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2023 (12) TMI 753 - HC - Companies LawConstitutional Validity of Clause (d) of the proviso to Rule 5 of the West Bengal Excise (Change in Management) Rules, 2009 - Intelligible differentia - Changes in the Board of Directors - change in management or not - petitioners argue that clauses (d) and (e) of the proviso to Rule 5(1) of the 2009 Rules violates Article 14 of the Constitution of India since a separate mechanism has been provided for a private limited company for exemption from payment of license fees under Rule 5(1). Whether death of a Director and consequent appointment of another director to the Board would amount to a change in management under The West Bengal Excise (Change in Management) Rules, 2009? - HELD THAT - Apointment of new directors either by reason of death of an existing director or in the usual course of business, without any impact to the shareholding pattern or membership of the Company, does not amount to any change in management since there is no transfer or movement of the shares in the company. Induction of a new director into the Board would also not fall within the meaning of the expression transferee . In other words, a change in management of a Company should be of a nature so as to determine the ordinary Excise License in terms of Rule 4(2) and result in a proposed transferee in terms of Rule 4(3). The usual fitness and eligibility criteria for holding an excise license would come with consideration only after there is a structural change in the company. The classification made under Clause (d) and (e) of the proviso to Rule 5(1) is not founded on intelligible differentia and does not have a rational nexus to the object of the 2009 Rules. Whether clause (d) to the proviso to Rule 5 of the 2009 Rules is discriminatory and offends the right of the petitioner no. 1 to equal treatment under Article 14 of the Constitution of India? - HELD THAT - There is also no rationale disclosed for making two separate groups from the (hitherto) general head of company in clauses (d) and (e) of the proviso to Rule 5(1). The offending proviso has carved out different provisions for levy of fees and exemption from payment of license fees pursuant to change in management for private and public limited companies - Creating two distinct groups and bestowing a larger zone of exemption for one of the two groups must be supported by intelligible differentia in the creation of the two groups. The 2009 Rules does not satisfy this test. What is intelligible differentia? - HELD THAT - The test of intelligible differentia is vital to the constitutional charter of equality since creating groups is antithetical to equality. The distinguishing markers is the differentiator which justifies classification with or without those markers. It is of utmost importance that groups or classifications promote equality by way of intervention and do not undermine the same - The State s power to take the vision of Article 14 forward cannot be done through random classifications where persons inside the class do not have homogeneous or defining features which distinguishes them from those who are outside the classification. The word intelligible differentia underscores classification which is based on comprehensible differences as opposed to arbitrary groupings without comprehensible differences. What is rational nexus to the object? - HELD THAT - The larger zone of exemption for a Public Limited Company from payment of license fee pursuant to change of management should have had a comprehensible connection to the object of the 2009 Rules in terms of determination of the earlier Excise License and grant of a new Excise License to the proposed transferee . The disparity in the scope of exemption for a Private and a Public Limited Company or, in other words, reducing the area of exemption for a Private Limited Company does not preserve the object of the 2009 Rules. The link between the classifications created under clauses (d) and (e) of the proviso to Rule 5(1) thus snaps and is broken in the attempt to connect it to the object of the 2009 Rules - the differentia made for classifying Private and Public Limited Companies under two separate groups under clauses (d) and (e) of the proviso to Rule 5(1) does not have an intelligible basis. The differentia for the classification do not also have a rational nexus to the object of the 2009 Rules. Article 14 prohibits unequal treatment of equals and vice-versa - HELD THAT - The proposition that Article 14 prohibits unequal treatment of persons similarly-situated is too well-settled to merit a detailed discussion. The 2009 Rules clearly indicates that private limited companies and public limited companies are similarly-situated and have been treated as such in Rule 4(2). Therefore, clauses (d) and (e) of the proviso to Rule 5(1) violates the constitutional guarantee of equality by creating two separate groups/classifications for the purpose of exemption from payment of license fees. STATE OF ANDHRA PRADESH ORS. VERSUS NALLAMILLI RAMI REDDI ORS. 2001 (8) TMI 1396 - SUPREME COURT spoke of permissible classification where the law will not be viewed as discriminatory if there is uniformity in each group. The Supreme Court made room for fortuitous circumstances arising out of peculiar situations where some persons included in a class may get an advantage over the others and a classification would thus be justified unless it is arbitrary. In the present case, of private limited and public limited companies within the context of change in management and the consequent exemption from payment of license fees is undoubtedly an instance where the differentia is neither real nor substantial and the rational nexus thereof to the object of the Rules is wholly absent. The absence of Intelligible Differentia and a Rational Nexus to the object of the 2009 Rules Impacts the Constitutional Validity of clause (d) of the Proviso to Rule 5(1) of the 2009 Rules. The inevitable conclusion must be that clause (d) of the proviso to Rule 5(1) of the 2009 Rules offends Article 14 of the Constitution in terms of equal treatment of a Private Limited Company when compared to the right conferred to a Public Limited Company. The petitioners have made out a case for a declaration that clause (d) of the proviso to Rule 5(1) of the 2009 Rules is ultra vires to the Constitution of India. Application disposed off.
Issues Involved:
1. Constitutionality of Clause (d) of the proviso to Rule 5 of the West Bengal Excise (Change in Management) Rules, 2009. 2. Legality of the demands made by the respondent Excise authorities. 3. Refund of the sum of Rs. 64.50 lakhs along with interest. Summary: 1. Constitutionality of Clause (d) of the proviso to Rule 5 of the West Bengal Excise (Change in Management) Rules, 2009: The petitioners challenged Clause (d) of the proviso to Rule 5(1) of the 2009 Rules, arguing that it violates Article 14 of the Constitution of India by discriminating between private and public limited companies. The Court held that changes in the Board of Directors in the usual course of business do not amount to "change in management" under the 2009 Rules. The Court found that the classification made under Clause (d) and (e) of the proviso to Rule 5(1) is not founded on intelligible differentia and does not have a rational nexus to the object of the 2009 Rules. Consequently, Clause (d) was declared ultra vires the Constitution of India. 2. Legality of the demands made by the respondent Excise authorities: The petitioners argued that the demands made by the Excise authorities, including the revised demand dated 27.2.2018, were illegal. The Court quashed the impugned order dated 16.2.2018 by the Excise Commissioner, which had directed the petitioners to pay fees for changes in the Board of Directors. The Court held that the impugned order and the subsequent revised demand were contrary to the interpretation of the 2009 Rules and violative of Article 14 of the Constitution. 3. Refund of the sum of Rs. 64.50 lakhs along with interest: The Court directed the respondent authorities to refund the sum of Rs. 64.50 lakhs, which was paid by the petitioners under protest, within a fortnight from the date of the judgment. The Court also quashed the revised demand dated 27.2.2018 for Rs. 22 lakhs and directed the respondents to refund this amount as well. Conclusion: The writ petition was allowed, and the Court declared Clause (d) of the proviso to Rule 5(1) of the 2009 Rules to be ultra vires the Constitution of India. The impugned order dated 16.2.2018 and the revised demand dated 27.2.2018 were set aside, and the respondents were directed to refund the amounts paid by the petitioners. The Court refused the respondents' prayer for a stay of the judgment.
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