# I S.C.R. 216 STATE OF RAJASTHAN AND ORS v. GOTAN LIME STONE KHANJI UDYOG PVT. LTD. AND ANR

- **Citation:** [2016] 1 S.C.R. 216
- **Court:** Supreme Court of India
- **Decided:** 2016-01-20
- **Case number:** Civil Appeal No. 434 of2016
- **Bench:** Anil R. Dave, Adarsh Kumar Goel
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-s-c-r-216-state-of-rajasthan-and-ors-v-gotan-lime-stone-khanji-udyog-pvt-ltd-30907
- **Pages:** 26

## Headnote

Rajasthan Minor Mineral Concession Rules, 1986 - r.15 -
Mining rights - Transfer of - Partnership firm holding mining rights
C
- The firm, after converting itself from a partnership firm into a
private limited company, sought transfer of mining rights to the
company - Mining rights transferred by the State - Thereafter the
company, without permission of the State, transferred its entire
shareholding for share price to another company and itself became
D
E
its subsidiary company - Propriety of transfer - Held: Mining rights
belong to State and not to lessee and are regulated consistent with
the doctrine of public trust - Lessee has no right to profiteer by
trading such rights - Transfer of lease for private benefit without
corresponding benefit to the public or the State is not permissible -
The original lessee had sought transfer by giving false declaration
- On lifting the corporate veil, it is evident that the corporate entity
has been used to conceal the real transaction of transfer of mining
lease to a third party, for consideration, without statutory consent
- Such transfer, being in violation of the rules, is void - Direction
to the State to frame and notify its policy for exercise ?fits power of
permitting or refusing transfer of mining lease - Till the policy is
F framed and an order in accordance therewith is passed by the State,
status quo to be maintained.
G
Doctrine - Doctrine of lifting of corporate veil - applicability
of- Held: The doctrine is applicable not only to unravel tax evasion,
but also where protection of public interest is of paramount
importance.
Allowing the appeal, the Court
HELD: 1. In the present case there are two transactions.
The first transaction is of transfer of lease from the firm to the
company. In the second transaction, the entire shareholding is
H transferred for share price and control of mining lease is acquired
216
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
217
KHANJI UDYOG PVT. LTD.
by the holding company without any apparent price for lease. A
Viewed separately, there may be nothing wrong with either or
both the transactions, but if real nature of transaction is seen,
the illegality is patent. The partnership firm holding lease-hold
rights has successfully transferred the said rights to a third party
for consideration in the form of share price which is nothing but B
price for sale of mining lease which is not allowed and for which
no permission has been granted. Thus, if these facts were
disclosed to the competent authority, permission for transfer of
mining rights for financial consideration could not have been
allowed. Mining rights belong to the State and not to the lessee
and the lessee has no right to profiteer by trading such rights.
C
Lessee can either operate the mine or surrender or transfer,
only with the permission of the authority as legally required. In
the present case, the lessee has achieved indirectly what could
not be achieved directly by concealing the real nature of the
transaction. [Para 22] [231-G-H; 232-A-D]
D
2. The principle of lifting the corporate veil as an exception
to the distinct corporate personality of a company or its members
is well recognized not only to unravel tax evasion but also where
protection of public interest is of paramount importance and the
corporate entity is an attempt to evade legal obligations and lifting
of veil is necessary to prevent a device to avoid welfare legislation.
E
In the present case, the corporate entity has been used to conceal
the real transaction of transfer of mining lease to a third party for
consideration without statutory consent by terming it as two
separate transactions - the first of transforming a partnership
into a company and the second of sale of entire shareholding to
F
another company. The real transaction is sale of mining lease
which is not legally permitted. Thus, the doctrine of lifting the
veil has to be applied to give effect to law which is sought to be
circumvented. [Paras 23 and 26] [

## Text

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A
[2016] I S.C.R. 216
STATE OF RAJASTHAN AND ORS.
v.
GOTAN LIME STONE KHANJI UDYOG PVT. LTD. AND ANR.
(Civil Appeal No. 434 of2016)
B
JANUARY 20, 2016
[ANIL R. DAVE AND ADARSH KUMAR GOEL, JJ.]
Rajasthan Minor Mineral Concession Rules, 1986 - r.15 -
Mining rights - Transfer of - Partnership firm holding mining rights
C
- The firm, after converting itself from a partnership firm into a
private limited company, sought transfer of mining rights to the
company - Mining rights transferred by the State - Thereafter the
company, without permission of the State, transferred its entire
shareholding for share price to another company and itself became
D
E
its subsidiary company - Propriety of transfer - Held: Mining rights
belong to State and not to lessee and are regulated consistent with
the doctrine of public trust - Lessee has no right to profiteer by
trading such rights - Transfer of lease for private benefit without
corresponding benefit to the public or the State is not permissible -
The original lessee had sought transfer by giving false declaration
- On lifting the corporate veil, it is evident that the corporate entity
has been used to conceal the real transaction of transfer of mining
lease to a third party, for consideration, without statutory consent
- Such transfer, being in violation of the rules, is void - Direction
to the State to frame and notify its policy for exercise ?fits power of
permitting or refusing transfer of mining lease - Till the policy is
F framed and an order in accordance therewith is passed by the State,
status quo to be maintained.
G
Doctrine - Doctrine of lifting of corporate veil - applicability
of- Held: The doctrine is applicable not only to unravel tax evasion,
but also where protection of public interest is of paramount
importance.
Allowing the appeal, the Court
HELD: 1. In the present case there are two transactions.
The first transaction is of transfer of lease from the firm to the
company. In the second transaction, the entire shareholding is
H transferred for share price and control of mining lease is acquired
216
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
217
KHANJI UDYOG PVT. LTD.
by the holding company without any apparent price for lease. A
Viewed separately, there may be nothing wrong with either or
both the transactions, but if real nature of transaction is seen,
the illegality is patent. The partnership firm holding lease-hold
rights has successfully transferred the said rights to a third party
for consideration in the form of share price which is nothing but B
price for sale of mining lease which is not allowed and for which
no permission has been granted. Thus, if these facts were
disclosed to the competent authority, permission for transfer of
mining rights for financial consideration could not have been
allowed. Mining rights belong to the State and not to the lessee
and the lessee has no right to profiteer by trading such rights.
C
Lessee can either operate the mine or surrender or transfer,
only with the permission of the authority as legally required. In
the present case, the lessee has achieved indirectly what could
not be achieved directly by concealing the real nature of the
transaction. [Para 22] [231-G-H; 232-A-D]
D
2. The principle of lifting the corporate veil as an exception
to the distinct corporate personality of a company or its members
is well recognized not only to unravel tax evasion but also where
protection of public interest is of paramount importance and the
corporate entity is an attempt to evade legal obligations and lifting
of veil is necessary to prevent a device to avoid welfare legislation.
E
In the present case, the corporate entity has been used to conceal
the real transaction of transfer of mining lease to a third party for
consideration without statutory consent by terming it as two
separate transactions - the first of transforming a partnership
into a company and the second of sale of entire shareholding to
F
another company. The real transaction is sale of mining lease
which is not legally permitted. Thus, the doctrine of lifting the
veil has to be applied to give effect to law which is sought to be
circumvented. [Paras 23 and 26] [232-E-F; 235-E-F]
Workmen Employed in Associated Rubber Industry Ltd.,
G
Bhavnagar vs. Associated Rubber Industry Ltd.,
Bhavnagar (1985) 4 SCC 114; State of U.P. vs.
Renusagar Power Co. (1988) 4 SCC 59: 1988 (1) Suppl.
SCR 627; Delhi Development Authority versus Skiper
Construction Company (P) Ltd. (1996) 4 SCC 622:
1996 (2) Suppl. SCR 295 - relied on.
H
218
A
B
SUPREME COURT REPORTS
[2016] l S.C.R.
The Commissioner of Income Tax, Madras vs. Sri
Meenakshi Mills Ltd. (1967) 1 SCR 934; UC vs. Escort
Ltd. 1985 (3) Suppl. SCR 909 :(1986) 1 sec 264;
New Horizons Ltd. vs. UOJ (1995) 1 SCC 478; Victorian
Granites (P) Ltd. vs. P. Rama Rao and Ors. (1996) 10
SCC 665: 1996 (5) Suppl. SCR 692
- referred to.
Palmer's Company Law (2J'd Ed.) and Pennington
Company Law (4'0 Ed.) - referred to.
3. Mining rights are vested in the State and the lessee is
strictly bound by the terms of the lease. While discerning true
c nature of the entire transaction, court has not to merely see the
form of the transaction which is of sale of shares but also the
substance which is the private sale of mining rights avoiding legal
bar against transfer of sale rights circumventing the mandatory
consent of the competent authority. Consent of competent
authority is not a formality and transfer without consent is void.
D
The minerals vest in the State and mining lease can be operated
strictly within the statutory framework. There is nothing to rebut
the allegation that receipt of Rs.160 crores styled as investment
in shares is nothing but sale price of the lease. No precedent has
been shown permitting such a private sale of a mining lease for
E
consideration without any corresponding benefit to the public.
[Paras 28 and 30] [236-E; 237-F-G; 238-A-B]
Orissa Mining Corpn. Ltd. vs. Ministry of Environment
and Forest (2013) 6 SCC 476: 2013 (6) SCR 881;
State of Tamil Nadu vs. Mis Hind Stone 1981 (2) SCR
p
742 : (1981) 2 SCC 205; Monnet !spat & Energy Ltd.
vs. Union of India 2012 (7) SCR 644 : (2012) 11 SCC
1; Amritlal Nathubhai Shah vs. Union Govt. of India
1977 (1) SCR 372:(1976) 4 SCC 108; Geomin Minerals
& Marketing Ltd. vs. State of Orissa (2013) 7 SCC
G
571 - relied on.
Arnn Kumar Agrawal vs. Union of India (2013) 7
SCC 1: 2013 (3) SCR 508; BALCO Employees' Union
vs. Union of India (2002) 2 SCC 333: 2001 (5) Suppl.
SCR 511; Vodafone International Holdings B. V. vs.
Union of India (2012) 6 SCC 613: 2012 (1) SCR 573
H
- held inapplicable.
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
219
KHANJI UDYOG PVT. LTD.
Victoria Granites (P) Ltd. vs. P. Rama rao and Ors.
(1996) 10 sec 665: 1996 (5) Suppl. SCR 692; Mc.
Dowell & Co.
vs. Commercial Tax Officer (1985) 3
SCC 230: 1985 (3) SCR 791; Union of India vs. Azadi
Bachao Ando/an (2004) 10 SCC 1: 2003 (4) Suppl.
SCR 222; /RC vs. Westminister 1936 AC 1; WT
Ramsay vs. /RC 1982 AC 300 - referred to.
4.
Since, the mining rights vest in the State, the State has
to regulate transfer of such rights in the best interest of the people.
No lessee can trade mining rights by adopting a device of forming
A
B
a private limited company and transfer of entire shareholding only
with a view to sell the mining rights for private profit. Under C
Section 12A( 6) added by the Mines and Minerals (Development
and Regulation) Amendment Act, 2015, it has been provided that
transfer of mineral concessions can be allowed only if such
concessions are granted through auction. [Para 31] [238-E-F]
Sulekhan Singh & Co. vs. State of U.P. 2016 AIR 228
= 2016 (1 ) JT 50 = 2016 (1 ) SCALE 190 -
referred to.
D
5. The original lessee sought transfer merely by disclosing
that the partnership firm was to be transformed into a private
limited company with the same partners continuing as directors
E
and there was no direct or indirect consideration involved. It
was specifically declared that no pecuniary advantage was being
taken in the process which is clearly false. The permission to
transfer the lease in favour of a private limited company was
granted on that basis. Thus, it was a case of suppression veri and
F
suggestio falsi. Once it is held that transfer of lease is not
permissible without permission of the competent authority, the
competent authority was entitled to have full disclosure of facts
for taking a decision in the matter so that a private person does
not benefit at the expense of public property. [Para 35][240-E-G]
6. Thus, acquisition of mining lease contrary to rules is
void. Requirement of previous consent cannot be ignored nor
taken to be formality subject only to pay dead rent or agreeing to
follow same terms. The lessee privately and unauthorisedly cannot
G
sell its rights for consideration and profiteer from rights which
belong to State. There is no warrant for any contrary assumption. H
220
SUPREME COURT REPORTS
[2016] 1 S.C.R.
A The State has to exercise its power of granting or refusing
permission for transfer of lease in a fair and reasonable manner
but following doctrine of public trust. The State cannot overlook
illegal transfers. [Para 33] (240-B-C]
Goa Foundation vs. Union of India 2014 (5) SCR 302
B
: (2014) 6 SCC 590 - relied on.
7. In the facts of the present case, sale of shareholding by
respondent No.1 to its holding Company is a private unauthorized
sale of mining lease which being in violation of rules is void.
Respondent No.1-company had been formed merely as a device
c to avoid the legal requirement for transfer of mining lease and to
facilitate private benefit to the parties to the transaction, to the
detriment of the public. [Para 35] (241-A-B]
8. The State must have a declared policy for exercise of its
power of permitting or refusing transfer of mining leases and such
D policy should be operated in a transparent manner. However,
even in absence of a policy and irrespective of exercise of power
in the past, transfer of lease for private benefit without
corresponding benefit to the public or the State exchequer is not
permitted. However, the State of Rajasthan is directed to frame
and notify its policy in the matter. The State of Rajasthan may
E
pass an appropriate order in respect of the mining lease in
question in the light of the policy so framed. Till such a decision
is taken, status quo may be maintained. [Paras 34 and 37] (240C-D; 241-E]
Bacha F. Guzdar vs. CIT AIR 1955 SC 74: 1955
F
SCR 876; Heavy Engineering Mazdoor Union vs. State
of Bihar (1969) 1 SCC 765: 1970 (1) SCR
995; Electronics Corporation of India Limited vs.
Secretary, Revenue Department (1999) 4 SCC 458:
1999 (2) SCR 1078; Amit Products (India) Ltd. vs.
G
Chief Engineer (O&M) Circle (2005) 7 SCC 393;
Ba/want Raj Saluja & Anr. vs. Air India Limited &
Ors. (2014) 9 SCC 407 - referred to.
Case Law Reference
1955 SCR 876
referred to
Para 12
H
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
221
KHANJI UDYOG PVT. LTD.
1970 (1) SCR 995
referred to
Para 12
A
1999 (2) SCR 1078
referred to
Para 12
(2005) 1 sec 393
referred to
Para 12
(2014) 9 sec 407
referred to
Para 12
1988 (1) Suppl. SCR 627
relied on.
Para 24
B
(1967) 1 SCR 934
referred to.
Para 24
1985 (3) Suppl. SCR 909
referred to.
Para 24
(1967) 1 SCR 934
referred to
Para 23
(1985) 4 sec 114
referred to
Para 23
c
1985 (3) Suppl. SCR 909
referred to
Para 23
(1995) 1 sec 478
referred to
Para 23
1988 (1) Suppl. SCR 627
referred to
Para 24
D
1996 (2) Suppl. SCR 295
referred to
Para 25
1996 (5) Suppl. SCR 692
referred to
Para 27
2013 ( 6) SCR 881
referred to
Para 28
2013 (3) SCR 508
referred to
Para 28
E
2001 (5) Suppl. SCR 511
referred to
Para 28
2012 (1) SCR 573
referred to
Para 28
1981 (2) SCR 742
relied on
Para 28
2012 (7) SCR 644
relied on
Para 28
F
1977 (1) SCR 372
relied ou
Para 28
(2012) 6 sec 613
inapplicable
Para 28
1985 (3) SCR 791
referred to
Para 30
2003 (4) Suppl. SCR222
referred to
Para 30
G
1936 AC 1
referred to
Para 30
1982 AC 300
referred to
Para 30
2014 (5) SCR 302
relied on
Para 31
2016 (1 ) SCALE 190
referred to
Para 31
H
222
SUPREME COURT REPORTS
(2016] l S.C.R.
A
CIVIL APPELLATE JCRISDICTION : Civil Appeal No. 434
B
c
D
E
F
G
H
of2016
From the Judgment and Order dated 14.05.2015 of the High Court
of Judicature for Rajasthan at Jodhpur in D. B. Civil Second Appeal
(Writs) No. 328 of2015.
Ajay Kapur, Milind Kumar, Harsha Vinoy, Anish Roy for the
Appellants.
DushyantA. Dave, M. L. Singh vi, Mahesh Agarwal, An jay Kothari,
Ankur Saigal, E. C. Agrawala, Rishabh Parikh, P. K. Bhalla, Praveen
Kumar for the Respondents.
The Judgment of the Court was delivered by
ADARSH KUMAR GOEL, J I. Leave granted. The State of
Rajasthan is aggrieved by the quashing of its order dated I 61h December,
2014 whereby it declared its earlier order dated 25'" April, 2012 as void
and cancelled the mining lease No.45 of 1993. By the said earlier order
the aforesaid lease was permitted to be transferred in favour of
Respondent No. I.
2. Question for consideration is whether looking at the substance
of the transaction in question, an illegal transfer of mining lease was
involved? Whether transformation of partnership into company and
transfer of lease rights to such company, though apparently valid and
permitted, has to be seen with the next transaction of transfer of the
entire shareholding to a third company for a price thereby avoiding
declaration of real transaction of sale of mining lease which was not
permissible. Further question is whether on this basis the State is justified
in cancelling the lease which the High Court has quashed.
3.
FACTS : M/s. Gotan Limestone Khanji Udhyog (GLKU), a
partnership firm, held a mining lease for mining limestone at village
Dhaappa, Tehsil Merta, District Nagaur in area of IO sq. km at fixed
rent of Rs.1,42,85,224/- per annum for which third renewal for 30years
was granted w.e.f. 8'" April, 1994. The said lessee applied for transfer
of the lease in favour of respondent No. I herein, Mis. Gotan Limestone
Khanji Udhyog Pvt. Ltd. (GLKUPL) on 28'" March, 2012. The application
dated 28'h March, 2012 states that the lessee was a partnership firm and
wished to transfer the lease to a private limited company which was
mere change of form of its own business by converting itself from a
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
KHANJI UDYOG PVT. LTD. [ADARSH KUMAR GOEL, J.)
partnership firm into a private limited company. The partners of the firm
and Directors of the company were the same and on transfer, no illegal
benefit, price or premium was taken from the transferee. The lease
was 40 years old and there was no impediment in the transfer. The
transferee will comply with the niles and regulations. The transfer was
allowed on 25th April, 2012 on that basis. After seeking the said
permission, the newly formed private limited company instead of operating
the mining lease itself sold its entire shareholding to another company
allegedly for Rs.160 crores which is alleged to be the sale price of mining
lease.
4. On this development, a show cause notice dated 21" April,
2014 was issued to Respondent No.I proposing to cancel the transfer
order on the ground that contrary to the statement in the application for
transfer that the partners of the partnership firm will be Directors of the
private limited company, the Directors of the private limited company
who were partners of the firm were replaced by new Directors on 6'h
August, 2012 and the private limited company was listed as subsidiary
of Ultra Tech Cement Limited Company (UTCL) with the Bombay Stock
Exchange. This development showed that the transfer was secured by
a conspiracy and in circumvention of the rules.
5. Respondent No. I contested the show cause notice. In its reply,
it stated that the State Government itself had defended the transfer in its
affidavit in reply to the Writ Petition No.404 of2013 filed by Mis. J.K.
Cement Limited (JKCL). There was no bar to the change of Directors
and shareholding of a company under the rules. Thus, transfer of
shareholding and change of Directors did not amount to transferof mining
lease nor it affected validity of permission for transfer from GLKU to
GLKUPL.
6. This stand was held to be unsatisfactory by the competent
authority. Accordingly, the order dated 25'" April, 2012 was rescinded
223
A
B
c
D
E
F
and declared void vide order dated 16'" December, 2014. It was also
observed that the department had filed its revised reply before the High
Court and according to the said reply, the transfer was in violation of G
Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986 (the
Rules).
7. It appears that an FIR dated 7'h August, 2014 was also
registered with the Jaipur Main Police Centre on a complaint of on.: Dr.
Kiri! Somaiya on the allegation that GLKU had sold the mining lease tc,
H
224
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B
c
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SUPREME COURT REPORTS
[2016] 1 S.C.R.
UTCL which was not permissible and thereby unlawful gain was acquired
in connivance with the mining department and Joss was caused to the
State. The erstwhile partners of the firm which was original lessee, had
in effect transferred the lease in favour of S/Shri K.C. Birla, R. Mehnot
and M.B. Agarwal who took over as Directors of the Private Limited
Company at the instance of UTCL.
8. The respondent No. l filed S.B. Civil Writ Petition No.9669 of
2014 seeking quashing of show cause notice dated 21" April, 2014, the
order dated 16'h December, 2014 and other consequential orders. It
was submitted that the order dated 25"' April, 2012 permitting transfer
oflease from the partnership firm to the private limited company was in
order. After the said transfer, the entire shareholding of the company
was transferred by the promoter directors in favour of UTCL in July,
2012, except some shares which were transferred in joint names of
UTCL with some private persons who were employees of the said
company. Thus, the writ petitioner-Respondent No. l became wholly
owned suhsidiary of UTCL. The Directors were replaced by the
nominees of the holding company. JKCL had made an application seeking
permission of part transfer of the mining lease and its application was
rejected on 5"' September, 2012 against which Writ Petition No.404 of
2013 was filed. The State Government in its reply defended its order
dated 25"' April, 2012. After the assembly election in December, 2013,
show cause notice dated 21" April, 2014 was issued and a supplementary
reply was filed by the State in October, 2014 taking a different stand. It
was submitted that the order dated 16"' December, 2014 had not dealt
with the objection regarding applicability of Rule 72 (treating the lease
void) and the judgments relied upon by the writ petitioner in its reply.
F
Change in the pattern of shareholding and directorship of the company
was of no consequence for purposes of the Rules. The mining rights
are vested in the writ petitioner company as a consequence of order
dated 25"' April, 2012 and change in pattern in shareholding or directorship
did not affect the said rights. Shareholders and directors are not the
owners of the assets of the company. Company was a distinct entity
G
and mining lease was owned by the Company.
H
9. The writ petition was defended by the State with the plea that
change of all the directors and shareholding amounted to transfer of the
lease in violation of Rule 15 which was void under Rule 72. Thus, the
order dated 16" December, 2014 was valid.
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
225
KHANJI UDYOG PVT. LTD. [ADARSH KUMAR GOEL, J.]
10. JKCL, who had applied for transfer of part of mining lease
A
and was aggrieved by rejection of its application moved an application
before the High Court for being added as a party to oppose the writ
petition and was impleaded as a respondent in the writ petition, vide
order of the High Court dated 28'h January, 2015. The impleaded party
supported the order of cancellation inter alia on the ground that one of B
the conditions in the order dated 25" April, 2012 was that the document
of transfer was to be executed within three months which was not done.
Further, the transfer of entire shareholding by the newly formed company
was indirect way to transfer the lease for consideration by GLKU to
UTCL which was not legally permissible.
11. The main issue framed by leame<l Single Judge for consideration
was as follows:
c
"Whether the action of shareholders of the Company in
transferring its shares to Ultra Tech Cement Limited and
consequently, the Company becoming wholly owned
subsidiary of Ultra Tech Cement Limited amounts to violation
D
of Rule 15(1) ( b) of the Rules is the issue which requires
consideration."
12. After referring to the decisions of this Court in Bacha F.
Guzdar vs. CIT', Heavy Engineering Mazdoor Union vs. State of
Bihar2, Electronics Corporation of India Limited vs. Secretary.
E
Revenue Department', Amit Products (India) Ltd. vs. Chief Engineer
(O&M) Circle4 and Ba/want Raj Saluja & Anr. vs. Air India Limited
& Ors. 5 learned Single Judge concluded as follows:
"Jn view of the law laid down by the Hon 'ble Supreme Court
in the case of Government Companies, inter-se relationship
F
between holding and subsidiary Companies and fundamental
principles regarding distinction between a shareholder and
the Company, it is apparent that merely on account of the
Company becoming a subsidiary of Ultra Tech Cement Limited
on account of certain action of the shareholders of the
G
Company, it cannot be said that the Company is being directly
1AIR1955 SC 74
2 (1969) 1 sec 765
3 (1999) 4 sec 458
4 (2005) 1 sec 393
5 (2014) 9 sec 407
H
226
A
B
c
D
E
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G
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SUPREME COURT REPORTS
[2016] 1 S.C.R.
or indirectly financed to a substantial extent or the Company's
operations or undertakings are substantially controlled by
Ultra Tech Cement Limited, regarding which there are
absolutely no a/legations or material whatsoever. Therefore,
on account of the petitioner-Company becoming subsidiary
of Ultra Tech Cement Limited, in view of the law laid down by
the Hon'ble Supreme Court as noticed hereinbefore, it cannot
be said that ipso facto the provisions of Rule 15(1) ( b) of the
Rules have been violated by the lessee i.e. petitionerCompany."
13. Aggrieved by the judgment of the learned Single Judge, the
appellant and the impleaded party JKCL filed appeals before the Division
Bench of the High Court which have been dismissed by impugned order
dated 14'" May, 2015. The Division Bench while affirming the view
taken by the learned Single Judge, inter alia, observed:
"41. The entire corporate business is run through contracts,
which may give statutory or non-statutory rights to the
Company. A Company may apply and become the owner of
the license, permit, concessions and lease under the statutory
schemes of various statutes, under which the Company carries
out its business. In all such cases, the license, concessions,
pennit and lease are the property of the Company and not of
its shareholders. The shareholders may keep on changing and
the control and management in the Company may also undergo
changes on such transfer of shares, but the assets and
properties of the Company including license, permit,
concessions and lease continue to belong to the Company
and that any acquisition or transfer of such assets will not
relate back to the share-holding of the Company or the
management of the Company, which may change on the
change in the shareholding of the Company.
xxxx
43. We do not find any substance in the reliance placed on
the judgment of Supreme Court in Victorian Granites (P) Ltd.
Vis P.Rama Rao and ors. (( 1996) JO SCC 665), in which it
was held that the socio-economic justice is the arch of the
Constitution and the public resources under Article 39( b) must
be distributed to achieve that objective since liberty and
meaningful right of life are hedged with availability of
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
KHANJI UDYOG PVT. LTD. [ADARSH KUMAR GOEL, J.]
opportunities and resources to augment economic
empowerment. The principles sought to be developed in
Victorian Granites (P) Ltd. (supra) have not been accepted
by the Supreme Court in Natural Resources Allocation, In Re,
Special Reference No.I of 2012 ((2012) JO SCC 1), in which
while distinguishing the judgment in 2G Spectrum Case, it
was held in paragraph 129 that there is no constitutional
mandate in favour of action under Article 14. The Government
has repeatedly deviated from the course of action and the
Supreme Court has repeatedly upheld such actions. The
judiciary tests such deviations on the limited scope of
arbitrariness and fairness under Article 14 and its role is
limited to that extent. Essentially, whenever the object of policy
is anything but revenue maximization, the executive is seen to
adopt methods other than auction.
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46. It is of common knowledge that the corporate entities
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frequently undergoes changes in share-holding patterns. The
Company Law permits it, and that the entire corporate world
moves on such permissible transactions. The shares of the
Company are bought and sold every day on the Stock
Exchanges, which may result into change in the control of
the management of the Company. The changes, however, do
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not affect the contracts under which the Company has to
transact its business, including the acquisition of assets,
licenses, permits, concessions and leases. In case the argument
of learned Additional Advocate General is accepted, the
change in the share-holding pattern would amount to
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cancellation of all such contracts, leading to a complete chaos
in the corporate world. The entire object of providing limited
liability of shareholders under the Companies Act will be
affected by such interpretation of law and in such case, the
holding Companies, Public Limited Companies and the wholly
owned subsidiaries will have to apply for consent and G
permission in case of change in the share-holding patterns
of the Company, affecting their business. We, therefore, reject
the submission of learned Additional Advocate General and
learned counsel appearing for Mis J.K. Cement Limited that
any consequence of the change in the share-holding pattern
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of the Private Limited Company by which it became a wholly
owned subsidiary of Ultra Tech Cement would have required
a permission for transfer or that if such proposal was in the
making, the change in the personalty of the partnership firm
to a Private Limited Company would require previous consent
in writing of the competent authority.
47. We entirely agree with the reasons assigned by learned
Single Judge that no material has been placed on record to
suggest that the transfer of the mining lease from the
partnership firm to a Private Limited Company was made with
a design to ultimately transfer the shares to Ultra Tech Cement
Limited. There is no evidence to suggest any such design or
attempt at the time when the application was made for transfer
of mining lease by the partnership to the Private Limited
Company.
48. We also do not find any case of cheating or fraud in the
transfer of mining lease by either the partners of the
partnership firm or the Directors of the Private Limited
Company, for which the officers of the Mining Department
and competent authority could be liable or any criminal action
can be taken against them. The competent authority had fully
understood and had acted in accordance with the law, on the
facts placed before it, in granting consent in writing before
transfer of mining lease from the partnership firm to the Private
Limited Company. The State Government in its reply in the
Writ Petition No.40412013 had taken a correct stand in
defence of the transfer of mining lease. It appears that with
the change of Government, the loyalties changed from one
business group to another, and the State Government not only
initiated action by issuing show cause notice for declaring
the permission for transfer to be null and void, but also
proposed to take action against its officers for granting
permission. The entire action to cancel the lease was actuated
with malice in law. An additional affidavit was filed in the
writ petition filed by Mis J.K.Cement Limited changing the
stand of the Government in triggering action apparently to
the benefit of Mis J.K.Cement Limited, instrumental in blocking
the expansion of capacity of production of cement by Ultra
Tech Cement Limited.
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
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KHANTI UDYOG PVT. LTD. [ADARSH KUMAR GOEL, J.]
49. Though we find that learned Single Judge has not gone
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into and recorded any finding on malice in law, the facts
placed before us and the arguments advanced clearly indicate
that the entire action was coloured with malice in law. The
object and purpose of declaring the permission for transfer
to be null and void and cancellation of mining lease was for
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the purpose of restricting the expansion of business activities
of Ultra Tech Cement Limited owned by Bir/a Group of
Companies in the State of Rajasthan. "
14. When the matter came up for hearing before this Court on
18th September, 2015 following order was passed:
"In the meantime, the State shallfile an affidavit giving details c
of the circumstances in which normally an application for
transfer of mining lease is granted/ rejected. If there is any
policy in this regard, the same will be placed on record and if
there is no such policy, the State shall mention as to how many
applications for transfer of mining lease were granted/rejected D
in last two years and shall also give the reasons for which
they were granted or rejected."
15. Accordingly, an affidavit has been filed by the State of
Rajasthan stating that there was no specific policy regarding the granting/
rejecting of a transfer of a lease. However, a lease could not be
transferred without the consent of the competent authority. In the case
of one Shri Abdul Kareem, on death of a lessee, the legal heirs formed a
partnership and sought mutation in favour of the partnership firm. It
was later learnt that the partners retired and new partners were inducted
and on that basis the transfer was declared void.
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16. JKCL, respondent No.2, who had also filed independent writ
petition before the High Court, has referred to documents which are
part of record to submit that in the present case, sale of shares by
GLKUPL to UTCL is nothing but sale of the mining lease for
consideration of Rs.160 crores. This consideration is reflected in annual
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report 2012-2013 of the UTCL in the form of investment in shares of
GLKUPL. It has also referred to averments in pleadings/written
submissions before the High Court that GLKUPL was incorporated on
26th March, 2012. On 28th March, 2012 application for transfer of lease
was made by GLKU. Permission was granted on 25th April, 2012.
Transfer deed was executed on 8"' August, 2013 but on 23"' July, 2012
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itself entire shareholding was transferred to UTCL for Rs.160 crores.
Thus, on 8'h August, 2013, transferee was UTCL without the consent of
the State. This was contrary to rules and standard conditions of transfer.
In para 3(iii) of the transfer deed there is a declaration that the transferor
has not directly or indirectly been financed. We will refer to these aspects
in due course.
17. We have heard learned counsel for the parties at length.
18. As already stated the question for consideration is whether in
the given fact situation the transfer of entire shareholding and change of
all the directors of a newly formed company to which lease rights were
transferred by a declaration that it was mere change of form of partnership
business without any transfer for consideration being involved can be
taken as unauthorized transfer of lease which could be declared void.
I 9. Learned counsel for the appellants submitted that the view of
the High Court that sale of entire shareholding in favour of UTCL by the
newly formed company which had no other assets or business except
the mining lease and appointment of nominees of UTCL as Directors of
GLKUPL did not amount to change of control of GLKUPL to UTCL or
that it was not transfer of mining lease for consideration was clearly
erroneous. In view of the fact that transfer of shareholding took place
just after the formation of GLKUPL by partnership firm holding the
lease on a declaration that no third party was involved nor any direct or
indirect consideration was involved, it was clear that formation of
GLKUPL itself was a device for transfer of mining lease from GLKU
to UTCL for monetary consideration without disclosing the real
transaction to the competent authority. The Court was required to see
the substance and not mere form. The judgments relied upon only stated
the general principle of identity of the company being distinct from
shareholders and directors which was subject to the doctrine of piercing
the veil to discover the real nature of transaction when it was different
from what was apparent. In the present case, it was not a case of mere
transfer of shareholding or change of Directors or even a routine merger
but use of device to unauthorisedly acquire mining lease by misleading
the competent authority by concealing the real transaction. Real
transaction is of impermissible sale of the lease which was the only
asset of the company. If true facts that lease was to be sold were
disclosed, power to permit transfer of lease may not have been exercised.
Lease could not be transferred to make profit. Thus, the doctrine of
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
231
KHANJI UDYOG PVT. LTD. [ADARSH KUMAR GOEL, J.]
lifting the corporate veil should be invoked. The public power of permitting
transfer of lease could not be used to benefit a private operator, who
sells its rights in natural resources given to it by the State, in violation of
law. Reliance has been placed on Victorian Granites (P) Ltd. vs. P.
Rama Rao and Ors. 6• The High Court did not appreciate the judgment
even after noticing it. The controlling power of the lease has completely
been transferred for consideration without this fact being brought to the
knowledge of the competent authority having jurisdiction to permit and
regulate the power to transfer the lease. Law governing relationship
between a company and its shareholders inter se has to be applied having
regard to reality of a transaction and to effectuate the regulatory
provisions dealing with subject. The constitutional principles and the
regulatory regime in relation to the mining leases of minerals which vest
in the State cannot be defeated by the abstract doctrine of corporate
personality being separate from the entire body of shareholders without
having regard to the real nature of transaction and the well known
exceptions to this abstract doctrine.
20. Learned counsel for the respondent-writ petitioner supported
the view taken by the High Court. He submitted that there was no
transfer of lease involved in transfer of entire shareholding and change
of directors and in such a situation no permission for transfer was required
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to be taken. Transaction of sale of shareholding was independent of
transfer of lease to the newly formed private limited company without
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any monetary consideration as was correctly declared.
In any case,
transfer of lease was permissible and only consideration was payment
of dead rent/royalty and compliance of procedural formalities. There
was nothing inherently illegal in transfer of a lease. He cited instances
of takeover and merger of companies with running business including
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the cases of Vedanta and BALCO to which we will refer later.
21. We have given thoughtful consideration to the issue arising for
consideration.
22. In the present case there are two transactions. Viewed
separately, there may be nothing wrong with either or both but if real
nature of transaction is seen, the illegality is patent. In first transaction
of transfer of lease from the firm to the company, with the permission of
the competent authority, only disclosure made while seeking permission
for transfer is of transforming partnership business into a private limited
6 (1996) 10 sec 665
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company with same partners as directors without there being any financial
consideration for the transfer and without there being any third party.
There is perhaps nothing wrong in such transfer by itself. In the second
transaction, the entire shareholding is transferred for share price and
control of mining lease is acquired by the holding company without any
apparent price for lease. Technically lease rights are not sold, only shares
are sold. No permission for transfer oflease hold rights may be required.
Let us now see the combined effect and real substance of the two
transactions. The partnership firm holding lease hold rights has
successfully transferred the said rights to a third party for consideration
in the form of share price which is nothing but price for sale of mining
lease which is not allowed and for which no permission has been granted.
Thus, if these facts were disclosed to the competent authority, permission
for transfer of mining rights for financial consideration could not be
allowed. Mining rights belong to the State and not to the lessee and the
lessee has no right to profiteer by trading such rights. In fact the lessee
has also not claimed such a right. Lessee can either operate the mine or
surrender or transfer only with the permission of the authority as legally
required. In the present case, the lessee has achieved indirectly what
could not be achieved directly by concealing the real nature of the
transaction. Is it legally permissible, is the question.
23. The principle of lifting the corporate veil as an exception to the
distinct corporate personality of a company or its members is well
recognized not only to unravel tax evasion' but also where protection of
public interest is of paramount importance and the corporate entity is an
attempt to evade legal obligations and lifting of veil is necessary to prevent
a device to avoid welfare legislation'. It is neither necessary nor desirable
to enumerate the classes of cases where lifting the veil is permissible,
since that must necessarily depend on the relevant statutory or other
provisions, the object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the effect on parties
who may be affected etc.'
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7(1967) 1 SCR 934 -The Commissioner of Income Tax. Madras vs. Sri Meenakshi
Mills Ltd.
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8 (1985) 4 SCC 114 - Workmen Employed in Associated Rubber Industry Ltd.,
Bhavnagar vs. Associated Rubber Industry Ltd., Bhavnagar
9
(1986) I SCC 264 (LIC vs. Escorts Ltd.) which refers to Palmer's Company Law
(23rd Ed.) and Pennington Company Law (4th Ed.) followed in New Horizons Ltd. vs.
um (1995) 1 sec 478
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE
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KHANJI UDYOG PVT. LTD. [ADARSH KUMAR GOEL, J.]
24. In State of U.P. vs. Renusagar Power Co. 10 this Court A
observed:
"66. It is high time to reiterate that in. the expanding horizon
of modern jurisprudence, lifting of corporate veil is
permissible. Its frontiers are unlimited. It must, however,
depend primarily on the realities of the situation. The aim of B
the legislation is to do justice to all the parties. The horiwn
of the doctrine of lifting of corporate veil is expanding ........ .
67. In the aforesaid view of the matter we are of the opinion
that the corporate veil should be lifted and Hindalco and
Renusagar be treated as one concern and Renusagar 's power C
plant must be treated as the own source of generation of
Hindalco and should be liable to duty on that basis. In the
premises the consumption of such energy by Hindalco will
fall under Section 3( I)( c) of the Act.