Indian Kanoon - Search engine for Indian Law

R.K Garg, A.T.M. Sampath and P.N. Ramalingam for the Appellants in CA. Nos. 4066-67/82.

V.M. Tarkunde, E.C. Aggarwala, R. Satish, V.K. Pandia and T.S. Vishwanath Rao for the Respondent Nos. 6-9 and 11.14 in CA. Nos. 4066-67 of 1982.

O.C. Mathur, Ravinder Narain and D.N. Mishra for the Respondents in C.A. 4065 of 1982.

M. Natesan and M. Raghuraman for the Intervener. The following Judgments were delivered BHAGWATI J. These three appeals by special leave raise a short but interesting question of law relating to the right of workmen employed in a company to appear and oppose a petition for winding up of the company. The controversy between the parties arises out of a petition for winding up a private limited company called Ramakrishna Industries (P) Limited (hereinafter referred to as a company). The Company has three units, one a textile mill in the name of Jotie Mills which employs about 500 workmen, another, a workshop for manufacture of textile and other machinery which employs about 400 workmen and the third a printing press which brings out a Tamil daily, called "Nav India" and employs about 100 workmen. It is a closed company in which there are two groups of shareholders, one group consisting of respondent Nos. 1 to 5 and the other consisting of respondent Nos 7 to 14. Respondent Nos. 1 to 5 hold 608 shares and respondent nos. 7 to 14 687 shares while the remaining 300 shares belong to a Trust in which both the groups are equally represented on the Board of Trustees. It appears that a serious dispute arose between Respondent nos. 1 to 5 on the one hand and Respondent nos. 7 to 14 on the other in regard to the management of the affairs of the company and since the dispute could not be settled amicably, Respondent nos. 1 to 5 filed a petition for winding up the Company on two grounds set out in clauses (e) and (f) of section 433 of the Companies Act, 1956. One ground was that the Company is unable to pay its debts and the other was that it is just and equitable that the Company should be wound up. The winding up petition was filed by Respondent nos. 1 to 5 not only as contributories but also as creditors of the Company. Immediately on filing the winding up petition on 13th July 1981, Respondent nos. 1 to 5 submitted an application, being company application no. 844 of 1981, for an interim injunction and on this application, an ex parte order was made by the learned Company Judge restraining the Company which was respondent no. 6 in the winding up petition as also Respondent nos. 7 to 14 from borrowing any monies from banks, financial institutions or others without the prior permission of the Court and from alienating and/or creating any charge or encumbrance over any of the assets of the Company in its various enterprises. The immediate consequence of this ex parte order of injunction was that the Jotie Mills Employees Co-operative Store stopped issuing any provisions or supplies to the workmen from 18th July 1981 and the workmen were also unable from 23rd July 1981 to enjoy the benefits under the Employees State Insurance Scheme. The workmen also apprehended that on account of the ex parte order of injunction, they may not be able to get their wages which were due to be paid on 7th August 1981. Now some of the workmen were members of the National Textile Workers Union, some others were members of the Coimbatore District National Textile Employees Union while still some others were members of the Coimbatore District Engineering Workers Union. The Coimbatore District National Textile Employees Union with a view to protecting the interests of its members made an application, being company application no. 880/81 on 28th July 1981 for impleading itself as a respondent. The Coimbatore District Engineering Workers Union also made a similar application to the Company Judge on the same day, being Company Application No. 881 of 1981. So also the National Textile Workers Union made an application, being company application no. 883 of 1981, to the Company Judge on 29th July 1981 praying that it may be permitted to intervene in the winding up petition and that the ex parte order of injunction may be vacated. Respondent nos. 1 to 5 filed their affidavit in reply to these three applications and the principal contention raised by them was that the National Textile Workers Union, the Coimbatore District National Textile Employees Union and the Coimbatore District Engineering Workers Union had no locus standi to appear and oppose the winding up petition, since the workmen who were members of these three unions were neither creditors nor contributories of the company. These three applications came up for hearing before the Company Judge and after hearing full arguments on both sides, the Company Judge made an order dated 14th September 1981 rejecting all the three applications on the ground that under the Companies Act 1956, the workmen had no right either to get impleaded in the winding up petition or even to intervene in the winding up petition. The Company Judge followed the decision of a single Judge of the Bombay High Court in In re Edward Textiles Limited(1) in taking this view. The Company Judge conceded and this concession had to be made because of the observations of this Court in Fertilizer Corporation Kamgar Union and Ors. v. Union of India and Ors.(2) and of the High Court of Bombay in Bhalchandra Dharamaji Makaji v. Alcock Ashdown and Co. Ltd.(3) that the factors to be taken into account by the court while disposing of a winding up petition would include the interest of the workmen of the company, but observed that "the duty of the court to consider the interest of the worker of the company would not create a right in such workers to intervene in the absence of express provision in the Companies Act and in the teeth of such right specifically conferred only on the creditors and contributories." The National Textile Workers Union thereupon preferred an appeal before a Division Bench of the High Court but the Division Bench also took the same view and held that though it was undoubtedly true that while disposing of a winding up petition preferred on the ground that it is just and equitable to wind up the company, the court must consider the interest of the workmen, it does not mean "that everybody who is remotely interested in the company can file an application to implead himself as a party in the petition for winding up" and "merely because in considering the question whether to wind up or not the court has also to take the larger point of public interest including that of the workers into consideration, it will not clothe the Unions with any locus standi to file applications for impleading themselves as parties or to be heard in the company petition." The Division Bench accordingly rejected the appeal and this led to the filing of Special Leave Petition No. 9661 of 1981 in this Court by the National Textile Workers Union. The Coimbatore District National Textile Employees Union and the Coimbatore District Engineering Workers Union did not prefer any appeal against the judgment of the Company Judge before the Division Bench of the High Court but they preferred Special Leave Petitions Nos. 10248 and 10249 of 1981 directly in this Court against the judgment of the Company Judge. We issued notice on all the three Special Leave Petitions and when the Respondents appeared before us, we intimated to them that we will dispose of the entire controversy between the parties on the Special Leave Petitions and that is how full and detailed arguments were advanced before us at the hearing of the Special Leave Petitions. We now proceed to dispose of these cases after granting special leave to appeal in each of the three special leave petitions.

Before we proceed to discuss the basic and vital question that arises for consideration in these appeals, it is necessary to set out a few further facts which may have some bearing on the final relief to be granted by us. On the same day on which respondent Nos. 1 to 5 filed the winding up petition and applied for interim injunction, they also made an application, being Company Application No. 843 of 1981, praying for appointment of Provisional Liquidator of the company. Respondent Nos. 6 to 14 appeared at the time when this application was presented and asked for time to file their affidavit in reply and time was granted by the Company Judge upto 10th August, 1981. Respondent Nos. 6 to 14 thereafter filed an affidavit in reply on 10th August, 1981 and after hearing both sides in a bitterly contested argument, the Company Judge made an order on 7th December 1981 appointing the official liquidator as Provisional Liquidator of the Company. The workmen represented by the National Textile Workers' Union, the Coimbatore District National Textiles Employees' Union and the Coimbatore District Engineering Workers' Union did not have an opportunity of being heard before the order appointing Provisional Liquidator was passed by the Company Judge, because as pointed out above, their applications for impleading themselves as parties in the winding up petition or in any event, for being allowed to intervene in the winding up petitions were rejected by the Company Judge on 14th September, 1981 and this rejection was confirmed by the Division Bench of the High Court on 30th September 1981. The result was that the order appointing Provisional Liquidator of the company came to be made by the Company Judge without any opportunity being given to the workmen represented by these three Unions to appear and show cause against the making of such order. It may be pointed out that the order appointing Provisional Liquidator was stayed for some time by the Division Bench of the High Court in an appeal preferred by respondent Nos. 6 to 14 but the application for stay was ultimately dismissed by the Division Bench and the Official Liquidator immediately thereafter took charge of the affairs of the company.

We may now proceed to consider the question that arises for determination before us. The question, briefly stated, is: when a petition for winding up a company is filed in court, are the workmen of the company entitled to ask the court to implead them as parties in the winding up petition or to allow them to appear and contest the winding up petition or they have no locus standi at all so far as winding up petition is concerned and they must helplessly watch the proceedings as outsiders though the result of the winding up petition may be to bring about termination of their services and thus affect them vitally by depriving them of their means of livelihood ? It is a well established principle of administrative law that no order entailing adverse civil consequences can be made by the State or a public authority unless the person affected is afforded an opportunity to show cause against the making of such order by controverting the allegations made against him and presenting his own positive case, but in case of a winding up petition, it was contended on behalf of respondents Nos. 2 to 5, that though the result of successful termination of a winding up petition may, and in most cases, would be to put an end to the services of the workmen and throw them on the streets, they are not entitled to an opportunity to be heard against the making of the winding up order, because under the Companies Act 1956, it is only the creditors and contributories and in certain specified contingencies, the Registrar and the Central Government who can present a petition for winding up a company and the workmen have no locus at all in a winding up petition except where their dues have remained unpaid in which case they would be entitled to be heard in a winding up petition, but that would be in their capacity as creditors and not as workmen. It was also urged on behalf of respondent Nos. 1 to 5 that in any event, even if workmen have a right to intervene in a winding up petition in the present case, it was not the workmen who had applied for being heard in the winding up petition but the applications were made by the three unions and since a Union of workmen has no right to be heard, the applications of the three unions were rightly rejected. This last contention of respondent Nos. 1 to 5 is obviously untenable and it need not detain us. It is incontrovertible- and this indeed could not be disputed on behalf of respondent Nos. 1 to 5-that the applications were made by the Unions on behalf of the workmen represented by them and though made in the name of the unions, the applications were in reality and substance applications of the workmen who were members of each respective union. The controversy therefore really is not whether the unions of workmen are entitled to be heard in a winding up petition but whether the workmen have such right when a winding up petition is filed against a company. We may straight away point out that though the applications made by the Coimbatore District National Textile Employees and Coimbatore District Engineering Workers Union were for impleading them as parties in the winding up petition, it was conceded on behalf of these two unions that they were not pressing their applications for being added as parties, because there was no procedure known to Companies Act 1956 for 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 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:

In the meanwhile three trade unions viz. the Coimbatore District National Textile Employees' Union, Coimbatore; the Coimbatore District Engineering Workers' Union, Coimbatore and the National Textile Workers' Union (INTUC), applicants in Company Application Nos. 880, 881 and 883 of 1981 respectively applied to the Court to implead them as respondents to the winding up petition i.e. Company Petition No. 30 of 1981 alleging that their interests had been adversely affected by the interim order which according to them had the effect of preventing the management of the Company from paying amounts due to workers and also making payments for securing supplies to the stores from which the workers were buying articles of food and other provisions. These applications were opposed by the petitioners in the winding-up petition stating that the trade unions being neither creditors nor shareholders had no locus standi to be impleaded as respondents to the petition. It may be mentioned here that the Company Petition for winding-up had not yet been advertised at that stage and Rule 34 of the Companies (Court) Rules, 1959 was not attracted. The Company Judge dismissed these applications filed by the trade unions for impleading them as respondents by his order dated September 14, 1981. Against that order only the National Textile Workers' Union (INTUC) filed an appeal before the Division Bench of the High Court being OSA No. 148 of 1981. That appeal was dismissed by the Division Bench on September 30, 1981. The petition for special leave to appeal (Civil) No. 1961 of 1981 was filed before this Court under Article 136 of the Constitution by the National Textile Workers' Union (INTUC) on November 6, 1981. The said Special Leave Petition came up for orders before a Bench of three Judges on November 19, 1981. On that date notices were issued to the respondents. The High Court was permitted to pass its orders on the application for appointment of a provisional liquidator which was pending before it but it was ordered that in the event of a provisional liquidator being appointed, he should not take any steps which would prejudically affect the workers. The above order was further modified by this Court on December 1, 1981. The petition was posted for hearing and disposal before a Bench of five Judges as the matter involved an important question of law relating to the locus standi of the trade unions to be impleaded as respondents to a winding-up petition and their right to oppose or support it.