2007 (10) TMI 403 - HC - Companies Law

Compromise and arrangement - claim of forgoings - whether General Reserve No. II was not expected to be transferred to the Forgings though this General Reserve was specifically created as a provision to meet the liability towards the workmen who were terminated? Held that - Claim of the Forgings was already satisfied in the differential payable by them to the Industries as per the minutes of the meeting dated 29th August 1984. Therefore we find that the decree passed by the learned Single Judge in favour of the Forgings in that respect cannot be sustained. The Forgings had failed to prove its claim over the General Reserve No. II of Rs. 3.25 crores. It also failed to prove its claim about the die-blocks and machinery allegedly transferred from Kanjur Division to Rajkot Division. Taking into consideration the evidence we find that the Industries have satisfactorily proved that even though the payment of Rs. 23.47 lakhs was made by the Forgings towards the liability of erstwhile workmen the Forgings have been in fact compensated by the Industries by deduction of Rs. 8.68 lakhs net of tax from the differential and therefore Forgings are not entitled to receive anything more. Therefore Appeal No. 662 of 2001 filed by the Forgings is liable to be dismissed while the Appeal No. 532 of 2001 filed by the Industries deserves to be allowed.

Summary

Issues Involved:
1. Claim of Forgings over General Reserve No. II.
2. Liability of Industries to pay Rs. 23,47,000 to Forgings for compensation paid to workers.
3. Claim of Forgings about die-blocks and machinery transferred from Kanjur Division to Rajkot Division.

Detailed Analysis:

1. Claim of Forgings over General Reserve No. II:
The Forgings claimed that the General Reserve No. II, amounting to Rs. 3,25,54,732, was specifically created to meet the liability towards the workmen terminated from the Kanjur Division and should have been transferred to them. The Industries contested this, stating that the General Reserve No. II was a general reserve in the balance sheet of the main company and not an asset or liability of the Forgings. The learned Single Judge, after considering the evidence and the report by Mr. Dastur, concluded that the General Reserve No. II was not created to meet the liability towards the workmen and was an appropriation of profits, not a provision for anticipated liability. The judgment emphasized that reserves are appropriations of profits represented by equivalent assets, and the General Reserve No. II was not shown in the balance sheet of the Kanjur Division. The court found no valid reason to disagree with these findings and dismissed the claim of the Forgings over the General Reserve No. II.

2. Liability of Industries to Pay Rs. 23,47,000 to Forgings:
The learned Single Judge noted that both parties had shifting stands regarding the liability to pay compensation to the workers terminated in 1973. The judgment highlighted that the payment was made from the accounts of the Forgings, and the Industries failed to prove that the Forgings were compensated for this amount. The court found that the responsibility of payment to the workers was assumed by the Forgings under the sanctioned scheme but was not provided for in the evaluation report of the Kanjur Division. Therefore, the Industries were liable to compensate the Forgings. However, the learned Single Judge's conclusion that the evidence regarding the adjustment of this amount in the differential was unreliable was not upheld. The court found that the payment of Rs. 23.47 lakhs was adjusted by deduction of Rs. 8.68 lakhs net of tax from the differential, and the remaining amount was settled as the Forgings got a rebate in income tax. Consequently, the decree in favor of the Forgings was not sustained.

3. Claim of Forgings about Die-blocks and Machinery:
The claim of the Forgings regarding the die-blocks and machinery allegedly transferred from Kanjur Division to Rajkot Division was found to have no substance by both Mr. Dastur and the learned Single Judge. The judgment noted that this dispute was not seriously pressed by the Forgings and found no reason to take a different view from the findings of the learned Single Judge.

Conclusion:
The court dismissed the appeal filed by the Forgings (Appeal No. 662 of 2001) and allowed the appeal filed by the Industries (Appeal No. 532 of 2001), setting aside the order directing the Industries to pay Rs. 23.47 lakhs with interest to the Forgings. Each party was ordered to bear its own costs.