2015 (9) TMI 190 - HC - Money Laundering

Denial of security clearance - rejection of the application for pre-qualification for the e-auction of the first batch of private FM Radio Channels (Phase III) - Lifting of corporate veil - Held that - whether the security assessment in respect of Shri Dayanidhi Maran and Shri Kalanithi Maran is germane to the requirements of security clearance prescribed in clause 3.8 of the NIA. Clause 3.8 stipulates the requirement of a security clearance of the company as well as all its Directors on the Board . Now on a plain reading this would imply that the company which has applied must be security cleared. Not only the corporate entity which is distinct and separate in law but also its Directors as individuals distinct from the corporate entity have to be security cleared. At the same time the clause does not on a plain reading extend to shareholders of the applicant company. - Wherever the respondent wanted to bring in a shareholder or refer to the concept of control over the company it has done so specifically as would be evident from clauses 3.2.1(b) 3.6 and 3.9 as pointed out earlier in this judgment. It therefore follows that there is no explicit reference to shareholders of the company in clause 3.8 of the NIA. But this does not mean that the respondent is prevented from looking behind the corporate identity of the applicant company. 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 could raise security concerns. In fact both the petitioner companies have been operating their licenses under Phases I and II since 2002/2003. Even when the cases against the Marans were registered in 2011 the petitioner companies have continued to operate their respective radio channels without any objection concerning security issues. - petitioner companies themselves have not been alleged to be vehicles of any transgression of law. They have been functioning since 2002 / 2003 without there being any allegation regarding their functioning resulting in any security concerns. - we quash the impugned decision denying security clearance to the petitioner companies. The said petitioner companies shall be entitled to participate in the e-auction subject to other conditions being fulfilled. - Decided in favour of appellant.

Summary

Issues Involved:
1. Denial of security clearance to the petitioner companies.
2. Interpretation of clause 3.8 of the Notice Inviting Applications (NIA).
3. Application of the doctrine of piercing the corporate veil.
4. Validity and implications of the security clearance requirement.

Detailed Analysis:

1. Denial of Security Clearance:
The petitioners sought to quash the decision dated 15.07.2015, which denied security clearance to the petitioner companies and rejected their applications for pre-qualification for the e-auction of private FM Radio Channels (Phase-III). The denial was based on allegations against Shri Dayanidhi Maran and Shri Kalanithi Maran, including prosecution in the Aircel-Maxis case, charges under the Prevention of Money Laundering Act (PMLA), and an investigation into illegal telephone lines.

2. Interpretation of Clause 3.8 of the NIA:
Clause 3.8 of the NIA requires security clearance for the company and all its directors. The petitioners argued that this clause should be read strictly and does not extend to shareholders. They contended that neither Shri Dayanidhi Maran nor Shri Kalanithi Maran were directors or shareholders in the petitioner companies, and no charges had been framed against them in any court. The court agreed that clause 3.8 should be interpreted strictly, as it has serious penal consequences, and it does not explicitly mention shareholders.

3. Application of the Doctrine of Piercing the Corporate Veil:
The court examined whether the corporate veil should be pierced to consider the indirect control by the Marans. It concluded that the doctrine should be applied restrictively and only when the company is a mere camouflage or sham to avoid liability. The court found no allegations that the petitioner companies were created as a facade or that they themselves indulged in activities raising security concerns. The controlling interest in the petitioner companies vested with the Rao-Reddy group, against whom there were no allegations.

4. Validity and Implications of the Security Clearance Requirement:
While the court did not challenge the validity of clause 3.8 or the policy requiring security clearance, it emphasized that the clause's application must be reasonable and not arbitrary. The court noted that the petitioners had been operating their licenses since 2002/2003 without any security concerns, even after the cases against the Marans were registered in 2011. The court quashed the impugned decision denying security clearance, allowing the petitioner companies to participate in the e-auction subject to other conditions being fulfilled.

Conclusion:
The court allowed the writ petitions to the extent of quashing the decision dated 15.07.2015, denying security clearance to the petitioner companies. The petitioners were permitted to participate in the e-auction, provided they met other conditions. The court emphasized a strict interpretation of clause 3.8 and found no basis for piercing the corporate veil in this case.