Rouse Avenue: In Chhattisgarh coal allocation scam of Sayang Coal Block to AES Chhattisgarh Energy Private Ltd. (‘respondent Company’), the Special Judge (CBI) Arun Bhardwaj, acquitted the respondent Company and Director accused of misrepresenting the status of the respondent Company as being the subsidiary of AES Corporation, USA.
Factual Matrix
On 06-11-2006, the Ministry of Coal had invited applications from the companies for allocation of 38 coal blocks for captive mining. The AES Chhattisgarh Energy Private Ltd. vide letter dated 10-01-2007 submitted its application for allocation of Sayang coal block in Chhattisgarh State along with some other coal blocks for their proposed 1000 MW power project at Raigarh, Chhattisgarh. The Director mentioned that the respondent Company was 100 percent subsidiary of AES Corporation, USA (‘AES Corporation’). It was also mentioned along with the application that the respondent Company is a Special-Purpose Vehicle (SPV) constituted to implement the project and accordingly it will draw its financial and technical strength from AES Corporation.
The allegations were that the respondent Company was not a subsidiary company of AES Corporation on the date of application as well as on the date of making presentations before the 35th Screening Committee and it was not a subsidiary company of AES Corporation even the date of allocation of Sayang coal block i.e., on 06-11-2007. Thus, the respondent Company was not legally entitled to claim itself as one of the subsidiary companies of AES Corporation in terms of the Companies Act, 1956 and could not have used the financial figures of AES Corporation at the time of submitting application.
The Central Bureau of Investigation registered a First Information Report (‘FIR’) and later, the charges were framed on 06-01-2020 under Section 420 and 120-B of the Penal Code, 1860 (‘IPC’).
Analysis
The Court noted that AES Corporation was in business in India since 1998 in the form of foreign collaboration with Orrisa Power Generation Corporation Ltd (‘OPGCL’) and was holding 49 percent equity in OPGCL through its group companies AES (India) Private Limited (‘AES India’) and AES Mauritius, both companies being subsidiaries of AES Corporation. The Court also noted that OPGCL was engaged in the business of power generation from which 100 percent generated power was sold to GRIDCO, a Government-owned company, at prices fixed under a 30-year agreement valid till 2026. Therefore, the Court said that before venturing into Chhattisgarh power project, AES Corporation was not new to India.
The Court noted that the respondent Company’s case was that they were beneficially owned by AES Corporation, and therefore, the respondent Company was a subsidiary of AES Corporation. The Court on perusal of Delaware General Corporation Law, noted that Section 203(c)(9), defines the term ‘owner’ ‘when used with respect to any stock’ as a person or corporation who beneficially owns such a stock, directly or indirectly. Section 262(a) defines a ‘beneficial owner’ as a person or corporation who is the beneficial owner of shares of stock held either in voting trust or by a nominee on behalf of such person. The Court also took note of the submission of the accused Director that they were nominees on behalf of the AES and that they were holding the shares of respondent Company for the benefit of AES Corporation, which was the beneficial owner of the shares.
The Court also perused the General Rules and Regulations of the Securities Exchange Act, 1934, wherein Rule 13d—3(a) defines a beneficial owner as any person or corporation who “directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has all shares, voting and investment power.
The Court said that if the respondent Company and the Director were able to show that in USA, AES Corporation and the respondent Company were having the relationship of holding-subsidiary companies, they would be treated in the same relationship in India and it can be ascertained that whether they are holding-subsidiary companies as per Companies Act, 1956 or not.
The Court perused Section 4(6) of the Companies Act, which provides that in the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not. The Court said that there is requirement in the form of Section 187C of the Companies Act to report to the registrar of companies as to who is the beneficial owner of the companies but in the USA, the beneficial owner can maintain his anonymity and hold the shares through record holder of shares, there is no provision for informing any authority who is the real/beneficial owner of the shares.
On basis of the evidence produced before the Court, which showed that the composition of the Board of Directors of the respondent Company was under the control of AES Corporation, through its subsidiary company AES India Private Ltd., the Court said that the provision of Section 4(6) was clearly made out in favour of the Director and the respondent Company.
Hence, the Court opined that the AES Corporation was the beneficial owner of the shares of the respondent Company, as they were held by the Director, who was the record owner of the shares for the benefit of AES Corporation.
Thus, the Court held that the allegation or charged against the Director cannot be proved and it cannot be proved that the Director had cheated the Ministry of Coal for allocation of Sayang Coal Block in favour of the respondent Company and that there was no misrepresentation in the application, as the respondent Company was 100 percent subsidiary of AES Corporation. Therefore, the Court concluded that the Director was acquitted of all the charges framed against them.
[CBI v. AES Chhattisgarh Energy Private Limited, CNR NO. DLCT-11-000959-2019, Decided on: 19-12-2023]
Advocates appeared in the case:
Petitioner:
Sh. R.S. Cheema, Senior Advocate/Special PP (through VC) with Sh. A.P. Singh, Sh. Sanjay Kumar, DLAs, Sh. N.P. Srivastava, Sh. VK Pathak, Senior PPs with Ms. Tarannum Cheema and Sh. Akshay Nagrajan, Advocates .
Respondent:
Sh. Vikas Pahwa, Senior Advocate with Sh. Tanvir Ahmed Mir, Sh. Rajeev Goyal, Sh. Bishwajit Dubey, Sh. Gaurav Gupta, Ms. Surabhi Khattar, Sh. Ashutosh Singh, Ms. Dakshita Chopra, Mr. Prabhav Ralli, Ms. Nancy Shamim, Mr. Saud Khan and Mr. Shaurea Tyagi, Advocates
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