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Jiyajeerao Cotton Mills Ltd. and Others Vs. Deputy Secretary to the Government of India, Ministry of Law, Justice and Company Affairs, and Others - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Judge
Reported in[1989]65CompCas525(Delhi)
ActsMonopolies and Restrictive Trade Practices Act, 1969 - Sections 2, 21, 26(2) and 27
AppellantJiyajeerao Cotton Mills Ltd. and Others
RespondentDeputy Secretary to the Government of India, Ministry of Law, Justice and Company Affairs, and Other
Cases ReferredBarium Chemicals Ltd. v. Company Law Board
Excerpt:
company - construction - section 27 of monopolies and restrictive trade practices act, 1969 - appellant company produced around one third of total quantity of particular item produced in country - respondent asked company to dilute its shareholding - government made reference under act that appellant failed to dilute shareholding to enable public to participate in profits earned by company - appellant challenged reference order by government on ground that no law existed which required it to broad-base its capital structure - purpose of act was to control companies indulging in monopolistic or restrictive trade practices - act not concerned with ownership of undertaking - held, reference order by government quashed. - section 13: [altamas kabir & cyriac joseph,jj] custody of child -.....d.k. kapur j.1. the writ petition h as been instituted by three petitioners. the first petitioner is a public limited company which carries on the business, inter alia, of manufacturing textiles and chemicals and the second and third petitioners are shareholders of the first petitioner. the first petitioner is hereinafter referred to as the company. originally, the petitioner company appears to have been engaged only in the business of manufacturing textiles at its factory in gwalior, but in 1955, it obtained an industrial license for setting up a chemical plant under the provision of the industries development and regulation act,1951. this plant was to manufacture soda ash to the extent of 66,000 tonnes per annum and caustic soda to the extent of 23,400 tonnes per nannum. this plant went.....
Judgment:

D.K. Kapur J.

1. The writ petition h as been instituted by three petitioners. The first petitioner is a public limited company which carries on the business, inter alia, of manufacturing textiles and Chemicals and the second and third petitioners are shareholders of the first petitioner. The first petitioner is hereinafter referred to as the company. Originally, the petitioner company appears to have been engaged only in the business of manufacturing textiles at its factory in Gwalior, but in 1955, it obtained an industrial license for setting up a Chemical plant under the provision of the Industries Development and Regulation Act,1951. This plant was to manufacture soda ash to the extent of 66,000 tonnes per annum and caustic soda to the extent of 23,400 tonnes per nannum. This plant went into production in December, 1959.

2. Under the provisions of the said Act, the Chemical plant was expanded from time to time till 1972 when its licensed capacity was 1,68,000 tonnes per annum of soda ash, 20,400 tonnes per annum of caustic soda and 10,800 tonnes per year of refined sodium bi-carbonate. According to the petitioner, there are or there were at the relevant time only three other manufacturers of soda ash in the country, i.e. Tata Chemicals Ltd., Dharangdhara Chemical Ltd. and Sahu Chemicals. According to the petitioner's details of production set out in the petition as annexures, the company's production was less than one-third of the total quantity of soda ash produced in India.

3. In June, 1970, the Monopolies and Restrictive Trade Practices Act, 1969, came into force. As there was some doubt as to whether the company was covered by the Monopolies and Restrictive Trade Practices Act, there was some exchange of correspondence between the company and the Government authorities. Eventually, on December 7, 1970, the Company was registered under section 26(2) of the Monopolies and Restrictive Trade Practices Act as being a company to which Part A of the Monopolies and Restrictive Trade Practices Act applied.

4. The Chemicals division of the company wished to make a further expansion of its capacity. This division of the company's business is named Saurashtra Chemicals. The company was informed that clearance was necessary under sections 21 and 22 of the Monopolies and Restrictive Trade Practices Act. Accordingly, the company applied for such a clearance. In the course of discussion, one of the suggestions made to the company was that there should be a dilution of the shareholding of the company which should be made broad-based. There was considerable correspondence relating to this question of expansion. The aim of the petitioner-company was to raise its installed capacity from 1,82,500 tonnes per annum to 2,92,000 tonnes per annum. The company turned down the Government suggestion that the shareholding should be altered so as to make it broad-based and insisted on the application being dealt with but the Government's stand appeared to be that the petitioner company belonged to the Birla group which held a substantial percentage of the shares either directly or indirectly. Eventually, the Government passed an order on November 12, 1973, annexure L to the writ petition. The order states that the application had been advertised but no objection from anybody had been received to the same. A hearing was given regarding the merits of the proposal. It had been pointed out at the time of hearing that there was a heavy demand for soda ash in the country and the project was important to the common man and to interrelated industries also and the location of the project was in backward area with employment potential and export possibilities. There were other points which were also dealt with. The order eventually stated that though the company was, at the moment, a dominant undertaking, its percentage will go down from 36 to 13 percent. of the total installed capacity in the country when letters of intent which had been issued were implemented. The Central Government approved the application and stated that Saurashtra Chemicals were permitted to expand the installed capacity from 1,82,500 tonnes to 2,92,000 tonnes per annum, on the basis of and subject to such conditions as might be stipulated in the letter of intent. This order was passed on November 12, 1973. In this context, another document has been filed with the petition, which is annexure-M, showing the various parties to whom licenses had been granted for setting up new units for manufacture of soda ash. This sets out the names of 14 units which were granted permission to set up manufacturing units for soda ash. This was during the period 1968 to 1971. As we are hearing the petition many years later, the position must have considerably altered from the time this expansion was approved by the order under section 21 of the Monopolies and Restrictive Trade Practices Act.

5. On May 22, 1974, the Government of India made a reference under section 279(1) of the Monopolies and Restrictive Trade Practices Act in respect of the first petitioner. As the present petition is concerned only with this order of reference, it is necessary to set out the whole of the order in full. The copy of order is annexure 8. It is as follows:

'No. 17/1/74-M(I) Government of India, Ministry of Law, Justice and Company Affairs, (Department of Company Affairs), New Delhi-110001, dated the 22nd May, 1974.

Reference No. 1 of 1974 under sub-section (1) of section 27 of the Monopolies and Restrictive Trade Practices Act, 1969, in the matter of Jiyajeerao Cotton Mills Ltd.

Whereas the Central Government is of the opinion that the working of M/s. Jiyajeerao Cotton Mills Ltd., Gwalior, an undertaking registered under section 26 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), of which the Saurashtra Chemicals forms a division, to which Part A of Chapter III of the Monopolies and Restrictive Trade Practices Act, 1969, applies is prejudicial to the public interest for the reasons, inter alia, that the undertaking enjoying a dominant position in the production of soda ash, has failed to broad base its capital structure to enable the public to participate in the high growth and profitability earned by taking advantage of the dominant position and national resources, mainly for the benefit of the persons who control and manage the undertaking and its interconnected undertakings.

AND, WHEREAS, it necessary to reduce the concentration economic power being used by the aforesaid group to further their interest by controlling purchases, sales, investment and personnel policies;

AND, WHEREAS, the division of the undertaking has to be viewed not as an end in itself, but as a means to an end, namely, ensuring steady industrial growth without scope for concentration of economic power to the common detriment;

NOW, thereforeE, in exercise of the power conferred by sub-section (1) of section 27 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), the Central Government hereby refers the said matter to the Monopolies and Restrictive Trade Practices Commission for an inquiry as to whether it is expedient in public interest to make an order:

(a) For the division of any trade of the undertaking by the sale of part of undertaking or assets thereof, or

(b) for the division of the undertaking into such number of undertakings as the circumstances of the case may justify.

By order and in the name of the President of India

(Sd.)

(C.B. P. MENON)

Deputy Secretary to the Government of India.'

6. This reference has been challenged on many grounds. It is claimed that the order was passed in irrelevant and extraneous considerations. The claim is that the only purpose behind the order is to get the shareholding of the company changed so as to dilute the controlling share of the Birla group. The claim is that there is no law which requires the petitioner company to broad base its capital structure. The failure to broad base the capital structure is not at all a relevant factor. In fact, the entire attack on the order is based on the submission or contention that this order is outside the scope of the Monopolies and Restrictive Trade Practices Act.

7. It is further claimed that the order has been passed without affording any opportunity to the affected person and the stand is discriminatory and vocative of article 14 of the Constitution. It is further claimed that there are numerous other companies whose assets are more than that of the petitioner company and, thereforee, the order is discriminatory in nature. In response to the notice, the company informed the Government that it has decided to challenge the order in court.

8. The main grounds of attack are that the order is arbitrary and unreasonable and there was no material whatsoever on the basis of which satisfaction could be recorded of the existence of any jurisdictional facts on the basis of which the order could be issued under section 27. It is further stated that the same point had previously been examined by the Government when an application had been moved under section 21 of the Monopolies and Restrictive Trade Practices Act but permission had been granted at the time. So the sum and substance of the challenge is that the action is ultra virus article 14 and is outside the scope of the Monopolies and Restrictive Trade Practices Act. It is also claimed that the Monopolies and Restrictive Trade Practices Act is being operated in a way which would make it ultra virus articles 14 and 19(1)(f) and (g) of the Constitution.

9. It is in these circumstances that this petition was brought before court. The admission order directed this petition to be heard along with the case of Gramophone Company of India, etc., but, for some reason, these two cases were not heard together. For various reasons, the hearing of the petition continued for a long time and there was some attempt to see if the order could be modified but the same proved unsuccessful.

10. In reply to the petition, a counter has been filed in the form of an affidavit claiming that all the conditions precedent for making an order under section 21(1) of the Monopolies and Restrictive Trade Practices Act are satisfied. It is contended that the petitioner was a dominant undertaking in the manufacture of soda ash and the Central Government had a discretion in the matter of issuing the order under section 27(1). It is also claimed that the assets of the company were more than twenty crores and a substantial expansion of its capacity had been allowed from 1,82,500 tonnes to 2,91,000 tonnes. The result of this expansion would be that the total production of the company would go up to 47% of the country's production. It is also alleged that the total number of shares in the company were 46,36,530. Of these, 1.6% of the shares were held by life insurance and other institutions, 5.3% were held by the Birla group and 76.51 were held by corporations which were controlled by the said group. In addition, 8.84% of the shares were registered in the names of trusted employees, banks, etc., which are also controlled by the group. It was further claimed that no hearing was required as a prerequisite for a reference under section 27 of the Act. No principle of natural justice was violated as there would be adequate opportunity to present the case before the Commission.

11. One other claim of importance is that the company was having phenomenal growth but it did not allow the public to reap the benefit of high growth by broad basing its capital structure. The aim of the Monopolies and Restrictive Trade Practice Act was to operate the economic system in such a way that it did not result in concentration of economic power to the common detriment, for the control of monopolies, for prohibition of monopolistic and restrictive trade practices. It was claimed that there was sufficient material before the Central Government to form its opinion that the working of the undertaking was prejudicial to the public interest. It was left to the Central Government to decide as to what was prejudicial to the public interest and, according to the claim, the management of the company had not conducted the affairs of the company satisfactorily. It was stated:

'...I say that the company has insisted on remaining a closely-held unit of the the Birla group with a view to amass further wealth, thereby denying the distribution of high profits earned, because of its dominant position, etc., to the public at large.'

12. It was further denied that in the course of hearing under section 21, this matter had been gone into. Thus, the principal question which requires to be decided in this writ petition is whether the Monopolies and Restrictive Trade Practices Act can be invoked on the short ground that the petitioner is a closely-held company.

13. As the starting point of the analysis of the Act, it is more convenient to refer to section 27 itself under which the order has been passed. That section deals with division of a undertaking and reads as follows:

'27. (1) Notwithstanding anything contained in this Act or in any other law for the time being in force, the Central Government may, if it is of opinion that the working of an undertaking to which Part A of this Chapter applies, is prejudicial to the public interest, or has led, or is leading, or is likely to lead, to the adoption of any monopolistic or restrictive trade practices, refer the matter to the Commission for an inquiry as to whether it is expedient in the public interest to make an order,-

(a) for the division of any trade of the undertaking by the sale of any part of the undertaking or assets thereof, or

(b) for the division of any undertaking or interconnected undertaking into such number of undertakings as the circumstances of the case may justify,

and the Commission may, after such hearing as it thinks fit, report to the Central Government its opinion thereon and shall, where it is of opinion that a division ought to be made, specify the manner of the division and compensation, if any, payable for such division.

Explanation .- For the purposes of this section all activities carried on by way of trade by an undertaking or two or more interconnected undertakings may be treated as a single trade.

(2) If the Commission so recommends, the Central Government may, notwithstanding anything contained in any other law for the time being in force, by an order in writing, direct the division of any trade of any undertaking or of the undertaking or interconnected undertaking.

(3) Notwithstanding anything contained in any other law for the time being in force, the order referred to in sub-section (2) may provide for all such matters as may be necessary to give effect to the division of any trade of the undertaking or of the undertaking or interconnected undertaking, including-

(a) the transfer or vesting of property, rights, liabilities or obligations;

(b) the adjustment of contracts either by the discharge or reduction of any liability or obligation or otherwise;

(c) the creation, allotment, surrender or cancellation of any share, stock or securities;

(d) the payment of compensation;

(e) the formation or winding up of an undertaking or the amendment of the memorandum and articles of association or any other instruments regulating the business of any undertaking;

(f) the extent to which and the circumstances in which provisions of the other affecting an undertaking may be altered by the undertaking and the registration thereof;

(g) the continuation, with such changes as may be necessary, of parties to any legal proceedings.

(4) Where the Central Government makes, or intends to make, an order for any purpose mentioned in sub-section (3), it may, with a view to achieving that purpose, prohibit or restrict the doing of anything that might impede the operation or making of the order and may impose on any person such obligations as to the carrying on of any activities or the safeguarding of any assets, as it may think fit, or it may, by order, provide for the carrying on of any activities or safeguarding of any assets either by the appointment of a person to conduct, or supervise the conduct of, any such activities or in any other manner.

(5) Notwithstanding anything contained in any other law for the time being in force or in any contract or in any memorandum or articles of association, an officer of a company who ceases to hold office as such in consequence of the division of an undertaking or interconnected undertaking shall not be entitled to claim any compensation for such cesser.'

14. If we examine this section in some detail without reference to any case- law, it will seen that the opinion to be formed by the Central Government is that the working of the undertaking is prejudicial to public interest or is leading or is likely to lead to the adoption of any monopolistic or restrictive trade practice. thereforee, the opinion has to relate to the working of the undertaking or as to whether the company has adopted monolithic or restrictive trade practices. The object of this section is to meet this evil by dividing the undertaking in the manner set out.

15. No doubt, the eventual order has to be made by the Commission, which may result in the undertaken being divided or sold, or smaller undertakings being made, and so on.

16. Referring now to the order of reference, which has been reproduced earlier also, the operative part is that the working of the company is prejudicial to public interest. The reasons for this is stated in the order to be, inter alia, that the undertaking enjoys a dominant position in the production of soda ash but has failed to broad base its capital structure to enable the public to participate in the high growth and profitability earned by taking advantage of its dominant position and national resources. Then follows the words 'mainly for the benefit of the persons who control and manage the undertaking and its interconnected undertakings.' The sum and substance of this order could not be clearly comprehended by us and so we had suggested that the order be withdrawn and a clearer order be framed, but the Government did not take advantage of this opportunity and we are left to interpret the order as it is.

17. The order continues that it is necessary to reduce the concentration of economic power being used by the aforesaid group to further their interest by controlling purchase, sale, investment and personnel policy. It is further stated that the division is viewed not as an end in itself but as a means to get steady industrial growth without scope for concentration of economic power to the common detriment.

18. We have been unable to find anything in this section, or indeed, elsewhere in the Act to suggest that the purpose of the Act is to control ownership undertakings. The identity of owner or the group of shareholders which may control a company is not the concern of the Act. The purpose of the Act, as stated in the preamble, is to prevent concentration of economic power to the common detriment and control of monopolies. It is concentration of this power which results in monopoly. It appears that the order under challenge seems to have viewed shareholding in a company to be a kind of monopoly. As the company is a public limited company, it is a mere matter of chance as to who is the shareholder for the time being. The shares may be concentrated in a few hands or spread over a number of persons. The control of the shareholding does not appear to be an object of the Monopolies and Restrictive Trade Practices Act.

19. The definition of 'monopolistic trade practice' is set out in the Act in section 2(i). A 'monopolistic trade practice' is one which has the effect of maintaining prices at an unreasonable level by limiting, reducing or otherwise controlling the production, supply or distribution of goods of any description. It also embraces the prevention/diminution of competition in the production, supply or distribution of goods or the supply of services and, thirdly, limiting technical development.

20. As an economic concept 'monopoly' implies concentration of economic power in one or more fields of economic activity. Its essential feature is the existence of a power to control or fix prices and to exclude competition to the detriment of public interest. In a developing country like ours, a type of monopoly is bound to occur when new lines of production are started which do not previously exist in the country. As is to be found from this case, there were very few soda ash manufacturers in the beginning. This type of monopoly is not ipso facto bad, because with the development of the industry, more and more manufacturers are bound to enter the same field. The evil of monopoly will exist only if the existing manufacturers prevent or discourage new entrants from setting up their plants or so manipulate the prices as to wipe out or discourage competition. Also if there is only one manufacturer or a few manufacturers, they may combine to raise the prices and make extraordinary profits on account of the fat that there are no competitors. When we look at the number of soda ash manufacturers, there may not be much competition from the local units but there are numbers foreign producers. If sufficient goods are not produced in this country, they are bound to be imported from abroad. The dominant principle which normally applies had, however, to be viewed in the context of the local development in industry. The concept of monopoly contained and dealt with in the Monopolies and Restrictive Trade Practices Act is borrowed from the American and English legislation which already existed much earlier. The United Kingdom Trade Practice Act, 1956 and 1968, and the Re-sale Price Act of 1964 are examples of that legislation. The American Anti-Trust Laws are even earlier. It will be out of place here to specify the type of agreements and the practices which have come under challenge in the American, English or Indian courts. But it can be said that they are numerous. There may be agreements to oust competitors from the market, attempts to prevent new enterprises, attempts to exclude persons by boycott or by controlling the manufacturing process or giving exclusive rights to various persons. These types of agreements, of which only mention is made here, are the ones that come within the scrutiny of the monopoly court. The present case appears to be the first one in which an attempt has been made to apply the concept of monopoly to the shareholding of a company. It appears that the Government has viewed monopoly shareholding of a dominant undertaking by a group of persons as itself being and bringing about the concentration of economic power and thus giving rise to the mischief sought to be met by the Monopolies and Restrictive Trade Practices Act.

21. No doubt, by being a dominant undertaking with a large percentage of the country's production, the company can be looked upon as a monopolistic undertaking but essentially its working as an industrial undertaking has to be the basis of a reference under section 27 and not the monopoly of the shares of the company by a group (assuming that it exists).

22. It appears that the order has been by inter-relating two different concepts. One is the control of the company through its shareholding and the other is the control of the trade through the working of the undertaking. The Monopolies and Restrictive Trade Practices Act is not concerned with the shareholding at all. It is nowhere stated that a company will be monopolistic if its shareholding is not broad based. A company is 'monopolistic' if it is a dominant undertaking or it produces or controls not less than half of the goods that are produced, supplied or distributed in India. It is surprising that the affidavit filed by the Government states that if the undertaking of the company if allowed to be expanded, then the percentage will rise to 47% of the total production in the country. This has to be taken in the light of the fact that the following figures show the production as in October, 1972:

(tonnes) 1. Tata Chemical Ltd. 1,80,000 2. Saurashtra Chemicals 1,60,000 3. Dharangadhra Chemicals 36,000 4. Sahu Chemicals 20,000

23. There are approximate figure. licenses granted for setting up new units show that (1) Saurashtra Cement was permitted to produce 1,40,000 tonnes in July, 1968, (2) Bombay Burmah was permitted 1,32,000 tonnes in December, 1971, (3) M/s Kandelwal was permitted 1,32,000 tonnes in December, 1971, (4) M/s Lakshman was permitted 1,32,000 tonnes , (5) M/s A. C. Gulati was permitted 66,000 tonnes, (8) M/s Kerala State was permitted 73,000 tonnes, (9) M/s Orissa State IDC was permitted 66,000 tonnes, (10) M/s Fertiliser Corporation was permitted 66,000 tonnes, (11) Maharashtra Co-operative was permitted 66,000 tonnes (12) M/s. Bihar State was permitted 1,32,000 tonnes, (13) M/s Tamil Nadu was permitted 66,000 tonnes and (14) M/s Baroda Rayon Corporation was permitted 1,44,000 tonnes.

24. The surprising feature of the affidavit is that it has not taken into consideration the order of the Government passed on November 12, 1973, under section 21 of the Monopolies and Restrictive Trade Practices Act, wherein the following passage occurs:

'Furthermore, as severalother parties have been granted letter of intent in this line, the market share of the applicant was likely to go downs to 13%.'

25. The Monopolies and Restrictive Trade Practices Act visualises registration of a company, if it is a dominant undertaking or its assets together with interconnected under takings are not less than twenty crores of rupees. The mere fact that the petitioner is registered does not mean that its shareholders have power to indulge in monopolistic or restrictive trade practices. Any company which is large enough is liable to be registered under the Act. If the Government's position is right, then the Government can force the shareholding of a registered company to be distriunted, otherwise, the undertaking can be sold to somebody else or divided. It may be pertinent to note here that the newly inserted section 27B, by Amendment Act of 1984, specifically provides for divestiture of shareholding which may be effected in one of two ways, viz., disinvestments by any other person holding any shares in the body corporate owning an undertaking falling under sections 27 and 27B or sale of the whole or part of the undertaking. As an alternative method, the dilution of the controlling interest of the owner of the undertaking by the issue of further equity capital to the members of the public is also provided. It has obviously been done to remove the lacuna in the existing provisions.

26. We think on a close examination of the point that the application under s. 27 has to be confined to what is stated therein. The Monopolies and Restrictive Trade Practices Act cannot be used for the adoption of a different economic system, i.e., to introduce a principle of equitable distribution of the share capital of a company through the back door. It is, thereforee, necessary to again emphasise the preliminary requirements for applying section 27. The Central Government's opinion must be that the working of the undertaking is prejudicial to the interest of the public or is likely to lead to adoption of any 'monopolistic' or 'restrictive trade practice'. The definition of 'monopolistic trade practice' has already been referred to. It may now be convenient to refer to 'restrictive trade practice.' The definition of this is in section 2(o). This is similar to that of 'monopolistic trade practice'. Almost invariable any 'monopolistic trade practice' will also be a 'restrictive trade practice'. If there is an obstruction in the flow of capital into the stream of production or manipulation of prices or conditions causing impediment in the flow of finished goods in the stream of distribution at any point before they reach the hands of customers, then it is a restrictive trade practice.

27. There is not even an iota of material brought to out notice whether there is any monopolistic or restrictive trade practice being indulged in by the petitioner company. The only reason for the reference is that the company is allegedly closely held as far as its shares are concerned.

28. It is now necessary to refer to some of the case law cited before us. One of the cases cited before us was Colgate Palmolive India v. Union of India [1980] 50 Comp Case 456; [1981] 2 Delhi 249. In that case, the enquiry to be held by the Commission related to the trade practices indulged in the petitioner company. It was held that no prior hearing was necessary. We agree that no prior hearing is necessary before a reference is made under section 27 also. But that does not end the matter, if the preconditions for the application of section 27 do not exist.

29. The most apposite case cited with reference to the formation of the opinion by the Government in the present case is the case of Rohtas Industries Ltd. v. S.D. Agarwal : [1969]3SCR108 , where the court laid down that when an action is taken to investigate the affairs of a company, the necessary preconditions must be satisfied. If no reasonable authority could have ordered the investigation, the order is bad. For this purpose, the material has to exist independently of the opinion. But the action in the present case is based only on the view that the shareholding of the company is closely held. Even in this connection, the opinion is not accepted by the petitioner as being correct, but we may assume, for the sake of argument, that there is material to show that the majority of the shareholding or even a substantial portion of the shares are controlled by the Birla group in the case of the petitioner company. What is the effect of this? Is it a ground to hold that the working of the company is prejudicial to public interest? In order to form such an opinion, it has to be stated as an axiom that all the companies which are controlled by the Birla group are working in a manner which is prejudicial to public interest. We asked learned counsel for the respondent to state what was the other material to show that the working of the company was prejudicial to the public interest. He had to say that the only ground was that shielding of the company. The other alternative, namely, that this shareholding may per se lead to adoption of monopolistic or restrictive trade practices also seems to be extraneous to the Act. It is the working of the company which is material and not its shareholding. There may be thousands of shareholders and the shareholding may be broad based and yet that company may be indulging in restrictive trade practice and monopolistic tendencies and there may be another company with one or two shareholders which may not be indulging in those practice. It is not the shareholding that matters but the manner in which the economic system is being operated by the undertaking in question.

30. To illustrate the question of restrictive trade practices, one has only consider the national industries such as banks, life insurance, general insurance, railways or air services. All these services are provided by the State. There is no competitor, so there is a monopoly. It does not follow that these institutions are indulging in monopolistic or restrictive trade practice. There are many Government of India undertaking in which there is no other shareholder, yet it cannot be said that these undertakings are monopolistic or are indulging in restrictive trade practices. If the Government action is justified in the present case, it will mean that every company has got to have a broad based shareholding, which is a contradiction in terms. The proper way to apply the Act is to concentrate its application to the limited field in which it purports to Act. The purpose of the Act is to prevent monopoly and it evils. It is to prevent monopolistic and restrictive trade practices which have the effects of raising prices, reducing production and supplies and thus adversely affecting the public at large. It is a real and proper economic purpose. The object if kept in view enables the Act to be applied to the sphere in which it is intended to operate. Any extraneous or irrelevant matter as to who owns a particular undertaking is not the subject of the Monopolies and Restrictive Trade Practices Act. Let us assume that there is a sole owner of a dominant undertaking, i.e., it is owned only by one person. It does not mean that the unit is to be sold merely because it is owned by one person. It can only be subject to the operation of the Monopolies and Restrictive Trade Practices Act if in the economic field the undertaking is employed in such a way as to create the peculiar evils which are associated with monopoly capitalism. The concept of monopoly is achieved in approximately the following manner. If you are the only producer, or such a large producer of a particular line of goods that you can control the prices to the detriment of the public, then you can indulge in monopolistic or restrictive trade practices. You can shut out small producers by keeping the prices down at such low levels as to wipe out competition from the field and then to raise the prices to your own advantage so that the public is forced to buy even if the prices are raised. These are monopolistic or restrictive trade practices. Indeed, all attempts at pre- empting productive capacity or distribution channels are but attempts at monopolisation. Economic power is concentrated by the fact that there is no competitor. thereforee, the owner of the undertaking is able to control the market and bring up the prices or bring down the prices whenever he feels like it. Once he has the monopoly, he can raise the prices to reap extraordinary profits. In an expanding field like the one we are dealing with, i.e., new industries recently introduced to India, there is a time when one or two producers are likely to be the major producers of that particular commodity. If they indulge in monopolistic or restrictive trade practices, they can be controlled under the Act. That is the purpose of the Act. The Act is not concerned with who is the owner of an undertaking but with action taken by that owner; whether it is one person or ten thousand persons is not relevant. We are, thereforee, of the opinion that the order of reference has to be struck down in this case on the short ground that no reasonable person could form the opinion under the provisions of the Act to the effect that the working of the petitioner company was prejudicial to public interest merely because the shares were held by one group.

31. The case of Rohtas Industries Ltd. v. . D. Agarwal : [1969]3SCR108 , had really followed the decision of the Supreme Court in Barium Chemicals Ltd. v. Company Law Board : [1967]1SCR898 , where the opinion of the Central Government was struck down on the ground that though the opinion was a subjective one, circumstances must independently exist which could lead to the formation of an inference that the conditions contained in section 237 of the Companies Act existed. On a similarity of reasoning, we do not see what are the circumstances that could lead to the formation of an opinion that the closely-held shareholding of the petitioner company (if that position is correct) could lead to an inference that the working of the petitioner company is prejudicial to public interest or is leading to the adoption of any monopolistic or restrictive trade practice. Whatsoever the shareholding of a company may be, the company is bound to be managed by a board of directors which has virtually full control over the company for the time being. We do not see any connection between the shareholding and the working of the company. It is the working of the company that has to be examined under the Monopolies and Restrictive Trade Practices Act, and that also relation to 'monopoly' or 'monopolistic and restrictive trade practices' and the Act is not concerned with the internal working of a company.

32. Many other cases were cited before us suggesting that precise grounds had to exist (as in cases of preventive detention) and also urging that article 14 of the Constitution was infringed because the petitioner company had been selected for discriminatory treatment. We do not think that these cases are really relevant in the context of the present problem. However, one point of some importance is involved in the application of section 27. A reference has to be made on the opinion of the Central Government, but the same has to be decided by the Commission. How does the Commission decide a matter like this? Is it to examine the Government opinion or is it bound by it? On what material does the Commission say that the company has to be divided into two companies or does it have to sell the shares of the petitioner company to the public at large? If so, how does the Commission decide when the division is to be made and when it is not. Obviously, in a reference like the present, the Commission has to decide whether it is is public interest to sell the shares of the company. If so, suppose some other person buys all the shares or some other person buys the entire undertaking. Will this sale end the monopoly or control? We do not quite understand how section 27 can brought into practical application in the particular circumstances of this case, assuming that it could apply. The newly inserted section 27B perhaps furnishes the answer. This goes to further strengthen our belief that the section does not apply to the question of shareholding of a company.

33. There is one further point that needs to be particularly stressed. When the application under section 21 for the expansion of the undertaking was to be considered it had to be shown how the expansion was to be financed. In such circumstances, the Central Government examined whether fresh capital had to be issued, or how else the expenses of expansion were to be met. At there time, the Central Government has to examine under section 21(3) whether the expansion would lead to concentration of economic power to the common detriment or was it likely to be prejudicial to public interest in any manner. The Central Government only accorded approval when it was satisfied that it was in the public interest to allow expansion. Now, at that time, the Central Government was of the view that there was going to be a large scale expansion in the soda ash industry, which would result in the share of the company's business in the total production coming down to 13% from its present share. This was after allowing the expansion. The Central Government also found that the expansion was not to the detriment of the public. On this basis, the scheme for expansion was sanctioned. How then, after a few months did the Central Government feel that concentration of shareholding was detrimental to public interest? It appears that two conflicting ideas were in operation at the same time. One was the equitable distribution of the shares of the company and the other was the expansion of soda ash production in India. Obviously, increase in production in a key industry was of vital importance to the country. This is reflected in the large number of other new producers who has been permitted to produce soda ash and caustic soda. As soon as the permission was given under section 21, the petitioners company would have expanded it production, but the effect of the reference with the danger of a possible sale of its undertaking would put off almost any attempt at such expansion. We are told that the result has been that ever since the reference was ordered, the petitioner company has not made any expansion. We have asked specifically from learned counsel appearing for the petitioner company, whether this was on account of the reference, and we were to that the effect of the reference order under challenge was practically the abandonment or postponement of the expansion plan. Thus, the public interest which was being served by the order under section 21 was countermanded by the impugned reference under section 27. The dichotomy in thinking showed that the Central Government was caught in two minds: one to all the company to expand itself and become larger, and, the second, to get the undertaking sold to others by division. The order under section 21 and the reference under section 27 seem thus to be contrary to each other. We do not think that the resultant reversal of the order under section 21 by the reference under section 27 can be said to be in public interest.

34. In the circumstances, we have to quash the order making a reference under section 27 seeking a division or sale of the undertaking of the petitioner company. We issue an appropriate writ to quash the order reference and we award cost to the petitioners.


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