Rajasthan High Court - Jodhpur
Gotan Lime Stone Khanij Udyog Pvt. Ltd vs The State Of Rajasthan & Ors on 25 March, 2015
Author: Arun Bhansali
Bench: Arun Bhansali
1
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
:ORDER :
S.B. CIVIL WRIT PETITION NO.9669/2014
Gotan Lime Stone Khanij Udyog Pvt. Ltd.
versus
The State of Rajasthan & Ors.
Date of Order :: 25.3.2015
PRESENT
HON'BLE MR. JUSTICE ARUN BHANSALI
Mr. Dushyant Dave, Senior Advocate
Mr. M.S. Singhvi, Senior Advocate assisted by
Mr. Anjay Kothari, Mr. Varun Singhvi &
Mr. Abhishek Mehta, for the petitioner/s.
Dr. P.S. Bhati, AAG with )
Mr. S.S. Rathore ), for the respondent-State.
Mr. P.K. Bhalla )
Mr. D.D. Thanvi )
Mr. Ramit Mehta ) for the respondent No.5.
-----
REPORTABLE
BY THE COURT:
This writ petition has been filed by the Gotan Lime Stone Khanij Udyog Pvt. Ltd. ('petitioner' / 'Gotan Lime' / 'the Company') aggrieved against the order dated 16.12.2014 (Annex.22) passed by the Joint Secretary, Mines (Group-2), Government of Rajasthan, Jaipur, by which the order dated 25.4.2012 whereby the lease was permitted to be transferred in petitioner's favour has been declared void and the Mining Lease No.45/93 has been cancelled.
The facts in brief may be noticed thus : a Mining Lease being ML No.45/93 was granted to a partnership firm M/s. Gotan Lime 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, 2 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.
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 lease in favour of the petitioner on the conditions indicated therein.
A Mining Lease transfer document dated 11.5.2012 was executed between the firm and the petitioner, and was evidenced by the Mining Engineer; whereafter when it was noticed that the transfer document was executed on Rs.100/- stamp only and was not got registered, on 5.8.2013 a office order was issued by the Director, Mines and Geology extending the period for executing the document for a period of 15 days under Rule 15(4) of the Rajasthan Minor Mineral Concession Rules, 1986 ('the Rules'). Whereafter, on 8.8.2013, the document was re-executed and after payment of requisite stamp duty was got registered.
3
In the meanwhile, the grant of permission to transfer the lease by the firm to the petitioner was questioned by respondent No.5 JK Cement Limited ('JK Cement') by way of filing SBCWP No.404/2013 on 17.12.2012. In the writ petition JK Cement challenged the order dated 25.4.2012, whereby permission was granted for transfer and order dated 5.9.2012, whereby another application seeking part transfer of ML No.45/93 in favour of JK Cement was rejected.
In response to the writ petition, the State and the petitioner defended the action of the State in permitting the transfer by order dated 25.4.2012. However, by a show cause notice dated 21.4.2014 (Annex.16) issued to the petitioner, the petitioner was called upon to show cause as to why the order permitting transfer of the lease dated 25.4.2012 be not declared null and void and the lease be not cancelled.
A reply to the show cause notice was filed by the petitioner on 4.6.2014, inter-alia, seeking dropping of the proceedings initiated. Whereafter, in the pending WP 404/2013 a supplement reply was filed by the State some time in October, 2014, inter- alia, placing on record the facts indicated in its notice issued to the petitioner herein. Whereafter, the impugned order dated 16.12.2014 (Annex.22) was passed by the Joint Secretary declaring the order dated 25.4.2012 permitting transfer of lease as void under Rule 72 of the Rules and cancelled the mining lease.
On the same day, the Assistant Mining Engineer directed the officers to take possession of the leased area and at 9:30 p.m. on 16.12.2014 the possession of the leased area was taken 4 by the respondents.
It is submitted by learned counsel 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.
It is contended that with the change of the State Government post December, 2013 elections, the stand of the State Government changed qua the transfer permitted / executed in favour of the Company, resulting in the issuance of show cause notice dated 21.4.2014 resulting in the impugned order dated 16.12.2014. It is submitted that the transfer order dated 25.4.2012 is valid and once the transfer deed pursuant 5 thereto was executed on 11.5.2012 / 8.8.2013 and duly registered, the respondents have no authority or jurisdiction to go beyond the transfer under the Rules. The entire action of the respondents is based on extraneous considerations and is an example of malice in law and therefore, void. It is further submitted that the action is actuated on account of revived interest of JK Cement, which aspect also finds mention in the impugned order dated 16.12.2014.
On merits of the notice and the action taken by the respondents, it is submitted that the charge / allegation regarding violation of Rule 15 regarding prior permission for transfer, is baseless and the provision is not attracted merely because the share holding of the Company underwent a change in view of the settled legal position that Company is a juristic person and identity of the shareholders or Directors has nothing to do with the identity of the Company; merely because on account of transfer of shareholding, Ultra Tech Cement Limited became holding Company of the petitioner would not amount to violation of Rule 15. It was submitted that any grievance which the JK Cement may have against the firm, it can only enforce it against the firm and not before the State and it cannot be said that the transfer permitted by order dated 25.4.2012 (Annex.-7) would become void on any of the counts.
With reference to provisions of the Rules, it was submitted that transfer under the Rules is not prohibited. The only requirement is the prior permission, which, in-fact, was sought and granted and the so-called deficiencies pointed out in the show cause notice prior to passing of the order dated 25.4.2012 6 are either non-existent and even if they exist, they were open to correction and cannot form basis for cancellation of the permission to transfer.
A plea was also raised that the authorities are rendered functus officio to reconsider the consent or the permission to transfer once the same has been implemented. It is submitted 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.
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.
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. State of Bihar : 1969 (1) SCC 765; Amit Products (India) Ltd. v. Chief Engineer (O&M) 7 Circle : (2005) 7 SCC 393; Kranti Associates v. Masood : 2010 (9) SCC 496; Balwant Raj Saluja & Anr. v. Air India Limited & Ors. : 2014(9) SCC 407; Electronics Corporation of India Limited v. Secretary, Revenue Department : 1999(4) SCC 458;
G.Buchivenkata Rao v. UOI & Ors. : 1972(1) SCC 734; Mohinder Singh Gill v. Chief Election Commissioner, New Delhi & Ors. :
1978(1) SCC 405.
Vehemently opposing the submissions made by learned counsel for the petitioner, learned Additional Advocate General submitted that the writ petition filed by the petitioner has no substance and the action taken by the respondent - State is well justified in the facts and circumstances of the case and therefore, the writ petition filed by the petitioner deserves to be dismissed.
With reference to the reply filed by the State, it was contended that the order dated 25.4.2012 permitting transfer from the firm to the Company itself was vitiated on account of the fact that the petitioner-Company was incorporated on 26.3.2012. However, the affidavits in support of the application seeking transfer were inscribed on stamp papers purchased on 23.3.2012. Further the application seeking transfer was made on 28.3.2012, resolution authorizing the Directors was passed on 30.3.2012 and the affidavits in support of the application dated 28.3.2012 were notarized on 31.3.2012, the inspection report by the mining authorities was prepared on 30.3.2012 and a recommendation was made by the Assistant Mining Engineer on 2.4.2012, whereafter order dated 25.4.2012 was passed by the Director, Mines & Geology giving his consent for transfer from 8 the firm to the Company. The sequence of events clearly indicate that the order dated 25.4.2012 was obtained by the petitioner in a totally incorrect and illegal manner. The action of the petitioner in making application on 28.3.2012 in absence of resolution dated 30.3.2012 renders the entire exercise null and void.
Further the purchase of stamps on 23.3.2012 even before the petitioner-Company was incorporated, also renders the action as null and void. It is submitted that merely because transfer was permitted by order dated 25.4.2012, it cannot be said that the same could not be revoked or cancelled on detection of discrepancy or mistake.
It is also submitted by learned Additional 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.
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 9 company of the petitioner, the provisions stood violated and therefore, the passing of order dated 16.12.2014 cannot be faulted.
The submissions regarding change of Government being the reason and that the action was taken by the respondents on such account it was submitted that the complaint was forwarded by the Lokayukt Secretariate, and the respondent-State has done its duty and as part of the Anti Corruption drive, when it was apparent on account of the conduct of the petitioner and officers of the State at the time of permitting the transfer dated 25.4.2012 and subsequent violation of provision of Rule 15(1)(b) of the Rules, the State was well within its jurisdiction to pass the order dated 16.12.2014.
Reference was also made to the FIR (Annex.-24) lodged against the Partners of the firm, Directors / Officers of the petitioner-Company and certain Government officials to support the action taken by the respondents.
Regarding the stand taken by the respondents in WP No.404/2013 filed by JK Cement, it was submitted that the stand taken by the respondent-State pertained to a claim of part transfer of the lease deed, which stand was reiterated even while filing the supplementary affidavit in the said writ petition and, therefore, it cannot be said that the respondents have taken any stand contrary to what was contended in the writ petition filed by JK Cement.
It was submitted that the action of the petitioner stands vitiated by fraud and therefore, they cannot invoke extra- ordinary jurisdiction of this Court under Article 226 of the 10 Constitution of India and consequently, the writ petition deserves to be dismissed.
Reliance was placed on State of Tamilnadu & Ors. v. K. Shyam Sunder & Ors. : 2011(8) SCC 737; Ramesh Kumar & Anr. v. Furu Ram & Anr. : 2011(8) SCC 613 and Smt. Fatima Bi & Anr. v. Deputy Custodian General, Evacuee Property, New Delhi : 1973(1) SCC 742 and P.R.P. Export & etc. v. Chief Secretary, Govt. of Tamilnadu : SLP(C) Nos. 18662-18663 of 2013 decided on 13.12.2013.
Respondent No.5 JK Cement, which was not initially impleaded by the petitioner, and was ordered to be impleaded by this Court by order dated 28.1.2015 supported the cancellation of transfer dated 25.4.2012 (Annex.7). It was submitted that the allegations that the respondent No.5 lost interest post 2002 are baseless, inasmuch as, its application was pending consideration before the respondent-State and it was only when its application was rejected that the cause of action arose to it, immediately whereafter CWP No.404/2013 was filed. 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 11 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.
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 Udyog Pvt. Ltd. has been shown as wholly owned subsidiary w.e.f. 23.7.2012. It is submitted that the action of transfer of the entire shareholding of the Company necessarily results in violation of provisions of Rule 15(1)(b) of the Rules which deals with indirect transfers and as the same was done without permission, the consequences would follow.
Reference was also made to Rule 20 of the Rules to contend that the currency of lease is from the date of execution of lease agreement and the execution includes registration and therefore also there is a violation of the condition approving transfer.
Reliance was placed on Arasmeta Captive Power Limited & Anr. V. Lafarge India Pvt. Ltd. : AIR 2014 SC 525 to contend that the judgments rendered by the Court are not a statute and the observations must be read in the context in which they appear to have been stated and it was submitted that the judgments cited by the petitioners and the observations made therein have no application to the facts of the present case. It was prayed that the writ petition filed by the petitioner be dismissed. 12
In rejoinder, it was submitted by learned counsel for the petitioner that by way of permitting transfer under Rule 15, what the State gets is a fee of Rs.2,000/- under Rule 15(1A) and it charges transfer premium @ equal to the existing dead rent under Rule 15(1AA), which already stands paid. No procedure or manner has been prescribed for transfer under the Rules and therefore, the same is wholly informal, the Rules provide for a procedure and forms in case of a grant of new lease and in case of renewal, but not in case of transfer, therefore, the kind of hair splitting being done by the respondents is wholly meaningless besides the fact that the same has no substance. It was submitted that the stamp papers were procured by the partners and therefore, the fact that the incorporation took place after purchase of the stamp papers is of no consequence, the Assistant Mining Engineer recommended transfer of lease on 2.4.2012 and the permission was granted on 25.4.2012 by then though not required, in any case the resolution dated 30.3.2012 and notarized affidavits dated 31.3.2012 were already filed and as the provisions of Rule 15 are regulatory and not prohibitory, the so-called discrepancies even if existed did not go to the root of the matter.
The stand regarding 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 13 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.
I have considered the submissions made by learned counsel for the parties and have perused the material placed on record.
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 Khanij Udhyog Pvt. Ltd. on 23.7.2012 to Ultra-Tech Cement Limited resulting in the petitioner-Company becoming a wholly owned subsidiary.
Relevant portion of the show cause notice dated 21.4.2014 (Annex.16) issued by the respondents to the petitioner reads as under:-
"उक प रनरश प फर क प ईवर श शररड कमपन बन य ज न क सररफफकर कमपन रजजस र द र र"न #क 26.03.2012 क ज र$ फकय गय । प रनरश प फर क च र( भ ग " र( द र खनन परर हस, #,रण ह,. पथ पत पस,, . करन क श ए न2न
-जय.डडश य सर मप प इवर श शररड कमपन बन य जन क सररफफकर र"न #क 26.03.2012 क ज र$ ह न स प6व ह$ र"न #क 23.03.2012 क कय फकय गय । खनन परर हस, #,रण ह,. आव"न क य य सह यक खनन अशभय#, , ग रन र; र"न #क 28.03.2012 क पस,., फकय गय , जबफक हस, #,रण आव"न पत क स थ पस,, .
फकय ज न व पथ पत न रर$ दर
र"न #क 31.03.2012 क ,स"$क फकय गय
और कमपन क नन" क रणड दर बड र;
हस, #,रण ब ब, ररजय . न र"न #क 30.03.2012
14
क प रर, फकय गय । सह यक खनन
अशभय#, , ग रन द र कत क ननर$कण कर
अग क यर"वस र"न #क 02.04.2012 क हस, #,रण
समबनA पत व $ खनन अशभय#, ,न गBर क भज
गई और नन" य द र र"न #क 25.04.2012 क
खनन परर हस, #,रण क आ" ज र$ फकय
गय। सह यक खनन अशभय#, , ग रन दर
खनन परर हस, #,रण क एग र; र 100/- क
सर मप पपर पर फकय गय , जबफक उक हस, #,रण
ननयर न.स र रद . #क .लक एव# प#ज यन कर कर फकय
ज न च रहए थ ।
र"न #क 06.08.2012 क सवश ग रन
इरसर न खननज उद ग प . श . कमपन क
च र( पर. न ड इरकरर श र रवल भ चBह न,
श सर. चBह न, श रर चBह न एव# श
र र व, र चBह न क सथ न पर ,न नय
ड यरकरर उक कमपन र; आ गय । स थ ह$ उक
कमपन क ब2मब सर2क एकसच; ज र; सवश
अल रक स र; र श .कमपन कI सजJसडर$ क रप
र; सच6 बद फकय गय ।
उक करव र घरन ओ# स यह सपष
हP फक खनन परर हस, #,रण कI आड र; ख न
क बच न शर $भग, कर फकय गय हP और
एरएरस आर, 1986 क ननयर 15 कI अवह न कI
गई हP ।
अ,: नन" क,ख न एव# भ-6 ववज न ववभ ग, उ"यप.र
द र ज र$ खनन परर हस, #,रण आ"
र"न #क 25.04.2012 एरएरस आर 1986 क ननयर 72
क अन,ग, पभ व 6नय (Null & Void) घ वT, कर, ह.ए
खनन परर खजणड, फकय ज न य गय हP ।
अ,: इस च,न पत प नV कI न,थथ स 15 र"वस
र; सपष कर; फक कय( नह$# आपक खनन परर
हस, #,रण आ" र"न #क 25.04.2012 पभ व 6नय
(Null & Void) घ वT, कर, ह.ए खनन परर खजणड, कर र"य ज ए।"
A bare reading of the show cause notice indicates that the cause made out against the firm / petitioner qua order dated 25.4.2012 was : (a)- purchase of non-judicial stamps on 23.3.2012 before incorporation of the Company on 26.3.2012;
(b)- application for transfer was filed on 28.3.2012 and the affidavit alongwith the application was notarized on 31.3.2012 and resolution regarding transfer by the Board of Directors of the Company was passed on 30.3.2012; (c)- the agreement was executed on Rs.100/- stamp paper when the same should have been executed after payment of stamp duty and should have been got registered.
15
Qua the act subsequent to order dated 25.4.2012 it was alleged that on 6.8.2012 in place of existing Directors of the Company, three new Directors joined and the Company was listed as subsidiary of Ultra-Tech Cement Limited at Bombay Stock Exchange.
A detailed reply to the show cause notice was filed by the petitioner on 4.6.2014 (Annex.17) raising preliminary objections, relying on the stand taken by the State in the writ petition filed by JK cement and explaining the so-called defects pointed out in the show cause notice regarding the order dated 25.4.2012 and denying the allegations regarding violation of provisions of Rule 15 of the Rules based on the case law cited in the reply.
The Secretary on consideration of the reply, without giving any personal hearing, though the same was sought by the petitioner in its reply Annex.-17, reproduced the substance of the show cause notice, the stand taken by the petitioner- Company in its reply and passed the following order :-
"कमपन द र पस,., उतर र"न #क 04.06.2014 पश ,वनZ , स च ह न एव# स#, Tजनक नह$# ह न स सव क र य गय नह$# हP । र नन य उचच नय य य र; ब# ब, य थचक स#खय 404/13 र; ववभ ग कI ओर स स# थA, उतर पस,., फकय ज न एव# कमपन द र एरएरस आर, 1986 क ननयर 15 कI अवह न फकय ज न सपष हन स उक खनन पट हस, #,रण आ" र"न #क 25.04.2012 क एरएरस आर, 1986 क ननयर 72 क ,ह, ए,"द र 6नय घ वT, कर खनन पट खजणड, फकय ज , हP ।"
The Secretary held that the reply of the Company was an afterthought and was not satisfactory and therefore, could not be accepted, as a amended reply has been filed by the department in pending WP No.404/2013 and violation of Rule 15 of the Rules was apparent, the transfer order dated 25.4.2012 was declared void under Rule 72 of the Rules and the mining lease was 16 cancelled.
It would be relevant at this stage to notice the provisions of the Rules relied on by both the sides, 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 other Departments may also be taken before issuing such permission. (1A) Every application for transfer of Mining Lease shall be 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 to the category of persons mentioned in sub-rule (3) of rule 7 shall be made only to a person belonging to any of the categories mentioned in the clause of the said sub-rule. (3) Transfer of mining lease shall not be considered as a matter of right and the Government may refuse for such transfer for the reasons to be recorded and communicated in writing to the lessee.
(4) Where on an application for transfer of mining lease under this rule the competent authority has given consent for such lease, a transfer lease deed in Form No.15 or a form as near thereto as possible, shall be executed within three months of the date of the consent, or within such period as the competent authority may allow in this behalf."
"R.20. Currency of lease. - The currency of lease shall be from the date of execution of the lease agreement unless otherwise stated. The execution shall include registration of the document also. The lessee shall have no right to continue work on accumulate stock on or after the date of termination of lease or its 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."
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 Rule 15 provides for execution of a transfer lease deed in Form No. 15 within a period of three months of consent or within such period as may be allowed by the competent authority.
Rule 72 of the Rules, which has been invoked by the respondents and relied on during the course of submissions provide that any lease, quarry licence, short term permit or any other permit granted otherwise then in accordance with the provisions of the Rules shall be deemed to be null and void.
From perusal of the show cause notice, the response made by the petitioner, the provisions of Rule 15 & 72 and the order dated 16.12.2014 passed by the respondents, it is apparent that the Secretary while passing the order dated 16.12.2014 has not at all dealt with any of the contentions raised by the petitioner in its reply to the show cause notice and after reproducing the contents of the show cause notice and the contentions raised by the petitioner has jumped on to the conclusion that the reply filed by the Company is an afterthought and was not satisfactory. Not a word has been indicated as to why and how the authority reached to the said conclusion.
The Hon'ble Supreme Court in the case of Kranti Associates (supra), while emphasising the necessity of giving reason by a body or authority in support of its decision held and observed as under:-
"12. The necessity of giving reason by a body or authority in support of its decision came up for consideration before this Court in several cases. Initially this Court recognized a sort of demarcation 19 between administrative orders and quasi-judicial orders but with the passage of time the distinction between the two got blurred and thinned out and virtually reached a vanishing point in the judgment of this Court in A.K. Kraipak v. Union of India."
"47. Summarizing the above discussion, this Court holds:
(a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.
(b) A quasi-judicial authority must record reasons in support of its conclusions.
(c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.
(d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise 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 a requirement for both judicial accountability and transparency.
(k) If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.
(l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber- stamp reasons' is not to be equated with a valid decision making process.
(m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor.) 20
(n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain EHRR, at 562 para 29 and Anya v. University of Oxford, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".
(o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "due process"."
Though the order passed by the respondent No.2 does not qualify as a reasoned order in the light of law laid down by the Hon'ble Supreme Court, the respondent-State in its reply has tried to support the order and the substance of the State's reply can be gathered from the reply given by it to the grounds raised by the petitioner-Company, which reads as under:-
"That the ground (A) to (H) raised in the writ petition are mere repetition of the facts and therefore, they are replied cumulatively in the manner that the order dated 16.12.2014 was just and proper as the transfer of lease was not as per the Rule 15 of the Rules of 1986 and was also not as per the requirement of the procedure therefore the order was issued under the provisions of Rule 72 of the Rules of 1986. That as per the note of letter dated 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 21 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 i.e. on 28.03.2012 for transfer the resolution was not there for any such transfer, then how it is possible that the resolution is attached to the application, when the resolution itself was taken on 30.03.2012. That even from perusal of the records there was no such entry or mark of deficiency in the application regarding deficiency of resolution and nor any marking or entry of rectification or removal of deficiency. That the stamp duty was deposited afterwards i.e. on 07.08.2013. That the change of all the Directors of the company, change in shareholding of the company has clearly been done in contravention to the Rule 15 of the Rules of 1986 as stated above, hence the transfer of lease was made null and void under Rule 72 of the Rules of 1986 vide order dated 16.12.2014. That the other grounds shall be urged during the course of arguments."
Examining the validity of the plea raised by the State in defence of the order dated 16.12.2014 for holding the order of transfer dated 25.4.2012 as void and cancellation of the lease deed under Rule 72 of the Rules, the stand as indicated hereinbefore needs to be examined qua pre 25.4.2012 events and post 25.4.2012 events.
Pre 25.4.2012 events :
As noticed hereinbefore, the show cause notice indicated purchase of stamps on 23.3.2012 prior to incorporation of the Company on 26.3.2012, filing of affidavits notarised on 31.3.2012, passing of resolution by the Board of Directors of the petitioner-Company on 30.3.2012 in support of application dated 28.3.2012.
From the material available on record, it is apparent that on 5.3.2012, vide Annex.1, the Registrar of Companies, Rajasthan indicated availability of name Gotan Lime Stone Khanij Udyog Pvt. Ltd. to the partner of the firm and a note was appended that the letter was only an approval for availability of 22 name for the proposed Company, the applicant cannot start business or enter into agreement, contract etc. in the name of the proposed Company until and unless a certificate of registration etc. is issued. The allegation pertains to purchase of stamps on 23.3.2012 though the Company was not incorporated.
A bare look at the documents produced by the petitioner as Annex.3 i.e. the application seeking transfer dated 28.3.2012 reveals that the stamp papers have been purchased in the name of Suresh Chauhan, Ram Vallabh Chauhan, Ramavtar only and the same have not been purchased in the name of Company.
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.
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.
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 23 was to be treated as completed on 31.3.2012, no specific answer was forthcoming except emphasising the alleged conduct of the petitioner and the authorities involved.
A response was given by the petitioner in reply to the show cause notice specifically indicating that the affidavits and resolution were not filed with the application and on defect being pointed out by the office of Assistant Mining Engineer, the affidavits and resolution were filed after few days and there is no restriction under the law that if the document is not accompanied with the application, the same cannot be filed subsequently. However, as already noticed hereinbefore, there is no contradiction of the fact about filing of the resolution and affidavits subsequent to the filing of the application.
From the material on record it is revealed that the recommendation by the Assistant Mining Engineer was made on 2.4.2012 and by then the resolution and the affidavits had already been filed. So far as the making of inspection on 30.3.2012 is concerned, a look at the inspection report (pg. 72) reveals that the same merely indicates the status of the lease deed and leased area and nothing else, so as to vitiate the report if the same was made without affidavit having been filed in support of the application.
The arguments raised by learned counsel for the petitioner that Rule 15 does not prescribe any procedure or manner for making application for transfer and the same is wholly informal appears to have much substance as nothing was pointed out by the respondents to indicate the requirements for a valid application and therefore, mere filing of the resolution and 24 affidavit, subsequent to the filing of the application cannot be said to be any kind of illegality.
The fact that the resolution was passed by the Board of Directors on 30.3.2012 and the application was made on 28.3.2012 is also not of much significance, inasmuch as, the application seeking consent under Rule 15 was sought by the lessee firm only and was signed by Ram Vallabh Chauhan as partner of the firm and the resolution and affidavits pertaining to the Company were only in support of the application and their subsequent filing is essentially of no consequence.
The so-called defects pointed out in the show cause notice can at best be described as 'inconsequential irregularities', inasmuch as, as already noticed hereinbefore 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.
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. 25
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 Rule 27 are intended for the correct identification of the individual to whom the lease is to be granted, the minerals which are to be mined, the area in respect of which the lease was to be granted, and the qualifications of the applicant. Considerable emphasis was placed on the word 'shall' in Rule 32 with regard to the priority to be given between different applicants. This rule does not directly affect the question whether an application for a lease could be considered a proper application or not by the authorities concerned. The second proviso to this rule however, provides for the manner in which certain defects may be cured. Rule 32, sub-rule (2), introduced in 1955 before the grant of the application of Venkatagiri, shows that the individual qualifications of the applicants including their special knowledge, their capacity to engage technically efficient staff, their financial soundness and stability, had to be taken into account in determining the question of priority. Again Rule 26, imposing certain restrictions, prohibits the grant of the lease to any person who does not hold a certificate of approval from the State Government or who has not produced an Income Tax Clearance Certificate. It does not prohibit any grant on the ground that the application for it is defective or not accompanied by a map. The form of the application seems to be subordinate to the essential facts to be taken into account before granting a lease.
7. There is no provision in the Act showing that the defects in an application which is accompanied by the fee prescribed in Rule 28 cannot be subsequently removed. The information given in the application is intended for the satisfaction of the authorities granting the lease so that, after considering merits and making a grant, proper details are embodied in the lease actually granted. It was not urged anywhere that, as a result of any defects in the application of Venkatagiri, the lease itself could not be executed. This indicates that the omission to file a proper map initially was cured.
8. The High Court had relied on a decision of this Court in Banarsi Das v. Cane Commissioner, U.P., where conditions similar to those laid down by Rule 27 were held to be directory. It had also held that, even assuming that some of the requirements in the rules, may be mandatory, it could not be held that the mere want of a map of details, describing the area which the lease was 26 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."
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 :
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 was evidenced by the Mining Engineer, however, when it was pointed out by the office order dated 5.8.2013 that the document required registration and payment of requisite stamp duty, the document was again executed on 8.8.2013 in compliance of the order dated 5.8.2013 and reference to the document executed on 11.5.2012 was also made and the same was also made part of the registered document. Therefore, it cannot be said that the stipulation as contained in the order dated 25.4.2012 regarding automatic cancellation would come into force at all.
The provisions of Rule 20 relied on by learned counsel for 27 the respondent No.5 merely pertains to the currency of the lease deed and right to continue to work, which may have implication while grant of fresh lease / renewal of lease and has apparently no application in the case of transfer as the lease irrespective of the order of transfer continuous to remain in force.
The other important aspect sought to be emphasised in the matter pertains to alleged violation of provisions of Rule 15(1)(b) of the Rules.
As noticed hereinbefore, in the show cause notice dated 21.4.2014, a cursory allegation was made that on 6.8.2012 instead of four existing Directors of the Company, three new Directors were inducted and alongwith that, the Company was listed as subsidiary of Ultra Tech Cement Limited at Bombay Stock Exchange and based on the said aspect, it was alleged that in the garb of transfer of lease, the mine has been transferred in violation of Rule 15. Whereafter, by order dated 16.12.2014, the Secretary came to the conclusion that violation of Rule 15 was apparent.
From the facts and material available on record, it is not in dispute that after order dated 25.4.2012, the shareholding of the Company was transferred by its shareholders on or around 23.7.2012 to Ultra Tech Cement Limited and the existing Directors resigned on 6.8.2012 and new Directors joined in and w.e.f. 23.7.2012, the Company became a wholly owned subsidiary of Ultra Tech Cement Limited.
Whether the action of shareholders of the Company in transferring its shares to Ultra Tech Cement Limited and consequently, the Company becoming wholly owned subsidiary 28 of Ultra Tech Cement Limited amounts to violation of Rule 15(1)
(b) of the Rules is the issue which requires consideration.
For alleging violation of provisions of Rule 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.
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.
The issue of position of a shareholder with respect to Company's assets was considered by the Hon'ble Supreme Court in the case of Mrs. Bacha F. Guzdar (supra) way back in 1955 wherein it was observed and held as under:-
"7. It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in the - 'Commrs. of Inland Revenue v. Forrest', (1924) 8 Tax Cas. 704 at p. 710 (A), that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he 29 has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word 'assets' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company.
A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder 'vis-a-vis' the company was explained in the 'Sholapur Mills Case' - 'Charanjit Lal v. Union of India', AIR 1951 SC 41 at pp. 54, 55 (B). That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as provided by the Articles of Association, to declare that dividends should be distributed out of the profits of the company to the shareholders but the interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company.
The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Ed., page 894) where the etymological 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 30 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 portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in 'the assets of the company which would be left over after winding up' but not in the assets as a whole as Lord Anderson puts it."
(emphasis supplied) In the case of Heavy Engineering Mazdoor Union (supra), the Hon'ble Supreme Court, while considering the question whether in a case where the entire share capital of the Company has been contributed by the Central Government, all its shares are held by the President and certain officers of the Central Government presumably it nominees and extensive control is vested in the Central Government would amount to the industry being carried on under the authority of the Central Government, held and observed as under:-
"4. Before considering the authorities cited by counsel before us, we proceed first to examine the meaning of the words used by Parliament in the definition clause of 'appropriate Government'. It is an undisputed fact that the company was incorporated under the Companies Act and it is the company so incorporated which carried on the undertaking. The undertaking, therefore, is not one carried on directly by the Central Government or by any one of its departments as in the case of posts and telegraphs or the railways. It was, therefore, rightly conceded both in the High Court as also before us that it is not an industry carried on by the Central Government. That being the position, the question then is, is the undertaking carried on under the authority of the Central Government? There being nothing in Section 2(a) to the contrary, the word 'authority' must be construed according to its ordinary meaning and therefore must mean a legal power given by one person to another to do an act. A person is said to be authorised or to have an authority when he is in such a position that he can act in a certain manner without incurring liability, to which he would be exposed but for the authority, or, so as to produce the same effect as if the person granting the authority had for himself 31 done the act. For instance, if A authorities B to sell certain goods for and on his behalf and B does so, B incurs no liability for so doing in respect of such goods and confers a good title on the purchaser. There clearly arises in such a case the relationship of 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. Salomon 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 and carrying on its business is not the agent of its shareholders. An infringement of its rights does not give a cause of action to its shareholders. Consequently, it has been said that if a man trusts a corporation he trusts that legal persona and must look to its assets for payment; he can call upon the individual shareholders to contribute only if the Act or charter creating the corporation so provides. The liability of an individual member is not increased by the fact that he is the sole person beneficially interested in the property of the corporation and that the other members have become members merely for the purpose of enabling the corporation to become incorporated and possess only a nominal interest in its property or hold it in trust for him. (Cf. Halsbury's Laws of England, 3rd Ed., Vol. 9, p. 9 ). Such a company even possesses the nationality of the country under the laws of which it is incorporated, irrespective of the nationality of its members and does not cease to have that nationality even if in times of war it falls under enemy control. (Cf. Janson v. Driefentain Consolidated Mines and Kuenigi v. Donnersmarck). The company so incorporated derives its powers and functions from and by virtue of its memorandum of association and its articles of association. Therefore, the mere fact that the entire share capital of the respondent-company was contributed by the Central Government and 32 the fact that all its shares are held by the President and certain officers of the Central Government does not make any difference. The company and the shareholders being, as aforesaid, distinct entities the fact that the President of India and certain officers hold all its shares does not make the company an agent either of the President or the Central Government. A notice to the President of India and the said officers of the Central Government, who hold between them all the shares of the company, would not be a notice to the company; nor can a suit maintainable by and in the name of the company be sustained by or in the name of the President and the said officers.
5. It is true that besides the Central Government having contributed the entire share capital, extensive powers are conferred on it, including the power to give directions as to how the company should function, the power to appoint directors and even the power to determine the wages and salaries payable 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 business of the corporation does not render the corporation an agent of the Government. (See The State Trading Corporation of India Ltd. v. The Commercial Tax Officer, Visakhapatnam and Tamlin v. Hannaford). Such an inference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and not commercial functions. (Cf. London County Territorial and Auxiliary Forces Association v. Nichol's)."
(emphasis supplied) Whereafter, in the case of Electronics Corporation of India 33 Ltd. (supra), when the plea was raised that the property of the Government Company was the property of Union of India, its shares being only held by Union of India and therefore, the property was exempted from all taxes imposed by the State Government under Article 285 of the Constitution of India, the Hon'ble Supreme Court negated the contention and observed as under:-
"15. A clear distinction must be drawn between a company and its shareholder, even though that shareholder may be only one and that the Central or a State Government. In the eye of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or entities that hold its shares.
16. In Western Coalfields Ltd. v. Special Area Development Authority this Court reviewed earlier judgments on the point. It held that even though the entire share capital of the appellant before it had been subscribed by the Government of India, it could not be predicated that the appellant itself was owned by the Government of India. Companies, it was said, which are incorporated under the Companies Act, have a corporate personality of their own, distinct from that of the Government of India. The lands and the buildings in question in that matter were vested in and owned by the appellant. The Government of India only owned the share capital."
(emphasis supplied) Similarly, in the case of Amit Products (India) Ltd. (supra) when based on the fact that on account of change of members of the Board of Directors or by changing the shareholding pattern, the Company had undergone any change, the said contention was negated by the Hon'ble Supreme Court observing :-
"7. We have carefully considered the rival contentions of both the parties. We are unable to accept the contention of the appellant Company that by changing the members 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 34 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) Recently, in the case of Balwant Rai Saluja (supra), when the issue raised was as to whether the workmen engaged in the statutory canteen, through a contractor, would be treated as employees of the principal establishment, the Hon'ble Supreme Court examining the inter-se relationship of holding and subsidiary Company and whether the workman of the subsidiary can be termed as employees of the principal establishment held that the wholly owned subsidiary is a distinct legal entity and negating the doctrine of "piercing the corporate veil" observed as under:-
"4. The present set of appeals came before a two-Judge Bench of this Court against a judgment and order dated 2.5.2011 of a Division Bench of the High Court of Delhi in Balwant Rai Saluja v. Air India Ltd. The present dispute finds origin in an industrial dispute which arose between the appellant workmen herein of the statutory canteen and Respondent 1 herein. The said industrial dispute was referred by the Central Government, by its order dated 23.10.1996 to the Central Government Industrial Tribunal-cum-Labour Court (for short "the CGIT"). The question referred was whether the workmen as employed by Respondent 3 herein, to provide canteen services at the establishment of Respondent 1 herein, could be treated as deemed employees of the said Respondent 1. Vide order dated 5.5.2004, CGIT held that the workmen were employees of the Respondent 1 Air India and therefore their claim 35 was justified. Furthermore, the termination of services of the workmen during the pendency of the dispute was held to be illegal."
"66. In the present set of appeals, it is an admitted fact that HCI is a wholly-owned subsidiary of Air India. It has been urged by the learned counsel for the appellants that this Court should pierce the veil and declare that HCI is a sham and a camouflage. Therefore, the liability regarding the appellants herein would fall upon Air India, not HCI. In this regard, it would be pertinent to elaborate upon the concept of a subsidiary company and the principle of lifting the corporate veil.
67. The Companies Act in India and all over the world have statutorily recognized subsidiary company as a separate legal entity. Section 2(47) of the Companies Act, 1956 (for short "the 1956 Act") defines "subsidiary company" or "subsidiary", to mean a subsidiary company within the meaning of Section 4 of the 1956 Act. For 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: (SCC pp. 712-13, paras 257-58) "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 subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises.
Shares of stock in the subsidiary 36 company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary is allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries."
(emphasis supplied)
69. Vodafone case further made reference to a decision of the US Supreme Court in United States v. Bestfoods. In that case, the US Supreme Court explained that as a general principle of corporate law a parent corporation is not liable for the acts of its subsidiary. The US Supreme Court went on to explain that corporate veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, only if it is shown that the corporal form is misused to accomplish certain wrongful purposes, and further that the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management, etc. of a subsidiary was held not to be sufficient to pierce the status of their relationship and, to hold parent company liable.
70. The doctrine of "piercing the corporate veil"
stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. Salomon & Co. Ltd. Lord Halsbury LC, negating the applicability of this doctrine to the facts of the case, stated that : (AC pp. 30 & 31) "[a company] must be treated like any other independent person with its rights and liabilities [legally] appropriate to itself ... whatever may have been the ideas or schemes of those who brought it into existence."
Most of the 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;37
(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 "façade"
even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.
72. The principles laid down by Ben Hashem case have been reiterated by the UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Ltd., UKSC at para 64. Lord Sumption, in Prest case, finally observed as follows : (AC p. 488, para 35) "35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil."
73. The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of this Court in LIC v. Escorts 38 Ltd., while discussing the doctrine of corporate veil, held that: (SCC pp.335-36, para 90) "90. ... Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc."
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 that the said Respondent 2 is not a sham or camouflage created by Respondent 1 to avoid certain statutory liabilities."
(emphasis supplied) 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 39 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 Rule 15(1)(b) of the Rules have been violated by the lessee i.e. petitioner-Company.
In view of the above discussion, it is apparent that the allegations made in the show cause notice, the reason indicated in the order dated 16.12.2014 and the various plea raised by the respondents in the present writ petition seeking to substantiate the order dated 16.12.2014 have absolutely no substance. Neither the events prior to 25.4.2012 nor the events subsequent to 25.4.2012 can be said to be sufficient for taking action under provisions of Rule 72 of the Rules so as to either cancel the order dated 25.4.2012 and / or cancel the mining lease standing in favour of the petitioner-Company.
So far as the plea raised by the petitioners regarding the action of the respondents being malice in law is concerned, the Hon'ble Supreme Court in Kalabharti Advertising v. Hemant Vimalnath Narichania : (2010) 9 SCC 437, while describing the 40 legal malice held and observed as under:-
"25. The State is under obligation to act fairly without ill will or malice - in fact or in law. "Legal malice" or "malice in law" means something done without lawful excuse. It is an act done wrongfully and wilfully without reasonable or probable cause, and not necessarily an act done from ill feeling and spite. It is a deliberate 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.SEB 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) 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.
So far as the plea raised by the petitioners regarding action being taken by the respondent-State on account of change of Government based on judgments in the case of State of Karnataka (supra) is concerned, the mere fact that after taking a particular stand in CWP No.404/2013, which it is claimed by the respondents was specifically with regard to part transfer of the mining lease, on the material available on record, it cannot be said that the action impugned was actuated on account of change of Government as alleged.
The submissions made by the respondent-State seeking to 41 substantiate or support the action based on the contents of the First Information Report (Annex.-24) essentially appears to be an attempt to catch at the straws, inasmuch as, despite the petitioner having filed the said FIR as Annexure-24 to the writ petition the respondents could not gather enough courage to indicate the allegations in the FIR as the basis either for issuance of show cause notice or for passing of the order dated 16.12.2014.
In view of the above, the reliance placed by the petitioners on the judgment of the Hon'ble Supreme Court in the case of Mohinder Singh Gill (supra) and reliance placed by the respondents on the case of P.R.P. Export & etc. (supra) has no implication.
So far as the plea raised by the respondent No.5 regarding grant of permission dated 25.4.2012 during the pendency of application seeking part transfer to respondent No.5 is concerned, the said fact has no implication so far as the order dated 16.12.2014 passed by the respondent-State is concerned, as despite repeated allegations made by the respondent No.5 and the pending writ petition being CWP No.404/2013, the respondents have not chosen to make it a ground for cancelling the permission dated 25.4.2012.
In view of the above discussion, the writ petition is allowed. The order dated 16.12.2014 (Annex.-22) passed by the respondent No.2 and all consequential actions are quashed and set-aside and the respondents are directed to handover back the possession of leased area of Mining Lease No.45/93 to the petitioner forthwith.
42
No order as to costs.
(ARUN BHANSALI), J.
rm/-