2015 (5) TMI 1171 - HC - Companies Law

Court validates mining lease transfer from partnership to private company, dismisses cancellation by State Gov.

The Court upheld the validity of the transfer of a mining lease from a partnership firm to a private limited company, finding it compliant with relevant ... Transfer of mining lease - the transfer of the mining lease was declared null and void and mining lease was cancelled - Held that:- Rule 15 provides for regulation of transfer of mining lease. A perusal of the Rule will clearly indicate that the transfer is not prohibited. It is only regulated by Rule 15 to the extent that the licensee is prohibited from transfer of mining lease except with the previous consent in writing of the competent authority. Clauses (a) & (b) of Sub-Rule (1) of Rule-15 provide for the transfers, which are not permissible except with the consent in writing of the competent authority. The transfer by any means such as provided in Rule 15(1)(a) & (b) is permissible with the previous consent in writing of the competent authority. The transfer of interest under sub-rule (1)(a) and the transfer of control under sub-rule 1(b) is also permissible provided it is with the previous consent in writing of the competent authority. It is of common knowledge that the corporate entities frequently undergoes changes in share-holding patterns. The Company Law permits it, and that the entire corporate world moves on such permissible transactions. The shares of the Company are bought and sold every day on the Stock Exchanges, which may result into change in the control of the management of the Company. The changes, however, do not affect the contracts under which the Company has to transact its business, including the acquisition of assets, licenses, permits, concessions and leases - In case the argument of learned Additional Advocate General is accepted, the change in the share-holding pattern would amount to cancellation of all such contracts, leading to a complete chaos in the corporate world. Appeal dismissed. Issues Involved:1. Validity of the transfer of mining lease from a partnership firm to a private limited company.2. Alleged irregularities and fraud in the transfer process.3. Cancellation of the mining lease by the State Government.4. Legal implications of subsequent changes in shareholding and directorship of the private limited company.5. Allegations of malice in law by the State Government.Issue-wise Detailed Analysis:1. Validity of the Transfer of Mining Lease:The partnership firm Gotan Lime Stone Khanij Udyog was granted a mining lease, which was later transferred to a newly incorporated private limited company, M/s. Gotan Lime Stone Khanij Udyog Private Limited. The State Government challenged this transfer, alleging that the transfer was not in compliance with the Rajasthan Minor Mineral Concession Rules, 1986, particularly Rule 15, which regulates the transfer of mining leases. The Court found that the transfer was legally permissible and that the necessary permissions were obtained from the competent authority. The Court held that the transfer of the mining lease to the private limited company was valid and in accordance with the law.2. Alleged Irregularities and Fraud:The State Government issued a show-cause notice alleging irregularities and fraud in the transfer process, such as the purchase of non-judicial stamps before the incorporation of the company, and the submission of affidavits and resolutions after the application for transfer was filed. The Court found these irregularities to be inconsequential and held that they did not affect the validity of the transfer. The Court also noted that the necessary documents were submitted subsequently, and there was no requirement under Rule 15 for the submission of affidavits and resolutions at the time of the application.3. Cancellation of the Mining Lease by the State Government:The State Government declared the transfer of the mining lease as null and void and cancelled the lease, citing violations of Rule 15 and Rule 72 of the Rajasthan Minor Mineral Concession Rules, 1986. The Court found that the cancellation order was not a reasoned order and that the Joint Secretary did not provide any reasons for declaring the transfer as null and void. The Court relied on the principle that recording of reasons is imperative for a valid exercise of executive power, as established in Kranti Associates v. Masood (2010) 9 SCC 496. The Court set aside the cancellation order, holding that it was arbitrary and lacked proper reasoning.4. Legal Implications of Subsequent Changes in Shareholding and Directorship:The Court addressed the issue of the subsequent transfer of shares of the private limited company to Ultra Tech Cement Limited, resulting in the company becoming a wholly-owned subsidiary. The State Government argued that this transfer violated Rule 15(1)(b) of the Rules, which requires prior consent for any arrangement that may substantially control the lessee's operations. The Court held that the transfer of shares did not amount to a transfer of the mining lease and that the company remained a separate legal entity distinct from its shareholders. The Court relied on the principles established in Mrs. Bacha F. Guzdar v. CIT (AIR 1955 SC 74) and Amit Products (India) Ltd. v. Chief Engineer (O&M) (2005) 7 SCC 393), which state that the company and its shareholders are distinct entities.5. Allegations of Malice in Law by the State Government:The respondent-company alleged that the State Government's actions were motivated by malice in law, influenced by a change in government and loyalty shifts between business groups. The Court found that the entire action of cancelling the lease was actuated with malice in law and was intended to restrict the expansion of Ultra Tech Cement Limited's business activities. The Court observed that the State Government's change in stance and the initiation of action against its officers indicated malice in law. The Court held that the cancellation of the lease was influenced by extraneous considerations and was not based on any substantial evidence of fraud or irregularity.Conclusion:The Court dismissed the appeals filed by the State Government and M/s. J.K. Cement Limited, upholding the judgment of the learned Single Judge. The Court found that the transfer of the mining lease was valid, the alleged irregularities were inconsequential, and the cancellation order was arbitrary and lacked proper reasoning. The Court also held that the subsequent transfer of shares did not violate the provisions of the Rules, and the State Government's actions were motivated by malice in law.