Case: Tata Iron and Steel Company Limited Vs. S State of Maharastra

( 2 ) THE facts giving rise to the petition may be stated. Thewas incorporated on 28th of August, 1907, under the Indian Companies act VI of 1882, having its registered office at Bombay House, 24, Homi Mody Street, Fort Bombay. The authorised capital of theis Rs. 56,50,00,000 divided into 50,000 6% cumulative preference shares of rs. 150 each; 7,00,000 7 1/2% cumulative second preference shares of Rs. 100 each; 3,75,000 7 1/2% cumulative "a" second preference shares of Rs. 100 each and 60,00,000 ordinary shares of rs. 75 each. The issued capital of theis Rs. 50,20,87,125 divided into 50,000 6% cumulative preference share of Rs. 150 each; 7,00,000 7 1/2% cumulative second preference shares of Rs. 100 each 3,71,909 7 1/2% cumulative "a" second preference shares of rs. 100 each; 51,65,283 ordinary shares of Rs. 75 each; while the subscribed capital of the company is Rs. 49,98,22,189 divided into 50,000 6% cumulative preference shares of Rs. 150 each, 6,93,819 7 1/2% cumulative second preference shares of Rs. 100 each; and 3,71,384 7 1/2% cumulative "a" second preference shares of Rs. 100 each and 51,027 () ordinary shares of rs. 75 each (less calls unpaid Rs. 1363 ) THEwas formed for the several objects as are set out in its memorandum of association, and the principal objects are :(a) to carry on in India and elsewhere the trade or business of iron masters, steel makers, steel converters, manufacturers ofcolliery proprietors, coke manufacturers, minders, smelters, engineers, tin plate makers and iron founders, in all their respective branches; and (b) To search for, get, work, raise, make merchantable, sell and deal in iron, coal, ironstone, limestone, manganese,ay, brick earth, bricks, and other metals, minerals and substances, and to manufacture and sell briquettes and other fuel, and generally to undertake and carry on any business, transaction or operation commonly undertaken or carried on byte explorers, prospectors or concessinaires and to search for, win, work, get, calcine, reduce, amalgamate, dress, refine and prepare for the market any quartz and ore and mineral substances and to buy, sell, manufacture and deal in minerals and mineral products, plant and machinery and other things capable of being used in connection with mining or metallurgical operations or required by the workmen and others employed by the company. However, since its incorporation, thehas been carrying on the business of manufacturers and dealers in iron and steel and some of the other businesses set out in its memorandum of4 ) IT appears that in the early part of the last war, theall in supplies of cooking coal from the market collieries due to gradual exhaustion of deposits of good cooking coal in the Jharia Coalfields. Thetherefore, decided to acquire new reserves of cooking coal, and for this purpose, a sublease of about 13,000 bighas in the West Bokaro Coalfield was obtained from Bokaro and Ramgur Ltd. , who were the lessees of this area and whose managing agents were Anderson Wright and company. In conformity with the terms of the arrangement for obtaining thea subsidiary company, called West Bokaro Ltd. (hereinafter called "the transferor company") was formed as a private company, wholly owned by theto take theof west Bokaro and work the coal field for supplying cooking coal to the5 ) THEwas incorporated on the 27th day of March, 1945, under the provision of the Companies Act VII of 1913 as a private company. By virtue of the provisions of section 43a of the Companies Act, 1956 (as subsequently amended), thehas technically become a public company. The principal object, amongst others, of theis to acquire by lease,grant, assignment, transfer or otherwise any leases, prospecting licences, grants or concessions of any coal and mineral lands, coal or other mines, mining rights, concession and property believed to contain coal or other minerals from any person or persons, firm, syndicate, company, corporation, Government, municipality and to perform and fulfill the condition thereof and particularly to obtain afrom Bokaro and ramgur Ltd. , a company incorporated under the Indian companies Act, 1882, and to work the same and perform and fulfill the conditions thereof.( 6 ) IT appears that one of the terms of the arrangement for obtaining by thease from Bokaro and Ramgur Ltd. was that Messrs. Anderson Wright and Company, the managing agents of Bokaro and Ramgur Ltd. , who had been managing the colliery, be appointed the managing agents of the new company, West Bokaro Ltd. , i. e. , theand they were accordingly so appointed for a term of 20 years from 27th March, 1945, subject to termination of the agreement by either party at any time after the expiration of 10 years from that date, after giving 12 calendar months notice. Pursuant to the above provision for termination, the managing agency of Messrs. Anderson Wright and Company was terminated as from 1st April, 1958, after due7 ) AS the condition that Messrs. Anderson Wright and Company shall be the managing agents of theno longer exists and the managing agency has been terminated, the directors of both the companies consider it desirable to amalgamate the two companies in the interest of consider it desirable to amalgamate the two companies in the interest of economical working and with the view to save the expense of running theas an independent unit. It appears that thehas been having within its organisation a collieries department managed by experienced personnel, which department looks after the companys group of collieries, and, therefore, it appears that even after the proposed amalgamation is sanctioned by the court, thewould be able to run the West bokaro Colliery of thewith the help of its own colliery department. The case of thehas been that thehas throughout remained and still is a hundred per cent. subsidiary of theand, what is more, thesole business is that of running the West Bokaro Colliery and supply its entire production, i. e. , the whole output of coal from Bokaro Colliery to theand, therefore, the proposed amalgamation of the two companies would undoubtedly result in economic working so far as the production of cooking coal and coal is concerned. It is the case of thefurther that it is in good financial position according to its latestfor the year ending 31st March, 1973, and the value of its assets exceeds its liabilities by more than three times; and since the date of the lastthere has been no substantial or material changes in the financial structure or position of theas would affect its solvency; and that no proceedings are pending in relation to theunder any of the sections 235 to 251 of the Companies Act, 1956. Similarly, theis also a solvent company and is in good financial position and its assets exceed its liabilities, and that the interest of the creditors of neither of theany will be affected by the proposed amalgamation. Since the board of directors of both the companies were of the opinion that no useful purpose will be served by the said companies continuing as separate entities, and in fact their amalgamation would be advantageous to both as the same would result in economic working and would also save expenses of running theas an independent unit, the board of directors of both the companies, therefore, decided to amalgamate theany with effect from 1st of April, 1973. Accordingly, a scheme of amalgamation of theany was evolved and the same has been approved by the board of directors of both the companies.( 8 ) THE salient features of the proposed scheme of amalgamation have been set out in(i) to (viii) of para. 6 (g) of the petition, and briefly stated, the scheme of amalgamation provides that upon sanction being obtained from this court, the same will become effective from 1st of april, 1973 (which has been termed as the "appointed day") from which day the undertaking and all the property, rights and powers of theshall without further act or deed by deemed to be and be transferred to and vested in theand all the liabilities and duties of theshall as from the appointed day become the liabilities and duties of theand on the scheme becoming effective, thewould be dissolved without winding up; and in consideration of the transfers of its properties, rights and liabilities and duties as aforesaid, 1,50,000 equity shares or Rs. 100 each, being the whole of the subscribed and issued capital of theheld by theeither in its own name or in the name of its nominee in the capital of theshall stand cancelled without further act or deed. The scheme is conditional on its being sanctioned by this court as well as by the Calcutta High Court where an application for the same purpose is being made by West Bokaro Ltd. under sections 391 and 394 of the companies Act, 1956, and a provision is also made for the contingency of sanction being delayed at the hands of either this court or the Calcutta High Court, and, in that event, it has been provided that the appointed day on which the amalgamation is to become effective shall be extended (by thethrough its board of directors and by thethroughout its board of directors), but failing such agreed extension of the appointed day, the scheme, if not sanctioned on or before 31st of March, 1974, will become null and void. It is undisputed that the appointed day has been extended both by thethrough its board of directors as well as by thethrough its board of directors till 31st March, 1975 (vide the affidavit of Smt. Khorashed Rustom Zaveri dated 22nd April, 1974 ). It is under these circumstances that thehas made this application for obtaining sanction of this court to the scheme of amalgamation under sections 391 and 394 of the Companies Act,9 ) ON a judges summons (Company Application No. 65 of 1973) that was taken out by thean order was passed on 29th of June, 1973, giving certain directions to thefor the purpose of convening a meeting of all its members on 21st of August, 1973, for the purpose of considering and if though fit approving with or without modification the proposed scheme of amalgamation, and one of the directions of given was that over such meeting of its members, either Mr. J. R. D. Tata or Mr. N. A. Palkhivala, and failing both, Mr. S. Moolgankar should act as the chairman and that the chairman should report the result of the meeting to this court. Accordingly, a meeting of all the members of thewas duly convened on 21st August, 1973, at Birla Motushri Sabhaghar, 19, Marine Lines, Bombay, whereat Mr. J. R. D. Tata acted as the chairman. Suffice it to say that by an overwhelming majority of the members who were present and entitled to vote, the scheme of amalgamation that was put before the meeting was approved, and the necessary resolution approving the same was passed, and in due course the chairman of that meeting filed his report in this court on 14th september, 1973. It appears that thehad also made an application under section 391 of the Companies Act to the Calcutta High Court for an order for convening a meeting of its members to consider the scheme of amalgamation and had obtained direction for convening the meeting, and in accordance with the directions given by that court, a meeting of the members of thewas held on 31st July, 1973, when the scheme of amalgamation was passed by its members unanimously. We are informed that thereafter thehas also made a similar application under section 394 of the Companies Act to that court for obtaining its sanction to the scheme of amalgamation which is still pending. Thehas, therefore, prayed that the arrangement being the scheme of amalgamation (being exhibit C to the petition) may be sanctioned by this court so as to be binding on theand its members and also on theand its members, and has prayed for further incidental reliefs.( 10 ) NOTICE of the petition was served upon the Regional Director, Department of Company affairs (Company Law Board), Government of India, Bombay, in pursuance of section 394a of the Companies Act, 1956, and also upon the Registrar of Companies, Maharashtra, Bombay. Similarly, notice of the hearing of the petition was also advertised in Maharashtra Government gazette, Times of India, Bombay edition, and Bombay Samachar. Pursuant to these notices, none else except Mr. S. Rajagopalan, Regional Director, Company Law Board, Western Region,has filed an affidavit, dated 17th of November, 1973, contending that the proposed scheme of amalgamation requires the approval of the Central Government in view of the mandatory provisions contained in section 23 (1) of the Monopolies Act before sanction to the scheme could be accorded by this court. It has been contended that it was necessary for theto obtain approval, of the Central Government for the scheme of amalgamation before approaching this court for sanction to the scheme, but thehas made no application to the scheme, but thehas made no application to the Central Government for its approval. It may be stated that prior to the filing of this affidavit by Mr. Rajagopalan, correspondence had ensued between theon the one hand, and the said Regional Director, in which the company pointed out that the amalgamation in question was covered by the exemption provided for by(3) of section 23 of the said Act, and, that, therefore, no approval of the Central government was required, and, therefore, no application had been made to the Central government for that purpose. In the correspondence, it was explained as to how the proposed scheme of amalgamation fell within the exception provided for by(3) of section 23. Notwithstanding this correspondence, Mr. Rajagopalan filed his affidavit raising the aforesaid contentions by way of reply to theprayer that this court should accord its sanction to the proposed scheme of amalgamation. The petition came up for hearing before the learned single judge of this court on its original side, and the same has been referred to this bench for11 ) AT the outset, it may be stated that the scheme of amalgamation, a printed copy whereof has been annexed to the petition at exhibit C, has not been opposed on merits by anyone, not even by mr. Rajagopalan, the Regional Director, Western Region. In fact, as stated earlier, the members of thehave approved it with an overwhelming majority, while the members of thehave approved it unanimously, and no defect or deficiency on merits has been pointed out even by the Regional Director who has filed his affidavit in reply to the petition. The only ground on which the prayer for according sanction to the scheme at the hands of this court is opposed by the Regional Directorhas been that thescheme of amalgamation in question falls within the purview of section 23 (1) and (2) of the Monopolies Act, and, as such, before theapproached this court for obtaining the sanction to the scheme, theought to have made the necessary application to the Central Government for its approval to the scheme and that prior approval of the Central Government to the scheme is necessary. On the other hand, it has been the case of thethat the scheme of amalgamation in question squarely falls within the exception which has been provided for in(3) of section 23, and, as such, no prior approval of the Central Government to it is necessary, and it is perfectly open to this court to accord its sanction to the scheme under section 394 of the Companies Act, 1956.

Reasoning:
Having regard to the definition of "undertaking" given in section 2 (v), it cannot he disputed that both theas well as theviz. , West Bokaro Ltd. , will have to be regarded as companies which own and run certain undertakings. Theundoubtedly, manufactures and produces iron goods and steel as its principal products; but one of the objects mentioned in it memorandum of association also authorises theto produce coal, and, in fact, it has its own colliery department and produces coal, though forIn other words, since theis engaged in the production of coal, it will have to be regarded as owning an undertaking which produces coal. Theindisputably produces coal as its sole product and supplies the entire output to theand as such must be regarded as owning an undertaking producing that kind of goods. Having regard to the definition ofundertakings" which has been given in section 2 (g) of the Act, theany will have to be regarded as owningundertakings, for, admittedly, theis wholly a subsidiary of theand has reminded so all throughout. The third indisputable fact which emerges clearly is that each of the two undertakings falls within section 20 (a) of the Act, for, admittedly, the assets of each one of the companies owning their respective undertakings singly as well as jointly exceed twenty crores of rupees, and, therefore, the respective undertakings owned by the two companies would be undertaking to which part A of Chapter III would apply. Yet, one more fact which will have to be considered is whether having regard to the definition of the expression "dominant undertaking" given in section 2 (d) of the Act, none of the undertakings respectively owned by the two companies either singly or jointly is a dominant undertaking or not. In this regard, it would be pertinent to mention certain undisputed facts. The cooking coal production of theis about 0. 5 million tonnes which is 3 per cent. of the total production of the country which is about 16. 65 million tonnes per annum, while the total production of cooking coal of theis about 1. 50 million tonnes per year which is 9 per cent. of the countrys total production. The combined production of theany of this particular item of goods is about 12% of the total production of this item. It seems that the total requirement of cooking coal of theis 2. 6 million tonnes per annum of which 1. 50 million tonnes is produced by thewhile 0. 50 million tonnes is obtained by it from theThe above figures and the factual date about coal production have nowhere been disputed by Mr. Rajagopalan in his affidavit in reply which was filed after the correspondence had ensued between the parties in which all this information was disclosed. These facts would clearly bring out two aspect. Not only is the respective undertaking of each of the two companies taken singly not a dominant undertaking but even if the production of the two undertakings were to be combined, the total production being less thanof the total production of coal in the country, the two undertakings even jointly do not become any dominant undertaking. It is in the light of these facts, which have gone almost unchallenged, that the question will have to be considered by us as to whether the proposed scheme of amalgamation is one for which a prior approval of the Central Government would be required under section 23 (1) and (2) of the Act, or whether the same falls within the exception provided for by(3) of section 23 of the14 ) ORDINARILY, since the two undertakings in this case are clearly undertakings to which Part A of Chapter III of the Act applies, any scheme of amalgamation of these two undertaking would require prior approval of the Central Government thereto under section 23 (1) of the Act, and under section 23 (2) it would be obligatory upon theto make the necessary application to the Central Government in the prescribed form for approval of the scheme by the central Government, but the question is whether the proposed scheme of amalgamation for which sanction of the court is sought by thefalls within the exception contained in(3) of section 23, for there can be no doubt that the language of(3) of section 23 carves out an exception to the general rule which has been enunciated in(1) and (2) of sectionHaving regard to the language used in(3) of section 23 quoted above, it seems to us very clear that in order that the proposed scheme of amalgamation or merger should fall within the ambit of that exception, three conditions are required to be satisfied : (a) the amalgamation or merger must relate to or be ofundertakings; (b) that suchinterconnected undertakings should not bedominant undertakings; and (c) that these undertakings should be such as produce the same goods. If all these aforesaid three conditions are satisfied, then the proposed scheme of amalgamation or merger between suchundertakings is taken out of the purview ofon (2) of section 23. In other words, to such a scheme of merger or amalgamation, no prior approval of the Central Government will be necessary and no application for obtaining such approval of the Central Government need be made before the court is called upon to accord its sanction thereto. We would also like to observe that in each of the three conditions specified in(3), certain expressions have been used. For instance, the first condition requires that the amalgamation or merger must be ofundertakings should not be"dominant undertakings" and goods must be given the same meaning which has been accorded to each by the definitions in section 2 of the Act, and it is in the light of these definitions given in section 2 that court will have to consider whether, in a given case, the conditions are applicable to the amalgamation or merger of the two undertakings for which sanction of the court isis not possible to put the construction suggested by Mr. Advani on the expression "as produce the same goods" occurring in(3) of section 23. As stated earlier, the expression "goods" will have to be understood in the sense in which the same has been defined in section 2 (e) of the Act. Of course, that definition is merely an inclusive definition and, according to the definition, "goods" includes goods produced in India and, in relation to any goods supplied, distributed or controlled in India and also includes goods imported into India. But "goods" in that definition must mean any kind of goods and not merely goods as are intended for being marketed or merely theon (3) speaks of an undertaking or undertakings producing the same goods and, therefore, the definition of "undertaking" will have also to be taken into account while construing the expression "as produce the same goods". The expression "undertaking" has been defined in section 2 (v) which states that an undertaking means an undertaking which is engaged in the production, supply, distribution or control of goods of any description or the provision of service of any kind. It is not confined to production of anyor products intended for being marketed only. The expression "goods of any description" must mean goods of any kind, and there is nothing either in the definition of the expression "goods" or in the definition of the expression "undertaking" or in the substantive provision relating to the exception contained in(3) to indicate that only goods of a particular king, viz. ,or goods intended for being marketed are the only goods to which either the provisions of the Act would apply or the exception contained in section 23 (3) would apply. There being nothing to limit the connotation of the phrase "goods of any description" occurring in the definition of the concept of "undertaking", it seems to us difficult to accept Mr. Advanis contention that the words "same goods" should mean end products only, and not goods of any kind. The expression "goods of any description" would include not onlybut also intermediate products, or products which come into existence as and by was of raw material. It cannot be suggested that concentration of economic power in the matter of production of any raw material was not intended to be prevented by the provision of the Monopolies Act. In other words, neither the language of section 23 (3) nor any of the objects of the Monopolies Act warrants any such restricted meaning to be given to the expression "same goods" occurring in(3) of section 23 of theIn our view, therefore, since the undertaking of theas well as theundertaking of theare engaged in the production of coal, these two undertakings must be regarded "as producing same goods", and if that be so, even the third condition which is requisite for invoking the exception contained in(3) is satisfied in the instanthave very carefully gone through both the judgmentthe judgment of the learned single judge who disposed of the petition for sanction in the first instanceas well as thejudgment of the Division Bench in appealand we are of the view that whatever conclusion has been reached by the Division Bench on the provisions of section 23 (3) is clearly obiter inasmuch as the aspect as to what is the true scope and ambit of the said provision did not arise for determination before it. The facts in that case were that upon nationalisation of its banking business under the Banking Companies (acquisition and transfer of Undertakings) Act, V of 1970, the old Central Bank had stopped carrying on any business and the real question that arose for determination before the trial courtas well as theappeal court was whether the old Central Bank with no business left was an undertaking within the meaning of the expression as defined in section 2 (v) of the Act. The contention on behalf of the Tata Engineering and Locomotive Co. Ltd. , who were the petitioner seeking the sanction of the court to the proposed merger of the old Central Bank with itself, was that the old Central bank was not an undertaking and, therefore, there was no question of the proposed merger falling within the substantive provisions of section 23 (1) and (2) of the Act. The rival contention was that the old Central Bank should still be regarded as an undertaking, and that contention was sought to be supported on various grounds, but the learned trial judge positively came to the conclusion that none of the grounds urged in support of that contention gave the old Central bank the character of an undertaking within the meaning of section 2 (v) read with section 23 (1)of the Act, and that, therefore, the merger or amalgamation of the old Central Bank with Telco did not require approval of the Central Government under section 23 (1) of the Act. When the matter was carried in appeal, this finding of the learned trial judge was in terms confirmed by the court of appeal. In other words, even the appellate court took the view that the Central Bank Ltd. (the old Central Bank) was not an undertaking within the meaning of the expression as used in section 23 (1) of the Act, and confirmed the trial courts order that the merger of the old Central bank with Telco did not require the approval of the Central Government under section 23 (1) of the Act. That being the position, there was no occasion either for the trial court or the appeal court to consider the question about the scope and ambit of(3) of section 23 of theact, and whatever the court of appeal has said in connection with(3) of section 23 will have to be regarded as obiter dicta. Further, as a matter of fact, it will be clear from the judgment of the appeal court that the provisions of(3) of section 23 have been considered by it only for a limited purpose of emphasising the aspect that the very fact that an exception had been carved out under(3) of section 23 showed that in trying to achieve the object and intention of the enactment, the Act made a distinction between an undertaking and an undertaking. We may point out that, on behalf of the Union of India, Mr. Bhabha had raised a contention that the expression "undertaking" occurring at the second place in(1) of section 3 should be given its dictionary meaning and not the definition meaning accorded to it under section 2 (v) of the Act, and it was with a view to repel this contention that the provisions of section 23 (3) were considered, and that too, as we have indicated above, for the purpose of bringing out the aspect that the very fact that an exception had been carved out in the said provision was an indication that in trying to achieve the avowed object and intention of the legislation, the Act made a distinction between an undertaking and an undertaking. That the provisions of section 23 (3) were considered for such a limited purpose will become very clear from the following observations which appear at page of theopening words nothing inion (2) shall apply show that(3) carves out an exception out of the general provision which is contained in(1) and (2 ). The very fact that an exception has been carved out, whatever be the ambit of that exception, shows that in trying to achieve the avowed object and intention of the monopolies Act, the Act makes a distinction between an undertaking and an undertaking. "18. In fact the above observations clearly indicate that the court of appeal was not concerned with the real scope and ambit of the exception and the main reason why the provisions of(3) of section 23 were taken into consideration by the appeal court was to refuse Mr. Bhabhas contention that the expression "undertaking" appearing a second time in(1)should be given the ordinary dictionary meaning and not the meaning given to it in section 2 (v)of the Act and for the purpose of showing that though the object and intention of the legislature in enacting the measure generally was to prevent the concentration of economic power, the very fact that an exception had been carved out in(3) of section 23 indicated that in trying to achieve the avowed object, the Act had made a distinction between an undertaking and an undertaking. In our view, therefore, the conclusion reached by the Division Bench on the ambit of the exception on which reliance was placed by Mr. Advani is clearly obiter and dose not partake the ratio decidendi of the case. Moreover, with great respect, we would like to point out that the conclusion reached by the Division Bench appears to run counter to the express language used in(3) of section 23. In all humility, we are of the view that, on a plain reading of(3) of section 23 of theAct, the proper scope and ambit of that exception is as we have indicated above in the earlier part of our judgment.