9911796707
TMI Blog2015 (5) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... Department, Government of Rajasthan, Jaipur, by which the Mining Lease No. 45/93 granted in favour of Gotan Lime Stone Khanij Udyog, a partnership firm, vide order dated 29.12.1993, renewed on 8.11.1996 for the period from 8.4.1994 to 7.4.2014, further renewed on 27.7.2011 upto 7.4.2024 and transferred to M/s. Gotan Lime Stone Khanij Udyog Private Limited by order of the Director, Mines and Geology Department dated 25.4.2012, was declared null and void and cancelled. Learned Single Judge has set aside the cancellation order dated 16.12.2014 and all consequential actions, with directions to hand-over back the possession of the leased area of Mining Lease No. 45/93 to the petitioner-forthwith. 2. The facts giving rise to the Special Appeal No. 328/15 are that a Mining Lease No. 45/93 was granted to a partnership firm-M/s. Gotan Lime Stone Khanij Udyog. The Mining Lease was renewed from time to time and vide order dated 27.7.2011, the period of mining lease was renewed from 8.4.1994 to 7.4.2024. The partnership firm consisting of four partners, namely. Shri Ram Vallabh Chauhan, Shri Suresh Chauhan, Shri Ramesh Chauhan and Shri Ram Avtar Chauhan, with equal share of 25% each in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Lokayukta, Rajasthan, on which, notices were issued by the Lokayukta to the State Government. 6. A show cause notice dated 21.4.2014 was issued by the Joint Secretary, Mines (Group-2) Department, Government of Rajasthan, Jaipur to M/s. Gotan Lime Stone Khanij Udyog Private Limited, 2-B, Paota-B Road, Jodhpur to show cause as to why the order for transfer of mining lease dated 25.4.2012 issued under Rule 72 of the Rules be not declared null and void and the mining lease be not cancelled. In the show cause notice, after giving the details of transfer of the mining lease to M/s. Gotan Lime Stone Khanij Udyog Private Limited, it was stated that the Registrar of Companies had issued a certificate for constituting the partnership firm as a Private Limited Company on 26.3.2012. The four partners of the partnership firm had purchased non-judicial stamp for preparing affidavits for issuance of the certificate on 23.3.2012 prior to issuance of certificate dated 26.3.2012. The application for transfer of lease was presented in the office of the Assistant Mining Engineer, Gotan on 28.3.2012, whereas the notarial affidavits alongwith the application for transfer of mining lease were verifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment, it is not open to change a stand in the litigation and the position in this connection is well settled by Hon'ble Supreme Court in State of Tamil Nadu & ors. v. K. Shyam Sunder and ors. (2011) 8 SCC 737). The notice was also challenged on the ground of delay and laches and on the ground of fairness. The frivolous allegations were made in the writ petition No. 404/2013 by M/s. J.K. Cement Limited and these factors could not have cropped up at a belated stage to issue a show cause notice. It was alleged that the order dated 25.4.2012 passed by the Director, Mines and Geology, Udaipur transferring the mining lease is perfectly legal, valid and justified and cannot be declared null and void under Rule 72 of the Rules. The provisions of Rule 15 of the Rules permit transfer of entire mining lease and the transfer of mining lease from the partnership firm to the Private Limited Company was approved by the Director, Mines and Geology, Udaipur. The invocation of Rule 72 of the Rules to declare the order dated 25.4.2012 as null and void is a serious attempt to render the provisions of Rule 15 as otiose and redundant, which cannot be permitted for any reason whatsoever. Rule 72 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the requirement was not contemplated. It was always open to the applicant to remove the defects by submitting documents subsequently. The Department did not act upon the application for transfer of mining lease before submission of the affidavits and resolution. Curing of the defect in the application has been approved and on which the application could not have been said to be defective, vide C. Buchivenkata Rao v. Union of India (1972) 1 SCC 734) and Shreejith L. v. Director of Education, Kerala (2012) 7 SCC 248). 10. It was further submitted in the reply to the show cause notice that non-payment of the registration fee and stamp duty on the transfer of mining lease is a wholly fallacious ground and contrary to the facts on record. The transfer deed was registered and requisite registration fee and stamp duty including surcharge on stamp duty was deposited vide fee receipt issued by the Sub-Registrar, Registration and Stamps Department, Merta City. The stamp duty aggregating to Rs. 25,20,350/- in relation to the transfer of mining lease was paid. 11. It was submitted in paragraph (4) of the reply to the show cause notice that the change in the pattern of share- holding and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from its shareholders. There is no prohibition for transfer of shares under the Companies Act, 1956 or under the Rules. The Ultra Tech Cement Ltd. simply became owner of the shares of the Private Limited Company by way of transfer of shares and not the owner of the assets of the Private Limited Company. The Private Limited Company continues to exist and there is no change in the status of the Private Limited Company by change in the constitution of the Board of Directors or by change in the shareholding pattern of the Private Limited Company. The Private Limited Company duly incorporated under the Companies Act has a corporate personality of its own distinct from that of its shareholders. The Apex Court held that even if the entire shares of the Company are hold by the Government, its properties are not Government properties. 14. In paragraphs (7) & (8) of the reply to the show cause notice, it was stated as follows:-- "(7) That in the present area of globalization, the formation of subsidiaries is a well known concept recognized in law and is inevitable where the business gets big enough. A typical large business corporation consists of sub-incorporates by dividing itself into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the Rules and the mining lease was also cancelled on the same day. The Assistant Mining Engineer directed the officers to take the possession of the leased area and at 9.30 PM on 16.12.2014, the possession of the leased area was taken by the State authorities. 16. The manner of taking the possession was challenged on the ground of legal malice at the instance of the new Government, which had taken the power. It had firstly changed its stand on the validity of the transfer of mining lease by filing a supplementary reply in the Writ Petition No. 404/2013 and thereafter, declaring the transfer of mining lease as null and void and cancelling the mining lease, without giving any reason in the impugned order dated 16.12.2014 and thereafter, took the possession of the leased area on the same day at 9.30 PM. The respondent-Company not only challenged the order, as illegal and arbitrary, but also on the ground of malice in law and thus, void. It was submitted that the entire action was taken on account of reviving the interest of M/s. J.K. Cement Limited, a rival in trade, which on the basis of some agreement entered in the year 1997 for a part transfer of the lease and on which it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f three months of consent or within such period as may be allowed by the competent authority. It was held that while passing the impugned order dated 16.12.2014, the provisions of Rules 15 and 72 were not considered nor the reply given by the Private Limited Company was taken into consideration by the Joint Secretary of the State. After reproducing the contents of the show cause notice and the contentions of the petitioner, the Joint Secretary in his order jumped to the conclusion that the reply filed by the Company is an after thought and was not satisfactory. He did not refer to nor gave any reason whatsoever as to why and on what ground, he had reached to the conclusion that the transfer order was void and that the mining lease was required to be cancelled. 18. Learned Single Judge relied on the judgment of the Supreme Court in Kranti Associates v. Masood (2010) 9 SCC 496), in which relying on A.K. Kraipak v. Union of India, it was held that recording of reason is imperative for a valid exercise of executive power. The recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quash-judicial or even administrative power. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the transfer of mining lease from partnership firm to the Private Limited Company. It was found that the action of transfer of shares is not violative of Rule 15(1)(b) of the Rules, for which the transaction must be such whereby the Company will or may be directly or indirectly financed to a substantial extent or the lessee's operations or undertakings will or may be substantially controlled by any person or body of persons other than lessee. Reliance was placed on the judgment of the Supreme Court in Mrs. Bacha F. Guzdar v. CIT (AIR 1955 SC 74), in which it was held that the Company is a juristic person and distinct from the shareholders. It is the Company, which owns the property and not the shareholders and that there is nothing in the Indian Law to warrant the assumption that a shareholder, who buys shares and any interest in the property of the Company, which is a juristic person, is entirely distinct from the shareholder. Reliance was also placed on the judgment in Heavy Engineering Mazdoor Union v. State of Bihar (1969 (1) SCC 765), in which the Supreme Court held that even if the entire share capital of the Company was contributed by the Central Government and all its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government and holding that from the materials available on record, it cannot be said that the action impugned was actuated on account of change of Government, set aside the order dated 16.12.2014. Learned Single Judge also recorded a finding that the First Information Report lodged on the basis of the allegations made on the transfer of mining lease, appears to be an attempt to catch at the straws, inasmuch as, despite the petitioner having filed the FIR, the respondent could not gather enough courage to indicate the allegations in the FIR as the basis either for issuance of show cause notice or for passing of the order dated 16.12.2014. It was also observed that the grant of permission dated 25.4.2012 during the pendency of the application of M/s. J.K. Cement Limited seeking part transfer of mining lease has no implication so far as the order dated 16.12.2014 is concerned. The pendency of the Writ Petition No. 404/2013 also cannot be said to be a ground of challenge to cancel the permission dated 25.4.2012. 25. Learned Additional Advocate General appearing for the State of Rajasthan has assailed the judgment of learned Single Judge on the ground that he has not apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conspiracy of selling the mining lease in the garb of transfer of mining lease and for the same, FIR was also lodged, which is pending investigation by the Investigating Authority. 27. It is submitted that the Company is a separate juristic person than shareholder, but the entire shareholding has been transferred to Ultra Tech Cement Limited and thus, by transferring the shareholdings, the new shareholder became the sole owner of the assets of the Company. The only asset of the Company was mining lease and in view of the transfer of complete shareholdings of the Company to Ultra Tech Cement Ltd., the mining lease also stood transferred to Ultra Tech Cement Ltd. and it got control over the mining lease. The Company Law could not be used to cover up the illegal acts, which are not possible as per the other law, namely, the Rules, which prohibit transfer of mining lease except after obtaining permission. The control of the mining lease could not have been transferred by taking recourse to another law i.e. Companies Act by creating a Company and thereafter, selling shareholdings of the Company to Ultra Tech Cement Limited. The minerals being natural resources, are the resources of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The capacity of the person, his financial resources and experience are to be taken into consideration before the mining lease is granted or transferred to any person. The transferee may not have the approval for the grant of mining lease, but he can still have the benefit of such a lease by taking a transfer from a mining lease without complying with the provisions of Rule 37, which could not be done directly, as sought to be done. The undertaking of the respondent-Company was indirectly transferred without compliance of the provisions of Rule 15 of the Rules and in which a huge profit has been taken by the partners of the erstwhile partnership firm. Rule 15(1)(b) of the Rules does not permit transfer of the assets of the Company, but the control of lessee's operation or undertaking. The "control" is not defined under the Rules or The Mines and Minerals (Development and Regulation) Act, 1957, but the term in the context of a Company is generally understood to mean the power to appoint the Directors on the Board, who have the ultimate authority over the affairs of the Company including the management and policy making of the Company. The "control" will include the right to appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be declared to be null and void and the mining lease could be cancelled. Rule 15 of the Rules provides for transfer of mining lease. The submission of affidavits, execution of documents for transfer and passing of resolution of the Company for transfer of mining lease, are not the requirements insisted by any provision of law. The Mining Engineer in order to verify the authenticity and bonafide of the transfer, required the submission of these documents. The execution of these documents a few days later to the submission of the application, would not have in any manner led to declaration of the transfer as null and void. These irregularities have been rightly termed as 'inconsequential irregularities' by learned Single Judge. 32. It is further submitted on behalf of the respondent-Company that the real issue was as to whether the partnership firm had attempted any irregularity or illegality in transfer of mining lease, which was permissible in law to a Private Limited Company and that thereafter, the sale of shares by the Directors of the Private Limited Company to a Public Limited Company, on which, the Private Limited Company became a wholly owned subsidiary of Ultra Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the issue raised by the petitioner in challenging the impugned order by which the transfer of mining lease was declared null and void and mining lease was cancelled. 36. In order to appreciate the grounds, on which the writ petition was allowed, we may reproduce again the relevant provisions of Rule 15 and 72 of the Rules:-- "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 operations or undertakings will or may be substantially controlled by any person or body of persons other than lessee...." "72. Mining operations to be under lease or licence.- No mining lease, quarry licence, short term 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." 37. Rule 15 provides fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership firm. It is not denied that the permission was taken from the Registrar of Companies and that within the period of permission, the Private Limited Company was constituted and that the Directors were appointed having equal interest by way of holding shares in the Private Limited Company. The transfer of shareholding of the Private Limited Company to a Public Limited Company is not prohibited in law. On or around 23.7.2012, the shares were transferred to Ultra Tech Cement Limited and on which the existing Directors resigned on 6.8.2012 and new Directors joined and with effect from 23.7.2012, the Private Limited Company became a wholly owned subsidiary of Ultra Tech Cement Limited. The transfer of shares to Ultra Tech Cement Limited was legally permissible, on which the interest in the Company and not in the mining lease was transferred to Ultra Tech Cement Limited. 40. Learned Single Judge relying on the judgment in Mrs. Bacha F. Guzdar (supra), which was decided in the year 1955 and the judgment in Amit Products (India) Ltd. (supra) rightly held that the Company is a juristic person and distinct from the shareholders. The share-holders are not the owners of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Scorpios in the AS Group and shares of SMMS came under the options held by GSPL. Pending exercise, options are not management rights. At the highest, options could be treated as potential shares and till exercised they cannot provide right to vote or management or control. In the present case, till date GSPL has not exercised its rights under the Framework Agreement 2006 because of the sectoral cap of 74% which in turn restricts the right to vote. Therefore, the transaction in the present case provides for a triggering event, viz. relaxation of the sectoral cap. Till such date, HTIL/VIH cannot be said to have a control over 15% stakes in HEL. It is for this reason that even FIPB gave its approval to the transaction by saying that VIH was acquiring or has acquired effective shareholding of 51.96% in HEL. 159. "Control" is a mixed question of law and fact. Ownership of shares may, in certain situations, result in the assumption of an interest which has the character of a controlling interest in the management of the company. A controlling interest is an incident of ownership of shares in a company, something which flows out of the holding of shares. A controlling interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of 2005), in which the Supreme Court in the cases in which the levy of transfer fee by the UP State Industrial Development Corporation Limited was successfully challenged in the High Court at Allahabad on the ground that the consent of the Corporation was not required, on the transfer of interest in the Company, repelling the argument that the Company has got separate legal status and that mere change of names of Directors or shareholders does not in any way or manner affect the legality or status of the respondent-Company, the Supreme Court referring to clause 4(h) of the license agreement and sub-clause (p) of clause-3 of the lease deed, as well as clause 6.01(E) and clause 6.01(F), which defines the transfer, held that the previous consent was required for transfer of the controlling interest in the venture. The licensee in that case had agreed under clause 4(h) of the license agreement that it will not directly or indirectly transfer, assign, sell, encumber or part with its interest under or the benefit of the agreement or any part thereof in any manner whatsoever without the previous consent in writing of the Grantor. Under sub-clause (p) of clause-3 of the lease deed, a dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph 258 that holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary, which shows the status of the entire business enterprises. Shares of the stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. The holding company and subsidiary company, are, however, considered as separate legal entities and subsidiary is allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries. 46. It is of common knowledge that the corporate entities frequently undergoes changes in share-holding patterns. The Company Law permits it, and that the entire corporate world moves on such permissible transactions. The shares of the Company are bought and sold every day on the Stock Exchanges, which may result into change in the control of the management of the Company. The changes, however, do not affect the contracts under which the Company has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mining lease. It appears that with the change of Government, the loyalties changed from one business group to another, and the State Government not only initiated action by issuing show cause notice for declaring the permission for transfer to be null and void, but also proposed to take action against its officers for granting permission. The entire action to cancel the lease was actuated with malice in law. An additional affidavit was filed in the writ petition filed by M/s. J.K. Cement Limited changing the stand of the Government in triggering action apparently to the benefit of M/s. J.K. Cement Limited, instrumental in blocking the expansion of capacity of production of cement by Ultra Tech Cement Limited. 49. Though we find that learned Single Judge has not gone into and recorded any finding on malice in law, the facts placed before us and the arguments advanced clearly indicate that the entire action was coloured with malice in law. The object and purpose of declaring the permission for transfer to be null and void and cancellation of mining lease was for the purpose of restricting the expansion of business activities of Ultra Tech Cement Limited owned by Birla Group of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
