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Eskay Lab Ltd. Vs. Registrar of Companies, Karnataka - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Judge
Reported in[1986]59CompCas139(Kar)
ActsCompanies Act, 1956 - Sections 3, 565, 565(1) and 566
AppellantEssay Lab Ltd.
RespondentRegistrar of Companies, Karnataka
Appellant AdvocateS.G. Sundaraswamy, Adv.
Respondent AdvocateShivshankar Bhat, Adv.
Excerpt:
.....he lays stress on the word 'or' found between the two phrases 'of any act of parliament of the united kingdom 'and 'letters patent'.the words ,according to him, in force in india' go only with the words 'letters patent'.if the words 'in force in india',he argues ,were to qualify both 'letters patent and 'the act of parliament of the united kingdom',the same may likewise to be taken as qualifying the earlier phrases like 'any act of parliament other than this act' or 'if any other indian law 'thus leading to absurdity. while making his submissions on the intention of the legislature in incorporating a provision like section 565 of the act, the learned counsel drew my attention to the following observations of sachar committee report at page 200 paragraph 17.78. the provisions of part..........to and made a part of the british empire by the chartered company of the united kingdom, the east india company. the company law in this country has a long history. the laws of england, apart from charters issued by the government of the united kingdom and the letters patent, were in the force in large parts of the sub- continent comprising now in the countries of india, pakistan, bangladesh, ceylon and burma. perhaps keeping this background history in view and contemplating to provide for various contingencies, the legislature might have thought of incorporating this clause [clause (b)] in the act. be that as it may, at any rate, the law does not envisage the registration of a foreign company as a company under the act. 20. a foreign company, a company incorporated outside india,.....
Judgment:

Venkatesh, J.

1. Messrs. Essay Lab Limited , formerly known as M/s. Smith Kline & French (India) Ltd., a company incorporated in the United Kingdom, the petitioner herein , has applied in this petition filed under article 226 of the Constitution for a writ of certiorari challenging annexure 'C' bearing No. STA(K)/SKF/NR/80 dated February 13, 1981. The petitioner has also applied for a writ of mandamus directed against the respondent, the Registrar of Companies in Karnataka, Bangalore, for a direction to him to register the petitioner company as a private limited company under Part IX of the Companies Act, 1956 ('the Act').

2. The petitioner is a company registered and incorporated in England under the provisions of the Companies Acts, 1948 to 1967. It is having its registered office at 1, Surrey Street London, W.C.1, England . It is carrying on business through its branch in India having its office and factory at Devanahalli Road, off Old Madras Road, Bangalore.

3. The Foreign Exchange Regulation Act, 1973, was brought into force during that year. Thereafter, the petitioner applied to the Reserve Bank of India for permission under section 29(2)(a) of the Act of 1973 for carrying on its existing activities in India. After some correspondence, the Reserve Bank wrote a letter dated October 5, 1978 (annexure 'A'), to the petitioner calling upon it to comply with certain conditions mentioned therein, one of them being that the Indian branch of the petitioner company should be converted into an Indian company with non-resident interest in the equity capital not exceeding 40 per cent. within a period of one year from the date mentioned therein (in the letter).

4. Thereafter, the petitioner applied to the respondent as on February 19, 1980, annexure 'B', to register it as a private limited company under the provisions of Part IX of the Act. In answer to this application, annexure 'C' referred to above, was sent by the respondent to the petitioner. It may be useful to extract the reasons given in annexure 'C' for rejecting the petitioner's request to register it as a private limited company under the provisions of Part IX of the Act.

5. It reads thus:-

'Ministry of Law, Justice and Company Affairs.

Department of Company Affairs,

Officer of the Registrar of Companies,

Karnataka, 4th Floor, B.W.S.S.B.

Bldg. District Officer Road,

Bangalore-560009, Dt.13 Feb, 1981.

NO. STA/(K)/SKF/NR/80.

To

M/s. Smith Kline & French (India) Ltd.,

Devanahalli Road,

Office Old Madras Road, P.B.No. 2,

Bangalore-560049.

Sub:- Registration as a private limited company under the provisions of Part IX of the Companies Act.

Ref :- Your letter No. Nil dated 19-2-1980 along with your enclosures.

Sirs,

With your reference to your application for registration of your company as a private limited company under the provisions of Part IX of the Companies Act, 1956, I am directed to say that this matter has been thoroughly examined by the department. It has been observed that the affected phrase ` in force in India' used in clause (b) of sub- section 565 of the Companies Act, 1956, qualifies both `any act of Parliament of the United Kingdom', and `letters patent.

In view of this, I am, therefore, directed to state that since your company is formed under an Act of Parliament of the United Kingdom which is not in force in India, it cannot be registered under Part IX of the Companies Act, 1956.

Yours faithfully,

Sd. P.T. Gajwani

Registrar of Companies

Karnataka, Bangalore.'

6. As can be seen from what is extracted above, the only ground on which the petitioner's request has been rejected is that the petitioner company, being a company formed under an Act of Parliament of the United Kingdom, not in force in India, is not entitled to be registered. Otherwise, the petitioner company has all the other qualifications. It is a joint stock company limited by shares as contemplated under section 566 of the Act.

7. Challenging annexure 'C', the learned counsel for the petitioner argues that the respondent not properly construing clause (b) of sub- section (1) of section 565 of the Act had erred in rejecting his client's request. According to him, the words 'in force in India' as found in clause (b) qualify only the words 'letters patent' and not the words 'any Act of Parliament of the United Kingdom '. if the provision is read as construed by the respondent, he says, it makes no sense. He argues that no Act of Parliament of the United Kingdom has been in force in India. In particular, he lays stress on the word 'or' found between the two phrases 'of any Act of Parliament of the United Kingdom ' and 'letters patent'. The words , according to him, ' in force in India' go only with the words 'letters patent'. If the words 'in force in India', he argues , were to qualify both 'letters patent and 'the Act of Parliament of the United Kingdom', the same may likewise to be taken as qualifying the earlier phrases like 'any Act of Parliament other than this Act' or 'if any other Indian law ' thus leading to absurdity. In this connection, he drew my attention to section 29 of the Act of 1973 under which the Reserve Bank has directed his client to seek registration under the Act. The Act of 1973 has placed certain restrictions on foreign Companies doing business in this country. They had to seek permission of the Reserve Bank to continue to carry on the business. Accordingly, the petitioner-company sought permission, as stated above, with the Reserve Bank to continue to carry on its business. The Reserve Bank may either grant or reject permission and when granting permission may grant such permission with conditions imposed - see section 29 of the Act of 1973 and in particular clause (c) of sub-section (2) of section 29. The learned counsel argues that section 29 applies to Companies registered outside India and the Reserve Bank while granting permission to his client has put a condition that it should get itself registered under the Act. When such is the case, he argues, the respondent should not have refused registration, that too by not placing a proper construction on the relevant provision of law. While making his submissions on the intention of the Legislature in incorporating a provision like section 565 of the Act, the learned counsel drew my attention to the following observations of Sachar Committee Report at page 200 paragraph 17.78.

'The provisions of Part IX containing these sections may also be omitted. At present, it is only permissible for an existing company to register under the Act. We feel that the obligation to register under the new land should not be left to the option of the company and should rather be compulsorily enjoined on all existing Companies. A provision is only to be retained to the effect that on registration of a company under the new law, there shall be no change in the rights and liabilities of the company in respect of existing property, debts, etc. All Companies may also be automatically issued a new incorporation certificate by the Registrar of Companies and for this purpose the Companies will be required to file their revised memorandum and articles.'

8. The learned counsel further argued that even otherwise, his case may fall under the last clause of section 565(1)(b) which states any company..... 'being otherwise duly constituted according to the law and consisting of seven or more members' may be registered . He argues that his client also satisfies the requirements of this clause.

9. On the other hand, it was argued by the learned counsel for the respondent that no doubt section 565(1)(b) enables a company formed under an Act of Parliament of the United Kingdom to be registered, but that Act, when the company was formed, should have been in force in India. He says that the words 'in force in India' qualify not merely the preceding words 'the letters patent' but also the words 'Act of Parliament of the United Kingdom '. Elaborating this submission, what he states is that prior to independence, Companies used to be formed in England under statutes of the Parliament of the United Kingdom and also under the letters patent, enabling those Companies as full- fledged Companies and as if formed in this country to establish their business here (India). He stated that since the Crown in England has paramount powers to make laws affecting its colonies including India prior to independence, the Companies, thus formed without any difficulty , could have established their business in India as if they were Companies registered here and like any other Indian company. According to him, in this sense , the words 'any Act of Parliament of the United Kingdom or letters patent in force in India' will have to be understood. In answer to the contention of the learned counsel for the petitioners that even other wise 'being otherwise duly constituted according to law as provided in the last part of clause (b), the petitioner-company is entitled to seek registration, counsel for the respondent submitted that 'constituted according to law' means according to the law of this country. He also drew my attention to the provisions contained in Part II of the Act wherein provision is made for dealing with the Companies incorporated outside India. He says that the law envisages such Companies also establishing or running their business in this country, but they are , for purpose of the Act, governed by the provisions contained in Part 11 and such Companies cannot claim registration under section 565. In answer to this, learned counsel for the petitioner submits that Part II contains so- called from getting itself registered under the Act.

10. While urging that a foreign company cannot be registered under the provisions of the Act in India, the learned counsel for the respondent submitted that so far as a company is concerned, it can be said to be the domicile of a country wherein it is incorporated and a foreign company being a domicile of another country also be a domicile of this country and further argued that while construing clause (b) of sub-section (1) of section 565 of the Act, this may have to be kept in view and in this connection he drew my attention to certain passages found in Cheshire's Private International Law. I feel that it may be necessary to go into this aspect of this case. What is asserted by the petitioner company in this petition is a statutory right. Therefore, let us examine it in the context of the law on which it was based its claim. It is an admitted fact that the petitioner- company, being incorporated outside India, is a foreign company. The only question , in the circumstances of the case, that arises for consideration is :

'Does section 565(1)(b) of the Act enables a foreign company (a company incorporated outside India) to obtain registration under the Act ?'

11. The main part of sub-section (1) of section 565 of the Act reads like this:

'PART IX

Companies AUTHORISED TO REGISTER UNDER THE ACT

565. Companies capable of being registered. - (1) With the exceptions and subject to the provisions contained in this section -

(a) any company consisting of seven or more members., which was in existence on the first day of May, 1882, including any company registered under the Act No. 19 of 1857 and Act No. 7 of 1860 or either of them or under any law or laws in force in a Part B State corresponding to those Acts of either of them; and

(b) any company formed after date aforesaid, whether before or after the commencement of this Act, in pursuance of any Act of Parliament other than this Act or of any other Indian law ( including a law in force in a Part B State), or any Act of Parliament of the United Kingdom or letters patent in force in India, or being otherwise duly constituted according to law, and consisting of seven or more members, may at any time register under this Act as an unlimited company or as a company limited by shares, or as a company limited by guarantee; and the registration shall not be invalid by reason only that it has taken place with a view to the company's being wound up .'

12. As noted above, the argument of the learned counsel for the petitioner-company is that it is plain from the words used in clause (b) that a company formed in the United Kingdom, in pursuance of an Act of Parliament of that country, can seek and obtain registration under that Act. Whereas what was argued by the learned counsel for the respondent is that it is only a company (petitioner) formed in India under an Act of Parliament of the United Kingdom (if any) in force in India that can seek registration and not a company incorporated or formed outside this country.

13. Counsel for the petitioner states that the words used in clause (b) of sub-section (1) of section 565 in the matter are clear and unambiguous and the words any company formed ....... in pursuance of any Act of Parliament of the 'United Kingdom ' should be assigned its literal meaning without any qualification and he further argues that the words 'In force in India' qualify only the preceding words 'letters patent' and certainly not the words 'of any Act of Parliament of the United Kingdom.'

14. But, in a case like this, we should have regard to all the relevant provisions of the Act and the consequences that flow from actions taken pursuant to different clauses of the Act.

15. The company law in force in India clearly envisages, broadly speaking, geographically two types of Companies - Companies incorporated in India and Companies incorporated outside. Admittedly, the petitioner company is a foreign company, in the sense it is a company incorporated outside.

16. If a foreign company is registered under the Act, what would be its place in the scheme of things under the Act? Would that be a company as defined in the Act It may not be because the term 'company' as defined in section 3 means 'a company formed and registered under this Act or an existing company as defined in clause (ii). The petitioner company admittedly is not a company formed under the Act. The petitioner company is also not an existing company since it is not a company formed and registered under any of the enactments referred to in sub-clauses (a) to (f) of clause (ii) of sub-section (1) of section 3. Neither can it be construed as such by any fiction of law after its registration . Therefore, if a foreign company is registered under sub-clause (b), it cannot be construed to be a company as defined in the Act. If the intention was to elevate in status of a foreign company as the a company as defined in the Act, the definition would have provided for it.

17. Chapter VI of the Act deals with foreign Companies - Companies incorporated outside India. The provisions contained in that Chapter, applicable as they are to a foreign company, do not cease to apply to such a company at any stage and for any reason and the law, as it stands, does not say that Chapter will cease to apply to a foreign company getting registration (assuming that it is possible) under the Act. If the intention of the Legislature was otherwise, there would have been an adequate provision.

18. Clause (b) extracted above may be seen. The words 'of any Act of Parliament of the United Kingdom or letters patent in force in India' lie between two commas. As observed by the learned author, Vepa P. Sarathy, in his book, Interpretation of Statutes, at page 505, 'the comma is a matter of sense and experience' and 'a comma is used to mark a phrase or a clause when you think it makes the sense clearer to do so.' In this sense, the words 'any Act of Parliament of the United Kingdom or letters patent in force in India' form one clause. When plainly read, in the context of the entire clause (b), the aforesaid words only mean any company formed..........in pursuance of any Act of Parliament of the United Kingdom in force in India or letters patent in force in India. The word 'or' occurring between the two sets of words indicate that the words 'in force in India' qualify both 'any Act of Parliament of the United Kingdom' and 'letters patent'.

19. It is not clear what situation has been envisaged when this clause was drafted. India was a former colony of the British Crown. The sub- continent was annexed to and made a part of the British Empire by the chartered company of the United Kingdom, the East India Company. The company law in this country has a long history. The laws of England, apart from charters issued by the Government of the United Kingdom and the letters patent, were in the force in large parts of the sub- continent comprising now in the countries of India, Pakistan, Bangladesh, Ceylon and Burma. Perhaps keeping this background history in view and contemplating to provide for various contingencies, the Legislature might have thought of incorporating this clause [clause (b)] in the Act. Be that as it may, at any rate, the law does not envisage the registration of a foreign company as a company under the Act.

20. A foreign company, a company incorporated outside India, retains its identity as such throughout. It cannot alter its identity and become a 'company ' as defined in the Act though certain provisions of the Act, as already stated, do apply to foreign Companies also. The recommendations of the Sachar Committee, to which reference has been made above at page 7, touch different aspects of the matter and have been made in a different context while dealing with the provisions in the Companies Act relating context while dealing with the provisions in the Companies Act relating to existing Companies. That recommendation does not deal with foreign Companies. The view taken by the respondent at annexure-C is correct. In the circumstances and for the reasons aforesaid, the petitioner company is not entitled to any of the reliefs sought for.

21. Therefore, the petition is dismissed and the rule issued discharged.


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