1988 (2) TMI 61 - SC - Service Tax

Government vested equity shares & properties under Swadeshi Cotton Mills Act, confirming National Textile Corporation ownership.

The court held that the equity shares in Swadeshi Polytex Limited and Swadeshi Mining and Manufacturing Company Limited, along with immovable properties ... Vesting of textile undertakings - right, title and interest of the company in relation to an undertaking - deeming provision expanding scope of vested assets - pertaining to / in relation to (wide construction) - lumpsum compensation not determinative of vested items - privilege under Article 74(2) of the Constitution - production of cabinet papers and preparatory notings (public interest immunity) - rectification of register of members by operation of law - permanent injunction restraining dealing with vested propertyVesting of textile undertakings - right, title and interest of the company in relation to an undertaking - deeming provision expanding scope of vested assets - pertaining to / in relation to (wide construction) - Whether the equity shares held by Swadeshi Cotton Mills in Swadeshi Polytex Ltd. and Swadeshi Mining & Manufacturing Co. Ltd. vested in the Central Government under Sections 3 and 4 of the Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986. - HELD THAT: - The Court held that Section 3 contains two limbs: (i) transfer and vesting of every textile undertaking and (ii) transfer and vesting of the right, title and interest of the company in relation to every such textile undertaking. Section 4 is a deeming provision that expansively lists assets and rights 'pertaining to' or 'in relation to' the textile undertakings and thereby amplifies the scope of Section 3. The expressions 'pertaining to' and 'in relation to' are to be given wide meaning and are used interchangeably; they include investments and rights arising out of such property, including shares acquired out of the funds of the textile undertakings and held for their benefit. The fact that compensation in Section 8 is fixed as a lumpsum does not create a mathematical limitation on what vests. Applying these principles to the material before the Court, the shares in question were acquired from and used for the benefit of the Kanpur textile undertaking and therefore fell within the scope of Sections 3 and 4 and vested in the Central Government (and thereafter in NTC) with effect from the appointed day. [Paras 61, 64, 65, 66, 68]The 10,00,000 shares in Swadeshi Polytex Ltd. and 17,18,344 shares in Swadeshi Mining & Manufacturing Co. Ltd. held by Swadeshi Cotton Mills vested in the Central Government (and in NTC) under Sections 3 and 4 of the Act with effect from 1-4-1985.Deeming provision expanding scope of vested assets - pertaining to / in relation to (wide construction) - permanent injunction restraining dealing with vested property - Whether the specified immovable properties (Bungalow No.1 and the Administrative Block, Civil Lines, Kanpur, and Swadeshi House at Kanpur) vested in NTC under the Act and what reliefs flow from such vesting. - HELD THAT: - Given the amplitude of the language in Sections 3 and 4, immovable properties that 'pertain to' or are 'in relation to' the textile undertakings fall within the vesting. The Court found that the Bungalow No.1, the Administrative Block and Swadeshi House relate to the textile undertaking and therefore vested in NTC. Consequential reliefs follow from vesting: parties holding or asserting title are restrained from dealing with these properties and NTC is entitled to have its ownership recognised. [Paras 69, 71]The immovable properties mentioned vested in NTC; defendants are permanently restrained from dealing with them and NTC is to be recognised as owner in place of Swadeshi Cotton Mills.Production of cabinet papers and preparatory notings (public interest immunity) - privilege under Article 74(2) of the Constitution - Whether the petitioners are entitled to production of internal government documents, notings and cabinet papers relied upon to interpret the Act, and whether such documents are privileged from production. - HELD THAT: - The Court found Sections 3 and 4 unambiguous and not requiring the tendering of the sought documents. Even assuming relevance, many of the documents sought were preparatory notings and papers forming part of advice to the President and Cabinet submissions; such documents fall within the class of materials immune from disclosure in the public interest and are protected by Article 74(2) and public interest privilege. Accordingly production was refused. [Paras 41, 42, 43, 44, 45]Prayer for production of the specified documents is refused; the documents (including cabinet papers and preparatory notings) are not ordered to be produced and public interest privilege is upheld where applicable.Rectification of register of members by operation of law - permanent injunction restraining dealing with vested property - interim and final directions for conduct of general meeting - Supplementary procedural and consequential orders: (a) effect on register of members and voting rights; (b) injunctions against respondents dealing with vested shares and property; (c) conduct of the 17th annual general meeting. - HELD THAT: - On vesting by operation of law, NTC is entitled to be treated as the shareholder; Section 108 of the Companies Act renders transmission by operation of law effective without separate rectification proceedings, and the company is directed to enter NTC's name in its register and treat NTC as the shareholder. Permanent injunctions were granted restraining the defendants from dealing with the shares and property. The Court directed that the 17th annual general meeting be held under the Chairman appointed by this Court, with NTC entitled to vote and its votes to be recognised. [Paras 71, 72, 73, 77]NTC to be entered and treated as shareholder in place of defendant holders; defendants restrained by permanent injunction from dealing with the vested shares and property; 17th AGM to be held in accordance with law under the Court-appointed Chairman, recognising NTC's voting rights.Final Conclusion: The Supreme Court construed Sections 3 and 4 of the Swadeshi Cotton Mills (Acquisition and Transfer of Undertakings) Act, 1986, broadly holding that assets, including investments (the disputed equity shares) and specified immovable properties 'pertaining to' or 'in relation to' the textile undertakings vested in the Central Government (and thereby in NTC) with effect from 1-4-1985; production of cabinet/preparatory documents was refused on relevance and public-interest privilege grounds; consequential reliefs were granted-permanent injunctions restraining respondents from dealing with the vested shares and properties, NTC to be recorded as shareholder by operation of law, and directions for the lawful conduct of the 17th annual general meeting, with costs as stated by the Court. Issues Involved1. Whether equity shares in Swadeshi Polytex Limited and Swadeshi Mining and Manufacturing Company Limited, held by Swadeshi Cotton Mills, vest in the Central Government under Section 3 of the Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986.2. Whether immovable properties, namely, Bungalow No. 1 and the Administrative Block, Civil Lines, Kanpur, have also vested in the Government.3. Application of the rules of construction of contemporanea expositio.4. Relevance and admissibility of certain documents for interpretation.5. Privilege under Article 74(2) of the Constitution concerning the production of documents.Issue-wise Detailed Analysis1. Vesting of Equity Shares in the Central GovernmentThe primary issue was whether the equity shares in Swadeshi Polytex Limited and Swadeshi Mining and Manufacturing Company Limited, held by Swadeshi Cotton Mills, vest in the Central Government under Section 3 of the Act. The court held that these shares did vest in the Central Government. The judgment emphasized that Section 3 of the Act states that 'every textile undertaking and the right, title, and interest of the company in relation to every such textile undertaking shall stand transferred to and shall vest in the Central Government.' Section 4 further expands this by stating that the textile undertakings include all assets, rights, leaseholds, powers, authorities, privileges, and all property, movable and immovable, including investments and book debts pertaining to the textile undertakings. The expressions 'pertaining to' and 'in relation to' were interpreted broadly to include the shares in question.2. Vesting of Immovable PropertiesThe court also addressed whether immovable properties, namely, Bungalow No. 1 and the Administrative Block, Civil Lines, Kanpur, vested in the Government. The court concluded that these properties did vest in the Central Government under the expansive language of Sections 3 and 4 of the Act. The judgment noted that the language used in these sections was broad enough to include such immovable properties.3. Application of Contemporanea ExpositioShri Nariman argued that applying the rules of construction of contemporanea expositio would show that the shares did not vest in the Central Government. However, the court rejected this argument, stating that contemporanea expositio applies primarily to the construction of ambiguous language in old statutes and is not applicable to modern statutes. The court emphasized that the language of Sections 3 and 4 was clear and unambiguous.4. Relevance and Admissibility of Documents for InterpretationThere was a request for the production of certain documents to establish that the shares were never intended to be taken over and were not considered part of the textile undertaking. The court held that these documents were not relevant for the purpose of interpreting Sections 3 and 4 of the Act. It was noted that the language of the Act was clear and did not require external aids for interpretation. The court reiterated that the intention of Parliament must be gathered from the words used in the statute itself.5. Privilege under Article 74(2) of the ConstitutionThe court addressed the issue of whether the documents sought for production were privileged under Article 74(2) of the Constitution. The court held that these documents were part of the preparation leading to the advice tendered to the President and were therefore privileged. The court cited previous decisions, including S.P. Gupta v. Union of India, to support the view that documents related to the advice tendered to the President are protected from disclosure.ConclusionThe court concluded that the 10,00,000 shares in Swadeshi Polytex Limited and 17,18,344 shares in Swadeshi Mining and Manufacturing Company Limited, held by Swadeshi Cotton Mills, vested in the Central Government under Sections 3 and 4 of the Act. Additionally, the immovable properties, namely, Bungalow No. 1 and the Administrative Block, Civil Lines, Kanpur, also vested in the Central Government. The court dismissed the writ petition and various special leave petitions, directing that the 17th annual general meeting be held in accordance with law, recognizing NTC as the rightful owner of the disputed shares.