MCA, AG differ on 2G criteria

Written by Ronojoy Banerjee | Ronojoy Banerjee | New Delhi | Updated: Sep 20 2011, 06:54am hrs
Serious divergence in opinions has emerged between the attorney general and the ministry of corporate affairs (MCA) over the interpretation of a key eligibility crietria set by the department of telecommunications (DoT) in awarding 2G licences in January 2008.

In a note, the MCA has said the effective date for change in the authorised share capital of a company should be seen as the day when the proposal is duly passed by the shareholders through a special resolution. However, this view is at variance with the opinions of both the Comptroller & Auditor General of India (CAG) and the Attorney General (AG). Both CAG and AG have consistently argued that the effective date for the same should be when the respective registrar of companies (RoC) records the change and makes necessary alterations in the company's memorandum.

The issue is central to the charges levied against a host of new telecom companies such as Unitech Wireless, Loop, Videocon and S Tel. According to CAG, these firms increased their authorised share capital to meet the DoT requirements by passing a special resolution. However, these companies had not received certificates from RoCs at the time of applying for the licences and so were ineligible.

In a note dated September 8, former law minister and currently corporate affairs minister Veerappa Moily has said, The effective date for increase in the authorised share capital should be the date of passing the requisite resolution by the shareholders. He further said that the ministry's stand should not only be consistent but also precise and certain when it comes to the interpretation of the relevant provisions of the Companies Act".

Under the UASL guidelines, a company must have a minimum authorised share capital of Rs 3-10 crore, which varies from circle to circle. The issue had come up when the CAG in its report had said that eight applicants belonging to the Unitech Group had an authorised share capital of Rs 5 lakh each. In order to meet the eligibility criteria, all these firms increased their authorised share capital on September 20, 2007 through a special resolution. The RoC, however, issued the certificate of registration only on November 8, 2007 after the company deposited the requisite stamp duties on October 3, 2007, much after it had submitted its applications on September 24, 2007. Since the cut-off date for being eligible for licences was September 25, 2007 by the definition of CAG and AG, the company was not eligible for the licences.

Similarly, the issue of change in the authorised share capital by merely passing a special resolution without a certificate from RoC was also raised against Allianz Infratech (later merged with Etilsalat DB), Loop Telecom, Videocon Telecommunications and S Tel.

According to Attorney General Goolam E Vahanvati, merely passing a special resolution for increase in authorised share capital is not enough. In the case of increase in authorised share capital, members of the public are entitled to know the precise authorised capital of the company and, therefore, in my opinion, the mere passing of a resolution is not enough. It must be filed with the registrar, he had said in a letter to the DoT and the secretary of law DR Meena last month. A senior government official told FE: We have strictly given our views on the matter based on the Companies Act. The divergence in opinion is on account of the AG taking a larger view of the matter, he said.

Legal experts too are divided on this contentious issue. Senior corporate lawyer Lalit Bhasin agrees with the MCA view that the effective date of change in the authorised share capital should be when the shareholders of the concerned firm have passed the resolution. Managing partner of Corporate Professionals Pavan K Vijay, however, feels that there is some lacuna in the Act. While these companies are not legally wrong, it still does not make them entirely correct legally. There is a fine difference. Whether it is the CBI or the CAG, what needs to be investigated is whether these firms actually had a board meeting and whether a special resolution was passed at all or not, he said.