CENTRAL UNIVERSITY OF SOUTH BIHAR

School of Law and Governance

Company Law-I

Steel Authority of India Ltd Vs. Shree Ambika Mills Ltd.

SUBMITTED TO:-

Dr.PRADEEP KUMAR DAS

Signature………………………….
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 ACKNOWLEDGEMENT

Apart from the efforts of me, the success of this project depends largely on the encouragement and
guidelines of many others. I take this opportunity to express my gratitude to the people who have been
instrumental in the successful completion of this project. I would like show my greatest appreciation to
Dr.Pradeep Kumar Das .I can’t say thank you enough for your tremendous support and help. I feel
motivated and encouraged every time I attend your class. Your willingness to motivate me contributed
tremendously to my project.

I also would like to thank you for showing me some example that related to the topic of my project.
Without your encouragement and guidance this project would not have materialized. Besides, I would
like to thank the authority of School Of Law And Governance (Central University Of South Bihar for
providing us with a good environment and facilities to complete
this project.

Finally, an honorable mention goes to my family and friends for their understandings and supports on
me in completing this project. Without helps of the particular that mentioned above, I would face many
difficulties in completing this project.

SURUCHI SUMAN

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 INDEX

S.No. TOPIC Page No.

01

INTRODUCTION
4

02

BRIEF FACTS 5-6

03

ISSUES 7

04

ARGUMENTS 7-9

05

DECISION 9

06

REASON DECISION 9-11

07

REFERENCE CASES 12

08

CONCLUSION & ANALYSIS 13

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 I. INTRODUCTION

Steel Authority of India Ltd. Vs. Shri Ambica Mills Ltd (1998)92 Com Cases 120

Citation: (1998)92 Com Cases 120

Date of Judgment :17|10|1997

Subject: Civil

Bench: M.M. PUNCHHI & K. VENKETASWAMI,JJ.

Appeallant :Steel Authority Of India Ltd(SAIL)

Respondent: Shree Ambica Mills Ltd

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 II. BRIEF FACTS

This appeal by special leave is directed against the Division Bench judgment of the Gujarat High Court
dated 7.2.1985. Brief facts concerning the case are given below.

The first respondent-company is engaged in the manufacture of steel tubes through its Ambica Tubes
Division. For the purpose of manufacture of steel tubes, hot rolled strips in coils are required as raw
material. These not rolled strips were being supplied at the relevant time to the manufacturers of steel
tubes like (Ambika Tubes (hereinafter referred to as the importer) through the appellant referred to as
the importer) through the appellant subject to certain conditions. The manufacture who are given raw
materials must possess the import license and have to carry out certain export obligations. The obligations
concerning this for the period in question, namely, April 1983 to March, 1984 were given in the import
and export policy for that period. Previously a public notice in respect of scheme for supply of raw
material by steel Authority of India Ltd. (hereinafter called the “SAIL”) against advance import license
was issued on the Scheme published on 11.12.1982 would be continued. According to that. The importer
becomes eligible for supply of goods on compliance of the conditions fixed in the scheme in particular,
the conditions of producing advance licenses, duty exemption entitlement certificate, legal
undertaking/execution of export bond and furnishing of irrevocable letter of credit. The appellant as an
indigenous supplier under the aforesaid announcement of the prices at which law the raw material will
be supplied. That announcement was published in the Economic Times on 10.6.1983 under the caption
“Scheme for Supply of certain Categories of Indigenously Produced Steel Materials at Competitive
Prices against Valid Import Licenses1”.

Pursuant to the abovesaid announcement. The importer submitted licenses requiring supply of about
3768 tonnes of not rolled strips in coils. It was found that the license submitted by the importer (Ambica
Tubes) did not mention that it was an advance import license nor was it accompanied by Duty Exemption
Entitlement Certificate and the bond. In addition to the submission of licenses, the said Ambica Tubes
however submitted Letter of Credit dated 19.8.1983 on the same data, namely, 20.8.1983. In the Letter

1
(1998)92 Com Cases 120, para 05.

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of Credit also there were certain infirmities and when the same was pointed out, it was rectified and
submitted before 25.8.1983.

On receipt of the license and the Letter of Credit, the appellant by a telex message dated 23.8.1983
pointed out the defects in the license/release order and also stated that in view of the defects, the appellant
are not taking any action on the Letter of Credit for the present.
In reply to the telex message, Ambica Tubes sent a letter on the same date (23.8.1983) informing the
appellant that the original release order in duplicate and the Duty Exemption Entitlement Certificate
booklet had been submitted to the joint Controller at Ahmedabad and would be sent to the Bombay SAIL
office on receipt of the same. The relevant documents after carrying out the corrections were factually
furnished to the appellant by Ambica Tubes only on 26.8.1983 2. In the meanwhile, the appellant
enhanced/revised the price of their supplies (steel materials) from Rs.2460/- to 2750/- per M.T. on and
from 25.8.1983. Since the relevant documents after carrying out the corrections with necessary
enclosures were received by the appellant only on 26.8.1983. the importer (Ambica Tubes) was required
to pay the price for the release of steel materials at the revised rate,namely,Rs.2750/-perM.

Ambica Tubes made representation that they having submitted Letter of Credit and the necessary
documents, though defective, well before 25.8.1983, the revised charges should not have been
applied. The appellant gave a detailed reply to the representation of the importer. The importer moved
the Gujarat High Court on 18.6.1984 for quashing the announcement made by SAIL 3 revising the
price and for directing that the supplies must have been made at the pre- revised price and for
consequential refund of difference between the pre-revised and revised prices. The appellant resisted
the writ petition by filing a detailed reply to the affidavit filed in support of the writ petition. The
High Court proceedings on a wrong premise, namely, that SAIL (appellant) was a department of
Union of India but its administration is run separately in the interest of efficiency; held that the
importer (Ambica Tubes) was not responsible for the defects pointed out in the license/release order
and it was the office of Joint Chief controller order and it was the office of Joint Chief Controller of
imports and Exports alone responsible for the defects for which the importer should not be punished.
In other words. the High Court was of the view that the license though defective must be deemed to

2
(1998)92 Com Cases 120, para 08.

3
(1998)92 Com Cases 120, para 05.

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have been presented on 20.8.1983 long before the revised price was announced. Therefore., the
appellant was not entitled to charge for the supply of raw materials at the revised rate. The High
Court also directed the refund of the difference between the pre- revised and the revised rates.
III. ISSUES OF THE CASE:-

1) Whether Government Company will come under department of Government Or not?

2) Whether a Government Company in which major shareholder is Government will be considered

3) Whether Steel Authority Of India Limited Is Separate Legal Entity or Not?

IV. APPELLANT ARGUMENT :-

Mr. Dhruv Mehta, learned counsel appearing for the appellants submitted that the High Court erred in
assuming that the appellant was a department of the Union of India forgetting totally that it is a company
incorporated under the Companies Act and it is a separate entity, notwithstanding the fact that the
company is entirely owned by the Government of India. It will not be a wing/department of the
Government. In support of his contention, he placed reliance on the judgment of this Court in Dr. S.L.
Agarwal vs. The General Manager, Hindustan Steel Ltd 4. Western Coalfields Ltd. Vs. Special Area
Development Authority, Korba & Anr.5. He also submitted the power of SAIL to revise the pricelist from
time to time the relief given by the High Court would amount to refund of money by exercising the
jurisdiction under Article 226 which is against the ruling for this Court in Suganmal vs. State of Madhya
Pradesh & Ors6. He also submitted that the importer being a party to the contract and having paid the
price as revised and taken delivery of the goods cannot now turn around and challenge the action of the
SAIL by invoking the writ jurisdiction under Article 226 of the Constitution of India. In support of this
submission, he placed reliance on a judgment of this Court in Har Shankar & Ors. Vs. The Dy. Excise &

4
(AIR 1970 SC 1150)
5
(AIR 1982 SC 697)
6
(AIR 1965 SC 1740)
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Taxation Commissioner & Ors7.

He also placed reliance on other judgment of this Court in M/s. Radhakrishna Agarwal & Ors. vs. State
of Bihar & Ors. (AIR 1977 SC 1946), State of Orissa & Ors. Vs. Narain Prasad & Ors. 8and Assistant
Excise Commissioner & Ors. Vs. Issac Peter & Ors9.
On facts, Shri Dhruv Mehta, learned counsel for appellant submitted that on the admitted position that
the documents, namely, license/release order after rectification having been furnished only on 25.8.1983,
the importer cannot claim the application of pre-revised price on the ground that the mistake, if at all,
was on the part of the office of the joint Chief Controller of Imports and Exports and, therefore, it should
not be penalised. According to the learned counsel, the conditions of Scheme published enable the
appellant to insist upon all the documents to be furnished before release of the raw material. The SAIL
w as not concerned with the party responsible for the defect in the document. Therefore, the High Court
was not justified in making certain observations against the appellant.

V. RESPONDENT ARGUMENT:
Mr. Parekh, learned counsel appearing for the first respondent, placing reliance on para 2.3 of the
Scheme announced on 10.6.1983 submitted that the Letter of Credit having been furnished after
`rectifying the defects before 25.8.1983, the importer is entitled to get the supplies at the pre-revised
rate notwithstanding the defects in the license/release order as the importer was not responsible for
the defects. He also submitted that the High Court was well within its jurisdiction in entertaining the
writ petition and granting the relief. According to the learned counsel, the judgment under appeal
does not call for any interference by this Court.

Before considering the rival submission, it is necessary to set out the relevant Paragraph in the
Scheme announced on 10.6.1983.

When a valid and eligible import license is surrendered by an import License holder to the concerned
office of SAIL for supply of materials under this Scheme, the approximate quantity of the material
which can be supplied against the import license will first be determined keeping in view: -

7
(1975 (1) SCC 737).
8
(1996 (5) SCC 740)
9
(1994) (4) SCC104
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 (a) The utilised value available on the license, (b) the price of the concerned item as Scheme,
Thereafter, the Import License holder will be requested by the concerned office of SAIL to
make appropriate financial arrangements taking into account, besides (a) and (b) mentioned
above, the approximate amount of duties/taxes/levies, etc. chargeable on such supplies. The
actual supply will be restricted to the quantity which can be supplied against the surrendered
import license provided the amount for which financial arrangements are made permits the
same.” Where the financial arrangements made in favour of SAIL is such that it enable SAIL
to effect dispatches on a continuing basis without any restrictions about delivery schedule;
this will also include an irrevocable confirmed automatic revolving Letter of Credit (L/C)
without recourse to the drawer which would enable SAIL to effect dispatches on a continuing
basis without quantitative or other restrictions.

(b) Where the financial arrangement made in favor of SAIL is such that dispatches have to be
completed within a period of 3 months from the date on which the financial arrangement
became operative but is for a quantity less than the tonnage covered by the import license, the
dispatches shall be restricted to the quantity covered by the financial arrangement.

(c) In all cases, the interpretation and decisions of SAIL as to the acceptability, adequacy,
and cooperativeness of the financial arrangement made by eligible import license holders in
favor of SAIL for supply of material under this Scheme shall be final and binding.”

VI. JUDGMENT

Decision :- Appeal Allowed

“We must, therefore, hold that the corporation which is Hindustan Steel Limited in this case is not a
department of the Government nor are the servants of its holding posts under the State. It has its
independent existence and by law relating to Corporations, it is distinct even from its members.”

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In Western Coalfields case , Hon’ble Supreme Court held as follows:-

“It is contended by the Attorney General that since the appellant- companies are wholly
owned by the Government of India, the lands and buildings owned by the companies cannot
be subjected to property tax. The short answer to this contention is that even though the entire
share capital of the appellant-Government has been subscribed by the Government of India,
it cannot be predicted the Government of India. The companies which are incorporated under
the Companies which are incorporated under the Companies Act have a corporate personality
of their own, distinct from that of Government of India. The lands and buildings are vested
in and owned by the companies, the Government of India only owns share capital.”

In the view of the above decisions of this Court, we have no hesitation to hold that the High Court
erred in thinking that SAIL was a department of the Union of India and most of the reasons given
in the judgment are based on this wrong premise.

Admittedly when the importer wanted to register the indent for supply of hot rolled strips in coils,
the licenses / Release Orders produced lacked in material particulars and relevant enclosures. In
other words, the license did not mention that it was an Advance License and no Duty Exemption
Entitlement Certificate was enclosed and legal undertaking/exemption of export bone was also not
enclosed. It was on this admitted position, the appellant declined to register the indent of the
importer. No doubt, the mistake was committed by the licensing authority. Does that mean that the
appellant can ignore the lacuna in the documents and register the indent placed by the importer
contravention of the requirements of the Scheme? The High Court held that the licensing authority
and the appellant being two different wings/departments of Union of India, the appellant on receipt
of rectified documents on 26.8.1983 must register the indent as if it was presented on 20.8.1983.
We are afraid, we cannot accept the above reasoning of the High Court as we have pointed
out that the basic error committed by the High Court was in assuming that the appellant was
a Department of Union of India. We have already noticed that there are number of judgments of
the Court taking the view that a company though fully owned by Union of India when incorporated
takes its own entity/identify and cannot be considered as department of the Union of India. Further,
it is seen from the records that the importer in this case is not a new entrant to plead ignorance
though that may not be an excuse. He has presented applications for registration before and after
the application in question and, therefore, it must be taken that the importer new fully well about

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 the requirements for registering the indent.

It is also relevant to note that the appellant on receipts of the application for registration expressly
in writing replies not only pointing out the defects but also stated that they are not taking any action
on the Letter of Credit enclosed along with the license. It is also an admitted fact that the indent
was registered only on 26.8.1983 when all the relevant documents after curing the defects was
presented on that date. Under these circumstances and in the light of the Scheme published by the
appellant, we hold that the import (Ambica Tubes) cannot claim as of right its order must be
deemed to have been registered for supply of raw materials on 20.8.1983 when the documents with
all defects were presented.

In this case, we have seen that the importer will not fall under the category of `import license
holder eligible to get supplies under the Scheme’ as on the date when the Letter of Credit was
presented, the license / release order was defective. Therefore, we cannot agree with Mr. Parekh
that the importer having produced the Letter of Credit well before 25.8.1983, the price payable for
the supplies must be pre-revised one. In view of our above conclusion, it is not necessary for us
to consider and decide the other points raised by learned counsel for the appellant. We have seen
that the High Court has not decided but left open the question relating to the right of the appellant
to fix the price from the time to time even though that was the main issue raised in the writ petition
before the High Court. As we are not in agreement with the view expressed by the High Court on
other issues, it is now necessary for the High Court to consider the issue relating to the right of the
appellant to fix the price from time to time.

In the result, the appeal is allowed and the judgment of the High Court is set aside and the matter is
remitted to the High Court to decide the right of the appellant to fix the price from time to time and
also the question of unjust enrichment.

___________________________________xxxxxxx______________________________

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 Cases Reffered:

1.State of Orissa & Ors. Vs. Narain Prasad & Ors. JT 1996 (8) SC 50 (1996 (5) SCC 740) (Para 12)

2.Assistant Excise Commissioner & Ors. Vs. Issac Peter & Ors. JT 1994 (2) SC 140 = (1994 (4) SCC
104). (Para 12)

3. Western Coalfields Ltd. Vs. Special Area Development Authority, Korba & Anr. (AIR 1982 SC
697). (Para 11)

4.M/s. Radhakrishna Agarwal & Ors. Vs. State of Bihar & Ors. (AIR 1977 SC 1496), (Para 12)

5. Har Shankar & Ors. Vs. The Dy. Excise & Taxation Commissioner & Ors. (1975 (1) SCC 737).
(Para 11)

6. Dr. S.L. Agarwal vs. The General Manager, Hindustan Steel Ltd. (AIR 1970 SC 1150). (Para 11)

7. Suganmal vs. State of Madhya Pradesh & Ors. (AIR 1965 SC 1740). (Para 11)

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 CONCLUSION AND ANALYSIS

Yes, I totally agree with the decision given by Supreme Court Of India, and from
the above facts and decision I am of the view that :-

The Companies which are incorporated under the Companies Act have a corporate personality of their
own, distinct from that of Government of India. The lands and buildings are vested in and owned by the
companies, the Government of India only owns share capital.”In the view of the above decisions of this
Court, we have no hesitation to hold that the High Court erred in thinking that SAIL was a department
of the Union of India and most of the reasons given in the judgment are based on this wrong premise.We
have already noticed that there are number of judgments of the Court taking the view that a company
though fully owned by Union of India when incorporated takes its own entity/identify and cannot be
considered as department of the Union of India.

The Doctrine of Separate Legal Entity Is a concept which makes a company a “Legal person”. It makes
the company a different Legal person from its owner. It states that the owner and the company are two
different Legal entities and they can be made liable Separately for the offence. The Doctrine tells that
the company and the person owning the company, the company has its own obligations, its own Legal
rights, its own existence which are different from the person opening the company.

For instance, a company is a group of two or more people who work together to achieve a similar
commercial goal. It is a “separate legal entity” with a unique identity from its members. A company can
possess property in its own name, sue and be sued in its own name, and enjoy everlasting succession as
a legal entity, among other things. Hence, it is necessary that there should be a concept of Separate Legal
Entity present in the current scenario of the company otherwise there would be many misappropriations
and which may further lead into the court cases.This appeal by special leave is directed against the
Division Becnh judgment of the Gujarat High Court dated 7.2.1985

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