Citation Codes

Equivalent Citations

citation codes

Case Number

Company Petition No. 533 of 1982

Judges

Dipak Kumar Sen, J.

Acts

section 23(1) of the Monopolies and Restrictive Trade Practices Act, 1969.
section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969,
MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT 1969
s. 23 of the Monopolies and Restrictive Trade Practices Act, 1969,
provisions of ss. 391(2), 392 and 394 of the Companies Act, 1956.
sub-section (2) or sub-section (4), the Central Government
Trade Practices Act of 1969.
Trade Practices Act, 1969,
COMPANIES ACT 1956

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Smart Summary

Judgment Summary — Dipak Kumar Sen, J.

Factual and Procedural Background

W.H. Targett & Co. Ltd. (the petitioner) applied under sections 391(2), 392 and 394 of the Companies Act, 1956 to sanction an arrangement under Chapter III of the Act by which about 1 bigha, 5 cottahs and 19 sq. ft. of land (premises No. 20, Burdwan Road, Calcutta) would be transferred to Wall Street Investment P. Ltd. against allotment of shares (40,000 equity shares of Rs. 100 each fully paid) of Wall Street to W.H. Targett & Co. Ltd. The application was moved on 24 September 1982 and the shareholders of both companies unanimously approved the arrangement.

The Central Government opposed the application. An affidavit (11 February 1983) by the Regional Director, Company Law Board, Calcutta, alleged that the arrangement was, in substance, a sale of part of W.H. Targett's property and therefore the petitioner could not avail of sections 391(2), 392 and 394; it was further contended that the proposed transfer being for non-cash consideration precluded application of those sections. It was also stated that W.H. Targett & Co. Ltd. was an undertaking registered under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), that its application for cancellation of registration was pending, and that sanction under section 23(4) of the MRTP Act from the Central Government was required before the arrangement could be sanctioned by the court.

Counsel for the petitioner relied on the objects clauses in the memoranda of both companies (permitting disposal of undertakings for shares and permitting investment in and dealing with property) and cited precedent authorities to support sanctioning the scheme. The learned judge delivered the judgment allowing the application, ordering sanction in terms of prayers (a)–(g) of the summons, gave leave to file a schedule of assets within a fortnight, stayed operation of the order for three weeks on an oral application by the Central Government, and made no order as to costs.

Legal Issues Presented

Whether an arrangement transferring a part of a company's property to another company in consideration for shares can be sanctioned by the court under sections 391(2), 392 and 394 of the Companies Act, 1956 (i.e., whether those sections apply when consideration is other than cash and the transaction is alleged to be a sale).
Whether section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969 applies so as to require prior sanction of the Central Government where an undertaking registered under the MRTP Act transfers assets to another company and such transfer may result in interconnection between the two undertakings.
Whether the MRTP Act's provisions (in particular s.23(4)) should be construed to prevent the sanctioning of the arrangement in the present facts, given the petitioner's status and the proposed acquirer’s status under the MRTP Act.

Arguments of the Parties

Petitioner's Arguments

The proposed arrangement is an arrangement within Chapter III of the Companies Act and may be sanctioned under sections 391(2), 392 and 394.
The memorandum of association of W.H. Targett & Co. Ltd. permits selling or disposing of the undertaking or any part thereof for consideration including shares; Wall Street's memorandum permits dealing in property and undertakings — supporting the commercial capacity to enter the arrangement.
Section 23(4) of the MRTP Act is not attracted because the provision operates only where an undertaking to which the MRTP Act applies proposes to acquire whole or part of another undertaking; here, Wall Street (the acquirer) is not an undertaking to which the MRTP Act applies.
Cited precedent (A.W. Figgis & Co. Pvt. Ltd., In re) holding that similar schemes have been sanctioned where statutory requirements were complied with and where avoidance of taxes/fees was not by itself an illegality on the face of the scheme.
Cited Union of India v. Tata Engineering & Locomotive Co. Ltd. and other High Court authorities for propositions about the scope of "undertaking" under the MRTP Act.

Central Government's Arguments

The arrangement is, in substance, a sale of part of W.H. Targett & Co. Ltd.'s property and therefore the petitioner cannot invoke sections 391(2), 392 and 394 of the Companies Act.
The proposed transfer is for consideration other than cash (shares), and on that basis the cited sections of the Companies Act cannot be applied.
W.H. Targett & Co. Ltd. is registered under the MRTP Act and its cancellation application is pending; until deregistration, sanction under section 23(4) of the MRTP Act from the Central Government is required because the arrangement would result in interconnection between an undertaking to which the MRTP Act applies and another undertaking.
Consequently, the court should defer sanction until the Central Government disposes of the pending matter under the MRTP Act.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court (as stated in the opinion)
A.W. Figgis & Co. Pvt. Ltd., In re, [1980] 50 Comp Cas 95 (Cal)	Shows that a similar arrangement for transfer of property (including for consideration by shares) has been sanctioned where shareholders approved the scheme, there was compliance with statutory requirements, and no illegality or fraud appeared on the face of the scheme; avoidance of taxes/fees per se was held to be permissible.	Cited by the petitioner's counsel as a precedence; the court referred to it as supporting the proposition that arranging transactions to avoid fees, duties and taxes has been held permissible where statutory requirements are met, and used it in assessing whether the present arrangement could be sanctioned.
Union of India v. Tata Engineering & Locomotive Co. Ltd., [1972] 42 Comp Cas 72 (Bom)	Construction of "any other undertaking" in section 23(1) of the MRTP Act with reference to definition of "undertaking" under section 2(v); holding that an entity not engaged in production/supply/distribution/control of goods or providing service did not fall within that definition for s.23(1).	Cited by the petitioner's counsel. The opinion records the citation and the principle but the court's primary reasoning in the present case rested on the express language of section 23(4) and the fact that the proposed acquirer was not an undertaking to which the MRTP Act applied.
Bank of India Ltd. v. Ahmedabad Mfg. & Calico Printing Co. Ltd., [1972] 42 Comp Cas 211 (Bom); Ahmedabad Mfg. & Calico Printing Co. Ltd. v. Bank of India Ltd., [1972] 42 Comp Cas 493 (Guj)	Cited for similar views expressed by the Bombay and Gujarat High Courts concerning the interpretation and application of provisions of the MRTP Act.	These authorities were cited by petitioner's counsel as supporting material; the opinion records their citation but does not indicate that the court relied exclusively on them to decide the present application.

Court's Reasoning and Analysis

The court's analysis proceeded primarily from the express language of section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969 and from a consideration of the object (pith and substance) of the MRTP Act.

Textual interpretation of s.23(4): The court held that section 23(4) is triggered only when "an undertaking to which this part applies proposes to acquire by purchase, take-over or otherwise the whole or part of an undertaking." Thus the proviso is that the acquiring undertaking itself must be one to which the MRTP Act applies.
Application to facts: In the present case Wall Street Investment P. Ltd. (the proposed acquirer) was not an undertaking to which the MRTP Act applied. Since it was not the acquiring undertaking that fell within the MRTP Act, section 23(4) did not come into operation even if the arrangement would result in some interconnection between W.H. Targett (which was an undertaking subject to the Act) and Wall Street.
Consideration of pith and substance: Even assuming a purposive approach, the court noted the object of the MRTP Act is the prevention of concentration of economic power. The transaction here results in the divesting of an economic asset by a company within the purview of the Act rather than concentration of power. Moreover, the court observed that W.H. Targett could, in any event, sell its land to Wall Street and then acquire shares of Wall Street in the ordinary course.
Precedential and policy considerations: The court accepted the petitioner's reliance on A.W. Figgis & Co. Pvt. Ltd., In re, which held that similar transfers could be sanctioned and that arrangements structured to avoid fees or taxes are not automatically invalid if statutory requirements are met. The court treated that authority as supporting the permissibility of the arrangement.
Conclusion of analysis: On the combined textual and purposive analyses, the court found the Central Government's contentions unsustainable and concluded that section 23(4) of the MRTP Act did not bar the court from sanctioning the arrangement under the Companies Act in the present facts.

Holding and Implications

Core Ruling: The application under sections 391(2), 392 and 394 of the Companies Act, 1956 was allowed and the proposed arrangement was sanctioned by the court in terms of prayers (a), (b), (c), (d), (e), (f) and (g) of the summons.

Direct Consequences on the Parties

Order to be made in terms of the prayers (a)–(g) of the summons (i.e., sanction of the arrangement and the consequential directions sought in the petition).
W.H. Targett & Co. Ltd. was granted leave to file its schedule of assets within a period of a fortnight from the date of the order.
On an oral application by the Central Government, operation of the order was stayed for three weeks from the date of the order.
The court made no order as to costs.

Broader Implications

The opinion does not purport to establish a novel legal doctrine beyond its application of the text of section 23(4) of the MRTP Act to the facts. The court emphasized a textual reading of s.23(4) — that the acquiring undertaking must itself be one to which the MRTP Act applies — and observed that, on a purposive reading, the scheme did not offend the object of the MRTP Act (prevention of concentration of economic power). The judgment refers to existing authority (A.W. Figgis & Co. Pvt. Ltd., In re) to the effect that arrangements structured to secure tax or duty advantages are not ipso facto invalid where statutory requirements are met.

No broader precedent purporting to change or overrule existing law is stated in the opinion; the decision effects the direct relief sought by the petitioner in this case.

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W.H Targett And Co. Ltd. v. Wall Street Investment P. Ltd.

The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— W.H Targett and Co. Ltd., the petitioner, seeks to transfer about 1 bigha, 5 cottahs and 19 sq. ft. land in premises No. 20, Burdwan Road, Calcutta, to Wall Street Investment P. Ltd. against allotment of a number of shares of the latter in favour of the former by way of an arrangement under Chap. 3 of the Companies Act, 1956.

2. The present application under sections 391(2), 392 and 394 of the said Act was moved on September 24, 1982, pursuant whereto meetings of the shareholders of the two companies were held. The shareholders of both the companies approved the arrangement unanimously. It is now prayed that the arrangement may be sanctioned by this court with effect from April 1, 1982, and that consequential directions in respect thereof be made in favour of the said Wall Street Investment P. Ltd. and that the latter be directed to issue and allot 40,000 equity shares of Rs. 100 each credited as fully paid up to W.H Targett & Co. Ltd. In the petition it is, inter alia, alleged that the provisions of the Monopolies and Restrictive Trade Practices Act, 1969, do not apply to the said arrangement.

3. This application is opposed by the Central Government. An affidavit affirmed on February 11, 1983, by the Regional Director, Company Law Board, Calcutta, has been filed on behalf of the Central Government in opposition to the petition. It is, inter alia, alleged in this affidavit that the arrangement is really a sale of a portion of the property of W.H Targett & Co. Ltd. and, therefore, the petitioner is not entitled to invoke the provisions of ss. 391(2), 392 and 394 of the Companies Act, 1956. It is contended further that the proposed transfer being for consideration other than cash, the aforesaid sections cannot apply in the facts of this case.

4. It is alleged that W.H Targett & Co. Ltd. is an undertaking registered under the Monopolies and Restrictive Trade Practices Act, 1969, and that an application of W.H Targett & Co. Ltd. for cancellation of their registration is pending before the authority under the Monopolies and Restrictive Trade Practices Act, 1969. The said application is under consideration and W.H Targett & Co. Ltd., not yet being deregistered, continues to be registered under the Monopolies and Restrictive Trade Practices Act of 1969. It is contended that sanction under section 23(4) of the said Act is required from the Central Government before the arrangement can be sanctioned by this court.

5. At the hearing, the learned counsel for the petitioners drew my attention to clause 3(22) of the memorandum of association of W.H Targett & Co. Ltd. which reads as follows:

” The objects for which the company is established are……

(22) To sell or dispose of the undertaking of the company or any part thereof for such consideration as the company may think fit and in particular for shares, debentures or securities of any other company.”

6. He also drew my attention to clause IIIA(4) of the memorandum of association of Wall Street Investment P. Ltd. which reads as follows:

“The objects for which the company is established are……

(4) To deal in real and personal property and rights of all kinds, and in particular, lands, buildings, hereditaments, businesses, concerns and undertakings, debenture-stocks, mortgages, debentures, produce, concessions, options, contracts, patents, annuities, licences, privileges and choices in action of all kinds, including any interest in real or personal property.”

7. He also referred to s. 23 of the Monopolies and Restrictive Trade Practices Act, 1969, the relevant portion of which reads as follows:

“23. Merger, amalgamation and, take-over.—………

(4) If an undertaking to which this part applies proposes to acquire by purchase, take-over or otherwise the whole or part of an undertaking which will or may result either—

(a) in the creation of an undertaking to which this part would apply; or

(b) in the undertaking becoming an interconnected undertaking of an undertaking to which this part applies

it shall, before giving any effect to its proposals, make an application in writing to the Central Government in the prescribed form of its intention to make such acquisition, stating therein information regarding its interconnection with other undertakings, the scheme of finance with regard to the proposed acquisition and such other information as may be prescribed…

(6) On receipt of an application under sub-section (2) or sub-section (4), the Central Government may, if it thinks fit, refer the matter to the Commission for an inquiry and the Commission may, after such hearing as it thinks fit, report to the Central Government its opinion thereon.

(7) On receipt of the Commission's report, the Central Government may pass such orders as it may think fit.

(9) Nothing in sub-section (4) shall apply to the acquisition by an undertaking which is not a dominant undertaking, of another undertaking which is not also a dominant undertaking, if both such undertakings produce the same goods:

Provided that nothing in this sub-section shall apply if, as a result of such acquisition, an undertaking comes into existence to which clause (a) or clause (b) of section 20 would apply.”

8. As a precedence showing that arrangement similar to that involved in the instant case has been sanctioned by this court under the Companies Act, learned counsel for the petitioners cited A.W Figgis & Co. Pvt. Ltd., In re, [1980] 50 Comp Cas 95 (Cal). Here, a similar arrangement for transfer of property was objected to by the Company Law Board, inter alia, on the grounds that the scheme had been propounded for avoiding capital gains tax, court fees, stamp duty and sanction of the Urban Land Ceiling Authority. Such objections were overruled by a learned judge of this court who held that the scheme having been passed by the majority of the shareholders complying with all the statutory requirements and there being no illegality or fraud on the face of the same, the same must be sanctioned. It was also noted that there was no law barring such a scheme for transfer of a part of the company's properties to another company formed for that purpose as a wholly owned subsidiary and that it was open to a person to arrange matters in accordance with law in such a way as to avoid other consequences following from other provisions of law.

9. Learned counsel next submitted that W.H Targett & Co. Ltd., admittedly an undertaking to which the Monopolies and Restrictive Trade Practices Act, 1969, applied was not seeking to acquire by purchase or otherwise any part of any undertaking. It was Wall Street Investment (P.) Ltd., an undertaking to which the said Act did not apply, which was seeking to acquire a part of the assets of W.H Targett & Co. Ltd. It was contended that section 23(4) of the said Act had no application in the facts of the instant case.

10. Learned counsel for the petitioner also cited Union of India v. Tata Engineering & Locomotive Co. Ltd., [1972] 42 Comp Cas 72 (Bom). In this case, after the nationalisation of banks, the defunct Central Bank of India Ltd. sought to enter into a scheme of amalgamation with Tata Engineering and Locomotive Co. Ltd. The Central Government and the Regional Director of the Company Law Board contended that such a scheme cannot be sanctioned by the court without prior approval of the Central Government required under section 23(1) of the Monopolies and Restrictive Trade Practices Act, 1969. It was held by a Division Bench of the Bombay High Court that the expression “any other undertaking” in section 23(1) of the said Act had to be given the meaning under section 2(v) thereof. The Central Bank of India not being engaged in production, supply, distribution or control of goods of any description or providing service of any kind at the material time did not come within the definition of an “undertaking” within the meaning of section 2(v) of the said Act.

11. The following cases, viz., (i) Bank of India Ltd. v. Ahmedabad Mfg. & Calico Printing Co. Ltd., [1972] 42 Comp Cas 211 (Bom), (ii) Ahmedabad Mfg. & Calico Printing Co. Ltd. v. Bank of India Ltd., [1972] 42 Comp Cas 493 (Guj), were also cited for similar views expressed by the Bombay and the Gujarat High Courts.

12. Learned counsel for the Central Government submitted, on the other hand, that under the proposed arrangement, W.H Targett & Co. Ltd., an undertaking to which the Monopolies and Restrictive Trade Practices Act, 1969, applied would become interconnected with Wall Street Investment Ltd. Therefore, the arrangement came within the mischief of section 23(4) of the said Act. He submitted further that the matter was under consideration by the Central Government and the court should wait till the application was disposed of by the authority concerned.

13. In the facts and circumstances and in view of the express language of section 23(4) of the Monopolies and Restrictive Trade Practices Act, 1969, I am unable to accept the contentions of the Central Government. Section 23(4) comes into operation only if an undertaking to which the said Act applied proposes to acquire whole or part of any other undertaking. In the instant case, it is nobody's case that Wall Street Investment Pvt. Ltd. which proposed to acquire the asset concerned is an undertaking to which the said Act applied. Therefore, even if an interconnection between it and W.H Targett & Co. Ltd. which was an undertaking to which Chapter III of the said Act applied resulted from the arrangement, section 23(4) would not come into operation. If I do not construe the Monopolies and Restrictive Trade Practices Act, 1969, strictly but look to the pith and substance of the legislation, even then the contentions of the Central Government cannot be sustained. The object of the said Act is prevention of concentration of economic power. In the instant case, the transaction results in divesting of an economic asset by a company which comes under the purview of the Act. Further, and in any event it is open to W.H Targett & Co. Ltd. to sell its land to Wall Street Investment (P.) Ltd. and also acquire the shares of the latter in the ordinary course. The real object possibly is the avoidance of payment of fees, duties and taxes and this has been held to be permissible in A.W Figgis S Co. Pvt. Ltd., In re, [1980] 50 Comp Cas 95 (Cal).

14. For the reasons as aforesaid, this application succeeds. There will be an order in terms of prayers (a), (b), (c), (d), (e), (f) and (g) of the summons. Leave is given to W.H Targett & Co. Ltd. to file its schedule of assets within a period of fortnight from date.

15. On an oral application made on behalf of the Central Government, operation of this order is stayed for three weeks from date.

16. There will be no order as to costs.

W.H Targett And Co. Ltd. v. Wall Street Investment P. Ltd.

Judgment Summary — Dipak Kumar Sen, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Central Government's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Direct Consequences on the Parties

Broader Implications

W.H Targett And Co. Ltd. v. Wall Street Investment P. Ltd.

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