Fresenius Kabi Oncology Limited and Others vs The State of West Bengal and Others

Aniruddha Bose, J—These two writ petitions, though arising from two different causes of action, essentially involve a common question of law. As such both these writ petitions have been heard together and are being disposed of by this judgment. No affidavit has been filed on behalf of the State in either of these two writ petitions, but the learned counsel for the State has agreed to disposal of these two writ petitions without affidavits being filed, as arguments have been advanced on questions of law before me.

In these proceedings, the common petitioner is a company incorporated under the Companies Act, 1956 engaged in the business of manufacture of pharmaceutical products. In W.P. No. 24788(W) of 2010, Fresenius Kabi Oncology Ltd. the company is the sole petitioner whereas in W.P. No. 26049(W) of 2014, an employee of the company has also joined the company as the second petitioner. The company has a manufacturing unit at Kalyani in the district of Nadia in West Bengal, which is the source of dispute in both these writ petitions.

The unit originally was owned by another corporate entity, Pfizer Limited. The land, comprising of an area of approximately 16.95 acres was allotted by the State Government to said Pfizer Limited as a lessee. The agreement to that effect was executed on 4th January, 1989 and the tenure of the lease was 999 years. This has been specified in Clause-1 of the Lease Deed, a copy of which has been made annexure ''P-1'' in W.P. No. 24788(W) of 2010. I shall refer to this writ petition later in this judgment as the first petition. The lease agreement stipulates that without obtaining written consent of the lessor, the land in question could not be transferred. Sub-clause-(4), (5), (6) and (7) of Clause 2 of the agreement are relevant on this issue, and these sub-clauses provide:-

"2. That the Lessee to the intent that the obligations may continue throughout the term hereby covenants with the Lessor as follows:

(.)

(.)

(.)

(4) To use the land for the purpose of erecting building for carrying on business for industrial purpose namely a factory for the manufacture of bulk drugs, drug intermediates, formulations and any item licensed or permitted from time to time and for residential purposes of the essential employees only of the Lessee (not exceeding 1000 Square Metres in covered area for such quarters) subject to the conditions hereinafter mentioned and for no other purpose whatsoever without the previous consent in writing of the Government of West Bengal (hereinafter referred to as the "GOVERNMENT"),

(5) Not to sub-divide the demised plot of land,

(6) Not to assign underlet or part with the possession of the demised premises or any part thereof without first obtaining the written consent of the Lessor such consent however not to be unreasonably withheld in the case of a responsible person,

(7) Not to mortgage or charge the lease-hold interest of the Lessee and the buildings to be erected thereon without the previous consent in writing of the Government such consent not being unreasonably withheld in the case of bona-fide necessity."

The said unit, with the land and structure thereon was transferred to Dabur India Limited on 7th May, 1996 by the original lessee, Pfizer Ltd. By a communication bearing No. 2055/D-35 dated 29th September, 2014, Dabur India Ltd. was informed by the Estate Manager, Kalyani, Urban Development department of the State Government that leasehold interest of the said plot was recorded in its name. Mutation was thus effected in the name of Dabur India Limited. Subsequently, through a process of demerger, the pharmaceutical business of Dabur India Limited was segregated and that part of the operation of Dabur India Limited came under another company, Dabur Pharma Limited. This scheme of arrangement in this regard was approved by the Hon''ble High Court of Delhi on 17th October, 2003. Dabur Pharma Ltd. thereafter applied for recording its name as a lessee of the said plot, and this was allowed by the appropriate authority of the State Government on 15th March 2005. The original promoters of Dabur Pharma Ltd. who were holding 64.34% of the total equity shares in that company thereafter had transferred their stake in the company to Fresenius Kabi (Singapore) Pte., a company organized under the laws of Singapore. This transfer of equity stake was effected on 11th August, 2008. Thereafter, the corporate name of Dabur Pharma Ltd. was changed to Fresenius Kabi Oncology Ltd. and a fresh certificate of incorporation was issued by the Registrar of Companies, National Capital Territory of Delhi and Haryana on 9th January 2009. Copy of the relevant document in this regard, issued by the Registrar of Companies, National Capital Territory of Delhi and Haryana has been made Annexure "P5" to the first writ petition. The petitioner-company in both these proceedings is subsidiary of the Singapore based company. Submission of the petitioners is that all requisite approval from different authorities empowered to effect change of corporate name have been obtained by them. But that issue is not in dispute in these two proceedings. The dispute between the company and the State arose when the petitioner-company applied for recordal of change of name of the lessee in respect of the subject plot. This application was made on 6th January, 2010 and the Estate Manager, Kalyani, Urban Development Department, Government of West Bengal asked for a deposit of Rs. 15,37,66,667/- as transfer permission fee on the basis of a notification dated 18th December, 2007 for effecting such change. A copy of this notification has been annexed at page 68 of the first writ petition and the notification, bearing No. 4247-UD/O/M/K and P/K/L-2/05 dated 18th December, 2007. This notification contemplates deposit of fees for transfer of leasehold right for different categories of land in Kalyani township. The said notification specifies:-

"The revision of rates of salami chargeable for allotment of different categories of land and fees for transfer of leasehold right of different categories of land in Kalyani Township were under active consideration of Govt. for sometime past.

After careful consideration of the matter the Governor has been pleased to decide that the salami for different categories of land and the fees for allowing transfer of different categories of land in Kalyani Township shall henceforth be charged in the following manner. The salami for leasing out different categories of plots of land in Kalyani Township shall be charged as follows:

The rate of fees for allowing of transfer leasehold right of different categories of plots of land in Kalyani Township shall be charged as follows:-

This order issues with the concurrence of Finance Deptt. vide their U.O. No. 119 dated 9.8.2007 Group ''R''.

This order shall take immediate effect.

This notification be published in the Kolkata Gazette. Extraordinary issue."

It appears that transfer fee from the petitioners has been demanded in terms of the said circular, though the manner in which such transfer fee has been computed is not clear from the letter requiring deposit of fees. But manner of computation is not of much significance in these two proceedings. The core controversy involved in these proceedings is as to whether the authorities are empowered to demand transfer fee for effecting change of name. In the second writ petition, main complaint of the petitioners is withholding of their licence for storage and use of Hexane under the provisions of the West Bengal Solvent, Raffinate, Slop and other Equivalent Petroleum Products (Acquisition, Sale, Storage and Prevention of Use in Automobiles) Order, 2000 (the 2000 Order), mainly on the ground that the company in its present name is yet to be recognized as lessee. The company requires Hexane for manufacturing its pharmaceutical products. Contention of the petitioners is that change of name of a company does not constitute transfer of its assets, and the petitioners have questioned the very basis of such demand. Challenging the demand of transfer fee for recording the name of the petitioner-company, the first writ petition has been filed. The subject of dispute in the second writ petition being W.P. No. 26049(W) of 2014 is an order of the District Magistrate and Collector, Nadia passed on 12th August, 2014 refusing to grant license in terms of the 2000 Order. The ground on which such license has been refused has been specified in the order of the District Magistrate passed on 12th August 2014 and the relevant part of the said order stipulates:-

"The change of name was caused when, by way of acquisition through a share purchase - agreement there occurred a transfer of majority of the equity shares from the original majority stakeholders i.e. Dabur Pharma, a subsidiary of the Dabur Group of companies to Fresenius Kabi (Singapore) Group. {EXHIBIT - 2: Para 1 of the Explanatory Statement u/s. 173(2) of the companies act; duly endorsed by the legal - Head of Dabur Pharma Ltd.}.

The stake of the parent company having fallen grossly, there is, undoubtedly, a change of interest in the shareholding of the two groups of companies by way of acquisition and divestment of shares, and hence the transfer of leasehold rights in the name of Fresenius Kabi Ltd. was not possible by the Estate Manager, Kalyani, without payment of transfer fees. This, therefore, appears to be no case of change of name by way of mere replacement of name from one to the other.

Such consideration disables me from ruling out the possibility of a huge deprivation on the Government Exchequer on account of nonpayment of transfer fees due to transfer of Leasehold interest. Moreover, contrary to the submissions of Messers. Fresenius Kabi Oncology Ltd. that recording of its name as a lessee in the records of the lessor, that is, the Government of West Bengal is, in no way connected to conferring the licence to store hexane in a piece of land and leasehold wherein Dabur Pharma Ltd. is shown to be the leaseholder, is not tenable.

Any permission accorded to store on or use a piece of land recorded in the name of another, for any purpose whatsoever, would be tantamount to granting permission to trespass, which thus, being unlawful, be void ab initio.

I am, therefore, not inclined to grant licence to store hexane to Fresenius Kabi Oncology at D-35, Kalyani Estate, Kalyani, Nadia until and unless the piece of Leasehold be recorded in the name of the petitioner company, namely, Fresenius Kabi Oncology Ltd. itself, that is, until and unless the lessor recognises such transfer of the leasehold interest in the land in question in favour of the applicant company.

The application dated 16/08/2010 of the petitioners, for grant of licence to store hexane at D-35, Kalyani Estate, Nadia, is thus disposed of; and the Order dated 18/6/2014, of the Honourable Calcutta High Court i.c.w. 13631(W) of 2014, Fresenius Kabi Oncology Ltd. Vs. State of W.B. & Ors. Is hereby complied with."

The above-referred order was passed by the District Magistrate in pursuance of direction issued by an Hon''ble Single Judge of this Court in an earlier writ petition, which was registered as W.P. No. 13631(W) of 2014. The company had been making request for licence under the 2000 Order, from the month of August 2010, but in spite of reminders and exchange of correspondence among the petitioner company, the District Magistrate and different authorities under the State Government on the subject, actual grant of licence was withheld. Case of the petitioners is that there was no official communication on that issue, but in course of a meeting held in the office of the District Magistrate on 12th March 2014, the issue of non-payment of transfer fee was raised.

In both these proceedings, contention of the petitioners, represented by Mr. M.K. Basu, learned senior advocate is that change of name of a company does not constitute transfer of assets of the company, or its leasehold right. Questioning the legality of the order of the District Magistrate, it has also been argued by Mr. Basu that the District Magistrate, while examining the application for licence under the 2000 Control Order acted beyond jurisdiction to raise the issue of transfer of leasehold right. In this regard, my attention was drawn by Mr. Basu to an order passed by an Hon''ble Division Bench in M.A.T. No. 310 of 2011 (with C.A.N. 2395 of 2011) on 9th March, 2011. In the first writ petition, on 10th February 2011 an Hon''ble Single Judge of this Court had issued directions for filing affidavits but declined to pass any interim order. The petitioners had appealed against that order. The Appellate Court, in the order passed on 9th March 2011 did not interfere with the directions issued by the Hon''ble Single Judge for filing affidavits, but had observed:-

"However, we are also of the opinion that pending disposal of the writ petition, respondent authorities herein should maintain status quo with regard to the possession as well as nature and character of the plot in question."

Mr. Basu argued that after the order for status quo was passed, it was not permissible on the part of the District Magistrate, Nadia to raise the issue of transfer fee while dealing with the question of grant of licence under the 2000 Control Order, which had an altogether different field of operation.

Main case of the petitioners, however, is that change of the name of a company does not constitute transfer of leasehold right or any assets of the company. In this regard, Mr. Basu has relied on a judgment of the Supreme Court in the case of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay, AIR 1955 SC 74 : AIR 1954 SC 74 : (1955) 25 CompCas 1 : (1955) 27 ITR 1 : (1955) 1 SCR 876 , Kalipada Sinha Vs. Mahalaxmi Bank Ltd., AIR 1966 Cal 585 , W.H. Targett (India) Limited Vs. Mr. S. Ashraf and Others, (2008) 3 CALLT 362 and an unreported judgment of this Court in W.P. No. 18668(W) of 2012 M/S. Din Chemicals and Coatings Pvt. Ltd. & Anr. Vs. The State of West Bengal and Ors. delivered on 5th October, 2012.

Mr. Susobhan Sengupta, learned counsel appeared on behalf of the State in this matter. His submission is that on change of equity shareholding pattern, bringing a new set of shareholders in the controlling position of the company in substance has resulted in transfer of ownership and control of the company, and such change should be treated to have resulted in transfer of assets of the company. According to him, the leasehold right was shifting from one entity to another, and for this reason transfer fee was payable. His submission is that this is a case where there is simultaneous transfer of assets including leasehold right from one entity to another along with change of name and in this regard he relied on a judgment of this Court delivered on 8th February 2012 in the case of in Re:- In Re: Emami Biotech Limited and Another, (2012) 3 CHN 102 : (2012) 107 CLA 373 : (2012) 170 CompCas 212 : (2012) 4 CompLJ 599 : (2012) 2 CompLJ 107 : (2012) 112 SCL 33 which is also a decision of an Hon''ble Single Judge of this Court.

In the case of Bacha F. Guzdar (supra), it has been held by the Hon''ble Supreme Court:-

"That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word ''assets'' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the case of Chiranjit Lal Chowdhuri Vs. The Union of India (UOI) and Others, AIR 1951 SC 41 : (1951) 21 CompCas 33 : (1950) 1 SCR 869 . That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as provided by the Articles of Association to declare that dividends should be distributed out of the profits of the company to the shareholders but the interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company. The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley''s Companies Act, 12th Ed., page 894, where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company"

The same principle was followed in the case of Din Chemicals & Coatings Pvt. Ltd. (supra), and it has been held in this decisions:-

"Let me now consider as to how far the principle laid down in the said decision of the Hon''ble Supreme Court is applicable to the facts of the instant case. I have already indicated above that the case which was before the Hon''ble Supreme Court was a case of amalgamation of the two companies which is not the case before this Court. In case of amalgamation of two companies the transferor company losses its existence and all the property, rights, powers of every description including all leases and tenancy right, industrial, import and all other licences, of the transferor company without any further act or deed are transferred and vested or deemed to be transferred or vested in favour of the transferee company. Thus, in case of amalgamation no doubt the lease-hold interest of the transferor company stands transferred in favour of transferee company but the such transfer is not contemplated in case of transfer of share by the shareholder of the company to the stranger purchasers of such shares, as it was held in Mrs. Bacha F. Guzdar, Bombay vs. Commissioner of Income Tad, Bombay (supra) by the Hon''ble Supreme Court that a shareholder who buys share does not buy any interest in the property of the company which is a juristic person entirely distinct from shareholders. It was further held therein that the true position of a shareholder in a company is that on buying shares he becomes entitled to participate in the profit of the company as and when the company declares, subject to articles of association, that the profits or any portion thereof would be distributed by way of dividends amongst the shareholders. It was further held therein that he has further a right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole. In the present case, it is nobody''s case that the company was wound up and the assets of the wound up company which were left over after winding up of the said company was transferred by the promoter shareholder in favour of the stranger purchaser. As such, by following the aforesaid decision of the Hon''ble Supreme Court as well as of this Hon''ble Court, this Court has no hesitation to hold that with the transfer of the share by the promoter shareholder to the present shareholder, namely the transferees of such share, the lease hold interest of the company was not transferred from the promoter shareholder to the present shareholder of the said company. The petitioner-company which obtained the said lease from the Government, still remains the lessee of the said plot of land and its leasehold interest in the said plot of land remains unaffected by transfer of share by the promoter shareholders to the present holders. As such, this Court holds that the restrictive clause regarding transfer of the lease hold interest of the lessee in favour of a stranger, sub-lessee or assignee, does not attract in the present case and as a result, the demand for transfer fees for recognizing the alleged transfer of leasehold interest from the erstwhile shareholders of the said company to the present shareholder, is absolutely illegal and unlawful and as such, that part of such demand, which was made by the concerned authority in the impugned order and/or letter as aforesaid, stands quashed."

The legal impact of change of the name a company has also been discussed in the case of Kalipada Sinha (supra), and it was held in that judgment:-

"It will be convenient to dispose of the point which was already taken in the Court below, viz., that no such amendment could be made by the Executing Court. What has been argued is that the Executing Court can only grant the amendment that is provided under Order 21, Rule 16 or Rule 17. Obviously, the amendment asked for does not come within those provisions. In my opinion, the whole approach is defective. The argument proceeds on the tooting that an application for execution was pending and in course thereof there had been a transfer of the interest of the decree-holder to another new body altogether and that it was a case of substitution in execution proceedings. This is belied by the provisions of Sections 21 and 23 of the Companies Act 1956. Section 21 enables a company to change its name by a given method, viz., by a special resolution and with the approval of the Central Government signified in writing. It does not provide for altering the entity but only the name. This is also, made quite clear by the provisions of Section 23. Subsection (1) or Section 23 states that where a company changes its name in pursuance of Section 21 or 22, the Registrar shall enter the new name on the register in the place of the former name, and shall issue a fresh certificate of incorporation with the necessary alterations embothed therein and the change of name shall be complete and effective only on the issue of such a certificate. It would be observed that the emphasis is on the expression, "change of name". Sub-section (3) lays down that the change of name shall not affect any rights or obligations of the company or render defective any legal proceedings by or against it; and any legal proceedings which might have been continued or commenced by or against the company by its former name may be continued by or against the company by its new name. This makes it abundantly clear that as the alteration is only in the name and not in the identity and that the statute itself grants the right to continue an existing proceeding by the old company in its new name."

In the case of W.H. Targett (India) Ltd. (supra), a Division Bench of this Court also considered the scope of Section 23 of the Companies Act, 1956 and in this case, it has been observed:-

"SECTION 23 of the Companies Act, 1956, enumerates the effect of the change of name by a company. Sub-section (3) of Section 23 of the said act contemplates that the change of name shall not affect any rights or obligations of the company, or render defective any legal proceedings by or against it; and any legal proceedings, which might have been continued or commenced by or against the company by its former name may be continued by or against the company by its new name."

Mr. Sengupta on the other hand submitted that the result of transfer of the entire equity holding of the promoter group to another set of shareholders is transfer of the subject-unit from one entity to another. Relying on the decision of the Supreme court in the case of New Horizons Limited and Another Vs. Union of India (UOI) and Others, (1997) 89 CompCas 849 : (1995) 1 SCC 478 : (1994) 5 SCR 310 Supp , he urged this Court to lift the corporate veil in this case to examine the actual intention of the shareholders of the company. Mr. sengupta also referred to the judgment of this Court in the case of Emani Biotech Ltd. (supra), in which it has been held that an order sanctioning a scheme of amalgamation or demerger under Section 394 of the Companies Act answers to the description of the words "instrument" and "conveyance" within the meaning of the Stamp Act applicable to this State, and is, accordingly exigible to stamp duty.

So far as these two petitions are concerned, Dabur Pharma Limited became lessee of the land in question through an arrangement approved by this Court. Leasehold right of Dabur Pharma Limited has been recognized by the State authorities. On 11th August, 2008 the majority holding of Dabur Pharma Limited was transferred to the parent company of the petitioner. Whatever transfer had taken place was at that point of time between the two entities. The consequential act of change of corporate name of the company is sought to be treated as transfer of leasehold right of the company, and transfer fee is sought to be charged on that incident or event. This, in my opinion is not permissible. To borrow the terminology from the fiscal jurisprudence, what is being subjected to transfer fee is the incidence of change of name of the company. Such a situation cannot come within the ambit of the expression "transfer of leasehold right", as stipulated in the notification of 18th December, 2007. The ratio of the judgment of this Court in the case of Emami Biotech Ltd. is not applicable in the facts of this case, as transfer fee is not being charged on any instrument of transfer, but on the basis of request for recordal of change of corporate name. It has not been argued by the State that the very act of transfer of equity-holding of the promoter group gives rise to the obligation of the company to pay transfer fee.

If I accept the submission of the State, then the result thereof would be that even after transfer of shareholding, during the period the company retained the name Dabur Pharma Limited, no transfer fee would have been charged but only on change of name, the petitioner company would become liable to pay the transfer fee. The charging provision, if that expression is used, in terms of the said notification however is not recordal of change of name but transfer of leasehold rights. In the instant case the authorities are not seeking to demand transfer fee on the incidence of transfer of assets but on the application for recording change of name, which also is the main ground for withholding licence under the above referred Control Order.

This stand of the State I am unable to accept. I am not entering into the question in this writ petition as to whether the transfer of majority equity holding of a company would result in transfer of assets of the company or not because that is not the lis which has arisen in these two proceedings, though the State has referred to that dispute tangentially. On permitting recordal of Dabur Pharma Limited as the lessee on 15th March, 2005 the State had recognized independent juridical entity of Dabur Pharma Limited as a lessee. Subsequently, change of the promoter group, which eventually led to the change of corporate name, in my opinion, cannot saddle the petitioner company with an independent obligation to pay transfer fee. That would result in combining distinct identity of the shareholders with that of the company, which can be done on certain exceptional circumstances. This dispute does not require lifting of corporate veil, for the reasons I have already discussed. I accordingly hold that no demand for transfer fee can be raised on the petitioner company as a condition precedent for recordal of its name as a lessee, on the ground that there has been transfer of leasehold right. The licence of the petitioner company cannot be withheld under the 2000 Order also for this reason.

I accordingly quash the impugned demand dated 26th October, 2010, the copy of which have been made Annexure ''P11'' in W.P. 24788(W) of 2010 as also the order of the District Magistrate which is impugned in the second writ petition, registered as W.P. 26049 (W) of 2014, a copy of which has been made Annexure ''P7'' to the second writ petition.

I direct the authorities to record the name of the petitioner company as a lessee on compliance of all other relevant formalities, if any, in respect of the subject plot and also grant the petitioner company licence in terms of the 2000 Order if the petitioner company is otherwise eligible for such licence. This exercise shall be completed a period of four weeks from the date of communication of this order.

There shall, however, be no order as to costs.

Urgent photostat certified copy of this order be given to the parties expeditiously, if applied for.