Hindustan Vacuum Glass Ltd. and anr. Vs. Union of India and ors. - Court Judgment

Avadh Behart Rohatg, J.

(1) The short question that arisesfor decision in this writ petition under Article 226 of the Constitutionis whether the petitioner company. Hindustan Vacuum Glass Limited(Hindustan), is an 'undertaking' within the meaning of section 20(a)(ii) of the Monopolies and Restrictive Trade Practices Act, 1969(the Act).

(2) Number of preliminary objections were raised by the Covernment. But finally the Union of India agreed to have a ^^^(..111from this court on the question whether Hindustan is a memopolyhouse.

(3) Hindustan carries on business of manufacturing and sellingvacuum flasks and refills. The respondent Ministry of Law. Justiceand Company Affairs of the Government of India, claims that Hindustan is an 'undertaking' to which section 20(a)(ii) of Part 'A' ofChapter Iii of the Act applies because its own assets together withthe assets of its inter-connected undertaking is not less than 20 crorcsof rupees. If Hindustan is held to be an 'undertaking', as is the caseof the Government, then under s. 26 of the Act it has to make anapplication within the prescribed time to the Central Government forits registration as an undertaking. And if any 'undertaking' to whichPart 'A' of Chapter Iii applies fails, without any reasonable excuse.lo make an application under s. 26 to register itself as an 'undertaking'then the undertaking is punishable with fine under s. 48(2) of theAct.

(4) One of the principal objects of the Act, as stated in the preamble, is to provide that the operation of the economic system does not.result in the concentration of economic power to the common detriment. The provisions of Chapter Iii entitled as 'concentration of economic power' seek to locate areas of concentration in the economicmarket and thereforee provide that such undertakings as come within thepurview of s. 20 shall be regulated in the manner provided in ss. 21 to 25 and other provisions of the Act. Monopoly power is an exampleof concentration. Section 20 is anti-monopaly and anti-size. It isagainst 'big business'

(5) Section 20 is enacted because of the power that is an attributeof size. The aim of the law is to protect the public against the exercise of that power by arresting any practice that could lead to theacquisition of that power. Initially the particular evil of size was'the power which the monopoly gave to fix the price and thereby toinjure the public' (Standard Oil Co. of New Jersey v. U. S. 721U.S.I.) (1). The evil of this concentration of power is that it givesrise to a position of dominancy and a necessary corollary of this wasthe exclusion of others from the trade.Section 20(a) says :

'20.This Part shall apply to

(A)an undertaking if the total value of

(I)its own assets, or

(II)its own assets together with the assets of its inler-connected undertakings is not less than twenty crores ofrupees;

(6) S. 20(a) defines an area of concentration in terms of the valueof assets of the undertaking, by themselves or taken together withthe assets of inter-connected undertakings. The Government's caseis that Hindustan is inter-connected with Dcm whose assets are admittedly far in excess of 20 crores of rupees and thereforee HindustanComes within the ambit of s. 20(a)(ii) as well as s. 26 of the Act.

(7) Hindustan denies that it is an 'undertaking' under s. 20(a)(ii) of the Act. Whether the Government is right in its insistence on thoregistration of Hindustan under s. 26 of the Act is the sole questionlor decision.

(8) Certain facts are undisputed. Madan Mohan Lal Shri RamPrivate Limited (MMSR) is the holding company of Hindustan.Hindustan is a subsidiary of MMSR. Mmsr is an investment company. Investment company is not an 'undertaking' because an 'undertaking' means an undertaking which is engaged in the production, supply,distribution or control of goods of any description or the provision ofservice of any kind. [Section 2(v) of the Act]. It is not in disputethat Hindustan's own assets are well below Rs. 20 crores. But it iscontended that Hindustan is inter-connected with another undertaking,namely, Delhi Cloth Mills Limited (DCM). The assets of Dcm nodoubt are in excess of 20 crores of rupees. The Government's caseis that as the assets of Hindustan together with the assets of D.C.M. arcnot less than 20 crores of rupees. Hindustan is an 'undertaking' to whichPart 'A' of Chapter Iii applies and consequently its registration withthem is compulsory.

(9) 'INTER-CONNECTED undertakings' are defined in s. 2(g) of theAct. It is a long section with several Explanationns. But the Governmentconfines its case to clause (b) of the Explanationn which appears at theend of the section. The Explanationn with which we are concerned reads :

'EXPLANATIONFor the purpose of clause (g), two or more-undertakings shall be deemed to be inter-connected

(A)it one or more undertakings which are inter-connectedundertakings [as defined in clause (g)] jointly or severally, own, manage or control the other.

(B)if one or more individuals together with their relatives,or firms in which such individuals or their relatives arepartners, jointly or severally, own, manage or controlthe other,

(C)if inter-connected undertakings referred to in sub-clause(a) and persons, relatives or firms referred to in sub-clause (b), jointly or severally, own, manage or controlthe other.'

(10) The Government bases itself on clause (b) and says that LalaBharat Ram and Lala Charat Ram are the two managing directorsof Dcm while Lala Bansidhar is a senior executive director of DCMand these three persons together with their relatives are controllingHindustan through its holding company MMSR. It is said that asthese persons are also managing Dcm thereforee clause (b) of theExplanation applies and Hindustan is an 'undertaking'. It is best toput the case of the Government in its own words a*- stated in thecounter-affidavit :

'INthe present case, the petitioner No. 1 company namelyHindustan Vacuum Glass Ltd. (hereinafter referred toas HVG), is a fully owned subsidiary of Madan MohanLal Shri Ram (P) Ltd. (hereinafter referred to as MMSR).According to the facts available with the respondents, themajor part of the equity capital of the holding companyis held in the name of several individuals who belong toone family group, namely, Shri Ram family group, and inthe name of companies and trusts controlled by membersof the same family. In the Board of Management of theholding company also the majority of directors are individuals belonging to the said family group. Hvg is indeed controlled by the said family group for all practicalpurposes. At the same time, the managerial control overDelhi Cloth and General Mills Co. Ltd. (hereinafter referred to as DCM) is shared by the two managing directors, namely, Dr. Bharat Ram and Lala Charat Ram whoare brothers and are members of the said family group,The said Dr. Bharat Ram and Lala Charat Ram are alsoshareholders of Mmsr and together with the other members of the family group also control majority equity sharesin Mmsr as well as its Board of Directors. In these circumstances, the two undertakings, namely. Hvg andDCM are inter-connected undertakings within the meaning of section 2(g) of the Act, with particular referenceto clauses (iii) (c) and (vi) read with Explanationn (b) andExplanation I to the said section 2(g). As Dcm itselfhas assets of much more than Rs. 20 crores, Hvg, whichtogether with inter-connected undertakings of DCM. wouldautomatically come under the provisions of section 20(a)(ii) of the Act and hence should have registered under section 26(1) of the Act.'

(11) In substance the argument is that Hindustan is inter-connectedwith Dcm and has thus built a monopoly power. Admittedly MMSRis not an 'undertaking'. Admittedly Dcm is an undertaking. SinceLala Bharat Ram and Lala Charat Ram and Shri Bansidhar exercise'managerial control' in Dcm and they together with their relativeshold positions of power in Mmsr thereforee it is said that Hindustanis inter-connected with DCM. The validity of this argument is thesubject of controversy between the parties.

(12) Clause (b) of Explanationn set out above says that for thepurpose of clause (g) two or more undertakings shall be deemed tobo inter-connected if one or more individuals together with their relatives or firms in which such individuals or their relatives are partners jointly or severally own, manage or control the other. The Explanationn is a deeming fiction. It applies to whole of clause (g). Itcontemplates cases of sole proprietorship, joint ventures, associations,enterprises, partnerships and firms. In a word it contemplates businessunits of one or more individuals.

(13) In our opinion this Explanationn has no application to thefacts of the case before us. There are several answers to the Government's contention. Firstly, Mmsr is admittedly not an 'undertaking'because it is not engaged in the production, supply, distribution or control of goods or the provisions of service of any kind. It is an investment company. Its subsidiary is certainly engaged in the productionof goods. But the subsidiary cannot be an 'undertaking' unless it isshown that the holding company Mmsr is an undertaking and its ownassets together with the assets of its inter-connected undertaking is notless than 20 crores of rupees. MMSR's own assets are far below 20crores of rupees. thereforee the Government seeks to establish theinter-connection between Mmsr and Dcm with the help of what itcalls the 'managerial control'.

(14) The Government contends that the control of Dcm overHindustan is not direct but indirect, namely, through the medium ofMMSR in which Lala Bharat Ram and Lala Charat Ram together withtheir relatives occupy a position of dominance and control.

(15) It is not disputed that Lala Bharat Ram and Lala Charat Ramare joint managing directors of DCM. But is that sufficient to holdthat these two managing directors with Lala Bansidhar, a senior exccutive director, control Dcm Now Dcm has a board of 14 directors.The Board of Directors manages the company. There is an arrangement by which day to day management is left in the hands of full timemanaging directors. The exact status and powers of a managing director depend both upon the articles which confer a power on the boardto appoint a managing director and upon the terms of the contractby which he is employed. Although he must be director, his status asmanaging director derives from his appointment by the board to thisoffice. He is thus both a director and as managing director, an employee of the company (see Southern Foundaries Ltd. v. Shirlaw (1940)AC 701 (HL) (2) and Fowler v. Commercial Timber Co. (1903) 3KB 1) (3). See Gore-Brown on Companies 42nd cd.p. 724. Whether he is a delegate of the Board or an independent organ of thecompany he does not cease to be an employee.

(16) It is difficult to accept the argument that the tie of 'managerial control' will make Dcm an 'inter-connected undertaking'.DCM is a separate and distinct entity. It is a body corporate. It has amind and will of its own. That its employees have some connectionwith Mmsr will not make Dcm an 'inter-connected undertaking'.

(17) The complaint is that Sri Ram family has grown so powerfuland so strong that it completely dominates MMSR. It is said that ithas assumed financial control and secured a dominant power in theaffairs of Mmsr and through the holding company on its subsidiary.But what is ignored from consideration is that the acquisition anddeployment of that power is not made with the help of the borrowedstrength of DCM. To Mmsr the joint managing directors come notwith the power of Dcm but bereft of that power, as individirals andnot as joint managing directors.

(18) In fact the whole case can be decided on one short ground.It is this. The Explanationn and its clause (b) talk of individuals,their relatives and firms in which such individuals and relative's arepartners. It talks of natural persons. It talks of human beings. Itspeaks of individuals human beings who are the subject of rights andduties and whom lawyers call natural persons. In its natural and usualsignification individuals include women as well as men. It will includesolo businesses and partnerships. It contemplates living human beingsand groups of individuals. In s. 2(g)(vi) the word 'person' is used.But it is significant to note that in Explanationn clause (b) the word'individual' is used. The individual does not include a corporate body.Artificial beings such as corporations are dealt with separately in thedefinition. Clause (b) docs not talk of bodies corporate. If the managing director of a body corporate is the managing director of the otherbody corporate then the two undertakings owned by bodies corporateare deemed to be under the same management by virtue of ExplanationnI and will have to be held as 'inter-connected undertakings' becausethe undertakings are firstly owned by bodies corporate and secondlybecause they are under the same management. This is expressly provided in clause (g) (iii)(c). But clause (b) of the Explanationn contemplates cases of individuals and firms. Firm is a convenient shorthandsymbol of the partners composing the firm. Firm has to consist of individuals. The words 'firms in which such individuals are partners'sufficiently indicate that this clause talks of natural persons. The word'individuals' will also include their relatives. They too are human beings. But where Mmsr and Dcm are bodies corporate, as is undoubtedly the case here, clause (b) has no application. That clause (b)applies to individuals and firms and not to bodies corporate is clearfrom s. 48(2) which says :'(2) If any undertaking, to which Part A of Chapter Iii aplies, fails, without any reasonable excuse, to make an application under section 26, to register itself as an undertaking to which that Part applies, then

(A)the undertaking, where it is a company, or

(B)every partner of the undertaking, where it is a firm, or

(E)where it is not a company or a firm, every person whoowns or controls undertaking shall be punishable withfine which may extend to one thousand rupees, andwhere the offence is a continuing one, with a furtherfine which may extend to fifty rupees for every day,after the first, during which such failure continues.'

(19) It is thereforee clear that the 'undertaking' can either be acompany or a firm or an individual. In fact s. 2(g) contemplatescases of bodies corporate, firms and individuals and gives us all thepermutations and combinations in which these entities can be saidto be 'inter-connected undertakings.' It creates, so to speak, so manyhyphens that join, so many buckles that bind two or more undertakingsas to bring them within the concept of 'inter-connected undertakings'envisaged by the Act. In all these inter-connections one sees the indicia of monopolisation, attempts to monopolise, and the maintenanceof a monopolistic position. All three of these characteristics are the targets of s. 2(g) of the Act. If in commercial computation the total valueof the assets of an undertaking either of itself or together with theassets of its inter-connected undertakings is not less than twenty crorasof rupees it produces a pernicious monopoly or a state of things injurious to the public.

(20) Dcm is a body corporate and so is MMSR. Merely becauseLala Bharat Ram and Lala Charat Ram are joint managing directorsof Dcm and also have together with their relatives a substantial interest,in capital and management, in Mmsr it cannot be said that DCMowns, manages or controls Mmsr and through it Hindustan. So tenuous a connecting link, if link it be, as 'managerial control' is not coveredby any. of the combinations enumerated in the clause.

(21) The three words 'own, manage or control' occur again andagain in s, 2(g). They are in index to monopoly power. AdmittedlyDCM does not own MMSR. Does it manage or control it TheGovernment says yes. They have invented a new term 'managerialcontrol'. As if ''managerial control' were a magnetic tie, a tie connecting a close preserve of the family with a dominant undertaking.But the question remains : Is such a tie covered by the permutationsof the clause Our answer is no.

(22) Manage means to arrange affairs. To have authority or control. Control means to achieve a position of power. It is to securedominant power, and having secured it to maintain the dominancy.DCM has not assumed financial control of the whole conglomerationof interest called Shri Ram family. Nor has Dcm as a corporatebody any hand in the management or control of MMSR. When wespeak of Dcm we speak of it as a corporate body and not of individualswhether they are its managing directors or executive directors. So wefind that Dcm neither owns nor manages nor controls Hindustan, directlyor indirectly.

(23) We have come to the conclusion that Hindustan is not an'undertaking' within the meaning of s. 20(a) of the Act because itsassets are well below 20 crores of rupees. Nor is it an 'undertaking'by reason of its connection with Dcm such as is alleged by the Government. Hindustan does not need to have itself registered under8. 26 of the Act.

(24) We accordingly allow the writ petition and quash the decisionof the Government as contained in its letters dated 11/10/1977(annexure R) and 25/11/1978 (annexure V). The partiesare however left to bear their own costs.