TMI Blog1972 (7) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated under the Indian Companies Act, VII of 1913, used to run textile mills situate at Delisle Road, Parel, Bombay. It ceased production and actually stopped its business since about 18th October, 1967. On a creditor's petition, being Company Petition No. 139 of 1967, filed on 7th December, 1967, the 1st respondent-company was ordered to be wound up by this court on 2nd March, 1969, and the official liquidator (respondent No. 2) was appointed liquidator thereof with necessary powers under the Indian Companies Act, 1956, to take charge of the assets of the company and to conduct its affairs in the course of winding-up and to distribute its assets in accordance with the provisions of the Companies Act. However, it appears hat on 14th September, 1962, the 1st respondent-company had executed two debenture trust deeds one in favour of Gobindram Seksaria Charity Trust to secure the advance of Rs. 39 lakhs and interest thereon (respondents Nos. 4, 5 and 6 being the trustees thereof) and the other in favour of the Trustees of Hashimara Industries Ltd. (respondents Nos. 7, 8 and 9 being the trustees thereof) to secure the advance of Rs. 45 lakhs and interest thereon; the second debentur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investigators for making a full and complete investigation into the circumstances resulting in the fall in the production of the textile goods manufactured by the company. Respondent No. 3, the private receiver appointed by respondents Nos. 7, 8 and 9 (being the trustees of the second debenture trust deed), filed a petition in this court, being Misc. Petition No. 4 of 1971, challenging the said order passed by the Central Government on 2nd June, 1970. It appears that the committee of investigators had submitted its report to the Union of India on or about 5th January, 1971, and the said report was also challenged by the 3rd respondent in the said writ petition. Mr. Justice Chandrachud who ultimately heard the writ petition by his judgment and order passed on 9th October, 1971, set aside the order dated 2nd June, 1970, and the Central Government was directed not to take any steps in pursuance of the said order or in pursuance of the said report submitted by the committee of inspectors on the ground that the order under section 15 of the said Act could not have been made in June, 1970, when the mills had been closed and remained closed since October, 1967. Thereafter, the Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held that section 15A is applicable to the present case, the condition precedent as mentioned in the section, namely, formation of requisite opinion on relevant materials has not been fulfilled and as such permission sought cannot be granted. Thirdly, it was contended that the alleged formation of opinion was contrary to the principles of natural justice, inasmuch as no opportunity of being heard was given to the 3rd respondent or the trustees of the second debenture trust deed and as such the requisite opinion even if formed could not be acted upon. Fourthly, the vires of section 15A and section 18FA was challenged under article 14 and article 19(1)( f ) and ( g ) of the Constitution. Lastly, it was contended that the application seeking permission under section 15A has been made mala fide with ulterior motive of dispossessing the 3rd respondent of the assets which were in his hands and the same has been made at the behest of the State Government. We may state that respondent No. 2 who is the official liquidator has submitted to the orders of the court and so far as respondents Nos. 4, 5 and 6, who are the trustees of the first debenture trust deed, are concerned, it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplated by section 15A of the Act is carried out and if as a result of such investigation the Central Government forms an opinion that there are possibilities of restarting the industrial undertaking in question, then, under section 18FA, power has been conferred upon the Central Government to appoint authorised persons to take over the management of the said undertaking after obtaining the permission of the High Court in that behalf. The material part of section 18FA runs as follows: "18FA. Power of Central Government to authorise, with the permission of the High Court, persons to take over management or control of industrial undertakings. (1) If the Central Government is of opinion that there are possibilities of running or restarting an industrial undertaking, in relation to which an investigation has been made under section 15A, and that such Industrial undertaking should be run or restarted, as the case may be, for maintaining or increasing the production, supply or distribution of articles or less of article relatable to the scheduled industry, needed by the general public, that Government may make an application to the High Court praying for permission to appoint any per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of running the industrial undertaking and further enables him for that purpose to create a floating charge on the current assets of the industrial undertaking ; sub-section (10) provides that the proceedings in the winding-up of the company shall be stayed during the period while the undertaking remains under the management and control of authorised person, and computing the period of limitation for the enforcement of any right, privilege, obligation or liability in relation to such, undertaking, the period during which such proceedings remained stayed shall be excluded, the next material provision is to be found in section 290 which gives priority to all debts incurred by the authorised person overall other debts, whether secured or unsecured, incurred before the management of such industrial undertaking has been taken over. Section 29D runs as follows: "29D. Debts incurred by the authorised person to have priority. Every debt arising out of any loan obtained by the authorised person for carrying on the management of, or exercising functions of control in relation to, an industrial undertaking or part thereof, the management of which has been taken over under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding Act as being violative of Article 19 of the Constitution. Counsel for respondents Nos. 3 and 7 to 9 also fairly conceded this position and accordingly the contention that section 15A is violative of article 14 of the Constitution need be considered by us. According to the applicants, the present case squarely falls within the provision of section 15A of the Act and as such the applicants are entitled to get the necessary permission or leave to make or cause to be made investigation into the possibility of restarting the industrial undertaking of the 1st respondent-company. Mr. Nariman, the learned Additional Solicitor-General, appearing for the applicants pointed out that the Seksaria Mills Ltd. used to run textile mills at Parel, Bombay, and as such owned an industrial undertaking that was engaged in production of cotton, textiles and as such is a scheduled industry falling within the First Schedule of the Act; secondly, the said company owning such scheduled industrial undertaking is being wound up by and under the direction of this court after passing of the winding-up order on 12th March, 1969 ; thirdly, admittedly, the business of the said company has been stopped and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d". It. was urged that the phrase "the business of such company is not being continued" suggested that unless the business of a company was discontinued in the immediate past, the section would be inapplicable. Reliance was also placed upon the expression "industrial undertaking" which occurs in the section and which has been defined in section 3( d ). The definition runs thus: "'industrial undertaking' means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government" and the expression "carried on" occurring in the definition was relied upon. Having regard to the definition of "industrial undertaking" as occurring in section 3( d ) and in view of the phrase "the business of such company is not being continued" occurring in section 15A, it was urged that the section was intended to apply to a company whose business has ceased to continue in the immediate past and the section would not apply to a company whose business has been closed for the last over 3 or 4 years and, therefore, the permission sought could not be granted by this court. We are unable to accept this contention of counsel urged on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans an undertaking pertaining to scheduled industry carried on in one or more factories. But this definition cannot be allowed to be imported into section 15A while giving proper meaning to the expression "industrial undertaking" occurring therein. The entire section 3 of the Act, which defines several concepts including the concept of industrial undertaking, is qualified by the opening words of the section, namely, "in this Act, unless the context otherwise requires", and, therefore, unless the context otherwise requires, the expression "whenever it occurs in the Act" should be understood in the sense it has been defined in section 3(d) but the context of section 15A clearly suggests that the expression "industrial undertaking " cannot be understood in the same sense in which the expression has been defined in section 3 ( d ), for, in terms, the section is made applicable to a company which owns an undertaking and which company is being wound up and whose business is not being continued. It is thus clear that in the context of section 15A the expression "industrial undertaking" occurring therein cannot be given the same meaning which has been given to that expression by the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is one whose business is not being continued, are satisfied in the present case and as such the application under section 15A concerning the 1st respondent-company would be maintainable. It was next contended on behalf of respondents Nos. 3 and 7 to 9 that the condition precedent as mentioned in section 15A was not fulfilled and as such the permission sought should not be granted by this court. It was pointed out that the condition precedent has been expressed in the following words in the section: "the Central Government may, if it is of opinion that it is necessary,-in the interests of the general public and, in particular, in the interests of production, supply or distribution of articles or class of articles relatable to the concerned scheduled industry, to investigate into the possibility of running or restarting the industrial undertaking, make an application to the High Court .." It was urged that the power to investigate into the affairs of a company in liquidation was conditioned upon the formation of requisite opinion and the opinion must be as to the necessity of conducting an investigation into the possibility of restarting the undertaking in the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on capacity at its optimum level which was very high, such resumption would substantially increase the production, supply and distribution of cloth, an article needed by the general public and help reduce the shortfall in production ; ( d )that as a result of the closure of the mills, 4,000 workers had been thrown out of employment increasing the acute problem of unemployment in the country and affording employment to such workers by restarting the mills would be in the interest of general public ; ( e )the mill being export-oriented has substantial potential of earning foreign exchange; ( f )that the written down value of the assets of the mill was Rs. 58.91 lakhs as on April 8, 1967, while the market value may be much more ; ( g )that due to resistance offered by the receiver in 1970, the plant and machinery could not be inspected by the members of the committee appointed under order dated 2nd June, 1970, but the immediate prior technical survey carried out by the survey team of the Textile Commissioner's Office in July, 1966, in respect of the mills showed that the machinery was by and large found to be reasonably satisfactory. It has been stated that after taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral public and in particular in the interest of production, supply and distribution of concerned articles. Secondly, there is nothing in the section which makes it incumbent upon the Central Government to grant hearing of any kind to respondent No. 3 or any other person before forming an opinion or taking action under section 15A. Further, the purpose for which the opinion is to be formed is quite clear, inasmuch as action taken under that provision merely results in an investigation being made with the permission of this court into the possibility of re-starting the undertaking. It is thus clear that no adverse civil consequence flowed affecting any vested right of any person like respondent No. 3 or respondents Nos. 7 to 9 and, as such, in our view, there would be no question of following principles of natural justice or giving a hearing to persons like respondents No. 3 and 7 to 9 before formation of opinion by the Central Government. Mr. Desai for respondents Nos. 7 to 9 faintly referred to the provisions of section 18(1) of the Act under which power has been conferred upon a person or body of persons appointed to make any investigation under section 15A to call for assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport the challenge to the vires of the section under article 14 was that if the provisions of section 15 and the provisions of section 15A of the Act, under both of which power to make investigation has been conferred upon the Central Government, are compared, it would appear that the ultimate object of both the investigations is to take over the management of an undertaking, and even so there is discrimination between the two investigations, inasmuch as for the investigation under section 15 certain procedure has been prescribed by framing rules which provide for hearing to be given to the management but no such procedure has been prescribed by any rules for the investigation to be undertaken under section 15A and, therefore, the investigation contemplated under section 15A has been discriminated and treated differently and as such section 15A is repugnant to article 14. The third leg of the argument to support the challenge to the vires of section 15A under article 14 was that for taking over the management of an undertaking of a company which was being wound up and whose business is not being continued, two different procedures one under the general law and the other under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and all local or other authorities within the territory of India or under the control of the Government of India and. in this particular case the management of the undertaking of the 1st respondent-company was being taken over under the provisions of section 15A and section 18FA not by the State or other authority but by the persons or body of persons who were designated as "authorised persons" under the Act and that the authorised persons could not be said to be "other authority" as contemplated by article 4. The learned Additional Solicitor-General rejoined by saying that the authorised persons who were to take over the management under section 18FA will have to be regarded as falling within the expression "other authority" occurring in article 12. On the question as to whether the authorised person contemplated by section 18FA of the Act would be "other authority" within the meaning of that expression as used in article 12, reliance was placed by counsel on both sides on a couple of authorities, which supported each one's rival contentions, e.g. , Rajasthan State Electricity Board v. Mohan Lal AIR 1967 SC 1857 and Pratmodrai Shamaldas Bhavsar v . Life Insurance Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies in liquidation, the Central Government should make an application to this court praying for permission to make an investigation into the possibility of restarting such an undertaking and the guidelines are to be found in the following words which occur in the section : "....if it is of opinion that it is necessary, in the interests of the genera public and, in particular, in the interests of production, supply or distribution of articles or class of articles relatable to the concerned scheduled industry, to investigate into the possibility, of running or restarting the industrial undertaking " These words clearly indicate that the power conferred by the section is conditioned by the formation of opinion as to the necessity investigating into the possibility of restarting particular industrial undertakings in the interests of the general public and in particular in the interests of production, supply or distribution of the concerned articles manufactured by the undertaking. In other words, unless the requisite opinion is formed by the Central Government that it is necessary in the interests of the general public and in particular in the interests of production, supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent can select any particular undertaking of a particular company which is being wound up and whose business is not being continued. It was, however, contended by Mr. Desai appearing for respondents Nos. 7 to 9, that guidance afforded by the relevant provision occurring in section 15A itself, which we have discussed above, should be regarded as very vague and insufficient to enable the Central Government to make selection. We are unable to accept the submission of Mr. Desai as we feel that specific and clear guidance has been afforded to the Central Government by reason of a particular relevant provision that is to be found in the section itself. In this context we may refer to a decision of the Supreme Court in Inder Singh v. State of Rajasthan AIR 1957 SC 510. In that case the provisions of section 15 of the Rajasthan (Protection of Tenants) Ordinance, No. 9 of 1949, which authorised the Government to exempt any person or class of persons from the operation of the Act was challenged on the ground that the section did not lay down the principles on which exemption could be granted and that the decision of the matter was left to the unfettered and uncanalised discretion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particular relevant clause occurring in section 15A itself clearly provide more than sufficient guidance to the Central Government by reference to which it can make its selection of an undertaking of a particular company in liquidation before making an application to the court thereunder. The first leg of the argument raising a challenge to section 15A under article 14 must, therefore, fail. Mr. Desai for respondents Nos. 7 to 9 further urged that in between the two investigations that were contemplated under section 15 and section 15A of the Act, though the ultimate purpose of both the investigations was the same, namely, to take over the management of the industrial undertaking of a particular company, discrimination was bound to result, inasmuch as for the investigation to be undertaken under section 15 certain procedure was prescribed by framing rules, whereas for the investigation under section 15A no procedure and no rules had been framed and as such the investigation contemplated under section 15A has been discriminated against and, therefore, the provisions of section 15A are violative of article 14. The argument, in our view, merely requires to be stated to be rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government has two procedures available to it to take over the management of companies which have gone into liquidation ; one under the general law and the other under section 15A and section 18FA of the Act and that the procedure under section 15A and section 18FA was clearly more harmful and prejudicial to the creditors of the company like respondents Nos. 7 to 9 and it was urged that since it was left to the sweet will of the Central Government to choose one or the other of the two procedures, the discrimination was bound to result. Relying on certain sections of the Companies Act dealing with powers of the official liquidator it was pointed out that, ordinarily, whenever a company went into liquidation and the official liquidator was appointed, the Government could apply to the liquidator for taking over the management of the undertaking on leave and licence basis on certain terms including payment of yearly or monthly licence fees that were fixed by the High Court and it was further pointed out that usually the High Court on fixing the terms permitted the Government to take over the management of the mills for certain period and the amount of licence fee was available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Union of India at the behest of the State Government and with ulterior motive of dispossessing respondent No. 3 of his control over the security. Two or three facts were pressed into service to support this plan. It was pointed out that the winding-up order was passed by this court on March 12, 1969, and the official liquidator was appointed and this court had specifically directed that the appointment of the official liquidator will not displace the private receiver who, however, will have no power to run the mills but will enjoy all the powers for the purpose of realising the security by sale thereof for the benefit of secured creditors. In other words, it was pointed out that physical control of the 3rd respondent over the security covered by the second debenture trust deed was not affected by the appointment of the official liquidator. Secondly, it has been pointed out that an attempt was made by the State Government after the company had gone into liquidation to run the said mills on the leave and licence basis under the unemployment relief scheme but, those negotiations failed in April, 1970, when the Government of Maharashtra withdrew its: own offer on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such it cannot be said that the present attempt is to get round the winding-up order. It is true that the negotiations carried on by the State of Maharashtra for taking over the mills for running the same on leave and licence basis failed in April, 1970, because no settlement on the point of licence fee payable by the State Government was arrived at. But it is clear on record that even that offer had been made by the State Government only with a view to see that the unemployment of 4,000 workers was relieved inasmuch as, admittedly, the management of the mill was sought to be taken over by the State Government as part of unemployment relief scheme. Similarly though the order passed by the Central Government on June 2, 1970, appointing a committee of inspectors undertake an investigation under section 15( a )( i ) was struck down by this court on October 9, 1971, that was not on merits but on the ground that on a proper interpretation of the section action under section 15( a )( i ) could not be taken in respect of the mills which had closed its business in October, 1967. The language of section 15( a )( i ) clearly warranted that view. It was also doubtful as to whether an o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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