TaxTMI 
TaxTMI 
2010 (7) TMI 268
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....en borrowed by western thinkers and, ultimately, by the economist Schumpeter in his concept of 'creative destruction' (see : 'creative destruction' in Economics: Nietzsche, Sombart, Schumpeter by Higo Reinert and Erik S. Reinert). 2. But, what has all this got to do with this case? This will become clear, shortly. This much is evident, conceptually speaking, that destruction need not be the end alone, it may also be the beginning of something new. Here we are concerned with the repeal of the Industrial Finance Corporation Act, 1948 and the consequential death of the Industrial Finance Corporation of India (hereinafter referred to as 'the Corporation'), which was established under it, as also the birth of the Industrial Finance Corporation of India Limited (hereinafter referred to as 'IFCI Limited'). The repeal was brought about by the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993. But, did the repeal also, simultaneously, establish or Constitute IFCI Limited as a new form, a new 'life' of the dead Corporation? 3. This question arises in the backdrop of another question, as to whether IFCI Limited (respondent No. 1) is a "financial institution" with....
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....FCI Limited was formed and registered under the Companies Act, 1956 and on and from 1-7-1993, which was the appointed date under the Repeal Act, the undertaking of the Corporation stood transferred and vested in IFCI Limited. Since the petitioner, for some reason, had defaulted in repayment of the loan, IFCI Limited, on 5-10-1998 recalled the loan and demanded a sum of Rs. 2,16,93,294. Thereafter, IFCI Limited filed OA No. 122/1999 before the Debts Recovery Tribunal invoking the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the DRT Act') for recovery of Rs. 2,46,72,428. Pursuant thereto, settlement talks were initiated by the petitioner with IFCI Limited. According to the petitioner, while the settlement talks were in progress, IFCI Limited also took action under section 13(2) of the said Act in respect of the said mortgage by issuing a notice dated 13-2-2008 in which a demand of Rs. 18,21,38,833 plus future interest with effect from 15-1-2008, was made. The petitioner filed objections to the proposed action but those objections were rejected by IFCI Limited. Consequently, on 5-5-2008, IFCI Limited took physical p....
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....) and means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31 of the said Act. It is clear that the mortgage created by the petitioner in favour of IFCI Limited would be covered under the expression "security interest", provided IFCI Limited is regarded as a "secured creditor". The expression "secured creditor" has been defined in section 2(1)(zd) in the following manner:- "2(1)(zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes- (i )debenture trustee appointed by any bank or financial institution; or (ii )securitisation company or reconstruction company; or (iii)any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;" This requires us to explore the meaning of the expression "financial institution" which has been defined in section 2(1)(m). In the present case we are only concerned with clause (i) of se....
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....al institutions if the Central Government so thinks fit. The proviso to sub-section (2) of section 4A of the Companies Act, 1956 is of vital importance for a decision in this case. It lays down two conditions which have to be satisfied before the Central Government can notify an institution to be a public financial institution. The first condition is that the institution should have been established or constituted by or under any Central Act. The second condition is that not less than 51 per cent of the paid up share capital of such an institution must be held or controlled by the Central Government. Another important feature of sub-section (2) of section 4A of the Companies Act, 1956 is that it begins with the words - "subject to the provisions of sub-section (1)". It is pertinent to note that in the specified public financial institutions mentioned under sub-section (1), the Industrial Finance Corporation of India established under section 3 of the Industrial Finance Corporation Act, 1948 has been specifically mentioned in clause (ii) thereof. Thus, if the Repeal Act had not been enacted, the Corporation would have continued to exist and by virtue of section 4A(1) of the Companie....
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....use of the very same word "established" in clauses (ii), (iii), (iv ) and (v) of sub-section (1) of section 4A of the Companies Act. He submitted that the manner in which the word "established" has been used in sub-section (1) clearly shows that the institution must be created by or brought into existence by the statute itself. He submitted that the word "established" does not have the same meaning as "formed and registered" under the Companies Act. This would be evident from the fact that the expressions "formed and registered" and the word "established" have been used differently in the very same sub-section (1) of section 4A of the Companies Act. Thus, the Legislature consciously used the word "established" when it wanted to do so and consciously used the words "formed and registered" when it wanted to convey a different meaning. 12. Mr. Sibal then referred to the provisions of the Industrial Finance Corporation Act, 1948 and in particular to the Preamble and section 3 thereof where the intention of Parliament was clearly to "establish" the Industrial Finance Corporation of India. The expression used in section 3(1) of the Industrial Finance Corporation Act, 1948 was to the fol....
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.... a company would also enable it to re-shape its business strategies, provide greater autonomy, recourse to the capital market for raising resources, facilitate expansion of its equity base in future, and create a more levelled playing field across broadly similar financial institutions. In sum and substance, it was submitted by Mr. Sibal that the old corporation was extinguished and a new company (IFCI Limited) was to be formed and registered under the Companies Act, 1956. It is not as if by virtue of the Repeal Act, the new company - IFCI Limited, was brought into existence or created but it was yet to be formed and registered under the Companies Act, 1956 as would be clear from the definition of the word "company" given in section 2(b) of the Repeal Act wherein the word "company" has been defined to mean the Industrial Finance Corporation of India Limited (IFCI Limited) "to be formed and registered under the Companies Act, 1956". Mr. Sibal sought to distinguish the manner in which the company has been defined in section 2(b) with the manner in which the word "corporation" has been defined in section 2(c) as meaning the Industrial Finance Corporation of India "established" under s....
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.... Repeal Act did not contemplate a complete privatization and, therefore, a specific provision was made for substitution of the specified company or administrator in place of the Unit Trust of India wherever necessary in every Act, rule, regulation or notification. Section 18 of the UTI Repeal Act reads as under:- "18. In every Act, rule, regulation or notification in force on the appointed day, for the words "Unit Trust of India", wherever they occur, the words, brackets and figures "specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002" or "Administrator of the specified undertaking of the Unit Trust of India referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002", as the case may be, shall be substituted." He submitted that by virtue of the said section 18, the specified company and the administrator of the specified undertaking of the Unit Trust of India stood substituted in place of the words "Unit Trust of India" wherever they occur in every Act etc. The result being that the reference to the Unit Trust of India established under section 3 of the Unit Trust of India Act, 1963 in clause (v) of se....
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....ontrol at least 51 per cent of the paid-up share capital. It was submitted that as on 31-3-2008, the Central Government did not own or control any part of the paid-up share capital of IFCI Limited. Though, in 1995, when the notification dated 15-2-1995 was issued, the position was different. At that point of time, the Central Government did not own any shares in IFCI Limited but the combined shareholding of IDBI, LIC, GIC, UTI, SBI and other public sector banks and subsidiaries was 53.98 per cent and thereby the Central Government could have been said to control 53.98 per cent of the paid-up share capital of IFCI Limited. But, according to Mr. Sibal, the contention of owning or controlling at least 51 per cent of the shareholding was not just a onetime requirement. It was necessary at the time of issuance of the notification and it was also necessary that the same stipulation would continue throughout the existence of the said notification. According to him, if ownership and control of the Central Government fell below 51 per cent, then IFCI Limited would lose its public element and thereby lose its status of being a public financial institution. He submitted that this requirement ....
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....isions, held the specified company as also the administrator as defined under the UTI Repeal Act to fall within the scope and ambit of the expression "public financial institutions". According to Mr. Kaul, similar is the case in the present petition. Mr. Kaul placed reliance on Gammon India Ltd. v. Special Chief Secretary [2006] 3 SCC 354 to submit that the Repeal Act of 1993 was not just a repeal but also a simultaneous re-enactment. Referring to paragraph 73 of the said decision, Mr. Kaul submitted that whenever there is a repeal of an enactment and simultaneous re-enactment, the re-enactment is to be considered as re-affirmation of the old law and provisions of the repealed Act which are thus re-enacted continue in force uninterruptedly unless, the re-enacted enactment manifests an intention incompatible with or contrary to the provisions of the repealed Act. He submitted that the mere registration of a company under the Companies Act does not mean that it was not established by or constituted under the Repeal Act of 1993. The intention was one of continuity. He further submitted that all the conditions stipulated in section 4A(2) of the Companies Act stand fulfilled. IFCI Limit....
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.... section 4A of the Companies Act, 1956 and particularly the construction to be given to the provisions of sub-section (2) thereof. In this context, it will have to be determined as to what is meant by the expression "established or constituted by or under any Central Act". It would also have to be determined as to whether the condition of the Central Government holding or controlling not less than 51 per cent of the paid-up share capital of the institution in question was only a trigger condition or a condition precedent and not one which was required to be fulfilled at all times. In this context, it will also have to be determined as to whether the validity of the notification dated 15-2-1995 would have to be tested having regard to the date on which it was made or the existence of the conditions would have to be considered at future points of time also. It would also be required of us to examine the Supreme Court decision in Southern Petrochemical Industries Corpn. Ltd.'s case (supra ) and to see as to whether any parallel can be drawn from that decision with regard to the UTI Repeal Act while considering the present case whereby the Industrial Finance Corporation Act, 1948 has b....
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....of section 4A(2) thereof since there is no provision similar to section 18 of the UTI Repeal Act in the Repeal Act of 1993. The reference to Industrial Finance Corporation of India in clause (ii) of section 4A(1) of the Companies Act, 1956, has not been substituted to indicate a reference to IFCI Limited. 23. Let us now consider the second condition stipulated in the proviso to section 4A(2) of the Companies Act that no institution in which the Central Government holds or controls less than 51 per cent of the paid-up share capital of such institution, can be specified as a public financial institution. There is no doubt and it is an admitted position that as on the date on which the notification was issued, this condition stood satisfied. The Central Government did hold or control more than 51 per cent of the paid up share capital of IFCI Limited. It has already been mentioned above that as on 15-2-1995, though the Central Government by itself did not hold any shares in IFCI Limited, it controlled 53.98 per cent of the paid-up share capital though institutions such as IDBI, LIC, GIC, UTI, SBI and other public sector banks and subsidiaries. It is also true that on the date on which....
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....titution and for the purposes of determining the validity of the notification under section 4A(2) of the Companies Act, 1956. It is open to the Central Government, at any subsequent point of time to 'de-notify' an institution as a 'public financial institution' if it deems fit. 24. We can also take support from Southern Petrochemical Industries Co. Ltd.'s case (II) (supra) wherein the Supreme Court, as pointed out above, in the context of an exemption notification, observed that a notification which was duly issued would continue to govern unless the same is repealed. 25. We are now left to consider the first condition stipulated in the proviso to section 4A(2) of the Companies Act, 1956. We would have to examine the meaning of the expression "established or constituted by or under any Central Act". In the present case, the reference to the Central Act is that to the Repeal Act of 1993. The question is whether IFCI Limited could be said to have been established or constituted by or under the Repeal Act of 1993. It is clear that in the Repeal Act of 1993 while there is reference to the company to be formed, IFCI Limited was to be formed and registered under the Companies Act, 1956....
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....uld, naturally, record all the terms and conditions of the contract between the parties which, at the initial stages, had not been reduced to writing. The Supreme Court observed as under:- "In such a case, though the partnership had been brought into existence by an oral agreement amongst the partners, if the terms and conditions of the partnership have been reduced to the form of a document, it would be right to say that the partnership has been constituted under that instrument." The Supreme Court went on to say:- "The word "constituted" does not necessarily mean "created" or "set up", though it may mean that also. It also includes the idea of clothing the agreement in a legal form. In the Oxford English Dictionary, Vol. II, at pp. 875 and 876, the word "constitute" is said to mean, inter alia, "to set up, establish, found (an institution, etc.)" and also "to give legal or official form or shape to (an assembly, etc.)". Thus, the word in this wider significance would include both the idea of creating or establishing and the idea of giving a legal form to, a partnership. The Bench of the Calcutta High Court in the case of R.C. Mitter & Sons v. CIT under examination now, was not....
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....irm, strengthen, ratify, confirm, restore, place in a secure position, initiate, secure acceptance of, place beyond dispute, ascertain, prove'. The word "establish" according to Black's Law Dictionary means, amongst other things, 'to settle, make or fix firmly, to enact permanently, to make or form, to bring about or into existence, to prove, to convince'. The word "establish" according to Webster's Dictionary means, amongst other things, 'set up or found, to make stable or firm, to settle, to confirm, to appoint or constitute for permanence, as officers, laws, regulations, etc., to enact, to ordain, to originate and secure the permanent existence of, to found, to institute, to create and regulate, to secure public recognition in favour of, to prove and cause to accepted as true'. The word "establish" according to Words and Phrases means, amongst other things to prescribe, to make stable or firm, to found, to set up, to fix firmly, to maintain, to prove, to found, create, originate or institute, to regulate. 27. From the above, it is clear that the word "establish" could have a narrow meaning as implying "created by" or under a specific provision of a statute or it could have a....