Skip to content


Swadeshi Polytex Limited Vs. Swadeshi Mining and Manufacturing Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad High Court
Decided On
Case NumberSpecial Appeal No. 5 of 1983
Judge
Reported in[1987]62CompCas683(All)
ActsCompanies Act, 1956 - Sections 108A, 108B, 108C, 108E, 108F and 155; Companies (Central Government's) General Rules, 1956; Income Tax (Certificate Proceedings) Rules, 1962 - Rule 37
AppellantSwadeshi Polytex Limited
RespondentSwadeshi Mining and Manufacturing Co. Ltd.
Appellant AdvocateSudhir Chandra, Adv.
Respondent AdvocateV.P. Singh and ;Rajaram Agarwal, Advs.
Excerpt:
- - is a company with its head office in ghazia-bad engaged in the production of rayon and ancillary products. 3. the dispute in this case lies in a narrow compass and relates to the interpretation of the provisions of sections 108a and 108e of the companies act, 1956 (hereinafter called 'the act '). 4. in this connection, reference to the provisions of sections 108b, 108c 108f and 642 of the act as also to rules 3 and 4 of the companies (central government's) general rules and forms, 1956, and to paragraph 10 of form 7c as well as the notes under paragraph 20 of the said form will be necessary. sub-section (2) lays down that if the central government is satisfied that as a result of the proposed transfer of shares, a change in the composition of the board of directors of the company.....a. banerji, j.1. this special appeal has been filed by m/s swadeshi polytex ltd. against the decision dated march 2, 1983, by the learned company judge allowing company petition under section 155 of the companies act, 1956, and directing the appellant (m/s. swadeshi polytex ltd. hereinafter referred to as 'the polytex') to correct its register of members by deleting the names of the holders of the disputed 1,26,000 equity shares and in its place substitute the name of the new bank of india, kanpur (respondent no. 2), within a week and it was further directed that respondent no. 2 shall have voting right in respect of the aforesaid equity shares.2. m/s. swadeshi polytex ltd. is a company with its head office in ghazia-bad engaged in the production of rayon and ancillary products. its.....
Judgment:

A. Banerji, J.

1. This special appeal has been filed by M/s Swadeshi Polytex Ltd. against the decision dated March 2, 1983, by the learned company judge allowing company petition under Section 155 of the Companies Act, 1956, and directing the appellant (M/s. Swadeshi Polytex Ltd. hereinafter referred to as 'the Polytex') to correct its register of members by deleting the names of the holders of the disputed 1,26,000 equity shares and in its place substitute the name of the New Bank of India, Kanpur (respondent No. 2), within a week and it was further directed that respondent No. 2 shall have voting right in respect of the aforesaid equity shares.

2. M/s. Swadeshi Polytex Ltd. is a company with its head office in Ghazia-bad engaged in the production of rayon and ancillary products. Its managing director is Sri Sita Ram Jaipuria. Swadeshi Cotton Mills, Kanpur, is one of the major shareholders of Polytex. Its managing director is Sri Raja Ram Jaipuria. There were two trusts, viz., A. M. Jaipuria Public Charitable Trust which was the owner of 1,00,000 equity shares of the Polytex. Another trust by the name of Jaidei Devi Anand Ram Jaipuria Public Charitable Trust was the owner of 26,000 shares of the Polytex. These opposite parties fell in arrears of income-tax and wealth-tax dues and the said shares were attached by the Tax Recovery Officer, Kanpur, opposite party No. 2, in the company petition, for the said arrears of taxes. These shares were sought to be acquired by Swadeshi Mining which is a holding company of M/s. Swadeshi Cotton Mills, Kanpur. Since the shareholding of Swadeshi Cotton Mills, Kanpur, in Polytex was more than 30 percent, Swadeshi Mining applied for approval of the Central Government for the acquisition of the aforementioned 1,26,000 equity shares. This application was made on March 12, 1981. Admittedly, the Central Government did not signify its refusal to grant the approval within a period of 60 days nor was any such order communicated to the Swadeshi Mining. However, in reply to a letter dated March 20, 1981, by the Swadeshi Mining making for an early approval, the Central Government sent a letter dated May 7, 1981, seeking information as to whether the shares had been sold by the Tax Recovery Officer by March 15, 1981, and, if not, whether any other date had been fixed and further sought the names of the trustees of the two trusts. Further information was sought whether the shares would be purchased at the market price prevailing at the stock exchange. This letter was signed by an under-secretary to the Government of India. The particulars asked for were immediately furnished. The shares were sold on June 30, 1981, by the Tax Recovery Officer in favour of Swadeshi Mining. One other feature which needs to be noticed is that the Swadeshi Mining placed the said shares as collateral security with the New Bank of India, petitioner No. 2, in respect of the bank guarantee facility for a sum of Rs. 21,98,000 and the share scrips were delivered to petitioner No. 2 by petitioner No. 1 (Swadeshi Mining). The three transfer deeds were duly filled in with the New Bank of India as transferee. On January 1, 1982, the New Bank of India lodged the said share transfer deeds and share certificates with the Polytex. By a letter dated February 20, 1982, the Polytex intimated the New Bank of India declining to register the said shares. The petitioners, thereupon, filed the present company petition under Section 155 of the Act before the learned company judge. On March 2, 1983, the company petition was allowed with certain directions mentioned at the outset.

3. The dispute in this case lies in a narrow compass and relates to the interpretation of the provisions of Sections 108A and 108E of the Companies Act, 1956 (hereinafter called ' the Act ').

4. In this connection, reference to the provisions of Sections 108B, 108C 108F and 642 of the Act as also to Rules 3 and 4 of the Companies (Central Government's) General Rules and Forms, 1956, and to paragraph 10 of Form 7C as well as the notes under paragraph 20 of the said Form will be necessary.

5. Briefly* stated, the contention raised on behalf of the Polytex before us was that prior approval of the Central Government had not been taken by the purchaser, viz., Swadeshi Mining respondent No. 1, to acquire 1,26,000 equity shares as required under Section 108A of the Act. Consequently, the sale in favour of petitioner No. 1 was void, illegal and conferred no right, title or interest on the purchaser. As such it invoked the imposition of penalty as provided under Section 108F of the Act. A further contention was that the forms set forth under the Companies (Central Government's) General Rules and Forms, 1956, and, in particular, form 7C was not complete in all particulars and was liable to be rejected by the Central Government for it did not give full details of the person (name, address, etc.) from whom the shares were proposed to be acquired. Another contention in this respect was that since the application for approval submitted was deficient and as the deficiency was pointed out by the Central Government to the intending purchaser, the time of sixty days laid down under Section 108E of the Act commenced to run from May 7, 1981, and had not expired when the sale had been made in favour of the purchaser on June 30, 1981. Reference in this regard was made to the notes under paragraph 20 of Form 7C. In other words, the contention was that the presumption under Section 108E was not available to the petitioners since the period of 60 days had not expired and the same could not be deemed to be a valid sale in favour of the purchaser. Apart from the above questions, learned counsel for the petitioners raised two other points. Firstly, that the Central Government was a necessary party in this proceeding and secondly, the complete record of the case before the Central Government was necessary to find out as to how the application made by the purchaser had been dealt with. In this context, learned counsel urged that the point had not been given up before the learned company judge at any stage of the hearing.

6. In reply, learned counsel for the respondent urged that the presumption under Section 108E was complete unless within a period of 60 days from the date of the receipt of the application for permission under Section 108A, the Central Government communicated to the person by whom the request was made, that the approval prayed for cannot be granted. He urged that there was no communication within a period of 60 days or even thereafter by the Central Government saying that the approval prayed for could not be granted. It was also contended that the application was complete in all respects and the applicant was nowhere required to furnish the name of the person who owned the shares, for paragraph 10 of Form 7C only required the name, address, etc., of the person 'from whom the shares are proposed to be acquired'. Since the shares were to be acquired from the Tax Recovery Officer, Kanpur, of which particulars had been furnished, there was a full compliance with the requirement of the Rules. Learned counsel further submitted that the Central Government was not a necessary party at all because its order was not under challenge and no relief was sought against them. Secondly, the sending for the record had been given up and in any event it was not necessary, for all relevant papers had been filed.

7. It is apparent from the above that the principal question before us is whether the acquisition of 1,26,000 equity shares of the Polytex by the purchaser, respondent No. 1 (Swadeshi Mining) by sale from the Tax Recovery Officer was a valid sale.

8. In order to appreciate the arguments raised at the Bar, it will be appropriate that we make reference to the specific provisions of law to which our attention was drawn.

9. Section 108A which places restriction on the acquisition of shares in certain circumstances, runs as under :

' 108A. Restriction on the acquisition of shares.--(1) Except with the previous approval of the Central Government, no individual, group, constituent of a group, firm, body corporate or bodies corporate under the same management, shall jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in a public company, or a private company which is a subsidiary of a public company, if the total nominal value of the equity shares intended to be so acquired exceeds, or would, together with the total nominal value of any equity share already held in the company by such individual, firm, group, constituent of a group, body corporate or bodies corporate under the same management, exceeds twenty-five per cent of the paid-up equity share capital of such company.

(2) Any person who acquires any share in contravention of the provisions of Sub-section (1), shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both.'

10. There is a presumption about the grant of the approval by the Central Government on an application under Section 108A if there is no refusal by the Central Government within a specified period of time. Section 108E reads as under ;

' 108E. Time within which refusal to be communicated.--Every request made to the Central Government for according its approval to the proposal for acquisition of any share referred to in Section 108A or the transfer of any share referred to in Section 108C shall be presumed to have been granted unless, within a period of sixty days from the date of receipt of such request, the Central Government communicates to the person by whom the request was made, that the approval prayed for cannot be granted.'

11. Reference may also be made to the provisions of Section 108B which place restriction on the transfer of equity shares by a body corporate or bodies corporate under the same management holding ten per cent, or more of the nominal value of the subscribed equity share capital of any other company on the transfer of one or more of such shares to give intimation to the Central Government prior to such transfer. Sub-section (2) lays down that if the Central Government is satisfied that as a result of the proposed transfer of shares, a change in the composition of the board of directors of the company is likely to take place and that such change is prejudicial to the interests of the company or to public interest, it may direct that such shares shall not be transferred. Sub-section (5) says that if the Central Government does not make any direction as contained in Sub-section (2) within a period of sixty days, the provisions of Sub-section (2) will not be attracted.

12. Reference may also be made to Section 108C which places restriction on the transfer of shares of foreign companies. This provision also requires previous approval of the Central Government.

13. Section 108F provides penalty for contravention of Section 108A, 108B or 108C. It reads:

'(1) Every person who exercises any voting or other right in relation to any share acquired in contravention of the provisions of Section 108A, Section 108B or Section 108C shall be punishable with imprisonment for a term which may extend to five years and shall also be liable to fine.'

14. Sub-section (2) likewise provides for punishment to every officer of the company who gives effect to any voting or other right exercised in relation to any share acquired in contravention of the provisions of Section 108A, Section 108B or Section 108C of the Act.

15. There is no dispute on the fact that Swadeshi Cotton Mills is the holder of more than 25 per cent, equity shares in Polytex. As a matter of fact, it is more than thirty per cent. It is not disputed that Swadeshi Cotton Mills is a holding company in relation to Swadeshi Mining. Swadeshi Mining, therefore, applied for approval of the Central Government for the acquisition of shares which were under attachment with the Tax Recovery Officer, Kanpur, and were for sale.

16. On the question whether prior approval of the Central Government was necessary or not in the present case, an argument was raised by Mr. Rajaram Agarwal, appearing for respondent No. 1, that it was not really necessary as the acquisition of 1,26,000 equity shares did not alter the situation vis-a-vis the Swadeshi Cotton Mills, Kanpur, for the latter already held more than twenty-five per cent, equity share capital in the Polytex. In other words, he urged that the provisions of Section 108A can be attracted only in a case where a holder of less than twenty-five per cent, of the equity share capital of the company acquires such shares to make its holding exceed twenty-five per cent, of the equity share capital in the company. This argument has, in our opinion, no merits. The provisions of Section 108A make it obligatory for any person, group, constituent of a group, firm, body corporate or bodies corporate under the same management where they jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in the public company, where the total nominal value of any equity share intended to be acquired exceeds, or would, together with the total nominal value of any equity share already held in such company, exceed twenty-five per cent, of the paid-up equity share capital of the company. It will thus be seen that if the acquisition is of a block of equity shares, which exceeds twenty-five per cent, of the total equity share capital of the company or where the holding of equity shares by a party would exceed twenty-five per cent, of the total equity share capital of the company by fresh acquisition, prior approval of the Central Government for such acquisition is necessary. The embargo is put on acquiring more than twenty-five per cent, of the equity share capital in the company unless previous approval has been obtained. Section 108A makes it clear that the restriction is on the acquisition of the equity share capital of a public company by any individual, group, constituent of a group, firm, body corporate or bodies corporate under the same management whether acting jointly or severally. They are restrained from acquiring equity shares where the total existing holding plus the intended acquisition would exceeed twenty-five per cent, of the equity share capital in that company. Prior approval of the Central Government would become necessary in such a case.

17. As far as the facts of the present case are concerned, there is no dispute now that an application was necessary to be made for approval of the Central Government. An application was made to the Central Government on March 12, 1981. According to the provisions of Section 108C, it was necessary for the Central Government to have intimated within sixty days its refusal to grant the approval. It may be noticed that not only had the refusal to be indicated within a period of sixty days but it had to be communicated to the party within sixty days. Admittedly, no such communication was sent by the Central Government in the present case...Therefore, the acquisition could be made by purchase of the shares from the Tax Recovery Officer after May 12, 1981.

18. In faot, the Swadeshi Mining sent two letters thereafter to the Central Government for expediting the grant of the approval for the acquisition of the shares. These letters are dated March 20, 1981, and March 27, 1981. The letter dated March 20, 1981., was replied to by a letter dated May 7, 1981. We will be referring to this letter a little later but at present it would suffice to say that the entire premises of the appellant's contention rests on this letter to urge that although there was no direct refusal to grant the approval for the acquisition of shares, yet in view of the Note underlined paragraph 20 of Form 7C, which is the pro forma of the application for the acquisition of shares, under rules 3 and 4 of the Companies (Central Government's) General Rules and Forms, 1956, made by the Central Government in exercise of its powers under Section 642 of the Act. The first paragraph of the notes under paragraph 20 of the Form reads as follows:

' Notes :

If this application is incomplete in any respect, the deficiency will be pointed out to the applicant and the period of 60 days will count from the date from which such deficiency is set right.'

19. The sheet-anchor of the argument of learned counsel for the appellant was that by the letter dated May 7, 1981, the Central Government had asked for particulars about the owner of the shares which were under attachment and sale by the Tax Recovery Officer. Consequently, the application made by the Swadeshi Mining was deficient and as such the period of sixty days commenced to run not from March 12, 1981, but from May 7, 1981 and since the acquisition was made by sale in favour of Swadeshi Mining by the Tax Recovery Officer on June 30, 1981, it was void as the period of sixty days from May 7, 1981, had not expired. In other words, the argument was that the presumption which is to be raised under Section 108E of the Act was not available to Swadeshi Mining and in any event not before July 7, 1981. Consequently, it was argued that the acquisition was contrary to law and the petition under Section 155 was misconceived and the decision of the learned single judge allowing the application was bad in law.

20. It would now be appropriate to quote in full the letter dated May 7, 1981, sent by the Central Government.

'No. 11/29/81 CL. VI,

Government of India,

Ministry of Law, Justice and Company Affairs, Department of Company Affairs, Shastri Bhawan, 5th Floor, ' A ' Wing, Dr. R. P. Road, NewDelhi.

7-5-1981.

M/s. Swadeshi Mining & Mfg. Co. Ltd.,

L-25, Connaught Circus,

New Delhi--110001.

Subject: Application under Section 108A of the Companies Act, 1956. Gentlemen,

With reference to your letter dated March 20, 1981, on the subject noted above, I am directed to say that you have stated in your letter dated March 12, 1981, that Tax Recovery Officer, 'B' Range, Kanpur, has asked both the trusts to arrange for the sale of shares by March 15, 1981, failing which he would sell the shares even below quoted price. Since the said date, i.e., March 15, 1981, has already expired, it may please be intimated whether the Tax Recovery Officer, ' B ' Range, Kanpur, has sold the shares under question ; if so, the details thereof may be furnished. In case the shares are still with the two trusts, it may be stated whether the Tax Recovery Officer, 'B' Range, Kanpur, may have extended the period for the sale of shares by the two trusts.

2. The names of trustees of the two trusts, namely, A.M. Jaipuria Public Charitable Trust, Kanpur, and Jaidei Devi Anandram Jaipuria Public Charitable Trust, Kanpur, may be furnished.

3. It may be confirmed that the shares will be purchased at the market price prevailing at the stock exchange. It may be noted that pending receipt of the above, your application under Section 108A of the Companies Act, 1956, has been closed.

Yours faithfully,

(S/d-) V.P. UPPAL,

Under Secretary to the

Government of India.'

21. It would be seen that the first paragraph only requires the information whether the Tax Recovery Officer, 'B' Range, Kanpur, has sold the shares under question and if so, the details thereof to be furnished. In case the shares were not sold, intimation may be given whether the Tax Recovery Officer had extended the period for the sale of the shares of the two trusts. The information sought by the Central Government did not have the effect of making the application by Swadeshi Mining a deficient one. This enquiry was made since the sale was intended to be effected on March 15, 1981, It is nowhere required in Form 7C to mention the date by which the shares were to be sold or acquired. Consequently, the information asked for by the Central Government could not render the application deficient.

22. Paragraph 2 of the above letter asked that the names of the trustees of the two trusts be furnished. The argument was that there was a deficiency in the application dated March 12, 1981, inasmuch as the names of the trustees of the two trusts had not been mentioned. Emphasis was laid by learned counsel for the appellant that it was necessary for the applicant, viz., Swadeshi Mining, to have given the names of the trustees of the two trusts in their application dated March 12, 1981, as the trustees really constituted to be the owners of the shares on behalf of the trusts. In other words, the argument was that the names of the trustees were necessarily to be mentioned in the application under Section 108A and this not having been done, there was a deficiency and as such the time had not begun to run once the deficiency was pointed out by the Central Government,

23. On behalf of the respondents, it was urged that furnishing of the names of the trustees was not at all necessary under paragraph 10 of Form 7C. It did not require the names of the persons who were the owners of the shares but required information of the persons from whom the shares were to be acquired. Since the shares were to be acquired from the Tax Recovery Officer, the particulars of the shares, names of the two trusts and the particulars of the Tax Recovery Officer were mentioned in the application made on March 12, 1981.

Paragraph 10 of Form 7C reads as follows :

' Full details of the persons (name, address, etc.) from whom the shares are proposed to be acquired.'

24. This shows that the details of the persons from whom the shares are proposed to be acquired are to be mentioned in the application under Section 108A. The term ' full details of the persons ' used in paragraph 10 above requires the giving of such persons' names and addresses. Paragraph 10 nowhere mentioned that the names of the owners of the shares have to be mentioned. Paragraph 10 does not require the applicant to mention the name of the person or persons in whose name the shares were registered with the company even. We, therefore, do not find any substance in the contention that it was necessary to mention the names of the trustees in the application under Section 108A. The shares were not being acquired from the trustees. The shares were under attachment and sale in lieu of arrears of income-tax and wealth-tax dues and were to be sold by the Tax Recovery Officer. None of the paragraphs of Form 7C requires the disclosure of the names or other particulars of the owners of the shares. It is not disputed that the two trusts mentioned above were the owners of the aforementioned 1,26,000 equity shares. The relevant particulars were disclosed in the application under Section 108A. It was, therefore, not necessary to disclose the names of the trustees of these two trusts in the application under Section 108A. Rule 3 of the Companies (Central Government's) General Rules and Forms, 1956, reads:

' The Forms set forth in annexure A, or Forms as near thereto as circumstances admit, shall be used in all matters to which the Forms relate.'

25. It is nobody's case that the application made by the petitioners in the company petition under Section 108A dated March 12, 1981, was not in consonance with Form 7C prescribed. All the required particulars were there. Thus, it cannot be said that there was a deficiency in the application made to the Central Government for approval under Section 108A. If the Central Government requires any additional information, it can always be furnished, as it was done in the present case, promptly. However, since there was no deficiency in the application, there was no question of extending the period of sixty days till the deficiency was set right. In other words, the notes under paragraph 20 of Form 7C, quoted above, would have no application unless the Central Government had pointed out a deficiency in the application. The letter of the Central Government dated May 7, 1981, does not say that the nondisclosure of the names of the trustees of the two trusts was a deficiency. We are not able to persuade ourselves to acce'pt the contention of learned counsel for the appellant that paragraph 2 of the letter of the Central Government dated May 7, 1981, had the effect of pointing out the deficiency in the application. Had it been so, the Central Government would have stated so clearly. Since the above information was not required to be furnished in the original application for approval, it could not constitute a deficiency. However, it would be open to question whether it constituted a deficiency or not, in case it was so pointed out by the Central Government. In the present case, there is no indication by the Central Government in their letter dated May 7, 1981, that there was any deficiency. It is quite open to the Central Government to require additional information in a particular case but that would not render the application deficient if it is not required under the law to be furnished.

26. In this context, we may now refer to the three statements made in Parliament by the Minister concerned in regard to queries made by the Hon'ble Members of Parliament. Great emphasis was laid on the fact that the matter was pending for the consideration of the Government and had not been disposed of and as such the period of sixty days had not even begun to run. We are not impressed by this line of argument. We may now briefly refer to the statements made in Parliament. The first statement was made on December 8, 1981, in response to unstarred question No. 2545. The Hon'ble Minister of Law, Justice and Company Affairs, stated that while the application of the company was still under examination, it was learnt from the applicant company and from the Tax Recovery Officer (B), Income-tax, Kanpur, with whom the aforesaid shares were under attachment, that the said shares have been sold to the applicant company at the rate of Rs. 19 per share on June 30, 1981, through a registered share and stock broker at Calcutta. Messrs Swadeshi Mining & Mfg. Co. Ltd. have thus acquired the aforesaid shares by way of purchases without having obtained prior approval under Section 108A of the Companies Act. The question regarding penal action, if any, against the company for contravention of the provisions of the Companies Act is under examination.

27. The next statement made on the floor of the House is dated April 8, 1982, in reply to unstarred question No. 8717. The question is also relevant. Three Hon'ble Members of Parliament had asked :

' Will the Minister of Law, Justice and Company Affairs, be pleased to refer to reply given to USQ No. 2545 of December 8, 1981, regarding representation of shareholders of Swadeshi Polytex and state :

(a) Whether the examination has been completed ;

(b) If so, the results thereof; and

(c) Action Government proposes to take against the firm '

28. The answer was given by the Minister of State in the Ministry of Law, Justice and Company Affairs.

' Parts (a), (b) and (c): The question regarding penal action, if any, against the company, namely, M/s. Swadeshi Mining & Mfg. Company Ltd., for alleged contravention of the provisions of Section 108A of the Companies Act, 1956, is still under examination. '

29. The third time the matter figured in the Lok Sabha was on August 3, 1982. In reply to the question as to the present state of transfer of 1,26,000 equity shares of applicant in the name of Swadeshi Mining, the Hon'ble Minister of Law, Justice and Company Affairs, stated that a petition under Section 155 of the Companies Act was filed by the Swadeshi Mining in the Allahabad High Court and was pending before the court. Further, in reply to the question as to the action being initiated against the Swadeshi Mining, the Hon'ble Minister stated :

' Since the petition under Section 155 of the Companies Act, 1956, is pending before the Allahabad High Court, the Government is awaiting the result of those proceedings. '

30. It would thus be seen that the answers of the Hon'ble Minister on the floor of Parliament on April 20, 1982, and August 3, 1982, pertained to the action proposed to be taken against the Swadeshi Mining for contravention of the provisions of law and the Government stated that it was still under consideration. The question of taking action against the Swadeshi Mining would arise under Section 108F of the Act provided there was a contravention of the provisions of Section 108A or 108C in the present case.

31. The answer given by the Government on September 8, 1981, which has been quoted in extenso above, however, contains one sentence which needs further reference. 'M/s. Swadeshi Mining & Mfg. Company have thus acquired the aforesaid shares by way of purchases without having obtained prior approval under Section 108A of the Companies Act.' Great emphasis was laid on the above sentence by learned counsel for the appellant to say that the shares had been acquired by the Swadeshi Mining without having obtained prior approval of the Central Government. The only reason for coming to this conclusion is based on the ground that the application of the company was still under examination when the shares were sold on June 30, 1981. This statement nowhere says that the application made by the Swadeshi Mining was deficient in any way or defective or that the Central Government had withheld giving of approval as required under Section 108C. Merely because the matter was under examination and continued to be so would not render the acquisition invalid. We have examined the matter in some detail above and it has been seen that there would be a presumption of approval in case the application under Section 108A was not refused by the Central Government and such refusal had to be communicated within sixty days of the making of the application. Admittedly, there was no refusal by the Central Government of the approval sought by the Swadeshi Mining. The Central Government, if it so wishes, may allow an application for approval of acquisition by a specific order and may keep silent for a period of sixty days which would also amount to an approval in view of the provisions of Section 108E. Therefore, if a matter is under the examination of the Central Government even after the expiry of the sixty days, it would not override the provisions of Section 108E of the Act. The provisions of Section 108E are clear. The law provides for communicating refusal of the grant of approval by the Central Government and where it is not so done within 60 days of the making of the application, there would be a presumption of the approval having been granted. Since there is nothing on record to show that the Central Government had either refused the grant of approval or pointed out any deficiency in the application made to the Central Government, the approval would be presumed to be there after the expiry of sixty days. The provisions of Section 108E lay down a salutary rule of law. It fixes a time-limit within which the Central Government must act if it is satisfied that the approval is not to be granted. One cannot go on waiting for the approval of the Central Government in respect of acquisition of shares in a public company, which is a negotiable instrument, indefinitely. The Central Government had to act promptly so that it could, if it was not satisfied with the application, communicate its refusal within sixty days.

32. In the present case, it is apparent that the company made the application on March 12, 1981, and followed it with three applications for expediting the matter, viz., by the applications dated March 20, 1981, March 27, 1981, and May 8, 1981. The company also addressed a letter dated May 11, 1981, in which additional information sought for in the letter dated May 7, 1981, by the Central Government was replied to. In this letter also, the Swadeshi Mining had asked for according the requisite approval of the purchase of the shares. It seems to us that the Central Government acted sluggishly in this matter. Consequently, the law must take its own course. Hence, we are of the opinion that the approval would be presumed to be there in view of the provisions of Section 108E of the Act since the refusal to grant approval had not been made or communicated to the applicant nor would the time be extended as no deficiency in the application had been pointed out.

33. In view of the above, it is not necessary to advert to the argument raised by learned counsel for the respondent regarding non-feasibility of supplying names of owners of shares where several successive transactions have been made through blank transfer forms. In the present case, the facts are clear. The fact that the shares were attached and were for sale by the Tax Recovery Officer in realisation of arrears of income-tax and wealth-tax dues was all known and had been mentioned. Reference may be made in this context to the Income-tax (Certificate Proceedings) Rules, 1962.

34. Rule 37 of the above Rules refers to transfer of negotiable instruments and shares by the Tax Recovery Officer and throws light on the execution of a document of sale by the Tax Recovery Officer. The relevant provision reads as follows :

'(1) Where the execution of a document or the endorsement of the party in whose name a negotiable instrument or a share in a corporation is standing is required to transfer such negotiable instrument or share to a person who has purchased it under a sale under the Second Schedule, the Tax Recovery Officer may execute such document or make such endorsement as may be necessary and such execution or endorsement shall have the same effect as an execution or endorsement by the party.'

35. It is apparent from the above that when the Tax Recovery Officer is required to transfer such negotiable instrument or share to a person who has purchased it, the Tax Recovery Officer may execute such document or make such endorsement as required and in that event the execution and the endorsement made shall have the same effect as an execution or endorsement by the party. Consequently, it can be said that the disputed shares were being acquired in the present case from the Tax Recovery Officer. He was competent to execute the document of sale. Paragraph 10 of Form 7C of the Companies (Central Government's) General Rules and Forms, 1956, required the name of the party from whom the shares were being acquired and not the name of the owner. Since the shares had been attached for sale by the Tax Recovery Officer in the course of proceedings for recovery of arrears of income-tax and wealth-tax dues, the Tax Recovery Officer was competent to execute a sale deed in favour of the petitioner, Swadeshi Mining. The shares were, therefore, being acquired from the Tax Recovery Officer in this case.

36. Another argument made on behalf of the appellant which has to be taken notice of is whether the Central Government is a necessary party and the record of the case following the application by the Swadeshi Mining was necessary for a proper disposal of the matter in this court. In our opinion, the Central Government was not a necessary party at all. No relief was being asked for against the Central Government. Section 155 envisages orders being passed against the company whose shares are involved. The Central Government has nothing to do with the same. If an application is made to a company to register a particular share and the company refuses to do so, the remedy of the aggrieved party is to apply to the High Court under Section 155, and the Central Government has no role to play in such an application. Consequently, the Central Government was not a necessary party.

37. It was then contended that if it was not a necessary party, it was a proper party. We fail to appreciate how the Central Government would be a proper party. A proper party is one whose presence is necessary to enable the court to make a final and complete adjudication. In the present case, the presence of the Central Government in the proceedings under Section 155 was, in our opinion, not required. What was then argued was that in order to call for the record from the Central Government in the application made under Section 108A of the Act, the Central Government would be a proper party. The question of asking for the record of the case was in the discretion of the court. The parties having filed all relevant and necessary correspondence in the matter and nothing having been brought to our notice that there were some other orders passed by the Central Government on the application under Section 108A, we fail to understand how it was necessary to send for the entire file pertaining to the application tinder Section 108A. It may be mentioned at this stage that the learned company judge has clearly stated that the request for sending for the record from the Central Government was not pressed. Learned counsel for the appellant emphasised that at no stage of the hearing, the prayer was given up. Learned counsel for the respondent, on the other hand, urged that it was so done during the course of arguments. We are mentioning this for this was the stand of the respective parties before us. However, we are not impressed. In our opinion, when all the relevant papers were before the court and since none of the parties before us urged that there were some other specific papers, we do not see the relevance in summoning the record for the purpose of a fishing and roving enquiry. Whenever the record of a case or proceeding is to be sent for, a case has to be made out. If there were other papers, it should have been specified. The prayer for sending for the record from the Central Government was repeated before us, but in view of what has been stated above, we see no good reason to do so.

38. We have considered the matter carefully and we have come to the conclusion that the arguments raised by learned counsel before us have no merits and the appeal must fail. Consequently, we uphold the judgment of the learned company judge for the reasons given above and dismiss the special appeal with costs.

39. We further direct that the Swadeshi Polytex Ltd., the appellant, shall correct its register of members by deleting the names of the present holders of the disputed 1,26,000 equity shares and in its place substitute the name of respondent No. 2, New Bank of India, Kanpur, within a week from the date of the receipt of the certified copy of this order.

40. Mr. Raja Ram Agarwala, learned counsel for the petitioner-respondent, states that the extraordinary general meeting is scheduled to be held on August 14, 1984, and as such the transferee should be allowed to vote at the said meeting. Since we have already upheld the claim of the petitioner, we direct that the New Bank of India or its representative shall have voting rights in respect of the said 1,26,000 equity shares at the aforesaid meeting.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //