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TMI Blog1971 (3) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Monopolies and Restrictive Trade Practices Act, 1969, hereinafter referred to as "the Monopolies Act". We also propose to dispose of these two appeals by a common judgment as both the matters have been heard together and involve common facts and identical points for consideration. 2. On 1st September, 1945, Telco was incorporated as a company under the Indian Companies Act, 1913. Its authorised capital is ₹ 24 crores. Its subscribed capital aggregates to ₹ 18,44,81,325 composed of ordinary, cumulative preference and cumulative redeemable "A" preference shares, all fully paid-up. Its main objects are to carry on the business of manufacturing, selling and dealing in locomotives, motor vehicles, trucks, lorries, omnibuses, machinery, tools, etc. One of the objects mentioned in the memorandum contains ancillary objects, one of the which is to amalgamate with any company or companies. Telco has, in fact, been carrying on the business of manufacturing and selling diesel commercial vehicles, excavators, power shovels, industrial shunters, machine tools, industrial tractors, etc. There is no dispute that its gross assets at the material time well exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk did not make any move for getting that compensation payable to it ascertained. Then followed the second Ordinance and the second Bank Nationalisation Act, No. V of 1970. The letter Act itself fixed the amount of compensation payable to the various nationalised banks. 5. The second bank Nationalisation Act came into force on 31st March, 1970. The board of directors of the old Central Bank considered how the option to receive compensation payable under Act V to 1970 should be exercised. The old Central bank exercised its opinion to take its compensation in the form of ₹ 50,000 in cash and the balance in the form of five and a half per cent. per annum promissory notes of the face value of ₹ 17,49,50,000. On an inquiry from Mr. Bhabha, the learned counsel for the appellants, Mr. Nariman, the learned counsel for the respondents, stated that the old Central Bank actually received the said five and a half per cent. per annum promissory notes on 8th May, 1970. 6. Thereafter, as appearing from the report of the board of directors of the old Central Bank for the year 1969, the board applied its mind to the future of that company. Various views in that regard had been discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the board of directors had come to the conclusion that it would not be in the best interests of the company or its shareholders to undertake any other business within the framework of the company's memorandum as, for example, the business of a finance and investment company, because, apart from the difficulties involved in setting up such a unit which would operate in a competitive filed, such a business did not appear to ensure prospects of a steady and reasonable return to the shareholders on a par with the return till then yielded on the company's shares, nor did it inspire of any hope of adequate capital appreciation. It further refers to the proposed amalgamation and the comparative advantage to the company and its shareholders if the amalgamation became operative. 9. On the same day, i.e, 29th September, 1970, the old Central Bank also sent to its shareholders another notice convening an extraordinary general meeting of the shareholders on 26th October, 1970, for the purpose of considering and passing of the two resolutions, the first being for amendment of its memorandum and the second being to authorise its board of directors, in pursuance of section 293(1)(c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals before us, by consent of parties, a statement of the deposits made by the old Central Bank has been put in as exhibit No. 1. The statement shows particulars of the various amounts of deposits made by the old Central Bank as fixed deposits with diverse bank which aggregate to ₹ 4,96,50,000 and that with Telco which aggregate to ₹ 11,20,00,000. 14. Telco and the old Central Bank filed the present two company petitions on 17th November, 1970, and 25th November, 1970, respectively. On 8th February, 1971, an order was made by the company judge sanctioning the alterations in the memorandum of the old Central Bank. 15. The judgment and orders which are the subject-matter of these appeals were thereafter passed on 17th February, 1971. 16. The main dispute between the parties turns on the provisions of section 23, and particularly of sub-section (1), of the Monopolies Act. Section 23 occurs in Chapter III of the Act, the Chapter heading being "Concentration of Economic Power". There are 11 sections in this Chapter divided under Parts A, B and C. Sections 20 to 26 appear under Part A, section 27 appears under Part B and sections 28 to 30 appear under Part C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) if they are under the same management within the meaning of section 370 of the Companies Act, 1956, or (d) if one exercises control over the other in any other manner, (iv) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm, - (a) hold, directly or indirectly, not less than fifty per cent. of the shares, whether preference or equity, of the body corporate, or (b) exercise control, directly or indirectly, whether as director or otherwise, over the body corporate, (v) if one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management within the meaning of the said section 370, (vi) if the undertakings are owned or controlled by the same person or groups of persons, (vii) if one is connected with the other either directly or through any number of the undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub-clauses." 21. Clause (r) of section 2 provides : "'service' means service of any description which is made available to potential users ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was acquired as aforesaid, a power survived in the old Central Bank, and it was open to it to carry on the business mentioned, for example, in the said sub-clauses (c), (d) and (q) of clause (III) of the unamended memorandum itself. He then contended that as a matter of fact the old Central Bank did carry on business after 19th July, 1969. He pointed out that the balance-sheet of the old Central Bank of the year 1969 shows that its directors were paid remuneration which indicates that board meetings were being held and that the directors were acting on behalf of the old Central Bank. The old Central Bank through its directors acted and exercised the option as aforesaid and obtained the compensation in the cash sum of ₹ 50,000 and in the five and a half per cent. per annum promissory notes of the face value of ₹ 17,49,50,000. The old Central Bank through its board also considered the three alternatives for carrying on business for earning profits. It also through its board carried on negotiations with Telco for amalgamation. He contended that these act show that the old Central Bank was carrying on business through its board of directors. He further relied on the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhabha has contended that if the amalgamation does not fructify, the old Central Bank will still remain entitled to carry on the business of producing goods. On the other hand, Mr. Nariman contended that in spite of these amendments having been made, in view of the provisions of section 17(1)(g) of the Companies Act, 1956, if the object of amalgamation falls through, the enlarges scope of its objects would not remain operative. In our opinion, it is unnecessary to decide whether the amendments made in its memorandum would or would not survive the falling through of the proposed amalgamation. It should, however, be noted that a memorandum of a company registered under the Indian Companies Act, by itself, confers merely a power to carry on business but whether such power is thereafter exercised for carrying on business is a question of fact and only if such facts and only if such facts exist then it can be said that the company "is engaged in" carrying on business of producing goods or making provision for service. A memorandum is a pre-requisite to the registration of a company under the Companies Act. It is common knowledge that in the case of many companies they do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be a question of intention in each case. For illustration, a person may buy shares of joint stock companies and, depending on his intention, which is to be gathered from actual facts of his dealing with share he buys, he may have done so either as and by way of pure investment or by way of operating in shares by way of business. The distinction in the concepts is clear, although in some cases it may be difficult to ascertain it from a given set of overt acts. In the case of the old Central Bank, on the compulsory acquisition of its business, it had no option left but to take compensation as provided under Act V of 1970. Compensation was payable in certain alternative ways. Exercising an option in selecting the five and a half per cent. per annum promissory notes or, for the matter of that, any of the three alternatives provided by the statute, certainly does not disclose an intention to acquire them for doing business as an undertaking carrying on investment business. The old Central Bank subsequently sold the said five and a half per cent. promissory notes and made deposits out of the sale proceeds thereof. The intention of so doing has been specifically and clearly stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a corporate existence and the process of making up its mind is by way of a discussion and the passing of a resolution at the meetings mostly of directors and occasionally of the general body of shareholders. The work done at the board meetings referred to by Mr. Bhabha is merely in the process of the making up of the company's mind and arriving at a decision. The process similar to what goes on in the mind of a human being when he considers a problem and arrives at a decision. The mere fact of holding of those meeting of the board of directors does not, by itself, amount to carrying on business. What happened at the board meetings would merely disclose the intention of the company. But in the present case no intention is disclosed to carry on any activity of the nature of a business. 26. Mr. Bhabha also pointed out from the said directors' report of the old Central Bank for the year 1969 that the directors had also allotted 184 shares after 18th July, 1969. The statement in the report, however, clearly shows that these shares were allotted in pursuance of an obligation which existed prior to the nationalisation of its banking business. Allotment of its own shares by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material time, i.e., the date of the application under sections 391 and 394 of the Companies Act, 1956, and the order thereon and that, although it may not have done so immediately prior to the material time and may not be doing so and may be in hibernation as it were at the material time, it may yet fall within the definition of the said clause (v) if it continued to have a capacity and an intention to do so at a convenient time after the material date. If an undertaking was, as a matter of fact, engaged in production of goods or provision of services but because of some reason like strike, lock-out or non-availability of raw material, it was not actually so engaged at the material time but it intended to resume such activity in future upon the reason for the cessation of its activity disappearing, it can still be said to fall within the phrase "is engaged in" occurring in the said clause (v) of section 2 of the Monopolies Act. In short, a legal capacity to carry on the activity and an intention carry it on the cessation of the period of inactivity must co-exist. Mr. Bhabha, however, on the other hand, argued that if the capacity, i.e., legal competence exists, it is suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said phrase quoted above and, thereafter, in the phrase "any other undertaking". At an earlier stage Mr. Bhabha contended that the word "undertaking" in the said first phrase has the meaning not as defined in section 2(v) but has its common or dictionary meaning. At a later stage he specifically stated that he abandoned that contention and accepted that the word had the same meaning defined in section 2(v). There is no dispute between the parties that Telco is an undertaking to which Part A of Chapter III applied. Mr. Bhabha, however, contended that the word "undertaking" in the said second phrase "any other undertaking" would, if his earlier contention about the construction of the word "undertaking" under section 2(v) was not accepted - and we have earlier in this judgment not accepted it - have its ordinary i.e., dictionary meaning, because of the context in which it occurs not only in the case of an inclusive definition but also in the case of an exhaustive definition like the one in section 2(v). It would be possible in law to read a word, even if defined in the statute, in a modified sense if the context so requires. He supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er undertaking" must be interpreted, not as defined in section 2(v) which gives to it a restricted meaning in the way in which we have already construed it but in its ordinary dictionary meaning which is wider. He contended that it is to prevent concentration of economic power that clause (a) of section 20 provides that the provisions of Part A shall apply if the value of the assets of an undertaking is not less than ₹ 20 crores and clause (b), which has to be read with clause (d) of section 2, provides that such value must be not less than one crore of rupees, and then enacts the limitation on such grants as contained mainly in sections 21, 22, 23 and 24 but also the other provisions of Part A, the provisions of Part B and C being merely in the nature of machinery sections. 31. Now in section 20 occur the words "undertaking" and "its assets". "Its assets" must mean the assets of the undertaking. But does it mean the assets of the undertaking itself or does it mean the assets of the owner of the undertaking ? An undertaking may be owned by a body corporate, i.e., a company or by an individual or by a firm or even by some other owner like, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny description", mean the goods of a particular kind. If the same owner is producing two different kinds of goods, say, textiles in a factory at Bombay and sanitary ware in another factory at Madras, and the latter falls under clause (d) of section 2, "its assets" under clause (a) of section 20 would require "its assets" to be interpreted to mean the assets of the undertaking which provides sanitary ware and not the assets of the owner. It would appear that the provisions of the clause (b) of section 20 also would require each of the different activities or businesses as of the same owner to be considered separate undertaking. 34. In our opinion, in view of this confusion, "undertaking" should not be identified with its owner unless the context in which it occurs requires it to be so construed. In clause (a) of section 20, "its assets" must be construed in its natural or grammatical sense and the phrase must mean assets employed in the conduct of a particular undertaking. 35. The avowed object and intention of the Monopolies Act as disclosed in its preamble and the heading of Chapter III is to prevent concentration of economic power. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revent the company from acquiring funds otherwise than by issue of fresh capital. The reason can be found in the other provision of sub-section (1) of section 21 by which control is provided for being exercised when such a giant undertaking, be it a company or other than a company, proposes to expand its production of goods or provision of services with such further funds. The conclusion is that section 21 does not prevent such a giant undertaking from acquiring funds as distinguished from acquiring new machinery or other equipment, which latter is only sought to be controlled by section 21 and the object of the preamble and the chapter heading of preventing concentration of economic power is not intended to prevent such a giant undertaking even when it is a company, from acquiring funds otherwise than by issue of fresh capital. Moreover, issue of fresh capital would not be apt in the case an undertaking which is not owned by a company and the legislature has not at all controlled so far as section 21 is concerned, the acquisition by such an undertaking of further funds and has introduced control only when, with the additional funds, it proposes to install new machinery or other eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an interconnected undertaking which is a dominant undertaking but must yet not be engaged in the activity of producing goods. It excludes the said second class. Conversely stated, the exception would apply only to an undertaking which is an inter-connected undertaking which is a dominant undertaking engaged in the provision of service, that is an undertaking of the said fourth class. The language of the sub-section appears to be a little involved but its meaning is clear. Instead of providing affirmatively that the exception applies only to undertakings of the said fourth class it uses negative language to exclude the said first three classes leaving, as a result, only the said fourth class to fall within the exception. The effect is that from the application of the general provisions contained in sub-sections (1) and (2) of section 23, sub-section(3) excludes inter-connected undertakings which are dominant undertakings engaged in the provision of service. This interpretation yields the conclusion that the although the object and intention of the legislature, generally speaking, is to prevent concentration of economic power, in making the actual provisions in the statute the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a new undertaking for the purpose of consideration under section 22 because the undertaking would not at that stage have been established and therefore it cannot be said in the case of such an undertaking that it "is engaged in" production of goods or provision of service. Now, the obvious answer is that the context of section 22 definitely requires that the word "undertaking" as used in section 22 should not be construed and as a matter of fact cannot be construed to have the same meaning as contained in the definition in clause (v) of section 2. In section 22 itself there is overwhelming material to justify holding that the context so otherwise requires, because the words used are not "any undertaking" but are "any new undertaking" in sub-sections (1) and (2) of section 23 and, moreover, in sub-section (2) the adjectival phrase "which is intended to be established" has been used to qualify the phrase "new undertaking". The latter adjectival phrase would clearly show that the use of the phrase "which is intended to be established" would be totally inconsistent with the concept of an undertaking which, as re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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