Orissa H.C : Issue a writ in the nature of certiorari or any other appropriate writ and/or direction against opposite parties and to certify and send up to this Court all papers and documents in connection with the passing of Annexure-1 so that they can be examined and if so considered be quashed

High Court Of Orissa

Indian Metals And Ferro Alloys Ltd. vs. Union Of India & Ors.

Section 72A

Susanta Chatterji & R.K. Patra, JJ.

OJC No. 4260 of 1991

18th March, 1998

Counsel Appeared

B.K. Mohanti, B. Mohanti, G.N. Padhi, B.C. Mohanty & A.N. Patnaik, for the Petitioner : Indrajeet Mohanty, L. Pradhan, A.K. Mohanty & B.K. Sharma, for the Respondents

JUDGMENT

SUSANTA CHATTERJI, J. :

Indian Metals and Ferro Alloys Ltd., a company registered under the Indian Companies Act, having its registered office at Bomikhal, Bhubaneswar, now in the district of Khurda, Orissa, has filed the present writ petition praying inter alia :

“Under the aforesaid facts and circumstances the petitioner prays this Court to be pleased to : (a) issue a writ in the nature of certiorari or any other appropriate writ and/or direction against opposite parties and to certify and send up to this Court all papers and documents in connection with the passing of Annexure-1 so that they can be examined and if so considered be quashed; (b) issue a writ in the nature of mandamus or any other appropriate writ or direction quashing Annexure-1 and para 7 of the guidelines in Annexure-3; (c) issue a writ in the nature of mandamus against opposite party No. 1, Central Government, directing them to issue a declaration forthwith or within such time, as the petitioner has satisfied all the pre-conditions required under s. 72A(1)(a) and (b) of the Act; (d) issue a writ in the nature of mandamus directing the specified authority to issue certificates forthwith or within such time as the petitioner has satisfied all the pre-conditions required under s. 72A(2)(i) and (ii) of the Act; (e) issue a writ in the nature of prohibition prohibiting O.P. Nos. 4 and 5 or their officers in any manner not to proceed with the assessment for the years 1980-81 to 1990-91 till the declaration in para (c) and certificate in para (d) are issued; and (f) pass such other order or further orders, which it may deem fit and proper in the facts and circumstances of the case.”

In fact the petitioner-company challenges the order dt. 2nd Aug., 1991, passed in File No. 43SA-83-A and PAC-1 in the Ministry of Finance, Department of Revenue, CBDT of the Government of India, opposite parties Nos. 1 and 2 refusing to make a declaration under s. 72A(1) of the IT Act, 1961, ignoring the guidelines indicated by this Court in O.J.C. No. 2570 of 1984, dt. 19th Dec., 1990 [Indian Metals and Ferro Alloys Ltd. vs. Union of India (1992) 195 ITR 539 (Ori) : TC 46R.100], wherein the Central Government, O.P. No. 1, was directed to reexamine the matter in the light of the observations made and make a declaration under s. 72A(1) of the Act. It is placed on record that the petitioner is a public limited company engaged, inter alia, in the manufacture of ferro alloys with which a sick company carrying on a business in manufacturing of steel tubes and poles was amalgamated. The petitioner, the amalgamated company, runs under the name and style of Indian Metals and Ferro Alloys Ltd. (the abbreviated term “IMFA”). The amalgmating company was another company running under the name and style Kalinga Tubes Ltd. which had suffered huge losses and had become a sick company within the meaning of the guidelines issued by the Central Government under s. 72A(1) of the IT Act, 1961. The carried forward losses and unabsorbed depreciation of the sick company as on 31st Dec., 1978, were to the extent of Rs. 615.83 lakhs. Its indebtedness to the banks, Government and other public limited companies was to the extent of Rs.981.73 lakhs and the break-up of the same has been given in detail in the writ petition. The historical background of the Finance Act of 1978 is that it introduced sub-s. (3) in s. 72A of the Act as elaborated in the writ petition and it is contended that a rehabilitation will normally be without any modification of the business as per existing product line and industrial licence. It is also placed on record that the Central Government has issued two guidelines on 2nd Feb.,1978 and 23rd Feb., 1981 in the said matter which indicate the test on which the financial non-viability would be judged and decided and what will be the test of public interest. These guidelines also permit diversification in certain special cases to a completely unrelated field or line of business, but impose an unreasonable and arbitrary condition that such diversification to an unrelated field will be allowed provided the amalgamating company will be possessing an industrial licence for the same. The petitioner-company made an application under s. 72A(3) of the Act to the specified authority on 8th Aug., 1979, and after several hearings, the same was rejected. On review, an order to that effect was passed on 31st Dec., 1981, and the matter was kept pending for almost two years and the petitioner continued to operate the business of Kalinga Tubes in its entirety by pumping in substantial funds which fact was always known to opposite parties Nos. 1 and 3.

That after a long lapse of time, i.e., one year and four months, the specified authority made a non-recommendation on 6/7th May, 1983, and the petitioner challenged the same before this Court in O.J.C. No. 1412 of 1983 which was disposed of on 7th May, 1984 [Indian Metals and Ferro Alloys Ltd. vs. Specified Authority (1984) 149 ITR 418 (Ori) : TC 46R.110]. This Court was of the view that the reason for non-recommendation were not necessarily binding on the Central Government and the Central Government would be free to grant a declaration even in a situation of non-recommendation. The matter was thus remanded to the Central Government on 7th May, 1984. The Central Government thereafter decided the matter, but for different reasons refused to make a declaration by its order dt. 4th July, 1984.

6. Being aggrieved by the said order, the petitioner filed O.J.C. No. 2570 of 1984 in this Court which wasdisposed of on 19th Dec., 1990, remanding the matter to the Central Government, opposite party No. 1, indicating the guidelines as follows : “(i) the financial viability of the amalgamating company has to be judged by reference to its liabilities, losses and other relevant factors. Normally, financial viability comprises three vital elements, namely, profitability, liquidity and solvency; (ii) an undertaking, on the other hand, may be basically viable but not financially viable. The undertaking, in spite of its basic viability on account of various dependent or independent factors, may not be in a position to generate necessary financial resources to continue the business on an economical level, lack of finance may be acting as a detriment; (iii) the Central Government and the special authority, therefore, are required by s. 72A to gauge whether the amalgamating company, immediately before its amalgamation, has its resources to continue its business activities or has likelihood of obtaining it from other avenues to continue its business activities; (iv) where it would be advantageous for both the amalgamating and the amalgamated companies to combine their activities and rationalise them for better and more efficient utilisation of their existing facilities, then, in the normal course the scheme of amalgamation should be sanctioned; (v) the expression ‘public interest’ is not capable of a precise definition and has no rigid meaning. The meaning of the expression has to be taken from the colour of the statute in which it occurs; its concept varies with the time and state of society and its needs. The point, however, to be determined in each case is whether the said interest would be in the general interest of the community as distinguished from the private interest of an individual. In other words, same would be useful to the public. It is not necessary that such a measure would be of benefit to the whole community but it must be for a considerable number; (vi) the guidelines have been indicated for application of s. 72A, to show what generally would constitute ‘public interest’. They are, inter alia, the size of the sick industrial unit; formulation of a satisfactory programme for the rehabilitation or revival of the business of the sick industrial unit taking into account protection of the interests of the workers employed by the amalgamating company; registration under the MRTP Act; the industrial policy in general and in particular to the category of industry to which the sick industry belongs; the basic viability of the sick unit; need of tax benefit for revival of the sick unit, the scope for revival of the amalgamating industrial undertaking by effective use of the resources generated through tax benefit under s. 72A as supplemented by other resources that may be required; quick and effective revival of the amalgamating company; nature of the products manufactured by the sick unit; employment given by the sick unit; location of sick unit; consequence of closure of the sick unit on the industrial ancillary unit having employment and identification of real cause of non-viability.”

7. It is alleged that without considering the relevant factors and taking irrelevant materials into consideration like diversification, non-provision of employment to the employees, and not using the machinery and equipment of the tube mill in the diversification, the Central Government refused to make the declaration as per Annexure-1 to the writ petition under s. 72A(1) of the Act. During this passage of unusual delay, the petitioner never got the benefit of the provisions of s. 72A and had to incur expenses by paying off the debts of the public sector banks, the Government and public limited companies and the outstanding dues of labour amounting to Rs. 1,269 lakhs besides its investment of Rs. 86 lakhs in purchasing the shares of Kalinga Tubes. It is averred in the writ petition that the total value of machinery and equipment which became obsolete and was disposed of was very marginal. The obsolete machinery was sold but all other assets, like the factory and office buildings and the entire township were used. The object of s. 72A is not to use the obsolete and old machinery/equipment but to revive the industry and to use the industrial assets. The petitioner-company has challenged Annexure-1 being unreasonable, arbitrary and whimsical stating, inter alia : (a) the operation of s. 72A(1) of the Act is not dependent on s. 72A(3) of the Act. The declaration of non-viability and public interest in that stage is binding in a declaration under s. 72A(1) of the Act unless the Central Government held that the said declaration is erroneous. (b) Without an application under s. 72A(3) of the Act an application under s. 72A(1) of the Act can be made and is not a pre-condition for s. 72A(1). (c) The specified authority in law cannot identify the modification or diversification on the date of amalgamation alone and not on any subsequent date as is seen in the language of the section. To make such rigid doctrinaire identification is against the object and spirit of the law, namely, to eliminate sickness to use infrastructure and investment to provide and/or continue the employment of labourers which situation can arise year to year. Hypothetically also it can be held that without any contribution by the amalgamated or amalgamating company the entire business of the amalgamating company may vanish by virtue of natural or man-made calamity or war and for such situation it will be entirely arbitrary for a doctrinaire approach by the Central Government or the specified authority to hold modification of the business or diversification to a new and unconnected field to be entirely impermissible. (d) The concept of two companies by virtue of the incorporation has been lost, the doctrine of lifting the veil of incorporation has been used and extended to new areas of labour and tax laws therefore, manufacturing charge chrome in the same facilities by a subsidiary of the amalgamated company is nothing but the business of the amalgamated company and therefore that consideration is unjust, improper and is the result of a dogmatic approach and closed mind. (e) It is incorrect to say that immediately before the closure, the sick unit was employing 696 employees out of which only 73 employees were retained by the new company. This fact is distorted. The entire work force of Kalinga Tubes, i.e., 696 continued to be employed till 1983. Basing on the existing voluntary retirement scheme year to year employees took retirement and in 1983, 123 employees had taken voluntary retirement. The scheme of voluntary retirement was very lucrative to the employees and encouraging to take it and many of them have become self-employed.” Detailing all the aforesaid facts and interpreting the scope of s. 72A(1) and (3) of the Act, the petitioner-company has sought for the relief as indicated above.

10. The writ petition is seriously opposed by filing a comprehensive counter-affidavit being sworn by one Ranjit Kumar Dalmia, ITO (Judicial), working in the office of opposite party No. 4, The CIT, Orissa. It is stated, inter alia, that the dispute is in respect of the petitioner-company asking for an order from opposite party No. 1 as envisaged under s. 72A of the IT Act. The Central Government, namely, opposite party No. 1, who was asked to reexamine the matter in the light of the observations made by this Court before taking a decision under s. 72A(1) of the Act has in fact come to decide consistent with the guidelines indicated by this Court in O.J.C. No. 2570 of 1984. The allegations of the petitioner are stated to be baseless, imaginary, false and fabricated. The reasons for refusal by the Central Government to make a declaration under s. 72A(1) of the Act are stated as follows : (a) The scheme approved by the special authority was not implemented by IMFA; (b) IMFA proposed to diversify a new product for which K. T. L. (Kalinga Tubes Ltd.) did not have a licence and, therefore, the guidelines issued by the Central Government for taking a view on public interest were not fulfilled; (c) The contribution of the amalgamated company (IMFA) was less than the amount envisaged in the scheme; and (d) The sick unit had not been revived and on the contrary its business was closed down.

11. As against the said order of opposite party No. 1, the petitioner filed O.J.C. No. 2570 of 1984, before this Court and this Court quashed the aforesaid order of the Central Government and directed the matter to be reexamined keeping in view the observations/directions of this Court and a fresh order to be passed. The specified authority was asked to reconsider the matter in the light of the observations of this Court and the matter was reexamined. The petitioner was given a hearing before the specified authority. After hearing the petitioner, the specified authority, opposite party No. 3, reiterated its earlier decision and refused to recommend the case to opposite party No. 1 under s. 72A(1) on the ground that the purpose of revival of the sick unit had not been achieved. It is highlighted that opposite parties Nos. 3 and 1 had also considered the petitioner’s plea in respect of the claim that the amalgamation should be accepted in public interest and discussing the point, the said opposite parties could not come to an agreement with the petitioner’s claim and concluded that since the sick company was closed during the revival period itself, it could not be said that the amalgamation of the company was in public interest.

12. It is submitted that there was diversification of the new product line and the sick unit was completely closed down in the year 1982. Thus there was a new manufacturing charge chrome unit by way of modernisation. Out of the old employees of 196 number, 123 were said to have taken voluntary retirement and only 73 were retained in the new plant styled as “Indian Charge Chrome”. According to the opposite parties, the interest of the workers had also not been protected. There was no revival in fact and a new unit had been set up. Thus, the purpose of amalgamation was absent and it had rather been frustrated. Neither the claim that the considerations made by opposite party No. 1 were based on irrelevant materials nor the order had been passed on unreasonable grounds is correct.

13. It is also urged that the sick unit in the present case did not have any industrial licence for production of charge chrome. As per para 7 of the guidelines in respect of amalgamation under s. 72A issued by the Ministry of Industries, Department of Industrial Development, diversification into unconnected fields can be considered only in special cases where the specified authority is satisfied that there is no reasonable scope for revival of the undertaking with its present product line and such diversification will be necessary for restoration of financial viability of the undertaking provided the amalgamating company has already obtained industrial licence for production of such new items, or where individual licence is not required for manufacture of such items.

14. It is stated that in the present case, the amalgamated company did not have an industrial licence for manufacture of charge chrome. Further, the specified authority had not approved the modification in the scheme so as to permit manufacture of this new item by the new unit. The conditions laid down in para 7 of the guidelines were not fulfilled. The purpose of insertion of s. 72A is to facilitate the revival of sick industrial units by encouraging amalgamation with healthy ones which would be wholly frustrated if sick units are not helped and assisted to revive and on the other hand in the name of revival they are closed down and wholly new units come into existence. In the present case, the sick unit was closed during the revival period and a new industrial unit came into existence in its place producing charge chrome in place of steel tubes. With all these averments it is submitted that the writ petition is liable to be dismissed. Mr. B.K. Mohanti, learned counsel appearing for the writ petitioner, has made a lengthy submission in support of the claim of the petitioner-company to obtain the relief as prayed for in the writ petition. For proper appreciation of the dispute in the right perspective, the provisions of s. 72A of the IT Act, 1961, are quoted here under : “72A. (1) Where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government, on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled, namely: (a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors; (b) the amalgamation was in the public interest; and (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify, to ensure that the benefit under the section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company, then, the Central Government may make a declaration to that effect, and, thereupon, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. (2) Notwithstanding anything contained in sub-s. (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the following conditions are fulfilled, namely :— (i) during the previous year relevant to the assessment year for which such set off or allowance is claimed, the business of the amalgamating company is carried on by the amalgamated company without any modification or reorganisation or with such modification or reorganisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economically or more efficiently; (ii) the amalgamated company furnishes, along with its return of income for the said assessment year, a certificate from the specified authority to the effect that adequate steps have been taken by that company for the rehabilitation or revival of the business of the amalgamating company. (3) Where a company owning an industrial undertaking or a ship proposes to amalgamate with any other company and such other company submits the proposed scheme of amalgamation to the specified authority and that authority is satisfied, after examining the scheme and taking into account all relevant facts, that the conditions referred to in sub-s. (1) would be fulfilled if such amalgamation is effected in accordance with such scheme or, as the case may be, in accordance with such scheme as modified in such manner as that authority may specify, it shall intimate such other company that, after the amalgamation is effected in accordance with such scheme or, as the case may be, such scheme as so modified, it would make (unless there is any material change in the relevant facts) a recommendation to the Central Government under sub-s. (1).”

17. Mr. Mohanti has taken this Court to go in between the lines all the pleadings of the parties, the provisions of the IT Act as indicated above and relied on a long list of citations. The reported decisions relied upon and referred to by Mr. Mohanti are as follows : B.R. Ltd. vs. V.P. Gupta, CIT 1978 CTR (SC) 82 : (1978) 113 ITR 647 (SC) : TC 45R.362, CIT vs. Prem Chand Jute Mills Ltd. (1978) 114 ITR 769 (Cal) : TC 13R.846, CIT vs. Bar Council of Maharashtra (1981) 22 CTR (SC) 106 : (1981) 130 ITR 28 (SC) : TC 23R.253, Duncans Agro Industries Ltd. vs. Secretary, Department of Industrial Development (1983) 35 CTR (Cal) 225 : (1983) 144 ITR 94 (Cal) : TC 46R.81, Indian Metals and Ferro Alloys Ltd. vs. Specified Authority (1984) 149 ITR 418 (Ori) : TC 46R.110, Indian Metals and Ferro Alloys Ltd. vs. Union of India (1992) 195 ITR 539 (Ori) : TC 46R.100, Smt. Kausalya Devi Bogra vs. Land Acquisition Officer AIR 1984 SC 892 : (1984) 2 SCC 324, Comptroller and Auditor-General of India vs. K.S. Jagannathan AIR 1987 SC 537 : (1986) 2 SCC 679, Jain Exports (P) Ltd. vs. Union of India (1988) 3 SCR 952, State of U.P. vs. Renusagar Power Co. (1991) 70 Comp. Cases 127 (SC), Premium Granites vs. State of Tamil Nadu AIR 1994 SC 2233 : (1994) 2 SCC 691, Assessing Authority-cum-Excise and Taxation Officer vs. East India Cotton Manufacturers Co. Ltd. (1981) 48 STC 239 (SC), A.K.K. Nambiar vs. Union of India AIR 1970 SC 652, Mohinder Singh Gill vs. Chief Election Commissioner AIR 1978 SC 851, Ajay Hasia vs. Khalid Mujib Sehravardi AIR 1981 SC 487, Padmabati Dash vs. Rasik Lal Dhar (1910) ILR 37 Cal 259, Broome vs. Cassell & Co. Ltd. (1971) 2 All ER 187 (CA), and Black-Clawson International Ltd. vs. Papierwerke Waldhof-Aschaffenburg AG (1975) 1 All ER 810 (HL). Mr. Indrajeet Mohanty, learned lawyer appearing for the opposite parties, has referred to certain relevant dates and has submitted that the impugned order as per Annexure-1 is justifiable on the basis of the reasons contained therein and the Central Government has acted in terms of the directions of this Court. The allegations of the petitioner that the principles of natural justice were not complied with in the present case are not correct and not borne out on the records. The Central Government afforded full opportunity to the petitioner before passing the impugned order. Parliament has in clear and unequivocal terms stipulated that the benefit under s. 72A can only be given and/or restricted to such amalgamation which facilitates the “rehabilitation” or “revival” of the “business” of the amalgamating company. Sec. 72A contains two opportunities where “modifications or reorganisation” are permissible. First is, at the stage of consideration of the scheme itself by the specified authority and the second is under sub-s. (2). In the second case, an application for modification has to be made to the Central Government. In the present case, as has been contained in the reasons given in the impugned order Annexure-1 it ought to be held that the refusal by the Central Government was wholly justified and legal. Mr. Indrajeet Mohanty has referred to the decision in Khandelwal Industries (P) Ltd vs. CIT (1993) 203 ITR 925 (Bom) wherein it has been concluded that the losses incurred by the assessee while acting as the managing agent in previous assessment years cannot be set off or carried forward against the profit earned by the assessee-company in a subsequent year while dealing in iron and steel pipes, since the two types of business constitute two separate businesses. It is submitted that the assessee being one and same person, managing agency business and dealing in iron and steel pipes has been held not to constitute the same business and similarly in the present case it is submitted that manufacturing charge chrome and manufacturing steel tubes cannot in fact and in law be accepted to be the same business in order to claim a set off of loss while carrying on one business against the profit of the other business.Patiently we have considered the lengthy submissions of both the sides and we have gone through the ratio of the decisions cited in support of the respective cases of the parties. We have considered the scope of s. 72A of the IT Act. We have also considered the previous directions of this Court in the earlier writ application filed by the petitioner and the guidelines indicated therein. The specified authority has to recommend as to the relief claimed by the amalgamating company considering the relevant factors regarding the amalgamating company and the amalgamated company. The Central Government has to consider all the relevant aspects as envisaged under the statute and properly interpreted by this Court in the aforesaid earlier decision. The points of law in different reported decisions are not in doubt, dispute or conflict, but each case has to be decided on its peculiar facts and circumstances.

In the instant case, the petitioner has asked for the relief of declaration as envisaged under s. 72A of the IT Act by quashing the impugned order of the Central Government as per Annexure-1. If the impugned order Annexure-1 is put to the acid test for judicial scrutiny as to whether it is consistent with the statutory provisions and the claim of the petitioner has been considered in the light of the observations and directions/guidelines given by this Court, it would be found that the same does not suffer from any infirmity, irregularity or illegality. Although the matter has been delayed for quite a long time, yet it is obviously found that the amalgamating company manufacturingcharge chrome which seeks to obtain relief by taking the sick company does not fulfil the statutory requirements. On the factual matrix the reasons for refusal by the Central Government are not such that the writ Court should interfere.

For the aforesaid reasons, in spite of the lengthy arguments of Mr.B.K. Mohanti, we cannot persuade ourselves that the impugned order, Annexure-1, is bad in law necessitating our interference. We accordingly dismiss the writ petition. No costs. R.K. PATRA, J. : I have had the advantage of reading the judgment prepared by my learned Brother, Justice Chatterji. I agree with his conclusion that the impugned decision of the Central Government communicated on 2nd Aug., 1991, at Annexure-1 refusing to make declaration under s. 72A(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), does not call for interference by us in this application under Arts. 226 and 227 of the Constitution. This separate opinion of mine is not a note of discordance but to add emphasis to the findings tersely reached by my learned Brother. Shri Mohanty, learned counsel for the petitioner, argued this matter as an appeal arising out of the impugned decision which also persuaded me to give this separate opinion.

Background facts

2. The petitioner—IMF A Ltd. w.e.f. 1st Jan., 1979, amalgamated with the sick unit, Kalinga Tubes Limited. Following such amalgamation, an application was made on behalf of the petitioner to the specified authority purporting to be under s. 72A(3) of the Act for appropriate recommendation. By order dt. 6/7th May, 1983, the specified authority held that the amalgamation did not satisfy the conditions enumerated in cl. (b) of sub-s. (1) of s. 72A. The petitioner challenged the validity of the aforesaid order of the specified authority by filing a writ application in this Court bearing O.J.C. No. 1412 of 1983. This Court by judgment dt. 7th May, 1984 [Indian Metals and Ferro Alloys Ltd. vs. Specified Authority (1984) 149 ITR 418 (Ori) : TC 46R.110], without deciding the correctness of the order of the specified authority disposed of the writ application by observing that under the Act, the specified authority is merely to make recommendation and since the Central Government had not yet passed the order under sub-s. (1) of s. 72A, the Court observed that while considering the matter, it is open to the Central Government to override the order of the specified authority. Thereafter, the Central Government by order dt. 4th July, 1984, declined to make declaration under s. 72A(1) of the Act holding that the condition laid down in the said provision had not been fulfilled. This gave rise to another course of litigation when the petitioner challenged the said order of the Central Government by filing a writ application (O.J.C. No. 2570 of 1984). This Court by judgment dt. 19th Dec., 1990 [Indian Metals and Ferro Alloys Ltd. vs. Union of India (1992) 195 ITR 539 (Ori) : TC 46R.100], remanded the matter to the Central Government for reconsideration keeping in view the observations and directions made therein. Pursuant to the said judgment, the Central Government held, as communicated at Annexure-3, that it is not a fit case for issue of declaration under s. 72A(1) of the Act.

3. What does s. 72A(1) of the Act provide ? It states that if the Central Government on the recommendation of the specified authority is satisfied that the following conditions are fulfilled in a given case of amalgamation then the Central Government may make a declaration to that effect. Those conditions are : (i) The amalgamating company was not immediately before amalgamation financially viable by reason of its liabilities, losses and other relevant factors. (ii) The amalgamation was in the public interest. (iii) Such other conditions as the Central Government may by notification specify. Fulfilment of condition No. (iii) does not arise as the Central Government has admittedly not yet notified any other conditions for the purpose.

4. Judicial review cannot be exercised “as a cloak of an appeal in disguise”. It is directed not against the decision but is confined to examination of the decision making process. It has been held by the Supreme Court in CIT vs. Mahindra and Mahindra Ltd. (1983) 36 CTR (SC) 300 : (1983) 144 ITR 225 (SC) : TC 46R.65, that the decision of the Central Government under s. 72A (1) of the Act is based on subjective satisfaction and the Court can interfere with it, if it is perverse or is such that no reasonable body of persons, properly informed, could come to, or has been arrived at by the authority misdirecting itself by adopting a wrong approach or has been influenced by irrelevant or extraneous matters. The parameter of judicial review thus having been well-defined, let me examine if the impugned decision is vitiated on account of any of the vices, referred to above.

5. I have read and reread the impugned decision. Para 4 of the impugned order would show that the Central Government kept in view the observations of this Court made in its judgment dt. 19th Dec., 1990, rendered in O.J.C. No. 2570 of 1984 when the matter was remanded to the Central Government for fresh examination. As it appears, after communication of the judgment of this Court in O.J.C. No. 2570 of 1984, the Central Government requested the specified authority to reconsider the case in the light of the observations made by this Court. The specified authority reexamined the whole matter in its 85th and 86th meetings held on 3rd April, 1991, and 14th May, 1991, and declined to recommend the case under s. 72A(1) on the ground that the purpose of revival of Kalinga Tubes Ltd., has not been achieved. On receipt of the aforesaid non-recommendation of the specified authority, the Central Government has reconsidered the matter and made the impugned declaration by recording the following findings : (i) The scheme of amalgamation submitted by the petitioner before the specified authority under s. 72A(3) contemplated the revival period of the sick unit (Kalinga Tubes Ltd.) from 1979 to 1984 but in the year 1982 it was closed. This is a material change in the relevant facts and it being proximal to the date of amalgamation has to be taken into account while deciding the question of making declaration under s. 72A(1) of the Act. (ii) The scheme approved by the specified authority envisaged an expenditure of Rs. 2.97 crores as modernisation programme during the year 1979-84 but the actual capital expenditure incurred during the years 1979-81 was Rs. 17 lakhs only and Kalinga Tubes Ltd. (sick unit) was ultimately closed down in the year 1982. (iii) The specified authority has held that the purpose of the revival of the sick unit has not been achieved since it was closed down during the revival period itself and, as such, the amalgamation was not in public interest. It may be stated that the aforesaid three findings reached by the Central Government cannot be said to be based on irrelevant or extraneous considerations.

6. Kalinga Tubes Ltd. was engaged in manufacture of steel tubes. The plea of the petitioner before the Central Government was that although manufacture of steel tubes which was being done by the sick unit was closed down in 1982, it having started a new manufacturing unit for manufacture of charge chrome at the same location in the name and style of Indian Charge Chrome Ltd., the basic purpose of revival of the scheme has been achieved. The Central Government, as it appears from the impugned order, considered the aforesaid plea but it did not accept the same for the following four reasons : (i) The scheme of revival did not contemplate any modification of the business or diversification to a new product line and the new business of manufacturing charge chrome was started not by the petitioner but by a new limited company. (ii) Out of the 696 employees of the sick unit, 123 employees took voluntary retirement and after retaining 73 employees by the new company, Indian Charge Chrome Ltd., the remaining employees were retrenched. As the majority of the workers of the sick unit were retrenched, the amalgamation was not in the public interest. (iii) The machinery/equipment which was being pressed into service for the manufacture of steel tubes by the sick unit had become obsolete and the petitioner has discarded them and with new set of machinery/equipment, it has started manufacture of charge chrome which clearly indicates that there was no revival and rehabilitation of the sick unit but a new project has come into being. (iv) The sick unit Kalinga Tubes Ltd. did not have any industrial licence for manufacture of charge chrome and the specified authority had not approved the modification in the scheme permitting manufacture of a new item by a new unit. All the aforesaid four grounds ascribed by the Central Government in rejecting the plea of the petitioner that with the setting up of Indian Charge Chrome Ltd., the basic purpose of revival of the scheme has been achieved, cannot be held to be irrelevant or not germane to the point at issue.

7. On careful consideration of all the reasons given by the Central Government, which I have culled out briefly, I am of the considered opinion that none of them can be said to be irrelevant or extraneous for refusing to make declaration under s. 72A(1) of the Act. The decision cannot thus be branded as perverse. I accordingly uphold the impugned decision.

[Citation : 235 ITR 574]

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