Gujarat High Court
Maharashtra General Kamgar Union vs O.L. Of Manufacturing And ... on 20 July, 2007
Author: Jayant Patel
Bench: Jayant Patel
JUDGMENT Jayant Patel, J.
Page 1306
1. The present application is moved for the relief, inter alia, that the workers of Mumbai Unit of Ahmedabad Manufacturing and Calico printing Mills and Company Limited (hereinafter referred to as SC alico for the sake of convenience) be paid dues on adhoc basis from the sale proceeds realised by the Official Liquidator.
2. The short facts appear to be that the applicant is the Union representing the workmen, who were employees of ILAC Limited (hereinafter referred to as SILAC for the sake of convenience) on the date when winding up order came to be passed. The date of winding up order is not in dispute. It is also not in dispute that Calico was a holding company and ILAC was its subsidiary. It appears that as per the applicant, the workers were the employees of Calico, however, in the year 1982 the management of Calico transferred its Mumbai Unit to ILAC, which was subsidiary of Calico. Calico has resolved for transferring of the complete unit, including the land, building, plant and machinery, employees, etc., and the resultant effect was also given, but since at the relevant point of time Urban Land (Ceiling and Regulation) Act, 1976 was in force and as for such transfer, the requisite permission was to be obtained from the competent authority and as no permission was available at the relevant point of time, the transfer of land and building from Calico to ILAC was not effected. Consequently, it appears that in the balance-sheet of ILAC the price of the land was not shown as paid, nor in the balance-sheet of Calico such price was shown as having received for the land. It also appears that as such when the transfer took place for Mumbai Unit from Calico to ILAC no consideration was passed by Page 1307 ILAC to Calico, but consideration was shown as paid notionally and was shown as owing to the holding company in the balance-sheet of the ILAC and shown as recoverable in the balance-sheet of Calico. The fact remains that after the aforesaid transfer of 1982, ILAC continued to look-after the management and affairs of Mumbai Plant Plastic and Commercial Division and not only that but as it appear from the balance sheet the investments were also made in the Plant and Machinery by ILAC after taking over of the same from Calico. As per the statement made at the bar, the unit was closed in the year 1985 and since then the said Unit under the control of ILAC remained closed.
3. It appears that ILAC had declared lockout, which became subject matter of the challenge under the I.D. Act upon a dispute raised by the Union and ultimately, the High Court of Bombay found that the lockout was in contravention to the settlement with the workers, which was entered into by Calico and was with a view to frustrate the rights of the employees/workers, hence, the High Court of Bombay vide its judgement dated 24.8.2006 in writ petition No. 1595 of 1986 finally ruled that the lockout by ILAC was illegal and consequently observed for entitlement of consequential benefits in accordance with law until the date of liquidation of 15.7.1998. As per applicant the right to recover the money accrued to them though such right was already there but was identified or rather recognized. As per the applicant, the dues are outstanding, running into crores of rupees of the workmen and OL has verified the claim up to the extent of Rs. 88 crores, and found admissible. Hence, the applicant herein in capacity as the employees of ILAC has prayed for disbursement. Unfortunately, after winding up order, though the security was deployed at the properties of Calico as well as of ILAC by OL, various thefts have taken place of the movable assets and plant and machinery. This Court (Coram: K.A. Puj, J.) had an occasion to consider the said aspects in OLR No. 61 of 2005 in Company Petition No. 157 of 1995 and the inquiry was ordered, including in respect to the functioning of the office of OL.
4. As the immovable properties stood in the name of Calico on the date of winding up, the orders were passed by this Court for disposal of the properties, including that of Mumbai Unit, where plant and machinery of ILAC was situated. The money of the immovable properties are realised to a substantial extent. So far as the workers of Ahmedabad Unit and Vadodara Unit, who were of the Calico, earlier orders have been passed by this Court for adhoc disbursement of Rs. 50,000/- to each of the workers and the final disbursement is yet to take place.
5. At this stage, the present application is moved for directing the OL to disburse the amount to the members of the applicant Unit, who were workmen and though they were employees of ILAC, the stand in the present application is that they should be treated as workmen of Calico and as the money realised is of the properties of Calico, their dues be treated for disbursement under Section 529A of the Companies Act (hereinafter referred as 'the Act') and therefore, the appropriate directions.
Page 1308
6. Heard Mr. Mohan Pongalia, learned Counsel appearing with Mr. Primit Purani and Mr. Vimal Patel for the applicant, Mr. A.L. Shah with Mr. Yadav, learned Counsel for the Official Liquidator, Mr. Parikh, learned Counsel for the secured creditor, Bank of India and Mr. Singhi, learned Counsel for the other secured creditor has adopted the arguments and submissions made by Mr. Parikh since interest of all secured creditors is common. Whereas Mr. Vasavada, learned Counsel for the Textile Labours' Union having its members as the workmen of Calico, Ahmedabad has supported the claim of the applicant.
7. It was submitted on behalf of the applicant by the learned Counsel that considering the fact situation that the Calico was a holding company and ILAC was its subsidiary and the ILAC had the directors being formerly as the directors in Calico or the representative of Calico and that the licence of Calico was being used by ILAC and that no actual consideration had passed at the time of transfer from Calico to ILAC and the property was transferred by Calico as it is a going on concern, for all practical purpose, Calico was controlling ILAC and as the members of the applicant Union, though were technically workers of ILAC, they were in reality the workers of Calico and, therefore, it was submitted that considering the facts and circumstances, this Court may lift the corporate veil and may hold that the workmen of ILAC were the workmen of Calico and that the Calico and ILAC were the same Company and, therefore, the workers of ILAC are entitled to have the disbursement under Section 529A of the Act as the workmen of Calico. It was further submitted that as the lockout of the Mumbai Unit was the subject matter of dispute under the Industrial Disputes Act and it is only when the High Court of Bombay declared such lockout as illegal vide its decision dated 24.8.2006, the members of the applicant Union became entitled to receive all consequential benefits in accordance with law and thereafter the present application is filed. The learned Counsel further submitted that the Bombay High Court has made observations that the transfer of the Unit by Calico to ILAC was a fasad and it was further observed that the settlement with the Union entered into by the Calico was binding to ILAC and consequentially as the lockout was in contravention thereto, the same was declared illegal. He, therefore, submitted that the observations made by the High Court of Bombay do show that the management of Calico had the ill-desire to frustrate the rights of the workmen and, therefore, this Court may read that the attempt to transfer the Mumbai Unit by Calico to ILAC was with a view to frustrate the welfare legislation under the Industrial Disputes Act and if the action is to frustrate the welfare legislation, the Court may lift the corporate veil with a view to undo the wrong and to consider the legitimate rights of the workmen of ILAC, though in reality they were workmen of Calico as per the contention of the learned Counsel.
8. The learned Counsel for the applicant has relied upon the decision of the Apex Court in case of Workmen Employed in Associated Rubber Industry Page 1309 Ltd. Bhavnagar v. The Associated Rubber Industry Limited ; the decision of Madras High Court in case of H.H. & Easun v. G.E.C. Distribution Transformers (Madras) reported in 1992 Madras 543, and another decision of the Apex Court in case of Life Insurance Corporation of India v. Escorts Limited and Ors. reported in AIR 1996 SC 1370 for contending that in appropriate case, the corporate veil can be lifted and he submitted that the corporate veil be lifted by this Court, enabling the applicant to have the disbursement at par with the workmen of Calico on the basis that transferring of the Unit by Calico to ILAC was a fasad and to frustrate the welfare legislation.
9. The learned Counsel for the OL submitted that when this Court is supervising the winding up of the Calico as well as of the ILAC, the rights of the parties as on the date of the winding up may carry weightage and can be recognised. If this Court finds that the lifting of corporate Veil is to be permitted and even if this Court finds that the applicants or the workers of ILAC were in reality the workers of Calico, then such decision will be of today's date. Therefore, the right will get crystallized of the workers of ILAC against the properties of the Calico as on today. It was submitted that such contingency would arise later to the date of winding up. Therefore, such rights of the workers if crystallized today by the present order, cannot be read as for distribution of the assets of the companies on the basis of the rights prevailing on the date of the winding up. Therefore, it was submitted that even if the workmen of the applicant are considered and accepted for lifting of the corporate veil, this Court may not be in a position to order for disbursement of the amount from the properties of the Calico, which is already ordered to be wound-up long back. It was also submitted that earlier, the report was filed by the office of the OL for supporting the claim of the applicant for proportionate disbursement of the amount at par with the workmen of Calico. However, subsequently, the report is also filed which states that the claim of the applicant is not admissible as the workmen of Calico and therefore, it was submitted that the applicant cannot be disbursed the amount from the money realised from the property of the Calico.
10. On behalf of the secured creditors, it was inter alia submitted that it is not a case where the transfer was effected by Calico to ILAC with a view to deprive the workers from their legitimate rights or to deprive any creditors of Calico. It was submitted that in the balance-sheet which are produced from the period of 1982 onwards, after the transfer of the unit by Calico to ILAC, ILAC has made development over the plant and machinery, the investments are also made and therefore, such be treated as property of ILAC for all purposes. If it is on account of the ULC Act or otherwise, that the immovable properties are not transferred by Calico to ILAC, such cannot be made as a ground for declaring that the whole transfer of the unit by Page 1310 Calico to ILAC was a fraud, more particularly when ILAC was already a company formed long back, though may be subsidiary of Calico.
11. It was submitted by the learned Counsel for the secured creditors that merely because the Directors were common between the holding Company, viz. Calico, and subsidiary Company, viz. ILAC, is not a ground to contend that ILAC or the workmen of ILAC had right to proceed against the properties of Calico. It was further submitted that at no point of time, the workmen of ILAC raised the dispute against the transfer of unit by Calico to ILAC nor any dispute was raised for the declaration of the status that they are the employees of Calico and not of ILAC. Even if such dispute was to be raised for the declaration either under Industrial Disputes Act or under the relevant provisions of other law, then also, as the period of limitation maximum is for 3 years in any case has expired, after the expiry of such period of limitation, such a claim cannot be entertained. It was further submitted on behalf of the secured creditors that when the right is not recognised of the applicant who are workmen of ILAC as the workmen of Calico, this Court exercising the power under the Companies Act would not be in a position to grant relief on the premise that the applicant are workmen of Calico and not of ILAC. Initially, in the application, disbursement was not claimed by raising the ground that the transfer of properties by Calico to ILAC was a fasad or was to frustrate the rights of the workmen. However, it is in rejoinder the applicant have come out with the new stand which shows that uptil now, all the while, the applicants were treating themselves as workers of the ILAC and even when the dispute was raised in respect to lockout, such dispute was in the capacity as the workmen of ILAC and against ILAC and it was not against Calico. Therefore, it was submitted that the claim put forward may not be accepted by this Court.
12. The principle aspects which may be required to be considered is the scope and ambit of the jurisdiction of this Court under the Act. Chapter 2 of the Act provides for winding up by the Court. Section 433 provides for the Court to order for winding up under different contingencies and situation. Section 434 speaks for statutory deemed fiction. Section 439 provides for application for winding up. Section 439A provides for statement of affairs to be filed on winding up of the Company. Section 440 provides for right to present winding up petition. Section 441 of the Act provides for commencement of the winding up proceeding with deeming fiction to treat the proceedings as commenced at the time of passing of the resolution in case of voluntary winding up unless the Court on proof of fraud or mistake thinks it fit to direct otherwise. Sub-section (2) of Section 441 provides that in any other case, the winding up of the Company shall be deemed to commence at the time of presentation of the petition for winding up. Therefore, commencement of the winding up at the most may relate to the date on which the petition for winding up was presented, save and except the situation of voluntary winding up. Section 441A, Section 441B, Section 441C, may not have relevance for the present application. However, Section 441D provides for application of funds for the purpose of making Page 1311 interim payment of the workmen's dues pending the revival. Such a situation from 441A or 441D relates to rehabilitation and revival fund which is not in the present case. Section 443 of the Act provides for the power of the Court on hearing petition. Section 444 of the Act provides for communication of the order of winding-up to the OL and the Registrar. Section 445 of the Act provides for filing of the copy of the order of winding up with the Registry and Section 446 of the Act provides for staying of the proceedings before the other forum and Sub-section (2) of Section 446 provides for enabling power of the Company Court to grant leave. Pertinent aspect is that as per Section 446(2) of the Act, the Company Court has, notwithstanding anything contained in other law for the time being in force, the jurisdiction to entertain or dispose of any suit or proceedings by or against the company in liquidation. Section 447 of the Act provides for power of the winding up order in favour of all creditors and all the contributors of the company as if it had been made on a joint petition of a creditor and of a contributor.
13. So far as the functioning by the OL is concerned, Section 448 of the Act provides for the appointment of the OL. Section 449 of the Act provides for the OL to become liquidator of the Company on an order of winding up being passed. Section 450 of the Act provides for appointment of the provisional liquidator. Section 451 of the Act provides for general provisions as to liquidator. Section 454 of the Act provides for the statement of affairs to be made available to the OL to the Company Court. Section 456 of the Act provides for the custody of the Company's property with the OL. Section 457 of the Act provides for the power of the liquidator which inter alia provides for various enabling power with the liquidator. Section 458A of the Act provides for exclusion of certain time in computing periods of limitation. Section 466 of the Act provides for the general powers of the Court in case of winding up. Section 467 of the Act provides for settlement of the list of contributors and the application of assets. Section 468 of the Act provides for delivery of property to the liquidator. Section 469 provides for payment of debts due by contributory and the extent of set off. Section 470 of the Act provides for power to call monies. Section 471 of the Act provides for payment into the Bank of the monies due to the company. Section 473 of the Act provides that the order made by the Court on a contributory shall be conclusive. Section 474 of the Act provides for exclusion of the creditors who have not lodged the claim within the prescribed time. Section 475 of the Act provides for adjustment of the rights of contributors. Section 476 of the Act provides for power to order costs and Section 477 of the Act provides the power to summon the person suspected of having property of the Company. Section 480 of the Act which is relevant reads as under:
Saving of the existing powers of the Court:
Any powers conferred on the Court by this Act shall be in addition to and not in derogation of, any existing powers of instituting proceedings against any contributory or debtor of the company, or the estate of any contributory of debtor, for the recovery of any call or other sums.
Page 1312
14. Section 482 of the Act provides for enforcement of the orders passed by the Company Court throughout the country as if the order made by that Court.
15. The aforesaid scheme goes to show that so far as the recovery of the amount outstanding by the contributor or debtor, all powers are vested to the Company Court. However, for the honouring of the liability is considered, the situation may not be the same. It is true that all questions about the properties of the Company which may include the right to recover any amount or property and right to get the discharge by honouring the liability of the Company generally are to be finally settled by the Company Court. However, in a given case, if the Court finds that it may not be possible for resolving the dispute, it may relegate the party to any another forum. Pertinent aspect is that Section 446(2) is having overriding effect with a non-obstacle clause conferring the jurisdiction with the Company Court to entertain and dispose of (1) Any suit or proceedings by or against the Company. (2) Any claim made by or against the Company including the claims by or against any of its branches in India (3) Any application made under Section 391 of the Act by or in respect of the Company (4) Any questions or priority or any other questions whatsoever, whether of law or fact which may relate to or arise in the course of winding up of the Company. Therefore, it appears that the jurisdiction of the Company Court is wide enough to cover all aspects pertaining to the properties of the Company in liquidation, may be directly or indirectly related thereto. However, the exercise of such jurisdiction may be discretionary. The Court in a given case finds that the matters are pending before the another forum, instead of withdrawing the proceedings and trying by itself, may grant leave to continue with such proceedings with the express order of not to implement or execute the same without leave of this Court or that in a given case, the Court may relegate the parties to approach before the appropriate forum, if it finds that the judicial discretion demands for such purpose and it may not be convenient to adjudicate and finally rule upon such issues.
16.. The next aspect which may be required to be considered is the merits of the contentions raised on behalf of the applicant Union.
17. The following factual aspects appears from the record:
Calico was the holding company and ILAC was its subsidiary. ILAC was a Company formed long back prior to 1982.
18. In the year 1982, Bombay unit of Calico is transferred by Calico to ILAC. It appears from the annual report that the whole unit with the land and building including the workers and other properties of Calico's Bombay unit was to be transferred but on account of the procedure under the ULC Act and no permission by the competent authority under the ULC Act, land and building could not be transferred. As a consequence thereof, all other properties including the plant and machineries, workers, etc., are transferred by Calico to ILAC.
19. After such transfer in the year 1982, the workers who were transferred to ILAC are treated as the employees of ILAC and they have ceased to be Page 1313 the employees of Calico. The salary of such workers after such transfer was continued to be paid by ILAC until lockout was declared by ILAC.
20. At no point of time, any workers of ILAC or the recognised Union of ILAC raised the dispute for transfer of the undertaking either under Industrial Disputes Act or under the relevant provisions of law contending that such transfer is to adversely affect the rights of them as workers of Calico and being the workers of ILAC.
21. The period of limitation for raising the dispute or seeking declaration that workers of ILAC are workers of Calico as per the normal law is also over.
22. When the challenge was made before the High Court of Bombay against the lockout, declared by ILAC, it was not the contention of the applicant that the workmen of ILAC were the workmen of Calico, but it appears that the decision came to be rendered by the High Court of Bombay on the basis that the settlement by the former employer viz. Calico with the Union of the workers which was entered into under the Industrial Disputes Act was binding to ILAC and as the lockout was declared in contravention thereto, such lockout was declared illegal. While rendering such decision, incidentally observations were made by the High Court of Bombay that there was effort on the part of the Company right from the year 1981 to close down the operation on some pretext or another. Such observation may carry weightage to the extent of declaration of the lockout as lawful or otherwise.
23. ILAC has continued with the operations after receiving the Bombay Unit and it has also added investments to the plant and machinery, which is apparent from the balance-sheet of the Company, viz. of ILAC.
24. No consideration as shown has credited in favour of Calico so far as the land and buildings are concerned and the consideration reflected in the Books of Account was only to the extent of plant and machinery and other movable of the Bombay Unit belonging to Calico to ILAC.
25. Calico as well as ILAC both are ordered to be wound-up on 15.07.1998 and till then in any case, at any point of time, no dispute was raised by the applicant contending inter alia that they are the employees of Calico or that the transfer by the management of Calico to ILAC of the whole undertaking including the workmen is sham or bogus or with a view to frustrate the welfare legislation of the labour laws or to deprive them from their legitimate rights.
26. In light of the aforesaid factual background, the contentions are to be considered.
27. Learned Counsels appearing for the secured creditors appear to be right in contending that when such dispute was not raised at any point of time within the normal period of limitation, after the period of about 9 years of winding up and after about 23 years from the date of transfer, such a dispute cannot be permitted to be raised.
Page 1314
28. The attempt on the part of the applicant to contend that it is only when the High Court of Bombay in its decision on 24.08.2006 conferred the rights to the the applicant to be entitled for all the consequential benefit under law, cannot be accepted for two reasons; one is that as a consequence of the order passed by the High Court of Bombay dated 24.08.2006 in Writ Petition No. 1595/96, at the most, the applicant Union or the workmen of ILAC would be entitled to recover the amount as may be permissible in law from ILAC and no right as such is conferred in the said decision to the applicant who was the petitioner therein to recover the amount from the properties of Calico. The second reason is that even when the application was made by the applicant by way of Judges Summons and even in affidavit in support of Judges Summons, the claim was never put forward that the workers of ILAC be treated as the workers of Calico or that the corporate veil be lifted by then and this Court may read the rights with the workers or permit them to recover the amount from the properties of Calico. It is only by way of rejoinder in the affidavit of the applicant union, such a contention has been raised.
29. Even if the rejoinder affidavit is considered for the sake of examination, merely because some Directors are in ILAC, who are also Directors in the Calico, is not sufficient ground to conclude that ILAC & Calico both were the same undertaking. The liability of the holding company cannot be fastened as that of the subsidiary company merely because some Directors are deputed in the management by the holding company in the subsidiary company. If such a contention is accepted, it would frustrate the very principle of separate identify of two limited companies, one being holding Company and another being subsidiary Company. Transfer of the Unit by holding company to the subsidiary unless it is prohibited by law, cannot be said as it is against the public policy or sham or bogus or fraud or against the welfare legislation. Such transfer can be declared as sham or bogus only when it is satisfactorily demonstrated to the fullest extent before the Court that such transfer was only with a view to frustrate the rights of the workmen or other legitimate rights of the person concerned, may be creditor or other persons. Such transfer even otherwise also is not within the period of 3 years prior to the date of winding-up and is much much prior to the date of winding-up inasmuch as the transfer took place in the year 1982-1983, whereas the winding-up of Calico as well as ILAC in the years 1998.
30. Whether a transfer is fraud or sham or bogus can only be concluded if it is established on facts by showing the proof for such purpose. The transfer was in fact given effect. Not only that, but it was acted upon and for a period of about 3 years, the very unit was continued by ILAC from 1982-1983 upto 1985, when the lockout was declared. Therefore, when the transfer was effected for all purposes, it cannot be Page 1315 said that such transfer was sham or bogus. If the matter is to be considered on the aspects of fraud, not only the intention of the parties who played role in transfer is to be considered but the ultimate outcome may have also the relevance. No material is available on record in the present proceedings that the transfer was to defraud the creditors of Calico or that the transfer was to frustrate the rights of the workmen of the ILAC. The only basis of the workmen of the applicant appears to be some observations made by High Court of Bombay while considering the legality and validity of the lockout declared by ILAC vis-a-vis the binding effect of the settlement in existence between former employees of Calico. At the most, such observations can be read for considering the legality and validity of lockout and it cannot be read for conferring any additional right to the applicant as if the employees of Calico or that such a transfer was a fraud to frustrate the rights of the workers who are members of the applicant Union. As contended by the applicant, the right is crystallised only in the year 2006 when the High Court of Bombay decided all issues on the aspects of lockout. If such an aspect is considered, then also the same is not sufficient ground to conclude that the transfer was a fraud to the welfare legislation. In the year 1982 when the transfer was effected, no such right under the welfare legislation accrued to the applicant Union and the same is an admitted position. Only when the lockout is declared illegal, the right is accrued to the applicant Union against ILAC. Therefore, in the year 1982-1983 when the transfer took place, as there was no right under the labour law in existence of the applicant Union or its members to recover any compensation on account of the declaration of the lockout as illegal, the contention cannot be accepted that the transfer was effected by applying fraud to the welfare legislation(by frustrating the rights of the members of the applicant Union), which admittedly have been crystallized in the year 2006 pertaining to the lockout of 1985.
31. Therefore, it appears that even if the principles of enabling power of the Court to lift the corporate veil is considered, as per the decision upon which the reliance is placed by the learned Counsel for the applicant, it cannot be concluded on the facts of the present case that the transfer of the undertaking of Bombay union by Calico to ILAC was a fraud or a fasad to frustrate the rights of the members of the applicant Union.
32. Further, it deserves to be recorded that even if such contention is further considered and put to its logical end, the consequence would be that the corporate veil will be lifted today and the rights may get crystallized now, or on the date of the application, which in any case, is after the order of winding-up. As per the provisions of the Act, the rights if accrued after the date of winding up, would be even otherwise also outside the consideration for the distribution of the properties of the company in liquidation.
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33. Under the above circumstances, the prayers made in the application for giving directions to OL to disburse the amount to the applicant from the fund which has been realised by disposal of the properties of the Calico cannot be granted.
34. Hence, the application is dismissed accordingly. However, it is clarified that the present order shall not operate as a bar to the applicant to claim the rights as workmen of ILAC as may be permissible in law.