Telenor Asia (P.) Ltd. vs. Unitech Wireless (Tamil Nadu) (P.) Ltd. and Others
Telenor Asia (P.) Ltd. vs. Unitech Wireless (Tamil Nadu) (P.) Ltd. and Others[1]
(Breach of Representations and Warranties Clause)
Facts
In this case Telenor is a company incorporated under the laws of Singapore and Unitech Wireless (Tamil Nadu) (P.) Ltd., is an Indian company operating under the brand name “Uninor”.
The Department of Telecommunications (‘DoT’) granted Unified Access Service Licences (‘UASL’) to eight Unitech controlled entities which according to Telenor have merged into “Uninor”. On being represented that the UASL granted to Uninor were consistent and compliant with the policies of Government of India Telenor decided to enter the Indian telecom market as a strategic investor. Pursuant to several representations and warranties by the Indian Strategic Partners[2], Telenor entered into a joint venture agreement called Share Subscription Agreement (‘SSA’). The SSA, inter alia, contained the following representations and warranties made by the Indian Strategic Partners (‘ISP’)-
- The ISP, the Indian nominee partners and the licensee companies are companies duly organised and validly existing under the laws of India and have nil requisite power and authority to own its properties and assets and to carry on the business, as now conducted.
- The execution, delivery and performance by the ISP, the Indian nominee partners and each licensee company of this agreement and the compliance by them with and in accordance with the terms and provisions hereof do not and will not (i) contravene any provisions of any law to which they are subjects; (ii) breach the relevant exchange control laws including the foreign direct investment limit applicable to the licensee companies.
5.3 Each licensee company is entitled to issue the subscription shares to the FSP on the terms set out in this agreement.
7.2 Each licensee company is conducting and has at all times conducted its business in all material respects in accordance with all applicable laws and regulations of India.
7.3 Each of the ISP, the Indian nominee partners and the licensee companies have not contravened any law which would have a material adverse effect on its business or any licence or approval held by each licensee company.
7.4 The licensee companies, the ISP and the Indian nominee partners have not and to their knowledge persons affiliated, associated, hired, employed by or acting for any of them have not, indulged in any bribery, corruption, dishonest, deceitful and or fraudulent acts/omissions, in relation to the obtaining of any licences approvals and permits which are material for the conduct of their business including but not limited to any UASL. The business of the licensee companies is not and has not been conducted in violation of any applicable order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation of Governmental authority.
8.2 Neither of the ISP, we Indian nominee partners or the licensee companies have done any act nor have they conducted themselves in a manner that could prejudice any UASL issued by the DoT to any of the licensee companies.
- Those of the assets and properties which are occupied or used by the licensee companies are so occupied or used by right of ownership or under leases or licences which permit, such occupation and use and there are no circumstances to the knowledge of the ISP which would restrict or terminate the continued occupation, use and enjoyment of the assets and properties by the licensee companies.
Relying upon and believing the assurances made by the ISP, and trusting the warranties to be true Telenor Asia PTE Ltd., (‘FSP’) decided to invest in the licensee Indian companies and entered into a shareholders agreement (‘SHA‘) with the ISP and the licensee companies and made an equity investment of INR 6,135.62 crore in the erstwhile licensee companies. Later the Supreme Court of India passed judgment in the matter of Centre for Public Interest Litigation v. Union of India (WP No. 423 of 2010) and Dr. Subramanian Swamy v. Union of India (WP No. 10 of 2011) pursuant to which the licences granted to erstwhile licensee Indian companies were declared illegal and were quashed. After the licence cancellation judgment Telenor alleged that the applicants herein committed a fraud on it by making false representation and warranties, which led to its induction in Uninor and, therefore, it had the right to rescind the SHA and to declare the SHA a nullity and to dictate that a Board resolution be passed in Uninor that the company should transfer its entire business to a Telenor affiliate entity at a fair market value to be determined by an independent valuer.
CLB in this case eventually decided that the question whether the SSA and SHA were vitiated by fraud was a complicated question of law and fact and ought not to be tried by it in a summary jurisdiction under sections 397 and 398 of the Companies Act, 1956 and must be left to be adjudicated by the arbitral tribunal especially when the contracting parties had not only agreed to a dispute resolution mechanism through arbitration and had taken steps in furtherance thereof but arbitration had also commenced in relation to the SHA between the parties by the arbitral tribunal.
Though the present case does not offer any particular legal position on breach of representation and warranties made in the agreement, it definitely presents a picture as to what such breach of representations and warranties may lead to.
Author: Vivek Verma, Associate at Majmudar & Partners, Bangalore
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[1] [2012]107CLA547(CLB), [2012]114SCL517(CLB)
[2] Applicants/respondent Nos. 2 to 5
