Bombay High Court
Bombay Metropolitan Transport ... vs Employees Of B.M.T.C. (Cidco) on 10 April, 1987
Equivalent citations: (1988)ILLJ281BOM
Author: S.N. Variava
Bench: S.N. Variava
JUDGMENT
1. This petition for winding-up is by the Company itself on the grounds set out in Section 433(a), (e) and (f) of the Companies Act, i.e. on the footing that a special resolution to that effect has been passed and also on the ground that the Company is not able to carry on any business or any of its objects and that it was unable to pay its debts and that on the facts and circumstances it is just and equitable that the Company be would-up by this Court.
2. This petition has been opposed by the Maharashtra General Kamgar Union (hereinafter referred to as 'the Union') and by one Pandurang Hari Mhatre who represents 1700 workers, some of whom admittedly are members of the Maharashtra General Kamgar Union.
3. It is necessary to set out the history relating to the incorporation of this Company and the facts leading up to this petition.
4. The Government of Maharashtra with the avowed object of relieving the congestion in the City of Bombay and developing its suburbs and out-skirts, established a Company by the name of City and Industrial Development Corporation of Maharashtra Limited (hereinafter referred to as 'CIDCO'). Mr. Ganguli relying upon certain observations made by a Division Bench of our High Court in the case of Hasuram G. Gharat v. General Manager, Bombay Metropolitan Transport Corporation Ltd. 1987 (54) F.L.R. 343 submits that CIDCO is established under the provisions of Section 113 of the Maharashtra Regional and Town Planning Act, 1966 (hereinafter referred to as 'Town Planning Act'). Mr. Dwarkadas and Miss Sikander neither of whom appears for CIDCO and who, as pointed out hereinafter, claim to be independent of CIDCO, vehemently dispute this statement and Mr. Dwarkadas on taking instructions from his clients informs the Court that CIDCO has filed a Special Leave Petition against this judgment and a stay had been obtained and therefore, these observations could not be relied upon. The fact is that CIDCO's entire shareholding belongs only to the Government of Maharashtra. The Government of Maharashtra for and on behalf of CIDCO, had acquired vast areas of land from agriculturists rendering them unemployed. At that time they had launched a rehabilitation programme for these affected persons and had in literatures distributed by them, held out as follows :
"How CIDCO plans to rehabilitate project-affected person : True rehabilitation is as complex as it is a delicate matter, involving not just deft social moves, but careful economic measures. And this is exactly how CIDCO has considered the situation of displaced project-affected persons. The solution to displacement lies in providing better means of livelihood and paving the way for assimilation of project-affected persons into the new urban matrix, with improved standard of living"
In pursuance of these representation, a large number of these employed by CIDCO in its services. One of the services which CIDCO was providing was transport services. This transport service was being rendered by CIDCO, as part of its development programme for New Bombay. On 15th November 1979, CIDCO incorporated a separate Company knows as 'CIDCO Transport Corporation Limited' and on or about 1st April 1980, the name of the said 'CIDCO Transport Corporation Limited' was chaned to the present name, namely, Bombay Metropolitan Transport Corporation Limited. At the time when the 'CIDCO Transport Corporation Limited' was incorporated, CIDCO transferred all its assets pertaining to the transport service including buses to the said CIDCO Transport Corporation Limited and also transferred all its employees in its transport service to the newly established Company along with the benefits of continuity in service which these employees would otherwise have enjoyed and many of the workmen who are today opposing this petition are persons and/or family members of those persons whose lands had originally been acquired by the Government of Maharashtra for CIDCO and who had been taken in employment of CIDCO pursuant to the representation made and whose service were transferred from CIDCO to the petitioner Company. All these facts have been averred in the affidavit and there has been no denial of these facts.
5. The petitioner Company after its incorporation ran the transport services per its objects. Admittedly it operated 23 routes in New Bombay. The financial position of the earlier years is not available, but as set out in the petition, the business of the petitioner Company ran continuously at loss atleast from the year 1980-81 and onwards. The figures are as follows :
Years Net losses
1980-81 Rs. 57,22,858/-
1981-82 Rs. 82,31,719/-
1982-83 Rs. 1,21,88,336/-
1983-84 Rs. 1,67,43,693/-
The reasons for losses as given by the Board of Directors in its report to the share-holders for the year ended 31st March 1982 inter alia were :
(a) To give impetus to the Vashi Township and to encourage traders to come and occupy agriculture produce market, highly subsidised routes had been introduced between Mankhurd and Vashi, Mankhurd and Agriculture Produce Market.
(b) The petitioners were compelled to introduce new routes between Dadar and Konkan Bhavan, Bandra and Konkan Bhavan at the instance of the Government to facilitate Government servants to attend office at Konkan Bhavan.
(c) The petitioners had issued concessional passes to the students as a social welfare measure.
There after for the year ending 31st March 1983, the Board of Directors in its reports to the share-holders, over and above the grounds, given above, gave three further grounds, namely :
(i) The fact that the petitioner are still in its infancy having commenced the business only from 1st April 1980.
(ii) The go-slow of the employees.
(iii) No hike in the fares charged to the passengers.
Thus even as per the Directors' report; the Company was running at a loss, because it was providing a public utility service and trying to give impetus to the people to move to the New Township and/or was being compelled by the Government to introduce new and uneconomical routes merely to facilitate Government servants to attend Government offices at Konkan Bhavan and also because it was issuing concessional passes and could not increase the fares charged to the passengers. In fact, the Government of Maharashtra by its Notification No. IDA - 1483/2823 Lab 2 dated : 19th November 1983 had declared the petitioner's establishment as a 'Public Utility Service'.
6. This was the state of affairs till February 1984. It is at this stage that the real reasons leading up to this petition arise. It would seem that the petitioner Company had been having some labour problems from the year 1982 onwards. However, those problems were not of such a nature as prevented the petitioner from running or carrying on its business upto February 1984. In February 1984, the workers commenced an indefinite strike in order to press the demands which had been raised earlier.
7. The then Chief Minister decided in a meeting held on 24th February 1984 that the petitioner Corporation should close down. A notice declaring a lock-out was issued on 3rd March 1984 and on 27th March 1984 the petitioners applied under Section 25-0 of the Industrial Disputes Act seeking permission of the State Government to close down the undertaking. The grounds on which the said application was made were :
1. Continued illegal strikes.
2. Their effect on the general public and the adverse opinion of the public.
3. Threats given out to the officers.
4. Disregard of the orders of the Court.
5. Inter-union rivalry.
6. The uneconomic working in the undertaking.
By an order dated 24th May 1984, the Hon'ble Minister who heard the matter on behalf of the State Government granted permission to the petitioners to close down. Against this order, the Union and workmen filed appeals. By its judgment and order dated 21st November 1984, the Appellate Industrial Tribunal, after trial and evidence, allowed the said appeals and set aside the order dated 30th May 1984 and rejected the application under Section 25-0. It may be mentioned that before the Appellate Industrial Tribunal, the employees had given undertakings that they would observe discipline and maintain harmonious relationship with the management. Against this rejection, the petitioners filed a Writ Petition in this Court being Writ Petition No. 5070 of 1984. The said Writ Petition was dismissed by a Division Bench of this Court on 11th January 1985. Even before the High Court all the Unions in the field gave undertakings to the Court not to indulge in Violence and not to resort to illegal strikes and to observe discipline and maintain harmonious relationship with the management. Whilst dismissing the Writ Petition, the learned Judges, inter alia, came to the conclusion that the petitioners were an undertaking which could safely be termed as an agent of the State engaged in a public transport service and ultimately held as follows :
"So far as the economic condition of the Undertaking is concerned, the learned Appellate Authority has rightly not accepted the case of the petitioners even on merits. In our view, in a welfare State in the case of an agency of State qua a public undertaking which is engaged in a public utility service, a very strong case will have to be made out before a permission for closure is asked for or granted. In the present case the CIDCO has started the undertaking as a part and parcel of its rehabilitation scheme. We are informed that no other transport facility is available so far as the villages catered by the petitioner Undertaking are concerned. If this is so then obviously the closure of such an Undertaking is bound to result in hardship to the general public. Therefore taking any view of the matter, in our view, the appellate authority was wholly justified in allowing the appeal and rejecting the application for permission to close down the petitioners' Undertaking ......"
8. The petitioners thereafter on 30th January 1985 again applied to the State Government under the provisions of Section 25-0 of the Industrial Disputes Act, for closure of its Undertaking being its factory at Thurbe, inter alia, on the following grounds :
"Such prolonged spell of inactivity spanning a period of about twelve months has crippled irreparably the financial capacity of the applicant Corporation. A copy of its balance sheet for the period ended 31st March 1984 duly audited by the Chartered Accountants is annexed as Exhibit to disclose the liabilities of the applicant Corporation exceeding its assets in a forbidding sum of Rs. 4,37,41,951/- with result that its share capital stands wiped out wholly and its borrowing power has ebbed out irretrieveably. The applicant Corporation has no asset except the fleet of omnibuses and its liquidity stands at its lowest point being Rs. 2000/- in the current account with the bank. The applicant Corporation is bogged down in a financial crisis with no hope of salvage and is inevitably left with no option but to close down its said Undertaking. The financial adversity of the Corporation is of such magnitude as would ordinarily warrant its winding up or liquidation by the Court but for the concern of the Corporation to avoid further damage to deterioration of its solitary asset being the fleet of omnibuses and to dispose of such asset, to realise an adequate sum necessary to pay whatever is due to its workmen by way of gratuity, retrenchment compensation and outstanding wages, if any. It is this consideration which has filed the preference of the applicant Corporation towards closure as prayed rather than liquidation as done ordinarily."
9. After hearing the petitioners and the workers, the Hon'ble Minister for Cooperation, Labour and Legislative Affairs, State of Maharashtra by his order dated 29th March 1985 rejected the application and inter alia held as under :
"The reason given by the Corporation for the closure of the factory/workshop is a financial incapacity of the Corporation. From the observations of the Appellate Authority and the High Court mentioned above, it will be clear that in respect of a concern like this it cannot be sufficient ground for closure and I uphold the same since in my opinion, the very reason existed earlier too"
10. The petitioners by an application dated 2nd May 1985 applied for review, which application was pending on the date this petition was filed. However, Miss Sikander, appearing for the Government of Maharashtra, has made a statement that in view of the fact that under Section 25-0, the petitioners are entitled to apply afresh after one year from the date of the order dated 29th March 1985, the Government has decided that no orders will be passed on the Review Application. Thus in effect the second application of the petitioners also stands rejected.
11. On 14th May 1985 at a meeting of the Board of Directors of the petitioner Company (at which meeting only three out of the seven Directors were present) a resolution calling an extra-ordinary general meeting was passed. It is pertinent to note that a copy of the resolution was sent to the State Government.
12. Notices calling the meeting were sent on 24th May 1985 and an extra-ordinary general meeting was held on 28th May 1985 (within four days) at which a resolution as required under Section 433(a) of the Companies Act was passed.
13. The petitioners thereafter in or about September 1985 transferred 50 buses belonging to the petitioners to the Maharashtra State Road Transport Corporation (hereinafter referred to as "MSRTC"). The case of the petitioners is that as the said Corporation was the only establishment holding permit to ply buses for general public in New Bombay area and as petitioners' buses were deteriorating and lying unattended, an offer was made to "MSRTC" to purchase these buses and a certain arrangement was arrived at. Whilst the 50 buses have been handed over to "MSRTC" no amounts have been received as such by the petitioners. According to the petitioners, this offer was made as "MSRTC" are the only body apart from petitioners, entitled to ply buses for general public in New Bombay area.
14. The Union on 30th September 1985 filed an application under Section 28. M.R.T.U. and P.U.L.P. Act 1972 and an ad-interim order to lift the lockout was passed. This was vacated on 18th February 1986 on the statement from the petitioners that a resolution under Section 433(a) of the Companies Act had been passed. On or about 26th December 1985, the Union had also filed a complaint under Section 48, MRTU and PULP Act 1971 for action against the petitioner Company and its Directors. A summons was issued by the Second Labour Court, Thane on 19th February 1986. The petitioners on 28th April 1986 filed a Writ Petition in this Court being Writ Petition No. 471 of 1986 to have the said criminal proceedings quashed. The said Writ Petition is pending.
15. In the meantime on 14th March 1986 this petition was filed. In the petition the petitioners have stated that as its business operations came to a stand-still in or about February 1984, the Company has no liquid funds whatsoever. The petitioners have thereafter set out the losses for the earlier years as indicated hereinabove and stated that on 31st March 1984 the accumulated loss was Rs. 4,37,41,951/-.
It has also been averred that :
"....... the Company has no capacity or ability to borrow monies from any financial institution, bank or otherwise and its financial credibility and borrowing capacity is crippled irretrievably"
It is also averred that :
"The Company submits that upon the rejection of the said Writ Petition by this Hon'ble Court as aforesaid, its Board of Directors reviewed the entire position in detail for the purpose of reviewing, if possible, the Undertaking of the Company in deference to the orders of the Hon'ble Industrial Court and this Hon'ble Court, but the Board of Directors found that it would among other things need a sum of at least Rupees one crore immediately to restart its business operations which the Board considered as beyond the Company's capacity and ability ...."
The petitioners have craved leave to refer to and rely upon balancesheets and profit and loss accounts for the years ending 31st March 1984 and 31st March 1985 and finally averred that :
"......... its liabilities far exceeded its assets."
16. As many of the above averments were without any particulars and as the present condition of the buses or the exact amount required to put them in a running condition was not known the petitioners were asked to file an affidavit clarifying the position. Two affidavits dated 9th February 1987 and 19th February 1987 were thereafter filed by the petitioners.
17. Mr. Dwarkadas has submitted that (a) the petitioner Company is a distinct legal personality and therefore it was the financial position of the petitioner Company only that was to be taken into account, (b) the petitioner Company's financial position as disclosed to this Court on affidavits is not disputed at all, (c) the balance-sheets clearly show that the entire substratum of the Company has been wiped out, (d) the Company is absolutely and commercially insolvent and is not in a position to pay its debts or to carry on or run its business or to fulfill its objects, (e) that notwithstanding the fact that the earlier applications under Section 25-0 of the Industrial Disputes Act, inter alia, on the ground of financial difficulty, have been rejected this petition is not barred on the principles of res judicata or principles analogous thereto, (f) that the petitioner Company was running a public utility service is not a factor which must be taken into account by the Court whilst considering this petition, (g) the Companies Act related to and dealt with incorporation, regulation and winding-up of companies, whereas the Industrial Disputes Act dealt with investigation and settlement of industrial disputes and the Companies Act was therefore a self-contained Code not subject to the provisions of any other Act or law, (h) the provisions of Part VII of the Companies Act applied even to a Government Company as defined under the provisions of Section 617 of the Companies Act, (i) once grounds as set out in Section 433(a) to (c) of the Companies Act are made out, the Court had no discretion and was bound to order winding-up and that the discretion not to wind-up a Company was only in cases falling under Section 333(f) of the Companies Act, and (j) the fact that order would result in unemployment or affect interest of the public would be no ground for refusing relief to the petitioners and lastly that it was not open to this Court to go behind the Corporate Veil and/or to compel a holding company and/or the State to run an economically enviable unit.
18 Miss Sikander initially stated that the Government of Maharashtra was submitting to the orders of the Court and was neither supporting nor opposing the petition. However, for reasons not difficult to guess, Miss Sikander has thereafter argued that even though the petitioners and/or CIDCO were Government Companies under Section 617 of the Companies Act, they were separate legal entities and not subject to the control of the Government. Miss Sikander relied upon two authorities of the Supreme Court in this behalf, namely, the case of Praga Tools Corporation v. C. V. Imanual (1969-II-LLJ-749) and the case of H.E.M. Union v. State of Bihar (1969-II-LLJ-549) 19 It must be mentioned at this stage that even though he had initially argued to the contrary, Mr. Dwarkadas on being shown the observations of the Division Bench referred to hereinabove conceded that it was not open to the petitioners to argue that they were not the instrumentality or the agency of the State Government.
20 Mr. Ganguli and Mr. Khankar on the other hand have submitted that (a) the petition is filed with the mala fide intention of achieving by an indirect method what the petitioners could not achieve otherwise, i.e., a closure : (b) that on principles of res judicata or principles analogous thereto it was not open to the petitioners to urge the ground of financial and commercial insolvency as this aspect has already been considered and decided upon by the Industrial Court and the Division Bench of our High Court; (c) that the losses for all these years were due to causes extraneous to business considerations; (d) that no material or facts had been placed before the Court to show why the business could not be restarted and/or that even in spite of best efforts it would not be possible to run the business except at a loss; (e) that the substratum of the Company had not vanished and it was denied that the Company was unable to pay its debts; (f) denied that the Company had no capacity or ability to borrow moneys and/or that its financial credibility and borrowing capacity was crippled irretrievably; and (g) that the petitioners were nothing else but an instrumentality of or agency of the State carrying on functions which would otherwise have to be carried on by the State and lastly that the Corporate Veil should be lifted and that the Company should be identified with the Government of Maharashtra engaged in a commercial activity which was one of the functions of the State.
21. In my view, Mr. Dwarkadas is right in submitting that the considerations which are to be taken into account for the purposes of considering a winding-up petition are different from considerations under Section 25-0 of the Industrial Disputes Act and that, therefore, the petition would not be barred on the principles of res judicata and/or principles analogous thereto. However, to the extent that certain factual aspects have been agitated, considered and decided, the same cannot be permitted to be reagitated. Two factual aspects which have been finally decided are that the petitioners are an instrumentality or agency of the State and that, as such, the ground of financial inability or commercial insolvency is not available to them.
22. The petitioners in order to succeed, would have to show that the petition is not filed with mala fide or improper motives and/or that it is not a gross abuse of process of Court and that any one of the requirements of Section 433 is satisfied. It is well settled that merely because there have been trading losses, that by itself does not mean that the substratum of the Company is destroyed. The petitioners would have to show that there is no reasonable prospect of their ever making a profit in the future and that they have no prospect of raising finances or carrying on business.
23. On these principles and in the light of the rival contentions, the grounds given in the petition now need to be considered.
24. The first ground is that a resolution as required under Section 433(a) of the Companies Act has been passed and therefore, the Company was entitled to a winding-up order. In any view, the facts as set out hereinabove make it abundantly clear that pursuant to the decision of the then Chief Minister, all attempts have been made merely to implement that decision and close down petitioner Company. Towards that end applications under Section 25-0 of the Industrial Disputes Act were made, workers served with notices of termination, writ petitions filed and when all those attempts fail, the resolution is got passed by shareholders who are all nominees of CIDCO and/or the Government of Maharashtra. There can be no doubt that by the resolution and by this petition, closure which has been refused twice, is now sought to be achieved. The whole intention therefore is mala fide and intended to terminate the services of the workmen by-passing the provisions of Industrial Disputes Act. It is all the more malafide when one notes that it is in complete disregard to public interest and also in violation of the solemn assurances given at the time when vast areas of land were being acquired.
25. As regards the ground of commercial insolvency, as indicated earlier, closure on the ground of financial incapacity has been refused. However, Mr. Dwarkadas is right in contending that in the applications under Section 25-0 the financial capacity of the Company was viewed in the light of it being a public utility service, whereas for the purpose of winding-up the financial position of the Company itself has to be examined. I do not, however, agree with Mr. Dwarkadas that the Company Court must ignore the fact that the petitioners are carrying on a public utility service. As set out hereinafter public interest is a factor which must be taken into account by this Court.
26. Whilst examining the financial position of the petitioners one finds that the entire paid up capital of Rs. 10 lakhs is wholly owned by CIDCO whose share capital is held wholly by the Government of Maharashtra and its nominees. The Directors of the Company are nominees of CIDCO and employees of CIDCO or the Government of Maharashtra. The Company was carrying on business of public transport which business can only be carried on by the Government or Government Companies and/or Corporations and which would be a function of the Government in a welfare society. The Company, at the time it was carrying on business, was in fact enjoying a monopoly status which was Stated conferred and/or State protected. It may be noted that even today except for the "MSRTC" and "BEST" there is no other organisation or Company which is permitted to and/or runs any public transport service in this region. It is also pertinent to note that while the petitioners ran 28 routes, "MSRTC" and "BEST" run only two routes each. The village panchayats of a number of villages in Thane and Raigad Districts have passed resolutions demanding the restaring of bus services by the petitioner Company. Thus the vague statement in the petition that the transport service rendered by "MSRTC" and "BEST" are acclaimed as adequate by the public is falsified completely. Major decisions such as the routes to be run, the fares to be charged, were State controlled. This control is all the more clear when one notices that even copies of resolutions of Board of Directors are sent to State Government and finally the Company was undoubtedly carrying on a function of great public importance.
27. On its incorporation all the assets and employees of CIDCO in the transport section were transferred to the petitioners' predecessors. Up to the date of the passing of the Resolution the petitioners enjoyed rentfree accommodation and space in premises belonging to CIDCO. The main source of income of the petitioner Company has been loans from CIDCO to the extent of Rs. 5,02,56,143/- and Rs. 40,22,527/- and a loan from BMARDA to the extent of Rs. 1,12,60,961/- (against hypothecation of 50 buses) and an overdraft from State Bank of India in a sum or Rs. 24,89,936/-. The overdraft has been granted on the basis of a deposit of Rs. 40 lakhs kept by the petitioners with the State Bank of India (which amount of Rs. 40/- lakhs has been borrowed by the petitioners from CIDCO as mentioned above). It may also be noticed that even during the year in which petitioners had labour problems, the petitioner Company had earned by way of (a) traffic earnings, a sum of Rs. 3,92,61,316/- (b) interest in a sum of Rs. 4,79,924/- and (c) had miscellaneous receipts of Rs. 2,16,631/-. But the main source of income of the petitioners has been CIDCO and BMRDA. The statement showing the financial position of the Company annexed to the affidavit dated 19th February 1987 shows that the loan given by BMARDA has been paid off and effectively the only creditor is CIDCO who has been shown as an unsecured creditor in a sum of Rs. 9,26,875/-. On affidavit no explanation is given as to how the petitioners who were supposed to be incapable of raising any moneys could get paid off a loan of Rs. 1,12,60,912/- but the auditors' report for the year ended 31st March 1985 shows that CIDCO has paid this amount to BMRDA on behalf of petitioners. In fact it strikes the Court immediately if this amount could be paid off, the business could easily have been started as even according to the petitioners all that was required to start the business was a sum or Rs. 1 crore. It is also significant to note that it is not averred anywhere in the petition or on affidavit that either BMRDA and/or CIDCO were pressing the petitioner Company for a repayment of these loans. In fact as seen above CIDCO has paid off on behalf of the petitioners a sum of Rs. 1,12,70,912/-. Mr. Dwarkadas tried to explain this. However, in view of the fact that the petitioners had been given an opportunity to file a further affidavit and had in fact filed two further affidavits and as this was not explained on affidavits, I have not permitted Mr. Dwarkadas to explain this situation. In the balance-sheet of the year 1984, apart from the two Corporations and the liability to workmen there were also sundry creditors to the tune of Rs. 22,297/-, deposits from contractors to the tune of Rs. 74,115/- other liabilities to the tune of Rs. 6,84,777/-, other liabilities to the tune of Rs. 8,10,976/-, water charges to the tune of Rs. 10,14,728/-. In the balancesheet for the subsequent years, that is, year ending 31st March, the only sundry creditors are to the tune or Rs. 59,115/- deposits from contractors only in a sum of Rs. 16,283/-, other deposits only in a sum of Rs. 1,89,052/- It is clear that the sundry creditors, deposits from contractors and other deposits have to a very large extent also been paid off. No explanation is given on affidavit how these were paid off. The claim that liabilities far exceed assets is based mainly on the fact that a sum of Rs. 9,29,79,875/- is shown payable to CIDCO, the petitioners holding Company.
28. Further significant to note is that the loan from BMRDA was on the basis of hypothecation of 50 buses. The Company admittedly had a fleet of 200 buses which even according to the written down value as per statement annexed to affidavit dated 19th February 1987, are of the value or Rs. 1,78,63,007/-. There is nothing to show that these could not have been hypothecated and/or that a loan could not be raised against them. This coupled with the fact that an arrangement has been entered into with "MSRTC" to sell 50 buses to them at book value and delivery is given to "MSRTC" and "MSRTC" to sell 50 buses to them at book value and delivery is given to "MSRTC" and "MSRTC" is running these buses, shows that buses have not in fact deteriorated to the extent that they cannot be used and/or are unserviceable. On the contrary the fact that "MSRTC" is able to use them shows categorically that the buses are still in running order.
29. Further nowhere has it been averred that the business was such that it could not be run at a profit and/or that there was no reasonable hope or possibility of ever running the business at a profit. Also there are no averments that attempts have been made to raise monies and that it has not been possible to do so and/or that in spite of all efforts the business could not be restarted.
30. It must be mentioned that before me also all the workmen were willing to give similar undertakings as already given to the Industrial Court and to this Court in Writ Petition No. 5070 of 1984, but I found that there was no corresponding willingness on the part of the petitioners to even make an attempt at running the business and Mr. Dwarkadas in his usual fairness has stated that the decision to close down having been taken there were no attempts made to restart the business nor was the possibility considered.
31. Mr. Dwarkadas has submitted that once a ground under Section 433(a) to (e) is made out the Court has no option but to order winding-up of the Company and the only discretion which a Court has is under Section 433(f). Mr. Dwarkadas for this purpose relied on a decision of this High Court in the case of In re : Advent Corporation Pvt. Ltd. (1969) 39 Comp. Cases 463 wherein the learned Judge holds as follows (at Page 473) :
"..... In my opinion, the mere use of the word 'may' in Section 433 of the Companies Act cannot lead to the conclusion that the Court can decline to make a winding-up order even in cases in which the petitioner is entitled to the same ex debito justitiae. In this connection, it may be pointed out that Section 434(1)(a) of the Companies Act does not merely lay down a presumption which can be rebutted, but uses the word 'shall' and enacts a deeming provision which must come into play once the Company neglects to pay the sum demanded by the statutory notice to which it refers. Ms. Bhabha also relied on the provisions of Section 443(2) of the Companies Act. Sub-section (1) of that Section lays down the various orders which the court can make at the hearing of a winding-up petition. Sub-section (2) thereof, however, enacts that where the petition is presented on the ground that it is just and equitable that the company should be wound-up, which is the grounds mentioned in Section 433(f), the Court can refuse to make a winding up order if it is of opinion that some other remedy was available to the petitioners and the petitioners were acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy Mr. Bhabha sought to contend that Section 443(2), therefore, shows that the making of a winding-up order is a matter resting in the discretion of the court. I am afraid Section 443(2), far from supporting Mr. Bhabha in that contention, goes against him, for it says that the discretion to refuse a winding-up order is conferred on the court only in cases falling within clause (f) of Section 433. By clear implication it negatives discretion in cases falling within any of the other clauses of Section 433. There is good reason why that should be so. The reason is that clauses (a) to (e) of Section 433 lay down grounds which are specific in nature. When those grounds are made out clause (f) of Section 433, on the other hand, is a residuary clause of an 'elastic' nature and it is for that reason that Section 443(2) confers an equally 'elastic' discretion on the court."
However, it must be noted that these observations have been made on a petition filed by a creditor and the learned Judge holds that there is no discretion because of the presumption that arises under Section 434(1)(a). In the present case, no such presumption is available to the petitioners. Further this Court has in numerous cases, time and again laid down the grounds and considerations on which discretion of the Company Court to wind-up a Company on any of the grounds under Section 433(a) to (f) of the Companies Act is to be exercised and further with great respect to the learned Judge, I think, these observations are in fact contrary to the bare reading of the Section itself. Mr. Dwarkadas also cited a number of cases in order to show that if the Company is commercially insolvent, the Court must wind-up the Company. The cases cited by Mr. Dwarkadas are the cases of V. V. Krishna Iyer Sons v. New Era Manufacturing Co. Ltd. (1965) 35 Comp. Cas. 410 Delhi Automobiles Pvt. Ltd. v. Maruti Ltd. (1978) 48 Comp. Cas. 676 M. Gordhandas and Co. v. M. W. Industries In re : Cine Industries and Recording Co. (A.I.R.) 1942 Bom. 231 Registrar of Companies v. Shreepalpur Cold Storage Pvt. Ltd. (1974) 44 Comp. Cas. 479 and In re : Central India Spg. Wvg. and Mfg. Co. Ltd. 88 Bom. L.R. 226. Mr. Dwarkadas relies in these cases to show that once liabilities exceed assets the substratum of the Company is gone and the Company must be wound-up. However, this is only one test and all these cases lay down the ratio that in determining whether or not the substratum of the Company and has gone, the objects of the Company and the case of the Company on that question have to be looked at; that the mere fact trading losses have been incurred is not enough to show that the substratum of the Company has disappeared; that the financial incapacity has to be proved as a matter of fact and that it has got to be established that there is no reasonable prospect of the Company ever making profit or carrying out the objects for which it was established. As pointed out hereinabove the petitioners have failed to established any of these. The last grounds is that it is just and equitable that the Company should be wound-up. In my view, this is a fit case where on the facts and under the circumstances as mentioned hereinabove it is absolutely just and equitable that the order prayed for should be refused. This is particularly so when it is noted that the Company is an agent of the State performing functions which would otherwise have to be performed by the State and the interest of the public undeniably requires that the petitioner Company be restarted. As seen earlier out of the 28 routes run by the petitioners, the 'BEST' and 'MSRTC' are today only running four routes.
32. Mr. Ganguli has also submitted that in circumstances like this, the Corporate Veil has to be lifted and the petitioner cannot seek to wind themselves up by claiming financial wind themselves up by claiming financial inability when in fact the Government and CIDCO are behind the petitioners and meeting all expenses required for running of the petitioners. Mr. Dwarkadas on the other hand has submitted that the Courts have lifted the Corporate Veil only in cases where questions of fundamental rights arise and even though a Company may be held to be an instrumentality or agency of the State for the purpose of Article 12 of the Constitution, it may not be deemed to be an agent of the State for the purposes of other Articles of the Constitution. Mr. Dwarkadas has submitted that at no time for the purposes of winding-up of a Company has the Corporate Veil been lifted. According to Mr. Dwarkadas any other interpretation would lead to a situation where such a Company would then on a petition by a creditor take up the defence that even though its balance-sheet showed that it was commercially insolvent it had the financial backing of the State and therefore could not be wound-up.
33. Mr. Dwarkadas also relied upon a case of Western Coalfields Ltd. v. Spl. Area Development Authority and argued that even though the petitioners may be a Government Company within the meaning of Section 617 of the Companies Act, they still had a separate existence, that the law recognised the petitioners as juristic person separate and distinct from its members, and that merely because the entire share capital of the petitioner Company was contributed by the Government and all its shares were held by the Government and its Directors were all officers of the Government it did not make any difference to the Company's application to wind itself up.
34. In my view Mr. Dwarkadas has a point. For the purpose of winding-up, it is the financial position of the Company itself that the Court has to consider. But in this case as already set out hereinabove, the petitioners have failed to make out any case for winding-up.
35. Moreover as pointed out by Bhagawati, J. as he then was in the case of R. D. Shetty v. International Airport Authority (1979-II-LLJ-217 at 227).
"... So far as India is concerned, the genesis of the emergence of the Corporations as instrumentalities or agencies of Government is to be found in the Government of India Resolution on Industrial Policy, dated April 6, 1948, where it was stated inter alia, that 'management of State enterprise will as a rule be through the medium of public corporations under the statutory control of the Central Government who will assume such powers as may be necessary to ensure this'. It was in pursuance of the policy envisaged in this and subsequent resolutions on industrial policy that Corporations were created by Government for setting up and management of public enterprises and carrying out other public functions. Ordinarily these functions could have been carried out by Government departmentally through its service personnel, but the instrumentality or agency of the Corporation was resorted to in these cases having regard to the nature of the task to be performed. The Corporations acting as instrumentality or agency of Government would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself, though in the eye of the law, they would be distinct and independent legal entities. If Government acting through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that Government acting through the instrumentality or agency of corporations should equally be subject to the same limitations"
And Krishna Iyer, J. in the case of Som Prakash Rekhi v. Union of India (1981-I-LLJ-79) whilst dealing with Government Companies had laid down at page 84 :
"Although corporate personality is not a modern invention, its adaptation to embrace the wide range of industry and commerce has a modern flavour. Welfare State like ours called upon to execute many economic projects readily resort to this resourceful legal contrivance because of its practical advantages without a weebit of diminution in ownership and control of the undertaking. The true owner is the State, the real operator is the State and the effective controller is the State and the accountability for its actions to the community and to Parliament is of the State. Nevertheless a distinct juristic person with a corporate structure conducts the business, with the added facilities enjoyed by companies and keeping the quasi-autonomy which comes in handy from the point of view of business management. Be it remembered though that while the formal ownership is cast in the corporate mould, the reality reaches down to State control"
And at page 85 it is laid down :
"This is the well-worm legal strategy for Government to run economic and like enterprises. We live in an area of public sector corporations, the State being the reality behind. Law does not hoodwink itself and what is but a strategy cannot be used as a stratagem".
Again at Page 86, it is stated as :
"The true test is functional. Not how the legal person is born but why it is created. Nay more. Apart from discharging functions or doing business as the proxy of the State, wearing the corporate mask there must be an element of ability to affect legal relations by virtue of power vested in it by law."
"We may point out here that when we speak of a corporation being an instrumentality or agency of Government, we do not mean to suggest that the corporation should be an agent of the Government in the sense that whatever it does should be binding on the Government. It is not the relationship of the principal and agent which is relevant and material but whether the corporation is an instrumentality of the Government in the sense that the part of the governing power of the State is located in the corporation and though the corporation is acting on its own behalf and not on behalf of the Government, its action is really in the nature of State action." (1979-II-LLJ-217 at 236) The Supreme Court has in a number of cases and as enumerated in the case of Central Inland Water Transport Corporation Ltd. v. Tarun Kanti Sengupta (1986-II-LLJ-171 at 193) laid down certain tests for determining whether a Corporation or Company is or is not an instrumentality or agent of the State namely :
"1. One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.
2. Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.
3. It may also be relevant factor ... whether the corporation enjoys monopoly status which is State conferred or State protected.
4. If the functions of the corporation are of public importance and closely related to Governmental functions, it would be relevant factor in classifying the corporation as an instrumentality or agency of Government
5. Specifically, if a department of Government is transferred to a Corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government (1981-I-LLJ-103 at 113)."
In this case there is not the slightest doubt that most of these conditions apply to the petitioner Company and that were the Court considering whether the petitioners were a State within the meaning of Article 12, the answer would have been an emphatic 'Yes'. In this case as already set out hereinabove it is clear that the whole purpose of this petition is to implement a decision taken by the Government to close down the petitioner Company and to achieve this object in whatever manner possible. Even when applications for closure under Section 25 of the Industrial Disputes Act have been refused, without any regard for the interest of the public and in utter disregard of and contrary to representations made, attempts at closure and pursued single mindedly and doggedly. Under those circumstances, there is no doubt that this petition is not only malafide but also an abuse of the process of Court. I have in this case refrained from laying down a wide and broad proposition which might affect so many other Companies, but again in the words of the Supreme Court in the case referred to above (1981-I-LLJ-79 at 99).
"It is dangerous to exonerate Corporations from the need to have constitutional conscience; and so, that interpretation, language permitting, which makes Governmental agencies, whatever their mine, amenable to constitutional limitations must be adopted by the Court as against the alternative of permitting them to flourish as imperium in imperia."
Whilst these observations are in context of Article 12 of the Constitution, even in other cases, if resort such as this is sought to be taken, in utter disregard of its duties and obligations to its citizens, the conscience of these Corporations and/or Companies and the powers behind them would have to be rudely awakened and enforced.
36. There is however one other point which has been raised by Mr. Ganguli and Mr. Khankar and by reason of which also I think the petition must fail.
37. Mr. Ganguli has submitted that the winding-up of a Company results in a closure of the Company; that under Section 445(3) of the Companies Act, the service of the employees of the Company are deemed to have been terminated on the passing of a winding-up order, there is therefore a conflict between the provisions of the Companies Act and the provisions of Section 25-0 of the Industrial Disputes Act. Mr. Ganguli submits that in these circumstances the provisions of the Industrial Disputes Act should prevail as it is a beneficial legislation and also because it is a legislation which deals specifically with the relationship between an employer and an employee. According to Mr. Ganguli and Mr. Khankar, the Companies Act is a legislation which deals with the Companies, but does not specifically deals with the relationship between an employer and an employee and therefore so far as the relationship between an employer and an employee is concerned the Companies Act is a general Act. In this behalf Mr. Ganguli has referred to the case of Damji v. L.I.C. of India wherein there was a conflict between the provisions of Section 41 of the Life Insurance Corporation Act and the Companies Act and it was held that the jurisdiction of the Company Court was barred. In my opinion, this case will not assist Mr. Ganguli because in this case, Section 41 of the L.I.C. Act gave an exclusive jurisdiction wherein there were conflicts between the provisions of the Companies Act and the Industrial Disputes Act and it has been held that the provisions of the Industrial Disputes Act must prevail as that is a beneficial legislation. Mr. Dwarkadas on the other hand has submitted that there is no conflict between the provisions of the Companies Act and the Industrial Disputes Act at all, and in support of his argument, he gave the following propositions :
"1. Under the Companies Act, a company may be wound up in one of several ways and circumstances.
2. Winding-up under the Companies Act is not confined only to cases where the Company is in insolvent circumstances, but it could be for any reason contained in Section 433(a) to (d) and (f), or where it wants re-incorporation with extended objects or amalgamation with one or more companies.
3. Winding-up on the ground that company is commercially insolvent is only of the reasons for winding-up.
4. In any event, the object of winding-up is to dissolve the company so that its assets are realised and applied in payment of its debts, and if there is any surplus, the same is paid back to the contributories.
5. The different modes of winding-up envisaged by the Companies Act are enumerated in section 425 of the Companies Act and they are as follows :
1. by the Court,
2. voluntary winding-up.
3. subject to the supervision of the Court.
6. The effect of winding-up by any one of the aforesaid three methods is the same, viz., dissolution of the Company.
7. Chapter 5 which contains provision for payment of debts, and provides for preferential payments applied to every mode of winding-up. Under Section 530 of the Companies Act workers are preferred creditors.
8. A provision similar to Section 445(3), which is merely a procedural provision, is not found in any of the other modes or methods of winding-up.
9. The argument that by virtue of Section 445(3) there is a clear conflict between Section 25-0 of the Industrial Disputes Act and Section 445 of the Companies Act, is unsustainable because in the case of winding-up by any of the other two modes it would not result in a conflict.
10. In fact there is no conflict between the provision contained in Section 445(3) of the Companies Act and Section 25-0 of the Industrial Disputes Act.
11. Section 25-0 comes into play before closure can take place. Section 445(3) comes into effect only in the case of winding-up by Court and after the final winding-up order has been passed.
12. Provision of Chapter V-B in which Section 25-0 of the Industrial Disputes Act is contained are applicable only to certain industrial establishment, viz., as defined in Section 25-K and 25L of the Industrial Disputes Act.
13. The Companies Act applies only to a Company incorporated under this Act, regardless of the nature of the companies or the employees employed.
14. Section 25-0(1) proviso carves out an exemption in respect of certain undertakings set up for construction of building, bridges, roads, canals, dams or other construction work.
15. A company may carry on several businesses, only one of which may be industrial establishment within the meaning of the Industrial Disputes Act. The words "closure of an undertaking of an industrial establishment" clearly suggest closure of even a part of an industrial undertaking.
16. Therefore, only a company desirous of closing down an undertaking of an industrial establishment would have to comply with Section 25-0 of the Industrial Disputes Act and obtain permission. The same Company would legitimately carry on its other business, which would remain unaffected by the closure.
17. Under the Companies Act the word 'Court' has been defined under Section 2(11). Under this sub-section the jurisdiction to wind-up a Company is exclusively conferred on the High Court or on the District Court.
18. To hold that winding-up can only be subject to permission under Section 25-0 would imply that the exclusive jurisdiction of the High Court is displaced and the same would be subject to the permission of the appropriate Government under the Industrial Dispute Act in any if of the cases covered by Section 433(a) to (f)."
38. In my view, these proposition do not answer the point as raised. There is no doubt that to the extent that one of the effects of winding-up is that there is a closure of an undertaking and so long as that undertaking is covered by the provisions of Section 25-L of the Industrial Disputes Act and an application is made by the Company for winding itself up, there would be a conflict between the provisions of the Companies Act and the Industrial Disputes Act. There is in my mind no the slightest doubt that in such cases the provisions of the Industrial Disputes Act will have to prevail. This is not only because the industrial Disputes Act is a beneficial legislation but also because in respect of relationship between employees and employer it is the legislation which is more special legislation whereas in this respect the Companies Act is merely a general legislation. There is also another reason and that is that in such cases where the provisions of two Acts or two provisions of the same Act cannot stand together and are in conflict, than the provision which has been legislated later must always prevail. Section 25-0 of the Industrial Disputes Act as it now stand was introduced in 1976 and it is, therefore, the later legislation and for that reason also it must prevail.
39. In the present case as has been seen from the fact mentioned above in the fact petitioners have applied under Section 25-0 of the Industrial Disputes Act and that application stood rejected not once but twice and it is only thereafter that they have filed this winding-up petition. In view of the fact that no permission under Section 25-0 has been obtained by the petitioners and the provisions of the Industrial Disputes Act have to prevail over the Companies Act, the Company cannot be allowed to be wound-up. For this reason also the petition will have to stand dismissed.
40. One further point which has been taken up by Mr. Ganguli is that the provision of the Companies Act relating to winding-up of a Company are contrary to Articles 12, 39A and 41 of the Constitution of India in so far as the workers have a right to livelihood as guaranteed under these Articles. I do not propose to deal with this argument in this particular case as there is no necessity for dealing with the same.
41. Under the circumstances, the petition stands dismissed with costs.