JUDGMENT
B.K. Mehta, J.
1. A short question arises in this appeal whether the approval of the Central Government to the scheme of merger or amalgamation of respondent No. 2-bank with respondent No. 1-company is necessary as required under section 23(1)(a) of the Monopolies and Restrictive Trade Practices Act, 1969. The question arises in the following circumstances :
Pursuant to the introduction of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, respondent No. 2-company, viz., the Bank of India Ltd., which was mainly carrying on the business of banking with its head office in Bombay and branches and agencies spread over the country and in some foreign countries was nationalised and the undertaking of the said bank stood transferred to the corresponding new bank known as Bank of India. This change was effected from July 19, 1969, with the result that the directors of the said bank were required to decide the course which they would adopt in the circumstances facing them. The only right of the said bank was to receive compensation under the said Act which was assessed at Rs. 14.70 crores. The bank had to express its preference as regards different courses of payment. The directors of the said bank, it appears, decided to amalgamate with some other undertaking which may in the long run prove beneficial to the shareholders of the bank. With that end in view the bank negotiated with the directors of the respondent No. 1-company herein for a possible scheme of amalgamation. The outline of the said scheme of amalgamation was broadly worked out between the two companies and it was disclosed in its annual general meeting held on September 29, 1970. The scheme as envisaged by the board of directors of the Bank met with the approval of the members whereupon a detailed agreement between the respondents Nos. 1 and 2-companies was worked out. Respondent No. 2-bank herein applied for necessary sanction by an application under section 391 of the Companies Act, 1956, in the High Court of Bombay, praying for directions to convene a meeting of its members of consider, and, if thought fit, approve with or without modifications the proposed scheme of the amalgamation of the two respondent-companies. After the meeting of the shareholders approved the scheme, the bank applied by Company Petition No. 61 of 1971 in the Bombay High Court for its sanction under section 391(2) of the Companies Act, 1956. It appears that the Union of India – the appellant herein – was made a party to the said petition. It further appears that on issuance of the notice to the Union of India as prescribed under section 394A of the Companies Act, 1956, the Regional Director of the Company Law Board, Western Region, filed his appearance and opposed the proposed scheme on grounds, inter alia, that this required the approval of the Central Government under section 23(1)(a) of the Monopolies and Restrictive Trade Practices Act, 1969. This objection advanced on behalf of the Union of India did not find favour with the learned single judge of the Bombay High Court, who was seized of the matter and by his order of September 1, 1971, granted sanction of the court to the scheme. The Union of India preferred Letters Patent Appeal before a Division Bench of the Bombay High Court which was summarily rejected following its earlier decision in Union of India v. Tata Engineering and Locomotive Co. Ltd. [1972] 42 Comp Cas 72 (Bom). The Union of India, we have been told, has carried the matter in appeal before the Supreme Court which is still pending. Meanwhile, respondent No. 1-company, namely, the Ahmedabad Manufacturing & Calico Printing Co. Ltd. having its registered office within the jurisdiction of this court, applied by Company Application No. 101 of 1971 (Ahmedabad Mfg. & Calico Printing Co. Ltd. v. Bank of India Ltd. [1972] 42 Comp Cas 493 (Guj) for directions of the court to convene a general meeting of its shareholders to approve and adopt the scheme with or without modifications. This court granted the directions accordingly and it is common ground that the general meeting of the shareholders so convened approved the scheme by a statutory majority.
Respondent No. 1-company, therefore, made Company Petition No. 25 of 1972 [Ahmedabad Mfg. & Calico Printing Co. Ltd. v. Bank of India Ltd. – [1972] 42 Comp Cas 493 (Guj) under section 391(2) read with section 394 of the Companies Act, 1956, for sanction of the scheme as approved and adopted by the general meeting of the shareholders of the company. Pursuant to the notice issued by this court to the Central Government as required under section 394A of the Companies Act, 1956, the Regional Director, Company Law Board, Western Region, has filed his appearance and objected before this court to the grant of sanction as prayed for, inter alia, on the ground that the scheme of merger in question requires the approval of the Central Government required under section 23(1)(a), inasmuch as the Bank of India (hereinafter referred to as “the transferor-company”) was for all intents and purposes an undertaking as denied under section 2(v) of the Monopolies and Restrictive Trade Practices Act, 1969. This objection, as it appears from the affidavit-in-reply filed on behalf of the Union of India, is based on four-fold grounds. In the submission of the Regional Director, the transferor-company is capable of carrying on non-banking business and for that matter is not prevented from carrying on banking business, provided it applies for the obtains licence under the Banking Companies Act, 1949. The second ground was that the transferor-company is an undertaking which is even capable of being engaged in production, supply or services as it is so empowered under its memorandum of association. The third ground was that the transferor-company has in fact carried on business of rendering services inasmuch as it sold compensation bonds (Government of India 5 1/2% Banks (Acquisition and Transfer) Companies Bonds, 1999) of the face value of Rs. 3,15,63,200 and realised a sum of Rs. 3,13,34,048.78 including the net interest thereon, and that it had made investments of the part of the said amount of compensation, viz., Rs. 1,17,50,000 to be precise, in the short-term deposits at the rate of interest varying between 9 1/4% and 10% and have also advanced short term loans of Rs. 1,74,88,050 to various companies including respondent No. 1-company, which is a transferee-company, and that it has also made investments in shares of the various companies including the transferee-company. It was, therefore, contended in the affidavit-in-reply filed by the Regional Director that for all intents and purposes the transferor-company would be within the purview of the Monopolies and Restrictive Trade Practices Act, 1969, and, therefore, would require the approval of the Central Government before the scheme of its merge with the transferee-company can be made validly effective.
2. The learned single judge was not impressed by any of the grounds urged in the affidavit-in-reply and advanced at the time of hearing of the petition as in his opinion the capacity or the intention to carry on business without being accompanied by actual activities in praesenti at the material time of making the petition for sanction of the court under section 391 read with section 394 of the Companies Act was not at all relevant and the real consideration would be, whether the transferor-company actually carried on the business in praesenti at the time when the petition for sanction was made before the court. He, therefore, by his order of December 10/13, 1971, granted sanction under section 394 of the Companies Act, 1956. It is this order of the learned single judge which has been challenged in this appeal before us.
3. The contention urged on behalf of the Union of India can be summed up thus. The definition of the word “undertaking” should not be read in the narrow context as meaning to say that there should be business activities in praesenti at the material time of making application and the precise content of the definition should be read in the context of the section concerned. In the proper context, section 23 (1) and (2) do not want the restriction of the business activities to the present and in given cases there may be stoppage or cesser of business on the grounds which may be beyond the control of the company, and the court should not while reading the definition clause of the term “undertaking” restrict its meaning to the projects which have been fructified and actually went into production but also must consider all the “ante-production points” which may comprise of “the series of steps” culminating in production. We are afraid, we cannot accept such a broad contention urged on behalf of the Union of India, obviously for two reasons. In the first place, a similar question arose before the Bombay High Court in Union of India v. Tata Engineering and Locomotive Co. Ltd. [1972] 42 Comp Cas 72 (Bom), where the Division Bench was concerned with an exactly similar contention like the one before us and was called upon to sanction the scheme of amalgamation of the Central Bank of India Ltd., with the Tata Engineering and Locomotive Co. Ltd. as the main business of banking of the Central bank was taken over by the Government under the Acquisition Act. The contention urged on behalf of the Union of India was similar before the Division Bench of the Bombay High Court that inasmuch as the substratum of the old Central Bank had disappeared and that under its memorandum it had power to carry on business and particularly the business of investment, underwriting and guaranteeing even under its original unamended memorandum and which business it actually did, the court must not grant sanction as the amalgamation scheme would not be legally effective without the approval of the Central Government as required under section 23(1)(a) of the Monopolies and Restrictive Trade Practices Act, 1969. This contention was negatived by the Bombay High Court holding that a mere capacity or mere intention to carry on activities in future without it being so done in the present, that is, on the material date, nor some time in the past, that is, before the material date, cannot at all give rise to a consideration, whether an undertaking is engaged in any activity as contemplated under clause (v) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969. The Division Bench of the Bombay High Court was also not impressed with the fact of the sale being effected by the Central Bank of the promissory notes which it received by way of compensation or the deposits being made out of the compensation as this fact did not evince any intention on the part of the Central Bank to carry on investment business. The Division Bench emphasised the fact that the very course of amalgamation which was decided by the board of directors of the Central Bank was an alternative to itself carrying on business and the decision which chose the alternative of amalgamation clearly negatived that it itself wanted to carry on any business. The Union Government preferred an appeal against the decision of the Division Bench of the Bombay High court in Tata Engineering & Locomotive’s case [1972] 42 Comp Cas 72 (Bom) before the Supreme Court, which is pending. Meanwhile, it appears that a question arose in Carew and Company Ltd. v. Union of India [1976] 46 Comp Cas 121 (SC), where an existing public limited company which was the appellant before the Supreme Court having a sugar manufacturing unit floated another company under the name and style of Shahjahanpur Sugar Pvt. Ltd., inter alia, with the object of taking over the sugar manufacturing unit in consideration of the appellant-company being allotted 100% shares in the new company partly in payment of the consideration of the purchase of the sugar manufacturing unit. The Central Government in the Department of Company Affairs by its order of June 30, 1973, rejected the appellant-company’s application under section 23(4) of the Monopolies and Restrictive Trade practices Act, 1969, for the aforesaid proposed scheme of transfer of the sugar manufacturing unit to the new company. The appellant-company, therefore, under section 55 of the Monopolies Act of 1969, preferred an appeal before the Supreme Court. On behalf of the appellant-company it was urged before the Supreme Court that before an enterprise may become an undertaking within the definition of the said term in section 2(v) of the aforesaid Monopolies Act, it is necessary that the enterprise must be engaged in production, supply, distribution or control of goods of any description or the provision of service of any kin din praesenti. In that appeal it appears further that Tata Engineering and Locomotive Co. Ltd. intervened. [Vide [1976] 46 Comp Cas 121 (SC)]. The majority court, speaking through Mathew, J., approved the opinion of the Division Bench of the Bombay High Court in Union of India v. Tata Engineering and Locomotive Co. Ltd. [1972] 42 Comp Cas 72 (Bom) and observed as under in [1976] 46 Comp Cas 121, 129 (SC) :
“In Union of India v. Tata Engineering and Locomotive Co. Ltd. [1972] 42 Comp Cas 72 (Bom), the court held that a mere capacity or a mere intention by an undertaking to carry on an activity as referred to in clause (v) of section 2 of the Act in future alone without its being so done in the present, i.e., at the material date, or some time in the past, i.e., before the material date, cannot mean that the undertaking is engaged in an activity as contemplated in section 2(v) of the Act. No doubt, a temporary cessation of the activity will not detract an enterprise from its character as an undertaking, if the animus to resume the activity as soon as possible is there. If a factory has had to close down its operations on account of a strike, lock-out, shortage, of raw materials, shortage of power, or even want of finance, it cannot be said that it is not engaged in the production of goods, if the intention of the owner is to resume its activities.”
For this reason we think that, having regard to the facts which were present in Tata Engineering and Locomotive Co. Ltd.’s case [1972] 42 Comp Cas 72 (Bom), we cannot sustain the contention of the learned advocate for the Union Government that the activity of the transferor-company before us in investing the part of the compensation amount received from the Central Government pursuant to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, either in shares or in short-term deposits or for that matter short-term advances to the different companies including the transferee-company will constitute business activity so as to bring it within the purview of the Monopolies and Restrictive Trade Practices Act, 1969. Nor can we spell out any animus of the transferor company to resume its business activity after its main undertaking was acquired by the Government of India. As a matter of fact as observed by the Division Bench of the Bombay High Court in Tata Engineering & Locomotive’s case [1972] 42 Comp Cas 72 (Bom), the very fact that the directors of the transferor-company decided to amalgamate itself with the transferee-company gives us a clear indication that it had no intention to pursue any business activity so as to continue as an undertaking. We do not think that there are any justifying reasons for us to interfere on the grounds which have been dealt with by the learned single judge in detail in his order.
4. The board contention urged on behalf of the Union Government is to be rejected obviously for the second reason, namely, that the majority view of the Supreme Court in Carew and Company Ltd. v. Union of India [1976] 46 Comp Cas 121, 128, 130 (SC), has clearly rejected this view sought to be advanced on behalf of the Union Government by holding as under :
“Section 2 of the Act makes it clear that the definitions given in that section will be attracted only if the context so requires. The word ‘undertaking’ is a coat of many colours, as it has been used in different sections of the Act to convey different ideas. In some of the sections the word has been used to denote the enterprise itself while in many other section it has been used to denote the person who owns it. The definition of the word ‘undertaking’ in section 2(v) of the Act would indicate that ‘undertaking’ means an enterprise which is engaged in production, sale or control of goods, etc.”
5. The majority court thereafter observed as under at page 130 :
“To put the matter in a nutshell : The sugar unit of the appellant was an undertaking of the appellant. Even if the proposal to acquire 100 per cent. shares in Shahjahanpur Sugar Private Ltd. is considered to be a proposal to acquire either Shahjahanpur Sugar Private Ltd., or its sugar unit, since neither Shahjahanpur Sugar Private Ltd. nor its sugar unit as an enterprise owned by it had gone into production of goods, the proposal did not involve the acquisition of an undertaking. Until the object in the memorandum of association of Shahjahanpur Sugar Private Ltd. was realised by the sugar unit going into production on behalf of the new company, it cannot be said that either Shahjahanpur on behalf of the new company, it cannot be said that either Shahjahanpur Sugar Private Ltd. or the sugar unit transferred to it was an ‘undertaking’. An entity which is not engaged in actual production of goods or supply of services is of no economic significance and has to be excluded from the purview of the Act. Hence, what may be done by an individual, firm or company in future has no present economic significance.”
6. The view which was sought to be canvassed on behalf of the Union of India by its learned advocate finds some echo in the minority judgment of Krishna Iyer, J. But, in view of the majority judgment, we do not think that this contention is open to the learned advocate for the Union Government. In that view of the matter, therefore, we do not think that there would be any justifying reasons for us to interfere with the order of the learned single judge.
7. In the result this appeal fails and is dismissed with costs.