9911796707
TMI Blog2015 (3) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... mine was operated and whereafter it appears that the partners of the firm decided to incorporate a private limited company for undertaking the business hereto-before conducted by the firm and therefore, proceedings were initiated for incorporation of the company, a letter dated 5.3.2012 was issued by the Registrar of Companies, Rajasthan indicating the availability of name Gotan Lime Stone Khanij Udyog Pvt. Ltd.; the certificate of incorporation was issued on 26.3.2012; whereafter an application dated 28.3.2012 was filed by the firm signed by Ramvallabh Chauhan, partner/power of attorney holder seeking transfer of the mining lease from the firm to the newly incorporated company. 3. A communication dated 2.4.2012 (Annex. 6) was sent by the Assistant Mining Engineer, Gotan to the Director, Mines and Geology, Udaipur forwarding the application along with a mine inspection form and a check list for application for Transfer of Mining Lease requesting for examining the enclosed documents and pass order for transfer of the mining lease. By order dated 25.4.2012, the Director, Mines and Geology, Udaipur granted permission for transfer of the lease in favour of the petitioner on the condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness rivalry when at the instance of a business rival, the State has chosen to take an action, which is not permissible in law. Elaborating, it was contended that there was some understanding between the firm and respondent No. 5 for part transfer of the leased area and, therefore, a application was filed in the year 1997 under Rule 15 of the Rules seeking permission for part transfer. The application was rejected in the year 1997 itself, on revision filed by JK Cement alone, the matter was remanded back and a communication was sent by the Director, Mines & Geology seeking relaxation for part transfer to the State Government, whereafter, JK Cement lost interest and it is only after the action was taken for the transfer of the lease from the firm to the Company that the JK cement started inter-meddling with the process without any basis and after the transfer was permitted by the respondents by order dated 25.4.2012 (Annex. 7) that a writ petition was filed by JK Cement being WP No. 404/2013, wherein the State supported the order dated 25.4.2012 and disputed any right in favour of JK cement. 10. It is contended that with the change of the State Government post December, 2013 ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been created in petitioner's favour and in any case, there is no loss whatsoever to the State. 14. It is also submitted that the fact that the action was actuated on account of extraneous consideration is further fortified from the fact that with the order of cancellation dated 16.12.2014, the possession of the mine was taken by the respondents on the same day at 9:30 p.m., which clearly indicates arbitrary exercise of power. The non-application of mind while issuing the impugned order dated 16.12.2014 is writ large and the respondents cannot be permitted to supplement the reasons and go beyond the order dated 16.12.2014 for justifying their action against the petitioner. It was prayed that the writ petition be allowed. 15. Reliance was placed on S.R. Venkataraman v. UOI: 1979 (2) SCC 491; State of Karnataka & Anr. v. All India Manufacturers Organizations & Ors.: 2006(4) SCC 683; Anis D. Lawande & Ors. v. State of Goa & Ors.: 2014(1) SCC 554; Tata Engineering & Loco Motive Company Limited v. State of Bihar: 1964(6) SCR 885; Mrs. Bacha F. Guzdar v. CIT: AIR 1955 SC 74; Heavy Engineering Mazdoor Union v. State of Bihar: 1969 (1) SCC 765; Amit Products (India) Ltd. v. Chief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not reported to the respondents and all the Directors of the petitioner-Company were changed and new Directors were appointed. The change of all the Directors of the Company, change in shareholding in the Company has clearly been done in contravention to Rule 15 of the Rules and hence, the transfer of lease is rendered null and void under Rule 72 of the Rules and was rightly cancelled by order dated 16.12.2014. 19. With reference to provisions of Rule 15 of the Rules, it was submitted that under Rule 15(1)(b), even for entering into or making any arrangement contract or understanding, whereby the lessee is 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 person other than lessee, prior permission is required. It is submitted that as Ultra-Tech Cement Limited has become a holding company of the petitioner, the provisions stood violated and therefore, the passing of order dated 16.12.2014 cannot be faulted. 20. The submissions regarding change of Government being the reason and that the action was taken by the respondents on such account it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not duly constituted and in-fact, the same was no application in the eye of law, inasmuch as, neither there was any power with the partners nor with the Directors in absence of any duly passed resolution; no inspection dated 30.3.2012 could have taken place. Further the order dated 25.4.2012 permitting transfer clearly provided for a mandatory condition regarding execution of transfer document within a period of three months, failing which the order would stand cancelled. The proper transfer deed was executed on 8.8.2013 i.e. after more than one year and as the permission already stood lapsed, the extension granted by the respondents under Rule 15(4) by order dated 5.8.2013 (Annex. -9) is of no avail. 26. It is submitted that the 100% shareholding was transferred by the four partners/shareholders of the petitioner-Company on 23.7.2012 to Ultra-Tech Cement Limited and on 6.8.2012, they resigned as Directors and new Directors joined. In the annual report of Ultra Tech Cement pertaining to year 2012-2013 under the note pertaining to disclosure of related parties, Gotan Lime Stone Khanij Udyog Pvt. Ltd. has been shown as wholly owned subsidiary w.e.f. 23.7.2012. It is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asized. It was submitted that pursuant to the permission dated 25.4.2012, the transfer document was duly executed on 11.5.2012, however, when it was found that the same required registration, time was extended under Rule 15(4) and in continuation to the document dated 11.5.2012, another transfer document dated 8.8.2014 was executed and registered amongst the parties and therefore, it cannot be said that the condition of grant of approval dated 25.4.2012 pertaining to the execution of the document within a period of three months was violated. It was reiterated that the petition be allowed with costs. 31. I have considered the submissions made by learned counsel for the parties and have perused the material placed on record. 32. The entire case can be bifurcated in two stages. The grant of permission dated 25.4.2012 (Annex. -7) by the respondents to the firm Gotan Lime Stone Khanij Udhyog to transfer the Mining Lease 45/93 to the newly incorporated company Gotan Lime Stone Khanij Udhyog Pvt. Ltd. and subsequent action of transfer of shares by the shareholders of Gotan Lime Stone Khanij Udhyog Pvt. Ltd. on 23.7.2012 to Ultra-Tech Cement Limited resulting in the petitioner-Company be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 person other than lessee. Provided that the lessee of masonary stone may, with the prior permission of concerned ME/AME and subject to such conditions as he may specify therein, allow any Government contractor to install and operate stone gitti crusher till the completion of construction work. Provided further that such permission shall be given by ME/AME after obtaining registered consent of the lessee and also on the condition that the crusher owner shall use masonary stone produced from the concerned lease area only. Provided also that wherever required, permission of Revenue and other Departments may also be taken before issuing such permission. (1A) Every application for transfer of Mining Lease shall be accompanied by a fee of [Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 40. A bare reading of the provisions of Rule 15 reveals that a previous consent of the competent authority is necessary before a mining lease or any right title or interest therein is assigned, sublet, mortgaged or in any other manner transferred. The requirement of prior consent has also been provided even in a case where a lessee enters into or makes any arrangement, contract or understanding, whereby the lessee is or may be directly or indirectly financed to a substantial extent by or under which lessee's operations and undertaking is or may be substantially controlled by any person or body of person other than lessee. Whereafter, the stipulations regarding transfer, fees, 18 premium etc. have been indicated and exception provided regarding mortgage to State institution, Bank or State Corporation. The sub-rule (4) of Rule 15 provides for execution of a transfer lease deed in Form No. 15 within a period of three months of consent or within such period as may be allowed by the competent authority. 41. Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. (g) Reasons facilitate the process of judicial review by superior Courts. (h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. (i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. (j) Insistence on reason is a requirement for both judicial accountability and transparency. (k) If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of business is issued by the RoC as per the provisions of Companies Act. The certificate from RoC was issued on 26.03.2014 (sic 2012) and any act on behalf of the company prior to 26.03.2014 (sic 2012) shall be null and void. That as stated in the first para of letter if any stamp purchased on 23.03.2012 for the purpose of undertaking formalities shall be null and void. Since the Board of Directors of the Company passed the resolution on 30.03.2012 in regard to transfer of the said lease, therefore, any act pertaining to the transfer prior to the resolution dated 30.03.2012 shall be null and void and also of no consequence. That in absence of any resolution if any application of transfer is submitted before Assistant Mining Engineer, Gotan cannot be said to be acceptable and the same is not sustainable in the eyes of law. That on the date of submission of application i.e. on 28.03.2012 for transfer the resolution was not there for any such transfer, then how it is possible that the resolution is attached to the application, when the resolution itself was taken on 30.03.2012. That even from perusal of the records there was no such entry or mark of deficiency in the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stamps by any stretch of imagination cannot be termed as entering into any agreement or contract so as to allege violation of the terms of letter dated 5.3.2012 (Annex. 1) issued by the Registrar of Companies, Rajasthan. 50. The second reason regarding passing of the resolution on 30.3.2012 and affidavits dated 31.3.2012 alongwith the application dated 28.3.2012 has been much emphasised by learned Additional Advocate General inter-alia on the ground that nowhere in the record it is indicated that the said resolution and affidavits were submitted later on, which reflects on the conduct of the petitioner and/or the authorities involved. 51. A specific query was put by the Court to learned Additional Advocate General as to the advantage of filing of the application on 28.3.2012 and implication/disadvantage if the application was to be treated as completed on 31.3.2012, no specific answer was forthcoming except emphasising the alleged conduct of the petitioner and the authorities involved. 52. A response was given by the petitioner in reply to the show cause notice specifically indicating that the affidavits and resolution were not filed with the application and on defect being poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l irregularity' can be described as irregularity which, despite its existence, would not effect the final outcome of the action and an irregularity is inconsequential when, on a hind sight assessment of the process, the successful applicant/person would still be successful despite the presence of the irregularity. From what has been discussed hereinbefore the irregularities pointed out in the show cause notice, even if the same can be termed as such, are mere inconsequential irregularities and have no implication on validity of either the application or the grant of permission dated 25.4.2012. 58. The Hon'ble Supreme Court also in the case of G. Buchivenkata Rao (supra), while considering a case pertaining to grant of mining lease and defect in an application observed as under:- "6. It is clear to us that the details mentioned in Rule 27 are intended for the correct identification of the individual to whom the lease is to be granted, the minerals which are to be mined, the area in respect of which the lease was to be granted, and the qualifications of the applicant. Considerable emphasis was placed on the word 'shall' in Rule 32 with regard to the priority to be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details supplied in the application corresponded with the contents of the lease after the alleged lacuna had been filled up, the grant of the lease to Venkatagiri was valid." 59. In view of the above discussion, the plea raised by the respondents seeking to support the order dated 16.12.2014 qua the pre 25.4.2012 events cannot be sustained. Post 25.4.2012 events: 60. Though no specific contention has been raised by the State on account of delayed registration of the transfer after the document of transfer was first executed on 11.5.2012, the issue raised by the respondent No. 5 regarding failure to execute the transfer deed within the time stipulated in the order dated 25.4.2012 and its automatic cancellation has also apparently no substance, inasmuch as, the transfer document was executed on 11.5.2012 between the parties and was evidenced by the Mining Engineer, however, when it was pointed out by the office order dated 5.8.2013 that the document required registration and payment of requisite stamp duty, the document was again executed on 8.8.2013 in compliance of the order dated 5.8.2013 and reference to the document executed on 11.5.2012 was also made and the same was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Rule 15 would be an arrival to a conclusion that either the lessee company is directly or indirectly financed, or lessee's operations or undertakings are substantially controlled by any person or body of persons other than lessee. 67. Nowhere in the show cause notice, the order dated 16.12.2014 or in reply to the writ petition, there is any allegation whatsoever by the State indicating either financing or any substantial control on the lessee's operations or undertakings by Ultra Tech Cement Limited. Apparently, only based on the assumed implication of the Company becoming wholly owned subsidiary of Ultra Tech Cement Limited that the present action appears to have been taken by the respondents. 68. The issue of position of a shareholder with respect to Company's assets was considered by the Hon'ble Supreme Court in the case of Mrs. Bacha F. Guzdar (supra) way back in 1955 wherein it was observed and held as under:- "7. It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in the - 'Commrs. of Inland Revenue v. Forrest', (1924) 8 Tax Cas. 704 at p. 710 (A), that an investor buys in the first place a share of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach to the solution of the question is to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in 'the assets of the company which would be left over after winding up' but not in the assets as a whole as Lord Anderson puts it." (emphasis supplied) 69. In the case of Heavy Engineering Mazdoor Union (supra), the Hon'ble Supreme Court, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act whose constitution, powers and functions are provided for and regulated by its memorandum of association and the articles of association. An incorporated company, as it well known, has a separate existence and the law recognises it as a juristic person separate and distinct from its members. This new personality emerges from the moment of its incorporation and from that date the persons subscribing to its memorandum of association and others joining it as members are regarded as a body incorporate or a corporation aggregate and the new person begins to function as an entity. (Cf. 4Salomon v. Salomon & Co.). Its rights and obligations are different from those of its shareholders. Action taken against it does not directly affect its shareholders. The company in holding it property and carrying on its business is not the agent of its shareholders. An infringement of its rights does not give a cause of action to its shareholders. Consequently, it has been said that if a man trusts a corporation he trusts that legal persona and must look to its assets for payment; he can call upon the individual shareholders to contribute only if the Act or charter creating the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation can easily be identified as the agent of the State as in Graham v. Public Works Commissioners where Phillimore J. said that the Crown does in certain cases establish with the consent of Parliament certain officials or bodies who are to be treated as agents of the Crown even though they have the power of contracting as principals. In the absence of a statutory provision, however, a commercial corporation acting on its own behalf, even though it is controlled wholly or partially by a Government Department, will be ordinarily presumed not to be a servant or agent of the State. The fact that a minister appoints the members or directors of a corporation and he is entitled to call for information, to give directions which are binding on the directors and to supervise over the conduct of the business of the corporation does not render the corporation an agent of the Government. (See The State Trading Corporation of India Ltd. v. The Commercial Tax Officer, Visakhapatnam and Tamlin v. Hannaford). Such an inference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and not commercial functions. (Cf. London County Territori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter concern of M/s. Amar Amit Jalna Alloys Pvt. Ltd. and was representing the same consumer who had committed the default and it was held that condition 23(b) of the conditions of miscellaneous charges for supply of electricity energy would apply to the appellant Company. We do not think that by change of Directors or by change of pattern of shareholding, the appellant Company is really a different entity than M/s. Amit Products (India) Ltd. who filed the previous Writ Petition No. 2090 of 2002. The reasons given in the previous judgment which were confirmed by this Court would apply with all force against the present appellant Company and the High Court has rightly dismissed the writ petition filed by the appellant Company." (emphasis supplied) 72. Recently, in the case of Balwant Rai Saluja (supra), when the issue raised was as to whether the workmen engaged in the statutory canteen, through a contractor, would be treated as employees of the principal establishment, the Hon'ble Supreme Court examining the inter-se relationship of holding and subsidiary Company and whether the workman of the subsidiary can be termed as employees of the principal establishment held that the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling interest of over 50% of the equity shares and voting rights of the given subsidiary company. 68. In a concurring judgment by K.S.P. Radhakrishnan, J., in Vodafone International Holdings BV v. Union of India, the following was observed: "Holding company and subsidiary company * * * * 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors.... 258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any Director if it so desires by a resolution in the general body meeting of the subsidiary. 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 company, which shows the status of the entire business enterprises. Shares of 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. Holding company and subsidiary company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iercing the corporate veil; (ii) The Court cannot pierce the corporate veil, even in the absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only if there is some impropriety; (iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) The company may be a "facade" even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done. 72. The principles laid down by Ben Hashem case have been reiterated by the U.K. Supreme Court by Lord Neuberger in Preset /i> v. Petrodel Resources Ltd., UKSC at para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case." "85. In the present case, HCI is a separate legal entity incorporated under the 1956 Act and is carrying out the activity of operating and running of the given canteen. The said articles of association of HCI, in no way give control of running the said canteen to Air India. The functions of appointment, dismissal, disciplinary action, etc. of the canteen staff, are retained with HCI. Thus, the exercise of control by HCI clearly indicated that the said Respondent 2 is not a sham or camouflage created by Respondent 1 to avoid certain statutory liabilities." (emphasis supplied) 73. In view of the law laid down by the Hon'ble Supreme Court in the case of Government Companies, inter-se relationship between holding and subsidiary Companies and fundamental principles regarding distinction between a shareholder and the Company, it is apparent that merely on account of the Company becoming a subsidiary of Ultra Tech Cement Limited on account of certain action of the shareholders of the Company, it cannot be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Venkataraman v. Union of India, State of A.P. v. Goverdhanlal Pitti, BPL Ltd. v. S.P. Gururaja and W.B.S.E.B. v. Dilip Kumar Ray.) 26. Passing an order for an unauthorised purpose constitutes malice in law. (Vide Punjab SEB Ltd. v. Zora Singh and Union of India v. V. Ramakrishnan.)" (emphasis supplied) 76. Examining the facts in the present matter as discussed hereinbefore, the action of the respondent-State apparently falls foul of the requirements of a fair decision and the same therefore cannot be sustained. 77. So far as the plea raised by the petitioners regarding action being taken by the respondent-State on account of change of Government based on judgments in the case of State of Karnataka (supra) is concerned, the mere fact that after taking a particular stand in CWP No. 404/2013, which it is claimed by the respondents was specifically with regard to part transfer of the mining lease, on the material available on record, it cannot be said that the action impugned was actuated on account of change of Government as alleged. 78. The submissions made by the respondent-State seeking to substantiate or support the action based on the contents of the First Information Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
