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Union of India and anr. Vs. New Shorrock Spg. and Mfg. Co. Ltd., and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberAppeal No. 4 of 1972 in Company Petition No. 2 of 1972
Judge
Reported in(1977)0GLR576
ActsCompanies Act, 1956 - Sections 149(2A) and 394; Monopolies and Restrictive Trade Practices Act, 1969 - Sections 23(1)
AppellantUnion of India and anr.
RespondentNew Shorrock Spg. and Mfg. Co. Ltd., and anr.
Appellant Advocate K.G. Vakharia, Adv.
Respondent Advocate G.A. Thakkar, Adv.
Cases ReferredBengal and Assam Investors Ltd. v. Commissioners of Income
Excerpt:
.....trade practices act, 1969 - government appeals against proposed amalgamation of respondent with transferor-company under section 23 (1) - precedents established fact that word 'undertaking' is a coat of many colours used in different sections of act to convey different ideas - no business of any kind referred to in memorandum of association undertaken or commenced by transferor-company - facts state that transferor-company not carrying on any business - transferor-company not engaged in providing any kind of service - transferor company not 'undertaking' so as to attract section 23 (1) - approval of government not necessary for amalgamation - appeal dismissed. - - bombay (hereinafter referred to as 'the transferor-company') under section 394 of the companies act, 1956. the main..........with m. g. investment and industrial company ltd. bombay (hereinafter referred to as 'the transferor-company') under section 394 of the companies act, 1956. the main object of the proposed amalgamation was to better utilise the credit-worthiness and resources of the transferee-company so as to improve its financial position with corresponding advantage to the shareholders of the transferor-company. the amalgamation of the two companies was desired so that the combined business might be carried on by the transferee-company to the mutual advantage of the shareholders of both the companies. so, for that purpose, the procedure prescribed was followed by both the companies by convening a meeting of their shareholders and the scheme of amalgamation proposed by both companies was.....
Judgment:

Obul Reddi, C.J.

1. This appeal preferred by the appellants, the Union of India and the Regional Director, Company Law Board, Western Region, Bombay, is directed against the judgment of Divan J., as he then was, on this court, in Company Petition No. 2. of 1972, allowing the application filed by New Shorrock Spinning and . (hereinafter referred to as 'the transferee-company') for amalgamation with M. G. Investment and Industrial Company Ltd. Bombay (hereinafter referred to as 'the transferor-company') under section 394 of the Companies Act, 1956. The main object of the proposed amalgamation was to better utilise the credit-worthiness and resources of the Transferee-company so as to improve its financial position with corresponding advantage to the shareholders of the transferor-company. The amalgamation of the two companies was desired so that the combined business might be carried on by the transferee-company to the mutual advantage of the shareholders of both the companies. So, for that purpose, the procedure prescribed was followed by both the companies by convening a meeting of their shareholders and the scheme of amalgamation proposed by both companies was approved by the shareholders. Thereafter, the transferor-company made an application in the High Court of Bombay for getting the sanction of the court for the scheme of amalgamation and the High Court of Bombay by its order dated January 22, 1972, sanctioned the scheme. The transferee-company similarly filed a similar application in this court for sanction of the amalgamation. The Central Government raised objection under section 23(1)(a) of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as : the Act') in reply to the notice issued by this court.

2. The case of the appellants before us and before the learned single judge has been that the transferor-company is an 'undertaking' within the meaning of section 2(v) and engaged in 'service' within the meaning of section 2(r) and as such approval or sanction of the Central Government should have been obtained. The learned single judge, on the facts presented before him through the affidavit filed on behalf of the appellants and the companies, rejected the contention that the transfer-company is an 'undertaking' within the meaning of section 2(v) and allowed the application.

3. Mr. Vakharia, learned counsel appearing for the Central Government, relying upon the affidavits filed by Mr. Rajagopalan on behalf of the appellants, strenuously contended that the transferor-company is an 'undertaking' within the ambit of section 2(v) and the learned judge, therefore, erred in holding the section 23(1)(a) of the Act is not attracted.

4. The relevant provisions which require to be noticed are section 2(r), 2(v) and 23.

'2. (v) 'Undertaking' means an undertaking which engaged in the production supply, distribution or control of goods of any description or the provision of service of any kind.'

'2. (r) 'service' means service of any description which is made available to petition users and includes the provision of facilities in connection with banking, insurance, transport, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news of other information, but does not include the rendering of any service free of charge or under a contract of personal service.'

Section 23, to the extent relevant runs :

'23. Merger, amalgamation and take-over-(1) Notwithstanding anything contained in any other law for the time being in force, -

(a) no scheme of merger or amalgamation of an undertaking to which this part applies with any other undertaking, ....

shall be sanctioned by any court or be recognised for any purpose or be given effect to unless the scheme for such merger or amalgamation has been approved by the Central Government under this Act.'

5. The definitions of 'undertaking' and 'service' read with section 23 were construed by the Bombay High Court in Union of India v. Tata Engineering and Locomotive Co. Ltd. . In the words of the learned judges :

'A mere capacity or a mere intention to carry on activity to future without its being so done in the present .... cannot at all give rise to a consideration whether an undertaking is engaged in any activity as contempted under clause (v) of section 2. A legal capacity to carry on activity and an intention to carry it on the cessation of the period of in activity must co-exist .... Whether an undertaking carried on investment business or only made deposits would be a question of intention in each case. The old Central Bank, on the compulsory acquisition of its business had no option left but to take compensation as provided under Act V of 1970. Compensation was payable in certain alternative ways .... The old Central Bank subsequently sold and said 5 1/2 per cent. promissory notes and made deposits out of the sale proceeds thereof. The explanatory statement attached to the notice convening the extraordinary general meeting clearly showed that a change of investment was made only because it was apprehended that the final fructification of the scheme of amalgamation might take some time and it was desired that a little higher return should be secured on the investment. It was by way of a mere change of investment and not by way of doing business.'

6. It was, therefore, held that the Central Bank of India Ltd. was not an 'undertaking' as defined in section 2(v) so as to attract section 23(1) of the Act.

7. The Mysore High Court followed Tata Engineering and Locomotive Co. Ltd.'s case [1972] Comp Cas 72 (Bom) in Canara Bank Ltd., In re [1973] 43 Comp Cas 157 (Mys). That was also a case where it was held that when once it is not disputed that the company is not carrying on any business or is not engaged in any trade or rendering any service, then it cannot come with in the definition of the expression 'undertaking' nor can it be a 'dominant undertaking'.

8. The above two cases were referred to with approval by the Supreme Court in Carew & Co. Ltd. v. Union of India [1976] 46 Comp Cas 121 (SC). Before the Supreme Court the scope and ambit of the definition of 'under taking' came to be considered. The learned judges per majority were of the view that to constitute an 'undertaking' it must be an enterprise actually engaged in production, sale or control of goods or supply of services. As put by Mathew J. (page 128) :

'The word 'undertaking' is a coat of many colours, as it has been used in different sections of the Act to convey different ideas. In some of the sections the word has been used to denote the enterprise itself while in many other sections it has been used to denote the person who owns it. The definition of the word 'undertaking' in section 2(v) of the Act would indicate that 'undertaking' means an enterprise which is engaged in production, sale or control or goods, etc.'

9. That was a case where the learned judges were considering whether there was any proposal to acquire any undertaking of Shahjahanpur Sugar Private Ltd. by purchase, take-over or otherwise, so as to attract section 23(4) of the Act. After referring to the facts of that case, the learned judges held (page 130) :

'An entity which is not engaged in actual production of goods or supply of services is of no economic significance and has to be excluded from the purview of the Act. Hence, what may be done by an individual, firm or company in future has no present economic significance.'

10. In that view it was held that section 23(4) of the Act was not attracted.

11. Bearing the construction placed by the Supreme Court on section 2(v), let us examine the facts presented in this case.

12. Mr. Rajagopalan in paragraphs 4 and 5 of his affidavit alleged that the transferor-company was formed with a view to carry on its business as an investment company, underwriting of stocks, shares, etc., as the name of the company indicated as also to transact various kinds of business activities as financiers. He also relied upon the memorandum of association which showed that there were several articles which dealt with the business of spinners and various other types of business relating to production and supply of goods, etc. In support of his allegation that the transferor-company intended to expand, diversify or develop its business, he referred to the special resolutions passed by the transferor-company and also to the audited accounts. According to Mr. Rajagopalan, the transferor-company between April 1, 1966, and March 31, 1971, invested in all Rs. 13,75,000 in the shares of various joint stock companies. It also sold during the year ending March 31, 1970, shares of a joint stock company of the face value of Rs. 50,000 resulting in a loss of Rs. 15,500, in addition to having incurred some expenses for office rent, salaries and bonus, stationery, printing, postage and telegrams, etc. The further averments of his is that it would be seen from the profit and loss account for the year ended March 31, 1970, that the income of the transferor-company from investment was Rs. 3,000.

13. These allegations were refuted in the rejoinder filed on behalf of the transferee-company. It is emphatically denied that as the transferor-company did not commence any business, the declaration provided in section 149(2A) of the Companies Act was never filed with the registrar of the Companies. Though the name of the transferor-company was changed from M. G. Investment Corporation Ltd. to. M. G. Investment and Industrial Company Ltd., it had not undertaken any new business activity nor had it commenced its old activity of managing agency which was given up in the year 1966. As regards the special resolution for amending the articles of association of the transferor-company, it is the case of the transferee-company that the amendment was made to insert provisions relating to appointment of managing directors, their powers and duties and remuneration, so as to bring the amendments consistent with the revised provisions of the Companies Act. The new set of articles did not materially modify the previous articles.

14. It is categorically averred by the respondents in the rejoinder that no business except managing agency business was done by the transferor-company. After the managing agency business was lost, no business other than managing agency business was undertaken by it and the company also did not do any business after the managing agency was lost. As regards the charge that it had invested shares of various joint stock companies, it is stated that the only investment that the transferor-company made in 1964 was 2,500 equity shares of National Organic Chemical Industries Ltd. (NOCIL) out of its surplus funds. The shares of the other joint stock companies to the extent of Rs. 10,75,000 came to the Transferor-company by virtue of various amalgamations. The details of the equity shares held by the transferor-company in the joint stock companies as alleged by Mr. Rajagopalan were denied. With reference to the loss of Rs. 15,000 it is stated that this loss was in respect of 5,000 shares of Hindu Auto Industries Ltd., which shares had also come to the transferee-company on amalgamation of Mafatlal Chandulal and Company Ltd., Ahmedabad. As regards the expenditure true referred to in paragraph 5 of the affidavit of Mr. Rajagopalan, it is stated by the transferee-company that the expenses were in the nature of administrative expenses and the respective incomes of Rs. 4,000 and Rs. 3,000 were income by way of dividends and interests on fixed deposits of surplus funds. In short it is their case that the transferor-company carried on no business of investment or financing. The income is the income arising from investment of surplus funds and not form its business activity.

15. There is nothing to suggest from the facts as placed before us in the affidavits filed by both sides that the memorandum of association of the transferor-company was amended by resolution so as to enable it to carry on several business referred to therein. The fact, however, remains that no business of any kind referred to in the memorandum of association was undertaken or commenced by the transferor-company. So, what has to be considered is, whether at the date when the amalgamation was sought, the transferor-company was engaged in any business activity so as to bring it within the meaning of an 'undertaking'. The investment in shares were purely on investment basis. The transferor-company had never carried on business as an investment company or financing company. As pointed out by the Supreme Court in Bengal and Assam Investors Ltd. v. Commissioners of Income-tax : [1966]59ITR547(SC) the fact that a company is incorporated to carry on investment does not necessarily show that the company is carrying on business. The objects stated in the memorandum of association are not conclusive of the question whether the activities of the company amount to 'carrying on of business'. There is nothing to suggest that the transferor-company was carrying on any business in respect of the shares. The investment was made for the purpose of interest and not for the purpose of carrying on any by business activity.

16. It is, therefore, obvious that the transferor-company was not engaged in providing any kind of 'service' and there is nothing to show too that it had made available its 'services'. To attract section 23(1)(a), it must be shown that the transferor-company, at the relevant time when the court is called upon to sanction the scheme of amalgamation, was engaged in the 'service' of any kind. This court as well as the Bombay High Court sanctioned the amalgamation schemes placed before the courts after scrutiny. We are, therefore, unable to agree with Mr. Vakharia that section 23(1)(a) is attracted in this case so as to require the approval of the Central Government to be given to the scheme of amalgamation.

17. In the result, the appeal fails and is accordingly dismissed with costs.


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