1975 (8) TMI 91 - SC - Companies Law

Attraction of section 23(4) of Monopolies and Restrictive Trade Practices Act appeal allowed; jurisdiction for section 23(4) found absent, section 22 implicated

Whether section 23(4) of the Monopolies and Restrictive Trade Practices Act applied to a proposed corporate arrangement was contested; the court found ... Acquisition of an undertaking - definition of 'undertaking' as engaged in the production, supply, distribution or control of goods - establishment of a new undertaking - control by acquisition of 100% shares versus acquisition of the undertaking - concentration of economic powerAcquisition of an undertaking - definition of 'undertaking' as engaged in the production, supply, distribution or control of goods - control by acquisition of 100% shares versus acquisition of the undertaking - Section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969 is not attracted to the appellant's proposal and the Central Government's order under that provision is without jurisdiction. - HELD THAT: - The court held that for section 23(4) to apply there must be a proposal to acquire an 'undertaking' as that term is used in the Act - i.e., an enterprise engaged in production, supply, distribution or control of goods or provision of services. At the time of the proposal Shahjahanpur Sugar (P.) Ltd. had not become the owner of, nor was it itself engaged in production through, the sugar unit; the sugar unit remained an undertaking of the appellant. Acquisition of 100% of the shares of a company confers control and management rights but does not, while the company remains a separate juristic person, amount to acquisition of the company's undertaking for the purposes of section 23(4). Applying this legal approach, the proposal to acquire or to hold 100% shares in Shahjahanpur Sugar (P.) Ltd. did not constitute acquisition by purchase, take over or otherwise of an 'undertaking' as defined in the Act, and therefore section 23(4) was not attracted. The appeal against the Central Government's order under section 23(4) consequently succeeds. [Paras 8, 9, 10, 11, 12]Central Government order under section 23(4) quashed; section 23(4) does not apply to the facts.Establishment of a new undertaking - concentration of economic power - The question whether the proposal attracts section 22 (establishment of a new undertaking requiring prior approval) was not finally adjudicated and is left for administrative consideration. - HELD THAT: - Several members of the bench observed that the appellant's scheme - transfer of the sugar unit into a newly incorporated company wholly owned and controlled by the appellant - may, in substance, constitute the establishment of a new undertaking which would become an interconnected undertaking of the appellant and thus prima facie fall within section 22. The Court, however, refrained from expressing a definitive view on the applicability of section 22 and declined to decide that issue on the present record, indicating that if section 22 is attracted the appellant must seek prior permission from the Central Government and that fuller factual investigation by the executive may be necessary. [Paras 13, 29, 34, 35]Applicability of section 22 not finally decided; left for fresh administrative consideration and, if necessary, further adjudication.Final Conclusion: The appeal is allowed: the Central Government's refusal under section 23(4) is quashed because section 23(4) does not apply to the proposed acquisition of 100% shares in Shahjahanpur Sugar (P.) Ltd.; the court did not decide finally whether section 22 is attracted and left that question for appropriate administrative consideration; no order as to costs. Issues: Whether section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969 is attracted to a proposal by a dominant undertaking to acquire 100% shares of a newly incorporated company to which an existing operating unit of the dominant undertaking is to be transferred.Analysis: Section 23(4) applies to a proposal by an undertaking to acquire by purchase, take-over or otherwise the whole or part of an undertaking which is itself engaged in the production, supply, distribution or control of goods or provision of services within the meaning of section 2(v). The statutory scheme of Chapter III (including sections 20, 21, 22, 23 and 28) distinguishes between acquiring an existing undertaking and establishing a new undertaking which would become an interconnected undertaking of a dominant undertaking. An entity qualifies as an 'undertaking' under section 2(v) when it is an enterprise presently engaged in production or supply (temporary cessations excepted). Acquisition of 100% shares confers control and management rights but, as a general corporate law principle, does not equate to immediate acquisition of the separate legal entity's assets or of an undertaking owned and currently operated by that separate entity. Applying these principles, where at the time of the proposal the proposed transferee company has not yet become the owner of, nor is operating, the concerned production unit, the proposal to acquire its shares does not amount to acquisition of an existing undertaking under section 23(4). The statutory scheme, however, contemplates that the same factual configuration may prima facie attract section 22 when a new undertaking is being established which would become an interconnected undertaking of the dominant undertaking.Conclusion: Section 23(4) is not attracted to the facts; the impugned order under section 23(4) is quashed and the appeal is allowed. The matter may nonetheless fall prima facie within section 22 and require the prior approval prescribed therein if pursued.