TaxTMI 
TaxTMI 
2015 (3) TMI 1344
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....Stone Khanij Udyog ('the firm'). The mine was operated and whereafter it appears that the partners of the firm decided to incorporate a private limited company for undertaking the business hereto-before conducted by the firm and therefore, proceedings were initiated for incorporation of the company, a letter dated 5.3.2012 was issued by the Registrar of Companies, Rajasthan indicating the availability of name Gotan Lime Stone Khanij Udyog Pvt. Ltd.; the certificate of incorporation was issued on 26.3.2012; whereafter an application dated 28.3.2012 was filed by the firm signed by Ramvallabh Chauhan, partner/power of attorney holder seeking transfer of the mining lease from the firm to the newly incorporated company. 3. A communication dated 2.4.2012 (Annex. 6) was sent by the Assistant Mining Engineer, Gotan to the Director, Mines and Geology, Udaipur forwarding the application along with a mine inspection form and a check list for application for Transfer of Mining Lease requesting for examining the enclosed documents and pass order for transfer of the mining lease. By order dated 25.4.2012, the Director, Mines and Geology, Udaipur granted permission for transfer of the ....
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.... for the petitioner that present is apparently a case of business rivalry when at the instance of a business rival, the State has chosen to take an action, which is not permissible in law. Elaborating, it was contended that there was some understanding between the firm and respondent No. 5 for part transfer of the leased area and, therefore, a application was filed in the year 1997 under Rule 15 of the Rules seeking permission for part transfer. The application was rejected in the year 1997 itself, on revision filed by JK Cement alone, the matter was remanded back and a communication was sent by the Director, Mines & Geology seeking relaxation for part transfer to the State Government, whereafter, JK Cement lost interest and it is only after the action was taken for the transfer of the lease from the firm to the Company that the JK cement started inter-meddling with the process without any basis and after the transfer was permitted by the respondents by order dated 25.4.2012 (Annex. 7) that a writ petition was filed by JK Cement being WP No. 404/2013, wherein the State supported the order dated 25.4.2012 and disputed any right in favour of JK cement. 10. It is contended that wit....
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....ed that the transfer having been permitted and acted upon, equity has been created in petitioner's favour and in any case, there is no loss whatsoever to the State. 14. It is also submitted that the fact that the action was actuated on account of extraneous consideration is further fortified from the fact that with the order of cancellation dated 16.12.2014, the possession of the mine was taken by the respondents on the same day at 9:30 p.m., which clearly indicates arbitrary exercise of power. The non-application of mind while issuing the impugned order dated 16.12.2014 is writ large and the respondents cannot be permitted to supplement the reasons and go beyond the order dated 16.12.2014 for justifying their action against the petitioner. It was prayed that the writ petition be allowed. 15. Reliance was placed on S.R. Venkataraman v. UOI: 1979 (2) SCC 491; State of Karnataka & Anr. v. All India Manufacturers Organizations & Ors.: 2006(4) SCC 683; Anis D. Lawande & Ors. v. State of Goa & Ors.: 2014(1) SCC 554; Tata Engineering & Loco Motive Company Limited v. State of Bihar: 1964(6) SCR 885; Mrs. Bacha F. Guzdar v. CIT: AIR 1955 SC 74; Heavy Engineering Mazdoor Union v. ....
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....ditional Advocate General that transfer of shareholding to Ultra-Tech Cement was not reported to the respondents and all the Directors of the petitioner-Company were changed and new Directors were appointed. The change of all the Directors of the Company, change in shareholding in the Company has clearly been done in contravention to Rule 15 of the Rules and hence, the transfer of lease is rendered null and void under Rule 72 of the Rules and was rightly cancelled by order dated 16.12.2014. 19. With reference to provisions of Rule 15 of the Rules, it was submitted that under Rule 15(1)(b), even for entering into or making any arrangement contract or understanding, whereby the lessee is directly or indirectly financed to a substantial extent by, or under which the lessee's operations or undertakings will or may be substantially controlled by any person or body of person other than lessee, prior permission is required. It is submitted that as Ultra-Tech Cement Limited has become a holding company of the petitioner, the provisions stood violated and therefore, the passing of order dated 16.12.2014 cannot be faulted. 20. The submissions regarding change of Government being th....
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....led. It was submitted that the application dated 28.3.2012 filed by the firm/petitioner was not duly constituted and in-fact, the same was no application in the eye of law, inasmuch as, neither there was any power with the partners nor with the Directors in absence of any duly passed resolution; no inspection dated 30.3.2012 could have taken place. Further the order dated 25.4.2012 permitting transfer clearly provided for a mandatory condition regarding execution of transfer document within a period of three months, failing which the order would stand cancelled. The proper transfer deed was executed on 8.8.2013 i.e. after more than one year and as the permission already stood lapsed, the extension granted by the respondents under Rule 15(4) by order dated 5.8.2013 (Annex. -9) is of no avail. 26. It is submitted that the 100% shareholding was transferred by the four partners/shareholders of the petitioner-Company on 23.7.2012 to Ultra-Tech Cement Limited and on 6.8.2012, they resigned as Directors and new Directors joined. In the annual report of Ultra Tech Cement pertaining to year 2012-2013 under the note pertaining to disclosure of related parties, Gotan Lime Stone Khanij Udyo....
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.... non-application or Rule 15(1)(b) while transferring shares by one shareholder to another was reemphasized. It was submitted that pursuant to the permission dated 25.4.2012, the transfer document was duly executed on 11.5.2012, however, when it was found that the same required registration, time was extended under Rule 15(4) and in continuation to the document dated 11.5.2012, another transfer document dated 8.8.2014 was executed and registered amongst the parties and therefore, it cannot be said that the condition of grant of approval dated 25.4.2012 pertaining to the execution of the document within a period of three months was violated. It was reiterated that the petition be allowed with costs. 31. I have considered the submissions made by learned counsel for the parties and have perused the material placed on record. 32. The entire case can be bifurcated in two stages. The grant of permission dated 25.4.2012 (Annex. -7) by the respondents to the firm Gotan Lime Stone Khanij Udhyog to transfer the Mining Lease 45/93 to the newly incorporated company Gotan Lime Stone Khanij Udhyog Pvt. Ltd. and subsequent action of transfer of shares by the shareholders of Gotan Lime Stone ....
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....s, which reads as under:- "R.15. Transfer of Mining Lease.- (1) The lessee shall not without the previous consent in writing of the competent authority- (a) assign, sublet, mortgage or in any other manner transfer the mining lease or any right, title or interest therein, or (b) enter into or make any arrangement, contract or understanding whereby the lessee will or may be directly or indirectly financed to a substantial extent by, or under which the lessee's operations or undertakings will or may be substantially controlled by any person or body of person other than lessee. Provided that the lessee of masonary stone may, with the prior permission of concerned ME/AME and subject to such conditions as he may specify therein, allow any Government contractor to install and operate stone gitti crusher till the completion of construction work. Provided further that such permission shall be given by ME/AME after obtaining registered consent of the lessee and also on the condition that the crusher owner shall use masonary stone produced from the concerned lease area only. Provided also that wherever required, permission of Revenue and oth....
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....earlier determination, unless otherwise permitted by the Government or the competent authority." "R.72. Mining operations to be under lease or licence.- No mining lease, quarry license, short-term-permit or any other permit shall be granted otherwise than in accordance with the provisions of these rules and if granted shall be deemed to be null and void." 40. A bare reading of the provisions of Rule 15 reveals that a previous consent of the competent authority is necessary before a mining lease or any right title or interest therein is assigned, sublet, mortgaged or in any other manner transferred. The requirement of prior consent has also been provided even in a case where a lessee enters into or makes any arrangement, contract or understanding, whereby the lessee is or may be directly or indirectly financed to a substantial extent by or under which lessee's operations and undertaking is or may be substantially controlled by any person or body of person other than lessee. Whereafter, the stipulations regarding transfer, fees, 18 premium etc. have been indicated and exception provided regarding mortgage to State institution, Bank or State Corporation. The sub-rule (4) of ....
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....se of judicial and quasi-judicial or even administrative power. (e) Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations. (f) Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. (g) Reasons facilitate the process of judicial review by superior Courts. (h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. (i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. (j) Insistence on reason is....
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....ted 05.03.2012 in its first para it was clearly provided that this letter is only an approval for availability of name for proposed company, the applicant cannot start business or enter into any contract etc. in name of the proposed company until and unless a certificate of registrations and certificate of commencement of business is issued by the RoC as per the provisions of Companies Act. The certificate from RoC was issued on 26.03.2014 (sic 2012) and any act on behalf of the company prior to 26.03.2014 (sic 2012) shall be null and void. That as stated in the first para of letter if any stamp purchased on 23.03.2012 for the purpose of undertaking formalities shall be null and void. Since the Board of Directors of the Company passed the resolution on 30.03.2012 in regard to transfer of the said lease, therefore, any act pertaining to the transfer prior to the resolution dated 30.03.2012 shall be null and void and also of no consequence. That in absence of any resolution if any application of transfer is submitted before Assistant Mining Engineer, Gotan cannot be said to be acceptable and the same is not sustainable in the eyes of law. That on the date of submission of application....
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....nd the same have not been purchased in the name of Company. 49. Besides the said factual aspect, the stipulation in Annex. 1, on which much emphasis was led by learned Additional Advocate General prohibits entering into any agreement and contract etc. based on availability of name for a proposed Company, mere purchasing of stamps by any stretch of imagination cannot be termed as entering into any agreement or contract so as to allege violation of the terms of letter dated 5.3.2012 (Annex. 1) issued by the Registrar of Companies, Rajasthan. 50. The second reason regarding passing of the resolution on 30.3.2012 and affidavits dated 31.3.2012 alongwith the application dated 28.3.2012 has been much emphasised by learned Additional Advocate General inter-alia on the ground that nowhere in the record it is indicated that the said resolution and affidavits were submitted later on, which reflects on the conduct of the petitioner and/or the authorities involved. 51. A specific query was put by the Court to learned Additional Advocate General as to the advantage of filing of the application on 28.3.2012 and implication/disadvantage if the application was to be treated as completed o....
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....ore even if the stamp papers were purchased after 26.3.2012 and application alongwith the resolution & affidavit was filed on 31.3.2012, it would not have made any difference and despite repeated queries none of the affect on the validity of application could be pointed out by learned Additional Advocate General. 57. An 'inconsequential irregularity' can be described as irregularity which, despite its existence, would not effect the final outcome of the action and an irregularity is inconsequential when, on a hind sight assessment of the process, the successful applicant/person would still be successful despite the presence of the irregularity. From what has been discussed hereinbefore the irregularities pointed out in the show cause notice, even if the same can be termed as such, are mere inconsequential irregularities and have no implication on validity of either the application or the grant of permission dated 25.4.2012. 58. The Hon'ble Supreme Court also in the case of G. Buchivenkata Rao (supra), while considering a case pertaining to grant of mining lease and defect in an application observed as under:- "6. It is clear to us that the details mentioned in ....
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....of details, describing the area which the lease was applied for, would make the application itself void or of no effect. We are, therefore, unable to find any error in the view adopted by the High Court that the supply of necessary details was directory and not mandatory. If it did not produce a defect which affected the validity of the lease, and the details supplied in the application corresponded with the contents of the lease after the alleged lacuna had been filled up, the grant of the lease to Venkatagiri was valid." 59. In view of the above discussion, the plea raised by the respondents seeking to support the order dated 16.12.2014 qua the pre 25.4.2012 events cannot be sustained. Post 25.4.2012 events: 60. Though no specific contention has been raised by the State on account of delayed registration of the transfer after the document of transfer was first executed on 11.5.2012, the issue raised by the respondent No. 5 regarding failure to execute the transfer deed within the time stipulated in the order dated 25.4.2012 and its automatic cancellation has also apparently no substance, inasmuch as, the transfer document was executed on 11.5.2012 between the parties and....
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....ule 15(1)(b) of the Rules, the transaction must be such whereby the lessee i.e. the Company will or may be directly or indirectly financed to a substantial extent or the lessee's operations or undertakings will or may be substantially controlled by any person or body of persons other than lessee. The pre-requisite for coming to a conclusion regarding violation of the provisions of Rule 15 would be an arrival to a conclusion that either the lessee company is directly or indirectly financed, or lessee's operations or undertakings are substantially controlled by any person or body of persons other than lessee. 67. Nowhere in the show cause notice, the order dated 16.12.2014 or in reply to the writ petition, there is any allegation whatsoever by the State indicating either financing or any substantial control on the lessee's operations or undertakings by Ultra Tech Cement Limited. Apparently, only based on the assumed implication of the Company becoming wholly owned subsidiary of Ultra Tech Cement Limited that the present action appears to have been taken by the respondents. 68. The issue of position of a shareholder with respect to Company's assets was considered....
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....logical meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company. The proper approach to the solution of the question is to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any por....
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....a principal and an agent. The words "under the authority of" mean pursuant to the authority, such as where an agent or a servant acts under or pursuant to the authority of his principal or master. Can the respondent-company, therefore, be said to be carrying on its business pursuant to the authority of the Central Government? That obviously cannot be said of a company incorporated under the Companies Act whose constitution, powers and functions are provided for and regulated by its memorandum of association and the articles of association. An incorporated company, as it well known, has a separate existence and the law recognises it as a juristic person separate and distinct from its members. This new personality emerges from the moment of its incorporation and from that date the persons subscribing to its memorandum of association and others joining it as members are regarded as a body incorporate or a corporation aggregate and the new person begins to function as an entity. (Cf. 4Salomon v. Salomon & Co.). Its rights and obligations are different from those of its shareholders. Action taken against it does not directly affect its shareholders. The company in holding it property an....
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....ayable by the company to its employees. But these powers are derived from the company's memorandum of association and the articles of association and not by reason of the company being the agent of the Central Government. The question whether a corporation is an agent of the State must depend on the facts of each case. Where a statute setting up a corporation so provides, such a corporation can easily be identified as the agent of the State as in Graham v. Public Works Commissioners where Phillimore J. said that the Crown does in certain cases establish with the consent of Parliament certain officials or bodies who are to be treated as agents of the Crown even though they have the power of contracting as principals. In the absence of a statutory provision, however, a commercial corporation acting on its own behalf, even though it is controlled wholly or partially by a Government Department, will be ordinarily presumed not to be a servant or agent of the State. The fact that a minister appoints the members or directors of a corporation and he is entitled to call for information, to give directions which are binding on the directors and to supervise over the conduct of the busine....
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.... of the Board of Directors of the Company or by changing the shareholding pattern, the appellant Company had undergone any change. The very same company wanted the electricity connection without making any payment towards the electricity charges payable by the previous consumer and the matter was dealt with in detail by the High Court and it was held that the appellant Company is none other than the sister concern of M/s. Amar Amit Jalna Alloys Pvt. Ltd. and was representing the same consumer who had committed the default and it was held that condition 23(b) of the conditions of miscellaneous charges for supply of electricity energy would apply to the appellant Company. We do not think that by change of Directors or by change of pattern of shareholding, the appellant Company is really a different entity than M/s. Amit Products (India) Ltd. who filed the previous Writ Petition No. 2090 of 2002. The reasons given in the previous judgment which were confirmed by this Court would apply with all force against the present appellant Company and the High Court has rightly dismissed the writ petition filed by the appellant Company." (emphasis supplied) 72. Recently, in the case of Bal....
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....the purpose of the 1956 Act, a company shall be, subject to the provisions of sub-section (3) of Section 4, of the 1956 Act, deemed to be subsidiary of another. Sub-section (1) of Section 4 of the 1956 Act further imposes certain preconditions for a company to be a subsidiary of another. The other such company must exercise control over the composition of the Board of Directors of the subsidiary company, and have a controlling interest of over 50% of the equity shares and voting rights of the given subsidiary company. 68. In a concurring judgment by K.S.P. Radhakrishnan, J., in Vodafone International Holdings BV v. Union of India, the following was observed: "Holding company and subsidiary company * * * * 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors.... 258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any Director if it so desires by a resolution in the general body meeting of the s....
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....cases subsequent to Salomon case, attributed the doctrine of piercing the veil to the fact that the company was a "sham" or a "facade". However, there was yet to be any clarity on applicability of the said doctrine." 71. In recent times, the law has been crystallized around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif. The six principles, as found at paras 159-64 of the case are as follows: (i) Ownership and control of a company were not enough to justify piercing the corporate veil; (ii) The Court cannot pierce the corporate veil, even in the absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only if there is some impropriety; (iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) The company may be a....
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.... 74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case." "85. In the present case, HCI is a separate legal entity incorporated under the 1956 Act and is carrying out the activity of operating and running of the given canteen. The said articles of association of HCI, in no way give control of running the said canteen to Air India. The functions of appointment, dismissal, disciplinary action, etc. of the canteen staff, are retained with HCI. Thus, the exercise of control by HCI clearly indicated th....
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....eliberate act in disregard to the rights of others. Where malice is attributed to the State, it can never be a case of personal ill will or spite on the part of the State. It is an act which is taken with an oblique or indirect object. It means exercise of statutory power for "purposes foreign to those for which it is in law intended." It means conscious violation of the law to the prejudice of another, a depraved inclination on the part of the authority to disregard the rights of others, which intent is manifested by its injurious acts. (Vide ADM, Jabalpur v. Shivakant Shukla, S.R. Venkataraman v. Union of India, State of A.P. v. Goverdhanlal Pitti, BPL Ltd. v. S.P. Gururaja and W.B.S.E.B. v. Dilip Kumar Ray.) 26. Passing an order for an unauthorised purpose constitutes malice in law. (Vide Punjab SEB Ltd. v. Zora Singh and Union of India v. V. Ramakrishnan.)" (emphasis supplied) 76. Examining the facts in the present matter as discussed hereinbefore, the action of the respondent-State apparently falls foul of the requirements of a fair decision and the same therefore cannot be sustained. 77. So far as the plea raised by the petitioners regarding action being taken by ....
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.... बनाये जाने का सरà¥à¤Ÿà¤¿à¤«à¤¿à¤•à¥‡à¤Ÿ कमà¥à¤ªà¤¨à¥€ रजिसà¥à¤Ÿà¥à¤°à¤¾à¤° दà¥à¤µà¤¾à¤°à¤¾ दिनांक 26.03.2012 को जारी किया गया। पारà¥à¤Ÿà¤¨à¤°à¤¶à¤¿à¤ª फरà¥à¤® के चारों à¤à¤¾à¤—ीदारों दà¥à¤µà¤¾à¤°à¤¾ खनन पटटा हसà¥à¤¤à¤¾à¤‚तरण हेतॠशपथ पतà¥à¤° पà¥à¤°à¤¸à¥à¤¤à¥à¤¤ करने के लिठनॉन -जà¥à¤¯à¥à¤¡à¤¿à¤¶à¤¿à¤¯à¤² सà¥à¤Ÿà¤¾à¤®à¥à¤ª पà¥à¤°à¤¾à¤‡à¤µà¥‡à¤Ÿ लिमिटेड कमà¥à¤ªà¤¨à¥€ ....
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....¤²à¥‡ कारà¥à¤¯à¤¦à¤¿à¤µà¤¸ दिनांक 02.04.2012 को हसà¥à¤¤à¤¾à¤‚तरण समà¥à¤¬à¤¨à¥à¤§à¥€ पतà¥à¤°à¤¾à¤µà¤²à¥€ खनि अà¤à¤¿à¤¯à¤‚ता, नागौर को à¤à¥‡à¤œà¥€ गई और निदेशालय दà¥à¤µà¤¾à¤°à¤¾ दिनांक 25.04.2012 को खनन पटटा हसà¥à¤¤à¤¾à¤¤à¤°à¤£ के आदेश जारी किये गये। सहायक खनि अà¤à¤¿à¤¯à¤‚ता, गोटन खनन पटà¥à¤Ÿà¤¾ हसà¥à¤¤à¤¾à¤‚तरण का à¤à¤—à¥à¤°à¥€à¤®à¥‡à¤‚ट 100/- सà¥à¤Ÿà¤¾à¤®à¥à¤ª....
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....¦à¥à¤§ किया गया। उकà¥à¤¤ कà¥à¤°à¤®à¤µà¤¾à¤° घटनाओं से यह के रूप सà¥à¤ªà¤·à¥à¤Ÿ है कि खनन पटटा हसà¥à¤¤à¤¾à¤‚तरण की आड़ में खान का बेचान मिलीà¤à¤—त कर किया गया है और à¤à¤®à¤à¤®à¤¸à¥€à¤†à¤°, 1986 के नियम 15 की अवहेलना की गई है। अतः निदेशक, खान à¤à¤µà¤‚ à¤à¥‚-विजà¥à¤žà¤¾à¤¨ विà¤à¤¾à¤—, उदयपà¥à¤° दà¥à¤µà¤¾à¤°à¤¾ जारी खà¤....