Whale Stationery Products Ltd. ... vs Union Of India (Uoi) And Anr.
2007 Latest Caselaw 196 Del

JUDGMENT

Badar Durrez Ahmed, J.

1. The petitioners in this writ petition are aggrieved by two orders dated 15.01.2003 and 17.01.2003 whereby they have been blacklisted for a period of 10 years. The orders dated 15.01.2003 and 17.01.2003 are purportedly based on an earlier order dated 30.12.2002 whereby the government had imposed a ban on commercial business/dealings by all Departments/Ministries/Offices of the Government of India with Delhi Paper Products Company Private Limited and its ?subsidiaries? for 10 years with effect from 30.12.2002. The impugned orders have been passed on the basis that one of the directors of Delhi Paper Products Company Private Limited was also working as a director in the petitioner companies and, therefore, the petitioner companies were subsidiaries of Delhi Paper Products Company Private Limited and consequently they would also be covered by the ban imposed by the order dated 30.12.2002.

2. The learned Counsel for the petitioners, firstly, contended that the petitioner companies are not subsidiaries of Delhi Paper Products Company Private Limited within the meaning ascribed to the word ?subsidiary? as appearing in Section 4 of the Companies Act, 1956. The said Section reads as under:

4. Meaning of ?holding company? and ?subsidiary?.- (1) For the purposes of this Act, a company shall, subject to the provisions of Sub-section (3), be deemed to be a subsidiary of another if, but only if, -

(a) that other controls the composition of its Board of directors; or (b) that other-

(i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company;

(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital; or

(iii) the first-mentioned company is a subsidiary of any company which is that other's subsidiary.

There is no question of application of Clauses (b) or (c) as there is no allegation that Delhi Paper Products Company Private Limited holds any shares in the petitioner companies. Insofar as the applicability of Clause (a) is concerned, that has to be established on the basis of material on record. What needs to be established is that Delhi Paper Products Company Private Limited has control over the Board of Directors of the petitioner company. This can only be determined after the factual position is examined with regard to the relationship between the companies. Merely because one of the directors was allegedly common to Delhi Paper Products Company Private Limited does not make the petitioner companies subsidiaries of Delhi Paper Products Company Private Limited. It has to be examined as to whether the Board of Directors of Delhi Paper Products Company Private Limited exercises authority and control over the boards of the petitioner companies so as to control and determine their composition.

3. It was further contended by the learned Counsel for the petitioners that the orders dated 15.01.2003 and 17.01.2003 were passed without issuing any notice to the petitioners and obviously no hearing was granted to the petitioners either. Therefore, they had no occasion to point out that the petitioners would not fall within the expression ?subsidiaries? of Delhi Paper Products Company Private Limited. He submits that had an opportunity been granted, the petitioners would have been in a position to demonstrate that the order dated 30.12.2002, which is limited to Delhi Paper Products Company Private Limited and its subsidiaries, would have no application to the petitioner companies.

4. The learned Counsel for the respondents submitted that the orders have been passed because it is apparent that all these companies are family concerns and as mentioned in the orders themselves, one of the directors was common. Accordingly, he submitted that the petitioner companies were also covered by the order dated 30.12.2002, which was made with respect to Delhi Paper Products Company Private Limited and its subsidiaries.

5. In my view the question as to whether the petitioners are subsidiaries of Delhi Paper Products Company Private Limited, cannot be decided merely on the basis of one of the directors being allegedly common to the said companies. The exercise for determining as to whether the petitioner companies were subsidiaries of Delhi Paper Products Company Private Limited or not, has to be undertaken in the context of the provisions of Section 4 of the Companies Act, 1956. For that purpose, it would be necessary to obtain the submissions and statements of the petitioner companies. Clearly this was not done as no notice whatsoever was issued to the petitioner companies. The question of blacklisting is a serious one and it is well settled that before any person or company is blacklisted in respect of dealings with the government, that person or company must be provided an opportunity of hearing. That can only be done if a notice is issued and the party is heard. Unfortunately this was not done in the present case. Accordingly, the impugned orders dated 15.01.2003 and 17.01.2003 are set aside for want of following the principles of natural justice. It is open to the respondents to issue a show cause notice to the petitioners. Such a show cause notice, if issued, shall be replied to by the petitioner companies within two weeks and if such a reply is made, they shall be granted an opportunity of personal hearing within two weeks thereafter and orders would be passed in accordance with law within four weeks thereafter. It is made clear that the issue before the authorities is as to whether the petitioner companies were subsidiaries of Delhi Paper Products Company Private Limited on 30.12.2002 and continue to be so till date. This writ petition stands disposed of. dusty.