New Horizons Limited & Another v. Union Of India & Others

D.P. Wadhwa, J.

Rule D.B.

There are two petitioners. First petitioner is a public limited company registered under the Companies Act, 1956, and the second petitioners is the Director of the first petitioner. By this petition they seek to have issued a writ direction or order in the nature of certiorari quashing the award of contract by respondents 1, 2 and 3 to respondent No 4 for printing, binding and supply of telephone directory for Hyderabad. Then the petitioners seek a writ, order or direction in the nature of mandamus requiring the respondents 1, 2 and 3 to accept the tender of the first petitioner for the purpose aforementioned. The first respondent is the Union of India through the Secretary, Ministry of Communication, New Delhi; the second is the Chairman, Telecom Commission, Ministry of Delhi; the third is the General Manager, Department of Telecommunications, Telecom District Hyderabad; and the fourth respondent is M/s M&N Publications Limited, New Delhi, who have been awarded the contract

2. A tender notice was published on 22 April. 1993 by the General Manager, Hyderabad Telecommunications (Hyderabad Telecom) inviting sealed tenders from competent agencies for printing, binding and supply of telephone directories in English for three annual issue starting from 1993. The notice said that the job involved "compilation of given data into the telephone directories to General Manager, Hyderabad Telecommunications free of cost at the specified distribution points. Besides this, the tender had to pay a royalty to General Manager, Hyderabad Telecommunications for each issue by clearly specifying the maximum royalty amount for each issue offered by him. The successful tender will be permitted to procure on his own classified advertiserments and cover page the technical specifications given in the tender document. The tendered should have experience in compiling, printing and supply of telephone directories to the large telephone systems with the capacity of more than 50,000 lines. The tender should substantiate this with documentary proof. He should also furnish credentials in this field". Tender document containing terms and conditions, specifications, etc. for the total job could be obtained from the Directory Officer, Hyderabad Telecom on payment of certain charges. Tender was to be received upto 15 hours on 14 May, 1993 and to be opened on the same day after half an hour of closing time of receipt.

3. Five tenders were received offering various amounts of royalties in relation to printing, binding and supply of the directories. The details are as under:

Name of TenderedAgreed amount 1993 issueoffered 1994 issue(in lakhs) 1995 issue

SESA SEAT INFORMATION

SYSTEMS LTD., Pune-141121151

M & N PUBLICATIONS Ltd. Bangalore-52. (Fourth respondent)203045

New Horizons Ltd., New Delhi-1. (First petitioner)39129.30291.60

Hyper Media Information Services Pvt. Ltd., Bangalore––10.64572

Kaljyothi Process Pvt. Ltd., Hyderabad––20.102138160





4. Fourth respondent was found to be successful bidder and the first petitioner was informed by letter dated 3 August, 1993 that its tender offer could not be considered though expressing thanks for its interest and participation in the tender. Petitioners says that they came to know about the award of the tender to the fourth respondent on 1 August, 1993 when they saw an advertisement in the Daily Hindu stating that M&N Publications (fourth respondent) was the only official publisher of Hyderabad Telecom telephone directories. Aggrieved by the action of respondents 1, 2 and 3 this petition was filed on 16 August, 1993. It appears the petitioners did not lose much time in coming to this Court. M/s. Sesa Seat Information Systems Ltd. also filed a writ petition in the High Court of Judicature, Andhra Pradesh at Hyderabad seeking somewhat similar reliefs. The petitioners before us were not the parties to that petition. During hearing of this petition we were told that petition was dismissed by the Andhra Pradesh High Court on 30 August, 1993, but the petitioners contend that the challenge there was on a different ground.

5. First petitioner says it was most suitable and competent party for award of the contract and particularly when it offered much higher amount of royalty than the fourth respondent. It says that it is a joint venture company duly approved by the Government of India with 40% equity owned by MM Integrated Information Pte Limited, a wholly owned subsidiary of Singapore Telecommunications (Singapore Company for short). This Singapore Company is stated to be the world leader in the field of directory printing and publications having 28 years of directory publishing experience of the public telephone directories in Asian Region. The balance 60% equity of the first petitioner is stated to be held by M/s. Thompson Press (India) Limited; M/s. Living Media India Limited; Mr. Aroon Purie; World Media Limited and the other companies in the same group. The petitioners have described in detail the functioning of all the shareholders of the first petitioner claiming that they have rich experience in printing, publishing and marketing. They also said that Thompson Press and Living Media had printed and bound telephone directories for respective parties who had been earlier awarded contract for Delhi and Bombay. They said that the directories printed were for a network of six lakh lines, while the present tender contemplated printing of directories for a two lakh lines network. The first petitioner is claimed to possess the management expertise, experience and know-how in the printing of directories with yellow pages having available to it the infrastructure for making and latest production facilities. It is stated that the first petitioner was promo­ted as a joint venture with the approval of the Government of India to bring in the knowledge, technology and skills for the marketing, design and production of yellow page type directories and related products. It is then claimed that the first petitioner possessed the necessary expertise, knowledge and experience for execution of the contract in question. It also gave higher bid and had, thus, legitimate expectations that it would be awarded the contract. By awarding the contract to the fourth respondent, the petitioners say, the exchequer has lost about Rs. 365 lakhs as the fourth respondent had offered royalty of Rs. 95 lakhs as against the royalty of Rs. 459.9 lakhs offered by the first petitioner. The petitioners have also complained that they were not informed of any reason for non-consideration of their tender. The action of the respondents 1 to 3 has, therefore, been termed as arbitrary and capricious exercise of executive power. Petitioners say that the first petitioner was fully eligible and met the criteria as laid and it was competent to compile, print and supply the telephone directories as per the invitation of tender. Strong reliance has been placed on the experience of the foreign collaborator/equity holder and on the major equity shareholders being the Thompson Press and. Living Media, these two companies, it is stated, owned the most well equipped modern printing and binding factory and had executed the work for the parties who had been awarded contract earlier for the telephone directories for metropolitan cities of Delhi and Bombay. These facilities, the petitioners claimed, were avail­able to them to execute the contract in question and that all these facts were clearly brought out in the tender documents submitted by the petitioners. The petitioners, therefore, say that award of the contract to the fourth respondent has been based on extraneous considerations and this action of respondents 1 to 3 is violative of Article 14 of the Constitution.

6. Mr. Sarin, appearing for the petitioner, formulated three points (1) though the petitioners are not challenging the eligibility conditions as set out by the authorities, the authorities acted in an irrational, un­reasonable and arbitrary fashion and also against the public interest in just only looking at the experience of the first petitioner itself; (2) on a proper reading of the tender submitted by the first petitioner it had to be read "we the following companies, namely, Thompson Press, Living Media, Integrated Information Pte. Ltd. World Media Limited and Aroon Purie pool their experience and their resources together in a joint venture in the name of the first petitioner". Alternatively, the authorities should have lifted the corporate veil of the first petitioner though in view of the above submission it might not arise. Still in the alternative it was submitted that the first petitioner was in the nature of partnership of the aforesaid companies and the person; (3) the question of public revenue and, thus, the public interest was involved and the tender of the first petitioner could not be rejected on hyper technical pleas that the first petitioner itself had no experience.

7. Respondents 1 to 3 i.e. the authorities, have denied the allegations of the petitioners and affirmed their action in awarding the tender to the fourth respondent. They say that the tender of the petitioner was rejected on account of not possessing the required past experience of compiling, printing and supply of telephone directories of the telephone systems of the capacity of more than 50,000 lines as stipulated in the tender notice. They say it was stipulated in the tender notice that the tenderer should substantiate their experience with documentary proof by furnishing their credentials in this field. As a documentary proof of experience, they say, the petitioner gave the telephone directories of Bombay and Delhi 1992 Issues. The petitioners have themselves stated that M/s Thompson Press and M/s Living Media had printed and bound these telephone directories for respective parties who had been awarded contract of Delhi and Bombay. These respondents, therefore, say that first petitioner did not produce any evidence to show that it had in its own name undertaken compiling, printing, binding and supply of telephone directories as mentioned in the tender notice. Further it is stated that from the copies of the telephone directories submitted by the first petitioner along with its tender offer it was found that telephone directory of Delhi 1992. Issue was published by Sterling Computers Limited on behalf of United Data Base (India) Pvt. Ltd. printed and bound at Navaneet Publications (India) Ltd. Gandhinagar, while there was no indication on telephone directory of Bombay 1992. Issue as to who was the publisher or the printer. The tender of the first petitioner, therefore, these respondents say could not be considered as it did not satisfy on of the conditions of eligibility. These respondents further say that statement in tender document of the first petitioner that it was converted into a joint venture in 1992 and that the first petitioner’s plan included directory publishing as one of the items among other items of work viz. data base management, development of tele services information, marketing international yellow page sales, etc. was itself a clear proof that first petitioner who was concerted as a joint venture company in 1992 had no experience whatsoever in its own name as per the eligibility condition. Respondents 1 to 3 to admit that perhaps reasons for non-acceptance of the tender of the first petitioner should have been communicated, but they say this itself is not fatal as the reasons do find mention in the records of the respondents.

8. The fourth respondent has supported the stand of the other respondents and has stated that the contract was rightly awarded to it. Criticising the high offer of royalty given by the first petitioner this respondent says that it was a sheer attempt of adverturism and the very enormity of the bid would make any reasonable man suspect the bona fides of the first petitioner. Then respondent further says that the first petitioner had also bid for the contract for Delhi directories for five years 1993-1998 where the number of subscribers w over seven lakhs as opposed to two lakhs in Hyderabad offering a royalty amount of Rs. 6 crores. For the Calcutta telephone directory also the first petitioner gave it bid offering Rs. 7 crores for a five years contract. Compared to this the bid of the petitioner for Rs. 4059 crores for a three years contract for Hayderbad, the fourth respondent says show that the petitioner has very little knowledge of the business and the enormity of the bid would make the contract commercially unviable leading to severe losses and the possibility of default, as had happened in the past. The fourth respondent has also given details of the expenses incurred by it so far after the award of the contract to it.

9. With their rejoinder the petitioners have brought on record the details of the telephone directories printed by Thompson Press. These number fourteen. Eleven of these have been printed for M/s. SESA SEAT Information Systems Limited, Pune, and three for M/s. Sterling Computers. M/s. Living Media is stated to have printed telephone directories for Delhi in two volumes for M/s. Sterling Computers, Madras. Explaining criticism of the fourth respondent as to how the royalty offered for Hyderabad telephone directory to be so high compared to what was offered for Delhi and Calcutta the petitioners say that the requirements regarding the directories of Delhi and Calcutta were far greater both in volume and number of pages as compared to the requirements of Hyderabad Telecom and that the increased cost of large volume of directories and increased pages is not offset by the difference in prevailing advertising rates in Calcutta and Delhi. Moreover, in Delhi, the Mahanagar Telephone Nigam Limited has retained for itself the right to collect white page revenue which is a substantial one, and while in Hyderabad 80% of the white page revenue accrues to the contractor. As regards Calcutta, the first petitioner stated, that it is almost a stagnant market while Hyderabad is a growing metropolis. Further it is stated that the first petitioner and its constituents/joint venture partners have a well established business reputation to protect and have the capacity to withstand and take such business risks, if any, involved in the execution of the contract.

10. The petitioners have also brought on record copy of the applica­tion submitted for foreign collaboration to the Secretariat for Industrial Approval, Department of Industrial Development, New Delhi. This application was filed by the first petitioner as a private limited company on 30 January, 1989. The first petitioner wanted to enter into a foreign collabo­ration agreement with Integrated Information Pte. Limited, Singapore. The agreement was, however, to be entered after the sanction was given by the Central Government. The terms of the foreign collaboration were that the foreign company (Singapore Company) would have equity participation of Rs. 2 lakhs having 40% of the authorised capital in the first petitioner. Thus, it was a case where the first petitioner would disinvest its equity to the extent of 40% which would go to the Singapore Company and the balance 60% of equity shall remain with the shareholders of the first petitioner. By latter dated 27 January, 1992 the Central Government conveyed its approval to the first petitioner for foreign collaboration as proposed, the item of activity covered by foreign collaboration was to be yellow pages directories. Foreign equity participation was to be 40% amounting to Rs. 2 lakhs in the paid up capital of Rs. 5 lakhs of the first petitioner. In this letter it is mentioned that this approval letter was to be made a part of the foreign collaboration agreement to be executed between the first petitioner and the Singapore Company. As to when this agreement was executed and what are its terms we cannot say as it has not been brought on record. There are some more facts of the first petitioner which may also be noted. The first petitioner was incorporated in the year 1961. It appears it was not doing any business till late and if we refer to the income-tax clearance certificate filed by the first petitioner along with the tender documents it had suffered a loss in the assessment year 1988-89 to the extent of Rs. 7,860 and its profits for the subsequent three years respectively amounted to Rs. 19,810, Rs. 23,650 and Rs. 25,020. For the assessment year 1992-93 the returned income is Rs. 4,461. This led Mr. Chidambaram appearing for the fourth respondent to remark that the first petitioner was in the nature of a shell company. He said it was not clear from the documents filed by the petitioner as to how it was earning the income and that it could be anybodys guess. List of the four directors shows that they are all Indian residents of New Delhi.

11. We proceed on the assumption that shareholders of the first petitioner have all the experience in compiling and printing of telephone directories though this is disputed by the respondents. But then it is not all the job requirement. The argument of Mr. Sarin had been that the authority should have pierced the veil of the first petitioner to find out as to who were the shareholders of the company and whether they were having the requisite experience and satisfy the conditions of eligibility of the tender notice. He said that the joint venture which had the approval of the Central Government was completely ignored by the authorities.

12. A joint venture is explained in Blacks Law Dictionary as a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. Ii is also an association of person or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a continuity of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. It is a one-time grouping of two or more persons in a business undertaking, unlike a partnership, a joint venture does not entail a continuing relationship among the parties.

13. A Bench of this Court in U.K. Mehra v. Union of India and Others, 51 (1993) DLT 14 (DB)=1993 (26) DRJ 495 [LQ/DelHC/1993/289] , said that setting up of the subsidiary company could not be construed as joint venture and that joint venture would come into existence when the resources of two different persons or entities are pooled together. In the present case we find that it is no joint venture as such as alleged by the first petitioner, but there is only a certain amount of equity participation by a foreign company in the first petitioner. The autho­rities could not know the terms of the joint venture as alleged. It was sub­mitted by Mr. Chidambaram that the Singapore Company may have experi­ence of yellow page directories in the foreign countries but it had none in the Indian conditions. Yellow page is comparatively a new concept in the tele­phone directories. There are parties who are bringing out yellow page directories independently of telephone directories. Under this concept of telephone directories containing yellow pages the party whose tender is accepted has to get revenue from advertisements in yellow pages and at times for some advertisements in white pages or some share in that and from that revenue cost of printing, compiling, binding, etc., is to be met and royalty amount also paid to the authorities, If a party cannot generate revenue from yellow pages it will certainly fail to bring out the telephone directories and would in all likelihood commit breach of the contract. No one was in any doubt that telephone directory for Hyderabad Telecom was to be brought out with yellow pages. Respondents 1 to 3 have said that telephone directories for the past five years could not be brought out in the Hyderabad Telecom District and that there were about 25,000 entries of the subscribers missing from the existing telephone directory causing acute inconvenience and haras­sment to the subscribers. It had, therefore, to see that telephone directories were brought out in time by a person competent and experienced to execute the contract. Mr. Chidambaram was also critical of the stand of the first petitioner that its shareholders had the requisite experience including the Singapore Company. Mr. Chidambaram said that first petitioner had only disinvested its equity to the extent of 40% and as regards 60% of the equity there were no particulars as to how many shares were being held by Thompson Press, Aroon Purie and others, Mr Chidambaram said there was no bar on any party disposing of its shares at any time and in such cir­cumstances how could an experience of a shareholder be considered to be that of the company. He said such a principle was fraught with dangerous portent. He also said that the proposition advanced by the petitioners would be something like standing on a shifting sand which would not be proper and in such a situation conclusion reached today may turn out to be wrong after a week or so.

14. Here the first petitioner admittedly has no experience. It is deriving its strength from its shareholders who also have no experience of yellow pages, Mr. Chidambaram would appear to be right in his submission that to collect advertisements for yellow pages is different than to get advertisements for magazines in which toe shareholders of the first peti­tioner claim to be the leaders.

15. It is difficult to understand the argument of the petitioners that authorities should have pierced the veil of corporateness of the first petitioner to come to the conclusion that it satisfied the eligibility conditions. Mr. Venugopal, appearing also for the fourth respondent, said that concept of piercing the veil is creation of the Courts and only the Court can pierce the veil of corporateness. This does not appear to us to be a correct submission. Executive can in given circumstances and in public interest embark upon the exercise of piercing the veil of corporateness of a company. For example, if for some wrongful act a company is blacklisted by a certain department of the Government and the directors of that company form another company, the department can pierce the veil to find out who are in fact lurking behind the newly formed company, and thus, deprive the newly formed company to deal with the department.

16. As far as the first petitioner, a company, is concerned it cannot make the argument of piercing the veil either as a ground of attack or as a ground of defence. How can the first petitioner say that look I am not what I am but I am Thompson Press, Living Media, World Media, Aroon Purie, etc. Under Section 34 of the Companies Act, 1956, on the registra­tion of the memorandum of a company the Registrar of the Companies is to certify that the company is incorporated. From the date of incorporation mentioned in the certificate of incorporation the company shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company, and having perpetual succession and a common seal. Let us examine the argument of the petitioners from other angle. Can a creditor of the first petitioner proceed against its shareholders as well Certainly not. The shareholders would themselves advance the plea that they are not liable. Piercing the veil cannot be for a limited purpose then it comes to award to tender, but then the contract has to be performed and in case of breach it is the tender who is held liable. The shareholders of the first petitioner would not be saying that they would be liable for the breach, if any.

17. A company unlike partnership is a legal person set apart from its members. House of Lords in England as far back as at the turn of this century set its seal on the reality of corporate existence when it gave to a debenture-holder, who was virtually the proprietor of the company, priority over unsecured creditors in a winding up, despite the protest of those creditors that Salomon and his company were in truth the same person (see Sahman v. Salomon & Co. Ltd., 1897 AC 22). Corporate veil is certainly not, however, an impregnable screen. The Courts have to an increasing extent shown themselves to be prepared to strip aside (or lift, pierce, remove, put aside, or tear as the different terms go) the veil in order to perceive the real person in the corporate entity. Palmers in his Company Law (Twenty fifth Edition) gives, with reference to case law, twelve instances where corporate veil was lifted. The learned author, however, observes as under:

"In practice, the ability to choose between the application of the rule in Salomons case and the jurisdiction to pierce the veil of corporateness gives the Courts a considerable degree of discretion and enables them to do justice and to decide individual cases in accordance with equitable considerations. But it should be empha­sised that the rule in Saolmons case is still the principle and the instances of piercing the veil are the exceptions, though their number is growing".

18. The Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. and Others, (1986) 1 Supreme Court Cases 264 [LQ/SC/1985/371] (paras 90 and 91) and State of U.P. and Others v. Renusagar Power Co. and Others, AIR 1988 Supreme Court 1737 (paras 52-63), examined in-depth the circumstances under which corporate veil can be lifted. The Court said that generally and broadly speaking corporate veil might be lifted (1) where a statute itself contemplates lifting the veil, or (2) fraud or improper conduct is intended to be prevented, or (3) a taxing statute is sought to be evaded, or (4) where associated companies are inextricably connected as to be, in reality, part of one concern. The Supreme Court in Renusagar Power Company case again observed as under :

"It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of cor­porate veil is expanding......

19. Nevertheless the fact remains that it has to be seen if from the shareholdings of the company, the inevitable inference in any event is if the company is merely Mr. so-and-so in corporate form.

20. A company is an independent legal person distinct from its mem­bers. First petitioner is certainly carrying on its business independently of that of its shareholders. It is one thing to say that shareholders of a com­pany have vast experience in the publication of telephone directories with yellow pages and it is entirely another thing if the company itself has that experience. Experience of a shareholder cannot be the experience of the company. Nor is the first petitioner agent of its shareholders. Palmer says (para 2.1508) that the principle that the company is a separate legal entity is still firmly established, as in the words of Lord Justice Lindley L.J., "lying at the root of the legal idea of a corporate body, modern practice, in difference to the reality of economic facts, has frequently admitted exceptions to it in which the veil of corporateness is lifted." In this 25th Edition it is mentioned that the veil of corporateness can be lifted in the following cases under the English Law :

1. Where companies are in the relationship of holding and sub­sidiary (or subsidiary) companies, the Act requires, in principle, group accounts.

2. Where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the com­pany on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum.

3. In certain matters pertaining to the law of taxation, parti­cularly where the question of the "controlling interest" is in issue.

4. In the law relating to trading with the enemy, where the test of control is adopted.

5. In the law of merger control in the United Kingdom. The Fair Trading Act, 1973 adopts the test of "distinct enterprises." Cessation of being "distinct enterprises," irrespective of the legal form of those enterprises, constitutes, subject to certain conditions, a merger situation (see paragraph 12.402 below).

6. In the competition law of the European Economic Community, as contained in Articles 85 and 86 of the EEC treaty and in secondary legislation on that subject, a holding company and a subsidiary, which does not determine its behaviour on the market in an autonomous manner, are treated as forming an economic unit. An arrangement between a holding company and its non-autonomous subsidiary does not fall under Article 81 and a holding company incorporated in a country which is not a member of the EEC is regarded as being present in the EEC if it has a non-autonomous subsidiary in EEC treaty.

7. The Court will not allow an abuse of Section 429 by the for­mation of a new company by members holding nine-tenths of the shares in an existing company, if the new company is for­med solely for the purpose of expropriating the shares of the minority shareholders in the existing company.

8. The Courts have further shown themselves willing to "lift the veil" where the device of incorporation is used for some illegal or improper purpose. So, where a transport company sought to obtain licences for its vehicles which, it was unlikely to obtain if it made application on its own behalf, by causing the application to be made by a subsidiary company to which the vehicles were to be transferred, the Court refused to treat parent and subsidiary as independent bodies and decided the application on the basis that they were one commercial unit. Similarly, where a vendor of land sought to avoid an action for specific perfor­mance by transferring the land in breach of contract to a com­pany he had formed for the purpose, the Court treated the com­pany as a mere "sham" and made an order for specific perfor­mance against both the vendor and the company. However, a re-arrangement of a group of companies so as to minimize the extent of any future tort liability that could be enforced in respect of the groups activities is a proper use of the possibili­ties provided by company law and will not entitle the Court to lift the corporate veil. Where a bankrupt obtained credit for himself through the "charade" of a company, lie committed an offence under what is now Section 360(1)(a) of the Insol­vency Act 1986, although normally the offence is not com­mitted if the credit is obtained for another person.

9. Where a private company is founded on a personal relationship between the members, the Court is prepared to order the wind­ing-up of the company under the "just and equitable" clause (Section 122(1)(g) of the Insolvency Act, 1986), if a member com­mits a breach of good faith which the members owe each ether as the result of the personal relationship and thereby acts in­equitably. That these quasi-partnership companies may be wound up by the Court by virtue of Section 122(1)(g) in appro­priate circumstances constitutes a lifting of the veil of corporateness, because here the substance of the association prevails over its legal form, in Ebrahimi v. Westbourne Galleries Ltd. [(1973) AC 360] Lord Wilberforee, when commenting on the words "just and equitable" in what is now Section 517(1)(g), said that "the words are a recognition of the fact that a limited company more than a mere judicial entity, with a personality in law of its own: that there is room in company law for recogni­tion of the fact that behind it, or amongst it, there are indivi­duals, with rights, expectations and obligations inter say which are not necessarily submerged in the company structure."

10. Where the Court considers it appropriate to issue a Mareva injunction (or another injunction founded on Section 37 of the Supreme Court Act, 1981) "the Court will use its power to pierce the corporate veil if it is necessary to achieve justice irrespective of the legal efficacy of the corporate situation under consideration.

11. It has sometimes been argued that there is emerging in English and Scottish law a general principle that all companies in a group of companies will be treated as a single entity. Certainly, there are many cases in which the distinction between parent and subsidiary company has been ignored by the Court, of which notable recent examples are DHN Food Distribution Ltd. v. Tower Hamlets LBC, [1976] 1 W.L.R. 852, and Revlon Inc. v. Cripps & Lee, [1980] F.S.R. 85. In the former, for the pur­poses of a statutory claim for compensation arising out of a

compulsory purchase, the holding company, which ran the busi­ness, was held to be entitled to compensation for disturbance of that business, even though the land had been compulsorily acquired belonged to a subsidiary company. In the latter, a trade mark owned by a Swiss subsidiary of an international group, was regard­ed as an asset of the group as a whole.

On the other hand, the DHN Food Distribution case was distinguished in a similar compensation case by the House of Lords in Woolfson v. Strathclyde Regional Council, 1978 SLT 159, and the underlying principle of the separate corporate entity applied even in a group situation. In Adams v. Cape Industries places [I990] 2 WLR 657, the Court of Appeal regarded all the cases in which the parent/subsidiary distinction had been ignored as turning on the wording of particular statutes or contracts. It was denied that there was a general principle that all companies in group should be re­garded as one. Nevertheless, this did not preclude treating, say, a subsidiary as the agent or the alter ego of its parent, provided the facts of the case justified such a conclusion. However, it would seem that the facts would have to reveal a very high degree of control by the parent over the subsidiary before a Court would conclude that an agency relationship had been established. In the Cape Industries case, although the group ran a single integrated mining division with little regard to corporate, formalities as bet­ween members of the group, and although the parent exercised a degree of overall supervision over the subsidiary in ques­tion (NAAC), in particular by setting its maximum level of expenditure and its dividend and borrowing levels, and by subjecting the subsidiary to the broad business policies of the parent, an agency relationship was not found to have been estab­lished. This seems to have been because the subsidiary retained control of its day-to-day business and because the corporate forms applicable to NAAC as a separate legal entity were observed.

A somewhat similar approach was taken in Lonrho Ltd. v. Shell Petroleum Co. Ltd., (1980) QB 358, affd. (1980) 1 WLR 627, where the question arose whether English holding companies could be compelled by an English Court to give discovery of documents held by their Rhodesian and South African subsidiaries under the Rules of the Supreme Court, 1965, Order 24, rr 2 and 3, which re­quired the disclosure of all documents (except privileged ones) in the "possession, custody or power" of a party, it was clear that the Rhodesian and South African documents were not in the possession or custody of the English holding companies but the question was whether they were in their "power". The Court of Appeal held that much depended on the facts of the individual case and that in the present case the documents were not in the "power" of the holding companies, as the subsidiaries enjoyed a great deal of autonomy and compliance with a request for disclo­sure would have exposed the directors of the subsidiaries to crimi­nal prosecution in the countries in which they carried on business. The House of Lords affirmed this decision of the Court of Appeal––(1980) 1 WLR 627.

12. In Amalgamated Investment & Property Co. Ltd. (in liquidation) v. Texas Commerce International Bank Ltd., (1982) QB 84 (C.A.), the plaintiffs undertook a guarantee for loans advanced by the defen­dant bank to one of the plaintiffs subsidiaries. Some of these loans were given, for exchange control reasons, through a wholly-owned subsidiary of the bank in the Bahamas named Portsoken, but the guarantee was never expressly extended to the Portsoken loans. The Court of Appeal held that the plaintiffs guarantee covered the Portsoken loans. Lord Denning M.R. said that Port­soken had to be regarded as the alter ego of its parent, the bank, but the other judges (Eveleigh and Brandon L.JJ.) preferred to found their judgments in favour of the bank on an estoppel created by the course of dealing between the parties.

21. The argument of Mr. Sarin sounded (nay, he asserted), as if the first petitioner was a partnership firm of its shareholders. This is against the basic tenet of a company under the Company Law. A company is a body corporate distinct from its members, apart from certain exceptional cases enumerated in Palme Company Law "though their number is grow­ing", as above noted.

22. In Mrs. Bacha F. Guzdar, Bombay v. Commissioner of Income Tax, Bombay, (AIR 1955 SC 74 [LQ/SC/1954/147] ), it was argued before the Supreme Court that the position of shareholders in a company was analogous to that of partners inter se. The Court said that this analogy was "wholly inaccurate. Partnership is merely an association of persons for carrying on the business of partnership and in law the firm name is a compendious method of des­cribing the partners. Such is, however, not the case of a company which stands as a separate juristic entity distinct from the shareholders."

23. In The Andhra Pradesh State Road Transport Corporation by its Chief Executive Officer, Hyderabad v. The Income-tax Officer, B.I. B-Wardt Hyderabad and Another, (AIR 1964 SC 1486 [LQ/SC/1964/62] ) the Supreme Court with re­ference to the appellant, a corporation established under the Road Trans­port Corporation Act, 1950, said as under :—

"The corporation, though statutory, has a personality of its own and this personality is distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the pro­perty of the corporation or carries on the business with which the corporation is concerned. The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately; and so, prima facie, the income derived by the appel­lant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation."

24. In the treatise Palmers Company Law (25th Edition) distinc­tion has been brought out between a company and a partnership (para 2.1523). It will be advantageous to reproduce this distinction from that book :—

"The principle that, apart from exceptional cases, the company is a body corporate, distinct from its members, lies at the root of many of the most perplexing questions, a distinction which must be firmly grasped. The principle is thrown into clear relief by contrasting an incorporated company with a partnership, for under English law (though not under Scottish law or that of most Conti­nental systems) a firm or partnership is not a separate entity from its members.

The principal distinctions between a company and an English partnership are as follows:

1. In the case of a partnership the property of the firm belongs to the individual members. They are collectively entitled to it, whereas, in the case of a company, it belongs to the com­pany, and not to the members.

2. Creditors of a firm are creditors of the members of the firm and on obtaining judgment against the firm can levy execution on the property of the partners in the firm, whereas, in the case of a company, "the creditor has no debtor but that impalpable thing, the corporation," and judgment against the company normally gives no right to levy execution against the mem­bers.

3. A member of a firm can on behalf of the firm dispose of property and incur liabilities, within the scope of the business, to any extent (unless this authority is expressly excluded), whereas a member of a company, as such, has no power.

4. A partner cannot contract with the firm, whereas a member of the company can contract with the company."

25. It is not the case of the petitioners that first petitioner is a sub­sidiary of any holding company as that would have different implications. The contention appears to be that first petitioner is in fact Thompson Press, Living Media, World Media, Aroon Purie and others and thus amalgamated with these companies. That again is not so.

26. We do not think that the authorities failed in their duty to look behind the facade corporateness of the first petitioner. It was none of their duty. They rightly examined the experience, etc. of the first petitioner and came to the conclusion that it did not satisfy the eligibility conditions. We find no error in the approach of the authorities.

27. We also find no merit in the submission of the petitioners that since it was the question of public revenue the authorities should have pierced the veil of corporateness of the first petition. For one, we do not think that the petitioners can advance such an argument as stated above, and secondly, loss of revenue is not always sole consideration where question of public service is involved. It was more important to supply to the sub­scribers telephone directories in Hyderabad District on time. The approach of the authorities was, therefore, correct that the job should be entrusted to a person having experience and satisfying the eligibility conditions and not to be swayed by enormity of the offer of royalty.

28. It was not relevant for us to consider the argument of the fourth respondent that the offer of high amount of royalty by the first peti­tioner was in the nature of adventuresome and without reference to the reality of the situation. The sole consideration before the authorities was that if the first petitioner satisfied the eligibility conditions, and if it did satisfy, the authorities had certainly to accept its bid but not merely on account of the higher amount of royalty. A higher amount of royalty can be given for varying reasons or considerations. It is the calculation of the bidder. He may be trying to establish a market in the country.

29. Mr. Soli Sorabjee, who appeared for the petitioners, in rejoinder again stressed that absence of reasons for rejecting the tender of the first petitioner would vitiate the whole thing and that the authorities failed in their duty to hold inquiry as to the eligibility of the first petitioner and that was at the cost of the public revenue, and lastly, reasons to oust the first petitioner could be by the authorities concerned and not by the fourth res­pondent who was a rival in the trade. In M/s. Star Enterprises and Others v. City and Industrial Development Corporation of Maharashtra Ltd. and Others, (1990) 3 SCC 280 [LQ/SC/1990/289] , there was a challenge to the rejection of the highest offer by the appellants in response to invitation by public tender without assigning any reason for the same as arbitrary, unconstitutional and contrary to rule of law. The respondent was a Government company with­in the meaning of Section 617 of the Companies Act, 1956. The Court observed that there were no allegations of mala fide in the conduct of the respondents in refusing to accept the highest offer. The question which remained to be answered was as to whether when the highest offer in res­ponse to an invitation was rejected, would not the public authority be re­quired to provide reasons for such action. The Court said that looking for reasons in support of such action provided an opportunity for an objective review in appropriate cases both by the administrative superior and by the judicial process. The Court commended itself to the view that when highest offers of the type in question were rejected reasons sufficient to indicate the stand of the appropriate authority should be made available and ordinarily the same should be communicated to the concerned parties unless there be any specific justification not to do so. It will, thus, be seen that non-com­munication of reasons is not fatal in all circumstances. In the present case, the reasons existed on the record of the authorities that the tender submitted by the first petitioner was not in conformity with the condition of the tender and the first petitioner was found ineligible for award of the tender and its offer, therefore, could not have been accepted. We find that the third respondent acted in accordance with the terms laid down in the tender notice. The fourth respondent could not support the decision of the authorities in rejecting the tender of the first petitioner on any other ground except that given by the authorities, and we will not consider any such argument in arriving at the decision in the present case. The authorities had to see if the preliminary conditions for award of tender were satisfied or not on seeing the bid. Since the bid was rejected at the threshold the authorities could not consider the further question of high amount of royalty offered by the first petitioner. Highest bid could not be a substitute for eligibility conditions.

30. During the course of arguments Mr. Sarin did file tender docu­ments which the first petitioner submitted in pursuance of tender notice issued by the Mahanagar Telephone Nigam Limited (M.T.N.L) for Delhi and Bombay directories. M.T.N.L. is a company, though a Government Company, under the Companies Act, It is not a department of the Govern­ment. What M.T.N.L. does the Hyderabad Telecom is not necessarily to follow the same. Record does not show if the Hyderabad Telecom was aware of the terms of notice of tender issued by the M.T.N.L. We have seen the tender notice of the M.T.N.L. and that of the Hyderabad Telecom and we find that various clauses are not altogether the same. The eligibility condition of 50,000 directories of Hyderabad Telecom was not there in the case of tender notice issued by the M.T.N.L.

31. Mr. Sarin said that though the first petitioner satisfied the technical bids issued by the M.T.N.L. and failed in financial bids, but these very documents were submitted to the Hyderabad Telecom. In these docu­ments there is no mention if the M.T.N.L. found the first petitioner eligible for technical bids. We do not find there is anything wrong in the third respondent having an independent look in the matter to see if the first peti­tioner satisfied the criteria as laid down in the tender notice issued by it.

32. In Sterling Computers Ltd. v. M/s. M & N Publications Limited and Others, (1993)1 SCC 445 [LQ/SC/1980/319] , which was also a case of award of contract for telephone directories for Delhi and Bombay containing yellow pages, the Court again considered its earlier cases as to the law laid while awarding the contracts in respect of properties belonging to the State and which could be judged and tested in the light of Article 14 of the Constitution. The Court said that the law was well settled by the judgments of that Court in the cases of Ramana Dayaram Shetty v. International Airport Authority of India, (AIR 1979 SC 1628 [LQ/SC/1979/277] ); Kasturi Lal Lakshmi Reddy v. State of J & K, (AIR 1980 SC (1992); Fertilizer Corpn. Kamagar Union (Regd.) Sindri v. Union of India, (AIR 1981 SC 344 [LQ/SC/1980/458] ); Rama and Shyam Co. v. State of Haryana, (AIR 1985 SC 1147 [LQ/SC/1985/193] ); Haji T. M. Hassan Rawther v. Kerala Finan­cial Corpn. (AIR 1988 SC 157 [LQ/SC/1987/769] ); Mohabir Auto Stores v. Indian Oil Corpn., (AIR 1990 SC 1031 [LQ/SC/1990/139] ); and Shrilekha Vidyarthi v. State of U.P. (AIR 1991 SC 537 [LQ/SC/1990/571] ) and quoted the following passage from Kasturi Lals case :

"It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest. The Government, therefore, cannot, for example, give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it unless of course there are other considerations which render it reasonable and in public interest to do so."

Then the Court said that there was nothing paradoxical in imposing legal limits on such authorities by Court even in contractual matters because the whole conception of unfettered discretion was inappropriate to a public authority, who was expected to exercise such powers only for public good. The Court in this case (Sterling Computers Ltd.) also observed as under :

"......Under some special circumstances a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona fide manner although not strictly following the norms laid down by the Court, such decisions are upheld on the principle laid down by Justice Holmes, that Court while judging the constitutional validity of executive decisions must grant certain measure of freedom of "play in the joints" to the executive.

But in normal course some rules must exist to regulate the selection of persons for awarding contracts. In such matters always a defence cannot be entertained that contract has been awarded without observing the well-settled norms and rules prescribed, on basis of the doctrine of "executive necessity". The norms and procedures prescribed by Government and indicated by Courts have to be more strictly followed while awarding contracts which have along with a commercial element a public purpose as in the present case. The publication of directories by the MTNL is not just a commercial venture; the primary object is to provide service to the people."

33. We, thus, find that the tender form submitted by the first petitioner was not in conformity with the conditions of tender and could not have been accepted by the authorities, otherwise their action could have been termed arbitrary. Respondents 1 to 3 had to act in accordance with the terms laid down in the tender notice.

34. An argument was raised by the respondents that this Court had no jurisdiction to try the present petition. In support of this reference was made to a decision of the Supreme Court in State of Rajasthan and Others v. M.S. Swaika Properties and Another (AIR 1985 SC 1289 [LQ/SC/1985/115] ). In this case State of Rajasthan had acquired certain land of the respondent in the State of Rajasthan and notice was served upon the respondent, the owner, in the State of West Bengal. The Supreme Court said that the Calcutta High Court would not have jurisdiction in the matter. This judgment is of no relevance to us. Here the respondents 1 and 2 are in Delhi and so is respondent No. 4. The third respondent is the General Manager, Telecom District, Hyderabad, a department of the Central Government in the Ministry of Communications. We find this Court will, therefore, have jurisdiction in the matter. We could certainly have directed the petitioners to approach the Andhra Pradesh High Court which also has jurisdiction in the matter since the telephone directories were required for Hyderabad Telecom District and the contract was to be entered there and the records were also maintained therein Hyderabad. We could decline to exercise jurisdiction under Article 226 of the Constitution in such a matter in spite of the fact of our having jurisdiction in the matter. However, since the argu­ments were addressed at length we do not think any useful purpose will be served by sending the petitioners to Hyderabad.

35. The result of the discussion is that the petitioners have no case. This petition is dismissed. There will be no order as to costs.

Rule is discharged.