TaxTMI 
TaxTMI 
2016 (2) TMI 537
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....eclaration of real transaction of sale of mining lease which was not permissible. Further question is whether on this basis the State is justified in cancelling the lease which the High Court has quashed. 3. FACTS : M/s. Gotan Limestone Khanji Udhyog (GLKU), a partnership firm, held a mining lease for mining limestone at village Dhaappa, Tehsil Merta, District Nagaur in area of 10 sq. km at fixed rent of Rs. 1,42,85,224/- per annum for which third renewal for 30years was granted w.e.f. 8th April, 1994. The said lessee applied for transfer of the lease in favour of respondent No.1 herein, M/s. Gotan Limestone Khanji Udhyog Pvt. Ltd. (GLKUPL) on 28th March, 2012. The application dated 28th March, 2012 states that the lessee was a partnership firm and wished to transfer the lease to a private limited company which was mere change of form of its own business by converting itself from a partnership firm into a private limited company. The partners of the firm and Directors of the company were the same and on transfer, no illegal benefit, price or premium was taken from the transferee. The lease was 40 years old and there was no impediment in the transfer. The transferee will comply wit....
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....K.C. Birla, R. Mehnot and M.B. Agarwal who took over as Directors of the Private Limited Company at the instance of UTCL. 8. The respondent No.1 filed S.B. Civil Writ Petition No.9669 of 2014 seeking quashing of show cause notice dated 21st April, 2014, the order dated 16th December, 2014 and other consequential orders. It was submitted that the order dated 25th April, 2012 permitting transfer of lease from the partnership firm to the private limited company was in order. After the said transfer, the entire shareholding of the company was transferred by the promoter directors in favour of UTCL in July, 2012, except some shares which were transferred in joint names of UTCL with some private persons who were employees of the said company. Thus, the writ petitioner-Respondent No.1 became wholly owned subsidiary of UTCL. The Directors were replaced by the nominees of the holding company. JKCL had made an application seeking permission of part transfer of the mining lease and its application was rejected on 5th September, 2012 against which Writ Petition No.404 of 2013 was filed. The State Government in its reply defended its order dated 25th April, 2012. After the assembly election in....
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....ation of India Limited vs. Secretary, Revenue Department(1999) 4 SCC 458, Amit Products (India) Ltd. vs. Chief Engineer (O&M) Circle(2005) 7 SCC 393 and Balwant Raj Saluja & Anr. vs. Air India Limited & Ors. (2014) 9 SCC 407 learned Single Judge concluded as follows: "In view of the law laid down by the Hon'ble Supreme Court in the case of Government Companies, inter-se relationship between holding and subsidiary Companies and fundamental principles regarding distinction between a shareholder and the Company, it is apparent that merely on account of the Company becoming a subsidiary of Ultra Tech Cement Limited on account of certain action of the shareholders of the Company, it cannot be said that the Company is being directly or indirectly financed to a substantial extent or the Company's operations or undertakings are substantially controlled by Ultra Tech Cement Limited, regarding which there are absolutely no allegations or material whatsoever. Therefore, on account of the petitioner-Company becoming subsidiary of Ultra Tech Cement Limited, in view of the law laid down by the Hon'ble Supreme Court as noticed hereinbefore, it cannot be said that ipso facto the provisions of Ru....
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....bitrariness and fairness under Article 14 and its role is limited to that extent. Essentially, whenever the object of policy is anything but revenue maximization, the executive is seen to adopt methods other than auction. xxxxxx 46. 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. The entire object of providing limited liability of shareholders under the Companies Act will be affected by such interpretation of law and in such case, the holding Companies, Public Limi....
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....ng the stand of the Government in triggering action apparently to the benefit of M/s J.K.Cement Limited, instrumental in blocking the expansion of capacity of production of cement by Ultra Tech Cement Limited. 49. Though we find that learned Single Judge has not gone into and recorded any finding on malice in law, the facts placed before us and the arguments advanced clearly indicate that the entire action was coloured with malice in law. The object and purpose of declaring the permission for transfer to be null and void and cancellation of mining lease was for the purpose of restricting the expansion of business activities of Ultra Tech Cement Limited owned by Birla Group of Companies in the State of Rajasthan." 14. When the matter came up for hearing before this Court on 18th September, 2015 following order was passed: "In the meantime, the State shall file an affidavit giving details of the circumstances in which normally an application for transfer of mining lease is granted/ rejected. If there is any policy in this regard, the same will be placed on record and if there is no such policy, the State shall mention as to how many applications for transfer of mining lease we....
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....CL by the newly formed company which had no other assets or business except the mining lease and appointment of nominees of UTCL as Directors of GLKUPL did not amount to change of control of GLKUPL to UTCL or that it was not transfer of mining lease for consideration was clearly erroneous. In view of the fact that transfer of shareholding took place just after the formation of GLKUPL by partnership firm holding the lease on a declaration that no third party was involved nor any direct or indirect consideration was involved, it was clear that formation of GLKUPL itself was a device for transfer of mining lease from GLKU to UTCL for monetary consideration without disclosing the real transaction to the competent authority. The Court was required to see the substance and not mere form. The judgments relied upon only stated the general principle of identity of the company being distinct from shareholders and directors which was subject to the doctrine of piercing the veil to discover the real nature of transaction when it was different from what was apparent. In the present case, it was not a case of mere transfer of shareholding or change of Directors or even a routine merger but use o....
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....LCO to which we will refer later. 21. We have given thoughtful consideration to the issue arising for consideration. 22. In the present case there are two transactions. Viewed separately, there may be nothing wrong with either or both but if real nature of transaction is seen, the illegality is patent. In first transaction of transfer of lease from the firm to the company, with the permission of the competent authority, only disclosure made while seeking permission for transfer is of transforming partnership business into a private limited company with same partners as directors without there being any financial consideration for the transfer and without there being any third party. There is perhaps nothing wrong in such transfer by itself. In the second transaction, the entire shareholding is transferred for share price and control of mining lease is acquired by the holding company without any apparent price for lease. Technically lease rights are not sold, only shares are sold. No permission for transfer of lease hold rights may be required. Let us now see the combined effect and real substance of the two transactions. The partnership firm holding lease hold rights has successf....
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.... doctrine of lifting of corporate veil is expanding......... 67. In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar's power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the premises the consumption of such energy by Hindalco will fall under Section 3(1)(c) of the Act. The learned Additional Advocate-General for the State relied on several decisions, some of which have been noted. 68. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The ghost of Salomon case (1897 AC 22) still visits frequently the hounds of Company Law but the veil has been pierced in many cases. Some of these have been noted by Justice P.B. Mukharji in the New Jurisprudence (Tagore Law Lectures, P. 183)." 25. In Delhi Development Authority versus Skiper Construction Company (P) Ltd. (1996) 4 SCC 622, it was observed : "24. Lifting the corporate veil : In Aron Salomon v. Salomon & Company Limited (1897) AC 22, the House of Lords had o....
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....otect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons." 25. In Palmer's Company Law, this topic is discussed in Part-II of Vol-I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs : "The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company". Similar views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer." (underlining is ours) 26. It is thus clear that the doctrine of lifting the veil can be invoked if the public interest so requires or if th....
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....s are vested in the State and the lessee is strictly bound by the terms of the lease (2013) 6 SCC 476 (Orissa Mining Corpn. Ltd. vs. Ministry of Environment and Forest) - Para 58; (1981) 2 SCC 205 (State of Tamil Nadu vs. M/s Hind Stone) - Para 37; (2012) 11 SCC 1 ( Monnet Ispat & Energy Ltd. vs. Union of India) - Para 41; (1976) 4 SCC 108 (Amritlal Nathubhai Shah vs. Union Govt. of India); (2013) 7 SCC 571 (Geomin Minerals & Marketing Ltd. vs. State of Orissa). Cases of Arun Kumar Agrawal vs. Union of India(2013) 7 SCC 1 (the Vedanta case), BALCO Employees' Union vs. Union of India(2002) 2 SCC 333 (the BALCO case) and Vodafone International Holdings B.V. versus Union of India(2012) 6 SCC 613 cited by learned counsel for the respondent have no application to the present case once real transaction is found to be different from the apparent transactions. In fact, the principle of law laid down in Vodafone case (supra) that the court can look to the real transaction goes against the respondent . 29. In Vedanta case (supra) (2013) 7 SCC 1 - Para 1 approval granted by the Government of India for acquisition of majority stake in Cairn Energy Ltd. (CIL) was challenged and a direction was....
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....sent of competent authority is not a formality and transfer without consent is void. The minerals vest in the State and mining lease can be operated strictly within the statutory framework. There is nothing to rebut the allegation that receipt of Rs. 160 crores styled as investment in shares is nothing but sale price of the lease. No precedent has been shown permitting such a private sale of a mining lease for consideration without any corresponding benefit to the public. 31. In the recent past, there have been serious allegations of illegalities and deficiencies in the regulatory regime of mining leases. As noted by this Court in Goa Foundation (supra), the Government of India appointed a former Judge of this Court, Justice M.B. Shah to go into various aspects of illegal mining, including grant and transfer of leases. It is a matter of public knowledge that in the wake of reports submitted by Justice Shah, the policy framework and statutory provisions have undergone changes at various levels. Changes suggested include the mode and manner of grant and renewal of lease rights. A facet of this aspect has been gone into by us in our order dated 04th January, 2016 in Civil Appeal Nos.....
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.... accompanied by a fee of [Rs.5000/- for Marble, Sand Stone & granite and Rs. 2000/- for other minerals] and shall be submitted to the Mining Engineer / Assistant Mining Engineer. (1AA) The Government may subject to the condition specified in rule 11(2) transfer whole area of the lease to a person on payment to the Government transfer premium [equal to existing dead rent;] Provided that the lease has remained in force for at least two years from the date of grant. Provided further that such transfer shall not be made if there are any dues outstanding against the transferor or transferee. Provided further also that where the mortgagee is a State Institution or a bank or a State corporation, it shall not be necessary for the lessee to obtain the previous consent of the competent authority or previous sanction of the State Government. However, the lessee shall inform the competent authority about any mortgage in favour of any State institution, Bank or State Corporation within a period of 3 months from the date of mortgage or assignment. (2) An application for transfer of mining lease 17 shall be disposed of by competent authority:[xxx] Provided that transfer of mining lease, granted ....
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....ing benefit to the public or the State exchequer is not permitted. After all, minerals vest in the State and the State has to exercise its power to deal with them as per doctrine of public trust. Thus, in the present case, the State was certainly entitled to exercise its jurisdiction to cancel lease transferred in violation of rules. 35. As already seen, in the present case, the original lessee sought transfer merely by disclosing that the partnership firm was to be transformed into a private limited company with the same partners continuing as directors and there was no direct or indirect consideration involved. It was specifically declared that no pecuniary advantage was being taken in the process which is clearly false. The permission to transfer the lease in favour of a private limited company was granted on that basis. Thus, it was a case of suppression veri and suggestio falsi. Once it is held that transfer of lease is not permissible without permission of the competent authority, the competent authority was entitled to have full disclosure of facts for taking a decision in the matter so that a private person does not benefit at the expense of public property. The original l....