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TMI Blog2015 (5) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... atterns. The Company Law permits it, and that the entire corporate world moves on such permissible transactions. The shares of the Company are bought and sold every day on the Stock Exchanges, which may result into change in the control of the management of the Company. The changes, however, do not affect the contracts under which the Company has to transact its business, including the acquisition of assets, licenses, permits, concessions and leases - In case the argument of learned Additional Advocate General is accepted, the change in the share-holding pattern would amount to cancellation of all such contracts, leading to a complete chaos in the corporate world. Appeal dismissed. - D.B. Civil Special Appeal (Writs) Nos. 294 and 328/2015 - - - Dated:- 14-5-2015 - Sunil Ambwani and Banwari Lal Sharma, JJ. For Appellant: P.S. Bhati, Addl. Advocate General and S.S. Rathore For Respondents: Dushyant Dave, Senior Advocate, M.S. Singhvi, Senior Advocate assisted by Anjay Kothari and Varun Singhvi JUDGMENT Sunil Ambwani, 1. By the intra-court Special Appeal No. 328/2015, the State of Rajasthan through Principal Secretary, Department of Mines, Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the application for transfer alongwith mine inspection form and a check list for transfer of mining lease requesting for examining the enclosed documents for making an order for transfer of mining lease. The Director, Mines and Geology, Udaipur by his order dated 25.4.2012 granted permission for transfer of mining lease in favour of M/s. Gotan Lime Stone Khanij Udyog Private Limited, on certain conditions indicated therein. A mining lease transfer document dated 11.5.2012 was executed between the partnership firm and the Private Limited Company, after which a transfer document was executed and registered. On 5.8.2013, an office order was issued by the Director, Mines and Geology extending the period for execution of document for a period of 15 days under Rule 15(4) of the Rajasthan Minor Mineral Concession Rules, 1986 (for short, the Rules ). On 8.8.2013, the document was re-executed and after payment of requisite stamp duty, it was registered. 4. M/s. J.K. Cement Limited, a Company having business in the cement manufacture in the State of Rajasthan, filed S.B. Civil Writ Petition No. 404/2013, challenging the order of the Director, Mines and Geology dated 25.4.2012 permitti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he show cause notice that all the four Directors of M/s. Gotan Lime Stone Khanij Udyog Private Limited, namely, Shri Ram Vallabh Chauhan, Shri Suresh Chauhan, Shri Ramesh Chauhan and Shri Ram Avtar Chauhan were replaced by three new Directors of the Company on 6.8.2012 and simultaneously, the Company was listed in the Bombay Stock Exchange as a subsidiary of M/s. Ultra Tech Cement Limited Company. These events in sequence make it clear that on the pretext of transfer of mining lease, the mining lease was sold by collusion violating the provisions of Rule 15 of the Rules. 7. M/s. Gotan Lime Stone Khanij Udyog Private Limited filed a reply to the show cause notice on 4.6.2014 to drop the proceedings. In the reply, it was stated that in the Writ Petition No. 404/2013 filed by M/s. J.K. Cement Limited, questioning the order of the State Government dated 25.4.2012 transferring the mining lease, as also the subsequent transfer of shares of M/s. Gotan Lime Stone Khanij Udyog Private Limited, a reply has been filed by the State Government clearly stating that the order dated 25.4.2012 is valid and all the allegations of the petitioner (M/s. J.K. Cement Ltd.) in the said writ petition ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 26.3.2012. The date of purchase of non-judicial stamp on 23.3.2012 by the partners to file the affidavits was immaterial and had no consequence at all. The partners were also promoters of the Private Limited Company and thus, the purchase of non-judicial stamp before the date of incorporation is altogether irrelevant. The application for registration of the Company was submitted to the Registrar much before 23.3.2012. It was open to the promoter-Directors to undertake the contracts in respect of the Company, which is under process of incorporation and thus, the purchase of stamps by the promoter Directors, who happen to be the partners of the firm-Gotan Lime Stone Khanij Udyog, cannot be termed as irregularity in any manner. 9. It was further stated in the reply that the reason given in the show cause notice was that the application for transfer of mining lease was moved in the office of the Assistant Mining Engineer on 28.3.2012, whereas the affidavits duly notarized on 31.3.2012 were submitted later on and the resolution for transfer of mining lease was also moved on 30.3.2012. The application was moved by the Director of the Company and while making the application, all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare-holding and directorship of the Company. The legal position in this regard has been set at rest by a catena of judgments of Hon'ble Supreme Court. Reference was made to the judgment in Amit Products (India) Ltd. v. Chief Engineer (O M) (2005) 7 SCC 393). 12. It was further stated in paragraph (6) of the reply to the show cause notice that the order dated 25.4.2012 has been passed in conformity with the provisions of law and after careful consideration of all the facts and there is no violation of any law whatsoever. The provisions of Rule 15(1-AA) of the Rules permit transfer of whole area of the lease on payment to the Government transfer premium @ 20% of the existing dead rent and subject to the conditions stipulated therein. The transfer was permitted upon charging due transfer premium determined at ₹ 1,42,86,224/- as per applicable Rules at the relevant time. The amount of transfer premium was duly paid pursuant to the order dated 25.4.2012 for which the receipt was submitted with the reply as Annex.4. 13. It was further submitted in the reply that M/s. Gotan Lime Stone Khanij Udyog Private Limited is a Company registered under the Companies Act, 1956. It h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, submitted that the transactions or arrangements, which are perfectly permissible cannot be discarded or treated to be void. It may be apt to rely on the judgments of the Hon'ble Apex Court in the case of UOI v. Azadi Bachao Andolan reported in (2004) 10 SCC 1 and in the case of Vodafone International Holdings BV v. UOI reported in (2012) 6 SCC 613 in this regard. The copies of the said judgments are submitted herewith and marked as J K respectively in the compendium. (8) That the provisions of Rule 15 are attracted only if the lessee transfers the mining lease or any right, title or interest therein or enters into any arrangement, contract or understanding without the previous consent in writing of the competent authority. The mining lease in favour of GLKUPL was duly transferred after obtaining the permission of the competent authority and after payment of the transfer premium. Thereafter, the mining lease has been executed by the State Government with GLKUPL and the firm. GLKUPL is the lessee of the mining lease and continues to be so. The mining lease has not been transferred to anybody and, therefore, the transfer of shares or for that matter, the change of Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the petitioner-Company becoming a wholly owned subsidiary. It was found that the show cause notice was issued against the firm qua the order dated 25.4.2012 on the issues of purchase of non-judicial stamp papers before incorporation of the Company, application for transfer, notarization of the affidavits after the application for transfer was filed and subsequent resolution by the Board of Directors as well as the agreement executed on ₹ 100/- stamp paper when the same should have been executed after payment of stamp duty and registration fee. Subsequent to the order dated 25.4.2012, it was alleged that on 6.8.2012, in place of the existing Directors of the Company, three new Directors joined and the Company was listed as a subsidiary of Ultra-Tech Cement Limited at Bombay Stock Exchange. Referring to the provisions of Rules 15, 20 and 72 of the Rules, learned Single Judge held that the previous consent of the competent authority is necessary before a mining lease for any right, title or interest therein is assigned, sublet, mortgaged or in any other manner transferred. The requirement of prior consent is provided even in a case where the lessee enters into or make any ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order does not qualify as a reasoned order; having discussed the facts of the case, a show cause notice and the summary of the reply, no reasons whatsoever were given to declare the transfer of mining lease as null and void and to cancel the mining lease. 20. Learned Single Judge, thereafter, found that the dates on which the stamp papers were purchased and the affidavits were verified as well as the resolution was passed by the Company after filing of the application, were not the requirement under Rule 15 of the Rules. These were not the papers asked to be submitted and thus, mere filing of the resolution subsequent to the filing of the application cannot be said to be any kind of illegality. In any case, the so-called defects can at best be described as 'inconsequential irregularity', and had no effect on the validity of the order and had no implication on the validity of the order dated 25.4.2012 granting permission for transfer of mining lease. 21. Learned Single Judge held that the allegation made in the show cause notice that instead of four existing Directors of the Company, three new Directors were inducted on 6.8.2012 and thereafter, the Company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate and the new person begins to function as an entity, vide Salomon v. Salomon Co. Its rights and obligations are different from those of its shareholders. A mere fact that the entire share capital of the respondent-Company was contributed by the Central Government and that all its shares are held by the President and certain officers of the Central Government, would not make any difference. The Company and the shareholders are distinct entities. 22. Learned Single Judge, thereafter, relied on the judgment in Amit Products (India) Ltd. v. Chief Engineer (O M) Circle (2005) 7 SCC 393), in which the Supreme Court did not accept the plea that the change of the members of the Board of Directors of the Company or the change in the share-holding pattern will amount to undergoing any change in the appellant-Company. 23. Learned Single Judge held that from the fundamental principles regarding distinction between a shareholder and the Company, it is apparent that merely on account of the Company becoming a subsidiary of Ultra Tech Cement Limited due to transfer of shares of the Company, it cannot be said that the Company is being directly or indirectly financed to a substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company passed resolution on 30.3.2012, in regard to the transfer of mining lease and thus, any act pertaining to transfer prior to the resolution dated 30.3.2012 was null and void and without any consequence. In absence of any resolution, if any application for transfer of mining lease was submitted before the Assistant Mining Engineer, Gotan, it was not acceptable. When the resolution itself was passed on 30.3.2012, it could not be attached to the application dated 28.3.2012. There was no such entry or mark of deficiency in the application. 26. Learned Additional Advocate General submits that the order for transfer of mining lease was issued as per the provisions of Rule 15 of the Rules. It cannot be said to be non-revocable or immune from cancellation, if any discrepancy or mistake was pointed out. In the order dated 16.12.2014, the reply of the lease holder was considered and after examining all relevant facts and circumstances, it was found that the transfer of mining lease was not valid and was contrary to the Rules. The show cause notice dated 21.4.2014 contained the questions that in the garb of transfer of mining lease, the mines have been sold by conspiracy in vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that learned Single Judge has not noticed that the State Government in its order dated 16.12.2014 has taken cognizance of the objections filed by M/s. J.K. Cement Limited (appellant) while issuing the order dated 16.12.2014. Learned Single Judge erred on facts in holding that the respondents have not chosen to make the allegations made by M/s. J.K. Cement Limited as a ground for cancelling the permission dated 25.4.2012. Learned Single Judge erred in holding that no personal hearing was allowed to the petitioner in making the order dated 16.12.2014, while the respondent-petitioner had categorically admitted that it is not the case of the petitioner that opportunity was not given to it before the cancellation of the mining lease. Rule 20 of the Rules was misconstrued. Learned Single Judge erred in holding that Rule 20 of the Rules pertains to the currency of lease deed and right to continue to work, which may have implications while granting fresh lease, renewal of the lease and apparently, it had no application in the case of transfer of lease. The defects pointed out in the show cause notice were wrongly held to be inconsequential irregularities. Learned Single Judge erred in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of larger conspiracy to transfer the complete control over the operation of the mines by circumventing the law. 29. It is submitted that learned Single Judge failed to appreciate that the Anti Corruption Bureau of the State of Rajasthan, after conducting a thorough investigation into the facts circumstances leading to grant of permission for transfer of mining lease, had levelled serious charges of corruption, cheating and conspiracy, in the matter of unlawful and fraudulent transfer of lease and lodged FIR No. 274/2014 under section 13(1)(d) 13(2) of the Prevention of Corruption Act, 1988 and section 420 read with section 120B IPC against the past and present Directors, which is pending before the Special Judge (ACB Court) at Ajmer. The order of learned Single Judge dated 25.3.2015 is bound to influence and affect the pending criminal proceedings. 30. It was also submitted that the impugned order/judgment will cause a shadow on the pending Writ Petition No. 404/2013 and will cause irreparable loss and injury to the appellant-J.K. Cement Limited, besides occasioning a failure of justice. 31. Learned counsel appearing for the respondent-Company has supported the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for part transfer of mining lease made in the year 1997 was rejected. A revision was filed in which the revisional authority directed the State Government to send proposal for part transfer of lease. The proposal sent in pursuance to the revisional order passed in the year 1997 is still pending. It is alleged that despite several letters sent to process the proposal, the State Government did not take any action, on which the Writ Petition No. 404/13 was filed. 34. In the present case, we are not concerned to enquire as to whether the delay in filing the writ petition No. 404/13 was purposive and that M/s. J.K. Cement Limited has been keeping its right alive despite having lost the cause of action in the last 17 years in approaching the Court. It is apparent from filing of the writ petition and making an application before the Lokayukta, Rajasthan that the entire attempt of M/s. J.K. Cement Limited was either to seek part transfer of lease for which it did not take any effective steps in the last 17 years or to keep the entry of any other business rival blocked. The filing of the writ petition after the transfer order and in making the application for impleadment in a writ p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest therein and clause (b) includes within the transfer any arrangement, contract or understanding whereby the lessee will or may be directly or indirectly financed to a substantial extent by, or under which the lessee's operations or undertakings will or may be substantially controlled by any person or body of persons other than lessee. All these categories of transfers and arrangements by which the transfer may be carried out are permissible with the previous consent in writing of the competent authority. 38. We entirely agree with learned Senior Counsel appearing for the respondent-Company that the transfer by any means such as provided in Rule 15(1)(a) (b) is permissible with the previous consent in writing of the competent authority. The transfer of interest under sub-rule (1)(a) and the transfer of control under sub-rule 1(b) is also permissible provided it is with the previous consent in writing of the competent authority. What was required to be considered by learned Single Judge was as to whether any attempt was made by the transferor of the mining lease in concealing the true facts and the intention behind the transfer to an entity other than to which the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders. The liability of an individual member is not increased by the fact that he is the sole person beneficially interested in the property of the corporation and that the other members have become members merely for the purpose of enabling the corporation to become incorporated and possess only a nominal interest in its property or hold it in trust for him. The mere fact that the entire share capital of the Company was contributed by another Company, would not make such other Company the owner of the assets of the Company in which the shares are held. The assets of the Company belong to the Company and not to its shareholders. 41. The entire corporate business is run through contracts, which may give statutory or non-statutory rights to the Company. A Company may apply and become the owner of the license, permit, concessions and lease under the statutory schemes of various statutes, under which the Company carries out its business. In all such cases, the license, concessions, permit and lease are the property of the Company and not of its shareholders. The shareholders may keep on changing and the control and management in the Company may also undergo changes on such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the felicitous phrase of Lord MacMillan in IRC v. Crossman (1936) 1 All ER 762 (HL), shares in a company consist of a congeries of rights and liabilities which are a creature of the Companies Acts and the memorandum and articles of association of the company. Thus, control and management is a facet of the holding of shares. 43. We do not find any substance in the reliance placed on the judgment of Supreme Court in Victorian Granites (P) Ltd. v. P. Rama Rao and ors. (1996) 10 SCC 665), in which it was held that the socio-economic justice is the arch of the Constitution and the public resources under Article 39(b) must be distributed to achieve that objective since liberty and meaningful right of life are hedged with availability of opportunities and resources to augment economic empowerment. The principles sought to be developed in Victorian Granites (P) Ltd. (supra) have not been accepted by the Supreme Court in Natural Resources Allocation, In Re, Special Reference No. 1 of 2012 (2012) 10 SCC 1), in which while distinguishing the judgment in 2G Spectrum Case, it was held in paragraph 129 that there is no constitutional mandate in favour of action under Article 14. The Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, whatsoever in the provisions of its Memorandum and Articles of Association or in its capital structure without the written consent of the Lessor, first had and obtained, and while granting such consent, the Lessor may require the successor in interest of the Lessee to enter into a binding contract with the Lessor to abide by and faithfully carry out the terms, conditions, stipulations, proviso and agreements. The guidelines in clause 6.01(F) define the transfer to mean disposal of controlling interest in the venture by the existing allottee. On these binding terms and conditions, the Supreme Court held that the transfer of controlling interest in a Company would be by way of changing the capital structure, which was a transfer within the meaning of terms and conditions agreed between the Corporation and the Company and which required prior permission and levy of transfer fees. The facts of the present case are not comparable, inasmuch as, there is no such undertaking or declaration attached in respect of the mining lease, of which the transfer is regulated by the provisions of Rule 15 of the Rules, which do not provide for any prior permission where the controlling interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and permission in case of change in the share-holding patterns of the Company, affecting their business. We, therefore, reject the submission of learned Additional Advocate General and learned counsel appearing for M/s. J.K. Cement Limited that any consequence of the change in the share-holding pattern of the Private Limited Company by which it became a wholly owned subsidiary of Ultra Tech Cement would have required a permission for transfer or that if such proposal was in the making, the change in the personality of the partnership firm to a Private Limited Company would require previous consent in writing of the competent authority. 47. We entirely agree with the reasons assigned by learned Single Judge that no material has been placed on record to suggest that the transfer of the mining lease from the partnership firm to a Private Limited Company was made with a design to ultimately transfer the shares to Ultra Tech Cement Limited. There is no evidence to suggest any such design or attempt at the time when the application was made for transfer of mining lease by the partnership to the Private Limited Company. 48. We also do not find any case of cheating or fraud in th ..... 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