TMI Blog2016 (2) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in a fair and reasonable manner but following doctrine of public trust. As already seen, in the present case, the original lessee sought transfer merely by disclosing that the partnership firm was to be transformed into a private limited company with the same partners continuing as directors and there was no direct or indirect consideration involved. It was specifically declared that no pecuniary advantage was being taken in the process which is clearly false. The permission to transfer the lease in favour of a private limited company was granted on that basis. Thus, it was a case of suppression veri and suggestio falsi. Once it is held that transfer of lease is not permissible without permission of the competent authority, the competent authority was entitled to have full disclosure of facts for taking a decision in the matter so that a private person does not benefit at the expense of public property. - CIVIL APPEAL No. 434 OF 2016 - - - Dated:- 20-1-2016 - ANIL R. DAVE and ADARSH KUMAR GOEL, JJ. For The Petitoner : Mr. Milind Kumar,Adv. JUDGMENT ADARSH KUMAR GOEL, J 1. Leave granted. The State of Rajasthan is aggrieved by the quashing of its order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the application for transfer that the partners of the partnership firm will be Directors of the private limited company, the Directors of the private limited company who were partners of the firm were replaced by new Directors on 6th August, 2012 and the private limited company was listed as subsidiary of Ultra Tech Cement Limited Company (UTCL) with the Bombay Stock Exchange. This development showed that the transfer was secured by a conspiracy and in circumvention of the rules. 5. Respondent No.1 contested the show cause notice. In its reply, it stated that the State Government itself had defended the transfer in its affidavit in reply to the Writ Petition No.404 of 2013 filed by M/s. J.K. Cement Limited (JKCL). There was no bar to the change of Directors and shareholding of a company under the rules. Thus, transfer of shareholding and change of Directors did not amount to transfer of mining lease nor it affected validity of permission for transfer from GLKU to GLKUPL. 6. This stand was held to be unsatisfactory by the competent authority. Accordingly, the order dated 25th April, 2012 was rescinded and declared void vide order dated 16th December, 2014. It was also obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are vested in the writ petitioner company as a consequence of order dated 25th April, 2012 and change in pattern in shareholding or directorship did not affect the said rights. Shareholders and directors are not the owners of the assets of the company. Company was a distinct entity and mining lease was owned by the Company. 9. The writ petition was defended by the State with the plea that change of all the directors and shareholding amounted to transfer of the lease in violation of Rule 15 which was void under Rule 72. Thus, the order dated 16th December, 2014 was valid. 10. JKCL, who had applied for transfer of part of mining lease and was aggrieved by rejection of its application moved an application before the High Court for being added as a party to oppose the writ petition and was impleaded as a respondent in the writ petition, vide order of the High Court dated 28th January, 2015. The impleaded party supported the order of cancellation inter alia on the ground that one of the conditions in the order dated 25th April, 2012 was that the document of transfer was to be executed within three months which was not done. Further, the transfer of entire shareholding by the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory or non-statutory rights to the Company. A Company may apply and become the owner of the license, permit, concessions and lease under the statutory schemes of various statutes, under which the Company carries out its business. In all such cases, the license, concessions, permit and lease are the property of the Company and not of its shareholders. The shareholders may keep on changing and the control and management in the 5 (2014) 9 SCC 407 Company may also undergo changes on such transfer of shares, but the assets and properties of the Company including license, permit, concessions and lease continue to belong to the Company and that any acquisition or transfer of such assets will not relate back to the share-holding of the Company or the management of the Company, which may change on the change in the shareholding of the Company. xxxx 43. We do not find any substance in the reliance placed on the judgment of Supreme Court in Victorian Granites (P) Ltd. V/s P.Rama Rao and ors. ((1996) 10 SCC 665), in which it was held that the socio-economic justice is the arch of the Constitution and the public resources under Article 39(b) must be distributed to achieve that obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have required a permission for transfer or that if such proposal was in the making, the change in the personalty of the partnership firm to a Private Limited Company would require previous consent in writing of the competent authority. 47. We entirely agree with the reasons assigned by learned Single Judge that no material has been placed on record to suggest that the transfer of the mining lease from the partnership firm to a Private Limited Company was made with a design to ultimately transfer the shares to Ultra Tech Cement Limited. There is no evidence to suggest any such design or attempt at the time when the application was made for transfer of mining lease by the partnership to the Private Limited Company. 48. We also do not find any case of cheating or fraud in the transfer of mining lease by either the partners of the partnership firm or the Directors of the Private Limited Company, for which the officers of the Mining Department and competent authority could be liable or any criminal action can be taken against them. The competent authority had fully understood and had acted in accordance with the law, on the facts placed before it, in granting consent in writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship and sought mutation in favour of the partnership firm. It was later learnt that the partners retired and new partners were inducted and on that basis the transfer was declared void. 16. JKCL, respondent No.2, who had also filed independent writ petition before the High Court, has referred to documents which are part of record to submit that in the present case, sale of shares by GLKUPL to UTCL is nothing but sale of the mining lease for consideration of ₹ 160 crores. This consideration is reflected in annual report 2012-2013 of the UTCL in the form of investment in shares of GLKUPL. It has also referred to averments in pleadings/written submissions before the High Court that GLKUPL was incorporated on 26th March, 2012. On 28th March, 2012 application for transfer of lease was made by GLKU. Permission was granted on 25th April, 2012. Transfer deed was executed on 8th August, 2013 but on 23rd July, 2012 itself entire shareholding was transferred to UTCL for ₹ 160 crores. Thus, on 8th August, 2013, transferee was UTCL without the consent of the State. This was contrary to rules and standard conditions of transfer. In para 3(iii) of the transfer deed there is a dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The public power of permitting transfer of lease could not be used to benefit a private operator, who sells its rights in natural resources given to it by the State, in violation of law. Reliance has been placed on Victorian Granites (P) Ltd. vs. P. Rama Rao and Ors. (1996) 10 SCC 665. The High Court did not appreciate the judgment even after noticing it. The controlling power of the lease has completely been transferred for consideration without this fact being brought to the knowledge of the competent authority having jurisdiction to permit and regulate the power to transfer the lease. Law governing relationship between a company and its shareholders inter se has to be applied having regard to reality of a transaction and to effectuate the regulatory provisions dealing with subject. The constitutional principles and the regulatory regime in relation to the mining leases of minerals which vest in the State cannot be defeated by the abstract doctrine of corporate personality being separate from the entire body of shareholders without having regard to the real nature of transaction and the well known exceptions to this abstract doctrine. 20. Learned counsel for the respondent-wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o right to profiteer by trading such rights. In fact the lessee has also not claimed such a right. Lessee can either operate the mine or surrender or transfer only with the permission of the authority as legally required. In the present case, the lessee has achieved indirectly what could not be achieved directly by concealing the real nature of the transaction. Is it legally permissible, is the question. 23. The principle of lifting the corporate veil as an exception to the distinct corporate personality of a company or its members is well recognized not only to unravel tax evasion (1967) 1 SCR 934 The Commissioner of Income Tax, Madras vs. Sri Meenakshi Mills Ltd. but also where protection of public interest is of paramount importance and the corporate entity is an attempt to evade legal obligations and lifting of veil is necessary to prevent a device to avoid welfare legislation (1985) 4 SCC 114 Workmen Employed in Associated Rubber Industry Ltd., Bhavnagar vs. Associated Rubber Industry Ltd., Bhavnagar. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner provided by that Act . Since then, however, the Courts have come to recognise several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is when the corporate personality is being blatantly used as a cloak for fraud or improper conduct . (Gower : Modern Company Law - 4th Edn. (1979) at P. 137). Pennington (Company Law - 5th Edn. 1985 at P. 53) also states that where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law , the court will disregard the corporate veil. A Professor of Law, S. Ottolenghi in his article From Peeping Behind the Corporate Veil, to Ignoring it Completely says the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions . [(1990) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o another company. The real transaction is sale of mining lease which is not legally permitted. Thus, the doctrine of lifting the veil has to be applied to give effect to law which is sought to be circumvented. 27. In Victorian Granites (supra), it was observed:- 4. It is true that a facade of compliance of law has been done by P. Rama Rao and Magam Inc. for having the transfer of the leasehold interests had by P. Rama Rao made in favour of the latter. The best of the legal brains will be available to escape the clutches of law and transactions would be so shown to be in compliance of semblance of law. In that pursuit, payment of royalty and permits remained in the name of P. Rama Rao. The court has to pierce through the process, lift the veil and reach the genesis and effect. Article 39(b) of the Constitution envisages that the State shall, in particular, direct its policies towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. Socio-economic justice is the arch of the Constitution. The public resources are distributed to achieve that objective since liberty and meaningful right of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s so taken. Reference was also made to earlier decision in BALCO case (supra) laying down that Courts may not ordinarily interfere with economic decisions and wisdom of economic policies of the State in exercise of its power of judicial review. These judgments are in the context of situations where highest public authorities had applied their mind to all the facts in which case the Court was not inclined to interfere. Such is not the position in the present case. No public authority, in the present case, was even conscious that mining lease was being transferred to UTCL and at what price or for what benefit to the public. 30. In Vodafone case (supra) (2012) 6 SCC 613 Para 179 the dispute arose out of claim by the income tax department to tax capital gain arising out of sale of share capital of a company called CGP by HEL to Vodafone. Question was whether income accrued in India. Negativing the claim of the Revenue, it was held that transaction took place outside territorial jurisdiction of India and was not taxable. This Court observed that it is the task of the court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppened in the present case. We may note that under Section 12A(6) added by the Mines and Minerals (Development and Regulation) Amendment Act, 2015, it has been provided that transfer of mineral concessions can be allowed only if such concessions are granted through auction. 32. In these circumstances, the plea of the writ petitioner that the lessee has a vested right to transfer the lease subject merely to compliance of formalities cannot be accepted as correct. The submission is contrary to scheme of law. As already observed mining rights vest in State and are regulated consistent with the doctrine of public trust. The rules prohibit transfer of mining lease for consideration without the previous consent of competent authority in writing R.15. Transfer of Mining Lease.- (1) The lessee shall not without the previous consent in writing of the competent authority- (a) assign, sublet, mortgage or in any other manner transfer the mining lease or any right, title or interest therein, or (b) enter into or make any arrangement, contract or understanding whereby the lessee will or may be directly or indirectly financed to a substantial extent by, or under which the lessee's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) Where on an application for transfer of mining lease under this rule the competent authority has given consent for such lease, a transfer lease deed in Form No.15 or a form as near thereto as possible, shall be executed within three months of the date of the consent, or within such period as the competent authority may allow in this behalf. R.72. Mining operations to be under lease or licence.- No mining lease, quarry license, shortterm-permit or any other permit shall be granted otherwise than in accordance with the provisions of these rules and if granted shall be deemed to be null and void. The original lessee gave declaration while seeking transfer, that no consideration was received which though apparently correct was actually false as the subsequent transaction of sale of shares was integral part of the first transaction of transfer of lease to private company which soon thereafter became subsidiary of another company. The said real transaction cannot be ignored to find out the substance. 33. Thus, acquisition of mining lease contrary to rules is void. Requirement of previous consent cannot be ignored nor taken to be formality subject only to pay dead rent or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding by GLKUPL to UTCL is a private unauthorized sale of mining lease which being in violation of rules is void. GLKUPL has been formed merely as a device to avoid the legal requirement for transfer of mining lease and to facilitate private benefit to the parties to the transaction, to the detriment of the public. 36. Learned single Judge and the Division Bench have gone by only one aspect of law, i.e. the general principle that sale of shares by itself is not sale of assets but this principle is subject to the doctrine of piercing of corporate veil wherever necessary to give effect to the policy of law. In the present case, this principle clearly applies as transfer of shares to cover up the real transaction which is sale of mining lease for consideration without the previous consent of competent authority, as statutorily required. The statutory requirement is sought to be overcome with the plea that it was a transaction merely of transfer of shareholding when on the face of it the transaction is clearly that of sale of the mining lease. In view of the above, the view taken by the High Court cannot be sustained. 37. Accordingly, this appeal is allowed and the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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