UNITED MOTORS LTD. v. MINISTER OF FINANCE AND PLANNING

011-SLLR-SLLR-1983-1-UNITED-MOTORS-LTD.-v.-MINISTER-OF-FINANCE-AND-PLANNING.pdf


448
Sri Lanka Law Reports
[1983] 1 Sri LR.
UNITED MOTORS LTD.,
v.
MINISTER OF FINANCE AND PLANNING
SUPREME COURT,
RATWATTE J., VICTOR PERSIA J.»aAMD SOZA J.
S.C, 49/82„ . C.A. 46/82,
A. APPLICATION 2301/80. .
Acquisition under jthe Business Undertakings (Acquisi- .tion) Act No* 35 of 1971 – Regulation made by the Minis-ter – Committee to ascertain assets and liabilities -Date of vesting – Payments to be made after deductions„
This is an appeal by the petitioner – appellantfroa an order of the Court of Appeal- refusing anapplication for a writ of .certiorari and mandamusto quash the orders made by the. 1st respondent andto direct -the 1st respondent to make payment inrespect of the Business Undertaking vested in thestate under the provisions of the -Business Under-takings. (Acquisition) Act No.35 of 1971. The peti-tioner continued as a company though the businessundertaking was acquired by or vested in the Gover-nment.
When the Government takes over the business under-taking of a person or company it takes over theundertaking with its subsisting assets and liabili-ties as a going concern and thereafter continues tomanage and administer the affairs of that underta-king. All rights and liabilities under any contract
sc
United Motors Ltd. v. Minister of Finance and Planning
449
j
or agreement which relates -to tbs purposes of thatundertaking and subsisting at the date.of vestingbecome the rights and liabilities of the Govern-ment. Thereafter payments are- – made to the pro-prietor nut of the consolidated fund and the Minis-ter is empowered to make regulations to give effectto the business undertaking so vested. Regulation(2) provided for a Committee to examine and reporton the assets and liabilities# of the undertaking.Regulation 4 required the Committee to ascertainthe reasonable value of the undertaking. Regulation5 empowered the Committee to ascertain any pay-ments due to any Government Department or otherState Institution and loss sustained by any statu-tory board or Corporation due to the activities ofthe undertaking# and regulation 7 required a reporton the assets and liabilities and the Committee'srecommendation in regard to the payments that maybe due in respect of the undertaking.
The term payment contemplated the assessment there-of to be made after examining the assets and liabi-lities specifically referred to in clause S andpayments must necessarily be for the balance of theassets after deducting the liabilities vested.
After submitting the report the Minister made bisorder to deduct the amounts due as liabilities ofthe business undertaking on the date of vesting.
The question that arose was whether the deductionsshould be made, from the vested, assets of the busi-ness undertaking as on the date of. vesting orwhether these should be from the balance found tobe due with accrued interest at the time and dateof payment. The petitioners contention was thatnone of the items could be deducted as they werenot liabilities which were vested on the date ofvesting# as commission and professional chargeswjsre incurred by the State after the date of ves-ting and outstanding Income Tax and Business Turn-over Tax were not the liabilities of the vested
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business undertaking .but – were statutory levies .payable by the proprietor or coapany to the State.
Held:
The 1st respondent bad erred -in -making an orderdeducting all these items from the balance ‘ assetswith accrued interest'for-which-the payment is dueto the petitioner,by^reason of the vestingorder.
-Income .Tax and Busisness Turnover Tax were- theliabilities of the owner of the-business and notthe liabilities of the business undertaking, sincetbs petitioner has defaulted, this amount would be.a first charge on the sum payable to him.
A writ of certiorari to issue quashing the ordersmade by the 1st respondent, and to make payments tothe petition after deducting professional chargesand Taxes;. '
SoJ.Kadiragamer , Q.C„ with K, Nadar aj ah and K,
Thevarajah'for the Petitioner—Appellant.< .
M^SBAziz , Deputy Solicitor General, with K* Sri.pa-van, State Counsel, for the Respondents.. __
Cur*'adv. vuTtZ "
July 20, 1983.
VICTOR PERIKA, J.
This isi an appeal by the petitioner-appellantfrom an order of^the Court of Appeal dated 15thJuly 1982 ref using an; Application for a Writ ofCertiorari ahd Mandamus- to quash- the orders made bythe 1st Respondent and to direct the 1st respondentto make payment in'the manner indicated in thepetition * in respect of the business undertakingvested' in the State linder the provisions of theBusiness Undertakings (Acquisition) Act No. 35 of1971.- The petitioner had made this application in
-SC. United Motors Ltd. v. Minister of Finance and Planning . (Victor.PereraM. d5I('
respect of the business undertaking carried on. by! !the petitioner Company known as *United MotorsLtd.'in C.A. Application No.2301/80.
The said petitioner, a duly incorportatedCompany, was addmittedly the 'proprietor' of thesaid business undertakings The term 'proprietor*according to the Act (Section 17) when used in.relation to a business undertaking means the ownerof that undertaking or any other person authorisedby the owner to enter into contracts for the pur- -pose of that undertaking.
The petitioner continued- as a .Company thoughthe business undertaking.was acquired by or vestedin the Government. Under Section 17 of the term'business undertaking' means any undertaking of acommercial, industrial, agricultural or professio-nal nature and includes
all property, movable or immovable, whichwas used for the purposes of the undertakingon the day ismesdistely preceding the date oftransfer or the primary vesting date and whichmay be specified by the Minister of Finance isthe primary vesting Order;
subject to the provisions of this Act ,all rights, powers, privileges and interestsarising in or out of such proj&rty or businessand all the liabilities of the undertaking}
all books, accounts and documents rela-ting or appertaining to the businenss underta-king or any property of that undertakings
Hie Business Undertakings (Acquisition) ActNo. 35 of 1971 provided for the acquisition for theGovernment, whether by agreement or compulsorily ofany business undertaking by requisitioning or com-
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pulsory acquisition of any property necessary forthe pnrpopse of that undertaking and for nattersconnected therewith or incidental thereto.
Section A makes special provisions relating tothe rights and liabilities of any 'business under-taking' acquired or vested in the Government. Thissection is fully comprehensive and clearly spellsout rights and liabilities that vest in the Govern-ment when a business undertaking is acquired. Itreads as follows:-
"4(1) Subject to the provisions of sub-section
where any business undertaking is acquiredby or vested in the Government, all the rightsand liabilities under any contract or agree-ment which relates to the purposes of thatundertaking and which subsists on the date oftransfer or on the primary vesting date ofthat undertaking shall vest in the Government.
(2) The Minister of Finance may at any timerepudiate the liabilities under any contractor agreement referred to in sub-section (1) ifhe is of opinion that such liabilities wereincurred mala fide, dishonestly or fradulen-tly. Notice of the repudiation shall be givenby the competent authority to the parties tothe contract or agreement.
r Where the Minister of Finance under sub-section (2) repudiates the liabilities underany contract or agreement such liabilitiesshall be deemed never to have vested in theGovernment.
For the purposes of this section, 'liabi-lities' shall not include any loan repayableto a director of any business undertaking
hich is acquired by or vested in the Govern-
SC United Motors Ltd. v. Minister of Finance and Planning (Victor PereraM 453
sent or to any member of the family of such
Director."
It is clear from this Act that when theGovernment takes over the business undertaking of aperson or Company, it takes over the undertakingwith its subsisting assets and liabilities as agoing concern and in terms of Section 5 itthereafter continues to manage and administer theaffairs of that undertaking. In terms of Section Aall rights and liabilities under any contract oragreement which relates to the purposes of that■undertaking and subsisting at the date of vesting,become the rights and liabilities of the Govern-ment, but the other rights and liabilities of theCompany do not pass on to the Government. It ispossible to visualise many such rights and liabili-ties which do not vest. The Act had made provi-sions to make 'payments' to the proprietor of theundertaking out of the consolidated Fund (Section17) and the Minister of Finance was empowered tomake regualtions in terms of Section 12 for .thepurpose of carrying out or giving effect to theprinciples and provisions of the Act in relation tothe business undertaking so vested. Section 12(c)provided for regulations for the payments to bemade in respect of any business undertaking orproperty acquired and in any matter regarding theassessment of the amount of the payments and themode of making payments. The term 'payments1 con-templated the assessment thereof to be made afterexamining the assets and liabilities specificallyreferred to in Section 5 and payments must necessa-rily be for the balance of the assets after deduc-ting the liabilities vested.
By Business Undertakings (Acquisition) Amend-ment Act No.■ 21 of 1980, a new section was addedafter Section 12 as 12A which reads as follows :-
"12A. Payments to be made in respect of ^
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t ■i■■ ■ ■ ■■■ -i ■■■——
i•
any business undertaking-acquired by orvested in the Government; or
any property.vested in, or requisitionedby, the Government, for the purpose of anyundertaking,
shall be considered 4as accruing due from thedate on which ' such business undertaking' orproperty, as the case may be, was transferred■to, or vested in, or requisitioned by, theGovernment, Interest at the prescribed rateshall be paid on every such payment from thedate on which it accrues due until the date ofpayment
This Section, makes it dear, beyond any doubt,that the payments were to be made in respect of thebusiness undertaking and .property acquired or ves-ted and that the relevant date was the date ofvesting for the purpose of the assessment of theamount of the payment. Thus any liability whichrelated to the said business undertaking cominginto existence after the relevant date cannot betaken into consideration nor can any liabilities ofthe proprietor other than the liabilities specifi-cally contemplated by Section 5 as having vested betaken into consideration.
In terms of Section 12, the Minister ofFinance made Regulations dated 9th April 1975 pub-lished in the Gazette No. 158/8 of 10th April 1975.It is necessary to examine all the regulations somade in order to appreciate the respective fun-ctions of the Committee appointed by the Ministerof Finance and the duties of the Minister who has'to make order after the receipt of a report fromthe Committee and to see whether they have enlargedin .any way the scope of Section 4. Regulation (2)provides for the Minister of .Finance to appoint aCoar'.ttee to examine and report to him. on the
SC United Motors Ltd. v. Minister of Finance and Planning (Victor Ferera^J.) 455
assets and liabilities of the specified undertaking,and not of the proprietor. Segulation (4) requiresthe Committee to ascertain the reasonable value ofthat undertaking. -Regulation (5) reads as follows
”5(1) For the. purposes of arriving at thevaluation of the specified undertaking, theCommittee may take into consideration thevalue at par of any shares, holdings, inves-tments or other interests, subject, however,to profits earned, market couditions or othercauses.
For all purposes of arriving at a valuertion of the property* including plant,machinery and other -equipment of the speci-fied undertaking, the committee may takeinto consideration the purchase price or themarket price at the time of purchase of suchproperty, and deduct therefrom – such amountas may appear reasonable on account ofdepreciation, market conditions or ochercauses.
For all the purposes ox arriving at the■valuation of the liabilities of -che speci-fied undertaking, the Conknxttee takeinto consideration, inter alia, any outstan-ding contractual or other lawful obliga-tions, bona fide transactions with any re-cognised financial or commercial institu-tions or other persons excluding, any memberof the .Board of Directors of the specifiedundertaking, payments due. to any Government-Department or other State institution andany loss sustained by any statutory board orcorporation due to the activities of thespecified undertaking.”
. This .regulation dearly defines the duties ofthe Committee tunder three specified categories.
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Regulation 5(3) has not enlarged the ambit ofSection 4 of the Act and has limited the powers ofthe Committee to ascertain the payments if any dueby the said business undertaking to any GovernmentDepartment or other State institutions and any losssustained by any Board or Corporation due to theactivities of the specified undertaking. Regula-tion 7 requires the Committee to appoint to.reportto the Minister of Finance on the assets and liabi-lities of the specified undertaking together withtheir recommendation thereon in regard to the pay-ments that may be due in respect of the specifiedundertaking. After the amendment to the'Act in1980 the Minister made a further regulation whichwas published in the Government Gazette Extra-ordinary No. 92/4 dated 10th June 1980 specifyingthe rates of interest payable on any payment.
At the hearing of this application in theCourt' of Appeal the learned Deputy Solictor Generalwho appeared for the respondents had made availableto that Court and to the Counsel for the petitionerthe Report submitted by the Committee to the Minis-ter of Finance. According to the figures set outin the said report, the following amounts had beenascertained :-
Valuation of AssetsRs.5,875,861.83
Valuation of liabilities Rs. 2,002,216.66
Amount payable on this Rs. 3,873,645.17
basis
Interest was on this account according to theregulations
at 4 1/2 percent from 8.3.72 – 31.3.75at 5 1/2 per cent from 1.4.75 – 30.9.77at 7 1/5 per cent from 1.10.77-31.3.80 and at10 per cent from 1.4.80 – 31.12.80 and there-after till the payment was made.
SCUnited Motors Ltd. v. Minister of Finance and Planning (Victor Perera^J.j 457
Hie Report, however, disclosed the followingliabilities of the petitioner Company and had reco-mmended that they should be deducted, namely –
CoomissionRs.33,700.63
Professional charges Rs.80,511.28
Outstanding IncomeTax, Business Turn
Over Tax & Penalties Rs. 3,162,739.00
The question that arises is whether thesedeductions should be made from the vested assets ofthe 'business undertaking' as at the date of ves-ting or whether these should be from the balancefound to be due with accrued interest at the timeand date of payment.
The Minister of Finance when he made his orderafter the Report was received by his purported todeduct the amounts due on the said three items asliabilities of the Business Undertaking due on thedate of vesting. The petitioner's contention wasthat none of the said three items could be sodeducted as they were not liabilities which werevested on the 8th March 1972, the date of vesting,as the first and second items had.been incurred bythe State after the date of vesting and as thethird item, namely, Income Tax and Business Turn-over Tax were not the liabilities of the vestedbusiness undertaking- but were statutory leviespayable by the proprietor or Company to the State.In ' the Court of Appeal it was conceded by theDeputy Solicitor General that the first item Rs.33,700.63 claimed as commission was not a liabilityand should not have been taken into the reckoning.In regard to the second item of Rs. 80,511.28,though he did not make the same concession, he hadpassed it over and confined his submissions to thethird item only. At the hearing before us as thepetitioner filed an affidavit dated 13th December1982 (P10) in which he had set out the fact that
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long after the vesting in or about June 1974, thepetitioner had some litigation in the DistrictCourt of Colombo and that the State claimed to haveincurred Rs. 80,511.28 in that litigation.The Depu-ty Solicitor General conceded that this item couldnot be deducted.The contention therefore was
confined to the third item, Income Tax, BusinessTurnover Tax and the penalties.
In regard to Income Tax, in this case the taxwas imposed under the provisions of the InlandRevenue Act No.4 of 1963. In terms of this Actincome tax is imposed in respect of the profits andincome from any person including -a Company andprofits and income, mean profits from any trade,business, profession or vocation and the severalitems enumerated in Section 13 of that Act. Thereis no doubt that a business is treated as.a.separ-ate entity in order to ascertain its profits there-from, but the liability is that of the proprietoror Company.. In regard to Business Turnover Tax, thetax is imposed under the Finance Act No.11 of 1963and the -business turnover tax is levied from aperson (including a. Company) in respect, of theturnover made by -that person from that business interms of Section 118.. The mode, of recovery of thebusiness turnover tax by any person in default asprovided for in Section 145. It is therefore clearthat these taxes were the liability of the owner ofthe business.and not the liability of the businessundertaking. .. This concept of a ’business underta-king’ referred to the Act No. 35 of 1971 is a newconcept. It provides for the Government takingover of the business undertaking, and the vesting-or acquisition is limited to the rights and liabi-lities under a contract or agreement of that under-taking. The Company continues in existence and allother rights and liabilities, not covered by any.contract or agreement continue to be the rights andliabilities of the Company including any liabili-ties repudiated in terms of Sections 4(2), 4(3) and
SC . United Motors Ltd. v: Minister of Finance and Planning (Victor Perera^J.) '459
excluded in terms of Section 4(4). In this view ofthe matter, the Minister of Finance in making liisorder under Regulation 7 on receipt of the Reportfrom the Committee appointed by him under the Act,has to make order that the payment due to theproprietor shall be the amount of assets asassessed deducting the.assessed contractual liabi-. lities that subsisted at the date of vesting,interms of Section 4 of the Act.
However, having examined the report of theCommittee the Minister is entitled to make an orderin regard to the payment for balance assets soassessed, with the interest accruing thereon. In somaking his order the Minister is entitled to orderthe set off of moneys doe to the State on any otherliability not covered by Section 4 from the amountultimately payable to the proprietor. In terms ofSection 109(1) of the Inland Revenue Act of 1973taxin defaultis a firstcharge on theassetsof
thedefaulter and in thisinstance willbe onthe
balance assets (with accrued interest). In thiscase the petitioner had defaulted and the amountdue from him as tax would be a first charge on thesum so payable to him.
The Minister, the 1st respondent, had there-fore erred in deducting the three items from thebalance assets (with accrued interest) for whichthepayment isdue to thepetitioner byreasonof
thevesting ofits business undertakingon 8.3.
72. In view of the fact that the Deputy SolicitorGeneral conceded that the petitioner was not liableto pay Rs.33,700.63 by way of commission this itemwill have to be struck off. In view of Counsel forthe petitioner agreeing to have the sumv of Rs.80,311.28 deducted as-expenses incurred by theGovernment though not strictly deductible and con-ceding that the petitioner-Company was liable topay the outstanding income tax and penalties
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therein aaounting to Rs. 3,162,739.00, the 1strespondent is entitled to make order for the appro-priation of the said saas of Rs.80,511.28 andRs.3,162,739.00 only froa the amount ultimatelypayable, namely Rs. 3,573,645.17 with interest atthe aforesaid rates until payment. It wassubmitted that the petitioner had been paid a sumof Rs. 2,054^809.00 out of this sum about January1981 on account.
I therefore direct a-mandate in the nature ofa Writ of Certiorari to issue quashing, the ordersdated 12th March 1979 and 1st September 1980 madeby the 1st respondent, the Minister of Finance,.andthat a Writ of Mandamus do issue to the 1st respon-dent to pay the petitioner, the sum of Rs.3,873,645.17 with interest thereon in terms ofRegulation dated 4th June 1980 made by the 1strespondent with a direction that the 1st respondentshall be entitled- to deduct and appropriate thefollowing sums'only from this amount:
Rs. 80,511.28 (professional charges)
Rs. 3,162,739.00 (outstanding incometax and business turnover tax together withpenalties)
and any amounts paid to the petitioner on accountup-to-date. The petitioner will be entitled tocosts in the Court of Appeal and in this Court.
RATWATTE, J., – I agree.SOZA, J.,- I agree.
Appeal allowed.