Bombay High Court Overturns Revenue Minister's Order Against Tata Communications

Court rules change in shareholding does not constitute a transfer of company's assets, setting aside demand for unearned income.

In a significant ruling, the Bombay High Court has quashed a decision by the Revenue Minister of Maharashtra, which had upheld a demand for Rs. 26.06 crores from Tata Communications Limited (TCL) as unearned income. The court held that a change in shareholding does not amount to a transfer of the company's assets, thereby providing relief to TCL from a prolonged legal battle.

The case traces back to a 2014 order by the Revenue Minister, which alleged that the transfer of shares during the disinvestment of Videsh Sanchar Nigam Limited (VSNL), now known as Tata Communications, constituted a transfer of land initially granted to Overseas Communication Services (OCS). The demand was based on the premise that this change violated conditions of the Government Grants Act, 1895, as the land in question was allegedly used for purposes other than those sanctioned.

Justice Kamal Khata, while delivering the judgment, emphasized that the legal entity of a company is distinct from its shareholders. Citing multiple Supreme Court precedents, the court reiterated that shareholders do not possess proprietary rights in the company's assets. The judgment further criticized the authorities for failing to adhere to principles of natural justice, as the show cause notice did not specify that a change in shareholding constituted a "transfer" of assets.

The court also highlighted the State's role as a model litigant, urging the government to avoid frivolous claims and adhere to established legal precedents. It imposed costs of Rs. 25 lakhs on the State for compelling unnecessary litigation and urged the establishment of a committee to scrutinize such disputes to prevent future occurrences.

This ruling not only provides relief to Tata Communications but also reinforces the legal principle distinguishing shareholder rights from company ownership. The decision is expected to have broader implications for similar cases involving corporate restructuring and government grants.

Bottom Line:

Change in shareholding pattern of a company does not amount to a transfer of assets of the company, and shareholders have no proprietary interest in the company's assets.

Statutory provision(s): Transfer of Property Act, 1882 Section 54, Government Grants Act, 1895, Principles of Natural Justice.

Tata Communications Limited v. State of Maharashtra, (Bombay) : Law Finder Doc Id # 2816690