Skip to content


Hindusthan Motors Ltd. Vs. Monopolies and Restrictive Trade Practices Commission and ors. - Court Judgment

LegalCrystal Citation
SubjectMRTP
CourtKolkata High Court
Decided On
Case NumberCivil Revn. No. 4186(W) of 1972
Judge
Reported inAIR1973Cal450,77CWN711
ActsMonopolies and Restrictive Trade Practices Act, 1969 - Sections 2, 12, 30(2) and 30(3); ;Constitution of India - Article 226
AppellantHindusthan Motors Ltd.
RespondentMonopolies and Restrictive Trade Practices Commission and ors.
Appellant AdvocateSubrata Roy Choudhury, ;Dipankar Gupta, ;H.K. Deb Barman, ;P.L. Khaitan and ;S. Pal, Advs.
Respondent AdvocateF.S. Nariman, Addl. Solicitor General, ;S.B. Mukherjee and ;Suman Mukherjee, Advs.
Cases ReferredSitaram v. Banwarilal
Excerpt:
- orderanil kumar sen, j.1. a summons under section 12 of the monopolies and restrictive trade practices act, 1969 (act 54 of 1969, hereinafter referred to as the said act) issued on april 14, 1972 by the monopolies and the restrictive trade practices commission (hereinafter referred to as the said commission) and an order dated may 12, 1972 passed by the said commission are the subject-matter of challenge in the writ petition.2. m/s. keshoram industries and cotton mills limited (hereinafter referred to as keshoram industries) applied for central government's approval under section 22(2) of the said act to a proposal for the establishment of a factory at patan, district sikar in the state of rajasthan for the manufacture of cement. central government made a reference under section 22(3)(b).....
Judgment:
ORDER

Anil Kumar Sen, J.

1. A summons under Section 12 of the Monopolies and Restrictive Trade Practices Act, 1969 (Act 54 of 1969, hereinafter referred to as the said Act) issued on April 14, 1972 by the Monopolies and the Restrictive Trade Practices Commission (hereinafter referred to as the said Commission) and an order dated May 12, 1972 passed by the said Commission are the subject-matter of challenge in the writ petition.

2. M/s. Keshoram Industries and Cotton Mills Limited (hereinafter referred to as Keshoram Industries) applied for Central Government's approval under Section 22(2) of the said Act to a proposal for the establishment of a factory at Patan, District Sikar in the State of Rajasthan for the manufacture of cement. Central Government made a reference under Section 22(3)(b) of the said Act to the said commission to make necessary inquiries and report its opinion such application. On February 4, 1971 the said commission issued a notification inviting informations from all concerned over such reference and then started its inquiries. Obviously in its endavour to find out whether the undertaking proposed to be established would be 'interconnected' undertaking within the meaning of the said Act with the present petitioner the Hindusthan Motors Limited, the commission first issued a summons under Rule 12 of the said Act on December 29, 1971, for production of certain documents referred to in the summons. Though the petitioner first objected production of such documents on the ground of irrelevancy, it produced certain documents in answer to the summons. Then followed certain correspondence between the said commission and the petitioner -- the commission either asking for disclosure of more documents and informations or seeking more clarifications and the petitioner complying with the same but not without protest.

3. In the background of such correspondence on March 10, 1972 the Director of Investigation for and on behalf of the Commission asked the petitioner to furnish copies of the reports, if any, of Sri B. M. Birla on his foreign tours referred to in the Minutes of the Board of Directors dated 25-4-69, 31-7-70 and 30-8-71 and in case there be no such report certain informations referred to in the requisition letter. In answer to such requisition the petitioner replied on March 31, 1972 by saying that the reports sought for are wholly irrelevant for the purpose of the Commission's inquiries in the case of Keshoram Industries. At this the Commission issued the impugned summons dated April 14, 1972 under Section 12 of the said Act directing production of the following documents:--

'1. Cashbook, ledger and journal of the company covering the calendar year 1971.

2. Minute books of the Committee of Directors of the company for the calendar years 1970 and 1971.

3. Reports of Sri B. M. Birla on his foreign trips referred to in the Board's Minutes of your company dated 25-4-69, 31-7-70 and 30-8-71.'

The covering letter of this summons further qualified the summons as follows:--

'You shall be deemed to have complied with the summons so far as item No. 1 of the summons is concerned if the details of the travelling expenses and hotel expenses paid by your company to Sri B. M. Birla during the calendar year 1971 are furnished with the Commission along with the purpose of such tours. So far as the remaining two items mentioned in the summons are concerned, you shall be deemed to have complied with the summons if the requisite documents are produced before the Director of Investigation at the office of the Regional Director, Company Law Board, Narayani Building, 4th flooor, Brabourne Road, Calcutta-1 at the time and the date specified in the summons.'

4. Thereupon on April 22, 1972 the petitioner filed an application before the Commission objecting to issue of such a summons requiring production of such irrelevant documents and prayed for a formal hearing of the objection. The objection was heard by the said Commission on May 10, 1972 and was overruled by its order dated May 12, 1972. Being aggrieved by such a summons and the order as aforesaid, the petitioner has now moved this Court with the above writ petition and obtained the Rule. Petitioner's prayer in substance is for issue of an appropriate writ for quashing the summons and the order of the said Commission.

5. It appears from the order of the Commission that the issue of relevancy was debated more with a reference to the scope of the inquiry than on the documents themselves before the Commission. In this Court however, the learned Counsel for the petitioner has raised a serious dispute about the relevancy of the documents irrespective of the scope of the inquiry and I shall deal with the same hereinafter. The principal point raised and contended before the said Commission was that when Keshoram Industries as also the petitioner company are both corporate bodies, interconnection, if any, must be within the meaning of Section 2(g)(iii) and not otherwise; it was further contended that in order to attract Section 2(g)(iii) the control contemplated must be de jure control capital wise, finance wise or management wise; accordingly it was argued that the said Commission must limit itself in its inquiries on the reference with reference to the above aspect and the documents asked for would be wholly relevant if the inquiry is so limited. The said Commission, however, did not accept this position. The Commission refused to read the different sub-clauses of Section 2(g) as mutually exclusive. According to the Commission a person or a group of persons may control a group of companies though 'apparently there may be no control capital wise, finance wise or management wise' over them. The Commission observed,

'We would like to point out that in order for a person or a group of persons to be able to control a body corporate, it is not necessary that he/they must own the majority of shares. That is why it has become necessary in these cases to enquire whether Sri B. M. Birla or Sri G. P. Birla has done any work for these companies and if so what was the nature of work done. We have tried to find out whether when a Board of Directors has taken decisions in certain matters, it was merely acting as a rubber-stamp of Sri B. M. Birla or G. P. Birla or it has come to its own independent decisions. The fact that the Board of Directors more often than not accepts the advice of one of these gentlemen on important matters or that these gentlemen have taken certain important decisions on behalf of these companies is material for the purpose of establishing interconnection. It has, therefore, become necessary to ask for the information which we have asked for in these cases.'

6. Mr. S. K. Roy Choudhury the learned Counsel for the petitioner has very strongly criticised the view taken by the Commission. According to Mr. Roy Choudhury, different sub-clauses of Section 2(g) of the said Act must be read as exclusive of each other: In any event corporate bodies in order to be interconnected must satisfy the test laid down in Section 2(g)(iii) and Section 2(g) Clause VI can never be applied to cases of corporate bodies except with violence to the language used by the Legislature and inconsistently with the object of the enactment. Secondly, it has been contended by Mr. Roy Choudhury that the Commission went wrong in holding that control over corporate bodies can be any control other than de jure control finance wise, capital wise or management wise. Thirdly, Mr. Roy Choudhury has found fault with the Commission when it proceeded with the inquiry relying on the report of the Industrial Licencing Policy Inquiry Committee (shortly referred to hereinafter as Dutta Committee). He has taken great pains to point out the fundamental difference in the basis of the grouping by the Monopolies Inquiries Commission (hereinafter referred to as Monopolies Commission) and that by the later committee, namely, Dutta Committee. With reference to this difference he has argued very strongly that when the said Act under which the inquiry is now being conducted by the Commission is now based on the report of the Monopolies Commission the respondent Commission was in error in relying on the report of the Dutta Committee furnishing an irrelevant basis altogether. Lastly, Mr. Roy Choudhury has contended that the documents asked for are so grossly irrelevant that they can have no bearing on any inquiry whatsoever under the said Act.

7. Apart from contesting the points raised by Mr. Roy Chowdhury, the learned Additional Solicitor General appearing for the respondents raised an objection against the maintainability of the present application -- not on the ground of lack of any jurisdiction of this Court, but on the ground of impropriety of entertaining such an application against an interlocutory order of the commission in the facts and circumstances of the case. According to the learned Additional Solicitor General the said commission has not yet come to any final conclusion as to whether the petitioner company is an 'inter-connected' under taking to Kesoram Industries or not. Such an issue is now pending enquiry before a responsible tribunal constituted under Section 5 of the said Act which under the Statute is not only to be presided over by one who is or has been or is qualified to be a Judge of the Supreme Court or of a High Court, but each of whose members is a person of High standing and eminence. Even the decision of such a tribunal is subject to judicial review by the Supreme Court on appeal under Section 55 of the said Act against the final order to be passed by the Central Government on the recommendation or the report of the commission. According to the learned Additional Solicitor General, the petitioner is yet in the position of a witness from whom the tribunal exercising powers of a court has called for certain documents upon its own motion and in its own need and the witness should not be allowed to object production of documents called for by pleading such irrelevance as in the present case which cannot be considered to be too patent. On the scheme of the Act providing time schedule for disposal of a proposal under Section 22 of the said Act, interference by this Court on interlocutory orders of the commission should normally be disfavoured. On the point raised by Mr. Roy Chowdhury the answer given by the learned Additional Solicitor General is short and simple. He has contended that on the object of the Statute and the terms of Section 2(g) the different sub-clauses cannot be read as mutually exclusive, nor the concept of control referred to therein should necessarily be limited to de jure control. On the question of relevancy of the documents for reasons given by the commission as also upon his own reasons he has contended that they cannot be considered to be so irrelevant that the commission could not have called for them at all. As for the reference to the Datta Commission's report by the commission the learned Additional Solicitor General has pointed out that it makes no difference because both the commissions, namely Monopolies Commission and the Datta Commission equally found the petitioner company to be in the same group as the Kesoram Industries.

8. Before dealing with the points raised, it would be necessary to refer to the object of the Statute, its scheme and some of the provisions thereof reference to which would be necessary in deciding the points. The object recited in the preamble is as follows:--

'An Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restricted trade practices and for matters connected therewith or incidental thereto.' To achieve this object the Act provides for a scheme of control over expansion of existing and establishment of new undertakings. The Statute makes a distinction between ordinary undertakings and dominant undertakings. Subject to certain exceptions dominant undertaking bears a statutory definition to mean an undertaking which either by itself or along with 'inter-connected' undertakings either produces, supplies, distributes or controls one-third of total goods of any description or provides or otherwise controls one-third or more of any services. Chapter III provides measures for avoidance of concentration of economic power: This chapter applies to ordinary undertakings whose own assets or such assets together with the assets of its 'inter-connected' undertakings are worth not less than twenty crores and to dominant undertakings whose assets similarly are worth not less than one crore. Section 21 prohibits expansion of such undertakings except with the approval of the Central Government. Section 22 similarly prohibits establishment of any such undertaking except under or in accordance with the previous permission of the Central Government. Section 23 prohibits merger or amalgamation of such undertakings except with the sanction of the Central Government. Section 26 provides that every such undertaking must get itself registered with the Central Government. Section 27 authorises the Central Government to direct division of any trade of an undertaking or of the undertaking itself or the 'inter-connected' undertakings. Section 28 lays down the statutory guidance for the commission and the Central Government in exercising its powers under this chapter and following are the matters which should be taken into consideration:

'(a) to achieve the production, supply and distribution, by most efficient and economical means, of goods of such types and qualities, in such volume and of such prices as will best meet the requirements of the defence of India, and home and overseas market;

(b) to have the trade organised in such a way that its efficiency is progressively increased;

(c) to ensure the best use and distribution of men, materials and industrial capacity in India;

(d) to effect technical and technological improvements in trade and expansion of existing markets and the opening up of new markets;

(e) to encourage new enterprises as a countervailing force to the concentration of economic power to the common detriment;

(f) to regulate the control of the material resources of the community to subserve the common good and

(g) to reduce disparities in development between different regions and more especially in relation to areas which have remained markedly backward.'

Chapter 4 and more particularly Section 31 authorises the Central Government to make an appropriate order for prevention of monopolistic trade practices. Chapter 5 provides for registration of all agreements relating to restrictive trade practices and Chapter 6 empowers the commission set up under Section 5 to enquire into restrictive trade practices and if they are prejudicial to public interest to direct their discontinuance or to declare void any agreement relating thereto. Other provisions are ancillary. Chapter 7 provides for power to obtain information and appointment of inspectors to investigate into the affairs of an undertaking to find out whether any such undertaking is indulging in any monopolistic or restrictive trade practices. Chapter 8 provides for offences and penalties for contravention of certain provisions of the Act or the orders made under the Act. Chapter 9 provides for miscellaneous provisions. Before concluding the study of the provisions of this Act one more thing has to be noted. Section 5 provides for establishment of an important but powerful commission consisting of a Chairman and not less than two and not more than eight other members to be appointed by the Central Government. As pointed out earlier the Chairman shall be a person who is or has been or is qualified to be a Judge of the Supreme Court or of a High Court and the members shall be persons of ability, integrity and standing conversant with economics, law, commerce, accountancy, industry, public affairs or administration. Sections 10 to 19 provide for jurisdiction, powers and procedure of the commission. Section 12 vests in the commission certain powers of a Civil Court for enforcing production of documents, attendance of witness for examination and for certain other purposes. The Act in addition to vesting certain original powers in the commission, provides for a reference by the Central Government to the commission for enquiry and report in the matter of exercising its powers like those under Sections 22, 23, 27 and 31.

9. The dispute in the present case arose out of an enquiry now being held by the commission on a reference under Section 22(3)(b) and centres round the true meaning of the definition Clause 2 (g) which defines 'inter-connected' undertaking. These two provisions, namely Sections 2(g) and 22 may for the purpose of convenience be set out as hereunder:--

'2 (g) 'inter-connected undertakings' means two or more undertakings which are inter-connected with each other in any of the following manner, namely:--

(i) if one owns or controls the other,

(ii) where the undertakings are owned by firms, if such firms have one or more common partners,

(iii) where the undertakings are owned by bodies corporate,--

(a) if one manages the other, or

(b) if one is a subsidiary of the other, or

(c) if they are under the same management within the meaning of Section 370 of the Companies Act 1956, or

(d) if one exercises control over the other in any other manner,

(iv) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm,--

(a) hold, directly or indirectly, not less than fifty per cent of the shares whether preference or equity, of the body corporate, or

(b) exercise control, directly or indirectly whether as director or otherwise over the body corporate,

(v) if one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management within the meaning of the said Section 370,

(vi) if the undertakings are owned or controlled by the same person or group of persons,

(vii) if one is connected with the other either directly or through any number of undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub-clauses.'

'22. (1) No person or authority, other than Government, shall, after the commencement of this Act, establish any new undertaking which, when established, would become an inter-connected undertaking of an undertaking to which Clause (a) of Section 20 applies, except under, and in accordance with, the previous permission of the Central Government.

(2) Any person or authority intending to establish a new undertaking referred to in sub-section (1) shall, before taking any action for the establishment of such undertaking, make an application to the Central Government in the prescribed form for that Government's approval to the proposal of establishing any undertaking and shall set out in such application information with regard to the inter-connection, if any, of the new undertaking (which is intended to be established) with every other undertaking, the scheme of finance for the establishment of the new undertaking and such other information as may be prescribed.

(3) (a) The Central Government may call upon the person or authority to satisfy it that the proposal to establish a new undertaking or the scheme of finance with regard to such proposal is not likely to lead to the concentration of economic power to the common detriment or is not likely to be prejudicial to the public interest in any other manner and thereupon the Central Government may, if it is satisfied that it is expedient in the public interest so to do, by order accord approval to the proposal.

(b) If the Central Government is of opinion that no such approval as is referred to in Clause (a) can be made without further inquiry, it may refer the application to the Commission for an inquiry and the Commission may, after such hearing as it thinks fit, report to the Central Government its opinion thereon.

(c) Upon receipt of the report of the Commission, the Central Government may pass such orders with regard to the proposal for the establishment of a new undertaking as it may think fit.

(d) No scheme of finance on the strength of which the establishment of a new undertaking has been approved by the Central Government shall be modified except with the previous approval of that Government.'

10. Now I proceed to consider the points raised. First T must dispose of the objection as to maintainability raised by the learned Additional Solicitor General and find out whether and how far this Court should interfere with an order of the commission in the facts and circumstances as in the present case. The learned Additional Solicitor General has submitted that the Commission in the enquiry now being held is not to pass any order adversely affecting anybody--it is only to give its opinion on which the final order is to be made by the Central Government. He has drawn my attention to Section 29 which provides that before making such an order the Central Government is to furnish an opportunity to every interested person of being heard before the order is made. The commission is now only making its independent enquiries in the light of the object and the provisions of the statute to give its own opinion on the proposal for establishment of a new undertaking. In so doing the commission has merely called for certain documents which on the considered opinion of the commission are relevant. The learned Additional Solicitor General has relied on Section 12, Order 16 Rules 14 and 15 of the Code of Civil Procedure and the Proviso to Section 165 of the Indian Evidence Act in contending that where a court on its own need calls for a particular document from a witness, the witness has no right to challenge the decision of the court. He has also drawn my attention to Section 30(2)(3) in submitting that the Statute contemplates expeditious disposal of a proposal like the one under consideration both by the Central Government and by the commission which would be frustrated if this Court starts interfering with interlocutory orders like the present one passed by the commission.

11. Mr. Roy Chowdhury, on the other hand, in meeting this objection has submitted that a person in the position of the petitioner has no remedy under the Act. Tt is not the applicant nor a person interested within the meaning of Section 29: It has got no right of appeal under Section 55. Mr. Roy Chowdhury points out that Section 165 of the Evidence Act authorises only a Judge in contradistinction to the court to ask an irrelevant question; this again according to him does not sanction any forced production of a document without any right to object on the ground of irrelevancy. According to him provisions of Order 16 of the Code of Civil Procedure do not debar any objection being raised as in the present case, when under Section 12 of the Act the said provisions can be taken recourse to only for the purpose of the Act. Mr. Roy Chowdhury relies on authorities to support his contention that any objection to relevancy must and should be raised only at this stage otherwise it will have no meaning. Mr. Roy Chowdhury has then pointed out that the commission by its own conduct had infringed the time schedule provided by Section 30 (2) (3) and that cannot be pleaded as bar to the petitioner's right to object production of an irrelevant document.

12. Giving anxious consideration to the respective arguments, I have come to the conclusion that though a person when called upon to produce a document by the commission at a proceeding like the present one before it, has a right to raise objection on the ground of irrelevancy and also to challenge any decision of the commission in this respect by moving this Court under Article 226 of the Constitution, yet the scope of such objection and the limit of interference under Article 226 are very much restricted; irrelevancy must be demonstrative and except for cases of lack of bona fides the reason for interference under Article 226 must be compelling. I hold it so because the matter under enquiry is not a dispute between the parties raising specific issues as in ordinary litigation or in a specific judicial or quasi-judicial adjudication. The scope of the enquiry is wide and has reference to policy to be adopted for preventing concentration of economic power and restrictive trade practices. Naturally wide range of variable factors may come in for consideration and widest possible liberty must always be given to the commission to adjudge its own requirement. The adjudication is neither judicial nor quasi-judicial. Burden of such enquiry has been laid exclusively on a specially constituted commission by the Statute. The learned Additional Solicitor General has rightly emphasized the eminence of the Constitution of the commission which is commensurate with the responsibility imposed. Such being the scope of the enquiry the test of relevancy for the documents which may be considered necessary by the commission can hardly be pinpointed and this Court in exercising its powers under Article 226 should be extremely cautious in the matter of interfering with the decisions of the commission in this respect particularly when such decisions are considered decisions as in the present case. It should always be remembered that the requirement of the document is of the commission for forming its opinion and making a report and this Court cannot substitute its own decision as to requirement for that of the commission. The scope of interference by this Court, therefore, must necessarily be very limited being limited to reasons which must be compelling. This position also follows from the scheme of the Act. The learned Additional Solicitor General is right in contending that unless such a view is taken the entire object of the time schedule provided by Section 30 (2) (3) would be frustrated and even the proposal under enquiry may be defeated by the resultant delay. Mr. Roy Chowdhury may be right that in the present case the time schedule was infringed even earlier by the commission. But in finding the true intention behind the Statute we must look into its scheme and not the particular facts of an individual case. Furthermore, it should also be noted that an erroneous decision of the commission in this respect is not likely to affect adversely the person from whom the document is called for to any great extent--the only prejudice which may be suffered is to be compelled to produce a document which may not otherwise be relevant according to him, but subject to protection under Section 60 of the Act. In my opinion the benefit that would follow from restricted interference by this Court on matters like these would much out-weigh the possible prejudice and this leads me to reaffirm the conclusion I have just arrived at on this point.

13. Thus considering the true scope of powers to be exercised by this Court, I go on to consider the points raised by Mr. Roy Chowdhury. The first point raised by him is that the said commission went wrong on the face of the records in not appreciating that the different sub-clauses of Section 2(g) must be read as exclusive of each other. It is obvious that the commission in holding enquiries on the proposal of Keso-ram Industries is endeavouring to find out as to whether such industries is or is not an 'inter-connected' undertaking with the present petitioner so that allowing such industries to establish a cement factory as proposed may lead to further concentration of economic powers. It is also true that in order to be inter-connected they must be mutually inter-connected in any of the manners set out in Section 2(g). What was contended before the commission is that in the present case both Kesoram Industries and the petitioner company being corporate bodies inter-connection, if any, must be found in the manner set out in Sub-clause (iii) of Section 2(g) and not in any other manner --the different clauses being mutually exclusive. The commission however, refused to accept this view. According to the commission two separate undertakings being owned by two separate corporate bodies could still be interconnected being under the actual control of a person or a group of persons as contemplated by Section 2(g)(vi). It is the correctness of this view which is being seriously disputed by Mr. Roy Chowdhury. Before this Court Mr. Roy Chowdhury has strongly contended for the same construction of Section 2(g) as was made before the commission. According to him on the object of the Statute and on the language of Section 2(g) the construction contended for by him can be the only construction; sub- Clause (vi), in his view, applies to cases where undertakings are not owned or controlled by any corporate body, but by an individual or an association of persons, but not constituting a partnership which comes within sub- Clause (ii). He suggests that on existing terms Sub-clause (vi) can have no application to this undertaking owned and controlled by corporate bodies and if it is to be so applied its terms are to be materially altered by reading into it words like 'by owning or controlling corporate bodies' who, in their turn, own or control the undertakings. He has taken me through the different sub-clauses and has submitted that each sub-clause contemplates different circumstance and one cannot overlap the other.

14. This contention of Mr. Roy Chowdhury is, however, not considered acceptable by me as it was not by the commission. In my view such a construction is neither in consonance with the object of the Statute nor does it follow from the language of the section. I think the statute thought of inter-connection in the widest range and such a concept is in consonance with the object of avoidance of economic powers being concentrated in a few hands. The opening words of Section 2(g), therefore, provide that inter-connection may be in any of the manners set out thereunder and not in a manner one alternative to the other. The inter-connection thought of has been given the widest connotation and it would not be proper to restrict the same by adopting the construction suggested by Mr. Roy Chowdhury. I am unable to agree with Mr. Roy Chowdhury that in order to apply Sub-clause (vi) to undertakings owned and controlled by corporate bodies any more new words are to be read into the sub-clause. It is not difficult to conceive one or more undertakings owned by one or more corporate bodies being controlled by an individual or a group of individuals so that such a case clearly and squarely comes within sub-cl. (vi). Even if there had been any doubt about this position on the language of the section set out hereinbefore, it has rightly been pointed out by the learned Additional Solicitor General that such a doubt is removed by the Explanation. Clauses (b) and (c) of the Explanation make it clear that even undertakings owned by corporate bodies may be inter-connected being controlled by one or more individuals together with their relatives. For these reasons I am unable to hold that on the terms of Section 2(g) the different sub-clauses set out thereunder are mutually exclusive and therefore I am of the opinion that the view taken by the commission is correct.

15. The second point raised by Mr, Roy Chowdhury is that the commission has gone wrong in probing into facts to find out whether any individual or a group of individuals is exercising any de facto control over either or both of the corporate bodies. According to him control is well recognised legal concept. In case of corporate companies it must be by voting rights and such control must be in respect of finance, management or capital; there can be no control over a corporate company except in the above manner and hence the commission is misguiding itself in trying to find any de facto control by any one beyond the de jure control as aforesaid. He has strongly relied on a Bench decision of this Court in the case of Sitaram Jaipuria v. Banwarilal Jaipuria, : AIR1972Cal105 in contending that the provisions under consi-deration had been conclusively interpreted by this Court in the said decision in the manner contended for by him. Reliance is also placed on the decisions in the cases of (1) Inland Revenue Commr. v. Harton Coal Co., 1960 (1) Ch 563; (2) Inland Revenue Commr. v. J. Bibly and Sons, 1945 (1) AH ER 667; (3) British American Tobacco Co. v. Inland Revenue Commr., 1943 AC 335 and (4) Barklays Bank Ltd. v. Inland Revenue Commr., 1961 AC 509, the learned Additional Solicitor General, however, has contended that in the Statute under consideration the concept of control should not be taken to be limited to de jure control only; it should be given a wider meaning as given by the commission.

16. Before I go on to consider the points so raised by Mr. Roy Chowdhury and controverted by the learned Additional Solicitor General, I must refer to a much debated controversy raised before me which, however, appears to me not to merit the importance given to it by the learned counsel for the petitioner. The controversy is over the contention of Mr. Roy Chowdhury that the ratio of the Bench decision of this Court in the case of : AIR1972Cal105 (supra) is what he contends to be the meaning of the concept of control and that such decision is now binding on me. The learned Additional Solicitor General has contended on the other hand that that was not the ratio of the decision nor could an interlocutory judgment as it is, be conclusive enough to be binding on this Court.

17. The decision of the appeal Court in : AIR1972Cal105 (supra) relied on by Mr. Roy Chowdhury was one in appeal against an order granting injunction pending disposal of the suit by the trial Court. In that case one shareholder instituted a suit allegedly in representative character against Swadeshi Cotton Mills Co. Ltd., and its directors for declaration that a notice dated September 14, 1970 and the explanatory statement annexed thereto issued under Section 173(2) of the Companies Act, 1956 convening a general meeting and the resolution passed at such a meeting are void and inoperative. In that case the plaintiff filed an application for injunction restraining the company and its Board of Directors from holding any meeting or from giving effect to resolution, if any, passed in the meantime. The resolution proposed to be adopted by the company at its general meeting so convened was to promote a new company in the name of Swadeshi Polytex Company Ltd. One of the grounds for challenging the notice and the explanatory statement was that the new company proposed to be promoted would be 'inter-connected' undertaking within the meaning of the said Act, but in the explanatory statement no information had been disclosed as to whether necessary permission of the Central Government had been taken or not. The learned trial Judge held that the new company to be promoted would be an 'inter-connected' undertaking of the defendant company on the ground that the respective managing directors are relatives. Hence the trial Judge held that the said Act applied and that the plaintiff had a legal right to bring an action against the company restraining it from committing an illegal act. The defendant company and its directors preferred the appeal.

18. The appeal was heard by the learned the Chief Justice and Mr. Justice B. C. Mitra. The learned Judges delivered separate judgments agreeing in the conclu-sion. In allowing the appeal of the company and its directors the learned Chief Justice held against the plaintiff respondent on the following grounds:

(a) There was no balance of convenience in favour of the plaintiff which can support an order of injunction.

(b) On the question of prima facie case Section 22 of the said Act prima facie could have no application as the new undertaking was established prior to the said Act.

(c) Prima facie Section 22 calls for State intervention and not at the instance of an aggrieved shareholder.

(d) Prima facie infringement of Section 22 does not render the contract or the undertaking illegal.

(e) Omission to include in the notice or the explanatory statement an information as to whether permission under Section 22 of the said Act had been taken or not would not render the notice illegal. Mr. Justice Mitra, in his separate judgment agreed with the learned Chief Justice in holding that the balance of convenience was not in favour of granting an injunction; that prima facie the new company was established -before the said Act and as such Section 22 was not attracted at all and above all there was no material infringement of Section 173(2) of the Companies Act by the alleged omission of the disputed information.

19. Although the ultimate decision rested on the above findings, Mr. Justice Mitra in dealing with an argument of the counsel for the respondents made an observation which has been strongly relied on by Mr. Roy Chowdhury as the ratio in the decision. Referring to Section 2(g)(iii)(d) he observed,

'It is true that Clause (d) of Section 2(g)(iii) of the Act merely provides 'if one exercises control over the other in any other manner'. It is also true that the control as contemplated by the Act has not been defined in the Act itself but in construing a provision such as this, certain considerations must be borne in mind. In the first place, the concept of control implies a dominant and a dominated undertaking. In other words, the controlling undertaking must be in a position to dominate the affairs of the controlled undertaking either in respect of the management of its affairs, or in respect of its finance or with regard to the capital structure. In the absence of one or other of these features the element of control cannot come into the picture. The mere fact that there are some common Directors or that the Managing Director of the 8th appellant is a relative of the Managing Director of the new company or that the 8th appellant is going to invest Rs. 1 Crore in the share capital of the new company, do not by themselves make the 8th appellant an undertaking controlling the undertaking of the new company.'

20. If it is to be argued as is now argued before me that the interpretation so given to the term 'control' is a part of the ratio of the decision, the only answer to be given is to refer to the learned Judge's observation in paragraph 71 of the same report. Later in the judgment Mr. Justice Mitra has himself made it clear in saying 'so long as the issues, involved in this appeal, are concerned we do not see why this Court should embark upon a discussion of the provisions of the Statute regarding inter-connected companies and also upon an investigation if the 8th appellant is an inter-connected undertaking on the basis of materials in its Balance-sheet.' The learned Judge expressed himself to say beyond doubt that such an issue has to be gone into under the Statute by the Central Government. I may say that the position now before me is not much different on principle. Whether Kesoram Industries is or is not an 'inter-connected' undertaking of the petitioner and whether the proposed new cement factory would be an interconnected undertaking or not are precisely to be decided by the Central Government on a report which is yet to be made by the commission and subject to an appeal as provided by the Statute to the Supreme Court. It is very embarrassing that on an interlocutory proceeding raised before the commission, the petitioner wants this Court to decide the legal aspect of the issue.

21. Moreover, apart from the fact that the observation of Mr. Justice Mitra relied on by Mr. Roy Chowdhury has no binding effect as suggested, it must be said that he merely observed that control must be in respect of management, finance or capital. But, he never went into the question as to whether such control as is contemplated by Section 2(g) must be restricted to de jure control and cannot be extended to include de facto control. Though I hold that the observations relied on have no binding effect I agree with Mr. Roy Chowdhury that those observations are entitled to greatest respect from me even sitting singly and for reasons given hereinafter Jt will be clear that the view which I am now taking does not derogate in any manner even from the said observation.

22. In considering the different decisions of the House of Lords it must be noted that those were cases where the term 'control' or 'controlling interest' came up for construction as in the Finance Acts with or without special explanatory clauses. It was observed that normally control over a company must mean exercise of power by voting rights and a person is said to have controlling interest if he has power by exercise of voting rights under the constitution of the company to carry a resolution at a general meeting. In my considered opinion the underlying principles of construction in the cases relied on by Mr. Roy Chowdhury would be inappropriate if applied to a Statute like the one now under consideration in view of the object of the Statute and the implications flowing from the language and scheme of the Act. It may be observed that even in the Barklay's Bank, 1961 AC 509 the majority of the noble Lords (Lord Reid dissenting) took the view that a shareholder who when not by himself but with trust votes carries majority must be said to be in control of the company though he being a co-trustee to others was not entitled to cast the trust votes without the consent of his co-trustees. Here the Statute under consideration, providing for prevention of concentration of economic powers and prohibition of monopolistic and restrictive trade practices intends equitable distribution of national wealth. If that is the object and the scheme of the Act, I find no reason why concentration of economic powers in de facto hands would not equally come within the prohibition of the Statute. I think the object of the Statute would materially be frustrated if the Central Government or the commission is made to go by the veil of incorporation in finding out the real control and is not allowed to disregard the corporate personality. It is now well recognised that a majority holding of shares is not always the decisive factor in determining effective control. Such control can be had in many ways.

'Control is a matter of degree, ranging from complete legal control for all purposes over a wholly owned subsidiary to de facto control, except in the event of a major scandal, normally exercisable by the existing management even though they may hold few or none of the shares. It may be difficult to detect (particularly when 'pyramiding' through numerous subsidiaries and sub-subsidiaries has been resorted to) but it is coming to be recognised as a separate item of property, the value of which will depend upon the degree of its completeness. The statutory definition is undoubtedly right to place the emphasis which it does on the power to control the board, for, as we have seen, the board is the company's head and brains. But de facto control over the board cad exist without any legal power at all. Thus, it is well known that in a company with a large and dispersed membership, a comparatively small proportion of the total shares, if held in one hand, may enable actual control to be exercised.'

(See Gower on the Principles of Modern Company Law, Third Edition, Chapter X page 197).

It is exactly this point which the commission is trying to ascertain whether the real control lies in the hands of one or more wielding powers over the Board of Directors.

23. Therefore, I am unable to accept the contention of Mr. Roy Chowdhury that in interpreting Section 2(g) the control must be taken to mean de jure control only which can be effected by the majority of voting rights. In my view on the object and scheme of the Statute and in view of the wide and comprehensive nature of the definition clause control means and includes effective control in any manner including de facto control. This was the view which was taken by the learned trial Judge in the case of Sitaram v. Banwarilal, : AIR1972Cal105 , and the appeal Court including Mr. Justice Mitra had not disapproved that part of the view expressed by the learned trial Judge. The view so taken also does not derogate from the observations of Mr. Justice Mitra relied on by Mr. Roy Chowdhury inasmuch as control management-wise may be de jure as also de facto. In any event if such a view was taken prima facie at this interlocutory stage by the commission for disposing of petitioner's objection as to irrelevancy of the documents called for, it cannot be said that the commission went so wrong as would call for interference bv this Court.

24. Next I proceed to consider the third point raised by Mr. Roy Chowdhury. According to him the commission went wrong in proceeding upon Datta Commission report in trying to find put inter-connection. Such report would be irrelevant, according to Mr. Roy Chowdhury, as the basis of grouping therein is materially different from that in the report of the monopolies commission. In my view this contention is really based on a misapprehension. The commission in its order has made it clear that it was holding the enquiry to find out interconnection as contemplated by the Act. In a sense neither of the two reports are of any importance now when the matter is codified in the Statute and the Statute furnishes the guidance. It is such guidance which would guide both the Central Government and the commission. In starting the enquiry the commission has merely chosen the peiitioner company as one to find out whether it is inter-connected with Kesoram Industries or not only because these two companies had been put into the same group by the Datta Commission. The learned Additional Solicitor General has rightly pointed out that even the monopolies commission put them together in the same group and if the commission had referred to that report instead of the report which is more later in time, the position would have been no different. Whatever be the difference in the basis of the grouping between the reports of the two commissions those would not affect the decision of the said commission as it is proceeding on the Statute. The report of the Datta Commission has merely furnished the starting point for the enquiry, the enquiry being held only in the light of the provisions of the Statute.

25. The last point raised by Mr. Roy Chowdhury is with reference to the relevance of the document. It has been contended that the documents called for are so grossly irrelevant that it only betrays inapplication of the mind in the matter of issue of summons or collateral use of the powers for some purpose other than any enquiry under the Act. In the petition itself the petitioner had not made out any specific case that the documents had been called for for any purpose other than the ostensible purpose. The learned Additional Solicitor General has rightly pointed out that under the provisions of Section 60 of the Act the documents and information called for cannot be used for any collateral purpose. This part of the submission of Mr. Roy Chowdhury is his inference from the alleged irrelevancy of the document so that if relevancy be found the submission would lose its foundation. On the complaint of inapplication of mind it must be said that when the commission passed a speaking order overruling the objection or irrelevancy it can no longer be said that the commission had not applied its mind on the question of relevancy. Mr. Roy Chowdhury may challenge the decision as erroneous as he had earlier done, but hardly there is any scope for a complaint that the commission had not applied its mind to the issue of relevance.

26. Let me now consider how far the documents called for are relevant. On March 10, 1972, the Director of Investigation called for from the petitioner copies of report, if any, submitted by Sri B. M. Birla on return of his foreign tours in 1969, 1970 and 1971. It is not in dispute that Shri B. M. Birla went on such tour and at least in part they were business tours on behalf of the petitioner as is evident on the minutes of the Board of Directors. The business transacted on such tours and the manner in which such business was transacted on behalf of the petitioner would undoubtedly show his authority on the administration and management of the petitioner company of which he was a director as also his control over the company. Similarly, the business conducted by Shri B. M. Birla, may equally show that he was transacting business on behalf of other companies under his de facto control. The learned Additional Solicitor General is right in pointing out that the minutes of the meeting of the Board of Directors of the petitioner company would themselves indicate that Shri B. M. Birla's foreign tour was in connection with the business of other companies too. Therefore, investigation as to what business was conducted by Shri B. M. Birla on his foreign tour cannot be said to be entirely irrelevant for the purpose of the enquiry. The petitioner objected to production of such report by a representation dated March 21, 1972 by pleading irrelevance and by further pleading that Shri B. M. Birla did not attend any work pertaining to Kesoram Industries. The commission could not accept the plea and issued the impugned summons calling for the three sets of documents referred to hereinbefore. Reading the summons together with the covering letter it is patently clear that Items I and 3 were called for to investigate into the business transacted by Shri B. M. Birla while on tour of foreign countries. Documents called for would not be wholly irrelevant to such an investigation for reasons already given by me hereinbefore. No doubt, Mr. Roy Chowdhury made a strong comment that the petitioner had made it clear that factually there exists no report as called for from the petitioner. But such plea was not taken prior to the issue of the summons and if that be the true position the only answer of the petitioner to the summons would be to show that the documents so called for are not in its possession. That, however, does not render the summons bad. Similarly Item No. 2 of the summons would be relevant to find out the hold and authority of Shri B. M. Birla over the petitioner company and its management. It would be remembered that the documents have not yet been produced and at this stage what is to be found is their prima facie relevance which the commission has found giving reasons and I do not consider that any ground has been made out for interference with such a finding of the commission. Therefore, this point also fails and is overruled.

27. As all the points raised in support of this Writ Petition fail the application fails. The Rule is discharged. There will be no order as to costs.

28. Let the operation of this order remain stayed for a period of one week from this date.


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