Case: Cipla Limited Vs. Union of India

Supreme Court is pending final disposal. Shri Korde, learned counsel appearing on behalf of the petitioners, submitted that in the present case, even accepting the validity of the explanation, the department is in error assuming that the benefit of exemption notification is not available to the company in view of the explanation. The company had entered into correspondence with the Assistant Collector of Central Excise, bombay claiming benefit of exemption notification and the department declines to accept the claim. Ultimately, while approving the classification list filed by the company, the Assistant collector of Central Excise by order dated March 17,1982 held that the company is not entitled to exemption under the notification dated April 1,1977. The company therefore preferred the present petition to challenge the order of the Assistant Collector and denial of benefit of exemption notification.( 4 ) IN answering to the petition, Shri Sadanand A. Marballi, Assistant Collector, Central Excise has filed return sworn on January 23,1987 and claimed that the company is not entitled to the benefit of exemption notification in view of the explanation. In view of the rival contentions, a short question which falls for determination is whether the benefit can be denied to the company on the ground that the company is a manufacturer which holds share in the capital of foreign company and part of the capital of the petitioner company is held by a foreigner. Before examining the factual aspect of the matter, it is necessary to set out that the exemption notification was issued by the Central Government in pursuance of formulating drug policy and with the desire that the indigenous pharmaceutical company would create and reduce the predominance of corporations having foreign interest in the pharmaceutical industry in India. To achieve this object, the exemption notification deprives the manufacturing company which holds share in the capital of any foreign company or the part of the capital of the manufacturer is held by a foreigner. It is not in dispute that the petitioner company which was incorporated on August 17,1935 is purely an Indian company and none of the foreign company has any interest in its share capital. ( 5 ) SHRI Deodhar, learned counsel appearing on behalf of the department, submitted that the petitioner company is not entitled to advantage of exemption notification because the petitioner company holds share in the capital of foreign company. It is not in dispute that the petitioner company in pursuance of encouragement given by the Central Government has started a joint venture in Malaysia with a total investment of Rs. 2,55,2100/ -. The joint venture or collaboration was with the company registered in Malaysia known as Barket Pharma Sandirian Gerhad. The petitioner company held certain shares in the collaborators company. It is not in dispute that the collaboration agreement came to an end in March 1981. We are unable to accede to the submission of Shri Deodhar that in view of the collaboration agreement which the petitioner company had entered with the Malaysian company in pursuance of the encouragement given by the Central Government, the benefit of exemption notification should be denied under the explanation (a) (i) on the ground that the petitioner company held shares in the capital of the foreign company.( 6 ) SHRI Deodhar then submitted that in any event, the advantage of exemption notification is not available because the part of the capital of the petitioner company is held by a foreigner. The factual data in this respect is set out in the annexure to affidavit dated June 16,1993 sworn by P. Venkitasubramani, the Company Secretary. The perusal of the annexure indicates that on january 1,1980 the issued capital of the petitioner company was to the extent of Rs. 18,77,300/-equity and Rs. 6,00,000/- preference shares. Out of this, the capital of 628 equity and 137 preference shares of value of Rs. 76,500/- vested in the custodian of enemy property of India under the provisions of Evacuee Property Act. The property of the holding vested in the custodian was only 3. 09%. One Shri J. A. Parkar, residing at Singapore and a British national had expired and at time of demise, was holder of 14 equity shares of value of Rs. 1,400/ -. The legal heirs of Shri Parkar did not seek transfer of shares. Shri Deodhar submitted that as 3. 09% of issued capital was held by custodian and 0. 05% by Shri Parkar, a British national, it must be concluded that the part of the capital of petitioner company was held by a foreigner. We are unable to accede to the submission of the learned counsel. The vested interest in favour of custodian under the Evacuee Property Act was by operation of law and merely because the holders of equity and preference shares holding 3. 09% of the issued capital had left the country after partition in the year 1948 that cannot lead to the conclusion that the petitioner company is not entitled to the benefit of exemption notification. It is incorrect on the part of the department to overlook the object of issuance of the notification and deny the advantage on such technical grounds. Same is the case in respect of 14 equity shares of face value of Rs. 100/- each held by a British national prior to his demise. In our judgment, the percentage of issued capital held by the custodian and Shri Parkar is negligible that the denial of advantage of exemption notification would defeat the object with which the Government issued the notification. The object of encouraging indigenous industries in respect of manufacture of patent and proprietary medicines would stand defeated if advantage of exemption notification is denied to the petitioner company on the facts and circumstances of the case. In our judgment, the Assistant Collector was in error in passing the impugned order dated March 17,1982, copy of which is annexed at Exh n to the petition. The company is entitled to advantage of the benefit of exemption notification which is still in operation.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]It is not in dispute that the petitioner company in pursuance of encouragement given by the Central Government has started a joint venture in Malaysia with a total investment of Rs.. The joint venture or collaboration was with the company registered in Malaysia known as Barket Pharma Sandirian Gerhad. The petitioner company held certain shares in the collaborators company. It is not in dispute that the collaboration agreement came to an end in March 1981. We are unable to accede to the submission of Shri Deodhar that in view of the collaboration agreement which the petitioner company had entered with the Malaysian company in pursuance of the encouragement given by the Central Government, the benefit of exemption notification should be denied under the explanation (a) (i) on the ground that the petitioner company held shares in the capital of the foreignare unable to accede to the submission of the learned counsel. The vested interest in favour of custodian under the Evacuee Property Act was by operation of law and merely because the holders of equity and preference shares holding 3. 09% of the issued capital had left the country after partition in the year 1948 that cannot lead to the conclusion that the petitioner company is not entitled to the benefit of exemption notification. It is incorrect on the part of the department to overlook the object of issuance of the notification and deny the advantage on such technical grounds. Same is the case in respect of 14 equity shares of face value of Rs. 100/each held by a British national prior to his demise. In our judgment, the percentage of issued capital held by the custodian and Shri Parkar is negligible that the denial of advantage of exemption notification would defeat the object with which the Government issued the notification. The object of encouraging indigenous industries in respect of manufacture of patent and proprietary medicines would stand defeated if advantage of exemption notification is denied to the petitioner company on the facts and circumstances of the case. In our judgment, the Assistant Collector was in error in passing the impugned order dated March 17,1982, copy of which is annexed at Exh n to the petition. The company is entitled to advantage of the benefit of exemption notification which is still in operation.