1975 (8) TMI 91 - SC - Companies Law

Court rules acquisition of 100% share capital not an 'undertaking' under competition law

Carew & Co. Ltd. Versus Union of India

The court determined that the proposal to acquire 100% share capital did not constitute acquiring an 'undertaking' under the Monopolies and Restrictive ... Whether section 23(4)of the Monopolies and Restrictive Trade Practices Act, 1969 was attracted to the facts of the case? Held that:- Appeal allowed. What the appellant proposed to the Central Government was to establish a new undertaking, if we throw aside legal camouflages built around a verb and pierce the corporate veil. Therefore, while jurisdiction in the respondent to apply section 23(4) of the Act is absent, the appellant may be caught within the spider's web of section 22—I do not express myself finally. The appeal must now succeed, but the legal drama may still have its Fifth Act for the appellant—I cannot be futuristic as the full facts will first be examined by Government for that purpose—in case he chooses to apply. Issues Involved:1. Applicability of Section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969.2. Definition and interpretation of 'undertaking' under Section 2(v) of the Act.3. Jurisdiction of the Central Government's order under Section 23(4).4. Potential applicability of Section 22 of the Act.Issue-wise Detailed Analysis:1. Applicability of Section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969:The core issue in this appeal is whether Section 23(4) was attracted to the facts of the case. The appellant, a public limited company, proposed to acquire 100% share capital of Shahjahanpur Sugar (P.) Ltd. The Central Government rejected the appellant's application under Section 23(4) of the Act, leading to this appeal. The court examined whether the proposal to acquire shares constituted acquiring an 'undertaking' as defined under the Act.2. Definition and Interpretation of 'Undertaking' under Section 2(v) of the Act:The term 'undertaking' is defined under Section 2(v) as an enterprise engaged in the production, supply, distribution, or control of goods or services. The appellant argued that since Shahjahanpur Sugar (P.) Ltd. had not yet acquired the sugar unit and was not engaged in production, it did not qualify as an 'undertaking.' The court agreed, stating that an enterprise must be actively engaged in production to be considered an 'undertaking.' It emphasized that the sugar unit remained an undertaking of the appellant until it was transferred and engaged in production under Shahjahanpur Sugar (P.) Ltd.3. Jurisdiction of the Central Government's Order under Section 23(4):The court held that the Central Government's order under Section 23(4) was not applicable as the proposal did not involve acquiring an 'undertaking.' The acquisition of 100% shares in Shahjahanpur Sugar (P.) Ltd. only gave the appellant control and management rights, not ownership of an undertaking. The court emphasized that a company has a separate legal personality, and shareholders do not own the company's assets or undertakings.4. Potential Applicability of Section 22 of the Act:While the court concluded that Section 23(4) was not applicable, it left open the possibility that the facts of the case might attract Section 22. This section deals with the establishment of new undertakings and requires prior permission from the Central Government. The court refrained from expressing a definite opinion on the applicability of Section 22, suggesting that the appellant might need to seek approval under this section if relevant.Separate Judgments:Mathew, J.:Mathew, J. delivered the main judgment, concluding that Section 23(4) was not applicable as the proposal did not involve acquiring an 'undertaking.' He emphasized that the sugar unit of the appellant had not become an undertaking of Shahjahanpur Sugar (P.) Ltd. at the time of the proposal.Krishna Iyer, J.:Krishna Iyer, J. concurred with the conclusion but provided a separate opinion. He highlighted the broader economic and social context of the legislation, emphasizing that the interpretation should align with the legislative purpose of preventing concentration of economic power. He suggested that the proposal might fall under Section 22, which deals with establishing new undertakings.Fazal Ali, J.:Fazal Ali, J. also agreed with the conclusion that Section 23(4) was not applicable. He emphasized that the undertaking must be in actual production to fall within the definition under the Act. He concurred with Krishna Iyer, J. that the proposal might attract Section 22, requiring further investigation.Conclusion:The appeal was allowed, and the Central Government's order under Section 23(4) was quashed. The court made no order as to costs and left open the possibility of the appellant needing to seek approval under Section 22 if applicable.