TMI Blog2015 (9) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Application for e-Auction of 135 Private FM Radio Channels in First Batch (Phase-III)-regarding . Sir, The undersigned is directed to refer to M/s Digital Radio (Mumbai) Broadcasting Ltd s application dated 25.03.2015, received by this office on 27.03.2015 at 02.47 PM, on the subject cited above and to state as follows: Whereas, the Government issued a Notice Inviting Applications (NIA) on March 2, 2015, for pre-qualification for e-auction of first Batch of Private FM Radio Phase-III channels, wherein the last date for receipt of applications was prescribed as 5 P.M. on 27.03.2015; Whereas, clause 3.8 of the NIA stipulates that The Company a well as all Directors on the Board shall be security cleared. Ministry shall take security clearance of the company as well its Directors from relevant Government Authorities. The information to be provided by prospective bidders for security clearance along with the Application is given at Annexure 10. 8. The company shall take prior permission of the Government before effecting any change in the Board of Directors . Whereas, M/s Digital Radio (Mumbai) Broadcasting Ltd s, vide page no. 302 of their application dt. 25.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Before we set out the submissions of the parties in respect of the impugned letter dated 15.07.2015, we need to mention certain background facts. In the year 2000, the respondent had called for bids in respect of FM channels. The Mumbai company (as also to the Delhi company) submitted bids which were accepted and the initial license under the Phase-I policy was granted to the Mumbai company (as also the Delhi company). The Red FM 93.5 channels for Mumbai/Delhi became operational in 2002/2003. In July 2005 the respondent came out with the policy for Phase-II in which an option was provided to existing broadcasters to migrate to the Phase-II regime. The Mumbai and Delhi companies opted for migration and have been operating the said channels since September 2005 under Phase-II. On 31.03.2015, the Phase-II license was extended by the respondent for a further period of six (6) months (with effect from 01.04.2015) or till migration to FM Phase III (whichever was earlier). 4. Earlier, on 25.07.2011, the respondent had notified the Policy Guidelines on Expansion of FM Radio Broadcasting Services through Private Agencies (Phase-III) . Paragraph 2 of the said Policy Guidelines prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors on the Board shall be security cleared. Ministry shall take security clearance of the company as well as its Directors from relevant Government Authorities. The information to be provided by prospective bidders for security clearance along with the Application is given at Annexure 10.8 . The company shall take prior permission of the Government before effecting any change in the Board of Directors. 6. On 25.03.2015, the Mumbai company submitted its application for pre-qualification for the said e-auction and submitted the requisite details and documents for security clearance in terms of Annexure 10.8 of the NIA (as required under clause 3.8). A similar application was submitted by the Delhi company. Both the applications were rejected by the impugned identical letters dated 15.07.2015. The petitioners, being aggrieved by the fact that they have been denied security clearance and that their applications for pre-qualification have been rejected, are before us by way of these writ petitions. 7. Mr Kapil Sibal, senior advocate, appearing for the Mumbai company submitted that the security clearance has been denied on the alleged basis of inputs against Shri Dayanidhi Maran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Rao- Reddy group which held the controlling interest in the Mumbai company. He submitted that in the context of article 19(2) of the Constitution of India, restrictions on the ground of national security could be imposed on article 19(1)(a) rights by the legislature but, that, too, would have to meet the test of reasonableness. Therefore, executive action under the purported ground of security or economic integrity of the nation would also have to be tested on the anvil of reasonableness. He submitted that the action on the part of the respondent in denying security clearance to the petitioner companies on the alleged basis of allegations against the Marans does not pass the test of reasonableness. 9. Dr Singhvi, senior advocate, appearing for the Delhi company supplemented Mr Sibal s arguments. He submitted that the word control is not there in clause 3.8. But, the very next clause (i.e., 3.9) deals with management control and stipulates that the largest Indian shareholder as defined in clause 3.6 exercises management control over the applicant company. He submitted that the shareholding and control is also specifically dealt with in clause 3.6. The point that Dr Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinct from its members. Dr Singhvi also placed reliance on the following passages from Balwant Rai Saluja v. Air India Ltd.: (2014) 9 SCC 407 :- 70. The doctrine of piercing the corporate veil stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. Salomon Co. Ltd. [1897 AC 22 : (1895-99) All ER Rep 33 (HL)] Lord Halsbury LC, negating the applicability of this doctrine to the facts of the case, stated that: (AC pp. 30 31) [a company] must be treated like any other independent person with its rights and liabilities [legally] appropriate to itself whatever may have been the ideas or schemes of those who brought it into existence. Most of the cases subsequent to Salomon case [1897 AC 22 : (1895-99) All ER Rep 33 (HL)] , attributed the doctrine of piercing the veil to the fact that the company was a sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involvement of the element of the public interest, the effect on parties who may be affected, etc. 74. Thus, on relying upon the aforesaid decisions, 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. However, 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. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case. 11. It was also submitted by Dr Singhvi that clause 3.8 has high penal consequences not limited to the subject auction. Denial of security clearance has the effect of the company being damned. Consequently the interpretation to be placed on clause 3.8 must also be strict and not liberal. As such, he submitted, when the word used was compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm or condition of an auction. According to him, the respondent had the right to prescribe conditions for the auction. He further submitted that the government has the right to deal with bidders/participants fulfilling certain criteria. Moreover, clause 3.8 is based upon the Policy Guidelines and that courts have always been restrained in interfering with issues touching upon policies of the government. In any event, he submitted, the condition of security clearance stipulated in clause 3.8 of the NIA is neither irrational nor arbitrary. 13. It was further submitted by Mr Mehta that Policy Guidelines were made public in 2011, the IM was released in January 2015 and the NIA was issued in March 2015. All these documents, which were within the knowledge of the petitioners, contained the condition of security clearance yet, the petitioners participated in the auction process and applied for pre-qualification for the e-auction. Mr Mehta submitted that the petitioners having accepted the conditions outlined in the NIA and having participated in the process cannot challenge clause 3.8 of the NIA. 14. Mr Mehta submitted that e-auction pertained to an extremely important public asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y clearance. 16. It was next contended by Mr Mehta that judicial review may be permitted only if the decision is mala fide. Since, no malafides or victimization has been pleaded by the petitioners, no case for judicial review is made out. Reliance is placed on a decision of a division bench of this court in Bycell Telecommunications India v. Union of India (LPA 673/2010 decided on 09.12.2011) wherein it was held: 7. We have not only perused the files containing the intelligence inputs but also the minutes of the meetings of the FIPB. We affirm the findings of the learned Single Judge that neither any case for mala fides or victimization is pleaded or made out, nor is any found to be borne out from the files. The FIPB itself has evaluated the various inputs received from the Security Agencies and has on the basis thereof objectively reached a conclusion that the clearance earlier given to the appellants needs to be revoked. Once the Agencies of the Government having expertise and vested with the powers to take decision in such matters have reached a conclusion that it is risky to open the telecommunication channels of the country to a certain set of foreigners and such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. 18. In the context of piercing the corporate veil, it was submitted by Mr Mehta that the ultimate ownership and control over the petitioner companies was of the Maran family. From the details provided in the Annexure 10.8 referred to in Clause 3.8 of the NIA and the counter-affidavit, the shareholding pattern of the Mumbai company and its holding company, is as under:- (a) The shareholding of the Mumbai company is as under: Optimum Media Services Pvt. Ltd. 100% (b) The shareholding of Optimum Media Services Pvt. Ltd is as under: Metro Digital Network (Hyderabad) Pvt. Ltd 70.10% South Asia FM Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst 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 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. 22. Mr Mehta had argued that if the shareholders are not roped in then it would amount to ascribing a very narrow meaning to clause 3.8 of the NIA which would defeat the very purpose of having a security clearance particularly in this very sensitive field of radio waves. We are afraid, we cannot agree with this submission. Dr Singhv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 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. As pointed out by Mr Sibal, both these companies got extensions of their licenses by six months as recently as on 31.03.2015. Even then, no security concerns were raised in respect of the two companies. 26. The Supreme Court, in Saluja (supra) , held that the purpose or intent behind piercing the corporate veil must be such that would seek to remedy a wrong done by the persons controlling the company . As per the counter affidavit filed on behalf of the respondent, Shri Dayanidhi Maran and/or Shri Kalanithi Maran do not hold any shares in the two petitioner companies. Thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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