Madras High Court
Five Member Committee Of Employees vs Tourism Finance Corporation Of India ... on 22 January, 2021
Author: M. Govindaraj
Bench: M.Govindaraj
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 22.01.2021
CORAM:
THE HON'BLE MR.JUSTICE M.GOVINDARAJ
WP SR NOS.3786 AND 3789 OF 2021
Five Member Committee of Employees
of Appu Hotels Limited at Chennai
Having place of work at
Le Royal Meridien, Chennai,
No.1, GST Road, St. Thomas Mount,
Chennai – 600 016. ... Petitioner
in WP SR No.3786/2021
Five Member Committee of Employees
of Appu Hotels Limited at Coimbatore
Having place of work at
Le Meridien, Coimbatore,
No.762, Avinashi Road, Chinniampalayam,
Neelambur, Coimbatore – 641 062. ... Petitioner
in WP SR No.3789/2021
Vs.
1.Tourism Finance Corporation of India Limited
4th Floor, Tower No.1, NBCC Plaza,
Pushp Vihar, Sector 5, Saket,
New Delhi – 110 017.
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2.Indian Bank
Stressed Assets Management Branch
2nd Floor, No.55, Ethiraj Salai,
Egmore, Chennai – 600 008.
3.IDBI Trusteeship Services Limited
Asian Building, Ground Floor,
No.17, R Kamani Marg,
Ballard Estate, Mumbai – 400 001.
4.IDBI Bank Limited
NPA Management Group (NMG)
No.115, Anna Salai, Saidapet,
Chennai – 600 015.
5.State Bank of India
Stressed Assets Management Branch
No.32, Montieth Road,
Egmore, Chennai – 600 008.
6.Edelweiss ARC
Edelweiss House, Off CST Road,
Kalina,
Mumbai – 400 098.
7.Allium Finance Pvt. Ltd.,
Tower 3, Wing B, Kohinoor City Mall,
Kohinoor City, Kirol Road,
Kurla West, Mumbai – 400 070.
8.Bank of India
Tarapore Towers, IV Floor,
826, Anna Salai,
Chennai – 600 002.
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9.Radhakrishnan Dharmarajan
Corporate Resolution Professional
D3, Triumph Apartments,
114, Jawaharlal Nehru Salai,
Arumbakkam, Chennai – 600 106.
10.Appu Hotels Limited
PGP House, No.57, Sterling Road,
Nungambakkam, Chennai – 600 034.
11.Secretary to Government
Labour & Employment Department
Govt. of Tamil Nadu
Fort St. George, Chennai – 600 009. ... Respondents
Nos.1 to 11 in both WP SRs'
PRAYER IN BOTH WP SR's: Writ Petitions filed under Article 226 of the
Constitution of India praying for issuance of Writ of Mandamus, forbearing
respondents 1 to 9 from preparing an insolvency resolution plan without
incorporating necessary clauses in protecting the employment of the
employees / workmen employed in 10th respondent till the time normalcy is
restored and international flights are operated similar to period prior
pandemic condition Covid – 19 and to consequently direct the 9th respondent
to issue revised advertisements to that effect.
For Petitioner : Mr.N.G.R. Prasad
(in both WP SRs') for Mr.K.M.Ramesh
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COMMON ORDER
These matters have been placed before this Court for deciding the maintainability of the same.
2.The writ petitioners are the Five Member Committee of Employees of Appu Hotels Limited at Chennai and Coimbatore, which is a Corporate Debtor before the Corporate Insolvency Resolution Process.
3.The short facts leading to these writ petitions are that the 10th respondent Appu Hotels Limited is a Public Limited Company incorporated under the provisions of the Indian Companies Act, 1956. It runs two Hotels in the name and style of Le Royal Meridien, Chennai and Le Meridien, Coimbatore, classified as Five Star Deluxe Hotels by the Tourism Department of Government of India. There are more than 600 persons are employed in these Hotels for 2 to 21 years. The 10th respondent Company borrowed from certain financial institutions, raised Term Loans and Working 4/80 https://www.mhc.tn.gov.in/judis/ Capital Loans from several Banks and financial institutions. In that process, the 10th respondent has availed loan from the first respondent to the tune of Rs.70.26 Crores, apart from loan from other Consortium of Creditors. Even though the 10th respondent has mortgaged the properties worth more than Rs.1,000 Crores including 25.64 Acres near Chennai Airport, the Corporate Creditors initiated the Corporate Insolvency Resolution Process (CIRP) for an outstanding or Rs.17.54 Crores as on 31.03.2020. The 9th respondent was appointed as Corporate Resolution Professional. He convened the meeting with the Committee of Creditors and resolved certain resolutions. If such resolutions are passed, it will lead to non-employment of workmen. The assets of others shall not be disposed as scrap leaving behind the Hotel business which will only result in loss of value of assets fixing lesser value and if it is sold along with the immovable properties to be run with the Hotels, it will fetch a higher value. However, without considering the loss of business, due to Covid-19 pandemic, the Corporate Resolution Professional and Committee of Creditors planned to sell the immovable properties as scrap without any guarantee or undertaking to protect the existing employment 5/80 https://www.mhc.tn.gov.in/judis/ condition to the present employees, which will bring more than 600 families to the street without any opportunity of getting alternative of employment.
With these facts, the present Writ Petitions have been filed for the following relief:
“To forbear the respondents 1 to 9 from preparing an insolvency resolution plan without incorporating necessary clauses in protecting the employment of the employees / workmen employed in 10th respondent till the time normalcy is restored and international flights are operated similar to period prior pandemic condition Covid – 19 and to consequently direct the 9th respondent to issue revised advertisements to that effect. “
4.The interim prayer of injunction restraining the 9th respondent / Corporate Resolution Professional in any manner proceeding with the proposed resolution plan approval of Appu Hotels Limited, pending disposal of the Writ Petitions also sought.
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5.Para 32 of the affidavit filed in support of these Writ Petitions reads as under:
“I understand that 9th Respondent (RP) has convened to conduct a meeting of Committee of Creditors on 22.01.2021 to consider and approve the Resolution Applications. If they approve any of the expression of interest / resolution proposal to non-hotelier like hospital or real estate owner then life and livelihood of more than 600 persons and their families would be adversely affected. In the above circumstances, it is humbly prayed that this Hon'ble Court may be pleased to grant an order of ad interim injunction restraining 9th Respondents (Resolution Professional) in any manner proceeding with the proposed resolution plan approval of “Appu Hotels Limited” pending disposal of the above Writ Petitions and thus render justice.”
6.Mr.N.G.R. Prasad, learned counsel appearing for Mr.K.M.Ramesh, would vehemently contend that there is no scope for the 7/80 https://www.mhc.tn.gov.in/judis/ employees to interfere with the winding up application and therefore, they are not in a position to approach the National Company Law Tribunal (NCLT) in the above Insolvency Resolution Process. In so far as life and liberty of the employees is involved, it fall under the purview of public law remedy and therefore, only the High Court under Article 226 of the Constitution of India can interfere with the illegal action of the 9th and 10th respondents. Further, the action of the 9th respondent is contrary to Sections 30 and 31 of the Insolvency and Bankruptcy Code (IBC). The duties of Corporate Resolution Professional is to see that the Industry is revived and to protect the assets of the Corporate Debtor. On the other hand, beyond the powers conferred on him, he proceeds to sell the property as a scrap in detrimental not only to the Corporate Debtor but also to the 600 families depending on the Hotels owned by the 10th respondent.
7.The learned counsel would also contend that the bar of jurisdiction specified in Section 231 of IBC and Section 430 of the Indian Companies Act, 1956, will apply only to the Civil Courts. It bars the 8/80 https://www.mhc.tn.gov.in/judis/ jurisdiction of Civil Courts alone and the High Court exercising the Constitutional powers is not bound by the above provisions. Therefore, he would seek this Court to entertain the above Writ Petitions.
8.I have considered the submissions.
9.At the outset, the prayer in these Writ Petitions reads as under:
“To forbear the respondents 1 to 9 from preparing an insolvency resolution plan without incorporating necessary clauses in protecting the employment of the employees / workmen employed in 10th respondent till the time normalcy is restored and international flights are operated similar to period prior pandemic condition Covid – 19 and to consequently direct the 9th respondent to issue revised advertisements to that effect. “
10.A reading of the prayer clearly shows that an injunction restraining the respondents 1 to 9 from preparing an Insolvency Resolution 9/80 https://www.mhc.tn.gov.in/judis/ Plan without incorporating the necessary clauses purely falls within the purview of Insolvency and Bankruptcy Code (IBC) and the matter seized off by the National Company Law Tribunal (NCLT). When the insolvency proceedings have already been initiated and a Corporate Resolution Professional has been appointed, the matter falls within the exclusive jurisdiction of NCLT. When there is a specific statute govern the Corporate Insolvency Resolution Process, it shall be done within the four corners of that statute. Only when the Tribunal exercise the jurisdiction which is not vested in it or available to it or when failed to exercise the available jurisdiction, the High Court can interfere under Article 226 of the Constitution of India. On the one hand, a judicial forum making a wrong decision within its jurisdiction where it has right to consider. On the other hand, a judicial forum has no jurisdiction or right to consider a particular aspect and also no power to grant the relief prayed for. In the first instance, where there is a wrong decision taken within its jurisdiction, it is amenable to appeal as provided in the statute. Only when judicial forum lacks jurisdiction or failed to exercise the jurisdiction or exercise the jurisdiction without any power to grant the relief, 10/80 https://www.mhc.tn.gov.in/judis/ the judicial review under Article 226 of the Constitution of India will come into play.
11.In the instant case, the relief sought for is to forbear the respondents from preparing the Insolvency Resolution Plan, which falls within the exclusive jurisdiction of the NCLT. When a power is exercised within its jurisdiction as provided under the Statute, this Court cannot entertain the Writ Petition inferring the same. Apart from this, the interim prayer sought for proceeds on the basis of apprehension that if the Committee of Creditors approve the resolution application, 600 persons and their families will be adversely affected. But this is purely based on apprehension and not based on any concluded action by the respondents. Therefore, merely on apprehension also, the Writ Petitions are not maintainable.
12.The learned counsel for the petitioner also would rely on the judgment of the Hon'ble Supreme Court in NATIONAL TEXTILE WORKERS' UNION AND OTHERS VS. P.R.RAMAKRISHNAN AND 11/80 https://www.mhc.tn.gov.in/judis/ OTHERS [1983 (1) SCC 228] and relying on the wordings of Justice P.N.Bhagwati, O.Chinnappa Reddy and Baharul Islam, would contend that the employees grievances shall be redressed. The learned Judges of the Hon'ble Supreme Court in the above judgment, observed that the recognised principle of fair judicial procedure requires the rule of audi alteram partem which constitutes one of the basic principles of natural justice and denial of the same would amount to denial of the right of the workmen to be heard prejudically affecting their interest. Therefore, before the initiation of winding up of petition, or before appointment of provisional Liquidator, the workers would have a right to be heard if they apply for being heard. The social-economic objectives, set out in the Preamble, Articles 23, 24 and Part– IV and especially Article 43-A of the Constitution of India clearly mandate that the management of the enterprise should not be left entirely in the hands of the suppliers of capital, but the workers, who supply labour, being equally, if nor more, interested in the enterprise, should also be entitled to participate in it. Therefore, the workers must have voice or a right to be heard. However, the appeals were dismissed, on the ground that the Court 12/80 https://www.mhc.tn.gov.in/judis/ cannot make any order or any conflict of the existing law. The observations made are as under:
“3.We may now proceed to consider the question that arises for determination before us. The question, briefly stated, is: when a 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 13/80 https://www.mhc.tn.gov.in/judis/ 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 14/80 https://www.mhc.tn.gov.in/judis/ 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 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, 15/80 https://www.mhc.tn.gov.in/judis/ because there was no procedure known to Companies Act 1956 for any one 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 16/80 https://www.mhc.tn.gov.in/judis/ 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 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 17/80 https://www.mhc.tn.gov.in/judis/ 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 18/80 https://www.mhc.tn.gov.in/judis/ 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.
4.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 19/80 https://www.mhc.tn.gov.in/judis/ 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 20/80 https://www.mhc.tn.gov.in/judis/ 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.
21/80https://www.mhc.tn.gov.in/judis/ 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 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.
5.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 22/80 https://www.mhc.tn.gov.in/judis/ 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-
23/80https://www.mhc.tn.gov.in/judis/ 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."
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 24/80 https://www.mhc.tn.gov.in/judis/ 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 25/80 https://www.mhc.tn.gov.in/judis/ 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 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 26/80 https://www.mhc.tn.gov.in/judis/ 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."27/80
https://www.mhc.tn.gov.in/judis/ 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."
6.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 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 28/80 https://www.mhc.tn.gov.in/judis/ 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. Every one is assured 29/80 https://www.mhc.tn.gov.in/judis/ 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 30/80 https://www.mhc.tn.gov.in/judis/ subserve the common good, the operation of the economic system 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 31/80 https://www.mhc.tn.gov.in/judis/ 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.
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7.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 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 33/80 https://www.mhc.tn.gov.in/judis/ 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 34/80 https://www.mhc.tn.gov.in/judis/ 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 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 35/80 https://www.mhc.tn.gov.in/judis/ 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 36/80 https://www.mhc.tn.gov.in/judis/ 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 37/80 https://www.mhc.tn.gov.in/judis/ 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 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 38/80 https://www.mhc.tn.gov.in/judis/ 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 39/80 https://www.mhc.tn.gov.in/judis/ 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 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 40/80 https://www.mhc.tn.gov.in/judis/ 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.
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10.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 41/80 https://www.mhc.tn.gov.in/judis/ that not only the creditors and the contributories but also other persons are entitled to appear at the 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 any one 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 42/80 https://www.mhc.tn.gov.in/judis/ 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 43/80 https://www.mhc.tn.gov.in/judis/ 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.
11.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 44/80 https://www.mhc.tn.gov.in/judis/ 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 45/80 https://www.mhc.tn.gov.in/judis/ 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.
15.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.46/80
https://www.mhc.tn.gov.in/judis/ 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.
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18.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 47/80 https://www.mhc.tn.gov.in/judis/ 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 Amendment contemplates workers' participation in the management of industry. Other Directive Principles require the State to make provision for 48/80 https://www.mhc.tn.gov.in/judis/ 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.49/80
https://www.mhc.tn.gov.in/judis/ 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.50/80
https://www.mhc.tn.gov.in/judis/ 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.19.
20.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 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 51/80 https://www.mhc.tn.gov.in/judis/ 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.
67.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 52/80 https://www.mhc.tn.gov.in/judis/ 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.
13.It is pertinent to note the dissenting views of Hon'ble Mr.Justice E.S.Venkataramiah and Hon'ble Mr.Justice Amarendra Nath Sen, which reads as under:
35.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 53/80 https://www.mhc.tn.gov.in/judis/ 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 appeal to the Court. Under section 518, 54/80 https://www.mhc.tn.gov.in/judis/ 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 55/80 https://www.mhc.tn.gov.in/judis/ 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.
36.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 56/80 https://www.mhc.tn.gov.in/judis/ 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 workers will be discharged from service. A construction which leads to such a discriminatory result should be avoided.
37.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 57/80 https://www.mhc.tn.gov.in/judis/ 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 58/80 https://www.mhc.tn.gov.in/judis/ 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 tc 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 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."
38.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 59/80 https://www.mhc.tn.gov.in/judis/ 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.
39.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 60/80 https://www.mhc.tn.gov.in/judis/ workmen's wages. The right to resist a winding-up petition is not one such right.
40.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.
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46.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 61/80 https://www.mhc.tn.gov.in/judis/ 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.
47.51.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 62/80 https://www.mhc.tn.gov.in/judis/ 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 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 63/80 https://www.mhc.tn.gov.in/judis/ 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.
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52.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.
53.59.These orders show that the High Court has kept in its view the interests of workers while giving directions in the case from 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 65/80 https://www.mhc.tn.gov.in/judis/ 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.
60.62.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) 66/80 https://www.mhc.tn.gov.in/judis/ which establishes the liability for negligent mis-statements in prospectuses, Foss v. 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 67/80 https://www.mhc.tn.gov.in/judis/ will conflict with the existing law.
63.72.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 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 68/80 https://www.mhc.tn.gov.in/judis/ 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.
73.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 69/80 https://www.mhc.tn.gov.in/judis/ 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.
74.76.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.
77.In the case of winding up of any company by Court, the parties who can move the Court for winding up 70/80 https://www.mhc.tn.gov.in/judis/ 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 71/80 https://www.mhc.tn.gov.in/judis/ hardly anything to say in such a case for assisting the Court in deciding the matter.
78....
85.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 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.”
14.From the above judgment, it can be clearly seen that the workers all the more can have right to approach the Company Court before initiation of winding up of proceeding and it is for the Company Court either to entertain the application or to reject it. In that matter, the workers have no 72/80 https://www.mhc.tn.gov.in/judis/ right to notice. After the initiation of the proceedings, it shall be proceeded only within the boundaries of the statute i.e., Insolvency and Bankruptcy Code (IBC) and the workers can have no right. Only when it comes to the preferential right of payment of their dues, they can raise their voice. In the present case, no such order has been challenged. The relief sought for is only against action apprehended to be taken by Resolution Professional, but not against any order of NCLT without jurisdiction or power. Therefore, there being no violation as to exercise of jurisdiction or non-exercise of available jurisdiction, this Court cannot interfere in the Corporate Insolvency Resolution Process.
15.In the judgment relied on by the learned counsel for the petitioner in KAMAL K. SINGH VS. UNION OF INDIA AND OTHERS [2020 (154) CLA 213 (BOM)] the Bombay High Court dealt with the issue of nullity. In that case, the order, without being formally pronounced in the open Court and without notice to the Corporate Debtor came to be passed and communicated to the parties. The Corporate Resolution Professional has 73/80 https://www.mhc.tn.gov.in/judis/ acted on the basis of the order. In that circumstances, the Bombay High Court had interfered with the erroneous exercise of power by National Company Law Tribunal, Mumbai and declared it as “nullity”.
16.As observed above, when power vested with the Tribunal is exercised, in contravention of the settled procedure laid down in the statute and in contravention of the principles of natural justice and transgressing all norms with an ulterior motive, it will fall under the purview of judicial review and the High Court can exercise its powers under Article 226 of the Constitution of India. The said case is not applicable to the case on hand.
17.The learned counsel for the petitioner relied on a judgment of the Hon'ble Supreme Court in EMBASSY PROPERTY DEVELOPMENTS PVT. LTD., VS. STATE OF KARNATAKA AND OTHERS [2019 (17) SCALE 37] wherein the Hon'ble Supreme Court dealt with the matter which fall under the public law of domain. In that case, extension of mining lease, which is governed by the Mines and Minerals (Development and Regulation) 74/80 https://www.mhc.tn.gov.in/judis/ Act, 1957, wherein the Government has the power to extend the lease in public interest was put to the jurisdiction of NCLT. The NCLT, without having jurisdiction to decide the matters falling under the public law domain, exercised judicial review, which is considered as error of jurisdiction. The Hon'ble Supreme Court, has held that when the disputes revolve around the decisions of statutory or quasi-judicial authorities, it can be corrected only by way of judicial review of administrative action. The NCLT or NCLAT cannot have jurisdiction over the same. Therefore, in the instant case, even though it is contended that the life and liberty of 600 employees and their families, this will not fall under the public law domain to exercise the power of judicial review under Article 226 of the Constitution of India in view of the dictum laid down by the Hon'ble Supreme Court in National Textile Workers' Union case (cited supra).
18.Even assuming that the petitioners have a right to agitate the same, entitled to agitate the illegal methods adopted by the Corporate Resolution Professional and Committee of Creditors, it can agitate only 75/80 https://www.mhc.tn.gov.in/judis/ before the National Company Law Tribunal (NCLT). Against the order of NCLT, there is a provision of appeal to National Company Law Appellate Tribunal (NCLAT) is available. Without exhausting the alternative remedy, the petitioners cannot straight away approach this Court.
19.In the judgment of the Hon'ble Supreme Court in UNITED BANK OF INDIA VS. SATYAWATI TONDON AND OTHERS [2010 (8) SCC 110] it is categorically held that the High Court shall not exercise the jurisdiction under Article 226 of the Constitution without exhausting the alternative remedy and on the issues involving disputed facts. In the said judgment, it is observed as under:
“43.Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public 76/80 https://www.mhc.tn.gov.in/judis/ money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person.” Under the Insolvency and Bankruptcy Code, the role of Tribunal does not gets over only with recovering money, but also continue in disbursing the same whoever is entitled to the order of preference. Therefore, in so far as the entitlement of the petitioners is concerned, it falls within the exclusive domain of National Company Law Tribunal. Therefore also, the Writ Petitions are not maintainable, without exhausting the effective remedies available to the petitioners.77/80
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20.It is pertinent to note that in an earlier round of litigation, this Court in M/S.CAPE INFRASTRUCTURE PRIVATE LIMITED VS.
M/S.NUPOWER RENEWABLES PRIVATE LIMITED [CRP (PD) NO.2864 OF 2017 DECIDED ON 24.11.2017] directed the petitioner to approach the NCLT with a direction to entertain the appeal or application to dispose of the same as expeditiously as possible.
21.In such circumstances, the above Writ Petitions challenging the apprehended action of Resolution Professional, pursuant to the order of NCLT, which order has been passed as per the power vested in Insolvency and Bankruptcy Code and without exhausting the alternative remedy available to the petitioners, are not maintainable. However, liberty is granted to the petitioners to approach the appropriate judicial Forum.
22.01.2021
Index : Yes/No
Internet : Yes/No
Note : Issue order copy on 27.01.2021
TK
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To
Secretary to Government
Labour & Employment Department
Govt. of Tamil Nadu
Fort St. George,
Chennai – 600 009.
79/80
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M. GOVINDARAJ, J.
TK
WP SR NOS.3786 AND 3789 OF 2021
22.01.2021
80/80
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