Section 565
UNREGISTERED
COMPANIES
[1986] 59 COMP. CAS. 139
(KAR.)
v.
N.D.
VENKATESH, J.
WRIT
PETITION NO. 9613 OF 1981.
MAY
30, 1983
S.G. Sundaraswamy for the
Petitioner.
Shivshankar Bhat for the
Respondent.
Venkatesh, J.—Messrs. Eskay Lab Limited, formerly known as M/s. Smith
Kline & French (India) Ltd., a company incorporated in the United Kingdom,
the petitioner herein, has applied in this petition filed under article 226 of
the Constitution for a writ of certiorari challenging annexure "C"
bearing No. STA(K)/SKF/NR/80 dated February 13, 1981. The petitioner has also
applied for a writ of mandamus directed against the respondent, the Registrar
of Companies in Karnataka, Bangalore, for a direction to him to
register the petitioner company as a private limited company under Part IX of
the Companies Act, 1956 ("the Act").
The petitioner is a company
registered and incorporated in England under the provisions of the Companies
Acts, 1948 to 1967. It is having its registered office at I, Surrey Street,
London, W. C. 1, England. It is carrying on business through its branch in
India having its office and factory at Devanahalli Road, off Old Madras Road,
Bangalore.
The Foreign Exchange
Regulation Act, 1973, was brought into force during that year. Thereafter, the
petitioner applied to the Reserve Bank of India for permission under section
29(2)(a) of the Act of 1973 for carrying on its existing activities in India.
After some correspondence, the Reserve Bank wrote a letter dated October 5,
1978 (annexure "A"), to the petitioner calling upon it to comply with
certain conditions mentioned therein, one of them being that the Indian branch
of the petitioner company should be converted into an Indian company with
non-resident interest in the equity capital not exceeding 40 per cent. within a
period of one 'year from the date mentioned therein (in the letter).
Thereafter, the petitioner
applied to the respondent as on February 19, 1980, annexure "B", to
register it as a private limited company under the provisions of Part IX of the
Act. In answer to this application, annexure "C" referred to above,
was sent by the respondent to the petitioner. It may be useful to extract the
reasons given in annexure "C" for rejecting the petitioner's request
to register it as a private limited company under the provisions of Part IX of
the Act.
It reads thus :—
"Ministry of Law,
Justice and Company Affairs.
Department of Company
Affairs,
Office of the Registrar of
Companies,
Karnataka, 4th Floor,
B.W.S.S.B.
Bldg. District Office Road,
Bangalore-560009, Dt. 13
Feb, 1981.
No. STA(K)/SKF/NR/80.
To
M/s. Smith Kline &
French (India) Ltd.,
Devanahalli Road,
Office Old Madras Road,
P.B. No. 2,
Bangalore-560049.
Sub:—Registration as a
private limited
company under the
provisions of
Part
IX of the Companies Act.
Ref: Your letter No. Nil
dated 19-2-1980
along with the enclosures.
Sirs,
With reference to your
application for registration of your company as a private limited company under
the provisions of Part IX of the Companies Act, 1956, I am directed to say that
this matter has been thoroughly examined by the department. It has been
observed that the affected phrase 'in force in India' used in clause (b) of
sub-section (1) of section 565 of the Companies Act, 1956, qualifies both 'any
act of Parliament of the United Kingdom', and 'letters patent'.
In view of this, I am,
therefore, directed to state that since your company is formed under an Act of
Parliament of the United Kingdom which is not in force in India, it cannot be
registered under Part IX of the Companies Act, 1956.
Yours
faithfully,
Sd.
P.T. Gajwani
Registrar
of Companies
Karnataka,
Bangalore".
As can be seen from what is
extracted above, the only ground on which the petitioner's request has been
rejected is that the petitioner company, being a company formed under an Act of
Parliament of the United Kingdom, not in force in India, is not entitled to be
registered. Otherwise, the petitioner company has all the other qualifications.
It is a joint stock company limited by shares as contemplated under section 566
of the Act.
Challenging annexure
"C", the learned counsel for the petitioner argues that the
respondent not properly construing clause (b) of sub-section (1) of section 565
of the Act had erred in rejecting his client's request. According to him, the
words "in force in India" as found in clause (b) qualify only the
words "letters patent" and not the words "any Act of Parliament
of the United Kingdom". If the provision is read as construed by the
respondent, he says, it makes no sense. He argues that no Act of Parliament of
the United Kingdom has been in force in India. In particular, he lays stress on
the word "or" found between the two phrases "of any Act of
Parliament of the United Kingdom" and "letters patent". The
words, according to him, "in force in India" go only with the words
"letters patent". If the words "in force in India", he
argues, were to qualify both "letters patent" and "the Act of
Parliament of the United Kingdom" the same may likewise be taken as-
qualifying the earlier phrases like "any Act of Parliament other than
this. Act" or of any other Indian law" thus leading to absurdity. In
this connection, he drew my attention to section 29 of the Act of 1973 under
which the Reserve Bank has directed his client to seek registration under the
Act. The Act of 1973 has placed certain restrictions on foreign companies doing
business in this country. They had to seek permission of the Reserve Bank to
continue to carry on the business. Accordingly, the petitioner-company sought
permission, as stated above, with the Reserve Bank to continue to carry on its
business. The Reserve Bank may either grant or reject permission and when
granting permission may grant such permission with conditions imposed—see
section 29 of the Act of 1973 and in particular clause (c) of sub-section (2)
of section 29. The learned counsel argues that section 29 applies to companies
registered outside India and the Reserve Bank while granting permission to his
client has put a condition that it should get itself registered under the Act.
When such is the case, he argues, the respondent should not have refused
registration, that too by not placing a proper construction on the relevant
provision of law. While making his submissions on the intention of the
Legislature in incorporating a provision like section 565 of the Act, the
learned counsel drew my attention to the following observations of Sachar Committee
Report at page 200 paragraph 17.78.
"The provisions of
Part IX containing these sections may also be omitted. At present, it is only
permissible for an existing company to register under the Act. We feel that the
obligation to register under the new law should not be left to the option of
the company and should rather be compulsorily enjoined on all existing
companies. A provision is only to be retained to the effect that on
registration of a company under the new law, there shall be no change in the
rights and liabilities of the company in respect of existing property, debts,
etc. All companies may also be automatically issued a new incorporation
certificate by the Registrar of Companies and for this purpose the companies
will be required to file their revised memorandum and articles."
The learned counsel further
argued that even otherwise, his case may fall under the last clause of section
565(1)(b) which states any company... "being otherwise duly constituted
according to the law and consisting of 3even or more members" may be
registered. He argues that his client also satisfies the requirements of this
clause.
On the other hand, it was
argued by the learned counsel for the respondent that no doubt section 565 (1)(b) enables a company
formed under an Act of Parliament of the United Kingdom to be registered, but
that, Act when the company was formed, should have been in force in India. He
says that the words ''in force in India" qualify not merely the preceding words "the letters patent" but also the words
"Act of Parliament of the United Kingdom". Elaborating this
submission, what he states is that prior to independence, companies used to be
formed in England under statutes of the Parliament of the United Kingdom and
also under the letters patent, enabling those companies as full-fledged
companies and as if formed in this country to establish their business here
(India). He stated that since the Crown in England has paramount powers to make
laws affecting its colonies including India prior to independence, the
companies, thus formed without any difficulty, could have established their
business in India as if they were companies registered here and like any other
Indian company. According to him, in this sense, the words "any Act of
Parliament of the United Kingdom or letters patent in force in India" will
have to be understood. In answer to the contention of the learned counsel for
the petitioner that even otherwise "being otherwise duly constituted
according to law" as provided in the last part of clause (b), the
petitioner-company is entitled to seek registration, counsel for the respondent
submitted that "constituted according to law" means according to the
law of this country. He also drew my attention to the provisions contained in
Part II of the Act wherein provision is made for dealing with the companies
incorporated outside India. He says that the law envisages such companies also
establishing or running their business in this country, but they are, for
purpose of the Act, governed by the provisions contained in Part II and such
companies cannot claim registration under section 565. In answer to this,
learned counsel for the petitioner submits that Part II contains enabling
provisions and no section in that part prohibits a foreign company so-called
from getting itself registered under the Act.
While urging that a foreign
company cannot be registered under the provisions of the Act in India, the
learned counsel for the respondent submitted that so far as a company is
concerned, it can be said to be the domicile of a country wherein it is
incorporated and a foreign company being a domicile of another country cannot
also be a domicile of this country and further argued that while construing
clause (b) of sub-section (1) of section 565 of the Act, this may have to be
kept in view and in this connection he drew my attention to certain passages
found in Cheshire's Private International Law. I feel that it may be necessary
to go into this aspect of this case. What is asserted by the petitioner company
in this petition is a statutory right. Therefore, let us examine it in the
context of the law on which it has based its claim. It is an admitted fact that
the petitioner-company, being incorporated. outside India, is a. foreign
company. The only question, in the circumstances of the case, that arises for
consideration is:
"Does
section 565(1)(b) of the Act enables a foreign company (a company incorporated
outside India) to obtain registration under the Act ?"
The
main part of sub-section (1) of section 565 of the Act reads like this :
"PART IX
COMPANIES
AUTHORISED TO REGISTER UNDER THIS ACT
565.Companies
capable of being registered.—(1) With the exceptions and subject to the
provisions contained in this section—
(a) any company consisting of seven or more
members, which was in existence on the first day of May, 1882, including any
company registered under Act No. 19 of 1857 and Act No. 7 of 1860 or either of
them or under any law or laws in force in a Part B State corresponding to those
Acts or either of them ; and
(b) any company formed after date aforesaid,
whether before or after the commencement of this Act, in pursuance of any Act
of Parliament other than this Act or of any other Indian law (including a law
in force in a Part B State), or any Act of Parliament of the United Kingdom or
letters patent in force in India, or being otherwise duly constituted according
to law, and consisting of seven or more members, may at anytime register under
this Act as an unlimited company or as a company limited by shares, or as a
company limited by guarantee ; and the registration shall not be invalid by
reason only that it has taken place with a view to the company's being wound
up."
As
noted above, the argument of the learned counsel for the petitioner-company is
that it is plain from the words used in clause (b) that a company formed in the
United Kingdom, in pursuance of an Act of Parliament of that country, can seek
and obtain registration under that Act. Whereas what was argued by the learned
counsel for the respondent is that it is only a company (petitioner) formed in
India under an Act of Parliament of the United Kingdom (if any) in force in
India that can seek registration and not a company incorporated or formed
outside this country.
Counsel
for the petitioner states that the words used in clause (b) of sub-section (1)
of section 565 in the matter are clear and unambiguous and the words any
company formed...... in pursuance of any Act of Parliament of the "United
Kingdom" should be , assigned its literal meaning without any
qualification and he further argues that the words ."Inforce in
India" qualify only the preceding words "letters patent" and
certainly not the words "of any Act of Parliament of the United
Kingdom".
But, in a case like this,
we should have regard to all the relevant provisions of the Act and the
consequences that flow from actions taken pursuant to different clauses of the
Act.
The company law in force in
India clearly envisages, broadly speaking, geographically two types of
companies—companies incorporated in India and companies incorporated outside.
Admittedly, the petitioner company is a foreign company, in the sense it is a
company incorporated outside.
If a foreign company is
registered under the Act, what would be its place in the scheme of things under
the Act ? Would that be a company as denned in the Act ? It may not be because
the term "company" as defined in section 3 means "a company
formed and registered under this Act or an existing company as defined in
clause (ii). The petitioner company admittedly is not a company formed under
the Act. The petitioner company is also not an existing company since it is not
a company formed and registered under any of the enactments referred to in
sub-clauses (a) to (f) of clause (ii) of sub-section (1) of section 3. Neither
can it be construed as such by any fiction of law after its registration.
Therefore, if a foreign company is registered under sub-clause (b), it cannot
be construed to be a company as denned in the Act. If the intention was to
elevate in status of a foreign company as a company as defined in the Act, the
definition would have provided for it.
Chapter VI of the Act deals
with foreign companies companies incorporated outside India. The provisions contained
in that Chapter, applicable as they are to a foreign company, do not cease to
apply to such a company at any stage and for any reason and the law, as it
stands, does not say that that Chapter will cease to apply to a foreign company
getting registration (assuming that it is possible) under the Act. If the
intention of the Legislature was otherwise, there would have been an adequate
provision.
Clause (b) extracted above
may be seen. The words "of any Act of Parliament of the United Kingdom or
letters patent in force in India" lie between two commas. As observed by
the learned author, Vepa P. Sarathy, in his book, Interpretation of Statutes,
at page 505, "the comma is a matter of sense and experience" and
"a comma is used to mark a phrase or a clause when you think it makes the
sense clearer to do so". In this sense, the words "any Act of
Parliament of the United Kingdom or letters patent in force in India" form
one clause. When plainly read, in the context of the entire clause (b), the
aforesaid words only mean any company formed...... in pursuance of any Act of
Parliament of the United Kingdom in force in India or letters patent in force
in India. The word "or" occurring between those two sets of words
indicate that the words "in force in India" qualify both "any
Act of Parliament of the United Kingdom" and "letters patent".
It is not clear what
situation had been envisaged when this clause was drafted. India was a former
colony of the British Crown. The subcontinent was annexed to and made a part of
the British Empire by a chartered company of the United Kingdom, the East India
Company. The company law in this country has a long history. The laws of
England, apart from charters issued by the Government of the United Kingdom and
the letters patent, were in force in large parts of the sub-continent
comprising now in it the countries of India, Pakistan, Bangladesh, Ceylon and
Burma. Perhaps keeping this background history in view and contemplating to
provide for various contingencies, the Legislature might have thought of
incorporating this clause [cl. (b)] in the Act. Be that as it may, at any rate,
the law does not envisage the registration of a foreign company as a company
under the Act.
A foreign company, a
company incorporated outside India, retains its identity as such throughout. It
cannot alter its identity and become a "company" as denned in the Act
though certain provisions of the Act, as already stated, do apply to foreign
companies also. The recommendations of the Sachar Committee, to which reference
has been made above at page 7, touch different aspects of the matter and have
been made in a different context while dealing with the provisions in the
Companies Act relating to existing companies. That recommendation does not deal
with foreign companies. The view taken by the respondent at annexure-C is
correct. In the circumstances and for the reasons aforesaid, the petitioner
company is not entitled to any of the reliefs sought for.
Therefore, the petition is
dismissed and the rule issued discharged. No costs.