aforesaid, ownership necessarily implies a certain degree of control.
Where there is ownership, there are some, if not all, elements of
control. At the same time, control could also exist without ownership. It
is for this reason that the Act expressly uses the term "Controlled"
independent of the term "Owned". „Control‟ in the present context
cannot be interpreted to mean absolute control, or the highest degree
of control, that is to say a kind of deep and pervasive control. The term
"controlled", keeping in view the context in which it occurs has to be
construed liberally so as to facilitate the purpose and object of the Act
and not defeat it.
44. However, it is also to be borne in mind that a Government in a
democracy like India, frames policies and guidelines, makes laws,
moulds actions and reactions, influences decision making of persons
(real and juristic), and, thereby, exercises a certain degree of virtual
control over the state and its constituents. Such virtual control cannot
be misunderstood as, or rather equated to the term „control‟ as found
under clause (i) of the second part of Section 2(h) of the Act.
45. The process of decision making involves the choosing of one out
of various available options. Where the appropriate Government is
instrumental in the making of one choice over the other for a
body/entity, it can be said that it has „control‟ over the body/entity.
„Control‟ is that influence, which is attributable to the appropriate
government by virtue of its role or position in the body. Such role
should be ascribed to it, expressly or impliedly, either by the law or by
the constitution of the body itself, for example, in case of a company-
by its MOA, AOA etc. To assume the existence of control otherwise,
merely on account of the prevailing state of affairs, would tantamount
to taking an extreme position, which was never intended.
46. Therefore, to determine whether or not the petitioner company
herein is "controlled" by the appropriate Government i.e., the GNCTD,
it would be necessary to examine the role or position of the GNCTD in
the petitioner company by reference to the SHA and AOA. Some of the
relevant provisions contained therein have already been taken note of
above. A few others of relevance are reproduced below:
As per clause 5.6 of the SHA: (Similarly provided for in Article 144(a)
of the AOA)
"The Company shall have a Managing Director and Chief
Executive Officer appointed by the Board, who shall be
nominee of IDFC. Subject to the provisions of the Act, the
terms and conditions of CEO shall be as stipulated
by the Board." (Emphasis supplied)
As per clause 6.2 of the SHA:
"(i) The Company shall if required, constitute a
committee(s) of the Board whose composition, powers and
terms of reference shall be decided by the Board from time
to time. The committee(s) shall be subject to and be under
the supervision of the Board. Each of the Shareholders
shall have the right to nominate its nominees to the
each of the committee(s).
(ii) Unless otherwise agreed to by each of the parties to
this agreement, no quorum of the meeting of any such
committees shall be said to be complete unless
atleast 1 (one) nominee of GNCTD and IDFC is
present at such meeting of the committee..."
(Emphasis supplied)
As per clause 7.4 of the SHA:
"Unless specifically waived in writing by the respective
party, a valid quorum for meeting of the
Shareholders/members shall be deemed to
constituted only if, an authorised representative
each of GNCTD and IDFC are present at the
beginning and throughout such meeting..." (Emphasis
supplied)
As per clause 10.1 of the SHA:
"GNCTD hereby irrevocably undertakes to grant or
assist the Company in obtaining all necessary approvals
and permits required for implementation of the objectives
of the Company and this Agreement and to issue and
caused to be issued such Government orders, notifications
and the like to enable the company perform its obligations
under its Agreement and/or the agreements in respect of
management of Funds entrusted to it by GNCTD. "
(Emphasis supplied)
As per clause 12.2 of the SHA:
"Upon notice to the Company and/or the Operating
Companies, the Shareholders and its authorised
representatives (such as employees, directors,
shareholders, lawyers, accountants or other professional
advisors) shall have the right to (a) visit and inspect the
properties of the Company and/or the Operating
Companies; (b) access and review the books, corporate
and financial records and financial statements of the
Company and/or the Operating Companies; and (c) discuss
the business and finances of the Company and/or the
Operating Companies with officers of the Company and/or
the Operating Companies." (Emphasis supplied)
As per clause 12.3 of the SHA:
"The Company shall furnish or cause to be furnished
promptly to a share holder all such reports and
information as it shall reasonably request
concerning (i) the financial statements and audit referred
to in this Article 10; (ii) audited financial statements and
auditors report of each of the funds under management of
the Company; and (iii) any other matters relating to their
respective investments in the Company. The Company
shall, upon request by the Shareholder, consult with
the Shareholder on any of these matters." (Emphasis
supplied)
As per Article 87B of the AOA:
"Except as otherwise provided in the Act, every resolution
to be passed at a general meeting (including any
adjourned General Meeting) with respect to matters
relating to Fundamental Issues, specified below, shall
require the affirmative vote of the authorised
representative of each of the shareholder..."
(Emphasis supplied)
Similarly as per Article 158A of the AOA:
"Except as otherwise provided in the Act, every resolution
to be passed at a Board meeting (including any adjourned
Board Meeting) with respect to matters relating to
Fundamental Issues, specified below, shall require the
affirmative vote of the authorised representative of
each of the shareholder..." (Emphasis supplied)
47. In view of the aforementioned provisions, it is abundantly clear
that the GNCTD (being a shareholder to the extent of 50%; and
comprising half of the Board of Directors) exercises substantial control
over the petitioner company. The above clauses leave no manner of
doubt that the GNCTD, while divesting its 50% stake in the petitioner
company, continued to retain the right to keep itself abreast with all
the on-goings in the company, and the right to have its say and to
influence the decision making process in all important matters of the
company. While the day to day management may have been vested
with the officers/Directors nominated by the IDFC - so as to bring
about a professional management, firstly, they are responsible and
answerable to the GNCTD/their nominee directors and, secondly, the
overall supervision and control is retained equally by the GNCTD. In
the eventuality of a showdown, the GNCTD has the last word.
48. The argument of the petitioner that the Directors nominated by
the GNCTD are non-executive Directors, whereas those nominated by
the IDFC are executive or functional directors - is neither here nor
there. Merely because the Directors nominated by the GNCTD on the
Board of Directors of the petitioner company are non-executive
Directors, it does not mean that they have no role to play, or
responsibility to share, in the decision making process of the Board.
They are entitled to, and do participate in the Board meetings and are
entitled to raise issues and even obstruct or oppose any move
proposed by the Directors nominated by IDFC, if they are so instructed
by the GNCTD, or if they are of the opinion that the same may not be
in the overall interest of the company, or of the shareholder GNCTD -
whom they represent on the Board of the petitioner company. They
perform a higher duty of participating in policy making, and, therefore,
discharge a higher responsibility than the routine and mundane day-to-
day tasks, which are left to be performed by others. Mere lack of day-
to-day responsibility on the shoulders of the nominee Directors of
GNCTD does not dilute their powers, responsibilities and privileges as
Directors of the petitioner company.
49. The term "controlled" is to be interpreted liberally keeping in
view the object of the Act. If the interpretation advanced by the
petitioner to the term „control‟ were to be adopted, it would defeat the
purpose of the Act. What is required to be seen is: whether by virtue of
the constitution of the body, the appropriate government is in a
position to regulate, or exercise power or influence over the affairs of
the body. If so, as in the present case, then the body in question is
deemed to be "controlled" by the appropriate government for the
purposes of the Act.
50. For the aforesaid reasons, the submission of the petitioner that in
the absence of more than 50% stake in the petitioner company or the
absence of day-to-day management control of the petitioner company
by the GNCTD, the latter could not be held to be in „control‟ of the
petitioner company- also has no merit. Even otherwise, this submission
of the petitioner is untenable in view of the definition of the term
„control‟ as found in the SHA, which reads as under:
""Control" shall mean with respect to any Person, the
ability to direct the management or policies of such Person,
directly or indirectly, whether through the ownership of
shares or other securities, by contract or otherwise,
provided that in all event the direct or indirect ownership
of or the power to direct the vote of fifty percent (50%) or
more of the voting share capital of a Person or the power
to control the composition of the board of directors of a
Person shall be deemed to constitute control of that Person
(the expressions "Controlling" and "controlled" shall have
the corresponding meanings)"
51. It is clear from the said definition that power to control the
composition of the Board of Directors shall be deemed to constitute
control. In the present case, it is not in dispute that the half of the
Board of Directors shall be nominated by the GNCTD and, as such, it
controls the composition of the Board. Consequently, the petitioner
company is "controlled" by the GNCTD.
52. For the reasons stated above, the petitioner company in the
present case, as held by the CIC in its impugned order, is "controlled"
by GNCTD under Clause (i) of the second part of Section 2(h) of the
Act.
53. The expression "Substantially financed" would also have to be
construed in the context in which it occurs. I may refer to the decision
dated 03.04.2009 of the Kerala High Court in Thalappalam Service
Co-operative Bank Ltd. v. Union of India (UOI) and Ors., W.P. (C.)
No. 18175 of 2006, wherein it was observed as under:
"The word "substantial" has no fixed meaning. For
the purpose of a legislation, it ought to be
understood definitely by construing its context.
Unless such definiteness is provided, it may be susceptible
to criticism even on the basis of Article 14 of the
Constitution. See Shree Meenakshi Mills Ltd. v. A.V.
Viswanatha Sastri (A.I.R. 1955 S.C. 13 at page 18). The
word substantial means-of or having substance:
being a substance: essential: in essentials: actually
existing: real: corporeal, material: solid and ample:
massy and stable: solidly based: durable: enduring:
firm, stout, strong: considerable in amount: well-to-
do: of sound worth. See the Chambers 20th Century
Dictionary. In fact, the concept "substantial" has been
understood in different shades and applied contextually. In
relation to Section 100 of the Code of Civil Procedure, it
was held that a substantial question of law means a
question of law having substance, essential, real,
important. It was understood as something in
contradistinction to-technical, of no substance or
consequence, or merely academic. See Santhosh Ilazari v.
Purushottam Tiwari [(2001) 3 S.C.C. 179]. "Substantial
interest" in the context of the Income Tax Act was found to
require a contextual construction, having regard to the
succeeding expressions which enumerated what
substantial interest really meant. See R. Dalmia v. C.I.T.
[(1977) 2 S.C.C. 467], "Substantial portion of such goods",
an expression occurring in the Customs Act, was
understood to mean substantial portion of the goods, that
have been imported keeping in view the quantity as well as
the value of the goods that have been imported. See India
Steemship Co. Ltd. v. Union of India [(1998) 4 S.C.C. 293].
Such a spectrum of substantial wisdom essentially
advises that the provision under consideration has
to be looked into from the angle of the purpose of
the legislation in hand and the objects sought to be
achieved thereby, that is, with a purposive
approach. What is intended is the protection of the
larger public interests as also private interests. The
fundamental purpose is to provide transparency, to
contain corruption and to prompt accountability.
Taken in that context, funds which the Government
deal with, are public funds. They essentially belong
to the Sovereign, "We, the People". The collective
national interest of the citizenry is always against
pilferage of national wealth. This includes the need
to ensure complete protection of public funds. In
this view of the matter, wherever funds, including
all types of public funding, are provided, the word
"substantial" has to be understood in
contradistinction to the word "trivial" and where the
funding is not trivial to be ignored as pittance, the
same would be "substantial" funding because it
comes from the public funds. Hence, whatever
benefit flows to the societies in the form of share
capital contribution or subsidy, or any other aid
including provisions for writing off bad debts, as also
exemptions granted to it from different fiscal provisions for
fee, duty, tax etc. amount to substantial finance by
funds provided by the appropriate Government, for
the purpose of Section 2(h) of the RTI Act."
54. From the aforementioned observations, two key elements of the
expression "Substantially financed" emerge. Firstly, the meaning and
scope of the term "Substantial", as occurring in the Act, has to be
construed in contradistinction to the term "trivial"- that is to say it
should not have small value/proportion/percentage so as to be
insignificant; and, Secondly, the meaning and scope of the term
"finance" i.e., financial benefit could be in the form of share capital
contribution or subsidy, or any other form including provisions for
writing off bad debts, as also exemptions granted to the body from fee,
duty, tax etc- for the purposes of Section 2(h) of the Act. I find myself
in respectful agreement with the first of the aforesaid conclusions of
the Kerala High Court. With regard to the second, I may only say that I
am not confronted with the proposition which has been so widely
stated by the Kerala High Court, and I am only concerned with a case
of equity contribution by the GNCTD in the petitioner company.
55. In the present case, the petitioner company had been initially
incorporated/ established by the GNCTD. The equity share capital of
the Company, before GNCTD entered into the SHA with IDFC, had been
fully subscribed to and paid-up by the GNCTD. Even after having
entered into the SHA with IDFC, GNCTD‟s share capital contribution
continues to be 50%, which is significant and therefore "Substantial"
for the purposes of the Act.
56. The petitioner‟s contention that GNCTD‟s shareholding in the
petitioner company would not, by itself, mean that the company is
substantially financed- has no merit. The activity of financing as
generally understood entails the provision of finance, i.e. money to an
enterprise, so as to allow it to run its business operations or undertake
a business expansion or diversion exercise. Financing could either be
by way of equity participation in the business enterprise or by way of
advancement of a loan on terms and conditions with a view to secure
the investment made by the financier. When the finance is provided
by way of a loan, the financier seeks to secure the loan by requiring
the borrower to furnish securities, indemnities, undertakings, sureties
and guarantees, etc. The financer is generally not concerned whether
the business of the enterprise is profitable or not, so long as its finance
is protected, secured and punctually serviced. In such form of
financing the investor/financier is only looking to returns on investment
in the form of interest income.
57. However, when a financier provides the finance by picking up an
equity stake in the enterprise, he participates in the business of the
enterprise and is directly interested in the financial well-being of the
enterprise. He takes the risks which come with the business of the
enterprise. His returns on investment come not from interest income,
but from the gain the in the invested capital, i.e. by capital gains.
Therefore, by its very nature, investment made by way of capital
infusion is far more obtrusive than investment made by way of a loan
vis-à-vis the enterprise concerned.
58. In the present case, the position, historically speaking, is that the
GNCTD held 100% equity in the petitioner company. It is IDFC which
later invested and infused funds to pick up equity share equal to that
of the GNCTD. However, even after the capital infusion by IDFC, the
GNCTD continues to remain invested in the petitioner company to the
extent of 50%. This clearly constitutes financing of the enterprise of
the petitioner company and it is not trivial. Rather it is substantial.
59. Merely because, the petitioner company is not receiving financial
aid or assistance in the form of debt from the government, and the
salaries and other expenses of the petitioner are being paid out of the
funds generated by its business would not lead to the conclusion that
the petitioner company is not "Substantially financed" by the
Government.
60. It is to be borne in mind that when a Government substantially
finances a body, it uses public money and as such- the financing has to
be in the larger interest of the public. It is for this reason that a citizen
has a right to obtain information about such bodies which have
received substantial financing from the Government.
61. Reliance placed on the view taken by the CAG does not advance
the petitioner‟s submission. The CAG was not concerned with, and not
competent to determine whether the petitioner is a public authority
under the Act. The communication issued by it was relevant only from
the point of view - whether it should carry out the audit of the
accounts of the petitioner.
62. The submission of the petitioner that the decision of this Court in
National Stock Exchange (supra) cannot be relied upon by the
respondent as it has been stayed by the Division Bench which has
dealt with the appeal from this decision, is neither here nor there.
Firstly, I have examined the facts of the present case on its own merits
and in the facts of this case, I am of the view that the petitioner is a
public authority. No reliance need to be placed on the aforesaid
decision to arrive at the conclusion which I have arrived at. Secondly,
the stay of the operation of this decision only means that inter-parties
the decision may not be relied upon and this decision does not
constitute a binding precedent till so long as the stay order continues.
However, that does not preclude another Court from independently
evolving the same principles as have been laid down in this decision.
63. For the reasons, as stated above, I hold the petitioner company
to be "Substantially financed", for the purposes of the Act.
64. In view of the aforementioned observations, I find no infirmity
with the decision of the CIC holding the petitioner company to be a
"Public Authority" under the Act.
65. I find no reason to interfere with the impugned order. The
present petitions are accordingly dismissed. The respondent shall be
entitled to costs quantified at Rs.10,000/- in each of the petitions.
66. Interim orders stand vacated.
(VIPIN SANGHI)
JUDGE
JULY 06, 2012
BSR/SR
