Back
High Court Of Delhi
U.K.MEHRA - Appellant
Versus
UNION OF INDIA - Respondent
C.M. 1267 of 1993
Decided On : 04/30/1993
2. Practice and Procedure — Joint venture whether similar to setting up a subsidiary company — doctrine of lifting the corporate veil, discussed.
3. Practice and Procedure — transformation of economy and industry — even interim order passed by Court can send wrong signals to foreign entrepreneurs.
Dismissing the writ petition, the Court
Held:
1. In pursuance of the powers vested in sub-section 1 of Section 3 of the Foreign Trade (Development and Regulation) Ordinance, 1992 the Government of India by a Notification dated September 14, 1992 ratified the scheme for building up a strong electronics industry in the country with focus on enhancing its export potential and developing an efficient electronic component industry in the country.
This scheme, which has been christened as Electronic Hardware Technology Park (EHTP), Scheme, permits foreign equity up to 100% in the case of EHTP units. Pursuant to this scheme, the third respondent filed an application for setting up of its subsidiary for manufacture of its products in India. A perusal of the application of the third respondent shows that the third respondent will be owing the entire equity of the proposed Indian subsidiary. No element of joint venture is involved in setting up of the subsidiary company as it is the third respondent alone who would be bringing into existence the Indian company. For the purpose of setting up of the unit, third respondent will make an investment of US 15 million dollars over a period of five years. By no stretch of imagination, the setting up of the subsidiary company by the third respondent can be construed as a joint venture. Joint venture would come into existence when the resources of two different persons or entities are pooled together in the instant case, none other than the third respondent is setting up the Indian company in accordance with the requirements of EHTP Scheme.
2. Where a subsidiary is wholly owned by the Principal company which has a pervasive control over it and the former acts as the hand and voice of the latter, the subsidiary in that event would be nothing but an instrumentality, rather a part, of the principal company. The two in that event would have to be treated as one concern. Contemporary trend shows that the lifting of the corporate veil is permissible whenever public interest so demands. Courts have been pragmatic in their approach in unveiling companies, especially the subsidiary companies to see their real face in the interests of justice. State of U.P. & Ors., Vs.. Renusagar Power Co. & others, AIR 1988 SC 1737 and LIC Vs. Escorts Ltd., AIR 1986 SC 1370 relied on.
3. EHTP Scheme of the Government is meant to build up the electronic industry in the country and to boost exports. The growth of the scheme cannot be permitted to be impeded in the national interest.
Transformation of economy and industry in the country and to set them on the right path is the purpose for which the scheme has been put into action. Establishment of Indian subsidiaries of foreign companies in accordance with the EHTP Scheme and in accordance with the laws of the country should be free from interference of the courts. Even an interim order in one case can send wrong signals to the foreign entrepreneurs and shake their confidence in the scheme.
( 1 ) THIS is a petition for issue of a writ restraining first respondent from granting approval to the application of third respondent, a company incorporated in USA, for setting up a unit under Electronic Hardware Technology Park Scheme through the agency of its proposed Indian subsidiary.
( 2 ) ACCORDING to the case set up in the writ petition, the second petitioner, aprivate company incorporated under the Indian Companies Act and comprising of relations of the first petitioner, entered into an international distributorship agreement dated June 9, 1986 with the third respondent, a company incorporated in USA, manufacturing computer hardware and software and Automatic Teller Machines (for short atms ) etc. , whereby the second petitioner was appointed as the sole distributor in India with the right and licence to market and service the product of the third respondent. It is also claimed that they entered into ajoint venture agreement dated June 10,1986 for establishing a company in India with 40% equity participation by the third respondent or its nominee and 60% by the second petitioner or its nominee to manufacture, market and service NCR products.
( 3 ) THE petitioners allege that pursuant to the joint venture agreement they bought three acres of land, situate in electronic city, developed by Electronic Development Corporation at Bangalore, for a sum of Rs. 5,10,000. 00. According to the petitioners necessary application was made to respondent No. I for seeking approval for the joint venture. Besides, an application to Government of India is also said to have been made for grant of industrial licence. It is further averred that the petitioners on June 19,1987 and 26, 1987 got the approval for foreign colloboration and industrial licence for joint venture respectively from Government of India. It is the case of the petitioners that they had also expended large sums of money to achieve the purpose of the joint venture agreement, but the third respondent has backed out from the same. It seems that the second petitioner and respondent No. 3 developed differences, which do not require any further elaboration, resulting in a Civil Suit, being Suit No. 2107 of 1992, which is pending before a single Judge of this court. In the suit a prayer was made for grant of prohibitory injunction restraining the third respondent from inducting/taking any other party as their joint venture partner and from appointing any third party as their distributor for the distribution, sales marketing and servicing of their products in India. Anapplication for an ad interim injunction was also moved in thesuit,for restraining the third respondent from signing any agreement with any other party in India for joint venture and distributorship till the disposal of the suit.
( 4 ) THE third respondent in the suit took the stand that there was no concluded joint venture contract between the parties and they were only at the stage of exploring the possibilities of entering into ajoint venture.
( 5 ) IN the suit, the learned single Judge by his order dated October 15, 1992 restrained the third respondent from signing any agreement with other party in India for "joint Venture/distributorship" till the disposal of the suit.
( 6 ) THE provocation for the present writ petition lies in the fact that the third respondent by its application dated Novmeber 23, 1992 applied to the first respondent for approval for setting up a unit in India under Electronic Hardware Technology Park Scheme (for short "ehtp Scheme") for undertaking software development systems, engineering and technical services etc. According to the application, the proposed unit w,ill be owned by an Indian company,. which would be a subsidiary of the third respondent. Thep etitioners on coming to know of the said application by their letter dated December 9, 1992 requested the first respondent not to sanction or approve the proposal submitted by the third respondent. In this letter i
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
