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TMI Blog1980 (10) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... egulate the monopolistic tendencies in the economy of the country. Section 20 of Part A of the Act applies to an undertaking if the total value of its own assets, or its own assets together with the assets of its interconnected undertakings, is not less than Rs. 20 crores. The value of assets is denned in section 2( w ) of the Act to mean the value of its assets as shown in its books of account after making provision for depreciation or for renewal or diminution in value. The Explanation to section 20 clarifies that the value referred in the case of an undertaking will be the value of assets on the last date of its financial year which closes during the calendar year, immediately preceding the calendar year in which the question arises as to whether this power does or does not apply to such an undertaking. Section 26 of the Act requires that every undertaking to which Part A applies at the commencement of this Act or to which the provisions of that part become applicable thereafter, shall within 60 days from such commencement or the date on which that Part becomes first applicable to it, make an application to the Central Government for its registration as such undertaking. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of registrability of the respondent is concerned, it was no longer being resisted. Normally, in view of the fact that the undertaking has been registered under the Act, the appeal may not have been pursued. The Union of India's counsel, however, submitted that no doubt the question of registrability was no longer a live issue, the appeal may be disposed of on merits for the reasons that certain findings and principles regarding the question of applicability of the Act (which are contested) have been laid down by the learned single judge and, as those would continue to govern the future cases, it was essential that a considered decision be given on those points in the appeal so that the parties as well as the Union of India know the position in law. In the judgment of the learned single judge, it is mentioned that the Central Govt. claimed interconnection on the ground that Sawhneys control 52% of the equity capital in the undertaking. The learned counsel for the appellant contended that there seems to be some misapprehension because it was never the case of the Union of India that simply because the majority of shares are held by persons whose sub-caste may be Sawhney, the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer, thus leading to more concentration in fewer hands as the money which has gone to the subsidiary for the purpose of its assets and shares which are held by the holding company are two independent assets available to both the companies separately. Interconnection being established, the distinction in assets of the two separate undertakings is not thereby lost. Interconnection was not the result of amalgamation and merger of these undertakings. Both the undertakings still retain their separate legal entity. It is only for the purpose of interconnection under the Act that they are treated as one unit and that also for the purpose of calculating the value of their assets. We see nothing wrong in principle or against the provisions of the Act in this approach. Mr. Lokur, learned counsel for the respondents, did not dispute that all these companies would be interconnected on the above basis. He only wanted to object to the undertaking being interconnected if it was to be held on the basis of Sawhneys holding majority shares. But this is not the stand of the Union of India and, as already mentioned, on the grounds indicated above, Mr. Lokur was not able to challenge that the interco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 20 crores of rupees. For the purpose of the economic power enjoyed by an undertaking the test cannot be a test only which will be applied in the liquidation proceedings to calculate as to how much is the net assets of an undertaking. The considerations for calculating net assets of an undertaking for the purpose of accounts and liquidation are very different because the considerations under Chap. III concern not merely accounts but the power, and the influence that may be enjoyed by the availability of the assets that an undertaking had at any particular point of time. The reason is, as said by the Monopolies Enquiry Commission: "Big business by its very bigness sometimes succeeds in keeping out competitors. It can do so by reason of its financial strength and that the very presence of big business in an industry is likely to have a deterrent effect on the entry of smaller units, even in industries without any special scope for economies of scale." Of course, the Act does not proceed against bigness per se. All that the Act does is to regulate in public interest the working of these undertakings. It does not hinder growth. Figures show that 20 top business houses registered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss or diminution in the value of an asset consequent upon wear and tear. Obviously, current liabilities cannot be considered to be diminution in value of the assets of the company and the claim to deduct current liabilities from assets is unacceptable. The department must naturally, in computing the value of assets, make a provision for any diminution in the value of investment in shares with reference to the quoted rates. But if there is an increase in the value of the current assets on account of the increase in the value of shares, the same is not taken into account. Obviously, in view of the definition of value of assets the department has no other option. Is it then fair to urge that while the appreciation in the value of assets of the undertaking should not be calculated the current liabilities which are not permitted by the statute should nevertheless be taken into account in reducing the value of assets. In our view, there is no merit in the argument for a claim to deduct the current liabilities before arriving at the value of assets within the meaning of the Act. In this connection we must refer to certain observations of the learned judge regarding the ascertainment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be provided for even though it is not reflected in the books of account and the balance-sheet. We may also in this connection observe that the observation by the learned judge that the balance-sheet may or may not reflect the position of the company, according to its books, are rather too widely stated and do not correctly reflect the position in law. At every general meeting the board of directors is to lay before the company a balance-sheet, vide section 210 of the Companies Act. Every such balance-sheet shall give a true and fair view of the state of affairs of the company as at the end of the financial year and is to be in prescribed form, vide section 211. Sub-section (2) further requires every profit and loss account of a company to give a true and fair view of the profit or loss of the company for the financial year. Every balance-sheet is to be signed on behalf of the company by the board of directors. The auditor appointed under section 224 shall, under section 227 have a right of access to the books of account and vouchers of the company. The auditor shall make a report to the members of the company on the accounts examined by him and on every balance-sheet and profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for tax whether of advance or income-tax cannot be regarded as an asset of the company; if accepted the result will be that even a provision for advance tax would mean the reduction of value of assets by that amount. We are unable to accept the correctness of this finding. We can readily understand that if the advance tax has been paid then to that extent the undertaking is no longer possessed of those assets and it would be wrong on any principle of law or accountancy to include that amount in the assets which are no longer available with the company. But so far as a mere provision for the advance tax is concerned we see no reason why the said amount cannot be considered to be an asset for so long as the said amount is not actually paid out. It should be seen that in order to determine the total value of the assets in terms of Part A, Explanation to section 20 makes it clear that the value referred to in this section shall be the value of assets on the last date of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this part does or does not apply to such undertaking. Thus, the valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol of the liquidity of the funds and its assets. In this connection, one must make a distinction between the contribution to the employees' provident fund, which are deposited in the provident fund trust account and cannot be utilised by the undertaking. In such a case, this amount is not just available to the undertaking for being utilised for its own day to day purpose. Similarly, if advance tax had been paid the funds are no longer available and obviously should not be included for increasing the value of assets of the undertaking. If, however, the same have not been paid the amount is available with the undertaking and as the calculation has to be done with regard to the fixed date the total assets on that date must be counted. The observation of the learned single judge that even a provision for taxation will lead to the reduction of the value of assets cannot be accepted by us as laying down correct law. As a result, the respondents have been correctly held not to have had value of assets exceeding Rs. 20 crores and, therefore, were not registrable under section 26 of the Act. The respondents rightly objected to the notice given by the appellant and the learned judge, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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