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TMI Blog1984 (8) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ghaziabad engaged in the production of rayon and ancillary products. Its managing director is Sri Sita Ram Jaipuria. Swadeshi Cotton Mills, Kanpur, is one of the major shareholders of Polytex. Its managing director is Sri Raja Ram Jaipuria. There were two trusts, viz ., A. M. Jaipuria Public Charitable Trust which was the owner of 1,00,000 equity shares of the Polytex. Another trust by the name of Jaidei Devi Anand Ram Jaipuria Public Charitable Trust was the owner of 26,000 shares of the Polytex. These opposite parties fell in arrears of income-tax and wealth-tax dues and the said shares were attached by the Tax Recovery Officer, Kanpur, opposite party No. 2, in the company petition, for the said arrears of taxes. These shares were sought to be acquired by Swadeshi Mining which is a holding company of M/s. Swadeshi Cotton Mills, Kanpur. Since the shareholding of Swadeshi Cotton Mills, Kanpur, in Polytex was more than 30 percent Swadeshi Mining applied for approval of the Central Government for the acquisition of the aforementioned 1,26,000 equity shares. This application was made on March 12, 1981. Admittedly, the Central Government did not signify its refusal to grant the appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire 1,26,000 equity shares as required under section 108A of the Act. Consequently, the sale in favour of petitioner No. 1 was void, illegal and conferred no right, title or interest on the purchaser. As such it invoked the imposition of penalty as provided under section 108F of the Act. A further contention was that the forms set forth under the Companies (Central Government's) General Rules and Forms, 1956, and, in particular, form 7C was not complete in all particulars and was liable to be rejected by the Central Government for it did not give full details of the person (name, address, etc .) from whom the shares were proposed to be acquired. Another contention in this respect was that since the application for approval submitted was deficient and as the deficiency was pointed out by the Central Government to the intending purchaser, the time of sixty days laid down under section 108E of the Act commenced to run from May 7, 1981, and had not expired when the sale had been made in favour of the purchaser on June 30, 1981. Reference in this regard was made to the notes under paragraph 20 of Form 7C. In other words, the contention was that the presumption under section 108E was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... striction on the acquisition of shares in certain circumstances, runs as under: "108A. Restriction on the acquisition of shares. (1) Except with the previous approval of the Central Government, no individual, group, constituent of a group, firm, body corporate or bodies corporate under the same management, shall jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in a public company, or a private company which is a subsidiary of a public company, if the total nominal value of the equity shares intended to be so acquired exceeds, or would, together with the total nominal value of any equity share already held in the company by such individual, firm, group, constituent of a group, body corporate or bodies corporate under the same management, exceeds twenty-five per cent of the paid-up equity share capital of such company. (2) Any person who acquires any share in contravention of the provisions of sub-section (1), shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both". There is a presumption about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to any share acquired in contravention of the provisions of section 108A, section 108B or section 108C of the Act. There is no dispute on the fact that Swadeshi Cotton Mills is the holder of more than 25 percent equity shares in Polytex. As a matter of fact, it is more than thirty percent It is not disputed that Swadeshi Cotton Mills is a holding company in relation to Swadeshi Mining. Swadeshi Mining, therefore, applied for approval of the Central Government for the acquisition of shares which were under attachment with the Tax Recovery Officer, Kanpur, and were for sale. On the question whether prior approval of the Central Government was necessary or not in the present case, an argument was raised by Mr. Rajaram Agarwal, appearing for respondent No. 1, that it was not really necessary as the acquisition of 1,26,000 equity shares did not alter the situation vis-a-vis the Swadeshi Cotton Mills, Kanpur, for the latter already held more than twenty-five percent equity share capital in the Polytex. In other words, he urged that the provisions of section 108A can be attracted only in a case where a holder of less than twenty-five percent of the equity share capital of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such communication was sent by the Central Government in the present case. Therefore, the acquisition could be made by purchase of the shares from the Tax Recovery Officer after May 12, 1981. In fact, the Swadeshi Mining sent two letters thereafter to the Central Government for expediting the grant of the approval for the acquisition of the shares. These letters are dated March 20, 1981, and March 27, 1981. The letter dated March 20, 1981, was replied to by a letter dated May 7, 1981. We will be referring to this letter a little later but at present it would suffice to say that the entire premises of the appellant's contention rests on this letter to urge that although there was no direct refusal to grant the approval for the acquisition of shares, yet in view of the Note underlined paragraph 20 of Form 7C, which is the pro forma of the application for the acquisition of shares, under rules 3 and 4 of the Companies (Central Government's) General Rules and Forms, 1956, made by the Central Government in exercise of its powers under section 642 of the Act. The first paragraph of the notes under paragraph 20 of the Form reads as follows: "Notes: If this application is incompl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares by the two trusts. 2. The names of trustees of the two trusts, namely, A. M. Jaipuria Public Charitable Trust, Kanpur, and Jaidei Devi Anandram Jaipuria Public Charitable Trust, Kanpur, may be furnished. 3. It may be confirmed that the shares will be purchased at the market price prevailing at the stock exchange. It may be noted that pending receipt of the above, your application under section 108A of the Companies Act, 1956, has been closed. Yours faithfully, (S/d-) V. P. UPPAL, Under Secretary to the Government of India". It would be seen that the first paragraph only requires the information whether the Tax Recovery Officer, 'B' Range, Kanpur, has sold the shares under question and if so, the details thereof to be furnished. In case the shares were not sold, intimation may be given whether the Tax Recovery Officer had extended the period for the sale of the shares of the two trusts. The information sought by the Central Government did not have the effect of making the application by Swadeshi Mining a deficient one. This enquiry was made since the sale was intended to be effected on March 15, 1981. It is nowhere required in Form 7C to mention the date by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The shares were not being acquired from the trustees. The shares were under attachment and sale in lieu of arrears of income-tax and wealth-tax dues and were to be sold by the Tax Recovery Officer. None of the paragraphs of Form 7C requires the disclosure of the names or other particulars of the owners of the shares. It is not disputed that the two trusts mentioned above were the owners of the aforementioned 1,26,000 equity shares. The relevant particulars were disclosed in the application under section 108A. It was, therefore, not necessary to disclose the names of the trustees of these two trusts in the application under section 108A. Rule 3 of the Companies (Central Government's) General Rules and Forms, 1956, reads: "The Forms set forth in annexure A, or Forms as near thereto as circumstances admit, shall be used in all matters to which the Forms relate". It is nobody's case that the application made by the petitioners in the company petition under section 108A dated March 12, 1981, was not in consonance with Form 7C prescribed. All the required particulars were there. Thus, it cannot be said that there was a deficiency in the application made to the Central Government for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid shares were under attachment, that the said shares have been sold to the applicant company at the rate of Rs. 19 per share on June 30, 1981, through a registered share and stock broker at Calcutta. Messrs Swadeshi Mining Mfg. Co. Ltd. have thus acquired the aforesaid shares by way of purchases without having obtained prior approval under section 108A of the Companies Act. The question regarding penal action, if any, against the company for contravention of the provisions of the Companies Act is under examination. The next statement made on the floor of the House is dated April 8, 1982, in reply to unstarred question No. 8717. The question is also relevant. Three Hon'ble Members of Parliament had asked: "Will the Minister of Law, Justice and Company Affairs, be pleased to refer to reply given to USQ No. 2545 of December 8, 1981, regarding representation of shareholders of Swadeshi Polytex and state: ( a )Whether the examination has been completed; ( b )If so, the results thereof; and ( c )Action Government proposes to take against the firm?" The answer was given by the Minister of State in the Ministry of Law, Justice and Company Affairs. "Parts ( a ), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 108C. Merely because the matter was under examination and continued to be so would not render the acquisition invalid. We have examined the matter in some detail above and it has been seen that there would be a presumption of approval in case the application under section 108A was not refused by the Central Government and such refusal had to be communicated within sixty days of the making of the application. Admittedly, there was no refusal by the Central Government of the approval sought by the Swadeshi Mining. The Central Government, if it so wishes, may allow an application for approval of acquisition by a specific order and may keep silent for a period of sixty days which would also amount to an approval in view of the provisions of section 108E. Therefore, if a matter is under the examination of the Central Government even after the expiry of the sixty days, it would not override the provisions of section 108E of the Act. The provisions of section 108E are clear. The law provides for communicating refusal of the grant of approval by the Central Government and where it is not so done within 60 days of the making of the application, there would be a presumption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to transfer of negotiable instruments and shares by the Tax Recovery Officer and throws light on the execution of a document of sale by the Tax Recovery Officer. The relevant provision reads as follows: "(1) Where the execution of a document or the endorsement of the party in whose name a negotiable instrument or a share in a corporation is standing is required to transfer such negotiable instrument or share to a person who has purchased it under a sale under the Second Schedule, the Tax Recovery Officer may execute such document or make such endorsement as may be necessary and such execution or endorsement shall have the same effect as an execution or endorsement by the party". It is apparent from the above that when the Tax Recovery Officer is required to transfer such negotiable instrument or share to a person who has purchased it, the Tax Recovery Officer may execute such document or make such endorsement as required and in that event the execution and the endorsement made shall have the same effect as an execution or endorsement by the party. Consequently, it can be said that the disputed shares were being acquired in the present case from the Tax Recovery Officer. He wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il to understand how it was necessary to send for the entire file pertaining to the application under section 108A. It may be mentioned at this stage that the learned company judge has clearly stated that the request for sending for the record from the Central Government was not pressed. Learned counsel for the appellant emphasised that at no stage of the hearing, the prayer was given up. Learned counsel for the respondent, on the other hand, urged that it was so done during the course of arguments. We are mentioning this for this was the stand of the respective parties before us. However, we are not impressed. In our opinion, when all the relevant papers were before the court and since none of the parties before us urged that there were some other specific papers, we do not see the relevance in summoning the record for the purpose of a fishing and roving enquiry. Whenever the record of a case or proceeding is to be sent for, a case has to be made out. If there were other papers, it should have been specified. The prayer for sending for the record from the Central Government was repeated before us, but in view of what has been stated above, we see no good reason to do so. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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