1997 (7) TMI 529 - HC - Companies Law

Summary

Issues Involved:
1. Vires of Notification No. SO 565(E), dated 21-6-1995.
2. Delegation of power under Section 641 of the Companies Act, 1956.
3. Distinction between fee and tax.
4. Reasonableness and justification for increased fees.
5. Legislative policy and delegated legislation.

Issue-wise Detailed Analysis:

1. Vires of Notification No. SO 565(E), dated 21-6-1995:
The petitioners challenged the vires of Notification No. SO 565(E), dated 21-6-1995, which amended paragraph 1.3 of Schedule X of the Companies Act, 1956, as ultra vires the Act and the Constitution of India. The amendment substituted the words "the increased share capital and the fees payable on such date" with "the increased share capital and the fees paid on such date."

2. Delegation of power under Section 641 of the Companies Act, 1956:
The petitioners argued that Section 641 of the Act conferred unguided and unbridled power upon the Central Government to alter regulations, rules, tables, forms, and other provisions contained in the Schedules, excluding Schedules XI and XII, making it ultra vires the Constitution. The respondents contended that the Central Government was empowered to change or amend any provisions in Schedule X by issuing a notification, which did not violate Articles 14 and 19(1)(g) of the Constitution.

3. Distinction between fee and tax:
The petitioners argued that the increased fee was bad in law as no service was rendered by the respondents, and the increase was without justification. They drew a distinction between a license fee and a fee, citing cases like Corporation of Calcutta v. Liberty Cinema and ITC Ltd. v. State of Karnataka. The respondents countered that the increase in fee was not a compensatory tax and drew attention to various Supreme Court decisions to support their stance.

4. Reasonableness and justification for increased fees:
The respondents argued that the increased fees were necessary due to increased administrative expenses and should be equated with taxation. They cited cases like Krishi Utpadan Samiti v. Ashok Kumar Chandra and City Corporation of Calicut v. Thanchambalath Sadsivan to show that the test of quid pro quo was not the only true indicia of a fee. The petitioners contended that the amendment was discriminatory as companies not increasing their authorized share capital were not required to pay further fees.

5. Legislative policy and delegated legislation:
The court noted that delegation of power is permissible but subject to restrictions. It emphasized that the Legislature must retain control to prevent or undo the mischief of substantive legislation. The court held that the Central Government could not impose a tax in the name of fees through delegated legislation, as Article 265 of the Constitution mandates that no tax shall be levied or collected except by the authority of law. The court found that the impugned notification changed the basic legislative policy, which was beyond the scope of delegated power.

Conclusion:
The court concluded that the impugned notification was unreasonable and against the legislative policy. It set aside the notification, holding that the enhanced fee was wholly unreasonable and could not be sustained. The applications were allowed, but no order as to costs was made.