SARABHAI M CHEMICALS PRIVATE LIMITED Vs. MITTAL P N COMPETENT AUTHORITY

JUDGEMENT

(1.) IN both these special civil applications the respective petitioner company challenges notice of acquisition issued to it respectively by the first respondent, the Competent Authority, under the provisions of Chapter XX A of the IT Act, 1961. The notices initiating acquisition proceedings under s. 269D(2) of the Act have been issued in respect of a transfer. The petitioner in Spl. CA No. 1394 of 1973 is the transferor and the petitioner in Spl. CA No. 1481 of 1973 is the transferee in respect of the transaction which was by means of a conveyance of sale dt. 30th March, 1973. Since both these special civil applications arise from the same bundle of facts and raise the same questions of law, it will be convenient to dispose of both of them by this common judgment. The transferor company is, what is known in the language of company law, a holding company and the transferee company is its wholly owned subsidiary. There is no dispute on this aspect of the case. The transferor company was incorporated on 28th May, 1958 and its object were, inter alia, manufacture of chemicals, drugs, etc. In the month of March 1971, the transferor company acquired all the shares of the transferee company. The objects of the transferee company were, inter alia, manufacture of radios, television sets, etc. The transferor company appointed six nominees of its own to acquire one share each of the transferee company and the balance of the shares of the transferee company were acquired by the transferor company and thus the transferee company was from March 1971 onwards the wholly owned subsidiary of the transferor company. In the month of December 1971 a decision was taken by the transferor company with the object of restructuring and reorganising the transferee company and another wholly owned subsidiary company. Under this decision the scheme of amalgamation and reorganisation was to be effective from 1st April, 1971. In the month of January 1972, this scheme of reorganisation and restructuring which involved amalgamation was approved by the Boards of Directors and subsequently by the shareholders of all the three companies and the usual procedure of approaching the High Court concerned for approval of the scheme was to be followed. The Commission set up under the Monopolies and Restrictive Trade Practices Act (hereafter referred to as MRTP Commission) was asked to go into the scheme of proposed amalgamation and the case was referred to the MRTP Commission by Government of India. The report of the MRTP Commission made to the Government was forwarded to the companies concerned by the Government of India and the report of the companies was against the proposed amalgamation and restructuring of the three companies.

(2.) FINDING themselves unable to achieve the object of reorganising and restructuring by process of amalgamation, it appears that the transferor company and the transferee company decided that the whole of the undertaking together with the business and all other assets pertaining thereto of the transferor company should be purchased and taken over by its wholly owned subsidiary company and that the sale should be with effect from 1st April, 1972. An agreement of sale in this connection was entered into between the transferor company and the transferee company on 28th March, 1973 and a conveyance of sale was executed on 30th March, 1973 and what was transferred was the industrial undertaking and the business of the transferor company and it was done as a going concern together with goodwill and all other assets thereof. The document of conveyance of sale was duly registered with the Sub Registrar of Assurances and on 8th June, 1973, the Valuation Officer functioning under the scheme of Chapter XX a of the IT Act raised certain queries and asked for information from the transferor and the transferee. It appears that some correspondence took place and in the course of that correspondence, the company tried to satisfy the Valuation Officer that the transferor company had sold all the assets of its business together with goodwill and other intangible rights as a going concern at a slump price and that the valuation which was mentioned, namely, Rs. 3,00,03,350 was at the book value so far as lands & buildings were concerned and also so far as plant, machinery and other current assets as reduced by the liabilities were concerned and also so far as investments were concerned. The goodwill which formed part of this aggregate amount of three crore rupees and odd was valued by the auditors of the company M/s Sorab S. Engineer & Co. at Rs. 1,10,00,000 and thus in the course of the correspondence with the Valuation Officer and also with the Competent Authority before the notices came to be issued and even thereafter, the stand of the transferor company and the transferee company has been that the provisions of Chapter XX A could not be invoked so far as this transfer was concerned. Before the notices which are challenged came to be issued on 17th Sept., 1973, an interview took place with the Competent Authority and in the course of that interview also, an attempt had been made to convince the Competent Authority that the transferee company was the wholly owned subsidiary company of the transferor company. What transpired at that interview is reproduced in the letter dt. 7th Sept., 1973, part of Annexure 'D' to the petition in Spl. CA No. 1394 of 1973. Ultimately, on 17th Sept., 1973, notices were issued by the Competent Authority under S. 269D(1) of the IT Act and both the notices, namely, the notice to the transferor company as well as the notice to the transferee company, proceeded on the footing that the apparent consideration which was mentioned in the conveyance of sale, rupees three crores and odd, was less than the fair market value of the properties and that the Competent Authority had reason to believe that the fair market value of the properties as aforesaid exceeded the apparent consideration therefor by more than 15% of such apparent consideration and that the consideration for such transfer as agreed to between the transferor and the transferee had not been truly stated in the said instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax under the IT Act, 1961 in respect of any income arising from the transfer. It was also stated that the reason for initiating the proceedings for acquisition of the aforesaid properties in terms of the Act had been recorded by the Competent Authority and, therefore, in pursuance of S. 269D, the Competent Authority was initiating the proceedings for acquisition of the properties by the issue of the notice under S. 269D(1) of the Act to the transferor company and the transferee company and the schedule to the notice mentioned that the immovable property in respect of which these notices were issued was "All piece and parcel of land or ground and buildings and structures thereon, bearing Nos. 108/BI, 111/B and 112/B1 along with plant, machinery, current assets, investments and goodwill as per document registered at No. 1220/30 3 1973 (12 Acres and/34 Gunthas)".

(3.) IN our opinion, the jurisdiction under Art. 226 at the stage of notice under S. 269D is very restricted but it is well settled that if any particular authority proposes to take any action without satisfying the conditions precedent prescribed by law for the exercise eC VALU2$HP consideration not truly stating the agreed consideration between the parties. He contended that cl. (a) does not cover the object of the transfer and the object is dealt with by cl. (b) of S. 269C(2) and the presumption regarding the object under cl. (b) is rebuttable.