National Textile Workers' Union Vs.
P.R. Ramkrishnan & Ors [1982] INSC 94 (10 December 1982)
BHAGWATI, P.N.
BHAGWATI, P.N.
REDDY, O. CHINNAPPA (J) VENKATARAMIAH, E.S.
(J) ISLAM, BAHARUL (J) SEN, AMARENDRA NATH (J)
CITATION: 1983 AIR 75 1983 SCR (1) 9 1983 SCC
(1) 228 1982 SCALE (2)1144
CITATOR INFO :
RF 1992 SC 248 (76) D 1992 SC2093 (17)
ACT:
Indian Companies Act, 1956-S. 433-Petition
for winding- up of company-Orders likely to adversely affect interests of
workers-Workers have right to appear and be heard-Workers also entitled to
hearing on their own request when application for appointment of provisional
liquidator is being considered-Trade Unions representing workers competent to
intervene on behalf of workers.
Companies (Court) Rules, 1959-R. 34-Provides
for procedure only-Does not confer on workers right to appear at hearing of
Winding-up petition.
HEADNOTE:
The respondents were two groups of
shareholders of a private limited company which had a thousand persons under
its employment. A group of shareholders filed a petition for winding-up the
company under cls. (e) and (f) of s. 433 of the Indian Companies Act, 1956
along with applications for an interim injunction and for appointment of a
provisional liquidator. The Company Judge passed an order of injunction
restraining the company from borrowing any moneys from banks, financial
institutions or others without the prior permission of the court. Three trade
unions representing the employees of the company filed applications for being
impleaded as respondents/interveners in the winding up petition claiming that
the interests of the employees had been adversely affected by the interim
order. The Company Judge rejected these applications. A Division Bench of the
High Court turned down the appeal preferred by one of the unions and that union
sought special leave to appeal against the order of the Division Bench while
the other two unions sought special leave to appeal against the order of the
Company Judge. The Court granted special leave to all the three unions and
permitted the Company Judge to pass orders on the application pending before
him for appointment of a provisional liquidator with the direction that the
liquidator shall not take any steps which would prejudicially affect the
employees.
It was contended on behalf of the appellants
that since an order winding up a company amounts to notice of termination of
services of its employees under s. 445(3) and since even an interim order
freezing the resources of the company might affect the interest of the
employees by making it difficult for the company to pay their wages, etc., it
would be contrary to fair judicial procedure and violative of the rule audi
alteram partem to deny the employees the right to be heard before any order
prejudicially affecting their interests is made. The 923 employees who
contribute materially to the working of a company and enable it to effectively
play its socio-economic role are equal, if not more important, partners in the
running of the company and they must be heard in a proceeding for winding up of
the company. It was further urged that under r.34 of the Companies (Court)
Rules, 1959 the employees have a right to appear at the hearing of a winding-up
petition either to support or to oppose it.
On behalf of the respondents it was contended
that the employees of a company have no locus standi in a winding-up petition
as the Act does not contain any provision conferring such a right on them; that
since the Act is a self-contained Code exhaustive in regard to all matters
relating to a company, no such right could be spelt out in their favour outside
the provisions of the Act that r. 34 of the Companies (Court) Rules, 1959 does
not confer such a right on them and that, under the various provisions of the
Act including ss. 439 and 440, it is only the creditors and contributories and
in certain specified contingencies, the Registrar and the Central Government,
who are entitled to participate in the proceedings for winding up of a company.
It was further contended that in this case it
was not even the employees, but the three trade unions, who had applied for
being heard, and since the trade unions had no right to be heard, their
applications had been rightly rejected.
Allowing the appeals,
HELD : By Majority : Per Bhagwati, Chinnappa
Reddy and Baharul Islam, JJ. (Venkataramiah and Amarendra Nath Sen, JJ.
dissenting):
The workers of a company are entitled to
appear at the hearing of the winding-up petition whether to support or to
oppose it. They have a locus standi to appear and be heard both before the
petition is admitted and an order for advertisement is made as also after the
admission and advertisement of the petition until an order is made for winding
up the company. The workers also have a right of appeal against a winding up
order. But when a winding-up order has become final, the workers ordinarily
would not have any right to participate in any proceeding in the course of
winding up, the company though there may be rare cases where in a proceeding in
the course of winding up, the interests of the workers may be involved and in
such a case it may be possible to contend that the workers must be heard before
an order is made by the court. Even in an application for appointment of a
provisional liquidator the workers have a right to be heard if they so wish but
neither the petitioner in the winding up petition nor the court is under any
obligation to give notice of such application to the workers. [956 A-E] In the
instant case the circumstance that the workers were not heard by the Company
Judge before he passed the order appointing the provisional liquidator would
not have the effect of vitiating the order but it would be open to the workers
to apply to the court for vacating that order.
[956 F-G] (i) The making of a winding-up
order on a petition for winding-up would have an adverse consequence on the
workers inasmuch as the continuance of their service would be seriously
jeopardised and their right to work and earn 924 their livelihood would be
disastrously imperilled. It is an elementary principle of law that no order
involving adverse civil consequences can be passed against any person without
giving him an opportunity to be heard against the passing of such order. If the
audi alteram partem rule has been held to be applicable in a quasi-judicial or
even in an administrative proceeding, it would a fortiori apply in a judicial
proceeding such as a petition for winding-up of a company. No system of law
which is designed to promote justice through fair-play in action can permit the
court to make a winding-up order which has the effect of bringing about
termination of the services of the workers without giving them an opportunity
of being heard against the making of such order. Unless there is express
provision in the Act which forbids the workers from appearing at the hearing,
the workers must be held entitled to appear and be heard in the winding-up
petition. [950 A-E] State of Orissa v. Dr. Bina Pani, [1967] 2 S.C.R. 625;
A.K. Kraipak v. Union of India, [1970] 1
S.C.R. 457 and Maneka Gandhi v. Union of India, [1978] 2 S.C.R. 621 referred
to.
(ii) There is no provision in the Act which
excludes the workers from appearing at the hearing of a winding-up petition.
Merely because the right to apply for winding up a company is not given to them
it does not follow as a necessary consequence that the workers have no right to
appear and be heard in a winding-up petition filed by one or more of the
persons specified in s. 439. In fact, there would be no point in conferring
that right on the workers since they cannot have any interest in demolishing
the enterprise which is the source of their livelihood. So also, the
circumstance that the right to make applications or be consulted in the course
of the winding up of a company is conferred under s. 440 and other provisions
of the Act only on the creditors and contributories does not in any way
militate against the right of the workers to appear and be heard in the winding-up
petition. Once the winding-up order is made, the assets of the company have to
be realised, the creditors to be paid and if there is any surplus it has to be
distributed among the contributories and, therefore, at that stage, it is only
the creditors and contributories who have an interest and that is why in the
course of the winding up it is the creditors and contributories who have been
given a voice. Sections 440, 464, 466, 478, 517, 542, 543, 549, 556, 557 and
560 deal with a stage after the winding up has commenced. These sections have
nothing to do with the question whether the company should be wound up or not.
[950 F; 948 D-F; 951 B; 951 C-E; 949 A-H] (iii) After the amendment of ss. 397
and 398 of the Act by ss. 10 and 11 of the Companies (Amendment) Act, 1963, the
court, while deciding whether a company should be bound up, has to take into
consideration not only the interest of the shareholders and editors but also
public interest in the shape of the need of the community and the interest of
employees. It is therefore axiomatic that the workers must have an opportunity
of being heard for projecting and safeguarding their interest before a
winding-up order in made. [951 G: 952 E-F] In the instant case, the Division
Bench of the High Court, after conceding that the court had to take into
consideration the interest of the workers, went wrong in holding that the
workers had no locus standi to file an application for being heard in the
winding-up petition. [952 G-H; 953 A-B] 925 Fertilizer Corporation Kamgar Union
and Ors. v. Union of India and Ors., [1981] 2 S.C.R. 52, referred to.
Bhalchandra Dharmajee Makaji and Ors. v.
Alcock Ashdown and Co. Ltd. and Ors., 42 Company Cases 190, approved.
(iv) It is true that according to the
statement of law contained in the leading text books on Company Law, it is only
the Company, the creditors and the contributories who are entitled to appear in
a winding-up petition and no other persons have a right to be heard. This
statement of the law is based on a decision rendered by the English Courts over
a hundred years ago when a company was regarded merely as a legal device
brought into being as a result of a contractual arrangement between the
shareholders for the purpose of carrying on trade or business and the workers
were looked upon as no more than employees of the company working under a
master and servant relationship and the interest of the public as consumers or
otherwise was a totally irrelevant consideration. It can have no validity in
the present times when the entire concept of a company has changed. [953 F-H]
In re. Bradford Navigation Company [1870] 5 Ch. A.C. 600, held inapplicable.
In re. Edward Textiles Limited, 38 Company
Cases 984, overruled.
(v) Our Constitution has shown profound
concern for the workers and given them a pride of place in the new socio-
economic order envisaged in the Preamble and the Directive Principles of State
Policy. Article 43A states that the State shall take steps by suitable
legislation or in any other way to secure the participation of workers in the
management of undertakings, establishments or other organisations engaged in
any industry. The constitutional mandate is therefore clear and undoubted that
the management of the enterprise should not be left entirely in the hands of
the suppliers of capital but the workers should also be entitled to participate
in it. In a socialist pattern of society the enterprise which is a centre of
economic power should be controlled not only by capital but also by labour.
It cannot therefore be contended that the
workers should have no voice in the determination of the question whether the
enterprise should continue to run or be shut down under an order of the court.
The workers who have contributed to the building of the enterprise have every
right to be heard when it is sought to demolish that centre of economic power.
[946 C; 947 D-F] People's Union for
Democratic Rights v. Union of India and Ors. (W.P. No. 8143 of 1981 decided on
September 18, 1982) referred to.
(vi) It is not only the shareholders who have
supplied capital who are interested in the enterprise which is being run by a
company but the workers who supply labour are also equally, interested because
what is produced by the enterprise is the result of labour as well as capital.
The owners of capital bear only limited financial risk and otherwise contribute
nothing to production while labour contributes a major share of the product.
While the former invest only a part of their moneys the latter invest their
sweat and toil; in fact, their life itself.
926 The workers therefore have a special
place in a socialistic pattern of society. They are no more vendors of toil;
they are not a marketable commodity to be purchased by the owners of capital.
They are producers of wealth as much as capital;
they supply labour without which capital
would be impotent.
[945 G-H: 946 A-B] (vii) The concept of a
company has undergone radical transformation in the last few decades. The old
nineteenth century view which regarded a company merely as a legal device
adopted by shareholders for carrying on trade or business as proprietors has
been discarded and a company is now looked upon as a socioeconomic institution
wielding economic power and influencing the life of the people. The view that a
company is the property of the shareholders can no longer be regarded as valid.
Apart from capital and labour there are other factors which contribute to the
production of national wealth; the financial institutions and depositors who
provide the additional finance required for production and the consumers and
the rest of the members of the community who are vitally interested in the
product manufactured. A company, according to the new socio-economic thinking,
is a social institution having duties and responsibilities towards the
community in which it functions and one of its paramount objectives is to bring
about maximisation of social welfare and common good. This necessarily involves
reorientation of thinking in regard to the duties and obligations of the
company not only vis-a-vis the shareholders but also vis-a-vis the rest of the
community affected by its operations such as workers, consumers and the
Government representing the society. [942 B; 943 A G; 944 C-D] Chiranjit Lal
Chowdhri v. Union of India, [1950] S C.R. 869, referred to.
Panchmahal Steel Ltd. v. Universal Steel
Traders, 46 Company Cases 706 approved.
per Chinnappa Reddy, J. (concurring) (i)
Quite apart from s. 445(3), it is plain that the future of the workers is at
stake and their right to work is in jeopardy as a result of the presentation of
the winding- up petition. The workers are so intimately tied up that their
interest in the survival and the well-being of the company is much more than
the interest of any shareholder.
They cannot be denied a hearing when their
very existence is under threat of extinction. [957 D-G] (ii) It is not correct
to say that natural justice is exclusively a principle of administrative law.
It is first a universal principle and, therefore, a rule of administrative law.
Courts, even more than administrators, must observe natural justice. [959 A-C]
(iii) The Act does not prohibit a hearing to the workers. It does not provide
for all situations. The law "falls to be applied to a growing and changing
subject matter". The Company Judge must acknowledge the transformation
which corporations are presently undergoing from capitalist contrivances into
socialist instruments and recognize the reality of the workers interest. The
927 working classes, all the world over, are demanding "workers'
control" and "industrial democracy". They want the right to work
to be secured. Our Constitution has accepted the workers' entitlement to
control and it is one of the Directive Principles of State Policy. It is in
this context of changing norms and waxing values that the workers' demand to be
heard has to be judged.
[957 G-H; 958 B-C-E-F-G] (iv) The duty to
hear those asking to be heard is not dependent on the vesting of any right
under the very statute in respect of which jurisdiction is being exercised by
the Court but on any right whatever which may come under threat.
It is not the law that rights other than
those created by a particular statute may be taken away in proceedings under
that statute without affording a hearing to those desiring to be heard. [959
D-E] (v) It is not correct to say that once the workers are allowed to enter
the company court, the flood gates will be opened, all and sundry will join in
the fray and utter confusion will prevail. The court is the master of the
proceedings and the ultimate control is with the court.
Parties may not be impleaded for the mere
asking. The court may ask the reason why, if someone asks to be heard. [960 B-
C] (vi) The contention that since workers are not allowed to intervene in a
partition or dissolution of partnership they should also not be allowed to
intervene in a winding-up petition cannot be accepted. There is no reason why
workers may not be allowed, in appropriate cases to intervene in such actions
to avert disaster and to promote welfare. [960 D] (vii) There is good reason
for holding that In re.
Bradford Navigation Company is not valid in
the present times. It was decided in the heydays of laissez faire at a time
when individualism dominated every field and the public interest was but a slow
runner. Now the position is reversed. In Britain itself Corporate law and
labour law have changed considerably. After nationalisation of certain
important and crucial industries a considerable measure of workers' control of
management of industry has been achieved in that country. One should rather
look to the Constitution for guidance and inspiration while interpreting the
laws.
After the 42nd Amendment, the Constitution is
openly Socialist. The Directive Principles of State Policy emphasize the role
and interest of the workers. Art. 43A contemplates workers' participation in
the management of the industry. There are several provisions in the Act itself
which take notice of the element of public interest. There are other enactments
like the Monopolies and Restrictive Trade Practices Act and the Industries
Regulation and Development Act under whose provisions the activities of a
company may be scrutinized in public interest. There are legislations involving
employment and welfare of labour to which the managements of the companies are
subject. The problem before the court must be considered in this context of
ferment and development.
[962 F; 961 G-H; 962 A-B; 960 G-H; 961 D-F]
In re. Bradford Navigation Company, [1870] 5 Ch. A.C.
600, held inapplicable.
Panchmahal Steel Ltd. v. Universal Steel
Traders, 46 Company Cases 706 approved.
928 per Baharul Islam, J. (concurring) The
statement of law contained in the English authorities cited by counsel for
respondents may be good law for England with altogether a different system of
economy but it is not applicable in our country, particularly after the
Constitution (42nd Amendment) Act, 1976, by which the "Socialist" and
"Secular" concepts have been incorporated in the Preamble to our Constitution.
The workers' right to be heard in a winding-up proceeding has to be spelt out
from the Preamble and Arts. 38 and 43-A of the Constitution and from the
general principles of natural justice. [990 D-F] per Venkataramiah and
Amarendra Nath Sen, JJ. (dissenting) Under the existing law the workers or
their unions may make any suggestions to the Court at any stage but they cannot
claim to be impleaded as parties to the winding-up petition as of right. The
privilege of making suggestions to the court in public interest is different
from the right to be impleaded as a party with the concomitant right to enter
into contest with the other parties and of making an order in appeal before
higher courts. The latter right has to be conferred expressly by the statute in
any person who wishes to exercise it. [979 D] (i) The principles of
administrative law have not much relevance to the administration of the affairs
of a company, the primary purpose of administrative law being the imposition of
checks on the powers of government or its officers so that they may not either
abuse their powers or go out of their legal bounds. In particular, the
proceedings relating to winding-up by court are subject to the orders of higher
courts in appeal and are not amenable to interference by superior courts as in
the case of actions of government or its officers. [967 H, 968 A-B] (ii) The
law on the question as to who can be heard as of right in a winding-up
proceeding is clear and is based on the decision of the English Court in In re.
Bradford Navigation Company. The decision may be of the last century but there
is hardly any justification to depart from it even now unless compelled by the
statute to do so.[970 B-D; 971 E] In re. Bradford Navigation Company, [1870] 5
Ch. A.C. 600, referred to.
Halsbury's Laws of England (4th Ed.) Vol. 7
Para 1028 referred to.
(iii) That only the company, creditors and
contributories (apart from the Central Government or the Registrar when they
choose to intervene under the express provisions of the Act) are entitled to
participate in the winding-up proceedings is clear from ss. 439, 447 and 557.
Sections 450(2), 466, 478(3), 517, 518, 542,
543, 546(1), 549(1) and 556 show that only the Company, the official
liquidator, liquidator, creditors, contributories or the Registrar have a
statutory right to participate as of right in the winding-up proceedings. The
workers or their trade unions have not been given any such right.
[969 C-D; 971 F; 972 E-H; 973 A-F] 929 In re.
Edward Textiles Ltd., 38 Company Cases 284 approved.
(iv) Under s. 433, a company may be wound up
by the court on one or more of the following grounds : (a) if the company has,
by special resolution, resolved that it may be wound up by court; (b) if
default is made in delivering the statutory report to the Registrar or in
holding the statutory meeting; (c) if the company does not commence its
business within a year from its incorporation, or suspends its business for a
whole year; (d) if the number of members is reduced, in the case of a public
company, below seven, and in the case of a private company, below two; (e) if
the company is unable to pay its debts; and (f) if the court is of opinion that
it is just and equitable that the company should be wound up. As regards the
ground mentioned at (a), when a company has passed a special resolution that it
may be wound up by the court, the employees and workers can have hardly any
ground to object. The position is the same when any of the defaults mentioned
in (b) and (c) are committed by the company. The officers and employees of the
company also cannot get over the deficiency in the required number of members
of a company referred to in (d) above. When a company is unable to pay its
debts and a creditor moves a petition for winding-up under (e) above, he cannot
be compelled to prove his claim not merely against the company but also against
the officers and employees. When there is a deadlock in the management of the
company arising out of disputes amongst the directors or when some directors
without any justification exclude some other directors from the management of
the company and a petition for winding-up is filed under (f), above, it would
be unreasonable to expect the excluded directors to fight a case both against
the directors who are responsible for their exclusion and also against the
officers and employees who are neither creditors nor contributories but who may
be supporting the contesting directors. [968 H; 969 A-B; 969 F-H; 970 A-B] In
the instant case, it is seen from the grounds of objection filed by the trade
unions that they are only interested in supporting the cause of one set of
respondents against the other by making certain general submissions. The
petitioners in the Company Petition would be in a more disadvantageous position
if they have to face the opposition of the trade unions also in addition to the
respondents to that petition. Such a situation should not be created by
extending the area of controversy by a liberal interpretation of the provisions
of law when there are no compelling reasons to do so. [985 E-G] (v) There are
specific provisions in the Act and the Rules (ss. 417 to 420, 530(1)(b) to (f)
and 635-B and r. 152 read with Form No. 67) dealing with the rights of
employees of a company. The right to resist a winding-up petition is not one
such right. [975 D-E] (vi) It is because of some doubts that had been expressed
earlier about the continuance of the employment of the employees of a company
ordered to be compulsorily wound up that s. 445(3) was enacted making it clear
that the passing of the order of winding-up amounts to a notice of discharge of
the employees concerned. Section 445(3) corresponds to the termination of
service brought about by the abolition of a post under a Government or by the
closure of a business, neither of which as the law stands today requires
compliance with the principles of natural justice.
[975 B-C] 930 (vii) It is true that public
interest which may include within its scope interests of employees of a company
has to be kept in view by the courts in exercising certain powers under the
Act. Sections 388-B, 394, 396, 397 and 408 do refer to the concept of public
interest. These provisions deal with the powers of the Central Government and
the Court. They do not, however, state that trade unions can as of right
intervene in the proceedings arising under them.
[975 F-H] Bhalchandra Dharmajee Makaji and
Ors. v. Alcock, Ashdown and Co. Ltd. and Ors., 42 Company Cases 190 referred
to.
In the instant case the High Court has passed
necessary orders to protect the interests of the employees. As these orders
stand today, the workers can always approach the High Court by way of a company
application for appropriate orders whenever they feel that their working
conditions are adversely affected during the pendency of the proceedings.
It is not necessary that the workers or the
trade unions should be impleaded as parties to the winding-up petition enabling
them to contest the same; their presence on record is not necessary for a
complete and effectual adjudication of the petition. The trade unions are,
therefore, neither necessary nor proper parties to the winding-up petition on
the facts and in the circumstances of this case including the element of public
interest involved in any liquidation proceeding. [985 H; 986 H; 987 A-C] (viii)
In Fertilizer Corporation Kamgar Union (Regd) Sindri and Ors. v. Union of India
and Ors., [1981] 2 S.C.R.
52 the court was concerned with operations in
a public sector company and the activities of the government. The observations
contained therein cannot have any relevance to a case involving the affairs of
a company which is governed only by the express provisions of company law and
other relevant statutes. [982 C] (ix) As the law stands today, the workers in a
factory owned by a company do not have any hand in the birth of a company, in
its workingur ding its existence and also in its death by dissolution. Workers'
participation in the affairs of a company or the ushering in of an industrial
democracy is quite a laudable object. That is the reason for enacting Art.
43-A. Art. 43-A clearly states that the State shall take steps by suitable
legislation or in any other way to secure the participation of workers in the
management of undertakings etc. The High-powered Expert Committee on Companies
and MRTP Act, has made certain recommendations in this behalf in paragraphs
11.27 and 18.137 of its report and it is for the Parliament to take steps to
implement them.
The legislature has not taken concrete steps
in this regard.
The suggestions made by the committee
emphasize that at present workers have no right to contest winding-up
proceedings. It is significant that there is no recommendation made even in
this report about the right of trade unions to contest winding-up petitions.
The court cannot step in and introduce drastic amendments into the company law.
Many of the Directive Principles are still to be implemented by passing
appropriate legislation. This Court cannot compel the executive by issuing
writs to implement the policy underlying them. There are well- recognized
limitations on the power of the court making inroads into the legitimate domain
of the legislature. If the legislature exceeds its power, this Court steps in.
If the executive exceeds its power, 931 then also this court steps in. If this
court exceeds its power what can people do ? Should they be driven to seek an
amendment of the law on every occasion ? The only proper solution is the
observance of restraint by this court in its pronouncements so that they do not
go beyond its own legitimate sphere. It may be that the workers who are likely
to be affected by the winding-up need a larger protection.
That can be done only by legislative action.
This Court cannot make any order which will conflict with the existing law.
[982 G-H; 983 A; 977 E-F; 983 G; 983 B-D; 989
C] (x) The proposition that law should not be static but should grow cannot be
disputed. But it should be the result of the exercise of legislative judgment,
particularly when a departure from express provisions of a statute or an
established practice is to be made. A discussion involving a comprehensive view
of all interests which are likely to be affected by any decision in such a
matter is not possible before a court where only the parties to a case or their
lawyers are heard. [987 D-F] (xi) It is not correct to say that there is no
other remedy at all for workmen who are likely to be affected by the winding-up
order made by the court. It is open to the workers or their trade unions to
move the Central Government to take appropriate steps under the Industrial
(Development and Regulation) Act, 1951 the provisions of which provide that
where a company owning an industrial undertaking is being wound up by or under
the supervision of the High Court and the business of such company is not being
continued, the Central Government may investigate into the possibility of
running or restarting the industrial undertaking, provide relief to it or take
steps to ensure that the undertaking is sold as a running concern, or prepare a
scheme of reconstruction of the company and send it to the trade unions of
employees concerned inviting their suggestions and objections. [976 A-H; 977
A-C] (xii) When once the right to contest a winding-up petition is extended to
workers either on the principle of equity or of administrative law, on the same
principle it would logically follow that all others who may have dealings with
the company such as commission agents, selling agents.
etc. whose contracts with the company are going
to be terminated by reason of its liquidation also have to be allowed to
contest the proceedings. Such a claim is not permissible. [974 B] Ex parte
Maclure, [1870] L.R. 5 Ch. 737, referred to.
(xiii) It is no doubt true that the view of
the High Court is also in conformity with the view prevailing in England. That
does not mean that the High Court has surrendered its judgment to a foreign
practice because that is the very view which is being followed till now in the
Indian Courts. A foreign decision is either worthy of acceptance or not
depending upon the reasons contained in it and not its origin or age. There is
no reason why we should not follow a well-reasoned foreign decision unless it
is opposed to our ethics, tradition and jurisprudence or otherwise unsuited to
our conditions. Moreover, it is difficult, even though it may not be
impossible, to administer the company law as it is now in force in India
without the aid of the principles laid down by some of the leading English
cases. [987 H: 988 A-F] 932 Needle Industries (India) Ltd. and Ors. v. Needle
Industries Neway (India) Holding Ltd. and Ors., [1981] 3 S.C.R. 698, referred
to.
per Amarendra Nath Sen, J. (agreeing with
Venkataramiah, J.) (i) If the right to participate in a winding-up proceeding
is to be judged from the view-point of the interest of any party who may be
prejudicially affected as a result of an order of winding-up being made, it
must logically follow that not only every employee of the company but also
various other parties and persons who have trade relations or dealings with the
company must necessarily be held to have the same right to be heard in such a
proceeding; further, no suit for dissolution of a partnership can also be
decided without impleading the employees of the firm and other parties having
trade relations with the firm.
[992 A-E; 991 H] (ii) A company can only be
wound up in accordance with the provisions of the Act. The right to have a
company wound-up is a right created by the statute. The entire proceeding in
relation to the winding-up is governed by the provisions of the Act and the
Rules. The Act recognises that a company may go into liquidation without any
intervention by the Court and also under the supervision of the court.
Where the company goes into liquidation
without reference to court, the employees of the company who have to meet the
same fate of losing their employment cannot have any voice or say in the
procedure to be adopted for liquidation of the company. [992 F-G; 993 B-C]
(iii) The right of appearance and of being heard in a winding-up proceeding has
been conferred on persons whom the legislature considered to be necessary or
proper parties for effective adjudication of the proceeding before the court.
If a company is commercially insolvent and is
unable to pay its debts, it has necessarily to be wound up and the employees
can have hardly anything to say in such a case for assisting the court in
deciding the matter. [993 E-G] (iv) Although an employee cannot claim to appear
and be heard in a winding-up petition as a matter of right, the court may, in
any appropriate case, require or permit any employee to appear at any stage of
a winding up proceeding and hear him, if it is of the opinion that it is
necessary in the interest of administration of justice and for proper disposal
of any matter. [998 H; 999 A] (v) The legislature has made suitable provisions
in the Act for safeguarding what is considered to be in the interest of
employees or in public interest. The introduction of Art. 43A in the Constitution
does not affect the position in any way. Participation in the management does
not by itself create any right to appear and be heard in a winding-up petition.
Unless otherwise named personally as a party to such a petition, no person,
merely on the ground that he happens to be in the management of the company, is
entitled to appear and be heard in a winding-up proceeding. Persons in
management may, if so authorised, appear and participate in such a proceeding
on behalf of the company.
[995 D; 995 E-H] 933 (vi) The Indian and the
English Companies Acts contain similar provisions. As early as in 1870 the
English court held that no person had a right to be heard against a petition
for winding-up of a company except creditors and contributories. That decision
still holds good and is considered good law. The English Act has undergone
changes from time to time with the passing of various legislations for the
benefit and welfare of employees. An order winding up a company affects the
employees in England in the same way as it does in India. It cannot be said
that workers in England are not conscious of the important role they play in
the functioning of a company. Despite all these, the right of an employee or
any trade union representing the workers to participate and be heard in a
winding-up petition is not recognised in England. Even in our country, though
the provisions of the Act have undergone changes and various enactments for the
welfare of the workers have been passed from time to time, the legislature has
not considered it proper or necessary to amend the Act to confer any such right
on the workers. [996 A-D; 996 H; 997 A-B; 998 F] In re Bradford Navigation
Company, [1870] 5 Ch. A.C.
600, referred to.
Halsbury's Laws of England (4th Ed.) Vol.
III. p. 614;
Palmer's Company Precedents (7th Ed.) Part
II, p. 77 and Buckley on the Companies Act, (14th Ed.) Vol. I, p. 546 referred
to.
Hind Overseas Private Ltd. v. Raghunath
Prasad Jhunjhunwala and Ors., [1976] 2 S.C.R 226, distinguished.
2. By majority: Per Bhagwati, Chinnappa Reddy
and Baharul Islam, JJ. (Venkataramiah and Amarendra Nath Sen, JJ. dissenting):
Trade unions are competent to make applications before the Company Judge
hearing a winding-up petition on behalf of the workers represented by them.
[956 H] In this case the applications were made by the unions on behalf of the
workmen represented by them and though made in the name of the Unions the
applications were in reality and substance applications of the workmen who were
members of each respective Union. The controversy therefore really is not
whether the unions of workmen are entitled to be heard in a winding-up petition
but whether the workmen have such right when a winding-up petition is filed
against a company. [939 G-H] per Venkataramiah and Amarendra Nath Sen, JJ.
(dissenting): In none of the English text
books on Company Law there is any statement to the effect that trade unions of
officers and employees of a company for whose winding-up a petition is filed
would be entitled as of right to be impleaded as parties and to contest the
petition. It is not also shown that any such right of a trade union is
recognised by the Indian Law which more or less corresponds to English Law in
this regard. The decision of the Bombay High Court in re Edward Textiles Ltd.
is a clear authority for the proposition that at any rate trade unions have no
locus standi to oppose a winding-up petition. We shall proceed to decide this
case on the assumption that the application for impleading was made in fact on
behalf of the workers and not by the trade unions. [968 C-F] 934 In re Edward
Textiles Ltd., 38 Company Cases 284, referred to.
3. By the Full Court: Rule 34 of the
Companies (Court) Rules, 1959 does not confer a right on the workers to appear
at the hearing of a winding-up petition. [955 G; 973 G; 994 E-F] per Bhagwati,
Chinnappa Reddy and Baharul Islam, JJ.: The object and purpose of r. 34 is not
to confer a right on anyone to appear at the hearing of the winding-up petition
but merely to provide for the procedure to be followed before a person who is
otherwise entitled to appear in a winding-up petition can be heard in support
of or in opposition to the winding-up petition. [955 F] per Venkataramiah, J:
The words "every person" in r. 34 of the Companies (Court) Rules,
1959 do not entitle a worker who is neither a shareholder nor a contributory to
support or oppose a winding-up petition under that rule because they refer only
to a person who is otherwise entitled to do so under the Act. An anomalous result
that may flow from the acceptance of the case of the workers is that whereas in
a winding-up by court they may get an opportunity to contest the petition, the
voluntary winding-up proceedings or winding-up under the supervision of the
court would go on without any such contest although in all cases ultimately the
workers will be discharged from service. A construction which leads to such a
discriminatory result should be avoided. [973 G-H; 974 A] per Amarendra Nath
Sen, J.: Rule 34 only lays down the procedure to be followed by any person who
intends to be heard at the hearing of a petition; it does not deal with the
right of any person to appear at the hearing nor does it create any such right
in any person. Rule 9B in part III of the Rules makes specific provision in
that behalf. [994 E-F]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 4065- 67 of 1982.
Appeals by special leave from the judgments
and orders dated 30.11.81 and 14.9.1981 of the Madras High Court in O.S.A. No.
148 of 1981 and Company Appeal Nos. 880-881 of 1981.
M.K. Ramamurthy, Somyaji, Ambrish Kumar, Miss
Nitya Ramakrishnan for the Appellants in CA. No. 4065/82.
G. Vasanta Pai, S.N. Kacker, O.C. Mathur and
D.N. Mishra for the Respondents in CA. 4065 of 1982 and for the Appellants in
CA. Nos. 4066-67/82.
R.K Garg, A.T.M. Sampath and P.N. Ramalingam
for the Appellants in CA. Nos. 4066-67/82.
935 V.M. Tarkunde, E.C. Aggarwala, R. Satish,
V.K. Pandia and T.S. Vishwanath Rao for the Respondent Nos. 6-9 and 11.14 in
CA. Nos. 4066-67 of 1982.
O.C. Mathur, Ravinder Narain and D.N. Mishra
for the Respondents in C.A. 4065 of 1982.
M. Natesan and M. Raghuraman for the
Intervener.
The following Judgments were delivered
BHAGWATI J. These three appeals by special leave raise a short but interesting
question of law relating to the right of workmen employed in a company to
appear and oppose a petition for winding up of the company. The controversy
between the parties arises out of a petition for winding up a private limited
company called Ramakrishna Industries (P) Limited (hereinafter referred to as a
company). The Company has three units, one a textile mill in the name of Jotie
Mills which employs about 500 workmen, another, a workshop for manufacture of
textile and other machinery which employs about 400 workmen and the third a
printing press which brings out a Tamil daily, called "Nav India" and
employs about 100 workmen. It is a closed company in which there are two groups
of shareholders, one group consisting of respondent Nos. 1 to 5 and the other
consisting of respondent Nos. 7 to 14. Respondent Nos. 1 to 5 hold 608 shares
and respondent nos. 7 to 14 687 shares while the remaining 300 shares belong to
a Trust in which both the groups are equally represented on the Board of
Trustees. It appears that a serious dispute arose between Respondent nos.
1 to 5 on the one hand and Respondent nos. 7
to 14 on the other in regard to the management of the affairs of the company
and since the dispute could not be settled amicably, Respondent nos. 1 to 5
filed a petition for winding up the Company on two grounds set out in clauses
(e) and (f) of section 433 of the Companies Act, 1956. One ground was that the
Company is unable to pay its debts and the other was that it is just and
equitable that the Company should be wound up. The winding up petition was
filed by Respondent nos. 1 to 5 not only as contributories but also as
creditors of the Company. Immediately on filing the winding up petition on 13th
July 1981, Respondent nos. 1 to 5 submitted an application, being company
application no. 844 of 1981, for an interim injunction and on this application,
an ex parte order was made by the learned Company 936 Judge restraining the
Company which was respondent no. 6 in the winding up petition as also
Respondent nos. 7 to 14 from borrowing any monies from banks, financial
institutions or others without the prior permission of the Court and from
alienating and/or creating any charge or encumbrance over any of the assets of
the Company in its various enterprises.
The immediate consequence of this ex parte
order of injunction was that the Jotie Mills Employees Co-operative Store
stopped issuing any provisions or supplies to the workmen from 18th July 1981
and the workmen were also unable from 23rd July 1981 to enjoy the benefits
under the Employees State Insurance Scheme. The workmen also apprehended that
on account of the ex parte order of injunction, they may not be able to get
their wages which were due to be paid on 7th August 1981. Now some of the
workmen were members of the National Textile Workers Union, some others were
members of the Coimbatore District National Textile Employees Union while still
some others were members of the Coimbatore District Engineering Workers Union.
The Coimbatore District National Textile Employees Union with a view to
protecting the interests of its members made an application, being company
application no. 880/81 on 28th July 1981 for impleading itself as a respondent.
The Coimbatore District Engineering Workers Union also made a similar
application to the Company Judge on the same day, being Company Application No.
881 of 1981. So also the National Textile Workers Union made an application,
being company application no. 883 of 1981, to the Company Judge on 29th July
1981 praying that it may be permitted to intervene in the winding up petition
and that the ex parte order of injunction may be vacated. Respondent nos. 1 to
5 filed their affidavit in reply to these three applications and the principal
contention raised by them was that the National Textile Workers Union, the
Coimbatore District National Textile Employees Union and the Coimbatore
District Engineering Workers Union had no locus standi to appear and oppose the
winding up petition, since the workmen who were members of these three unions
were neither creditors nor contributories of the company. These three
applications came up for hearing before the Company Judge and after hearing
full arguments on both sides, the Company Judge made an order dated 14th
September 1981 rejecting all the three applications on the ground that under
the Companies Act 1956, the workmen had no right either to get impleaded in the
winding up petition or even to intervene in the winding up petition. The
Company Judge 937 followed the decision of a single Judge of the Bombay High
Court in In re Edward Textiles Limited(1) in taking this view. The Company
Judge conceded and this concession had to be made because of the observations
of this Court in Fertilizer Corporation Kamgar Union and Ors. v. Union of India
and Ors.(2) and of the High Court of Bombay in Bhalchandra Dharamaji Makaji v.
Alcock Ashdown and Co.
Ltd.(3) that the factors to be taken into
account by the court while disposing of a winding up petition would include the
interest of the workmen of the company, but observed that "the duty of the
court to consider the interest of the worker of the company would not create a
right in such workers to intervene in the absence of express provision in the Companies
Act and in the teeth of such right specifically conferred only on the creditors
and contributories." The National Textile Workers Union thereupon
preferred an appeal before a Division Bench of the High Court but the Division
Bench also took the same view and held that though it was undoubtedly true that
while disposing of a winding up petition preferred on the ground that it is
just and equitable to wind up the company, the court must consider the interest
of the workmen, it does not mean "that everybody who is remotely interested
in the company can file an application to implead himself as a party in the
petition for winding up" and "merely because in considering the
question whether to wind up or not the court has also to take the larger point
of public interest including that of the workers into consideration, it will
not clothe the Unions with any locus standi to file applications for impleading
themselves as parties or to be heard in the company petition." The
Division Bench accordingly rejected the appeal and this led to the filing of
Special Leave Petition No. 9661 of 1981 in this Court by the National Textile
Workers Union. The Coimbatore District National Textile Employees Union and the
Coimbatore District Engineering Workers Union did not prefer any appeal against
the judgment of the Company Judge before the Division Bench of the High Court
but they preferred Special Leave Petitions Nos. 10248 and 10249 of 1981
directly in this Court against the judgment of the Company Judge. We issued
notice on all the three Special Leave Petitions and when the Respondents
appeared before us, we intimated to them that we will dispose of the entire
controversy between the parties on the Special Leave Petitions and that is how
full and detailed arguments 938 were advanced before us at the hearing of the
Special Leave Petitions. We now proceed to dispose of these cases after
granting special leave to appeal in each of the three special leave petitions.
Before we proceed to discuss the basic and
vital question that arises for consideration in these appeals, it is necessary
to set out a few further facts which may have some bearing on the final relief
to be granted by us. On the same day on which respondent Nos. 1 to 5 filed the
winding up petition and applied for interim injunction, they also made an
application, being Company Application No. 843 of 1981, praying for appointment
of Provisional Liquidator of the company. Respondent Nos. 6 to 14 appeared at
the time when this application was presented and asked for time to file their
affidavit in reply and time was granted by the Company Judge upto 10th August,
1981. Respondent Nos. 6 to 14 thereafter filed an affidavit in reply on 10th
August, 1981 and after hearing both sides in a bitterly contested argument, the
Company Judge made an order on 7th December 1981 appointing the official
liquidator as Provisional Liquidator of the Company. The workmen represented by
the National Textile Workers' Union, the Coimbatore District National Textiles
Employees' Union and the Coimbatore District Engineering Workers' Union did not
have an opportunity of being heard before the order appointing Provisional
Liquidator was passed by the Company Judge, because as pointed out above, their
applications for impleading themselves as parties in the winding up petition or
in any event, for being allowed to intervene in the winding up petitions were
rejected by the Company Judge on 14th September, 1981 and this rejection was
confirmed by the Division Bench of the High Court on 30th September 1981. The
result was that the order appointing Provisional Liquidator of the company came
to be made by the Company Judge without any opportunity being given to the
workmen represented by these three Unions to appear and show cause against the
making of such order. It may be pointed out that the order appointing
Provisional Liquidator was stayed for some time by the Division Bench of the
High Court in an appeal preferred by respondent Nos. 6 to 14 but the
application for stay was ultimately dismissed by the Division Bench and the
Official Liquidator immediately thereafter took charge of the affairs of the
company.
We may now proceed to consider the question
that arises for determination before us. The question, briefly stated, is: when
a 939 petition for winding up a company is filed in court, are the workmen of
the company entitled to ask the court to implead them as parties in the winding
up petition or to allow them to appear and contest the winding up petition or
they have no locus standi at all so far as winding up petition is concerned and
they must helplessly watch the proceedings as outsiders though the result of
the winding up petition may be to bring about termination of their services and
thus affect them vitally by depriving them of their means of livelihood ? It is
a well established principle of administrative law that no order entailing
adverse civil consequences can be made by the State or a public authority
unless the person affected is afforded an opportunity to show cause against the
making of such order by controverting the allegations made against him and
presenting his own positive case, but in case of a winding up petition, it was
contended on behalf of respondents Nos. 2 to 5, that though the result of
successful termination of a winding up petition may, and in most cases, would
be to put an end to the services of the workmen and throw them on the streets,
they are not entitled to an opportunity to be heard against the making of the
winding up order, because under the Companies Act 1956, it is only the
creditors and contributories and in certain specified contingencies, the
Registrar and the Central Government who can present a petition for winding up
a company and the workmen have no locus at all in a winding up petition except
where their dues have remained unpaid in which case they would be entitled to
be heard in a winding up petition, but that would be in their capacity as
creditors and not as workmen.
It was also urged on behalf of respondent Nos.
1 to 5 that in any event, even if workmen have a right to intervene in a
winding up petition in the present case, it was not the workmen who had applied
for being heard in the winding up petition but the applications were made by
the three unions and since a Union of workmen has no right to be heard, the
applications of the three unions were rightly rejected. This last contention of
respondent Nos. 1 to 5 is obviously untenable and it need not detain us. It is
incontrovertible- and this indeed could not be disputed on behalf of respondent
Nos. 1 to 5-that the applications were made by the Unions on behalf of the
workmen represented by them and though made in the name of the unions, the
applications were in reality and substance applications of the workmen who were
members of each respective union. The controversy therefore really is not
whether the unions of workmen are entitled to be heard in a winding up petition
but whether the workmen have such right when a winding up petition is filed
against 940 a company. We may straight away point out that though the
applications made by the Coimbatore District National Textile Employees and
Coimbatore District Engineering Workers Union were for impleading them as
parties in the winding up petition, it was conceded on behalf of these two
unions that they were not pressing their applications for being added as
parties, because there was no procedure known to Companies Act 1956 for anyone
to be impleaded as a party in a winding up petition and even the creditors and
contributories were not entitled to be added as parties and they were claiming
only the right to appear and be heard in support or opposition to the winding
up petition. The contention of these two unions was therefore a limited one and
that was also the narrow contention advanced on behalf of National Textile
Workers' Union, namely, that the workmen represented by them were entitled to
intervene in the winding up petition and to be heard before any order was made
by the Company Judge in the winding up petition, because any such order might
affect the interest of the workmen. It was pointed out on behalf of the three
unions that even if an interim order were to be made by the Company Judge which
might prejudicially affect the workmen by freezing the resources of the company
so as to make it difficult for the company to pay the wages of the workmen or
bringing about stoppage of the business of the company resulting in non-payment
or diminution of their wages or termination of their services, the workmen must
surely be afforded an opportunity to be heard before any such interim order is
made. It would be contrary to every recognised principle of fair judicial
procedure and violative of the rule of audi alteram partem which constitutes
one of the basic principles of natural justice to deny to the workmen the right
to be heard before an order is made by the Company Judge prejudicially
affecting their interest. Additionally, reliance was also placed on behalf of
the three unions on Rule 34 of the Companies (Court) Rules 1959 which provides
as follows:
"Rule 34. Notice to be given by persons
intending to appear at the hearing of petition-Every person, who intends to
appear at the hearing of a petition, whether to support or oppose the petition,
shall serve on the petitioner or his advocate, notice of his intention at the
address given in the advertisement. The notice shall contain the address of
such person, and be signed by him 941 or his advocate, and save as otherwise
provided by these rules shall be served (or if sent by post, shall be posted in
such time as to reach the addressee) not later than two days previous to the
day of hearing, and in the case of a petition for winding up not later than five
days previous to the day of hearing. Such notice shall be in Form No. 9, with
such variations as the circumstances may require, and where such person intends
to oppose the petition, the grounds of his opposition, or a copy of his
affidavit if any, shall be furnished along with the notice. Any person who has
failed to comply with this rule shall not except with the leave of the Judge,
be allowed to appear at the hearing of the petition." The argument urged
on behalf of the three unions was that this rule confers a right on the workmen
to appear at the hearing of the winding up petition either to support it or to
oppose it and clearly recognises that they are entitled to intervene and be
heard in the winding up petition.
Respondent Nos. 1 to 5 however seriously
challenged the locus of the workmen to appear and be heard in the winding up
petition and contended that so far as the winding up petition is concerned, it
is only the creditors and contributories and in certain specified contingencies
the Registrar and the Central Government who are entitled to appear at the
hearing of the winding up petition whether to support or to oppose it. The
right to be heard in the winding up petition, contended respondent Nos. 1 to 5
is governed solely by the provisions of the Companies Act 1956 and since no
such right is conferred on the workmen by any provision of the Companies Act
1956, the workmen are not entitled to intervene in the winding up petition,
even though the making of a winding up order may result in termination of their
services. The workmen, according to respondent Nos. 1 to 5, could appear at the
hearing of the winding up petition and make their submissions only in their
capacity as creditors if any part of their wages remained unpaid by the company
but they had no locus to appear in their capacity as workers. These rival
contentions urged on behalf of the parties raised an interesting question of
law which we shall now proceed to consider.
942 There is one very important consideration
which we must bear in mind while dealing with this question and it is necessary
to advert to it at the present stage. The concept of a company has undergone
radical transformation in the last few decades. The traditional view of a
company was that it was a convenient mechanical device for carrying on trade
and industry, a mere legal frame work providing a convenient institutional
container for holding and using the powers of company management. The company
law was at that time conceived merely as a statute intended to regulate the
structure and mode of operation of a special type of economic institution
called company. This was the view which prevailed for a long time in juristic
circles all over the democratic world including United States of America,
United Kingdom and India. That was the time when the doctrine of laissez faire
held sway and it dominated the political and economic scene. This doctrine
glorified the concept of a free economic society in which State intervention in
social and economic matters was kept at the lowest possible level.
But gradually this doctrine was eroded by the
emergence of new social values which recognised the role of the State as an
active participant in the social and economic life of the citizen in order to
being about general welfare and common good of the community. With this change
in socio-economic thinking, the developing role of companies in modern economy
and their increasing impact on individuals and groups, through the
ramifications of their activities, began to be increasingly recognised. It
began to be realised that the company is a species of social organisation, with
a life and dynamics of its own and exercising a significant power in
contemporary society. The new concept of corporate responsibility transcending
the limited traditional views about the relationship between management and
shareholders and embracing within its scope much wider groups affected by the
trading activities and other connected operations of companies, emerged as an
important feature of contemporary thought on the role of the corporation in
modern society.
The adoption of the socialistic pattern of
society as the ultimate goal of the country's economic and social policies
hastened the emergence of this new concept of the corporation. The
socio-economic objectives set out in Part IV of the Constitution have since
guided and shaped this new corporate philosophy. We shall presently refer to
some of the Directive Principles of State Policy set out in Part IV which
clearly show the direction in which the corporate sector is intended to move
and the role which it is intended to play in the social and economic life of
the nation. But, one thing is certain 943 that the old nineteenth century view
which regarded a company merely as a legal device adopted by shareholders for
carrying on trade or business as proprietors has been discarded and a company
is now looked upon as a socio- economic institution wielding economic power and
influencing the life of the people.
It is now accepted on all hands, even in
predominantly capitalist countries, that a company is not property. The
traditional view that the company is the property of the shareholders is now an
exploded myth. There was a time when a group controlling the majority of shares
in a company used to say: "This is our concern. We can do what we like with
it." The ownership of the concern was identified with those who brought in
capital. That was the outcome of the property-minded capitalistic society in
which the concept of company originated. But this view can no longer be
regarded as valid in the light of the changing socio-economic concepts and
values. Today social scientists and thinkers regard a company as a living,
vital and dynamic, social organism with firm and deep rooted affiliations with
the rest of the community in which it functions. It would be wrong to look upon
it as something belonging to the shareholders. It is true that the shareholders
bring capital, but capital is not enough. It is only one of the factors which
contributes to the production of national wealth. There is another equally, if
not more, important factor of production and that is labour. Then there are the
financial institutions and depositors, who provide the additional finance
required for production and lastly, there are the consumers and the rest of the
members of the community who are vitally interested in the product manufactured
in the concern. Then how can it be said that capital, which is only one of the
factors of production, should be regarded as owner having an exclusive dominion
over the concern, as if the concern belongs to it? A company, according to the
new socio-enconomic thinking, is a social institution having duties and
responsibilities towards the community in which it functions. The Supreme Court
pointed out as far back as 1950 in Chiranjeetlal v. Union of India:
"We should bear in mind that a
corporation, which is engaged in production of commodities vitally essential to
the community, has a social character of its own and it must not be regarded as
the concern primarily or only of those who invest their money in it." 944
Pt. Govind Ballabh Pant also pointed out in one of his speeches:
"...industry is not an isolated concern
of the shareholders or the managing agents alone. It reacts on the entire
people in the country, on their economic conditions, on employment or standard
of living, on everything that conduces to the material well being." The
same view was also expressed at the International Seminar on Current Problems
of Corporate Law, Management and Practice held in New Delhi where it was observed
that "an enterprise is a citizen. Like a citizen it is esteemed and judged
by its actions in relation to the community of which it is a member as well as
by its economic performance." That is why it is regarded as one of the
paramount objectives of a company to bring about maximisation of social welfare
and common good. This necessarily involves reorientation of thinking in regard
to the duties and obligations of a company not only vis-a-vis the shareholders
but also vis-a- vis the rest of the community affected by its operations such
as workers, consumers and the Government representing the society. There was at
one time a serious controversy between two schools of thought, one represented
by Adolf Berle and the other by Professor Dodd, as regards the nature of duties
and obligations owed by directors representing management of a company. Adolf
Berle took the view that directors are trustees only for shareholders-that is
the traditional view which directly flows from a purely capitalistic approach
which identifies ownership and dominion with capital-while Prof. Dodd believed
that directors are trustees not only for shareholders but also for the entire
community. Ultimately, however, in his subsequent book, "Twentieth Century
Capitalist Revolution", Adolf Berle conceded that Prof. Dodd was right and
that modern directors are not limited to running business enterprise for
maximum profit motive alone, but are in fact administrators of community system
or of a social institution. That is why we find that in recent times there is
considerable thinking on the subject of social responsibilities of corporate
management and it is now acknowledged even in highly developed countries like
the United States and England that maximisation of social welfare should be the
legitimate goal of a company and shareholders should be regarded not as
proprietors of the company, but merely as suppliers of capital entitled to no
more than reasonable return and the company should be responsible not only to
shareholders but also to workers, consumers and the other 945 members of the
Community and should be guided by considerations of national economy and
progress. This new concept of a Company was felicitously expressed by Desai, J
sitting as a Judge of the Gujarat High Court in Panchmahal Steel Ltd. v.
Universal Steel Traders(1) in the following words:
"Time-honoured approach that the company
law must safeguard the interest of investors and shareholders of the company
would be too rigid a framework in which it can now operate. New problems call
for a fresh approach. And in ascertaining and devising this fresh approach, the
objective for which the company is formed may provide a guide line for the
direction to be taken.
As Prof. De Wool of Belgium puts it, the
company has a three-fold reality economic, human and public-each with its own
internal logic. The reality of the company is much broader than that of an
association of capital; it is a human working community that performs a
collective action for the common good. In recent years a debate is going on in
the world at large on the functions and foundations of corporate enterprise.
The "preservationists" and the "reformers" are vigorously
propounding their views on the possible reform of company, the modern trend
emphasising the public interest in corporate enterprise." The learned
judge elaborated this "modern trend" by quoting from Prof. Gower's
book on "The Principles of Modern Company Law": "One section of
the community whose interests as such are not afforded any protection, either
under this head or by virtue of the provisions for investor or creditor
protection, are the workers and employees of the taken-over company. This is a
particularly unfortunate facet of the principle that the interest of the
company means only the interest of the members and not of those whose
livelihood is in practice much more closely involved." We are concerned in
these appeals only with the relationship of the workers vis-a-vis the company.
It is clear from what we have stated above that it is not only the shareholders
who have supplied capital who are interested in the enterprise which is being
run by a company but the workers who supply labour are also equally 946
interested because what is produced by the enterprise is the result of labour
as well as capital. In fact, the owners of capital bear only limited financial
risk and otherwise contribute nothing to production while labour contributes a
major share of the product While the former invest only a part of their moneys,
the latter invest their sweat and toil, in fact their life itself. The workers
therefore have a special place in a socialist pattern of society. They are no
more vendors of toil, they are not a marketable commodity to be purchased by
the owners of capital. They are producers of wealth as much as capital. They
supply labour without which capital would be impotent and they are, at the
least, equal partners with capital in the enterprise. Our constitution has
shown profound concern for the workers and given them a pride of place in the
new socio-economic order envisaged in the Preamble and the Directive Principles
of State Policy. The Preamble contains the profound declaration pregnant with
meaning and hope for millions of peasants and workers that India shall be a
socialist democratic republic where social and economic justice will inform all
institutions of national life and there will be equality of status and
opportunity for all and every endeavour shall be made to promote fraternity
ensuring the dignity of the individual. Everyone is assured under Article 14
equality before the law and equal protection of the laws and implicit in this
provision is the guarantee of equal remuneration for men and women for some
work or work of a similar nature.
Traffic in human beings and begar and other
similar forms of forced labour are prohibited under Article 23 and Article 24
mandates that no child below the age of 14 may be employed in any factory or
mine or engaged in any other hazardous employment. These two Articles recently
came up for construction before this Court in People's Union for Democratic
Rights & Ors.v. Union of India & Ors.(1) Article 38 imposes obligation
on the State, albeit unenforceable in a court of law, to "strive to
promote the welfare of the people by securing and protecting as effectively as
it may a social order in which social justice shall inform all the institutions
of the national life". This is followed by Article 39 which inter alia
obliges the State to direct its policy towards securing that the citizens, men
and women equally have the right to an adequate means of livelihood, the
ownership and control of the material resources of the community are so
distributed as best to subserve the common good, the operation of the economic
system 947 does not result in the concentration of wealth and means of
production to the common detriment, there is equal pay for equal work for both
men and women and the health and strength of workers, men and women and the
tender age of children are not abused and citizens are not forced by economic
necessity to enter avocations unsuited to their age or strength. The State is
directed by Article 41 to make effective provision, within the limits of its
economic capacity and development, for securing the right to work and Article
42 requires the State to make provision for securing just and humane conditions
of work and for maternity relief.
Article 43 provides that the State shall
endeavour to secure, by suitable legislation or economic organisation or in any
other way, a living wage, conditions of work ensuring decent standard of life
and full enjoyment of leisure and social and cultural opportunities. Then
follows Article 43A which is intended to herald industrial democracy and in the
words of Krishna Iyer, J. mark "the end of industrial bonded labour".
That Article says that the State shall take steps, by suitable legislation or
in any other way, to secure the participation of workers in the management of
undertakings, establishments or other organisations engaged in any industry.
The constitutional mandate is therefore clear and undoubted that the management
of the enterprise should not be left entirely in the hands of the suppliers of
capital but the workers should also be entitled to participate in it, because
in a socialist pattern of society, the enterprise which is a centre of economic
power should be controlled not only by capital but also by labour. It is
therefore idle to contend thirty two years after coming into force of the
Constitution and particularly after the introduction of Article 43A in the
Constitution that the workers should have no voice in the determination of the
question whether the enterprise should continue to run or be shut down under an
order of the court. It would indeed be strange that the workers who have
contributed to the building of the enterprise as a centre of economic power
should have no right to be heard when it is sought to demolish that centre of
economic power.
The principal argument urged against the
right of the workers to be heard in the winding up petition was that under the
scheme of the Companies Act 1956, it is only the creditors and contributories
who are entitled to appear and be heard in a winding up petition. The Companies
Act 1956 is a self-contained code exhaustive in regard to all matters relating
to companies and since there is no provision in that Act conferring on the
workers a right to intervene 948 in a winding up petition, no such right can be
spelt out in their favour outside the provisions of that Act Respondent Nos. 6
to 9 relied upon various provisions of the Companies Act 1956 in support of
their contention that the workers have no locus in a winding up petition but we
do not think these provisions lend any support to that contention. The first
provision relied upon by Respondent Nos. 6 to 9 was section 439 which inter
alia provides as to who shall be entitled to make an application for winding up
of a company.
It is no doubt true that this section confers
the right to present a winding up petition only on certain specifically
enumerated persons and the workers are not included in that enumeration and
therefore obviously, the workers have no right to prefer a petition for winding
up of a company. The right to apply for winding up of a company being a
creature of statute, none other than those on whom the right to present a
winding up petition is conferred by the statute can make an application for
winding up a company and no such right having been conferred on the workers,
they cannot prefer a winding up petition against a company. But from this
exclusion of the workers from the right to present a winding up petition, it
does not follow as a necessary consequence that the workers have no right to
appear and be heard in a winding up petition filed by one or more of the persons
specified in section 439. It may be that the workers have no right to present a
winding up petition against the company, but if a winding up petition is
properly filed by any of the persons entitled to do so under section 439, they
may still be entitled to appear and be heard in support or opposition to the
winding up petition. That would depend upon whether their interest is likely to
be affected by any order which may be made on the winding up petition. The next
section relied upon by respondent Nos. 6 to 9 was section 440 which says that
where a company is being wound up voluntarily or subject to the supervision of
the court, a petition for its winding up by court may be presented by any
person authorised to do so under section 439 or the official Liquidator, but
the court shall not make a winding up order unless it is satisfied that the
voluntary winding up or winding up subject to the supervision of the court
cannot be continued with due regard to the interests of the creditors or
contributories or both. It was urged on behalf of respondent Nos. 6 to 9 that
this section shows that the winding up of a company is intended to be for the
benefit of the creditors and the contributories and the interest of the workers
has no place at all in the winding up and is not required to be taken into
account in winding up the company.
This argument 949 is also in our opinion
futile because what this section deals with is the stage after the winding up
has commenced, whether voluntary or subject to the supervision of the court,
while we are concerned with a stage anterior to the making of a winding up
order. There can be little doubt that the object of winding up being to realise
the assets of the company, pay the preferential claims and expenses of
liquidation and then discharge the debts of the creditors in full or pari passu
and if after paying to the creditors, there is any surplus, distribute the same
among the shareholders by way of dividend and ultimately dissolve the company,
it is only the creditors and the contributories who would be affected by any
action taken in the course of winding up of the company and that is why we find
several provisions in the Companies Act 1956 which speak of winding up being
carried on with due regard to the interest of the creditors and the
contributories or after consultation with them or confer rights on the
creditors and the contributories to make applications for diverse purposes with
a view to effective winding up of the company. Such provisions are for instance
to be found in section 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560.
These provisions apply at a stage after a winding up order is made by the court
or the voluntary winding up has commenced or an order is made for continuance
of winding up subject to the supervision of the court, when winding up having
been ordered or resolved, what remains to be done is only to wind up the
company, pay the creditors and if there is any surplus, distribute the same
among the shareholders. These provisions do not deal with a situation prior to
the making of the winding up order when the question is whether the company
should be ordered to be wound up or not. While the company is continuing to
subsist, the workers would be employed in the enterprise which is being run by
the company and they would be earning their livelihood from such employment,
but if an order for winding up is made, their services would, except in cases
where the business of the company is continued, stand terminated by reason of
sub- section (3) of section 445 which provides that a winding up order
"shall be deemed to be notice of discharge to the officers and employees
of the company, except when the business of the company is continued."
Ordinarily when a winding up order is made, the business of the company would
cease to continue and even if the Liquidator is authorised to carry on the
business, such continuance would be only for the beneficial winding up of the
company and the logical and inevitable end would be the ultimate discontinuance
of the business. The making of a winding up order 950 on a petition for winding
up would therefore almost certainly have an adverse consequence on the workers
in as much as the continuance of their service would be seriously jeopardised
and their right to work and earn their livelihood would be disastrously
imperilled. Now it is an elementary principle of law, well settled as a result
of several decisions of this Court and particularly the decisions in State of
Orissa v. Dr. Bini Pani,(1) A.K. Kraipa v. Union of India,(2) and Maneka Gandhi
v. Union of India(3) that no order involving adverse civil consequences can be
passed against any person without giving him an opportunity to be heard against
the passing of such order and this rule applies irrespective of whether the
proceeding in which it is passed is a quasi judicial or an administrative
proceeding. The audi alterum partem rule which mandates that no one shall be
condemned unheard is one of the basic principles of natural justice and if this
rule has been held to be applicable in a quasi-judicial or even in an
administrative proceeding involving adverse civil consequences, it would a
fortiori apply in a judicial proceeding such as a petition for winding up of a
company.
It is difficult to imagine how any system of
law which is designed to promote justice through fairplay in action can permit
the court to make a winding up order which has the effect of bringing about
termination of the services of the workers without giving them an opportunity
of being heard against the making of such order. It would be violative of the
basic principle of fair procedure and unless there is express provision in the Companies
Act 1956 which forbids the workers from appearing at the hearing of the winding
up petition and participating in it, the workers must be held entitled to
appear and be heard in the winding up petition.
That is the minimum requirement of the
principle of audi alterum partem which cannot be ignored save on pain of
invalidation of the order of winding up. Here we do not find any provision in
the Companies Act 1956 which in so many terms excludes the workers from
appearing at the hearing of the winding up petition with a view to supporting
or opposing it and the only ground on which the right of the workers to appear
and be heard in the winding up petition is disputed is that there is no
specific provision in the Act entitling them to do so and the right to apply
for winding up as also to participate in the proceedings in the course of
winding up is conferred only on the creditors and the 951 contributories. But,
we have pointed out above that merely because the right to apply for winding up
a company is not given to the workers it does not mean that they cannot appear
to support or oppose a winding up petition which is properly filed by one or
the other persons specified in section 439. There would, in fact, be no point
in conferring the right to apply for winding up of a company on the workers
since they cannot have any interest in demolishing the enterprise which is the
source of their livelihood and particularly when the only effect of the winding
up order would be to render them unemployed and to bring about winding up of
the company for the benefit of the creditors and the contributories. So also
the circumstance that the right to be consulted or to make applications in the
course of the winding up of a company is conferred only on the creditors and
the contributories does not in any way militate against the right of the
workers to appear and be heard in the winding up petition because once the
winding up order is made, the assets of the company have to be realised, the
creditors have to be paid and if there is any surplus it has to be distributed
among the contributories and therefore at that stage it is only the creditors
and the contributories who have an interest and that is why in the course of
the winding up it is the creditors and the contributories who have been given a
voice. That has nothing to do with the question whether the company should be
wound up or not which is a question in which the workers are vitally concerned
and on which they must obviously be heard before any decision is taken by the
court.
This view which we are taking is in accord
with the decision of the High Court of Bombay, namely, Bhalchandra Dharmajee
Makaji and Ors. v. Alcock Ashdown & Co. Ltd. & Ors. where the Company
Judge, while disposing of an application for appointment of Official Liquidator
as Provisional Liquidator, pending the hearing and final disposal of the main
petition for winding up, said:
"After the amendment of sections 397 and
398 of the Companies Act by sections 10 and 11 of the Companies (Amendment) Act
(LIII of 1963), it would appear that the affairs of the company have to be
conducted not only in the best interest of its members for their profit but
also in a manner which is not prejudicial to public interest. The element of
public interest enters into the management of the companies after 1963. The
modern corporation has 952 become the accepted instrument of social policy,
because it affects a large part of the economic life of the community. It has
become an instrument for the improvement of the economic standards of the
people and for economic growth of the nation. Society depends for some of its
needs on corporate enterprise. It has therefore an interest in its stability
and efficiency as an economic institution. The element of public interest also
arises from the responsibility for ensuring a minimum wage to the numerous
employees in the corporate sector. It is necessary to see that people who put
their labour and lives into a concern get fair wages, continuity of employment
and a recognition of their jobs where they have trained themselves to highly
skilled and specialised work. In deciding whether the court should wind up a
company or change its management the court must take into consideration not
only the interest of the shareholders and creditors but also public interest in
the shape of the need of the community and the interest of the employees. This,
in my opinion, is the requirement of sections 397 and 398 of the Companies Act."
If in deciding whether the court should wind up a company or change its
management the court must take into consideration not only the interest of the
shareholders and creditors but also amongst other things the interest of the
workers, it is axiomatic that the workers must have an opportunity of being
heard for projecting and safeguarding their interest before a winding up order
is made by the court. The Division Bench of the Madras High Court has of course
conceded in the judgment under appeal that "in considering the question
whether to wind up or not the court has to take the larger point of public
interest including that of the workers into consideration" but that in the
opinion of the Division Bench would not "clothe the workers with any locus
standi to file an application for being heard in the winding up petition.
With the greatest respect to the learned
Judges constituting the Division Bench, we must express our emphatic
disapproval of this approach. It amounts to the court telling the workers:
"No doubt in deciding whether the company should be wound up or not, we
are bound to take into consideration your interest but you need not be heard
because we know best what your interest requires." This paternalistic
attitude towards the workers that though they are most vitally concerned and
their interest is required to be taken into consideration, they need not be
heard because the court in its wisdom knows, 953 presumably more than the
workers themselves, what is in their interest and they should leave their fate
into the hands of the court without even a whisper of an argument sounds like a
relic of a by-gone age and must be abandoned.
If the interest of the workers has to be
taken into account, the workers must have a say because they know best where
their interest lies and they must have an opportunity of placing before the
court relevant material bearing upon their interest.
Considerable reliance was however placed on
behalf of respondent Nos. 6 to 9 on the statement of the law on this point
contained in the leading text books on company law.
Respondent Nos. 6 to 9 drew our attention to
Palmer Company Precedents (17th Edn.) volume 2 at page 77 where it is stated
that any creditor or shareholder may appear to support or oppose the petition
but no one else can do so even if he has an indirect interest in the continued
existence of the company. So also in Buckley on the Companies Act (14th Edn.)
at page 546 the law has been stated in the following terms, namely, "the
only persons entitled to be heard are the company, its creditors and
contributories .. the court may in its discretion hear other persons who have
an interest in order to learn what public grounds there are in favour of, or in
opposition to, the winding up.. but such persons can be heard only as amici
curiae and cannot appeal." Our attention was also invited to Halsbury's
Laws of England 4th Ed. Vol. 7 where a similar statement of the law is to be
found at page 614 paragraph 1028. Now it is undoubtedly true that according to
the statement of the law contained in these three leading text books, it is
only the company, the creditors and the contributories who are entitled to
appear on the winding up petition and no other persons have a right to be
heard, but this statement of the law is based on the old decision in Re.
Bradford Navigation Company which was carried in appeal and decided as Re. Bradford
Navigation Company. This decision given by the English Courts over a hundred
years ago when a company was regarded merely as a legal device brought into
being as a result of a contractual arrangement between the shareholders for the
purpose of carrying on trade or business and the workers were looked upon as no
more than employees of the company working under a master and servant
relationship and the interest of the public as consumers or otherwise was a
totally irrelevant consideration and it can have no validity in the present
times when the entire concept of a company has changed and it has been
transformed into a dynamic 954 socio-economic institution in which capital and
labour are both equal partners, possibly with heavy weightage in favour of labour
and the interest of the public as consumers as also the general welfare and
common good of the community constitute a vital consideration. We cannot allow
the dead hand of the past to stifle the growth of the living present.
Law cannot stand still; it must change with
the changing social concepts and values. If the bark that protects the tree
fails to grow and expand along with the tree, it will either choke the tree or
if it is a living tree, it will shed that bark and grow a new living bark for
itself.
Similarly, if the law fails to respond to the
needs of changing society, then either it will stifle the growth of the society
and choke its progress or if the society is vigorous enough, it will cast away
the law which stands in the way of its growth. Law must therefore constantly be
on the move adopting itself to the fast changing society and not lag behind. It
must shake off the inhibiting legacy of its colonial past and assume a dynamic
role in the process of social transformation. We cannot therefore mechanically
accept as valid a legal rule which found favour with the English courts in the
last century when the doctrine of laissez faire prevailed. It may be that even
today in England the courts may be following the same legal rule which was laid
down almost a hundred years ago, but that can be no reason why we in India
should continue to do likewise.
It is possible that this legal rule might
still be finding a place in the English text books because no case like the
present one has arisen in England in the last 30 years and the English courts
might not have had any occasion to consider the acceptability of this legal
rule in the present times. But whatever be the reason why this legal rule
continues to remain in the English text books, we cannot be persuaded to adopt
it in our country, merely on the ground that it has been accepted as a valid
rule in England. We have to build our own jurisprudence and though we may
receive light from whatever source it comes, we cannot surrender our judgment
and accept as valid in our country whatever has been decided in England. The
rule enunciated in re: Bradford Navigation Company case (supra) does not
commend itself to us and though it has been followed by a single Judge of the
Bombay High Court in re Edward Textiles Limited (supra), we do not think it
represents correct law.
We may also mention that on behalf of the
appellants some reliance was placed on Rule 34 of the Companies (Court) Rules
1959 in support of their contention that not only the creditors and the contributories
but also other persons are entitled to appear at the 955 hearing of a winding
up petition and the workers cannot therefore be excluded. This Rule provides
that every person who intends to appear at the hearing of a winding up
petition, whether to support or to oppose it, shall serve on the petitioner or
his advocate notice of his intention at the address given in the advertisement
and such notice shall be in form No. 9 and where such person intends to oppose
the winding up petition, the grounds of his opposition or a copy of his
affidavit if any shall be furnished along with the notice. The appellants
contended that under this Rule anyone who wants to appear in a winding up
petition can do so, provided he serves on the petitioner or his advocate,
notice of his intention at the address given in the advertisement and complies
with the other requirements of this Rule and therefore if the workers desire to
appear at the hearing of the winding up petition, they are entitled to do so.
The answer given on behalf of respondent Nos. 6 to 9 to this contention was
that Rule 34 is applicable only after a winding up petition is admitted and an
order is made for advertisement of the winding up petition and it has no
application at the stage when the winding up petition is before the court only
for the purpose of deciding whether or not it should be admitted and
advertised. It was also urged on behalf of respondent Nos. 6 to 9 that in any
event Rule 34 does not confer a right on any and every person to appear at the
hearing of the winding up petition, intends so to appear he must take various
steps set out in that Rule beginning with service of notice on the petitioner
or his advocate before he can be heard on the winding up petition.
We are inclined to agree with this contention
of respondent Nos. 6 to 9. It is obvious that the object and purpose of Rule 34
is not to confer a right on any one to appear at the hearing of the winding up
petition but merely to provide the procedure to be followed before a person who
is otherwise entitled to appear in a winding up petition can be heard in
support or opposition of the winding up petition. This rule cannot therefore be
relied upon by the appellants as conferring a right on the workers to appear at
the hearing of a winding up petition. But, one thing is clear that this Rule
does postulate that apart from the creditors and contributories there may be
other persons who are entitled to appear at the hearing of the winding up
petition because it is not confined in its application to the creditors and
contributories but uses the generic impression "every person" and to
this limited extent it does undoubtedly lend some support to the contention of
the appellants.
956 We are therefore of the view that the
workers are entitled to appear at the hearing of the winding up petition
whether to support or to oppose it so long as no winding up order is made by
the court. The workers have a locus to appear and be heard in the winding up
petition both before the winding up petition is admitted and an order for
advertisement is made as also after the admission and advertisement of the
winding up petition until an order is made for winding up the company. If a
winding up order is made and the workers are aggrieved by it, they would also
be entitled to prefer an appeal and contend in the appeal that no winding up
order should have been made by the Company Judge. But when a winding up order
is made and it has become final, the workers ordinarily would not have any
right to participate in any proceeding in the course of winding up the company
though there may be rare cases where in a proceeding in the course of winding
up, the interest of the workers may be involved and in such a case it may be
possible to contend that the workers must be heard before an order is made by
the court. We think that even when an application for appointment of a
provisional liquidator is made by the petitioner in a winding up petition, the
workers would have a right to be heard if they so wish because the appointment
of a provisional liquidator may adversely affect the interest of the workers.
But we may make it clear that neither the petitioner nor the court would be
under any obligation to give notice of such application to the workers. It
would be for the workers to apply for being heard and if they do so, they would
be entitled to appear and be heard on the application for appointment of
provisional liquidator. The workers therefore in the present case had a right
to be heard before the provisional liquidator was appointed by the Company
Judge but the circumstance that the workers were not so heard would not have
the effect of vitiating the order appointing provisional liquidator, because on
the view taken by us, it would be open to the workers to apply to the court for
vacating that order and it would be for the court after considering the
material produced before it and hearing the parties to decide whether that
order should be vacated or not.
We accordingly allow the appeals, set aside
the order, dated 14th September 1981 made by a Single Judge of the High Court
and confirmed by the Division Bench on 13th September 1981 and direct that the
three Unions shall be entitled to appear and be heard in the winding up
petition. There will be no order as to costs of these appeals.
957 CHINNAPPA REDDY, J. I agree with my
brother Bhagwati. I wish to add a few words not because I have much more to
say, nor ever hope to say what he has said, more felicitously but because my
brother Venkataramiah has disagreed and my regard for him compels me to add a
few words of explanation.
"... you take my life when you do take
the means whereby I live" (Shakespeare: The Merchant Venice).
This indeed is the cry of the workers of
Ramakrishna Industries (P) Ltd. who desire to be heard before the bread is
taken out of their mouths. A battle royal appears to be raging between two
rival groups of shareholders of the company. A petition for winding-up the
company has been presented by one group of shareholders. And an application for
the appointment of a provisional liquidator too. Quite apart from Sec. 445 (3)
of the Companies Act which provides that the order for winding-up shall be
deemed to be notice of discharge of the officers and employees of the company,
except when the business of the company is continued, it is plain that the
future of the workers is at stake and their right to work is in jeopardy as a
result of the presentation of the winding-up petition. Unlike the shareholders,
to most of whom the shares they hold represent mere investments and to some of
whom, the means to control the affairs of the company, to the workers, the life
of the company is their own and its welfare is theirs. They are so intimately
tied up that their interest in the survival and the well being of the company
is much more than the interest of any shareholder-be he an investor, a
'corporate commander' or a corporate manipulator. How then is it possible that
these persons-the workers whose very existence may be under threat of
extinction-are to be denied a hearing, even if sought, when a petition for
winding-up is presented to a court. It is said that the Companies Act does not
contemplate a hearing to the workers. Only contributories and creditors may be
heard it seems. Workers may not be allowed to throng the company court, only
those who buy, sell and control shares and the usurers, the stockbrokers and
the money brokers. Those who invest money may be heard, those who invest their
lives may not be heard. No. The Companies Act does not prohibit a hearing to
the workers. The Companies Act does not say who may be heard. The Companies Act
does not provide for all situations. The Company Judge must decide some
matters. He must use his imagination. He must use his discretion. But, without
transgressing any legal norms Company Law is not a field in which 958 'finality
is to be expected'. The law 'falls to be applied to a growing and changing
subject matter'. This is recognised in the report of the Jenkins Committee in
the United Kingdom and in this country, in the Statement of Objects and Reasons
to the Companies Amendment Act of 1974.
So, when new situations arise, as indeed they
are bound to arise having regard to the complexities of growth and change, the
Company Judge cannot retreat into the Corporate shell but must expand and
expound. He must take the bull by the horns. as it were. He must recognise and
expose the reality of the workers' interest and the dubiety of the interest of
the others. He must acknowledge the transformation which corporations are
presently undergoing from capitalist contrivances into socialist instruments.
No doubt, it was the creative genius of the
bourgeoisie that invented the corporations and the companies, invested them
with a corporate soul and a juristic personality and called them legal entities
in order to meet the growing and complex demands of modern industry and
management, to conduct business and commercial activities more conveniently and
efficiently, and essentially to foster, consolidate and stabilise the
capitalist system of society under whose aegis alone the exploiting class could
thrive and continue to exploit the working class. Corporations became the
symbol of competitive capitalism. But the historical processes continue at
work. The movement is now towards socialism. The working classes, all the world
over, are demanding 'workers' control' and 'Industrial Democracy'. They want
security and the right to work to be secured. They want the control and
direction of their lives in their own hands and not in the hands of the
industrialists, bankers and brokers. Our constitution has accepted the workers'
entitlement to control and it is one of the Directive Principles of State
Policy that the State shall take steps, by suitable legislation or in any other
way, to secure the participation of workers in the management of undertakings,
establishments or other organisations engaged in any industry. It is in this
context of changing norms and waxing values that one has to judge the workers'
demand to be heard.
And, what do the workers want? They want to
be heard lest their situation be altered unheard. They invoke natural justice,
so to claim justice. They invoke the same rule which the courts compel
administrative tribunals to observe.
Can courts say natural justice need not be
observed by them as they know how to render justice without observing natural
justice? It will surely be a travesty of 959 justice to deny natural justice on
the ground that courts know better. There is a peculiar and surprising
misconception of natural justice, in some quarters, that it is, exclusively, a
principle of administrative law. It is not. It is first a universal principle
and, therefore, a rule of administrative law. It is that part of the judicial
procedure which is imported into the administrative process because of its
universality. "It is of the essence of most systems of justice-certainly of
the Anglo-Saxon System-that in litigation both sides of a dispute must be heard
before decision. 'Audi Alterum Partem' was the aphorism of St.
Augustine which was adopted by the courts at
a time when Latin Maxims were fashionable". 'Audi Alterum Partem is as much
a principle of African' as it is of English legal procedure; a popular Yoruba
saying is: 'wicked and iniquitous is he who decides a case upon the testimony
of only one party to it" (T.O. Elias: The Nature of African Customary
Law). Courts even more than administrators must observe natural justice.
It is said that the Companies Act does not
confer any special rights on the workers, they are virtual strangers to the Act
and so why should they be heard in the petition for winding-up ? The duty to
hear those asking to be heard is not dependent on the vesting of any right
under the very statute in respect of which jurisdiction is being exercised by
the court, but on any right whatever which may come under threat. Surely it is
not the law that rights other than those created by a particular statute may be
taken away in proceedings under that statute without affording a hearing to
those desiring to be heard. If the statute says only so and so will be heard
and no other, of course, no other will be heard. If the statute does not say
who may be heard, but prescribes the procedure for the hearing, that procedure
must be followed by everyone who want to be heard and what applies to one will
apply to the other. If creditors and contributories desire to be heard and are
heard, so shall workers. After hearing the workers, the court may say that, on
the facts and circumstances of the case, it is not necessary to hear them
further; but they cannot be turned away at the very threshold. It may be that
it is not for them to support or oppose the winding-up petition for any of the
traditional reasons. But they may make suggestions which may avert winding-up,
save the company and save their own lives. They may have suggestions to make
for restructuring the company or for the transfer of the undertaking as a
running business. The workers themselves may offer to run the industry forming
themselves into a society. They may have a myriad suggestions to 960 make, which
they can do if they are allowed to be heard. If every holder of a single share
out of thousands may be heard, if every petty creditor may be heard, why can't
the workers be heard ? It is said that once the workers are allowed to enter
the Company Court, the flood gates will be opened, all and sundry will join in
the fray and utter confusion will prevail. These are dark forebodings for which
there is no possible justification. The interest of the workers is limited. It
is the interest of the others, those that battle for control and for power that
may create chaos and confusion. It must not be forgotten that the court is the
master of the proceedings and the ultimate control is with the court. Parties
may not be impleaded for the mere asking or heard for the mere seeking. The
court may well ask the reason why, if someone seeks to be heard. Workers will
not crowd the Company Court and the Court will not be helpless to keep out
those whom it is not necessary to hear.
It is said that workers will not be allowed
to intervene in a partition or a partnership action to oppose partition or
dissolution of partnership and so why should they be allowed to intervene in a
winding-up petition. That is begging the question. There is no reason why
workers may not be allowed, in appropriate cases, to intervene in partition and
partnership actions to avert disaster and to promote welfare. As we said,
impleading and hearing are not for the mere asking and seeking.
Re Bradford Navigation Company and passages
from textbooks for which the case is the source of authority were relied upon,
to urge that none but contributories and creditors may be heard in winding-up
petition. Re Bradford Navigation Company is a relic of an alien past.
Fortunately it is not a binding precedent. While we have learnt and borrowed a
great deal from British Jurisprudence, we have been drawing the line now and
then, here and there, because their law, their jurisprudence suits their genius
and ours must develop according to our genius. Our needs are different; our
social, political and economic bases are different; our aspirations are
different; our systems are different; the stages of our development are
different. We have a written constitution which is omnipresent when our laws
are made, tested, interpreted or executed. We look to the constitution for
guidance and inspiration when we interpret the laws. The 42nd Amendment of the
Constitution has introduced new lights into the Constitution. The Constitution
is now openly socialist. The Directive Principles of State Policy repeatedly
emphasise the role and interest of the workers. Article 43-A, also introduced
by the 42nd 961 Amendment contemplates workers' participation in the management
of industry. Other Directive Principles require the State to make provision for
securing the right to work, for securing just and humane conditions of work and
for securing the right to an adequate means of livelihood. The State is
enjoined to direct its policy towards securing that the ownership and control
of the material resources of the community are so distributed as best to
subserve the common good and that the operation of the economic system does not
result in the concentration of wealth and means of production to the common
detriment. Obviously, it is nationalisation that is in view and nationalisation
must mean the setting up of public corporations and the transformation of
private corporations into public corporations. Truly the Constitution envisages
workers' control and nationalisation as two of the roads to socialism. Private
corporations hitherto regarded as bastions of private property and leaders of
capitalist economy are undergoing transformation and, are surely acquiring the
character of public institutions. The public interest element is now quite a
predominant factor in the Companies Act itself. There are several provisions in
the Companies Act which take notice of the element of public interest. There
are other enactments like the Monopolies and Restrictive Trade Practices Act,
the Industries Regulation and Development Act, under whose provisions, the
activities of a company may be scrutinised in the public interest.
There are a host of other legislations
involving employment and welfare of labour, to which the managements of
companies are subject. The transformation of a company's character from private
to public is going on right before our eyes even as the institution of private
property is also losing its diathesis. It is in this context of ferment and
development that we must consider the problem before us.
There is no sanctity attached to the age of a
judgment or to the circumstance that the decision is that of an English Court
from where we have borrowed most of our company law.
Re Bradford Navigation Company was decided in
the heydays of laissez faire at a time when individualism dominated every field
and the public interest was but a slow runner. Now the position is reversed.
Laissez faire has long been dethroned and all interests are increasingly
subordinated to the public interest. Corporations are themselves assuming a
public character and function like mini States but surely they will not be
allowed to function as slave States where the voice of the slave may never be
heard.
In Britain itself corporate law and labour
law have changed considerably and are still changing. Courts no longer view
trade 962 unions with suspicion, as conspiracies as they once did. The right to
work, the right to collectively bargain and the right to strike are well
recognised. After nationalisation of certain important and crucial industries
by the successive Labour Governments, workers' participation in management has
become a reality and today a considerable measure of workers' control of
management has been achieved in industry.
There are now persistent demands that Company
Law too should recognise the interest of workers in a company. Prof.
Gower in his "The Principles of Modern
Company Law" says:- "One section of the community whose interests as
such are not afforded any protection, either under this head or by virtue of
the provisions for investor or creditor protection, are the workers and
employees of the taken over company. This is a particularly unfortunate facet
of the principle that the interest of the company means only the interest of
the members, and not of those whose livelihood is in practice much more closely
involved".
Again he says, later, "The vexed
question of the relationship between the employees and the company which
employs them is, in fact, a dominant theme in the current debate which flows
over from company to labour law. It is generally accepted that it is unreal for
company law to ignore, as at present our law largely does, that the workers are
as much, if not more, a part of the company as the members of it".
That is the way the wind is blowing in
Britain and there is, therefore, good reason for holding that the rule in
Bradford Navigation Company is not valid in the present times.
I may conclude by a reference to the
following observations made in another connection by D.A. Desai, J in
Panchmahals Steel Ltd. v. Universal Steel Traders(1).
"Time-honoured approach that the company
law must safeguard the interest of investors and shareholders of the company
would be too rigid a framework in which it can 963 now operate. New problems
call for a fresh approach . .
. As Prof. De Wool of Belgium puts it, the
company has a three-fold reality-economic, human and public-each with its own
internal logic. The reality of the company is much broader than that of an
association of capital;
it is a human working community that performs
a collective action for the common good. In recent years, a debate is going on
in the world at large on the functions and foundations of corporate enterprise.
The "preservationists" and the "reformers" are vigorously
propounding their views on the possible reform of company, the modern trend
emphasising the public interest in corporate enterprise".
The case itself is an instructive one and
demonstrates how an imaginative Company Judge may help to restructure and
infuse new life into a company whose life is ebbing out, within the four
corners of the statute and keeping in view the interests not merely of the
creditors and the contributories but also the interests of the workers.
Viewed from any angle, of natural justice, of
the constitution or of the expanding theory of company law, there, appears to
be no obstacles to a Company Judge hearing the workers, when asked, after a
winding up petition is presented. I agree with the order proposed by Bhagwati,
J.
VENKATARAMIAH, J. I had the privilege of
reading the draft judgment prepared by my learned brother, Bhagwati, J.
but I regret my inability to agree with him.
Messrs Ramakrishna Industries (P) Ltd.
(hereinafter referred to as 'the Company') which is carrying on its business at
Coimbatore in the State of Tamil Nadu is a closely held private limited company
governed by the Indian Companies Act, 1956 (hereinafter referred to as 'the
Act').
The Company's paid up capital is Rs.
15,95,000 divided into 1595 equity shares of Rs. 1,000 each, the bulk of 964
which is held by the members of a Hindu family whose relationship is as
follows:
V. Rangaswami Naidu = Chinnammal (wife)
(deceased) (deceased) (7 shares) (10 shares) V. Kamalammal =R. Venkata- P.R.
Rama- = Mrs. Raje- (wife) swami Naidu Krishnan swari (164 shares) (20 shares)
(34 shares) Ramakrishnan (85 shares) V. Radha- V. Mano- V. Rajkumar krishnan
haran (148 shares) (164 shares) (146 shares) =Thulasi = Anusuya K. Prabhu R.
Baba Chandersekhar S.R.K. Prasad (160 shares) (168 shares) (161 shares) The
group of R. Venkataswami Naidu holds 642 shares and the group of P.R.
Ramakrishnan is holding 608 shares. 17 shares stand in the name of late V.
Rangaswami Naidu and his wife and 300 shares are held by V. Rangaswami Naidu
Educational Trust. R. Venkataswami Naidu and P.R. Ramakrishnan are trustees for
life of V. Rangaswami Naidu Educational Trust having control over the shares
held by the Trust. They are also treated as Life Directors. Only 5 shares stand
in the name of others. V. Kamalammal, Mrs. Rajeswari Ramakrishnan, V.
Radhakrishnan V. Manoharan, K. Prabhu and R. Baba Chandersekhar are directors
and V. Rajkumar is the Managing Director of the Company. The Company is thus
under the exclusive control and management of the members belonging to one
family. Serious differences having arisen amongst them regarding the management
of the affairs of the Company, P.R. Ramakrishnan, his wife and sons filed a
petition being Company Petition No. 30 of 1981 on the file of the High Court of
Madras on July 13, 1981 for the winding-up of the Company under section 965
433(e) and (f) of the Act on the ground that it was just and equitable to do so
in view of the alleged deadlock that had arisen in the administration of the
affairs of the Company.
The petition charged the members belonging to
the group of R. Venkataswami Naidu with acts of misconduct, waste and malversation,
a detailed reference to which is unnecessary for purposes of this case. Along
with the above petition, the petitioners therein filed Company Application No.
843 of 1981 praying for the appointment of a Provisional Liquidator and Company
Application No. 844 of 1981 for an interim order restraining the Company and
other respondents from borrowing moneys from bankers and other financial
institutions without prior permission of the Court and from otherwise
alienating the assets of the Company pending disposal of the said application.
The learned Company Judge passed an interim order on July 13, 1981 itself
restraining until further orders the eleven respondents named in the
application from borrowing any moneys from banks, financial institutions or others
without prior permission of the Court and from alienating and/or creating any
charge or encumbrance over any of the assets of the Company in its various
enterprises.
The above interim order was passed even
though on the same date application was opposed by the counsel for the
respondents therein. The case was adjourned for further consideration to August
10, 1981. On August 19, 1981, the above interim order was made absolute in the
following terms :- "In the result there will be an injunction restraining
respondents 1 to 6 from borrowing any moneys from banks, financial institutions
or others and from alienating and/or creating any charge or encumbrance over
any of the assets of the first respondent company in its various enterprises
except that the first respondent company is entitled to honour any pending
contract entered into by the company with third parties before the presentation
of the application, all its existing commitments vis-a-vis its staff and
labourers, electric charges, central excise duty, LIC premium, payments due to
employees cooperative stores, telephone bills and sales-tax dues, availing the
existing bank facilities with any of its bankers, subject to the condition that
the particulars for all these payments and the source from which such payments
were to be met, are furnished in detail to the applicants. It is again made
clear that the company is always at liberty to approach court for further
directions 966 and that the applicant's right to impugn any such transaction
under section 536(2) is left untouched".
In the meanwhile three trade unions viz. the
Coimbatore District National Textile Employees' Union, Coimbatore; the
Coimbatore District Engineering Workers' Union, Coimbatore and the National
Textile Workers' Union (INTUC), applicants in Company Application Nos. 880, 881
and 883 of 1981 respectively applied to the Court to implead them as
respondents to the winding up petition i.e. Company Petition No. 30 of 1981
alleging that their interests had been adversely affected by the interim order
which according to them had the effect of preventing the management of the
Company from paying amounts due to workers and also making payments for
securing supplies to the stores from which the workers were buying articles of
food and other provisions.
These applications were opposed by the
petitioners in the winding-up petition stating that the trade unions being
neither creditors nor shareholders had no locus standi to be impleaded as
respondents to the petition. It may be mentioned here that the Company Petition
for winding-up had not yet been advertised at that stage and Rule 34 of the
Companies (Court) Rules, 1959 was not attracted. The Company Judge dismissed
these applications filed by the trade unions for impleading them as respondents
by his order dated September 14, 1981. Against that order only the National
Textile Workers' Union (INTUC) filed an appeal before the Division Bench of the
High Court being OSA No. 148 of 1981.
That appeal was dismissed by the Division
Bench on September 30, 1981. The petition for special leave to appeal (Civil)
No. 1961 of 1981 was filed before this Court under Article 136 of the
Constitution by the National Textile Workers' Union (INTUC) on November 6,
1981. The said Special Leave Petition came up for orders before a Bench of
three Judges on November 19, 1981. On that date notices were issued to the
respondents. The High Court was permitted to pass its orders on the application
for appointment of a provisional liquidator which was pending before it but it
was ordered that in the event of a provisional liquidator being appointed, he
should not take any steps which would prejudically affect the workers. The
above order was further modified by this Court on December 1, 1981. The
petition was posted for hearing and disposal before a Bench of five Judges as
the matter involved an important question of law relating to the locus standi
of the trade unions to be impleaded as respondents to a winding-up petition and
their right to oppose or support it.
967 Petitions for Special Leave to Appeal
(Civil) Nos. 10248 and 10249 of 1981 filed respectively by the Coimbatore
District National Textile Employees' Union and the Coimbatore District
Engineering Workers' Union directly against the order of the Company Judge dated
September 19, 1981 rejecting their applications for being impleaded as parties
to the Company Petition are also heard along with the above Petition for
special leave to appeal (Civil) No. 9661 of 1981.
At the outset it should be noted that the
company law in force in India i.e. the Act, as in England, is an amalgam of
certain principles of the law of contract, of the law of persons and of the law
of partnership which require the partners of a firm to be just and faithful
towards each other. A company is an association of persons for some common
object or objects. A Company has a legal personality.
It is an artificial person as opposed to a
natural person.
It comes into existence on its registration
in accordance with law. The memorandum of association and the articles of
association of a company which are filed at the time of its registration are
considered as the constitutional documents which contain the fundamental terms
which govern it. The memorandum contains conditions some of which are basic to
its existence even though they may be alterable by following the prescribed
procedure. The articles which contain the terms relating to the internal
regulation may be altered by the members by passing appropriate resolution. The
articles are, however, subject to the terms of the memorandum. Both these
documents should, however, conform to the Act. The actions of the company are
subject to the doctrine of ultra vires whose purpose is to protect investors in
the company and to protect the interests of its creditors. The directors of a
company are its agents and they stand in a fiduciary relationship to the
company. The duties of good faith which are imposed by this fiduciary
relationship are virtually identical with those imposed on trustees. The
directors are generally expected not to place themselves in a position where
their duties towards the company conflict with their personal interests. A
company ceases to be in existence on its dissolution which follows the
winding-up proceedings which may be either by the Court or voluntary winding-up
(either members' voluntary winding-up or creditors' voluntary winding-up) or
winding up subject to supervision of the Court. There are detailed provisions
in the Act governing the different winding-up proceedings referred to above.
The principles of administrative law which concern the control of governmental
power have not much relevance to the 968 administration of the affairs of a
company, the primary purpose of administrative law being the imposition of
checks on the powers of government or its officers so that they may not either
abuse their powers or go out of their legal bounds. In particular, the
proceedings relating to winding- up by Court are subject to the orders of
higher courts in appeal and are not amenable to interference by superior courts
as in the case of actions of government or its officers. The winding-up
proceedings by Court are governed by the Act and the Rules made there under.
We have been taken through various English
text books on Company Law such as 'Palmers Company Law', 'Gore Browne on
Companies', 'Buckley on the Companies Acts' and Gower's Principles or Modern
Company Law. In none of them there is any statement to the effect that officers
and employees (who are not creditors or contributories) of a company for whose
winding-up a petition is filed would be entitled as of right to be impleaded as
parties and to contest the petition.
There is also no authority of English Courts
recognising such a right in any trade union. It is not also shown that any such
right of a trade union is recognised by the Indian law which more or less
corresponds to English law in this regard the decision of the Bombay High Court
In re. Edward Textile Ltd.(1) is a clear authority for the proposition that any
rate trade unions have no locus standi to oppose a winding-up petition.
We shall proceed to decide this case on the
assumption that the application for impleading was made in fact on behalf of
the workers and not by the trade unions.
The main argument urged in support of these
appeals is that because under section 445(3) of the Act the passing of a
winding-up order of a company by the Court amounts to a notice of discharge to
the officers and the employees of the Company, except when the business of the
company is continued, the officers and employees should be afforded an
opportunity to contest a winding-up petition after being impleaded as parties
and if possible avoid the winding-up of the company. To appreciate this
contention, it is necessary to refer to some of the provisions of the Act.
Section 433 of the Act sets out six circumstances in which a company may be
wound up by the Court. A company may be wound up by the Court on one or more of
the following grounds, namely, (a) if the company has by 969 special resolution,
resolved that the company may be wound up by the Court, (b) if default is made
in delivering the statutory report to the Registrar or in holding the statutory
meeting, (c) if the company does not commence its business within a year from
its incorporation, or suspends its business for a whole year, (d) if the number
of members is reduced, in the case of a public company, below seven, and in the
case of private company below, two, (e) if the company is unable to pay its
debts and (f) if the Court is of opinion that it is just and equitable that the
company should be wound up. Section 439 of the Act provides that an application
to the Court for the winding-up of a company shall be made by way of a petition
presented to the Court subject to the provisions of that section. A petition
for winding-up of a company may be filed by all or any of the following viz.
the company, its creditors including any contingent or prospective creditors or
by any contributory.
Such a petition can be filed by the Registrar
of Companies and in a case falling under section 243, by any person authorised
by the Central Government Sub-section (2) of section 439 of the Act treats
certain classes of persons as creditors for purposes of that section.
Sub-section (3) of section 439 treats the holder of a fully paid up share also
as a contributory even though he may not be liable to contribute any further
sum to the assets of a company in the event of its being wound up and a
contributory may file a petition for winding-up provided he is not debarred
from doing so by sub-section (4) of section 439. The Registrar can file a
petition under clauses (b), (c), (d), (e) and (f) of section 433 of the Act
subject to the conditions specified in section 439 except in cases where he is
authorised under section 439(1)(f) Sub-sections (6), (7) and (8) of section 439
of the Act refer to the other conditions governing the filing of a winding-up
petition.
When a company has passed a special
resolution resolving that the company may be wound up by the Court, the
employees and workers can have hardly any ground to object to the winding-up of
the company. The position is the same when any of the defaults mentioned in
clauses (b) and (c) of section 433 of the Act are committed by the company. The
officers and employees of the company also cannot get over the deficiency in
the required number of members of a company referred to in clause (d) of
section 433. When a company is unable to pay its debts, a creditor may move a
petition for the winding-up of the company. Such a creditor cannot be compelled
to prove his claim not merely against the company but also against the officers
and employees.
When there is a deadlock 970 in the
management of the company arising out of disputes amongst the directors or
where some directors without any justification exclude some other directors
from the management of the company, it would be unreasonable to expect the
excluded directors to fight the case both against the directors who are
responsible for their exclusion and also against the officers and employees who
are neither creditors nor contributories but who may be supporting the
contesting directors. The law on the question as to who can be heard as of
right in a winding-up proceeding is set out in paragraph 1028 in Volume 7 of
Halsbury's Laws of England (4th Edition) thus:
"....Only the petitioner, the company,
and creditors and contributories are entitled to appear on the petition; other
parties have no right to be heard, and, even if court of first instance elects
to hear them as amici curiae, they have no right of appeal." The above
passage is based on the decision of the English Court in re. Bradford
Navigation Company (1) where Sir W.M. James, L J. observed at page 601 thus:
"I am of opinion that this preliminary
objection must prevail. It appears to me that the Appellants' argument is based
upon a misconception of what a winding-up order and what a winding-up petition
is. It is a substitute for a suit for winding-up a partnership. It is a power
applicable by the Act of Parliament to corporations as well as to
unincorporated societies. Partners have a right to file a bill one against the
other, and to have the usual decree for the administration of the partnership
property, and for the settling of the partnership accounts and liabilities.
In the case of large companies, winding-up
was thought to be a more convenient course than a common partnership suit, but
in every other respect it is the same. In a common partnership suit nobody can
be made a party, or can be heard, except the partners themselves, and,
originally, a winding-up was the same thing.
Contributories were the only persons who
could be heard; but as creditors were interfered with by the operation of the
winding-up, the Act of Parliament has made a winding-up a matter both for
creditors and contributories. A creditor may present a petition for 971
winding-up, and both creditors and contributories are heard upon that; but it
is new to me to say that any person who has an interest in, or a right to or in
respect of, some of the property of the company, large or small, has right to
appear as a litigant here, because that company chooses to apply for an order
with respect to itself. In this case the company was desirous of being wound
up. I am of opinion that the winding-up order does not in the slightest degree
derogate from any right whatever which any member of the public has with
respect to this canal The winding- up will deal with such rights as the
partners in the partnership can deal with themselves. The Court will deal with
it just as the partners themselves could have dealt with it"...In the
Court below the Court might very well say to a person so situated, "I
should be glad to hear you as amicus curiae, if you have an interest, that I
may know what public grounds there are." There the Court might use its
discretion, and think it right to hear such an objection; but when it comes
before me on a Petition of Appeal from the Order, then the Appellant must show
that he fills some character in which he has a right to litigate with the
company. I am of opinion that he does not fill any such character, and that the
Petition of Appeal must be refused with costs." This decision may be of
the last century but there is hardly any justification to depart from it even
now unless compelled by the statute to do so.
That only the company, creditors and
contributories (apart from the Central Government or the Registrar when they
choose to intervene under the express provisions of law) are entitled to
participate in the winding-up proceedings is emphasised by sections 447 and 557
of the Act. They read:
"447. Effect of winding-up order-An
order for winding-up a company shall operate in favour of all the creditors and
of all the contributories of the company as if it had been made on the joint
petition of a creditor and of a contributory." "557. Meetings to
ascertain wishes of creditors or contributories.-(1) In all matters relating to
the winding-up 972 of a company, the Court may- (a) have regard to the wishes
of creditors or contributories of the company, as proved to it by any
sufficient evidence;
(b) if it thinks fit for the purpose of
ascertaining those wishes, direct meetings of the creditors or contributories
to be called, held and conducted in such manner as the Court directs; and (c)
appoint a person to act as chairman of any such meetings and to report the
result thereof to the Court.
(2) When ascertaining the wishes of
creditors, regard shall be had to the value of each creditor's debt.
(3) When ascertaining the wishes of
contributories, regard shall be had to the number of votes which may be cast by
each contributory." That a company, the Official Liquidator, the
liquidator, creditors and contributories alone can effectively participate in
and contest the winding-up proceedings is clear from some of the other
provisions of the Act governing the winding-up proceedings. Under section
450(2) of the Act before appointing a provisional liquidator, the Court has to
given notice to the company and give a reasonable opportunity to it to make its
representations, if any, unless, for special reasons to be recorded in writing,
the Court thinks fit to dispense with such notice. The Court may, under section
466 of the Act at any time after making a winding-up order, on the application
either of the Official Liquidator or of any creditor or contributory, make an
order staying the winding-up proceedings on being satisfied that there are good
reasons to pass such an order. Section 478(3) authorises any creditor or
contributory in addition to the Official Liquidator to take part in the public
examination of promoters, directors etc. held for the purpose of enquiring into
the conduct of such promotees or directors in connection with the promotion or
formation or the conduct of the business of the company. Section 517 of the Act
provides that in a voluntary winding-up, an arrangement entered into by the
company and the creditors as provided therein is binding on the creditors and
any creditor or contributory who is aggrieved by such arrangement may 973
appeal to the Court. Under section 518, the liquidator or any contributory or
any creditor may apply to the Court in a voluntary winding-up proceeding to
determine any question arising in the winding-up of a company. Under section
542 of the Act on the application of the Official Liquidator or the liquidator,
or any creditor or contributory of the company the Court may, if it thinks fit
and proper so to do, declare that any persons who were knowingly parties to the
carrying on of business of the company with intent to defraud creditors or any
other person shall be personally responsible for all or any of the debts or
liabilities as the Court may direct. The Court can exercise power to assess
damages against delinquent directors of a company which is ordered to be
wound-up under section 543 on the application of the Official Liquidator, or of
the Liquidator, or of any creditor or contributory made within the prescribed
time. In the case of a voluntary winding-up under section 546 any creditor or contributory
may apply to the Court with respect to exercise of any power by the liquidator
under section 546(1). Section 549(1) of the Act provides that at any time after
the making of an order for the winding-up of a company by or subject to the
supervision of the Court, any creditor or contributory of the company may, if
the Supreme Court, by rules prescribed so permit and in accordance with and
subject to such rules but not further or otherwise, inspect the books and
papers of the company. Any creditor or contributory may under section 556 apply
to the Court to enforce the duty of liquidator to make returns etc. These and
other provisions of the Act show that only the company, the Official
Liquidator, liquidator, creditors, contributories or the Registrar have a
statutory right to participate as of right in the winding-up proceedings as
provided in the Act. The workers or their trade unions have not been given any
such right.
The words 'every person' in Rule 34 of the
Companies (Court) Rules, 1959 (which is almost similar to the corresponding
English Rule) do not entitle a worker who is neither a shareholder nor a
contributory to support or oppose a winding-up petition under that Rule because
they refer only to a person who is otherwise entitled to do so under the Act.
We should also bear in mind that an anamolous result that may flow from the
acceptance of the case of the workers is that whereas in a winding-up by Court
they may get an opportunity to contest the petition, the voluntary winding-up
proceedings or winding-up under the supervision of the Court would go on
without any such contest although in all cases ultimately the 974 workers will
be discharged from service. A construction which leads to such a discriminatory
result should be avoided.
When once we extend the right to contest a
winding-up petition to workers either on the principle of equity or of
administrative law, on the same principle it would logically follow that all
others who may have dealings with such as commission agents, selling agents
etc. whose contracts with the company are going to be terminated by reason of
its liquidation also have to be allowed to contest the winding- up proceedings.
Such a claim is not permissible. On this question, it may be useful to refer to
the case of Ex Parte Maclure. In that case a person entered into an agreement
with an insurance company to act as their agent for five years, and to transact
no business except for the company, in consideration of which he was to receive
a fixed salary and also a commission of 10 percent, on all business transacted.
Before the five years expired the company was wound up voluntarily. It was
held, affirming the decision of Romilly M.R., that the agent was not entitled
to prove against the company for the loss of his commission during the
remainder of the term of five years. James L.J. said: "I am clearly of
opinion that the Master of the Rolls was right.....It is the case of a person
engaging a servant, and saying, 'I engage you for five years, I will pay you
500 a year for that period-that sum is secured to you-and then, in order to
give you an inducement to carry on the business effectually, properly, and
prudently, I will give you 10 per cent, commission upon the net profits to be
earned by that business. I am of opinion that this was a contract which did not
give the servant the right to determine what the extent of the business was to
be. He could not call upon the directors to issue new policies to accept new
premium, or to take new risks, if they were not minded to do it. He could not
say, 'Such a person has brought in a policy of insurance, and you must accept
that." Because if he had a right to say 'You must carry on the business'
he would also have a right to say 'You must carry on the business in the usual
and proper manner,' and that would be giving a servant the right of controlling
the master in the mode in which he chose to carry on his business. Now, I am
quite satisfied that the meaning of the contract was nothing of the kind. It
was never intended to give the servant the right of dictating as to the extent
of business, whether more or less, or nothing, but be simply took the chance of
975 the company finding it a profitable business and carrying it on. The
company had a right to reduce the business to a minimum ; and if they had a
right to reduce it to a minimum, they had a right to reduce it to nothing-as
far as he was concerned." It is because of some doubts that had been
expressed earlier about the continuance of the employment of the employees of a
company ordered to be compulsorily wound up that section 445(3) was enacted
making it clear that the passing of the order of winding-up amounts to a notice
of discharge of the employees concerned. Section 445(3) corresponds to the
termination of service brought about by the abolition of a post under a
Government or by the closure of a business, neither of which as the law stands
today requires compliance with the principles of natural justice.
It may, however, attract section 25-FFF of
the Industrial Disputes Act; 1947 in appropriate cases.
In the Act, there are specific provisions
dealing with the rights of employees of a company. Sections 417 to 420 of the
Act deal with employees' securities and provident funds and clauses (b) to (f)
of section 530(1) deal with preferential payments to be made to the employees
of a company in liquidation from out of its assets. Section 635-B of the Act
deals with the protection to which the employees are entitled during
investigation into the affairs of a company. Rule 152 of the Companies (Court)
Rules, 1959 (read with Form No. 67) relates to proof of arrears of workmen's
wages. The right to resist a winding-up petition is not one such right.
It is true that public interest which may
include within its scope interests of employees of a company has to be kept in
view by the Court as observed in Bhalchandra Dharmajee Makaji and Ors. v.
Alcock, Ashdown and Co. Ltd.
and Ors.(1) in exercising certain powers
under the Act.
Sections 388-B, 394, 396, 397 and 408 of the
Act do refer to the concept of public interest. These provisions deal with the
power of the Central Government to remove managerial personnel from office on
the recommendation of the High Court, compromises, arrangements and
reconstruction of companies and power of the Court and the Government to
prevent oppression or mismanagement of affairs of a company.
They do not, however, state that trade unions
can as of right intervene in the proceedings arising under them.
976 It is not correct to say that there is no
other remedy at all for workmen who are likely to be affected by the winding-up
order made by the Court. Section 15-A of the Industrial (Development and
Regulation) Act, 1951 (Act No. 65 of 1951) which applies to textile industry as
well confers power on the Central Government to carry out investigation into
the affairs of a company in liquidation.
It reads :
"15-A. Power to investigate into the
affairs of a company in liquidation-(1) Where a company, owning an industrial
undertaking is being wound up by or under the supervision of the High Court,
and the business of such company is not being continued, the Central Government
may, if it is of opinion that it is necessary, in the interest of the general
public and, in particular, in the interests of production, supply or
distribution of articles or class of articles relatable to the concerned
scheduled industry, to investigate into the possibility of running or
restarting the industrial undertaking, make an application to the High Court
praying for permission to make, or cause to be made, an investigation into such
possibility by such person or body of persons as that Government may appoint
for the purpose.
(2)Where an application is made by the
Central Government under sub-section (1), the High Court shall, notwithstanding
anything contained in the Companies Act, 1956 (1 of 1956) or in any other law
for the time being in force grant the permission prayed for." The
provisions of Chapters III-AA and III-AB of the Industrial (Development and
Regulation) Act, 1951 confer on the Central Government powers regarding
management or control of industrial undertakings owned by companies in liquidation
and power to provide relief to certain industrial undertakings including those
to which Chapter III-A is applicable. Chapter III-AC of that Act deals with the
power of the Central Government in respect of liquidation and reconstruction of
companies. In particular, section 18-FD(1) of that Act inter alia provides that
if, on receipt of the report submitted by the authorised person, the Central
Government is satisfied in relation to a company, owning the industrial
undertaking, which is being wound up by the High Court, that its assets and
liabilities are such that in the interests of its creditors and 977
contributories the industrial undertaking should be solid as a running concern,
as provided in section 18-FE thereof it may by order decide accordingly.
Sub-section (2) of section 18-FD of that Act states that notwithstanding
anything contained in sub-section (1) thereof the Central Government may
prepare a scheme for reconstruction of a company if it is satisfied having
regard to all relevant circumstances mentioned therein that it is proper to do
so. When such a scheme is prepared, the Central Government has to send it to
the registered trade unions, if any, of the employees concerned for their
suggestions and objections. (See section 18-FF(3)). Any scheme finally approved
would prevail notwithstanding anything contained in sections 391 to 394-A (both
inclusive) of the Act. It is open to the workers or their trade unions to move
the Central Government to take appropriate steps under the aforesaid provisions
in order to protect the interests of the workers who are likely to be affected
by the winding-up orders.
Article 43A of the Constitution clearly
states that the State shall take steps by suitable legislation or in any other
way to secure the participation of workers in the management of undertakings,
establishments or other organisation engaged in any industry. The High-powered
Expert Committee on Companies and MRTP Acts headed by Justice Rajinder Sachar
of the Delhi High Court has also made certain recommendations about provisions
to be made for workers' participation in management of companies. (Vide
paragraphs 18.127 to 18.143 of the Report). Parliament may take early steps to
implement some of the recommendations made by the said Committee. It is
significant that there is no recommendation made even in this Report about the
right of trade unions to contest winding-up petitions. If the workers are
issued shares then they would no doubt be entitled to participate in the
winding-up proceedings as contributories. This may be one way of solving the
problem by legislative means. Another way of providing a forum to the workers
representative in matters relating to the winding-up of a company is to amend
section 292 of the Act as suggested in para 11.27 and para 18.137 of the Report
of the Sachar Committee. Those paragraphs are reproduced below for ready
reference:
"11.27 The workers' representation on
company Board makes it necessary to provide that companies must ensure that
certain decisions are necessarily taken at the Board level and the Board do not
delegate 978 the powers in respect of these matters to committees or other
functionaries in the organisation, otherwise the participation of workers at
the Board level is likely to prove ineffective. The powers and functions which
cannot be delegated by the Board, and which must be within the exclusive
jurisdiction of the Board to take policy decision are in respect of the
following matters:- (a) winding-up of the company;
(b) changes in the memorandum and articles of
association;
(c) changes in the capital structure of a
company (e.g. as regards the relationship between the Board and the
shareholders a reduction or increase in the share capital; as regards the
relations between the Board and senior management, the issue of securities on a
takeover or merger);
(d) disposal of a substantial part of the
undertaking;
(e) the allocation or disposition of
resources to the extent not covered in (a) to (d) above; and (f) the
appointment, removal, control and remuneration of management, whether as
members of the Board or in their capacity as executives or employees.
The suggestion regarding (a) to (e) above is
on the same line as the present power of the Board to declare dividend. In
other words, the shareholders will not be able to exercise powers mentioned in
(a) to (e) above unless recommended by the Board. We would, therefore, suggest
that section 292 be amended to provide for the exercise of the foregoing powers
of the Board of a company which is required by law to ensure participation of
workers in management." "18.137 In order to ensure effective
participation by workers' representatives at the Board level section 292 should
be amended to provide that certain decisions are necessarily taken only at the
Board level and no delegation to Committees of the Board or to other
functionaries is made." 979 These suggestions emphasise that at present
workers have no right to contest winding-up proceedings.
It is also open to Parliament to make a law
on the lines of sections 63 to 69 of the Employment Protection Act, 1975 passed
by the Parliament in the United Kingdom to give any additional protection
necessary for workmen who are likely to be affected adversely by the winding-up
proceedings. (See Palmer's Company Law (22nd Edn. Vol. I, p. 919)). Parliament
may also consider the introduction of a provision corresponding to section 74
of the Companies Act of 1980 passed by the British Parliament. Such steps may
mitigate any hardship that may be caused to the workers as a consequence of the
winding-up of a company.
It has to be emphasised that the privilege of
making suggestions to the Court in the public interest is different from the
right to be impleaded as a party with the concomitant right to enter into
contest with the other parties and of taking an order in appeal before higher
courts. The latter right has to be conferred expressly by the statute on any
person who wishes to exercise it. Under the existing law, the workers or their
unions may make any suggestions to the Court at any stage but they cannot claim
to be impleaded as parties to the winding-up petition as of right.
The decision of this Court in Fertilizer
Corporation Kamgar Union (Regd.), Sindri and Ors. v. Union of India and Ors.(1)
does not lend any support to the case of the trade unions. In that case which
attracted the principles of administrative law the petitioner trade union
pleaded that Article 14, Article 19(1)(g) and Article 311 of the Constitution
had been violated by the sale of the plant and equipment of a factory in which
its members were working.
Ultimately the petition was dismissed by this
Court. One of the distinguishing features of that case is that the factory
involved in that case was in the public sector and owned by the Government
against which a petition under Article 32 of the Constitution was maintainable.
Chandrachud C.J. observed in the course of his judgment at pages 60-61 thus:
"Secondly, the right of Petitioners 3
and 4 and of the other workers to carry on the occupation of industrial workers
is not, in any manner affected by the impugned 980 sale. The right to pursue a
calling or to carry on an occupation is not the same thing as the right to work
in a particular post under a contract of employment. If the workers are
retrenched consequent upon and on account of the sale, it will be open to them
to pursue their rights and remedies under the Industrial laws.
But the point to be noted is that the closure
of an establishment in which a workman is for the time being employed does not
by itself infringe his fundamental right to carry on an occupation which is
guaranteed by Article 19(1)(g) of the Constitution. Supposing a law were passed
preventing a certain category of workers from accepting employment in
fertiliser factory, it would be possible to contend then that the workers have
been deprived of their right to carry on an occupation.
Even assuming that some of the workers may
eventually have to be retrenched in the instant case, it will not be possible
to say that their right to carry on an occupation has been violated. It would
be open to them, though undoubtedly it will not be easy, to find out other
avenues of employment as industrial workers.
Article 19(1)(g) confers a broad and general
right which is available to all persons to do work of any particular kind and
of their choice. It does not confer the right to hold a particular job or to
occupy a particular post of one's choice. Even under Article 311 of the
Constitution, the right to continue in service falls with the abolition of the
post in which the person is working. The workers in the instant case can no
more complain of the infringement of their fundamental right under Article
19(1)(g) than can a Government servant complain of the termination of his
employment on the abolition of his post. The choice and freedom of the workers
to work as industrial workers is not affected by the sale. The sale may at the
highest affect their locum, but it does not affect their locus, to work as
industrial workers. This is enough unto the day on Art. 19(1)(g)." On the
question of locus standi of workers to maintain the petition, the learned Chief
Justice observed at pages 65-66 thus:
"That disposes of the question as
regards the maintainability of the writ petition. But, we feel concerned to
point out that the maintainability of a writ petition which 981 is correlated
to the existence and violation of a fundamental right is not always to be
confused with the locus to bring proceedings under Article 32. These two
matters often mingle and coalesce with the result that it becomes difficult to
consider them in water-right compartments. The question whether a person has
the locus to file a proceeding depends mostly and often on whether he possesses
a legal right and that right is violated. But, in an appropriate case, it may
become necessary in the changing awareness of legal rights and social
obligations to take a broader view of the question of locus to initiate a proceeding,
be it under Article 226 or under Article 32 of the Constitution. If public
property is dissipated, it would require a strong argument to convince the
Court that representative segments of the public or at least a section of the
public which is directly interested and affected would have no right to
complain of the infraction of public duties and obligations. Public enterprises
are owned by the people and those who run them are accountable to the people.
The accountability of the public sector to the Parliament is ineffective
because the parliamentary control of public enterprises is "diffuse and
haphazard". We are not too sure if we would have refused relief to the
workers if we would have found that the sale was unjust, unfair or mala fide."
Krishna Iyer, J. in his concurring opinion observed at pages 70-71 thus:
"A pragmatic approach to social justice
compels us to interpret constitutional provisions, including those like Arts.
32 and 226, with a view to see that effective policing of the corridors of
power is carried out by the court until other ombudsman arrangements-a problem
with which Parliament has been wrestling for too long-emerges. I have dwelt at
a little length on this policy aspect and the court process because the learned
Attorney General challenged the petitioner's locus standi either qua worker or
qua citizen to question in court the wrong doings of the public sector although
he maintained that what had been done by the Corporation was both bona fide and
correct.
We certainly agree that judicial interference
with the Administration cannot be meticulous in our Montesquien 982 system of
separation of powers. The court cannot usurp or abdicate, and the parameters of
judicial review must be clearly defined and never exceeded. If the Directorate
of a Government company has acted fairly, even if it has faltered in its
wisdom, the court cannot, as a super-auditor, take the Board of Directors to
task. This function is limited to testing whether the administrative action has
been fair and free from the taint of unreasonableness and has substantially
complied with the norms of procedure set for it by rules, of public
administration." A reading of the aforesaid passages shows that the Court
was concerned in that case with operations in a public sector company and the
activities of the Government. These observations cannot have any relevance to a
case involving the affairs of a company which is governed only by express
provisions of company law and other relevant statutes.
As the law stands today, workers cannot
contend that a factory owned by and individual proprietor, on his death, should
not be divided amongst his heirs, even though they may lose their jobs. They
cannot resist a partition suit, in which one of the items of property in
respect of which relief is claimed is the factory in which they are working,
filed by a junior member of Hindu joint family against the manager contending
that the said factory is the separate property of the manager and should not,
therefore, be partitioned merely because they may be discharged from service in
the event of the suit being decreed. They cannot resist the suit for
dissolution of a firm which owns the factory in which they are working even
though at the distribution of the assets of the firm, the factory may have to
be dismantle and sold. The position cannot be different in the case of a
company which is wound up by the Court. As the law stands today, the workers in
a factory owned by a company do not have any hand in the birth of a company, in
its working during its existence and also in its death by dissolution. If the
law expressly says that a memorandum of a company should be signed by some
future employees of the company, or that there should be workers'
representatives on its board of directors or that the company should not be
wound up without consulting the wishes of the workers, then they can certainly
claim all such rights. Workers' participation in the affairs of a company or
the ushering in of an industrial democracy is quite a laudable object. That is
the reason 983 for enacting Article 43-A of the Constitution which requires the
State to take steps, by suitable legislation or in any other way, to secure the
participation of workers in the management of undertakings, establishments or
other organisations engaged in any industry. The Legislature has not taken any
concrete steps in this regard. But, can the Court step in and introduce drastic
amendments into the company law ? Surely, it cannot. Even though there is no
express statement in our constitutional law incorporating in it the doctrine of
separation of powers, in the interpretation of the Constitution this Court has
broadly adopted the said doctrine. (See Smt. Indira Nehru Gandhi v. Shri Raj
Narain (1). Even though by virtue of its power of interpretation of law the
Court in an indirect way is making law, it should be stated that there are well
recognised limitations on the power of the Court making inroads into the
legitimate domain of the Legislature. If the Legislature exceeds its power, this
Court steps in. If the Executive exceeds its power, then also this Court steps
in. If this Court exceeds its power, what can people do? Should they be driven
to seek an amendment of the law on every such occasion? The only proper
solution is the observance of restraint by this Court in its pronouncements so
that they do not go beyond its own legitimate sphere.
It is true that there are now new kinds of
weapons like consumers' protection agitations against big companies whose
activities are likely to affect the life of the community adversely. But, for
those agitations to be effective the Legislature should wake up and make
appropriate laws under which the consumers can bring action against erring
companies. In the absence of any such law, this Court cannot issue directions
to the companies on the basis of complaints from the members of the public.
There are several areas where it is necessary
for the Legislature to make law. A reading of the provisions in Part IV of the
Constitution shows that many of them are still to be implemented by the passing
of appropriate legislation.
Article 41 of the Constitution dealing with
the right to work, Article 43 dealing with living wages etc for workers,
Article 44 which insists upon the introduction of a uniform civil code for all
citizens and Article 47 dealing with the duty of the State to raise the level
of nutrition and the standard of living of the people are some of the articles
which have to be implemented either by the Legislature or by the Executive.
984 Would this Court compel the Executive by
issuing a writ to implement the policy underlying Article 41, Article 43 and
Article 47 without being backed up by necessary laws ? Would this Court enforce
a uniform civil code in respect of all citizens, without the aid of an
appropriate legislation even though the concept of equality is enshrined in the
Constitution and Article 44 specifically requires the State to endeavour to
secure for all citizens a uniform civil code ? It may not do so The only
solution for many of these social problems is to appeal to the appropriate
organs of the State to do their assigned job in the best interests of the
Community. It is wrong to think that by some strained construction of law, the
Court can find solution to all problems.
In this very case, when arguments were going
on I suggested that it may be appropriate to issue notice to the Company Law
Administration of the Union of India so that the Court could have the benefit
of the views of the Government.
It was not, however, acceded to by the
majority. The presence of the Union Government in the present case as a party
might have brought to its attention the need for initiating necessary
legislation, if it really felt that it was advisable to do so, for providing an
opportunity to workers of a company also to contest the winding-up proceedings.
It is, however, a matter for regret that no tangible steps appear to have been
taken to amend the Act even though the Sachar Committee Report which contains
many recommendations which when implemented would make the companies which are centers
of economic power accountable to the society at large and make them fall in
line with the current views on their social responsibilities, was forwarded to
the Government more than four years ago.
It may be that the employees or their trade
unions are interested in requesting the Court to dispose of the factory as
going concern so that their employment may not be affected. How are they
interested in supporting one set of directors against whom charges of waste,
misappropriation and mismanagement are made by the other set who are alleged to
have been totally excluded from management by attempts amounting to oppression
? In the instant case the trade unions concerned have filed almost a common
statement containing their grounds of objection along with their notice to
appear in the proceedings filed under Rule 34 of the Companies (Court) Rules
1959 pursuant to the advertisement issued by the 985 Court. The grounds of
objection filed by the Coimbatore District National Textile Employees' Union
are set out below in extenso :
1. That the Company Petition is not
maintainable under the Companies Act, 1956, hereinafter referred to as the
`Act'.
2. That no case has been made out by the
petitioners under section 433(f) of the Act.
3. That, on the facts and circumstances of
the case, it is not just and equitable that the company should be wound up.
4. That another remedy is available to the
petitioners and hence the Company cannot be wound up by virtue of section
443(2) of the Act.
5. That the objector craves leave to reserve
his right to amplify and elaborate the above grounds in the counter affidavit
to be filed to the company petition." It is seen from the foregoing that
the trade unions are only interested in supporting the cause of the respondents
against whom allegations are made by the petitioners in the Company Petition by
making certain general submissions, without traversing the various allegations
made in it. The respondents who are already on record and who are actually
contesting the petition are capable of looking after their interests and need
not rely upon the support of the trade unions who are neither creditors nor
contributories and who do not know the details of the internal administration
of the affairs of the Company. The petitioners in the Company Petition would be
in a more disadvantageous position if they have to face the opposition of the
trade unions also. Such a situation should not be created by extending the area
of controversy by a liberal interpretation of the provisions of law when there
are no compelling reasons to do so.
The High Court has in this case passed
necessary orders in order to protect the interests of the employees in Company
Application No. 844 of 1981 and in C.M.P. No. 11159 of 1981. The order passed
in Company Application No. 844 of 1981 is already set out above.
986 In C.M.P. No. 11159 of 1981 the High
Court has passed the following order:- "This is a petition filed by the
appellants in O.S.A. No. 128 of 1981 for permitting the first appellant/company
to raise with its Bankers viz., Bank of Baroda, Coimbatore, a temporary loan of
an amount not exceeding Rs. 5,25,000 for the purpose of paying bonus to the
workers of Jothi Mills, as per the Memorandum of settlement entered into
between the Company and its workers under section 18(1) of the Industrial
Disputes Act, 1947 on 10.10.1979 by pledging or charging the assets of the
Company...............Though in form the appellants have prayed for raising of
a loan for honouring the commitment of Rs. 5,25,000 towards bonus for the
workers of Jothi Mills by pledging or charging the assets of the company during
the argument the learned counsel for the appellants was willing to avail of the
existing facilities in the Central Bank as provided in the order Itself. Though
for availing the existing bank facilities there is no need for any specific direction
from this Court as the order appealed against itself gives such liberty, the
learned counsel for the appellants by way of abundant caution requires such an
interim direction in this petition. The learned counsel for the respondents
pointed out that availing of the existing facilities referred to in the order
of Shanmukhan, J., is a facility that was available as on 13.7.1981 we think
the learned counsel for the respondents is well-founded in this contention.
(sic) But even so if the Banks as on 13.7.1981 the petitioners are entitled to
avail the same in order to honour the commitment relating to bonus for workers.
Since the order under appeal itself permits
the petitioners to avail of the existing Bank facilities with any of its Bank
though the application in form asked for raising of the loan with the Bank of
Baroda, Coimbatore, we make it clear that it is open to the petitioners to
avail of the Bank loan facilities with the Central Bank within the limits
prescribed as on 13.7.1981. This is the only clarification that need be given
in this petition and no further orders are necessary." (emphasis added)
These orders show that the High Court has kept in its view the interests of
workers while giving directions in the case from 987 time to time and that there
is no longer any ground to complain about. According to the petitioners in the
winding- up petition the occasion for the complaint of the workers had been
cleverly engineered by the contesting respondents.
Be that as it may, as the orders of the High Court
stand today the workers can always approach it by way of a company application
for appropriate orders whenever they feel that their working conditions are
adversely affected during the pendency of the proceedings. It is not necessary
that the workers or the trade unions should be impleaded as parties to the
Company Petition enabling them to contest the winding-up petition. Their
presence on record is not necessary for complete and effectual adjudication of
the winding-up petition. The trade unions are, therefore, neither necessary nor
proper parties to the winding-up petition on the facts and in the circumstances
of this case including the element of public interest involved in any
liquidation proceeding.
Before concluding it should be stated that it
is not correct to hold that the order of the High Court `smacks of elitism' or
`sounds like a relic of feudal age' or is an `obnoxious' one. The High Court
has decided the case in accordance with the prevailing view in the country. No
case in which a different view is taken is cited before us.
Nobody disputes the proposition that law
should not be static. It should no doubt grow but it should have its legitimate
birth and in a case like this in the precincts of the Legislature. It should be
the result of the exercise of legislative judgment, particularly when a
departure from express provisions of a statute or an established practice is to
be made. Judges are not expected to know all aspects of every such matter. A
discussion involving a comprehensive view of all interests which are likely to
be effected by any decision which makes a serious departure from a well-settled
principle of law would not take place before a court where only the parties to
a case or their lawyers are heard.
Members of the public also would not know
what is happening in courts. The publicity which a proceeding in the
Legislature would receive is not given to the proceedings in Court. Even the
elected representatives of the people who are charged with the duty of making
laws may not know what is happening in a court of law. Therefore, it is always
better to leave such matters to the decision of the Legislature, instead of the
court, sometimes by a majority of one assuming power to make a new law.
It is no doubt true that the view of the High
Court is also in conformity with the view prevailing in England. That does not
mean that the High Court has surrendered its judgment to a foreign 988
practice, because that is the very view which is being followed till now in the
Indian courts. We should not forget that the very concept of company law is
foreign to our country. It originated in Great Britain and our company law
contained in successive Acts passed by the Indian Legislature is modelled on
British law and experience. There is a large body of company jurisprudence
which is common to all the Commonwealth countries. There may, however, be some
local changes but the pattern appears to be common. The practice of relying on
foreign decisions whatever may be their age only when they are in conformity
with what we wish to hold and of condemning them only on the ground that they
are ancient foreign decisions when they do not accord with our views is not
correct. A foreign decision (even though it may not be binding) is either
worthy of acceptance or not depending upon the reasons contained in it and not
on its origin or age. There is no reason why we should not follow a well
reasoned foreign decision unless it is opposed to our ethics, tradition and
jurisprudence or otherwise unsuited to Indian conditions. Can we say that the
law of habeas corpus which has found its way into India from England is bad
only because it came from a foreign country or has an ancient origin ? The
writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and
certiorari referred to in Art.
32 and Art. 226 of the Constitution of India,
the rule of promissory estoppel, the principle of audi alterum partem and many
other principles which are applied by the Indian courts are all of foreign
origin. Even the socialist principle is not entirely of Indian origin. It is
difficult to shut our eyes to realities of life.
Moreover, it is difficult even though it may
not be impossible to administer the company law as it is now in force in India
without the aid of the principles laid down by some of the leading English
cases like Salomon v. Salomon & Co.(1) laying down the principle of
corporate personality, Ashbury Railway Carriage & Iron Co. v. Riche(2)
dealing with the rule of ultra vires, Royal British Bank v. Turguand(3) laying
down the rule of `indoor management', Hedley Byrne & Co. Ltd. v. Heller
& Partners Ltd.(4) which establishes the liability for negligent
mis-statements in prospectuses, Foss v. 989 Harbottle(1) and Burland v.
Earle(2) dealing with the principle of `the fraud on a minority' and Ebrahimi
v.
Westbourne Galleries(3) dealing with the
application of the `just and equitable' principle in ordering the winding-up of
a company. A reading of the decision of this Court in Needle Industries (India)
Ltd. & Ors. v. Needle Industries Newey (India) Holding Ltd. & Ors.(4)
rendered by Chandrachud, C.J.
shows the importance of foreign decisions in
deciding case arising under the Indian Company law which out of necessity has
to keep pace with the well established principles prevailing in many other
parts of the world for sustaining international trade and commerce. Adoption of
an universal system of mercantile law and obedience to the conventions of the
International Labour Organisation constitute two important compulsions of
modern international economic life.
It may be that the workers who are likely to
be affected by the winding-up need a larger protection. That can be done only
by legislative action. This Court cannot, however, make any order which will
conflict with the existing law.
In the result the appeals fail and are
dismissed. No costs.
BAHARUL ISLAM, J. I have carefully read the
judgments prepared and orders proposed by my Brothers Bhagwati and
Venkataramiah JJ. I entirely agree with Bhagwati J. and regret my inability to
agree with Venkataramiah J. Any provision of any statute has to be interpreted
keeping in view the letter and spirit of the Constitution. Any interpretation
that is not in consonance with the letter and spirit of the Constitution is obnoxious
and unacceptable.
In the winding-up proceedings in question,
the National Textile Workers' Union filed the petition before the High Court
with a prayer to be heard before any order for winding-up was passed. The
reason was the workers' apprehension of termination of their services in case
of winding up of the Company. It is true, there is no express provision in the Companies
Act giving the workers any right to be heard in a winding up proceeding before
the Court.
There is no express bar either. Learned
counsel for Respondents Nos. 6 to 9, in support of his contention that the
workers had no right to be 990 heard in a winding up proceeding, cited
Halsbury's Laws of England, volume 7 page 614 para 1028 (4th Edition). The
learned author has stated the law on the subject thus :
"Only the petitioner, the Company and
creditors and contributories are entitled to appear on the petition ; other
parties have no right to be heard, and even if the Court at the first instance
elects to hear them as amici curiae, they have no right of appeal." This
statement of the law has been made on the authority of the judgment in Bradford
Navigation Co. rendered as early as 1870: (1970) 5 Ch. A, Page 600).
Learned counsel also cited Palmer Company
Precedents (17th Edition) Vol. 2, page 77, in which the law to the above effect
was stated. Learned counsel has submitted that the Company Law in India is the
same as in the Company Law in England. The law cited may be good law for
England with altogether a different system of economy ; but is abhorrent to
India, particularly after the Constitution (42nd Amendment) Act, 1976, by which
the "Socialist" and "Secular" concepts have been added and
incorporated into the Preamble of our Constitution. Our `Democratic Republic'
is no longer merely `Sovereign' but is also `Socialist' and `Secular'. A
Democratic Republic is not Socialist if in such a Republic the workers have no
voice at all. Our Constitution has expressly rejected the old doctrine of the
employers' right to `hire and fire'. The workers are no longer ciphers ; they
have been given pride of place in our economic system. The workers' right to be
heard in a winding-up proceeding has to be spelt out from the Preamble and
Articles 38 and 43-A of the Constitution and from the general principles of
natural justice.
AMARENDRA NATH SEN, J. I have read the
judgment of my learned brother Bhagwati, J. and also the judgment of my learned
brother Venkataramiah, J. I cannot persuade myself to agree with the judgment
of my learned brother Bhagwati, J. I agree with the judgment and order proposed
by my learned brother Venkataramiah, J. I shall indicate my reasons for the
view that I have taken.
The material facts of this case have been set
out in the judgment of my learned brother Bhagwati J. and also in the judgment
of my learned brother Venkataramiah, J. The arguments advanced 991 from the Bar
have been considered by both of them. It does not, therefore, become necessary
for me to reproduce them in this judgment.
Whether the employees of a Company in their
capacity as employees can claim as a matter of right to appear and be heard in
a petition presented to court for the winding-up of the Company, is the
question for decision in this case.
The right of an employee in his capacity as
such to be heard in a proceeding for winding-up of a company has been canvassed
as a proposition of law. The contention urged on behalf of the trade unions
representing the workers of the company is that whenever a petition is
presented to a Court for the winding up of a company, the employees of the
company have the right to appear and be heard in the said proceeding.
The principal argument advanced on behalf of
the trade unions representing the workers is that the employees of a company
are equal partners of the management of the company, if not the more important
one, and the company, in view of the socio-economic role it plays and it has to
play in the country, can no longer be considered to be the concern of the
members of the company. Further, the argument is that the employees very
materially contribute to the working of a company and help the company in
effectively playing its socio-economic role and promoting the interests not
only of the company, but also the larger interests of the nation and an order
of winding up seriously affects the interest of the employees, virtually taking
away the means of their livelihood. It has been submitted that as an order of
winding up of the company affects so seriously the interests of the employees,
the employees must have a say and must be heard in a proceeding for winding up
before the Court.
I have earlier observed that the arguments
advanced from the Bar on behalf of the trade unions have been noted at length
by my learned brothers Bhagwati and Venkataramiah, JJ. The arguments no doubt
express noble sentiments which I share ; but, in my opinion, the arguments fail
to establish that the employees have a right to appear and be heard in a
petition presented to a Court for the winding up of a company. If the right is
to be conceded to employees on these grounds it must logically follow that
every employee of a company, whether he is a worker within the meaning of the Industrial
Disputes Act or he is a member of the management 992 staff, must enjoy the same
right to appear and be heard in every such proceeding for the winding up of the
company. An order for winding up affects all the employees of a company,
whether they are workers belonging to any trade union or not or whether they
are officers of the company, high or low, not being members of any union or
association. Further if the right to participate in a winding up proceeding is
to be judged from the view point of the interest of any party who may be
prejudicially affected as a result of an order of winding up being made,
various other parties who have trade relations with the company must
necessarily be held to have the same right to be heard in a winding up
proceeding. It is common knowledge that various persons, apart from the
employees of the company, also depend for their survival on the supplies of
various materials, ingredients and components to the company and with the
liquidation of a company, all such persons who are making their living out of
their dealings with the company have to go without occupation and have to face
disaster. Persons having existing contracts with the company are also seriously
prejudiced when an order of winding up of the company is made.
If the test of injury and adversely affecting
the interests are considered to be sufficient to entitle a party to a hearing
in a proceeding on the footing that they are persons aggrieved, no suit for
dissolution of a partnership can also be decided without impleading the
employees of the firm and various other parties having trade relations with the
firm, as the dissolution of a firm may prejudicially affect the interests of
the employees or the various other persons dealing with the firm.
It has to be borne in mind that a company can
only be wound up in accordance with the provisions of the Indian Companies Act.
The right to have a company wound up is a right created by the Statute. The
entire proceeding in relation to the winding up of a company is regulated by
the statute, namely, the Indian Companies Act (hereinafter referred to as the
Act) and the procedure to be followed is further supplemented by the provisions
contained in the rules made under the Act known as the Companies (Court) Rules,
1959 (hereinafter referred to as the Rules).
The various modes of winding up of the
company, under what circumstances a company may be wound up by Court and who are
the persons competent to present a petition to Court for the winding up of the
company and who are the persons entitled to 993 be heard on such a petition,
are provided for in the Act and in the Rules.
It has to be borne in mind that apart from
the right of the Court to order the winding up of a company in an appropriate
case, the Act recognises that a company may go into liquidation without any
intervention by the Court and also under the supervision of Court, provided the
necessary conditions laid down in the Act in this regard are complied with.
Where the Company goes into liquidation without reference to court or under the
supervision of the Court, the employees of the company who have to meet the
same fate of losing their employment, as and when the company is wound up by
the Court, do not and cannot have any voice or say in the procedure to be
adopted for the liquidation of the company.
In the case of winding up of any company by
Court, the parties who can move the Court for winding up of the company are
specifically mentioned in the Act and only such persons are competent to
present the winding up petition. The procedure to be followed on such a
petition for winding up of the company being presented to court and the parties
who are entitled to be heard on the petition are dealt with and provided for in
the Act and the Rules. The right of appearance and of being heard in a winding
up proceeding has been conferred on persons whom the Legislature considered to
be necessary or proper parties for effective adjudication of the proceeding
before the Court. The Act provides that a creditor to whom a company is
indebted in a sum exceeding Rs. 500 and whose debt has not been paid by the
company notwithstanding the statutory notice being served on the company is
entitled to present a petition for the winding up of the company and in such a
case, the creditor whose debt cannot be properly disputed, is entitled to an
order of winding up on the ground of insolvency of the company. If a company is
commercially insolvent and is unable to pay its debts, the company has
necessarily to be wound up and the employees of the company can have hardly
anything to say in such a case for assisting the Court in deciding the matter.
My learned brother Venkataramiah, J. has
referred to the various provisions of the Act and also to relevant Rules, which
go to indicate that no such right of the employees to appear and participate in
a winding up proceeding is recognised. Rule 34 of the Rules on which strong
reliance was placed by the learned counsel 994 appearing on behalf of the trade
unions, is not of any assistance. The said Rule reads as follows:- "Every
person, who intends to appear at the hearing of a petition, whether to support
or oppose the petition, shall serve on the petitioner or his advocate, notice
of his intention at the address given in the advertisement. The notice shall
contain the address of such person, and be signed by him or his advocate, and
same as otherwise provided by these rules shall be served (or if sent by post,
shall be posted in such time as to reach the addressee) not later than two days
previous to the day of hearing, and in the case of a petition for winding up
not later than five days previous to the day of hearing. Such notice shall be
in Form No. 9, with such variations as the circumstances may require, and where
such person intends to oppose the petition, the grounds of his opposition or a
copy of his affidavit if any, shall be furnished along with the notice. Any
person who has failed to comply with this rule shall not except with the leave
of the Judge, be allowed to appear at the hearing of the petition." This
particular Rule appears in Part I and in Part I of the Rules, general
provisions are made. This Rule only lays down the procedure to be followed by
any person who intends to be heard at the hearing of a petition, whether to
support or oppose the petition, and this Rule does not deal with the competence
or right of any particular person to appear at the hearing of any petition nor
does this rule create any right in any person. Part III of the Rules makes
specific provisions with regard to winding up by Court. Rule 9B in Part III
reads:- "Every contributory or creditor of the company shall be entitled
to be furnished by the petitioner or by his advocate with a copy of the
petition within 24 hours of his requiring the same on payment of the prescribed
charges." For properly and effectively adjudicating upon any winding- up
petition, the parties must necessarily know the grounds contained in the petition
on which the Court has been moved for the winding-up of the company to make
representation with regard to the same. Rule 9B requires that copies of the
petition in terms of the said rules are to be furnished to every contributory
or creditor of the company and the said rule makes no mention of the employees
of 995 the company. I agree with my brother Venkataramiah, J. that on a proper
consideration of the relevant provisions of the Act and also of the Rules, an
employee of a company in his capacity as such does not have any right to appear
and be heard in a petition presented to Court for the winding-up of the
company. It will be noticed on an analysis of the provisions of the Act that
from the stage of the formation of the company till the very last stage of its
dissolution, company jurisprudence does not recognise any right of an employee
in his capacity as an employee of the company in the matter of formation of the
company, its functioning and its ultimate winding-up.
The Act, however, makes necessary provisions
as to deposit of employees' security monies with a Scheduled Bank in S. 417 of
the Act. The Act also makes suitable provision in Section 418 about Provident
Funds of Employees. Necessary provisions for preferential payment of wages or
salary of an employee in case of winding-up of a company have been made in
Section 530 of the Act. For safeguarding what the Legislature considers to be
public interest, the Legislature in various sections of the Act has made
suitable provisions casting various obligations on the company with penal
consequences and has conferred powers on the Government.
The introduction of Art. 43A in the
Constitution which reads-"The State shall take steps, by suitable
legislation or in any other way, to secure the participation of workers in the
management of undertakings, establishments or other organisations engaged in
any industry"-does not affect the position in any way. Participation in
the management of a company does not by itself create any right in any such person
to appear and be heard in a winding-up petition.
Unless otherwise named personally as a party
to a winding-up petition, no person merely on the ground that he happens to be
in the management of the company is entitled as a matter of right to appear and
be heard in a winding-up proceeding.
Persons in management of the company may, if
they are so authorised, appear and participate in a winding up proceeding on
behalf of the company and representing the company. They will, however, be
entitled to appear if they are members or creditors of the company in such
capacities, but not as members of the management. A director of a company must
of necessity be a member of the company, as provided in the Act.
996 It is worth mentioning that the Indian Companies
Act is based on the English Companies Act and both the Acts contain more or
less similar provisions. The provisions of the Indian Companies Act with regard
to the winding-up of the Company are almost alike to the provisions contained
in the English Companies Act. As early as 1870 the English Court in Re:
Bradford Navigation Co.(1) held on a consideration of the provision of the
English Act that no person had a right to be heard against a petition for
winding-up of a company except creditors and contributories. It is no doubt
true that this decision, still holds good and is considered to be good law, as
will be evident from the comments in authoritative text books on the subject.
In Halsbury's Laws of England (4th Edn.), Vol. VII at p. 614, it has been laid
down-"Only the petitioners, the company, and creditors and contributories
are entitled to appear on the petition; other parties have no right to be
heard, and, even if the Court of first instance elects to hear them as amici
curiea, they have no right of appeal." In Palmer's Company Precedents (7th
Edn), Part II, the following observations appear at p. 77:- "Any creditor
or shareholder may appear to support or oppose the petition. But no one else
can do so, even if he has an indirect interest in the continued existence of
the company." On the basis of the decision in Re: Bradford Navigation Co. (supra),
the following comments have been made at p. 546 in Buckley on the Companies Act,
14th Edn. Vol. I :- "The only persons entitled to be heard are the
company, the creditors and contributories. The Court may, in its discretion
hear other persons who have an interest in order to learn what public grounds
there are in favour of, or in opposition to, the winding up but such persons
can be heard only as amici curiae, and cannot appeal." Various
legislations for the benefit and welfare of the employees have since been
passed in England and the Company Act in England also did undergo various
changes from time to time. The employees of a company in England are affected
in the same way as the employees of a company in India when an 997 order for
winding up of the company is made. It cannot be said that workers in England
are not conscious of their status and position and of the important role they
play in the proper functioning of a company and in England there are also the
trade unions of the workers for defending, protecting and improving the
conditions and rights of the workers. Despite all these, the right of an
employee or any trade union representing the workers to participate and be
heard in a winding-up petition is not recognised in England.
I have to observe that Mr. Ramamurthi,
learned counsel appearing for one of the trade unions, has placed very strong
reliance on the following observations of this Court in the case of Hind
Overseas Private Limited v. Raghunath Prasad Jhunjhunwala and Ors.(1):-
"Although the Indian Companies Act is modelled on the English Companies
Act, the Indian Law is developing on its own lines. Our law is also making
significant progress of its own as and when necessary. Where the words used in
both the Acts are identical, the English decisions may throw good light and
reasons may be persuasive. But as the Privy Council observed long ago in
Ramanandi Kuer v. Kalawati Kuer(2).
It has often been pointed out by this Board
that where there is a positive enactment of the Indian Legislature, the proper
course is to examine the language of that statute and to ascertain its proper
meaning uninfluenced by any consideration derived from the previous state of
the law or of the English Law upon which it may have been founded.
If it was true in the twenties it is more
apposite now that the background conditions and circumstances of the Indian
society, the needs and requirements of our country call for a somewhat
different treatment. We will have to adjust and adapt, limit or extend, the
principles derived 998 from English decisions, entitled as they are to great
respect, suiting the conditions of our society and the country in general
always, however, with one primary consideration in view that the general
interests of the shareholders may not be readily sacrificed at the altar of
squabbles of directors of powerful groups for power to manage the
company." These observations, to my mind, are of no assistance in deciding
the question involved in this appeal. These observations were made in different
context. These observations, however, indicate that where the provisions of the
Indian Act and the English Act are alike, the decisions of the English Courts
throw good light and the reasons may be persuasive, it is no doubt true that
the decisions of the English Courts do not have a binding effect and the proper
course for this Court while considering or interpreting an enactment of the
Indian Legislature is to examine the language of the Statute to ascertain its
proper meaning unifluenced by any consideration derived from the provisions of
the English Law upon which it may have been founded.
Principles of construction of a statute are
well settled.
It is significant to note that no decision of
any Court in India could be cited where the claim of an employee in his
capacity as an employee to participate and be heard in a petition for winding
up of the company as a matter of right has been accepted. On the other hand,
the settled legal position in this country so far has been that no employee
could claim any such right. It is interesting to note that though in this
country also the provisions of the Companies Act have undergone various changes
from time to time and various enactments for the welfare of the workers have
been passed from time to time, the Legislature in our country did not consider
it proper or necessary to amend the provisions of the Indian Companies Act to
confer any such right on the workers.
I, however, wish to make it clear that
although an employee of a company as an employee of a company cannot claim to
appear and be heard in a petition for winding-up of the company as a matter of
right, yet in any appropriate case the Court in a winding-up proceeding may
require or permit any employee to appear at any stage of a winding-up proceeding
and hear him, if the Court be of the opinion that the employee or the employees
should be heard in 999 the interests of administration of justice and for
proper disposal of any matter. It appears that in this very case, the Court at
an earlier stage of the proceeding had, in fact, heard the employees and
redressed their just grievance.
With these observations I agree with the
order proposed by my learned brother Venkataramiah, J.
H.L.C. Appeals allowed.
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