TaxTMI 
TaxTMI 
2023 (12) TMI 753
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....hotel in Kolkata which was incorporated on 29.4.1970 under the Companies Act, 1956. The petitioner no. 1 initially carried on business under its present name "New Kenilworth Hotel Private Limited". The petitioner no. 1 became a deemed public limited company with the applicability of section 43A (1B) of the 1956 Act and a second certificate of incorporation was issued to the petitioner on 23.8.1995. The petitioner was reconverted into a private limited company under section 43A (2A) of the said Act by operation of law. The petitioner no. 2 is one of the directors of the petitioner no. 1 company. A brief background of the present dispute 4. The respondent sought information pertaining to the renewal of the petitioners' excise license in the present name i.e. New Kenilworth Hotel Private Limited in 2009 as the earlier excise license was under the name of "New Kenilworth Hotel Limited". The petitioner responded by its letter dated 3.11.2009 explaining the factual position which has been stated above. The petitioner no. 1 received a Memo dated 9.9.2013 from the respondent no. 4/Collector of Excise, Kolkata (Central) demanding Rs. 22,50,000/- as fees towards change in management an....
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.... the Board of Directors of the petitioner company. The Excise Commissioner held that the change in the Board of Directors would entail levy of new license fees as the petitioner would not be covered by the exceptions under the 2009 Rules. 8. The Collector of Excise by a letter dated 27.2.2018 raised a renewed demand adjusting the earlier payments and demanding a further payment of Rs. 22,00,000/-. The petitioner paid this amount under protest by a letter dated 13.3.2018. Arguments advanced on behalf of the parties The petitioners 9. Learned counsel appearing for the petitioner submits that a change in the Board of Directors in the usual course of business does not amount to change in management in the context of direct levy of license fees. Counsel submits that changes in the Board of Directors in the petitioner no. 1 cannot require the petitioner having to apply for a new excise license in terms of Rule 4(2) of the 2009 Rules since a change in management has been equated with the transfer of ownership of the company. 10. The petitioners argue that clauses (d) and (e) of the proviso to Rule 5(1) of the 2009 Rules violates Article 14 of the Constitution of India since....
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....Rules, 2009. The second issue is whether clause (d) to the proviso to Rule 5 of the 2009 Rules is discriminatory and offends the right of the petitioner no. 1 to equal treatment under Article 14 of the Constitution of India. 14. The West Bengal Excise (Change in Management) Rules, 2009 was notified under sections 85 and 86 of the Bengal Excise Act, 1909 on 11.2.2010 and published in the Gazette on 23.2.2010. The Rules were in supersession of the earlier Notification dated 18.11.2005. The 2009 Rules were made applicable in case of change in management of all excise licenses granted under the Bengal Excise Act, 2009 and the Rules therein save and except those licenses which were settled by auction. 15. This judgment is articulated in two sections in accordance with the issues state above. The conclusions of the Court are stated in the captions to the sections; the reasons for the conclusion are in the discussion which follows the captions. Changes in the Board of Directors in the usual course of business does not amount to "change in management" 16. This issue arises from the impugned order dated 16.2.2018 whereby the Excise Commissioner found that changes in the petition....
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....d with a change in the form and structure of a company, for instance: ".... or from a private limited company to a public limited company and vice versa or in case where there has been a takeover or acquisition or amalgamation or merger of a private or public limited company .... the management so changed....." Apart from this, Rule 4(3) mentions the words "proposed transferee(s)". 19. Read together, the only possible conclusion would be that "change in management" would be a change in the fundamental structure and controlling / ownership pattern of the company. The change must be in the formation of, or creation of a new company transferring its ownership, its command and structure, shareholding composition / rights and voting rights. Therefore, appointments to the Board of Directors can, by no means, be equated with a change in management. 20. Although not relevant for the present proceeding, the Finance Department of the Government of West Bengal appears to have become wiser to the implications of "change in management" which would be reflected in the Notification dated 11.2.2020 where Rule 3(i)(c) defines "change in management" in the case of a Private Limited....
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....the context of Rule 5(1) and the proviso thereto, the construction would inevitably be : the requirement of the payment of 1.5 times the initial grant fee similar to the fee applicable for grant of a new excise license for the Collector to permit change in management of a license would not be applicable in the case of death of a director for a private limited company and death of a director + change in management in the usual course of business for a public limited company. 25. The disparity in the applicability of the proviso to Rule 5(1), namely, exemption from payment of 1.5 times the initial grant fee of license for a public limited company compared to a private limited company would thus be apparent from clauses (e) and (d), respectively, in the proviso to Rule 5(1) itself. 26. To hammer the disparity home, the exemption from payment of license fee pursuant to a change in management is much broader in the case of a public limited company where, apart from death of a director, any change in management in the usual course of business, would also entitle the public limited company for exemption. A private limited company, however, would get the benefit of exemption only upo....
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....license fees pursuant to change in management for private and public limited companies. 32. Creating two distinct groups and bestowing a larger zone of exemption for one of the two groups must be supported by intelligible differentia in the creation of the two groups. The 2009 Rules does not satisfy this test. What is intelligible differentia? 33. Article 14 of the Constitution of India guarantees to all persons equality before the law and equal protection of the laws within the territory of India. To translate this vision into meaningful action, the State is authorised to create groups or classes for grant of certain benefits or exclude certain groups from those benefits. Article 14 of the Constitution is not violated by creation of classes based on rational differences since the State can step in through affirmative measures in aid of the constitutional goal of equality. However, the requirement which must be fulfilled is of shared characteristics of persons within a group which justifies their being grouped together as opposed to those who are outside the group. The distinction between those inside and those outside must be intelligible, that is, be measurable by reason....
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....y, co-operative society or a firm shall stand determined on any change of membership of the company, society, co-operative society or in the partnership of the firm or in the management thereof, unless in the case of the company, prior approval of the State Government and in the case of a partnership firm, society or co-operative society prior permission of the Collector and the approval of the Commissioner, to such change is obtained. Subject to the above requirement, any change in management in a company registered under the Companies Act, 1956, or any change in the Board of Directors of the company- both private limited company, or public limited company, or membership in case of a society registered under the Societies Act or Co-operative Societies Act shall be brought to the notice of the Collector within a period of 7 days, with application for regularization of the same along with a non-refundable application fee similar to the one applicable for grant of a new excise licence of the same category in the same local area : Provided further, that in cases of change in management from a firm/society/co-operative society to a company which is registered under th....
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..... Apart from the absence of any intelligible differentia in the classifications, by no stretch of imagination can it be said that appointments of new Directors in the usual course of business or for filling up of a vacancy caused by the death of a Director in a Private Limited Company is equal to having a "proposed transferee" for grant of a new license of the same category under Rule 5(1) of the 2009 Rules. 42. The larger zone of exemption for a Public Limited Company from payment of license fee pursuant to change of management should have had a comprehensible connection to the object of the 2009 Rules in terms of determination of the earlier Excise License and grant of a new Excise License to the "proposed transferee". The disparity in the scope of exemption for a Private and a Public Limited Company or, in other words, reducing the area of exemption for a Private Limited Company does not preserve the object of the 2009 Rules. The link between the classifications created under clauses (d) and (e) of the proviso to Rule 5(1) thus snaps and is broken in the attempt to connect it to the object of the 2009 Rules. 43. Therefore, the differentia made for classifying Private and P....
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.... context of change in management and the consequent exemption from payment of license fees is undoubtedly an instance where the differentia is neither real nor substantial and the rational nexus thereof to the object of the Rules is wholly absent. The absence of Intelligible Differentia and a Rational Nexus to the object of the 2009 Rules Impacts the Constitutional Validity of clause (d) of the Proviso to Rule 5(1) of the 2009 Rules. 47. Without repeating the discussion in the earlier section of this judgment, the inevitable conclusion must be that clause (d) of the proviso to Rule 5(1) of the 2009 Rules offends Article 14 of the Constitution in terms of equal treatment of a Private Limited Company when compared to the right conferred to a Public Limited Company. The petitioners have made out a case for a declaration that clause (d) of the proviso to Rule 5(1) of the 2009 Rules is ultra vires to the Constitution of India. Response to the respondent's arguments 48. The respondent's arguments with the courts view are: a) Argument of the respondents: Rule 3 of the Notifications dated 11.2.2020 and 6.3.2020 has been substituted so as to incorporate the definition of "cha....
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....ot be in a vacuum or take the place of a provision which did not exist at an earlier point of time. Zile Singh v. State of Haryana; (2004) 8 SCC 1 would hence not have any application to the facts of the present case. Substituting the 2009 Rules or a specific provision thereto with the 2020 notification with regard to the definition of change in management would also result in uncertainty. In Zile Singh, it was held that substitution of one text for the other subsisting pre-existing text which is implied in legislative drafting has to be distinguished from supersession of an existing provision. The definition given by the Supreme Court in Zile Singh is wholly irrelevant for the present case since there was no pre-existing text for the meaning of "change in management" with regard to a private limited company. The uncertainty would also be at several levels. The present writ petition was filed in 2018 and is being disposed of in 2023. The Notifications of 2020 did not exist at the time of filing of the writ petition; hence, if the writ petition had been heard in 2018 or in 2019, the result would have been completely different. An adjudication cannot culminate in a different de....
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....ivate and public companies under section 2(68) and (71) respectively in The Companies Act, 2013, would show that the differentia between the two relate to restriction on the right of transfer, limiting the number of members and prohibition from invitation to the public for subscription of securities. Unlike The Companies Act, 2013, Rule 4(2) of the 2009 Rules does not make any distinction between a private limited company and a public limited company in the matter of determination of license. 51. Hence, the departure from the generality of the import of the expression "company" as used in Rule 4(2) becomes even more pronounced when a public limited and a private limited company are treated as two separate groups only for the purpose of exemption from payment of license fees. 52. Shri Kishan Singh v. Th. Ther Singh; AIR 1955 SC 795 is not applicable to the present facts since the basis of the decision was the failure of the petitioner to establish that the conditions which prevail in other areas in the State of Rajasthan are similar to those existing in the Marwar Region of the State. The issue before the Supreme Court was the constitutionality of certain sections of the Marwa....
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....lained above, the zone of exemption for a Private Limited Company from payment of license fees would be increased and made equal to that of a Public Limited Company. In effect, a Private Limited company would be entitled to exemption from payment under the same circumstances as that of a Public Limited Company; that is death of a Director or change in management in the usual course of business. 59. The intention in the present case is to ensure the level-playing field guaranteed under Article 14 of the Constitution in terms of treating a Private Limited Company on an equal plane; specifically when the basis for creating a distinction for the required purpose is found to be absent. This is all the more necessary since the earlier Rules of 2005 did not make any such distinction. "3(6)(f). Death or retirement of a member or members or change in Management in the usual course or business of the Public or Private Limited Companies incorporated under the Companies Act, 1956 (Act 1 of 1956)." The above reasons entitles the petitioner no. 1 to consequential relief 60. The sum of Rs. 64.50 lakhs which was paid / adjusted by the petitioner no. 1 in terms of the revised dema....