Calcutta High Court (Appellete Side)
India Power Corporation Limited & ... vs West Bengal Electricity Regulatory ... on 17 August, 2015
Author: I.P. Mukerji
Bench: I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
W.P. No. 22561 (W) OF 2014
India Power Corporation Limited & Another
Vs.
West Bengal Electricity Regulatory Commission & Ors.
For the petitioners:- Mr. Partha Sarathi Sengupta, Sr. Advocate
Mr. Ratnangko Banerjee, Sr. Advocate
Mr. Shounak Mitra
Mr. Soumavo Ghosh
Mr. Debnath Ghosh
Mr. Pratik Mukhopadhyay
For the Respondent No. 1 & 2: Mr. Pratik Dhar, Sr. Advocate
Electricity Regulatory Commission Mr. Ritwik Pattanayak
Mr. Samir Halder
For the State: Mr. Samrat Sen, Sr. Advocate
Respondent No. 3 Mr. Amitava Mitra
Judgement On: - 17th August, 2015
I.P. MUKERJI, J.
DPSCL was registered under the Companies Act, 1956. Since 1919 it generated supplied and distributed electricity in an area of 618 sq. km. in the Asansol and Raniganj area of West Bengal. India Power Corporation Limited was also a company under the Companies Act, 1956. It was incorporated on 20th November, 2003. This company was engaged in wind power generation of about 100 MW in Gujarat, Rajasthan and Karnataka. DPSC and IPCL wanted to amalgamate under Section 391 to 394 of the Companies Act, 1956. They approached this court by filing applications under those sections. If one limited company wants to amalgamate with another it has to follow the procedure prescribed in Section 391 to 394 of the Companies Act, 1956. Section 391 (1) and (2) are set out below.
"391. Power to compromise or make arrangement with creditors and members----(1) Where a compromise or arrangement is proposed----
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them The [court] may, on the application of the company or of any creditor or member of the company or in the case of a company which being wound up, of the liquidator, order a meeting of the creditors of class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the [court] directs.
(2) if a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed [under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by [court], be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company. "
The transferor and the transferee companies have to hold separate meetings. In a meeting of the members or of the creditors or of both the classes in separate meetings, by a 3/4th majority of the persons present and voting each company has to approve its merger with the other company. Now, this meeting under the Companies (Court) Rules 1959 has to be widely advertised in the Official Gazette and in two newspapers. If the proposal is approved by the shareholders/ creditors another application is presented to the court for sanction of the scheme. Notice of this application is required to be given to the Official liquidator and to the Central government. All interested parties can participate in the proceedings. Thereafter the respective schemes of amalgamation of the transferor and transferee companies are approved by the court. After the scheme is approved by the court the transferor company is dissolved without winding up On 17th April, 2013 this court sanctioned the scheme of amalgamation of IPCL and DPSCL. Under this scheme all the assets and liabilities of IPCL were transferred to and vested in DPSCL. The name of the latter would be changed to India Power Corporation Limited. After the order dated 17th April, 2013 the name of DPSCL, in terms of the scheme was changed to IPCL. IPCL has been dissolved without winding up. The change of name of DPSC to IPCL was effective from 27th August, 2013, although the Annual Report of the petitioner for the year 2012 to 2013 shows 1st August, 2011 as the date of effect being given to the change of name.
The writ petitioner challenges a decision dated 7th July, 2014 of the West Bengal Electricity Regulatory Commission. By this decision it was held that DPSCL had not taken the approval of the Commission for the merger or amalgamation of IPCL with itself. By virtue of section 17(4) of the Electricity Act, 2003 the act the merger or amalgamation of these two companies stood "void". The operative part of the order is set out below:
16.0 In view of the above stated submissions and/or records; it is an admitted position that amalgamation and/or merger took place between IPCL and DPSCL, without any approval and/or any prior intimation of the Commission. The role of the DPSCL as a company is one thing and as a licensee under the Electricity Act, 2003 is a different thin. DPSCL simply as a company may not have any obligation to seek approval from the commission for merger and/or amalgamation but the same principle will not apply when DPSCL is not only a company registered under the companies Act but also a licensee under the Electricity Act, 2003.
So long the DPSCL is a licensee, Section 17 squarely applies to it. Under Section 17(3) it is not permissible for a licensee to assign his licence or transfer his utility, or any part thereof, by sale, lease, exchange or otherwise without the prior approval of the Commission. In the present case, the act of merger and/or amalgamation between IPCL & DPSCL falls under the category of 'assignment of licence', 'transfer of utility' and/or 'exchange' and/or 'otherwise' which are prohibited u/s 17(3) of the Electricity Act, 2003. The act of amalgamation and/or merger is not outside the ambit of the word 'otherwise'. The interpretation of DPSCL to the effect that IPCL not being a licensee, DPSCL is free to merge with IPCL without any prior approval of the Commission is not correct.
17.0 DPSCL has claimed that there was no violation of Section 17(1) (a) or 17(1) (b). Interestingly, DPSCL has not taken note of the specific mandate of Section 17(3) by which DPSCL as a licensee cannot assign his licence or can transfer his utility or any part thereof by sale, lease, exchange or otherwise without the prior approval of the Commission. It is immaterial whether the above is done with a licensee or non-licensee. In this case both are prohibited without the approval of Commission. It is worthwhile to mention that by a letter dated 21.01.2009 IPCL inter alia sought information for obtaining distribution licence. Subsequently, IPCL did not make any application seeking licence and instead got itself amalgamated and/or merged with an existing licensee i.e. DPSCL. This is a clear case by which without seeking licence under the Electricity Act, 2003 IPCL is trying to get a licence. It seems the very act of IPCL of seeking a licence when seen with the prohibited acts under Section 17 particularly 17(3) and 17(4) it becomes clear that this is a clear case of assignment of licence by the DPSCL to IPCL in an indirect method.
18.0 By operation of Section 17(4) of the Electricity Act, 2003, all prohibited acts falling under Section 17(3) without the prior approval of the commission, shall be void. Admittedly, no approval was taken by DPSCL for its merger and/or amalgamation with IPCL. Accordingly, by virtue of Section 17(4), the act of merger and/or amalgamation with IPCL with the DPSCL, as a licensee, stands void. It is made clear that this order is specifically made for DPSCL as a licensee and not just as a company.
19.0 let a copy of this order be served upon DPSC Limited. "
This decision was the culmination of notices issued by the Commission to the petitioner, replies to them and the exchange of correspondence between the parties.
Before entering into the merits of the matter certain provisions of the Electricity Act, 2003 should be noted. Those provisions are set out hereunder.
"12. Authorised persons to transmit supply, etc., electricity-----No person shall----
(a) transmit electricity; or
(b) distribute electricity ; or (C) undertake trading in electricity, Unless he is authorised to do so by a licence issued under section 14, or is exempt under section 13.
14. Grant of licence.-----The appropriate commission may, on an application made to it under section 15, grant a licence to any person---
(a) to transmit electricity as a transmission licensee; or
(b) to distribute electricity as a distribution licensee; or ( C) to undertake trading in electricity as an electricity trader.
17. Licensee not to do certain things--(1) No licensee shall, without prior approval of the Appropriate Commission---
(a) undertake any transaction to acquire by purchase or takeover or otherwise, the utility of any other licensee; or
(b) merge is utility with the utility of any other licensee;
Provided that nothing contained in this sub-section shall apply if the utility of the licensee is situate in a State other than the State in which the utility referred to in clause (a) or clause (b) is situate."
As rightly argued by Mr. Partha Sarathi Sengupta, learned senior advocate the impugned order of the Commission is simply evidence of non-application of mind. The above relevant provisions of the Electricity Act, 2003 in their plain and ordinary sense have not been applied by it.
The facts show that DPSC and IPCL merged. The Commission overlooked the fact that DPSCL as a licensee did not merge with IPCL. It was the converse. All the assets and liabilities, actionable claims, rights and obligations etc. of IPCL were transferred to and vested in DPSCL.
Furthermore, IPCL being a generator of wind power was not a licensee under the Electricity Act, 2003. After amalgamation of IPCL with DPSCL, IPCL ceased to be a corporate entity and was dissolved without winding up. Therefore, DPSCL neither undertook any transaction to acquire the undertaking of any other licensee nor merged its undertaking with another licensee under Section 17 (1) (a) of the Electricity Act, 2003. Amalgamation, arrangement and merger etc. of companies are effected under section 391 to 394 of the Companies Act, 1956, under the strict supervision of the company court of the appropriate High Court. This proceeding, at one point of time becomes like one in rem. The Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. reported in AIR 1997 SC 506 opined:
"***************************On a conjoint reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a Court of law. No Court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the concerned company, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction. It is, of course, true that so far as the Company court is concerned as per the statutory provisions of Sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding to a dissenting minority of creditors or members, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in case of such a Scheme of Compromise and Arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majority vote."
I think that the Commission, in ignorance of the law has issued the subject show cause notice or notices and tried to adjudicate the issue itself. In spite of this court sanctioning the scheme of amalgamation, the Commission has held that this was "void". It ought not to have done so. It has advanced the reason as if the scheme could be viewed in two ways. One way of looking at it was a scheme of amalgamation between the two companies which was sanctioned by the Company Court. Another way of looking at it was a scheme of amalgamation of a licensee with another company. I think the Commission was clearly wrong. There is only one way of looking at it. If the Commission had any objection to the scheme, it ought to have approached the Company Court. In my opinion it was the Company Court, which had the power to declare the scheme as "void".
Mr. Pratik Dhar, learned senior advocate for the Commission very arduously tried to show from the West Bengal Electricity Regulatory Commission notifications dated 25th April, 2011 and 3rd September,2013 that the Electricity Act and the rules and regulations thereunder do not encourage change in assets and liabilities of the licensee as that would affect the power tariff. This view, does not find support in section 17 which simply prohibits consolidation of holdings of a licensee by acquisition or by merger with another licensee.
Mr. Dhar next submitted that the consequence of the merger of DPSC and IPCL was that IPCL, without being designated as a licensee under the Electricity Act, 2003 would carry on the business of generation and transmission of electric power.
This conception is totally flawed. Upon amalgamation with DPSC, IPCL lost his identity and ceased to exist as a company. This was the result of a company completely merging with another company under section 391 to 394 of the Companies Act, 1956. The transferor company, which in this case was IPCL, was dissolved without winding up. All its assets, liabilities, actionable claims rights and obligations stood transferred to and vested in DPSCL. Therefore, upon merger or amalgamation IPCL could not do any business and became defunct. DPSCL after the merger merely changed its name to IPCL. It continued to operate as a licensee.
Mr. Dhar also submitted that there was an alternative remedy under section 111 of the Electricity Act, 2003. Here also he is wrong. The Commission had acted clearly without jurisdiction. Asking the writ petitioner to approach the Appellate tribunal would be to send them to another authority which also had complete lack of jurisdiction over the subject matter of this case. For those reasons, this writ application is allowed. I hereby pass an order in the nature of a writ of Certiorari quashing the order dated 7th July 2014 and the impugned letter dated 12th March, 2014 read with the letter dated 1st April, 2014.
This writ application is accordingly allowed.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P. MUKERJI, J.)