# [1976] 1 S.C.R. 379 - **Citation:** [1976] 1 S.C.R. 379 - **Court:** Supreme Court of India - **Decided:** 1975-08-22 - **Case number:** Civil Appeal No. 1308 of 1973 - **Bench:** Ray, K K Mathew, R Krishna !Yer, S. M. Fazal A.Li - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1976-1-s-c-r-379-6610 - **Pages:** 21 ## Headnote 379 Monopolies and Restrictire Trade Practices Act, 1969, Sections 2(v). 22 a1ul 23 ( 4 )-Undertaki{1g, 111eani11g of-Appellant proposing to for11i new conzpany for taking over suf?ar unit owned bv it-New co1npa11y, if can be said to be en~ ~aged in production. Section 2(v) of the Monopolies and Restrictive Trade Practices Act. 1969, defines an "undertaking" as an undertaking which is engaged in the production, supp1y, distr~bution or control of goods of any description or the provision of service of anv kind. Section 22 provides for the establishment of new undertakings. It says that no person or authority, other than government, shaU, after the co~ncement of this Act, establish anv new undertaking which. when established would become an inter-connected undertaking of an undertaking to which clause (a) of s. 20 appl!.es, except under, and in accordance 'vith the previous oermission of the Central Government, Sub-section (2) of the section provides for an application for that purpose to the Central Government. Section 23 ( 4) Jays down that if an undertaking to which Part A of Ch. III applies proposes to acquire by purchase, take over or otherwise the whole or part of an undertaking which will or mav result ehher (a) in the creation of an undertaking to which Part A would apply; or (b) in the undertaking becoming an inter-connected undertaking of an undertaking to which Part A applies. it shall, before giving any effect to its proposals, make an appEcation in writing to the Ceritral Government in the prescribed form of its intention to make such acquisition. stating therein information regarding its inter-connection with other undenakings the scheme of finance with regard to the proposed acquisition and such other information as may be prescribed. The appellant is a public limited company and is a subsidiary of Un:.ted Breweries Ltd. and other comoanies interconnected with it. The appeIIant's undertaking consists of a sugar factory and a distillery for manufacture of liquor at Rosa, Shahjahanpur and another d~stillery at AsansoI. The appellant's sugar factory at Rosa had been facing difficulties for some years on account of inadequate supply of sugarcane and to ensure regular and adequate supply of sugarcane, the appellant prooosed to float a company with a share capital of Rs. 50 lakhs for the puroose of taking over the sugar unit of the aonellant and for working it as arr ·undertaking of the company to be formed. The proposal was that the ;ppellant would be entitled to an allotment of 100 per cent shares in the nelv companv and a further sum of Rs. 15.77.093/~ as consideration for transfer of the sugar unit. The aope11ant apolied to the respondent for perm'.ssion under s. 372 of the Companie". Act to acquire the 100 oer cent shares of the new company uoon its incorooration. The ~wellant was told by the Central Government in ito letter dated 5-1-1972 that sections 22 and 23 of the Monopolies and Restrictive Trade Practices Act, 1969, would vrhna facie be atlracted and that the appellant should file a separate application under the relevant section. The appellant fil». Nothing in sub-~ection ( 41) shall apply to the acqms1t1on by an undc11aking which is not a dominant underF G • H A B l • c D E F • G H CAREW & co. LTD. v. UNION (Mathew, J.) 385 taking, of another un,l:lertaking which is not also a dominant undertaking, if both such undertakings produce the same good~: Provided that nothing in this sub-section shall apply, if, as a result of such acquisition, an undertaking coll!-cs into existence to which clause (a) or clause (b) of sectJon 20 would apply." · Section 28 states that the Central Government before accoAfing approval in the exercise of its powers under Part A or Part · B of Chapter III shall take into account all matters which appear in the particular circumstances to be relevant and enjoins that regard shall be had to the neelcl _consistently with the general economic position of the country to achieve the production, supply and distribution, by most efficient and economical means, of goods of such types and qualities and several other c_:onsiderations specified therein. The submission of the coμnsel for the appellant was that in order that an enterprise may become an 'undertaking' within the definition of the word 'undertaking' in s. 2(v) of the 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 kind and that when the appellant proposed to form the new company for taking over the sugar unit of the appellant in consideration of 100 per cent shares in the new company, that company had not acquired the sugar unit of the appellant nor was it engaged in the production, supply, l:listribution or control of goods, etc. as an enterprise of Shahiahanpur Sugar Private Limited and so there was no proposal to acquire by purchase, take over or otherwise of the whole or part of any undertaking within the meaning of s. 23 ( 4). According to counsel, it is only when an 'undertaking' to which Part III applied proposes to acquire by purchase, take over or otherwise, the whole or part of an undertaking which would result in the creation of an undertaking to which that Part applies that s. 23 ( 4) would be attracted. In other words, the argument was that as the proposal was only for acquirising 100 per cent shares in Shahjahanpur Sugar Private Limited, the proposal was not to acquire the whole or any part of an undertaking since neither Shahjahanpur Sugar Private Limited had become the owner of the sugar unit of the appellant as there was only a proposal to transfer it to it, nor was that unit engaged in production, supply, distribution or control of goods as an enterprise owned by Shahjahanpur Sugar Private Limited. The further submission was that in any event the proposal to acquire 100 per cent shares in Shahjahanpur Sngar Private Limited by the appellant would not involve a pronosal to acauire an undertaking to be owned or even owned by Shahiahanpur Sugar Private Limited, as the acquisition of 100 per cent shares would onlv vest in the appellant, the right to control ant! manage the affairs of Shahjahanpur Sugar Private Limited. Section 2 of the Act makes it clear that the definitions ~ven in that section will be attracted only if the context so requires. The word 386 SUpREME COURT REPORTS [1976] 1 S.C.R. '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 sections it has been used to denote the person who owns it. The definition of the word 'undertaking' ins. 2(v) of the Act would indicate that 'undertaking' means an enterprise which is engaged in production, sale or control of goods, etc. We think that the question to be asked and answered in this case in terms of s. 23 ( 4) is : Did the appellant make a proposal to acquire any undertaking of Shahjahanpur Sugar Private Limited by purchase, take over or otherwise? To answer this question, it is necessary to see whether the sugar unit which was proposed to be transferred to Shahjahanpur Sugar Private Limited hatl been engaged in the production of goods, etc., as an enterprise of that company. It is clear that on the date of the proposal the sngar unit of the appellant had not become an undertaking of Shahjahanpur Sugar Private Limited as it had not been engaged in the production of goods, etc., as an enterprise owned by that company. It is only possible to visualize two possibilities when the proposal was made : either the sugar nnit remained an undertaking of the appellant, although it was proposed to be transferred to Shaiahanpur Sugar Private Limited or that the sugar unit became an enterprise of Shahjahanpur Sugar Private Limited. If the sugar unit remained part of the undertaking of the appellant when the proposal was made to take the 100 per cent shares, the proposal cannot be one to acauire an undertaking, as ex hypothesi the undertaking had not been transferred to Shahjahanpur Sugar Private Limited. But, if the proposal to take 100 per cent shares involved an acquisition in future by th,: appellant of the sugar unit after it has been transferred tu the new company, there was no proposal to acquire by transfer, take over or otherwise of an 'undertaking' .as the sngar unit was not at the time of the proposal engaged in prolduction of goods, etc. as an enterprise of Shahjahanpur Sugar Private Limited. An enterprise can be characterized as an undertaking within the definition . of. the. term only when it is engaged in the production, supply, d1stnbut1on or control of goods of any description or the provision of service of anv kind. In The Union of India v. Tat<: EnRineerin.~ and Locomotive Co. Ltd. ( 1), the Coun held that a more capacity or a !Uere intention by an undertaking to carry on an activit'· ?s referred tom ~lause (v) of s. 2 of the Act in future alone without its bcmg so done m the present, i.e., at the material date or some time in :he past i.e., before the material date, cannot mean that the undcrtakrng 1s engaged in an activity as contemplated ins. 2(v) of the Ac:. No tloc;bt, a temporary cessation of the activity will not detract an enterpr~s~ from its character as an undertaking, if the animus to resume the ac~1v1ty as s?on as possible is there. If a factory has had to close tlown. 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 (!) [1972] Bombay Law Reporter 1. A B • • c D E F -, G • -<' H A B c D E - F • G H CAREW & co. LTD. v. UNION (Mathew, !) 38 7 that it is not engaged in the production of goods, if the intention of the owner is to resume its activities. The view taken in In re Canara Bank Ltd. ( 1) is much the same. There the Court followed the decision of the Bombay High Court referred to above and said that until a concern goes into the actual production, it cannot be said to be an 'Undertaking'. The sugar unit of the appellant was no doubt engageld in production of goods, etc., when the proposal was made and was, therefore, an undertaking; but it was only an undertaking of the appellant as the sugar unit had not been transferred and had not become an enterprise of Shahjahanpur Sugar Private Limited. The sugar unit did not become an undertaking of Shahjahanpur Sugar Private Limited as it was not and could not be engaged in the production of goods, etc., on its behalf before it was transferred to it. Sub-section ( 4) of s. 23 is confined to the case of a proposal to acquire an undertaking by purchase, take over or otherwise but, to become an undertaking, it must presently be engaged in the production of goods, etc. The mere fact that the Memorandum of Association of Shahjahanpur Sugar Private Limiteld contained an object clause which provided for production of sugar would not necessarily mean that the company would go into production and thus become the owner of an undertaking as defined in s. 2 ( v) of the Act. Take for instance the case of an individual or a firm. Does he or it become an 'undertaking' merely because he or it entertains an object to produce goods unless he or it is actually engaged in production of goods, etc.? .Certainly. not. If that is so in case of an individual or a firm, we see no reason why a different standard should be applied in the case of a company merely because the object or one of the olijects of the company is to produce goods, etc., if it is not actually engaged in production of goods. Reference was made to Stroud's Judicial Dictionary, 4th edition, Vol. 1, p. 909 where it is stated that the phrase "engaged in any business" is apt to include employment at a salary as well as embarking on a business or in partnership. We do not think that even if the phrase 'engaged in business' conveys the idea of embarking on it, Shahjahanpur Sugar Private Limited had embarked on the business of production of sugar merely because its memorandum of association provided that the object of the company was to prolduce sugar. It is, therefore, difficult to imagine how when the proposal was made there was ?n enterprise engaged in the production of sugar and owned by Shahjaha'npur Sugar Private Limited which could be acquired . 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 Sh:J4jahanpur Sugar Private Limited is considered to be a proposal to acquire either Shahjahanpur Sugar Private Limited or its sugar unit, since neither Shahjahanpur Sugar Private Limited 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 (I) A. T. R. 1973 Mysore 95. /' 388 SUPREME COURT REPORTS [1976] 1 S.C.R, of Shahajahanpur Sugar Private Limited was realized by the sugar unit going into production on behalf of the new company, it cannot be said that either Shahjahanpur Sugar Private Limited or the sugar unit transferred to it was_ an 'undertaking'. An entity which is not engaged in actual productio_n 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. Therefore, even if it be assumed that acquisition of 100 per cent shares could result in the acquisition of the new company or of an undertaking, the appellant was not acquiring an 'undertaking' as defined in the Act as the new company would not be engaged in production of goods etc. at the time of the acquisition of the shares by the appellant and s. 23 ( 4) of the Act would not be attracted. We also think that by the proposal to acquire the 100 per cent shares in Shahjahanpur Sugar Private Limited or by the actual 'acquisition of the shares, the appellant acquired only the control and the right to manage the company. The word 'undertaking' in the latter part of s. 23 ( 4) denotes an enterprise which is considered as an entity engaged in the production of goods, etc. By getting: 100 per cent shares in Shahjahanpur Sugar Private Limited, the appellant never acquired that undertaking owned by the new company by purchase. take over or otherwise. The undertaking remained the undertaking of Shahjahanpur Sugar Private Limited. In other words, the purchase of 100 per cent shares in Shahjahanpur Sugar Private Limited cannot be eQuated to the purchase of the undertaking owned by Shahjahanpur Sugar Private Limited. What s_ 23 ( 4) requires is the acquisition by purchase, take over or otherwise of an undertaking. As we said, by getting the 100 per cent shares in Shahjahanpnr Sugar Private Limited, the appellant only acquired the control and the right of management of Shahjahanpur Sugar Private Limited; but that will not amount to a purchase of the undertaking owned by that company. It is wcil settled that a company has separate legal personality apart from its shareholders an:l it is only the company as a juristic person that could own the undertaking. Beyond obtaining control and the right of management of Shahjahanpur Sugar Private Limited, the purchase of 100 per cent shares had not the-effect of an acquisition of the undertaking owned by it. No doubt, on a dissolution of the company, the shareholders would be entitled to a distributive share of the assets of the company. But it does not follow that while the company is a going concern, the sharehoWers are the owners of its assets including any undertaking. It is the company as a separate entity which alone can own the nndertaking and the purchase by the appellant of 100 per cent shares did not make it the owner of the undertakinp:. We ~re aware that we are dealing with an economic legislation calculated to give effect to the Directive Principles of State Policy set out in clauses (b) and ( c) of Article 39 of the Constitution and that the purpose of the legislation shonld be kept in mind in interpreting its provisions; but we are not prepared to assume that the le!!islature has, bv a sidewind, swept awav the well established fundamental legal concepts of the law of corporation in making the legislation. We do not pause A B c D E F - G • H B I c D E F • G CAREW & co. LTD. v. UNION (Krishna Iyer, J) 389 to consider whether the circumstances which the Central Gove=ent took into account in passing the order were germane in the light of the provisions of s. 28 of the Act as we hold that s. 23 ( 4) has no application at all to the facts of the case. No arguments were addressed at the bar as to whether the facts of the case would attract the provisions of s. 22. We, therefore, think it not proper to express any definite opinion about the applicability of that section and we refrain from doing so. If, however, the facts of the case attract the provisions of s. 22, it goes without saying that the appellant will have to apply and obtain the approval as visualized in that section. We allow the appeal but make no order as to costs. KRISHNA IYER, J.-1 have had the advantage of perush1g the judgment of my learned brother, Mathew J. but, while concurring in the conclusion, desire to append a separate opinion since the strands of my reasoning differ. Mathew, J .'s judgment presents the necessary facts in the simplest form, sets out the scheme and the object of the Monopolies and Restrictive Trade Practices Act (for short, the Act) whose construction falls for decision, but perhaps tends to petrify the pivotal concepts of 'undertaking' defined in s. 2(v) and acquisition in the comext of Part A of Chapter III of the Act, if I may say so with respect. Perhaps we are hearing the first case in this Court under this 'economic' legislation, although three rulings from two High Courts, having some bearing on the controversy before ns, were cited at the bar. Shri Gupte, appearing for the appellant, posed the issue in a neatly simplistic way when he assailed the order of the Central Government under s. 23 ( 4) of the Act on the score that, absent acquisition of an 'undertaking' in terms of s. 2(v), the order was devoid of jurisdiction. This provision deoals with concentration of economic power whose inhibition is one of the paramount purposes of the statute. Section 23 falls within Chapter III, Part A, of the Act. Section 20 states that that Part shall apply oaly to certain types of undertakings. Admittedly, the appellant is a big, plural undertaking falling within this Part and proposes to make over the sugar unit (which is one of the enterprises of this large multi,production concern) to •a new company to be floated. This latter company is to have 100% of its shares owned by the appellant and, what is more, by a process of inflated valnatida of the assets of the sugar unit, the appellant will also appear to be advancing a loan of several lakhs of rupees to it. According to the respondent (the- Union of India) and the State of U. P., this new scheme is dubious in many ways and more si,1ister than seems on ·the surface. We need not go into the details except to state that if the facts urged by counsel for the respondent were true, it is a high risk to the community to approve of the proposed scheme from the point of view of the purposes of the Act and the Directive Principle enshrined in Art. 39(c) of the Constitution. 390 SUPREME COURT REPORTS [1976] 1 S.C.R. It is unfortunate that in cases where the economic object and impact of special types of legislation call for judicial interpretation, the nece5'ity for a detailed statement of the background facts and supportive data, apart from some sort of a Brandeis brief illuminating the social purpose of the statute, is not being fully realised by the State. In the present appeal materials were read out from the files which disturbed me but no comprehensive affidavit marshalllag the social and economic facts relevant to the case and the statute was filed. (At kast copies of the Monopolies Inquiry Commission's Report, extracts from the draft Bill, Notes on Clauses c.:1d the Objects and Reasons of the Act were made available while arguments started). Even so, the Court should hesitate to upset the Central Government's order without a strong case of glaring error oa the merits and clear excess or absence of jurisdiction being made out by the appellant. Shri Gupte, has, however, by-passed the controversial area of facts by a line of legal reasoning which is attractive but specious. He contents that s. 23'( 4) cannot apply save where the dominant undertaking (in this case, the appella'at) proposed to acquire 'the whole or part of an undertaking which will or may result either in the creation of A B c a undertaking to which Part A will apply or in the undertaking becomD ing an inter-connected undertaking of a'a undertaking To which Part A applies'. Therefore, runs the argument, what is sought to be acquired must be an undertaking. In the present case the sugar unit is already an asset of the appellant's concern a'ad what is proposed is nothing more than to float a i;ew company whose shares will be acquired i11 toto by the appellant. Only when that company goes into production it becomes an 'undcctaking' and onlv then can s. 23(4) poss'blv E cover the case, the reason being that an 'undertaking', by definition in s 2 ( v). 'means an undertaking which is engaged in the production .... of goods .... '. The acce'at placed by counsel is upon 'is engaged in the production'. He submits that the new company does not become an 'undertaking' until is is 'engaged in the production of goods'. What is not in esse but only in posse is not an undertaking. So much so the application of s. 23 ( 4) is premature and the Central Government's F' order is illegal. Moreover, no acquisition of the new company is contemplated, the owning of 100% shares thereof not being in law an acquisition of the undertaking as such by the appellant. I concede there is force in this argume•at. • • The crucial submissions of counsel for the appellant, however, stand exposed to the criticism made by Shri P. P. Rao for the rcsponc:.; " dent that they turn more or less on a play of words in the definition of 'undertaking' in s.