Judgment

SARKARIA, J. (for himself and on behalf of D. A. Desai, J. Majority view) :- These appeals arise out of a judgment, dated May 1, 1979, of the High Court of Delhi, in the following circumstances :

Appellant No. 1 in Civil Appeal 1629 of 1979 is Swadeshi Cotton Mills Co. Ltd. (hereinafter referred to as the Company). It was incorporated as a private company with an authorised capital of Rs. 30/- lakhs in 1921 by the Horseman family by converting their partnership business into a Private Joint Stock Company. Its capital was raised in 1923 to Rs. 32/- lakhs and thereafter in 1945 to Rs. 52.50 lakhs by issue of bonus shares. In 1946, the Jaipuria family acquired substantial holding in the company. Jaipuria family is the present management. By issue of further bonus shares in 1946, the capital of the Company was increased to Rs. 122.50 lakhs. In 1948, the paid-up capital of the Company was raised to Rs. 210/- lakhs by the issue of further bonus shares. The subscribed and issued capital consisting mainly of the bonus shares has since remained constant at Rs. 210/- lakhs.

2. In the year 1946, the Company had only one undertaking, a Textile Unit at Kanpur, known as "The Swadeshi Cotton Mills, Kanpur". Between 1956 and 1973, the Company set up and/or acquired five further Textile Units in Pondicherry, Naini, Udaipur, Maunath Bhanjan and Rae Bareilly. Each of these six Units or undertakings of the Company was separately registered in accordance with the provisions of Section 10 of the Industries (Development and Regulation) Act, 1951 (hereinafter called the IDR Act).

3. In addition to these six industrial undertakings, the Company (it is claimed) had other distinct businesses and assets. It holds inter alia 97 per cent shares in the subsidiary, Swadeshi Mining and Manufacturing Company Ltd., which owns two Sugar Mills. The Company claims, it has substantial income from other businesses and activities including investments in its subsidiary and in other shares and securities which include substantial holding of 10,00,000 Equity Shares of Rs. 10/- each in Swadeshi Polytex Ltd., representing 30 per cent of the total equity capital value of Swadeshi Polytex Ltd., the intrinsic value whereof exceeds Rs. 5/- crores.

4. The Company made considerable progress during the years 1957 to 1973. The reserves and surplus of the Company increased from Rs. 2.3 crores in 1957 to Rs. 4.3 crores. in 1973-74, but declined to Rs. 2.8 crores in 1976-77. The fixed assets of the Company increased from 5.8 crores in 1957 to 19 crores in 1973-74, but declined to Rs. 18 crores, registering a marginal decrease of Rs. 1 crore in 1976-77.

5. The Company maintained separate books of accounts for each of its six industrial undertakings. From and after April 1973, the Company maintained separate sets of books of accounts of the businesses and assets other than of the said six industrial undertakings. Annual accounts of the six industrial undertakings were first prepared separately in seven sets which were separately audited. The consolidated annual accounts of the Company were then prepared from such annual accounts at the registered office of the Company at Kanpur, and after audit, were placed before the shareholders of the Company. The Company made over-all profits up to the year 1969 and even thereafter up to 1975. The Balance Sheet showed that the Company suffered a loss of Rs. 86.23 lakhs after providing depreciation of Rs. 93.93 lakhs and gratuity of Rs. 48.79 lakhs, though the trading results showed a gross profit of Rs. 56.49 lakhs. During the year ending March 31, 1976, the Company again suffered a loss of Rs. 294.82 lakhs after providing for depreciation. The last Balance Sheet and Profit and Loss Account adopted by the shareholders and published by the Company relates to the year ending March 31. 1977. It shows that the Company suffered a loss of Rs. 200.34 lakhs after taking into account depreciation of Rs. 73.27 lakhs which was not provided in accounts.