Union of India & Ors. v. M/S Exen Industries

· ALAGIRISWAMI, J.-One H. T. Vora and another G. J. Mehta formed a partnership under the name of Exen Industritis ar.d wf.le manufacturing fountain pens. In December 1963 the partnerd1ip was dissolved and Vora ·took in ancther partnm and ccntinmd the industry under the original name of Exen Industries. Mehta starttd another business also of manufacturing fountain pens ur.der the nz.n«e of Premier Products. Under the deed of dissolution of partnership all the machineries and other assets were equally divided between the two partners and Vora was also given the benefit of all the existing import licences as well as application~ foi: import licences then pending. Thereafter the respondent firms new Exen Industries applied for import licences for necessary raw materials and were granted 50 per ctint of what the original Exen Industries were getting. Thereupon the res-pondent firm filed a writ petition out of which this appeal arises. A Division Bench of the Delhi High Court allowr.d the writ petition and quashed the order of the .Government dated 3rd December, 1965 and directed the appella.nts, who were respondents in the writ petition. to consider the claim of the respondent (who will· hereafter be called the petitioner) on the basis of its own production and not on the basis that the production of M/s. Exen Industries was divided between the petitioner and Shri Mehta in December 196J.;; The petitioner's case was that his actual prc.duction was the same as before the disso-lution as the installed capacity of the factory was double that of actual capacity an4 production, that in the division of the machinery and assets :or the partnership the half given to the petitioner was for his level of production and only the other half consisting of the spare and the unutilised capacity of the machinery and stock were given to l\{ehta and he was, therefore, entitled to get import licences after the dissolution as before it. · ·

The High Court thought that the respondents before it fell into a subtle error inasmuch as they thought that by the division of the machini:ry and stock of the old firm, half of the prc.ductive capacity fell to the share of each partner at the dissolution, and that the Ge vtrn-ment failed to observe the distinction between installed capacity and actual capacity. On the other hand it appears to us that it is the High Court that has fallen into a subtle error of thinking that the petitioner is the same as the old Exen Industries. When the machinery of a factory is divided into two equal halves it is -not possible t~ accept the contention that one of the partners to the partnership got the actual production capacity and the other partner got the unutilised spare capacity. This is what the petitioner urged before the High Court and the High Court accepted. There is a plain error in this, It. may be that a particular factory might have an installed capacity either double or more than double of its actual production. The import licences are given on the basis of actual production. In such a case where the machinery is divided equally between the two partners, merely because one partner goes into production immediately and because of the excess installed capacity is enabled to produce the same quantity as the partnership firm produced before the diswlu-tion it cannot be said that he has got the actual production capacity and the other partner who has also got half of the actual machinery got only the unutilized spare capacity because there was some delay in his beginning produc:tion. The partnership dissolution deed do clearly provided that the machinery, raw materials and finishe:d goods in stock as also other assets and liabilities were to be divided equally between the two partners. The only advantage which Vora got was to continue the same old name and the benefit of the existing import licences as well as the pending applications for import licences. It did not provide that he was to get the benefit of the old import entitle-ment for all future times nor was if provided that he was to get. the benefit of all the production of the dissolved firm for the purpose of future import licences. The question of installed capacity as against the actual production did not arise either. In the circums-ta.nces the most equitable way of dealing with the matter was to divide the old import entitlement equally between the two partners, which is what the Government did. If the petitioner's contention that because the installed capacity even from half the machinery which he got was: equal to the old productive capacity·is accepted it follows logically that it should apply to the other partner also. Merely be-cause there was delay in the other partner starting his prcduction he cannot be denied the benefit of the import entitlement which the nart-nership, in which he was an equal partner, had. That means that between them both they would be entitled for import licences' at twice the value of what the-partnership was originally getting. Nei-ther is foreign exchange available in plenty nor the supply of raw mater- . ials so great that import licences for raw materials could be given without .reference to considerations of availability of these two.

The error which the High Court fell into as we already pointed out was in thinking that the n.ew Exe11 Industries is the same as the old Exen Industries. That can be the only basis for holding that Exell Industries (New) should get its import entitlement on the b~.sis of its production.

Th'!' p!titioner's cJntention was based on paragraph 73 of the Hmd b)ok of Rules & Procedure· in relation to import trade control. Th'l.t paragraph as far a!> is relevant reads as follows:

"73. Basis of Licensing.-(!) The applicants are advised to submit a'.)plic1tions for their requirements duly certified by the c~rtifying a•1thority c1>ncerned. The licence~ for raw materials

UNION v. EXEN INDUSTRIES (Alagiriswami, /.) 367 will ordinari"ly be issued subject to the availabilit) of fcrci~n exchange on the. bads of certified requirements for twelve months consumption, but the certified requirements will be' scru-tinised by the licensing authority and an appropriate reduction will when.: necessary be made after taking into accc t:nt;

(i) the ~tock held on the date of application and the ex-

pected arrivals against licences in hand; · (ii) the quantum of import likely to be avail able throuJ.>,h

the commercial channels; - (iii) the quantum of similar goods or .substitutes like!)

to be available from indigenous sources; and (iv) the past imports of the item in quest ion by t lre app.'i-

cant.

(v) the actual production during the past licensing p~riod

and the estimated production for the period in question; (vi) any fall in production on account of circumstances such

as break down of machinery, labour relations want of funds etc."

The petitioner contended that on the basis of this paragraph he was entitled to a licence on the basis of certified requirements for twelve months consumption. But the very same paragraph shews that the certified requirements will have to be scrutinfr(d after taking into account the past imports of the item in question by the applicant and the actual production during the past licensing pericd and the esti-mated production for the period in question. Nc.w in this case there were no past imports of the item in question by the applicant but only by. the former.Exen Industries and the actual production during the past licensing period can also be only the production of the for-mer Exen Industries. The petitioner's entitlement cannot be considered divorced from its past history and the fact that it was only one of the (1 partners of a dissohed partnership. The fact that after the diswlu-

tion of the partnershlp the new Exen company was able to pre duce as much as or even more than the former Exen company taking advan-tage of the in-built installed capacity cannot entitle it to ~ft 1he whole of the quantity issued to the former Exen ccmpan)'. That would mean depriving the other partner who was entitkd to an equal quan-tity. We are of opinion that the petitioner cannot te allc wed tc put forward such a contention without making Mehta a party to theEe p~oceedings and no decision against the interest of Mehta cculd te made in his absence.

Another reason why we consider that the petitioner cannot get an)thing more than what he was given wou~d be ap~ar7nt frcm a reading of paragraph 88(2)(c) and understandmg the pnnc1ple undtr-lying it. That r-aragraph reads as follows:

"88(2J (c) Division of business:-(i) Where an import licence has been granted to an actual user and before the imrortaticn

of the goods against the said licence there is a division of the factory am'.)ngst the partners of the busi.ness and the name of the business/factory as appearing in the licence is retained by one of the succeeding parties or none of them is allowed to use sucn name, the succ~eding parties, not being the lic~nce holders, cannot operate upon the said licence. In such c1ses also, joint application by all the succeeding parties should b~ mlde to the lic::nsing authority concerned for re-issue ofsepirate licences in their favour;in lieu of the original lic~nce, in proporti:on to the portion of the fa<;tory taken over by each succeeding party supported by documentary evidence showing the division of the busineEs/factory and particulars of the estab· fohed importer quotas, if any, possessed by the succeeding parties. The licensing authorit; will consider the application in the same mlnner as in the cases referred to in sub para b(i) above and ljcenc!s, if admissible, will be issued to the succeeding parties for the proportionate \'alues as indicated above. The original lic!nce surrendered by the parties will be retained by the licensing .authority ~nd cancellt;d.

(ii) If the division of the factory as referred to in sub para -{i) above, .takes place after the importation of the goods against the said licence, the imported goods become part of the assets of the factory and they should be divided by the succeeding parties am 1ngst themselves proportionate to the portion of the factory taken over py them, under intimation to the licensing authority c1>ncerned so that the licensing authority may be in a position to ensure proper utilisation of the-imported goods by each of the succ~eding units in the factory taken over by them from the original concern."

If tire re is a division of the factory amon~st the partners of a businc:ss joint application by all thci succeeding parties has to be made forte· issue of separate licences in their favour in proportion to the portion of the factory taken over by ei~ch succeeding party. So all so even if di vi. sion takes place after imt1•ortation. If that is so in respect of the imnortation of goods against current licences, saine principle shmtld apply for future licences also. The principle that when a partnersllip is· dissolved the import licences would have to be equally divided among the partners has been imnlicitly recognised by this Court in its decision in Controller v. Am'chand(1). This paragraph embodies that equitable principle.

Th~re is yat another reason why the petitioner cannot succeed. According to paragraph 71 of the Hand-Book in the case of industries b'.)rne on the registers of the Directorate General of Technical Deve-lopm~nt, licences will normally be issued on the basis of the recom· mendation of the Directorate General of Technical Development. Eiren Industries was borne on the registers of the Directorate General 1f Technical Development and the quota of import licence granted

UNION v. EXEN INDUSTRIES (Alagiriswami,. J.) 36 9 to the new Exen Industries is on the basis of the Directorate's re-commendation.

We are, therefore, satisfied that the petitioner was not entitled to anything more than .what was granted to him by the Government and the Higl). Court was in error in assuming that the· actual capacity was retained fully by the petitioner and only the spare capacity was given to Mehta. No such artificial distinction could be made.

We, therefore, allow the appeal and set aside the judgment of the High Court. The appellant will pay the costs of the respondents as ordered at the time of the grant of the special lea~e.

Apptal allowed.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. ~612 of 1972. Appeal by Special Leave from the Judgment & Order dattd the 16th November, 1971 of the Delhi High Court in C.W. No. 25-I> of 1966.

L. N. Sinha Solicitor General of India and Girish Chandra, for the appellants. .

G. L. Sanghi, Praveen Kumar and B. R. Agarwal, for the respondent.