NCLT Mumbai Dismisses SFIO's ₹100.50 Crore Disgorgement Plea Over Aircel Shareholding Transaction

The National Company Law Tribunal's (NCLT) Mumbai bench has dismissed the Serious Fraud Investigation Office's plea seeking disgorgement of ₹100.50 crore over a transaction involving shareholders of Aircel Group entities holding that the payment did not take place in the affairs of the Aircel entities.

The dispute centred on an IP Call Option Agreement dated January 20, 2006, under which Sindya Securities & Investments Pvt Ltd (SSIPL) had an option to acquire 24,324,324 shares held by Deccan Digital Networks Pvt Ltd (DDNPL) in the Aircel entities. SSIPL had been incorporated by Suneeta Reddy and her husband Dwaraknath Reddy in January 2006.

The agreement was later terminated under a September 14, 2016 agreement, following which Global Communication Services Holding Ltd (GCSHL) paid ₹100.50 crore to SSIPL on September 21, 2016. The termination was part of arrangements connected with the proposed merger of the telecom businesses of Reliance Communications and Aircel.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar found that the payment was essentially between shareholders and was not a transaction in the affairs of the Aircel entities.

“...a payment of Rs. 100.50 crores was a transaction between the shareholder of Aircel entities on one hand and shareholder of another shareholder of Aircel entities in respect of its shares, and such transaction can not said to have taken place in the affairs of the Aircel entities...”

The SFIO had alleged that the payment amounted to an unlawful gain and that the IP Call Option Agreement had been deliberately kept outside the purview of the banks. According to the investigation report, the ₹100.50 crore was paid by GCSHL to SSIPL for consenting to terminate the call agreement and to a voting arrangement.

The tribunal found that GCSHL needed SSIPL's support to secure DDNPL's vote for the proposed merger. It observed that GCSHL agreed to pay SSIPL consideration for terminating the option so that SSIPL would allow DDNPL to vote in the manner required for the proposed merger.

“It clearly shows that the transaction was between shareholder of ATVL (Aircel Companies's holding company) and shareholder of DDNPL,” the tribunal observed. It held that the transaction was undertaken to achieve the broad objective of merging the telecom businesses of Reliance Communications and Aircel.

The SFIO also relied on the 2014 share pledge agreement to argue that the option and rights associated with the pledged shares formed part of the lenders' collateral. The tribunal examined the agreement and held that Clause 2.8 protected the lenders against the exercise of rights over pledged shares without their consent.

It observed that even if SSIPL sought to exercise the call option, the option shares could not have been acquired while they remained subject to the lenders' pledge without their consent.

The tribunal also rejected the argument that Suneeta Reddy was required to disclose the option merely because she was a director of the Aircel entities and DDNPL and SSIPL was held by her family. SSIPL, it noted, was an independent legal entity.

“We do not find any rationale in the argument of the Petitioner that SR ought to have known what is there in the agreement,” the tribunal observed. It concluded that no case of fraud in the affairs of the Aircel entities, insofar as the transaction in question was concerned, had been made out.

The tribunal further noted that the call option was a right vested in SSIPL and not in DDNPL, Suneeta Reddy or Dwaraknath Reddy. It also found that the termination agreement settled SSIPL's claim, thereby perfecting the lenders' rights.

It ultimately held that the ₹100.50 crore payment was a contractual payment made to obtain SSIPL's consent for DDNPL's voting arrangements in connection with the proposed merger. It therefore could not be treated as a fraudulent transaction undertaken to obtain an undue advantage or benefit.

The tribunal held that Section 212(14A) of the Companies Act, 2013 requires fraud to have taken place in the company and an undue advantage or benefit to have flowed from that fraud. Since the ₹100.50 crore payment was not a transaction in the affairs of the Aircel entities for this purpose, no order of disgorgement could be passed under the provision.

The company petition was accordingly dismissed and disposed of.

For the Applicant: Adv. Uttam Dubey a/w Adv. Mehendhar Aithe, Adv. Rajuram Kuleria, Adv. Shubham Sharma i/b Adv. Mahendhar Aithe

For the Respondent 1 to 3 : Adv. Shyam Kapadia a/w Adv. Shamant Satiya a/w Adv. Manasi Joglekar and Adv. Sushmita Das & Adv. Chirag Kamadan

For the ROC, Mumbai-1 : Ms. V. Madhumitha, AROC