Excise Law | Appointment Or Resignation Of Directors Cannot Be Equated With Change In Shareholding And Management Of Company: Calcutta High Court

The Calcutta High Court has observed that a shift or change in the management of a Company means a substantial and significant movement of the shares of such Company which leads to a shift in its management structure.While allowing a writ petition challenging excise regularisation fee of Rs. 1.45 crores imposed by the Superintendent of Excise upon a public limited company for alleged change in its management, the Court ruled that mere appointment or resignation of Directors could not be equated with change in shareholding and consequently change in management of the Company. The subject matter of the instant dispute pertained to whether appointments, resignation, expiry of term and death of Directors fell within the purview of definition of "change in management" as defined under the West Bengal Excise (Change in Management) Rules, 2009 ("Rules"). The Rules were amended by a notification of February 2020 which introduced a new definition of the phrase "change in management" within Rule 3 of the Rules. Prior to the introduction of such amendment in 2020, the petitioner company, IFB Argo Industries Ltd., experienced four instances of changes in its management viz. death of one Independent Director, resignation of Managing Director, retirement of one Independent Woman Director and appointment of one Independent Woman Director. The State of West Bengal, represented through its Advocate General, assailed the maintainability of the instant writ petition contending that Rules 3 and 5 of the Consolidated Rules framed under Section 85 of the Bengal Excise Act, 1909 provided for alternative remedy in the manner of an appellate mechanism. The State further submitted that an earlier writ petition by the instant petitioners praying for identical reliefs was also pending before the Court. At the outset, the Single Judge Bench of Justice Moushumi Bhattacharya noted that the proviso (e) to Rule 5(1) specifies that initial grant fee of license shall not be payable for change in management in case of death or a change in the usual course of business of a public limited company incorporated under the Companies Act, 1956. Therefore, it was held that death of the Independent Director in this case stands excluded from the alleged change in management.Coming to the question whether the other three events, namely, appointment, resignation and expiry of term of the three Directors would amount to a "change in management", the Court observed: "All of these three events were in the usual course of business under Rule 5(1) proviso (e) of the 2009 Rules. It is well settled that a "change in management" is an outcome of a change in the shareholding pattern of a Company. It implies a change of control and a consequent impact on the voting rights of the members and shareholders of a Company...The accepted principle is of controlling interest forming an inalienable part of the shares of a company where transfer of a large number of shares would necessarily result in shifting of controlling interest and consequently a change in management. Hence, "change in management" must inextricably be linked to a change in the shareholding pattern of a company where the controlling interest of a group of shareholders would determine the management of or essentially who controls the affairs of the company. Reliance was placed on Vodafone International Holdings BV vs. Union of India; (2012) 6 SCC 613 where the Supreme Court defined "controlling interest" as vesting in the voting powers of a company's shareholders which translates to determining of the management of the company.In the present case, the Court said that appointments or resignation of a Director can, by no means, be equated with a change in the shareholding pattern of the company. "A shift or change in the management means a substantial and significant movement of the shares of a Company leading to a shift in the management structure." The Court also rejected the contentions made by the State as regards non-maintainability of the writ petition on account of its agitated claim of alternative remedy as the appellate forum prescribed within the Rules were not appropriate for challenging the vires of the Rules. On merits, the Court further found that the existence of the earlier writ petition filed by the instant petitioners claiming similar reliefs did not affect the instant writ petition as the cause of action of the instant writ petition was founded on a communication of June, 2022 whereby the State had sought to exact the excise regularisation fee of Rs. 1.45 crores for alleged changes in management of the petitioner company. The writ petition was accordingly allowed. Case: IFB Agro Industries Ltd. & Anr. v. State of West Bengal & Ors., WPA 21709 of 2022 Date: 22.11.2022Citation: 2022 LiveLaw (Cal) 343 Click Here To Read/Download Order

Excise Law | Appointment Or Resignation Of Directors Cannot Be Equated With Change In Shareholding And Management Of Company: Calcutta High Court

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