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Prior approval of Statutory and Contractual authorities is required for sanction of scheme

November 29, 2011

M/s. Spice Communications Limited & ANR, Decision by Delhi High Court, on 4th July 2011

The Amalgamation of Spice Communications Limited (Spice) with Idea Cellular Limited (Idea) was allowed by Gujarat High Court on 26th November, 2009. Spice and Idea, the Petitioner Companies are the telecommunication companies which have been granted various Unified Access Services Licence Agreements (for short 'licences') for different areas by Department of Telecommunication (DOT) in which there was a restriction on 'Transfer of License'. On raising of objection by DOT, for the above approval of scheme, Gujarat High Court reserved its judgement on 5th February, 2010 in the second motion petition.

The DOT filed the Company Applications No.578-579/2011 under Rules 6 and 9 of the Companies (Court) Rules, 1959 for recall and stay of the court's order dated 5th February, 2010 for reversing/canceling the approval of the scheme of Amalgamation.

Decision: The Delhi High Court had in principle agreed to the DOT contention  that prior approval of contractual and statutory authorities is mandatory for sanction of scheme of merger/arrangement u/s. 391-394 of the Companies Act on the following grounds and Idea was penalised with cost of Rs. 1 crore for suppression of material facts:

  • DOT was an interested/necessary party as it is both a Licensor and a Regulator and sanction of scheme was in contravention of licence conditions and merger guidelines issued by Ministry of Communications and Information Technology Department of Telecommunications
  • Every court has an inherent power to recall its own order obtained by fraud for not disclosing/producing the material facts by both spice and Idea.
  • Spice has lost its entity and some of the shareholders of Spice who had received the shares of Idea, would have also transferred the same to third parties and it is not possible to 'unscramble the eggs' by recalling in its entirety the order dated 5th February, 2010 sanctioning the scheme and it is impractible to reverse the sanction to the scheme which has become effective from above referred order date.
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