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Bengal Saws and Steel Products Ltd. and Another Vs. Union of India - Court Judgment

LegalCrystal Citation
Subject Company
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petition No. 3244 of 1982
Judge
Reported in[1987]61CompCas120(Delhi); ILR1985Delhi584
Acts Monopolies and Restrictive Trade Practices Act, 1969 - Sections 2, 5, 20, 21 and 26
AppellantBengal Saws and Steel Products Ltd. and Another
RespondentUnion of India
Advocates: G.A. Shah and; P. Dayal, Advs
Cases ReferredUnion of India v. Tata Engineering and Locomotive Co. Ltd.
Excerpt:
.....2(d), 20(b)(ii) & 21--'dominant undertaking'--discussed--proposal to manufacture stainless steel razor blade strips instead of carbon steel--amounts to 'expansion' within the meaning of section 21 and needs approval of the central government.; the petitioner, a subsidiary of hlm, has an industrial license to manufacture safety razor blade strips from carbon, hlm also manufactures razor blades. the petitioner proposed to manufacture stainless steel strips in place of carbon steel razor blade strips and when the petitioner was advised by the company law board to move an application under section 21 of the m.r.t.p. act for seeking approval of the central government the petitioner filed a writ petition alleging therein that the proposal does not amount to 'substantial expansion'..........blade strips from carbon steel. the petitioner company has a proposal to manufacture stainless steel razor blade strips in place of carbon steel razor blade strips within the existing licensed capacity. hlm is registered under section 26 read with section 20(b)(i) of the monopolies and restrictive trade practices act, 1969, as a single dominant undertaking in respect of razor blades. 2. the crucial question that arises for determination is whether the proposal of the petitioner to produce razor blade strips from stainless steel instead of carbon steel amounts to substantial expansion within the meaning of section 21 of the monopolies and restrictive trade practices act, 1969. we may notice here sections 20 and 21 of the monopolies and restrictive trade practices act, 1969, which are.....
Judgment:

Aggarwal, J.

1. The petitioner, Bengal Saws & Steel Products Ltd., is a private limited company manufacturing 'safety razor blade strips'. The petitioner company has an industrial license for the manufacture of safety razor blade strips - 1,080 tonnes per annum. The petitioner company is a wholly owned subsidiary of Harbans Lal Malhotra and Sons Ltd. (hereinafter for the sake of brevity called 'the HLM'). The said HLM manufacturers razor blades. The said HLM has an industrial license to manufacture razor blades, 1,500 million on number. The petitioner company is manufacturing safety razor blade strips from carbon steel. The petitioner company has a proposal to manufacture stainless steel razor blade strips in place of carbon steel razor blade strips within the existing licensed capacity. HLM is registered under section 26 read with section 20(b)(i) of the Monopolies and Restrictive Trade Practices Act, 1969, as a single dominant undertaking in respect of razor blades.

2. The crucial question that arises for determination is whether the proposal of the petitioner to produce razor blade strips from stainless steel instead of carbon steel amounts to substantial expansion within the meaning of section 21 of the Monopolies and Restrictive Trade Practices Act, 1969. We may notice here sections 20 and 21 of the Monopolies and Restrictive Trade Practices Act, 1969, which are relevant for the decision of the petition, and they read as under :

'20. This part shall apply to -

(a) an undertaking if the total value of -

(i) its own assets, or

(ii) its own assets together with the assets of its interconnected undertaking, is not less than twenty crores of rupees;

(b) a dominant undertaking -

(i) where it is a single undertaking, the value of its assets, or

(ii) where it consists of more than one undertaking, the sum total of the value of the assets of all the interconnected undertakings constituting the dominant undertaking,

is not less than one crore of rupees.

Explanationn. - The value referred to in this section shall be, -

(i) in the case of an undertaking referred to in clause (a) or clause (b), as the case may be, the value of its assets on the last day of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this Part does or does not apply to such undertaking; and

(ii) in the case of an interconnected undertaking, the value of its assets on the last day of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this Part does not apply to the undertaking referred to in clause (a) or clause (b).'

3. The relevant portion of section 21 reads as under :

21. Expansion of undertakings. - (1) Subject to the provisions of section 23, where an undertaking to which this Part applies proposes to substantially expand its activities by the issues of fresh capital or by the installation of new machinery or other equipment or in any other manner, it shall, before taking any action to give effect to the proposal for such expansion, give to the Central Government notice, in the prescribed form, of its intention to make such expansion, stating therein the scheme of finance with regard to the proposed expansion, whether it is particulars with any other undertaking or undertakings and if so, giving particulars relating to all the interconnected undertakings and such other information as may be prescribed.

(2) Notwithstanding anything contained in any other law for the time being in force no undertaking shall give effect to any proposal for its substantial expansion unless such proposal has been approved by the Central Government.

Explanationn. - For the purpose of this section, an undertaking shall be deemed to expand substantially in any manner if, as a result of such expansion, -

(a) in the case of an undertaking within the purview of the Industries Act and having a licensed capacity for the production of goods, of any description, there would be an increase of such licensed capacity by not less than twenty-five per cent. thereof;

(b) in the case of an undertaking to which clause (b) of section 20 applies but to which clause (a) of this Explanationn does not apply, the production, marketing, supply, distribution or control of any goods or the provision of any services would increase by not less than twenty-five per cent. of the goods produced, marketed, supplied, distributed or controlled, or services provided, by it immediately before such expansion;

(c) in the case of any other undertaking, -

(i) it would have additional assets of a value of not less than twenty-five per cent. of the value of its assets immediately before such expansion; or

(ii) the production, marketing, supply, distribution or control of any goods or the provision of any services would increase by not less than twenty-five per cent. of the goods produced, marketed, supplied, distributed or controlled, or services provided, by it immediately before such expansion.'

4. I may add that the Explanationn to section 21, reproduced above, was substituted by the Amendment Act of 1982 and prior to the amendment, the Explanationn to section 21 read as under :

'Explanation. - For the purpose of this section, an undertaking shall be deemed to expand substantially if, after such expansion, -

(a) in the case of an undertaking to which clause (a) of section 20 applies, -

(i) the value of its assets, before the expansion, would result in an increase by not less than twenty-five per cent. of such value; or

(ii) the production, supply or distribution of any goods or the provision of any services by it, before the expansion, would result in an increase by not less than twenty-five per cent. of the goods produced, supplied, distributed or controlled, or services provided, by it;

(b) in the case of an undertaking to which clause (b) of section 20 applies, the production, supply, distribution or control of any goods or the provision of any services by it would result in an increase by not less than twenty-five per cent. of the goods produced, supplied, distributed or controlled, or services provided, by it before the expansion.'

5. Learned counsel for the petitioner stated at the Bar that for the purpose of the decision of this petition, it may be taken that the petitioner company is a 'dominant undertaking'. A question arises whether the proposal of the petitioner company to manufacture stainless steel razor bladed strips instead of carbon steel razor blade strips requires the approval of the Central Government under section 21 of the Monopolies and Restrictive Trade Practices Act. The Department of Company Affairs, Ministry of Law, Justice and Company Affairs, vide latter dated June 27, 1981, wrote to the petitioner company advising it to make an application under section 21 of the Monopolies and Restrictive Trade Practices Act, 1969, for seeking approval of the Central Government before giving effect to the proposal. The letter reads as under :

'I am directed to refer to the correspondence resting with your letter No. BSD/IMF/401/2/14, dated May 12, 1981, on the subject mentioned above, and the submissions made by your representatives at the personal hearing before the undersigned on May 22, 1981, and to say that the safety razor blade strips would also be covered under sub-group 319.2 of the Monopolies and Restrictive Trade Practices (Classification of Goods) Rules, 1971, viz., 'razor blades' in which your company along with the interconnected undertakings of 'Harbanslal Malhotra' Group is dominant. Further, as a result of change in the product-mix by way of the proposed diversification, viz., to roll both carbon steel and stainless steel strips, the value of the production would increase by more than 25%. In view of this, you are advised to make an application under section 21 of the Monopolies and Restrictive Trade Practices Act, 1969, for seeking prior approval of the Central Government there under. Your application as and when received will be considered on merits.'

6. Against the aforesaid order, the petitioner company came in writ petition under articles 226 and 227 of the Constitution of India.

7. The challenge to the validity of the aforesaid order is two-fold : (1) that razor blade strips and razor blades are two separate and distinct goods and the petitioner company which is only engaged in the manufacture of razor blade strips is not 'dominant' in that product and consequently section 20(b)(ii) and other provisions of Chapter III of the Monopolies and Restrictive Trade Practices Act, 1969, are not applicable to the petitioner; and (2) that the proposal to produce razor blade strips from stainless steel instead of carbon steel does not amount to 'expansion' within the meaning of section 21. The contention is that by the production of razor blades from stainless steel strips, the petitioner company and its holding company would be only producing a better utility 'goods' and this would not come within the Prohibition contained in section 21 of the Monopolies and Restrictive Trade Practices Act, 1969.

8. To answer the question whether the proposal to change over would or would not result in the expansion of the undertaking, a few facts need to be stated. The holder company, that is, HLM, has the license to manufacture 1,500 million razor blades. The total license production is 2,000 million razor blades (information given at the bar). Thus, the petitioner company and its holding company are producing and marketing 3/4ths of the licensed production in razor blades. So far, the holding company has been manufacturing stainless razor blades from imported stainless steel strips. The petitioner company, as already stated, has a license for the manufacture of 1,080 tonnes of safety razor blade strips. The petitioner company has a proposal to manufacture stainless steel strips in place of carbon steel razor blade strips. The above proposal, if given effect to, to my mind, is bound to create economic imbalance in the trade in razor blades. The other manufacturers of razor blade strips as well as of razor blades would be forced our of the razor blade 'market' and ultimately it can result in the monopolisation of the razor blade industry by the petitioner and its holding company. It is not disputed that if the proposal of the petitioner-company is approved, the value of their production would go up by more than 25% of the existing value of production. In my view, the proposal of the petitioner company to manufacture stainless steel strips instead of carbon steel razor blade strips would, in the circumstances mentioned, amount to a substantial expansion of the undertaking/undertakings.

9. The petitioner, after the amendment in section 21 of the Monopolies and Restrictive Trade Practices Act, wrote a letter dated January 23, 1984, to the Secretary, Department of Company Affairs, Shastri Bhavan, stating that since the production by the contemplated changeover from carbon steel to stainless steel for manufacture of razor blade strips is within the licensed capacity and without installation of new machinery or equipment, section 21 of the Monopolies and Restrictive Trade Practices Act, 1969, would not be attracted. The petitioner company, by the aforesaid letter, sought clarification whether, after the amendment in 1982, the proposal of the petitioner would still attract the provisions of section 21 of the Monopolies and Restrictive Trade Practices Act, 1969.

10. The Deputy Secretary to the Government of India, vide latter dated February 23, 1984, replied as under :

'I am directed to refer to your letter dated January 23, 1984, on the subject mentioned above and to say that the matter has been considered under the provisions of section 21 of the Monopolies and Restrictive Trade Practices Act, 1969, as amended by the Monopolies and Restrictive Trade Practices (Amendment) Act, 1982, and the conclusion arrived at by the Central Government is that the proposal M/s. Bengal Saws and Steel products Ltd. requires approval of the Central Government even under the amended provisions of section 21 of the said Act. In this connection, it is to be noted that, as per the existing industrial license, the petitioner company can manufacture 'safety razor blade strips' for a capacity of 1,080 tonnes per annum. The description of the item which the company proposes to manufacture is 'safety razor blade strips (carbon and stainless steel)' for a capacity of 1,080 tonnes per annum. It is thus clear that the proposed item of manufacture is different from the one for which the petitioner company holds an industrial license. In fact, had not the proposed item been different from the existing item, the question of obtaining any approval for the manufacture of the proposed item under the provisions of the Industries (Development and Regulation) Act, 1951, would not have arisen.

From the position stated above, it is clear that the petitioner company proposes to manufacture a new item for which it does not posses any licensed capacity at present. Accordingly, the question whether the manufacture of the proposed new item will result in substantial expansion of the undertaking has to be determined as per clause (c) of the Explanationn below sub-section (2) of the amended section 21 of the Monopolies and Restrictive Trade Practices Act, 1969. As per the said clause (c), it is, inter alia, the production, marketing, supply, distribution or control of any goods which are to be taken into consideration for determining the extent of expansion. In this regard, the petitioner company has itself admitted that, with the production of the proposed new item, the value of production of the goods will increase by more than 25%. Since, thereforee, the amended section 21 of the Monopolies and Restrictive Trade Practices Act, 1969, the proposal will require approval of the Central Government under the said section 21 of the Act.'

(The afore-mentioned letters were placed on record by the petitioner company during the hearing of the petition.)

11. It is clear from the letter dated February 23, 1984, from the Deputy Secretary to the Government of India to the petitioner company that the petitioner does not passes the license for the manufacture of razor blade strips from stainless steel and that the proposed item of manufacture is different from the one for which the petitioner company holds the industrial license. It is further clear that by the changeover, the value of the production of the goods will increase by more than 25%. The proposed change, it seems, would result in substantial expansion of the activities of the undertaking and would require approval of the Central Government under section 21.

12. Mr. Shah, learned counsel for the petitioner, contended that before attracting the regulatory provisions of section 21, the respondent has to show that the proposed expansion is intended to be brought about by either (a) the issue of fresh capital, or (b) the installation of new machinery or other equipment, or (c) in any other manner, and that in the absence of any one of the above pre-requisites, section 21 will not be applicable. Counsel contended that the expression 'in any other manner' has to be read ejusdem generis with the preceding words, namely, 'issue of fresh capital' and 'installation of new machinery or other equipment' appearing in section 21. Shri shah in support of his contention relied upon (1) Union of India v. Tata Engineering and Locomotive Co. Ltd. , and (2) In re Canara Bank Ltd. [1973] 43 CompCas 157 (Mys).

13. The proposal would involve a change in the material used earlier in the manufacture of razor blade strips. The proposed changeover, in my opinion, would come within the ambit of the expression 'installation of new machinery or equipment'; in any case, it would come within the expression 'in any other manner' read in conjunction with the preceding words, namely, 'the installation of new machinery or other equipment'.

14. Shri Shah has during the arguments conceded that for the disposal of the petition, the petitioner undertaking be taken as a 'dominant undertaking', but in the written notes submitted by Shri Shah after the conclusion of the arguments, it seems, the petitioner is sticking to the contention has no force. I have in the opening portion of the judgment stated that the petitioner company is a wholly owned subsidiary of HLM. The said HLM have an industrial license to manufacture razor blades, 1,500 million in number. Section 2(d) of the Monopolies and Restrictive Trade Practices Act defines the term 'dominant undertaking'. The relevant portion of the definition of the term 'dominant undertaking' reads as under :

'dominant undertaking' means, -

(i) an undertaking which has all the following three features, that is to say, -

(ai) it is an undertaking within the purview of the Industries Act;

(bi) it has a license capacity for the production of goods of any description; and

(ci) its licensed capacity for the production of such goods or the aggregate of its licensed capacity and of the licensed capacity of interconnected undertakings, for the production of such goods is not less than one-fourth of the total installed capacity in India for the production of such goods; or

(ii) an undertaking which has all the following three features, that is to say :

(aii) it is an undertaking within the purview of the Industries Act :

(bii) it, by itself or along with interconnected undertakings produces, supplies, distributes or otherwise controls not less than one-fourth of the total goods of any description that are produced, supplied or distributed in India or any substantial part thereof; ...

Explanationn I. - Where the licensed capacity of interconnected undertakings for the production of any goods is not less than one-fourth of the installed capacity for the production of such goods or not less than one-fourth of the production, supply, distribution or control of any goods or the provision or control of any service, as the case may be, is shared by interconnected undertaking, each such undertaking shall be deemed, for the purposes of this Act, to be a dominant undertaking.

Explanationn II. - Where any goods of any description are the subject of different forms of production, supply, distribution or control, every reference in this Act to such goods shall be construed as reference to any of those forms of production, supply, distribution or control, whether taken separately or together or in such groups as may be prescribed.

Explanationn III. - The question as to whether any undertaking, either by itself or along with interconnected undertakings, produces, supplies, distributes or controls one-fourth of any goods or provides or controls one-fourth of any services may be determined according to any of the following criteria, namely, value, cost, price, quantity or capacity of the goods or services.'

15. It is not disputed that the entire production of the petitioner company is utilised by the holding-company for the manufacture of 'razor blades'. The holding company has a license to manufacture razor blades, 1,500 million in number (this is three-fourths of the total licensed production). Thus, the holder company and its interconnected undertaking, that is, the petitioner company, is producing, supplying and controlling three-fourths of the production of razor blades. The petitioner company would, thereforee, come within the definition of 'dominant undertaking' as given in section 2(d).

16. For the reasons stated, I find the petition to be without merit and dismiss it with costs. Counsel's fee is fixed at Rs. 1,000.


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