Common directors alone do not prove control of small scale units; registration refusal requires a finding of ownership or subsidiary status.

A small scale industrial undertaking cannot be denied registration or have its investment clubbed merely because some directors are common across units. The authority must record a definite finding, on relevant material, that one unit is owned by, subsidiary to, or controlled by another within the governing statutory scheme. Mere common directorship does not by itself establish ownership or control. The Delhi HC held that the refusals were unsustainable because no categorical finding on ownership, subsidiary status, or control had been made, and the matter had to be reconsidered under the statutory criteria.

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Issues: Whether separate small scale industrial undertakings of the same company could be clubbed for the purpose of investment ceiling and denial of registration merely because some directors were common, and whether the respondent had to show that the units were owned, subsidiary to, or controlled by another undertaking before refusing registration.

Analysis: The statutory scheme under the Industries (Development and Regulation) Act, 1951 showed that a small scale industrial undertaking had to satisfy the investment limit and also the requirement that it was not owned by, controlled by, or subsidiary to another undertaking. The Court held that the mere fact that one director was also a director in another unit was not by itself proof of ownership or control. For such a finding, the respondent had to examine the corporate character of the units and record a definite conclusion that one undertaking controlled the management and affairs of the other or satisfied the statutory meaning of subsidiary under the Companies Act, 1956. The later notification clarifying the concepts of owned, subsidiary, and controlled supported this reading. At the same time, the Court accepted that the corporate character of the undertaking was relevant and that manufacturing different products alone could not exclude scrutiny under the statutory restrictions.

Conclusion: The rejection orders could not be sustained because no categorical finding of ownership, subsidiary status, or control had been recorded. The refusal on the sole basis of common directors was invalid and the applications had to be reconsidered afresh.

Final Conclusion: The challenge succeeded to the extent that the impugned refusals were quashed and the matter was sent back for fresh decision in accordance with the statutory criteria.

Ratio Decidendi: A small scale industrial unit cannot be denied registration or have its investment clubbed merely because of common directors unless the authority finds, on relevant material, that one undertaking is owned by, subsidiary to, or controlled by another within the meaning of the governing statute.

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