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Chennai , Aug. 28

THE Madras High Court has directed that the transfer of Vodafone's shares in RPG Cellular Services Ltd to a Sterling group company of Mr C. Shivasankaran is subject to the result of the appeal filed in the court by another shareholder in RPG Cellular Services.

The court has also said that the directors nominated to the board of RPG Cellular (representing the Sterling group company that bought Vodafone's stake) are permitted to attend the board meeting, but they shall not exercise their veto power for a period of two weeks.

Mr Justice N.V. Balasubramanian and Ms Justice Prabha Sridevan passed these orders on an appeal filed by Cellfone Ltd, a Mauritius-based company that holds a 10.47 per cent stake in RPG Cellular Services, against the orders of the Company Law Board.

The Additional Principal Bench of the Company Law Board, Chennai, had, on July 20, on a petition filed by RPG Cellular Investments and Holding P. Ltd seeking a direction to prevent the transfer of shares belonging to Vodafone to the Sterling group, directed that the matter could be decided by arbitration.

Subsequently, Vodafone, which held its stake in RPG Cellular Services Ltd through a Mauritius-based company, Air Touch International (Mauritius) Ltd, transferred its shares to IQ Investments Ltd, another Mauritius-based company belonging to Mr Shivasankaran.

The two Air Touch representatives on the board of RPG Cellular Services Ltd resigned and another two representing the Sterling group were nominated to the board in their place.

Seeking a stay of the CLB order, Cellfone went on appeal to the High Court stating that arbitration would involve only the parties to the shareholders' agreement - the RPG group, Air Touch and Cellfone - whereas the matter involved others too.

In its petition, Cellfone has cited 10 respondents, including RPG Cellular Investments and Holdings P. Ltd, RPG Cellular Services Ltd, Air Touch International (Mauritius) Ltd, Vodafone International Inc, USA, Vodafone Group Services Ltd, UK, Vodafone Group plc, UK, IQ Investments Ltd of Mauritius, the two representatives of Air Touch on the board of RPG Cellular Services, and Jubilee Investments and Industries Ltd, Kolkata.

"We are of the view that the question whether the Company Law Board was correct in referring the matter to arbitration has to be gone into at the time of hearing of the appeal itself. Accordingly, there will be interim stay of the operation of the Company Law Board's order for a period of two weeks," the High Court said.

As to the submission of the senior counsel for the third respondent (Air Touch International (Mauritius) Ltd) that subsequent to the CLB order, the shares had been transferred and two persons nominated to the board of RPG Cellular Services, the court said that "it is made clear that if the shares have been transferred, it will be subject to the result of the appeal. However, since the nominations have already taken place and the persons have been nominated as directors, they are permitted to attend the board meeting but they shall not exercise the veto power for a period of two weeks". The court gave two weeks time to file the counter affidavit and ordered notice to the respondents, and listed the matter for September 5.

It may be recalled that IQ Investments belonging to Mr Shivasankaran acquired Vodafone's stake in RPG Cellular Services Ltd, for an undisclosed sum, through an overseas transaction. The Sterling group operates the Aircel cellular service in Tamil Nadu circle, while RPG Cellular Services Ltd is one of the cellular service providers in the contiguous Chennai circle.

According to sources in the know, the issue before the CLB was whether the shares could be transferred to the Sterling group or not, which the CLB said could be decided by arbitration.

Cellfone's reason for going on appeal to the High Court was that this matter could not be decided by arbitration as seven others, who were not party to the shareholders' agreement, were involved.

Both Cellfone and the RPG group contend that the shareholders' agreement provided for the existing shareholders being given the first right of refusal in the event of one or more of the shareholders wanting to sell their stake in RPG Cellular Services Ltd.

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