Regulators

Security clearance clause for FM Phase III applies to companies & directors, not shareholders: Delhi HC

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NEW DELHI: The Delhi High Court, which permitted Red FM to take part in the FM Phase III e-auctions that commenced today (27 July), said Digital Radio (Delhi) Broadcasting Ltd and Digital Radio (Mumbai) Broadcasting Ltd, which run Red FM in these two cities have not been alleged to be vehicles of any transgression of law and have been functioning since 2002-2003 without there being any allegation regarding their functioning resulting in any security concerns.

Justices Badar Durrez Ahmed and Sanjeev Sachdeva, who had read out the operative portion yesterday (26 July), said Clause 3.8 of the Notice Inviting Applications had reference only to the company and its directors and there is no mention of its shareholders.

Both Dayanidhi Maran and Kalanithi Maran are shareholders and therefore the Clause does not apply to them.

At the outset, the Court said it was not adjudicating on the validity of clause 3.8. Although appeals have been made seeking the quashing of Clause 3.8, the main thrust of the arguments of Counsel Kapil Sibal and Dr Abhishek Manu Singhvi was on the interpretation of Clause 3.8 and whether the same was applied correctly or not. In any event, since the petitioners have participated in the auction process, they cannot now challenge Clause 3.8.

The court also said that it was not touching upon the policy of requiring a security clearance. “We are, as rightly pointed out by Mr Tushar Mehta, Additional Solicitor General of India, not sitting in appeal over the decision of the Government as to the security angle assessment insofar as Dayanidhi Maran or Kalanithi Maran are concerned. We are also not called upon to comment upon, nor have we, as to whether the allegations/charges against the said two individuals and Sun TV are well founded or unfounded. Those would be decided in criminal proceedings,” the Court said.

Thus the limited extent of judicial review was whether the security assessment in respect of the Maran brothers was 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 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 plain reading, extend to shareholders of the applicant company.

The Government 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 Singhvi was right in submitting that the clause has serious ramifications extending far beyond the present e-auction. If security clearance were to be denied to a company, as has happened in the two cases before us, that would a blot on that company – a badge of dishonour – as Dr Singhvi put it. When such serious penal consequences are to follow then the provisions of Clause 3.8 would require a strict interpretation and if there were any doubt, an interpretation against the maker of the clause would have to be adopted,” the Court said.

Furthermore, the Court said there was 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 March 2015. Even then, no security concerns were raised in respect of the two companies.”

It was pointed out by Sibal that in respect of the various cases against the Marans, nobody has been convicted and in fact, the charge-sheet has been filed in only one of four cases.

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