TMI Blog1987 (4) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... the avowed object of relieving the congestion in the city of Bombay and developing its suburbs and outskirts, established a company by the name of City and Industrial Development Corporation of Maharashtra Limited (hereinafter referred to as CIDCO ). Mr. Ganguli relying upon certain observations made by a Division Bench of our High Court in the case of Hasuram G Gharat v. General Manager, Bombay Metropolitan Transport Corporation Ltd. [1987] 1 Curr LR 31, submits that CIDCO is established under the provisions of section 113 of the Maharashtra Regional and Town Planning Act, 1966 (hereinafter referred to the Town Planning Act ). Mr.Dwarkadas and Miss Sikander neither of whom appear of whom appear for CIDCO and who, as pointed out hereinafter, claim to be independent of CIDCO vehemently dispute this statement and Mr.Dwarkadas on taking instructions from his clients informs the court that CIDCO has filed a special leave petition against this judgment and stay had been obtained and, therefore, these observations could not be relied upon. The fact is that CIDCO's entire shareholding belongs only to the Government of Maharashtra. The Government of Maharashtra, for and on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner-company ran continuously at loss at least from the year 1980-81 and onwards. The figures are as follows : 7. The reasons for the losses as given by the board of directors in its report to the shareholders for the year ended March 31, 1982, inter alia, were : (a) To give impetus to the Vashi Township and to encourage traders to come and occupy Agriculture Produce Market, highly subsidised routes had been introduced between Mankhurd and Vashi, Mankhurd and Agriculture Produce Market. (b) The petitioners were compelled to introduce new routes between Dadar and Konkan Bhavan, Bandra and Konkan Bhavan at the instance of the Government to facilitate the Government servants to attend office at Konkan Bhavan. (c) The petitioners had issued concessional passes to the students as a social welfare measure. 8. Thereafter, for the year ending March 31, 1983, the board of directors, in its report to the shareholders over and above the grounds given above gave three further grounds, namely : (i) The fact that the petitioners are still in its infancy having commenced the business only from 1st April, 1980. (ii) The go-slow of the employees. (iii) No hike ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may be mentioned that before the Industrial Appellate Tribunal, the employees had given an undertaking that they would observe discipline and maintain harmonious relationship with the management. The said writ petition was dismissed by Division Bench of this court on January 11, 1985. Even before the High Court, all the unions in the field gave an ;undertaking to the court not to indulge in violence and not to resort to illegal strikes and to observe discipline and maintain harmonies relationship with ;the management. Whiles dismissing the writ petition, the learned judges, inter alia, came to the conclusion that the petitioners were an undertaking which could safely be termed as an agent of the State engaged in a public transport service and ultimately held as follows : . So far as the economic condition of the undertaking is concerned, the learned appellate authority has rightly not accepted the case of the petitioners even on merits. In our view, in a welfare State, in the case of an agency of State qua a public undertaking which is engaged in public utility utility services, a very strong case will have to be made out before permission for closure is asked for or granted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial incapacity of the corporation. From the observation of the appellate authority and the High Court mentioned above, it will be clear that in respect of a concern like this, it cannot be a sufficient ground for closure and I uphold the same since, in my opinion, the very reason existed earlier too. 15. The petitioners, by an application dated November 29, 1985 applied for review, which application was pending on the date this petition was filed. However, Miss Sikander, appearing for the Government of Maharashtra, has made a statement that in view of the fact that under section 25-O, the petitioners are entitled to apply afresh after one year from the date of the order dated March 29, 1985 the Government has decided that no orders. will be passed on the review application. Thus, in effect, the second application of the petitioners also stands rejected. 16. On May, 14, 1985 at a meeting of the board of directors of the petitioner-company (at which meeting only three out of the seven directors were present), a resolution calling for an extraordinary general meeting was passed. It is pertinent to note that a copy of the resolution was sent to the State Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rretrievably. 22. It is also averred that : The company submits that upon the rejection of the said writ petition by this hon'ble court as aforesaid, its board of directors reviewed the entire position in detail for the purpose of reviving, if possible, the under taking of the company in deference to the orders of the Hon'ble industrial court and this hon'ble court and the board of directors found that it would among other things need a sum of at least rupees one crore immediately to restart its business operations which the board considered as beyond the company's capacity and ability.... 23. The petitioners have craved leave to refer to and rely upon balance-sheets and profit and loss accounts for the years ending March 31, 1984 and March 31, 1985 and finally, averred that : ....its liabilities far exceeded its assets. 24. As many of the above averments were without any particulars and as the present condition of the buses or the exact amount required to put them in a running condition was not known, the petitioners were asked to file an affidavit clarifying the position. Two affidavits dated February 9, 1987 and February 19, 1987 were thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and/or CIDCO were Government companies under section 617 of the Companies Act, they were separate legal entities and not subject to the control of the Government. Miss Sikander relied upon two authorities of the Supreme Court in this behalf namely the case of Praga Tools Corporation v. C.V. Manual [1969] 39 Comp Cas 889 and the case of Heavy Engineering Mazdoor Union v. State of Bihar [1969] 39 Comp Cas 905. 27. It must be mentioned at this stage that even though he had initially argued to the contrary, Mr. Dwarkadas, on being shown the observations of the Division Bench referred to hereinabove ,conceded that it was not open to the petitioners to argue that they were not the instrumentalities or the agencies of the State Government. 28. Mr. Ganguli and Mr. Khankar, on the other hand, have submitted that : (a) the petition is filed with the mala fide intention of achieving by an indirect method what the petitioners could not achieve otherwise, i.e., a closure method what the petitioners could not achieve otherwise, i.e., a closure : (b) that on the principles of res judicata or the principles analogous the thereto, it was not open to the petitioners to urge the ground of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces or carrying on business. 31. On these principles and in the light of the rival contentions, the grounds given in the petition now need to be considered. 32. The first ground is that a resolution as required under section 433 of the Companies Act has been passed and, therefore ,the company was entitled to a winding-up order. In any view, the facts as set out herinabove make it abundatly clear that pursuant to the decision of the then Chief Minister, all attempts had been made merely to implement that decision and close down the petitioner-company. Towards that end, application under section 25-O of the Industrial Disputes Act were made workers served with notices of termination, writ petitions filed and when all those attempts failed, the resolution was got passed by the shareholders who are all nominees of CIDCO and/or the Government of Maharashtra. There can be no doubt that by the resolution and by this petition, closure which has been refused twice, is now sought to be achieved. The whole intention, therefore, is mala fide and intended to terminate the services of the work-men by bypassing the provisions of the Industrial Disputes Act. It is all the more main fide when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner-company has been loans from CIDCO to the extent of ₹ 5,02,56,143 and ₹ 40,22,527 and a loan from BMRDA to the extent of ₹ 1,12,60,961 (against hypothecation of 50 buses) and an overdraft from the State Bank of India in sum of ₹ 24,89,936. The overdraft has been granted on the basis of a deposit of ₹ 40 lakhs kept by the petitioners with the State Bank of India (which amount of ₹ 40 lakhs has been borrowed by the petitioners from CIDCO as mentioned above). It may also be noticed that even during the year in which the petitioners had labour problems, the petitioner-company had earned by way of (a) traffic earnings, a sum of ₹ 3,92,61,316, (b) interest in a sum of ₹ 4,79,924 and (c) had miscellaneous receipts of ₹ 2,16,631. The statement showing the financial position of the company annexed to the affidavit dated February 19, 1987, shows that the loan given by BMRDA has been paid off and, effectual, the only creditor is CIDCO who has been shown as an unsecured creditor in a sum of ₹ 9,26,79,875. It is also significant to note that it is not averred anywhere in the petition or on affidavit that either BMRDA and/or CIDCO we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of possibility of ever running the business at a profit. Also, there are no averments that attempts have been made to raise monies and that it has not been possible to do so and/or that in spite of all efforts, the business could not be restarted. 38. It must be mentioned that before me also all the workmen were willing to give similar undertakings as already given to the industrial court and to this court in Writ Petition No. 5070 of 1984, but I found that there was no corresponding willingness on the part of the petitioners to even make an attempt at running the business and Mr. Dwarkadas in his usual fairness has stated that the decision to close down having been taken, there were no attempts made to restart the business nor was the possibility considered. 39. Mr. Dwarkadas has submitted that once a ground under section 433(a) to (e) is made out, the court has no option but to order a winding up of the company and the only discretion which a court has is under section 433(f). Mr Dwarkadas, for this purpose, relied on a decision of this High Court in the case of Advent Corporation Pvt. Ltd., In re [1969] 39 Comp Cas 463, wherein the learned judge held as follows (at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 433(a) to (f) of the Companies Act is to be exercised and further with great respect to the learned judge, I think, these observations are in fact contrary to a bare reading of the section itself. Mr. Dwarkadas also cited a number of cases in order to show that if the company is commercially insolvent, the court must wind up the company. The case cited by Mr. Dwarkadas are the cases of V. V. Krishna Iyer Sons v. New Era Manufacturing Co. Ltd. [1965] 35 Comp Cas 410, Delhi Automobiles P. Ltd. v. Maruti Ltd. [1978] 48 Comp Cas 676, Madhusudan Gordhandas and Co. v. Mahdhu Woollen Industries P. Ltd. [1972] 42 Comp Caqs 125, Cine Industrries and Recording Co., In re, AIR 1942 Bom 231 Registrar of Companies v. Shrepalpur Cold Storage P. Ltd., In re (1986)88BOMLR226 . Mr. Dwarkadas relies on these cases to show that once liabilities exceed assets, the substratum of the company is gone and the company must be wound up. However, this is only one test and all these cases lay down the ratio that in determining whether or not the substratum of the company has gone, the objects of the company and the case of this company on that question have to be looked at ; that the mere fact that trading l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from its members ; that merely because the entire share capital of the petitioner-company was contributed by the Government and all its shares were held by the Government and its directors were all officers of the Government this did not make any difference to the company's application to wind itself up. 42. In my view, Mr. Dwarkadas has a point. For the purposes of winding-up, it is the financial position of the company itself that the court has to consider. But, in this case, as already set out herinabove, the petitioners have failed to make out any case for winding-up. 43. Moreover, as pointed out by Bhagwati j., as he then was, in the case of Ramana Dayaram Shetty v. International Airport Authority (1979)IILLJ217SC So far as India is concerned, the genesis of the emergence of the emergence of corporations as instrumentalities or agencies of Government is to be found in the Government of India Resolution on Industrial Policy, dated April 6, 1948, where it was stated, inter alia, that 'management of State enterprises will as a rule be through the medium of public corporations under the statutory control of the Central Government who will assume such powers as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reality behind. Law does not hoodwink itself and what is but a strategy cannot be used as a stratagem. 46. Again at pages 82 and 91, it is stated as : The true test is functional. Not how the legal person is born but why it is created. Nay more, apart from discharging functions or doing business as the proxy of the State, wearing the corporate mask, there must be an element of ability to affect legal relations by virtue of power vested in it by law. We may point out here that when we speak of a corporation being an instrumentality or agency of Government, we do not mean to suggest that the corporation should be an agent of the Government in the sense that whatever it does should be binding on the Government. It is not the relationship of principal and agent which is relevant and material but whether the corporation of principal and agent which is relevant and material but whether the corporation is an instrumentality of the Government in ;the sense that a part of the governing power of the State is located in the corporation and though the corporation is acting on its own behalf and not on behalf of the Government, its action is really in the nature of State action. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exonerate corporations from the need to have constitutional conscience : and so, that interpretation, language permitting, which makes Governmental agencies, whatever their mien, amenable to constitutional limitations must be adopted by the court as against the alternative of permitting them to flourish as an imperium in imperia. 49. Whilst these observations are in the context of article 12 of the Constitution, even in other cases, if resort such as this is sought to be taken, in utter disregard of its duties and obligations to its citizens, the conscience of these corporations and/or companies and the powers behind them would have to be rudely awakened and enforced. 50. There is, however, one other point which has been raised by Mr. Ganguli and Mr. Khankar and by reason of which also I think the petition must fail. 51. Mr. Ganguli has submitted that the winding-up of a company results in the closure of the company ; that under section 445 of the Companies Act, the services of the emplyees of the company are deemed to have been terminated on the passing of a winding-up order. There is, therefore, a conflict between the provisions of the Companies Act and the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that there is no conflict between the provisions of the Companies Act and the Industrial Disputes Act at all, and in support of his argument, he gave the following propositions : (1) Under the Companies Act, a company may be wound up in one of several ways and circumstances. (2) Winding-up under the Companies Act is not confined only to cases where the company is in insolvent circumstances, but it could be for any reasons contained in section 433(a) to (d) and (f), or where it wants re-incorporation with extended objects or amalgamation with one or more companies. (3) Winding-up on the ground that the company is commercially insolvent is only one of the reasons for winding-up. (4) In any event, the object of winding up is to dissolve the company so that its assets are realise and applied in payment of its debts, and if there is any surplus, the same is paid back to the contributories. (5) The different modes of winding-up envisaged by the Companies Act are enumerated in section 425 of the Companies Act and they are as follows : 1. by the court, 2. voluntary winding-up, 3. subject to the supervision of the court. (6) The effect of winding-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction to wind up a company is exclusively conferred on the High Court or on the District Court. (18) To hold that winding-up can only be subject to permission under section 25-0 would imply that the exclusive jurisdiction of the High Court is displaced and the same would be subject to the permission of the appropriate Government under the Industrial Disputes Act in any of the cases covered by section 433(a) to (f). 52. In my view, these propositions do not answer the point as raised. There is no doubt that to the extent that one of the effects of winding-up is that there is a closure of an undertaking and so long as that undertaking is covered by the provisions of section 25L of the Industrial Disputes Act and an application is made by the company for winding itself up, there would be a conflict between the provisions of the Companies Act and the Industrial Disputes Act. There is also another reason and that is that in all such cases where the provisions of two Acts or two provisions of the same Act cannot stand together and are in conflict, then the provision which has been legislated later must always prevail. Section 25-O of the Industrial Disputes Act as it now stands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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