Gujarat High Court
Orient Abrasives Ltd vs State Of Gujarat on 5 October, 2020
Equivalent citations: AIR 2021 (NOC) 422 (GUJ.), AIRONLINE 2020 GUJ 1434
Author: Biren Vaishnav
Bench: Biren Vaishnav
C/SCA/7333/2020 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7333 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed to see the No
judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as to No
the interpretation of the Constitution of India or any order made
thereunder ?
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ORIENT ABRASIVES LTD
Versus
STATE OF GUJARAT
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Appearance:
VMP LEGAL(7210) for the Petitioner(s) No. 1,2
for the Respondent(s) No. 1
MR PAVAN S GODIAWALA(2936) for the Respondent(s) No. 2
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CORAM: HONOURABLE MR. JUSTICE BIREN VAISHNAV
Date : 05/10/2020
CAV JUDGMENT
1. The petitioner - M/s. Orient Abrasives Limited has filed this petition under Article 226 of the Constitution of India for the following prayers:
"18 (A) Your Lordship may be pleased to Page 1 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT issue a writ of mandamus or any other appropriate writ or order or a direction declaring that the action of the respondent No.2 - GIDC insisting / compelling for registered deed of assignment from the petitioner No.1 - Company is illegal, invalid and not required in law and further directing respondent No.2 - GIDC to accept the change in transfer of shares in the petitioner - company and grant permission under clause 2(r) of the indenture of lease dated 20.7.1973 to enable the petitioner - company to seek financial assistance from financial institutions;
(B) Pending the hearing and final disposal of
the petition, Your Lordships may be
pleased to direct respondent No.2 - GIDC to grant permission under Clause 2 (r of the indenture of lease dated 20.7.1973 to enable the petitioner - company to seek financial assistance from financial institution."
2. The facts, in brief, are as under:
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* The petitioner is a Public Limited Company engaged in manufacturing of aluminum oxide, abrasive grains, calcined bauxite etc. at its factory in the industrial area of GIDC at Porbandar. The company was allotted plot bearing plot No.400 on an application made by the petitioner. The plot is situated at Ranavav, District Porbandar. The GIDC has entered into an indenture of lease on 20th July, 1973 granting the plot on lease for a period of 99 years with effect from 1-7-1973. The lease deed had certain clauses such as clauses 2(q) and 2(r) which read as under:
"Clause 2(q): NOT TO ASSIGN:
That, it will not a transfer, assign, under late or part with the possession of the demised premises or any part thereof or any interest therein without the previous permission of the lessor. For the purposes of this covenant, any change in the construction of the lessee shall be deemed to be a transfer by the Page 3 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT lessee of its interest in the demised premises in favour of another person. Provided that where the lessee is a body corporate, a change in its Board of Directors or Managing Committee by whatever name called shall not be deemed to be a change in the Constitution of the lessee provided further that where the lessee, for the purpose of constructing a building on the demised premises and / or creation or installation of fixed assets thereof in pursuance of the implementation of the Company's abrasives, plant, is to obtain loan from a Bank or grant permission under Clause 2(r) of the indenture of lease dated 20.7.1993 to enable the petitioner - company to seek financial assistance from financial institution;
Clause 2(r) ASSIGNMENT TO BE
REGISTERED WITH LESSOR AND
UNEARNED INCREMENT:
In the event of such transfer, assignment, underletting or parting with, there shall be delivered by the lessee at its expense a notice thereof to the Chief Executive Officer or such Officer of the lessor as the lessor may direct within 20 days from the date on which Page 4 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT the transfer, assignment, underletting or parting with becomes effective whether by registration thereof under the Indian Registration Act or otherwise, provided that in the event of such transfer, assignment, underletting or parting with 50% of the assessment then due and shall have performed and observed that covenants and conditions herein contained prior to the expiration or determination, of the said term, to remove and appropriate himself all- buildings, erection and structures and materials from the demised premises but so nevertheless that the lessee shall deliver to the lessor all land from which such building, erections or structures may have been removed after the same is levelled and put in good order and condition to the satisfaction of the lessor."
3. Various circulars of the GIDC stipulate a percentage of the fees to be paid by the transferor in the event the transfer falls within the various categories of transfer.
4. According to the circular dated 10.9.1996, transfer fee and appropriate submission of a document are Page 5 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT necessary for transfer of a plot from one person to another. The case of the petitioner is that one Bombay Minerals Limited purchased 39% of its shares from the open market. The rest of the 61% shares were held by public. There was no change in identity, however, in view of the circulars of the GIDC, the petitioner made an application on 10.12.2018 intimating such transfer of shares to Bombay Minerals Limited. On the application so made, the corporation on 04.2.2019 passed an order granting such permission of transfer on condition to pay transfer fee and to submit a registered deed of assignment of rectification with the Corporation. The case of the petitioner is that such a deed of assignment was not necessary as there was no change of identity inasmuch as the company remained the same and there could not have been deed of assignment. The company, therefore, requested the GIDC that there was no need of a registered deed of assignment. The company was willing to pay the transfer fee and, therefore, it was requested that the transfer be accepted so that the company was able to Page 6 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT mortgage its lease hold right for financial help to the institutions willing to extend such financial help.
5. On 6.5.2019, the GIDC informed the petitioner that it was necessary to comply with the conditions of the order dated 4.2.2019 i.e. supply and deed of assignment within 30 days from that date. A request was made by the petitioner to dispense with the requirement of providing a deed of assignment. The company having sought financial assistance from Laxmi Vilas Bank Limited again approached GIDC on 10.10.2019 seeking permission which was however refused by the GIDC on 30.11.2019 on the ground that as required by the order dated 4.2.2019 a deed of assignment was not produced.
6. On 15.1.2020, the GIDC informed the company that the life of the order dated 4.2.2019 which required the company to offer a deed of assignment would be extended for a period of one year and the petitioner should therefore fulfill the conditions of supplying the Page 7 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT deed of assignment by 4.2.2020. According to the requirements, the petitioner company paid the transfer fees by way of a Demand Draft of Rs.1,39,72,740/- with the formal unregistered deed of assignment. The demand draft was accepted by the Corporation. On 17.3.2020, the Corporation informed the petitioner company that since as required by the order dated 4.2.2019, the registered deed of assignment was not supplied by the petitioner and the life of the order which was extended for a period of one year expired with effect from 4.2.2020. The permission stood cancelled and the petitioner was required to make a fresh application. These communications by the GIDC insisting for the petitioner to offer a registered deed of assignment and the communication dated 17.3.2020 by which the permission was cancelled requiring the petitioner to make a fresh application are a subject matter of a challenge in this petition.
7. Mr. Mihir Joshi, learned Senior Counsel appearing with Mr. Vimal Patel for M/s. VMP Legal, learned Page 8 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT advocate for the petitioner would submit as under:
* Inviting the attention of the Court to the lease Deed, Mr. Joshi would submit that the lease deed was between GIDC and the petitioner Company. Clause (q) of the lease deed would provide that the lessee shall not transfer, assign or part with the possession of the premises without the previous permission of the lessor. For the purposes of this covenant, any change in the constitution of the lessee shall be deemed to be a transfer by the lessee of his interest in the demised premises in favour of another person. Mr. Joshi would submit that the clause further provided that where the lessee is a body corporate, change in Board of Directors or Managing Committee by whatever name called shall not be deemed to be a change in the constitution of the lessee. He would therefore submit that the mere transfer of shares in favour of Bombay Minerals Limited would not make any Page 9 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT change in the identity of the Company so as to warrant submission of a registered deed of assignment.
* Clause (r) of the lease deed according to Mr. Joshi provided that when there is such transfer, permission has to be sought for before making such transfer. He would submit that though this transaction of change of share holding was not a transfer within the meaning of clause 2(r) of the lease deed, the petitioner on 10/12/2018 made an application to the GIDC inviting the attention to the contents of the application, he would submit that the name of the transferor (old) was M/s. Orient Abrasives Limited. There was no change in the existing name of the transferor as well as the applicant. He would invite the attention of the Court to the application naming the transferee also as M/s. Orient Abrasives Limited. What merely changed was the shareholding inasmuch as shareholding of the Page 10 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT promoter Shri S.J. Rajgariya, which was 26% and the public holding was of 74% was changed to that of Bombay Minerals Limited holding 39% of the shares and the public holding of 61%. * Mr.Joshi invited the attention of the Court to the letter of the GIDC dated 4.2.2019 (page No.91) which also admittedly stated that the GIDC was also of the opinion that the transfer was from Orient Abrasives Limited in favour of the same Company namely; M/s. Orient Abrasives Limited, despite which, paragraph No.6 of the communication insisted that a deed of assignment be executed.
* He would submit that the company by a letter dated 14.3.2019, specifically informed the GIDC that the shares of the company were purchased from the open market by Bombay Minerals Limited. The transfer fees levied on the transfer of shares as per the circular dated 10.9.1996 has Page 11 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT been paid. That there is no change in identity of the Company and there is no transfer of plot to any 3rd party. The registered deed of assignment can only be entered into between different persons and since the company is already having lease hold rights from the GIDC, merely because there is transfer of shares it cannot be said that the identity of the company has changed. Mr. Joshi would submit that because of the stance of the GIDC in insisting on the deed of assignment and not granting permission of transfer, the company was not in a position to get any financial assistance from the financial institutions because of the non-issuance of the transfer order though the fees in accordance with the circular dated 10.9.1996 was accepted. * Mr. Joshi would submit that by subsequent communications, the GIDC's insistence that unless the deed of assignment is executed the provisional transfer order issued on 4.2.2019 Page 12 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT shall be cancelled, is bad. He would further submit that on 15.1.2020 the stance of the corporation that unless and until the deed of assignment is submitted on or before 4.2.2020, the provisional transfer order of 4.2.2019 would stand cancelled, is misconceived. The communication dated 17.3.2020 is also assailed, by which, the Company cancelled the provisional order of transfer on the ground that in accordance with the circular dated 10.9.1996 since the registered deed of assignment was not submitted the provisional transfer order which had a tenure of one year stood cancelled with effect from 4.2.2020 and the petitioner would have to apply afresh for a permission. * In a nutshell, the submission of Mr.Joshi was that when what was done was merely a transfer of shares, there was no change in the identity of the company and, therefore the insistence of a registered deed of assignment was in Page 13 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT contravention of the provisions of the Transfer of Property Act as there was no change in the constitution of the company and such a transfer cannot be called an informal transfer so as to warrant a registered deed of assignment.
8. Mr. Pavan S. Godiawala, learned counsel has appeared for the GIDC - respondent No.2 herein. He invited the attention of the Court to the policy Circular dated 10.9.1996 and submitted that what is evident from the chair of events is that initially the shareholding of 26% was in the name of the promoters namely: Mr. Rajgariya. Thereafter, Bombay Minerals Limited acquired 39% of the shares and therefore in accordance with the Circular dated 10.9.1996, the allotment of shares retained by the promoters went down to less than 26%. There was a requirement for a registered deed of transfer. He would submit that in accordance with the circular dated 10.9.1996 and a subsequent circular of the Corporation dated 17.6.1997 which stated that in case of a Private Page 14 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT Limited Company if the promoters' stake is retained at 51% and in case of a Public Limited Company if the promoters stake is retained at 26%, such transfer or modification is termed as a formal transfer and only a deed of rectification is to be executed. However, in cases where the promoters' stake of share holdings is reduced below 26%, then a formal registered deed of transfer assignment is necessary because the same is termed as an informal transfer. He would submit that in the case on hand it showed that Bombay Minerals Limited had acquired 39% of the share holdings, by which, therefore the initial shareholding of the promoters which was 26% was reduced and, therefore, because of the dilution in the shareholding by which the promoter's share was reduced below 26%, it was an informal transfer and the registered deed of assignment had to be executed, inasmuch as, it was substantially a new group of companies with a diluted stake of original promoters and, therefore, in accordance with the circular of 10.9.1996 and 17.6.1997, it was an informal transfer requiring Page 15 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT production of a formal registered deed of assignment.
9. Having considered the submissions of the learned advocates for the respective parties, what is evident on appreciation of facts is as under:
* The original lease deed when perused would indicate that the lease was entered into between the GIDC as the lessor and M/s. Oriental Abrasives Limited, a company registered under the Companies Act.
* The circular dated 10.9.1996 stipulated a transfer fee to be paid when there was a transfer. One of the transfer mode was when it was from a public limited company to another public limited company.
* In accordance with the stipulation of transfer from Public Company to a Public Limited Company, the petitioner company paid the Page 16 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT transfer fee as stipulated and revised from time to time.
* Strictly speaking this not being a transfer inasmuch as only there was a reconstitution of share holding pattern, inasmuch as, Bombay Minerals Limited acquired 39% of the shares. Though it was not required to make an application, the petitioner made an application on 10.12.2018. Reading of the application indicates that the name of the transferor and the name of the transferee remained the same i.e. M/s. Orient Abrasives Limited. The share holding pattern changed, inasmuch as, the otherwise stake of the promoters which was 26% was acquired to the extent of 39% by Bombay Minerals Limited. The insistence of the GIDC for a registered deed of assignment in this context appears to be misconceived. What the Corporation has failed to appreciate is that the shares of the Company were sold in the open market and were acquired by Bombay Minerals Limited. There was no change in the identity of the Page 17 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT company. Only the share holding pattern changed. The legal entity of the company remained the same and, therefore there was no strict transfer from one person to another person which required the transfer of lease deed by asking for a registered deed of assignment. Insisting for such a registered deed of assignment when there was actually no transfer from one person to the another because the legal entity or "person - the company" remained the same the communications dated 4.2.2019 granting conditional permission and provisional transfer order and the subsequent communication dated 17.3.2020 cancelling such provisional transfer order and holding that the petitioner needed to apply for a fresh permission is misconceived.
* As the registered deed of assignment could happen only if there was an eventuality of transfer of the company from one person to another which was not the case on hand as the company remained the same, the insistence of the GIDC that the provisional Page 18 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT transfer order stood cancelled with effect from 4.2.2020 and therefore a fresh application for transfer be made is a stand contrary to law.
10. Reading the covenant of the lease deed namely; 2(q) what is evident is that there is no transfer from one person to another person, inasmuch as, "M/s. Orient Abrasives Limited" has remained as "M/s. Orient Abrasives Limited".By virtue of the cancellation of the provisional transfer order by the communication of 17.3.2020 on account of the GIDC insisting for a deed of assignment treating as an informal transfer, is bad. The Company has suffered a loss inasmuch as because of such insistence it has not been able to avail financial assistance from any financial institution because of the permission having been withdrawn. These actions are therefore also contrary to law.
11. Accordingly, the petition is allowed. The action of the GIDC insisting and compelling the petitioner to produce a registered deed of assignment so as to Page 19 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020 C/SCA/7333/2020 CAV JUDGMENT accept the change in transfer of shares in the petitioner company is bad and is therefore set aside. The communication dated 17.3.2020 is also set aside. The respondent GIDC has failed to appreciate that the body corporate has remained the same and, therefore, the respondent GIDC is directed to grant permission for transfer without insisting for a registered deed of assignment as the action of refusing such permission for such transfer without the petitioner furnishing a registered deed of assignment is bad. The respondent GIDC is directed to grant permission under Clause 2(r) of the lease deed dated 20.7.1973 in favour of the petitioner Company so that the petitioner company can seek financial assistance from the institutions on the basis of it being a recognized transfer without providing the registered deed of assignment. Rule is made absolute accordingly with no order as to costs.
12. The Registry to communicate this order through email/fax.
[ BIREN VAISHNAV, J.] *** VATSAL Page 20 of 20 Downloaded on : Mon Oct 05 21:03:56 IST 2020