TMI Blog1982 (12) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... mited company called Ramakrishna Industries (P.) Limited (hereinafter referred to as "the 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 the 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 103 workmen. It is a closed company in which there are two groups of shareholders, one group consisting of respondents Nos. 1 to 5 and the other consisting of respondents Nos. 7 to 14. Respondents Nos. 1 to 5 hold 608 shares and respondents 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 respondents Nos. 1 to 5 on the one hand and respondents 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,' respondents 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lications 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, [1968] 38 Comp. Cas. 28, 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 Unions v. Union of India [1981] 59 FJR 237: [1981] 2 SCR 52 and of the High Court of Bombay in Bhalchand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respondents 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. Respondents 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 up to 10th August, 1981. Respondents 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 befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 respondents 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 respondents 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 respondents Nos. 1 to 5 that the applications were made by the Unions on behalf of the workmen re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced on behalf of the three Unions on rule 34 of the Companies (Court) Rules, 1959, which provides as follows : "Rule 34. Notice to be given by persons intending to appear at the hearing of petition. Every person who intends to appear at the hearing of a petition, whether to support or oppose the petition, shall serve on the petitioner or his Advocate, notice of his intention at the address given in the advertisement. The notice shall contain the address of such person, and be signed by him or his Advocate, and save as otherwise provided by these Rules shall be served (or if sent by post, shall be posted in such time as to reach the addressee) not later than two days previous to the day of hearing, and in the case of a petition for winding up, not later than five days previous to the day of hearing. Such notice shall be in Form No. 9, with such variations as the circumstances may require, and where such person intends to oppose the petition, the grounds of his opposition, or a copy of his affidavit, if any, shall be furnished along with the notice. Any person who has failed to comply with this Rule shall not, except with the leave of the Judge, be allowed to appear at the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the time when the doctrine of laissez faire held sway and it dominated the political and economic scene. This doctrine glorified the concept of a free economic society in which State intervention in social and economic matters was kept at the lowest possible level. But gradually this doctrine was eroded by the emergence of new social values which recognised the role of the State as an active participant in the social and economic life of the citizen in order to bring about general welfare and common good of the community. With this change in socio-economic thinking, the developing role of companies in modern economy and their increasing impact on individuals and groups, through the ramifications of their activities, began to be increasingly recognised. It began to be realised that the company is a species of social organization, with a life and dynamics of its own and exercising a significant power in contemporary society. The new concept of corporate responsibility transcending the limited traditional views about the relationship between management and shareholders and embracing within its scope much wider groups affected by the trading activities and other connected operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the community who are vitally interested in the product manufactured in the concern. Then how can it be said that capital, which is only one of the factors of production, should be regarded as the owner having an exclusive dominion over the concern, as if the concern belongs to it ? A company, according to the new socio-economic thinking, is a social institution having duties and responsibilities towards the community in which it functions. The Supreme Court pointed out as far back as 1950 in Chiranjilal Chaudhury v. Union of India, LI 951] 21 Comp. Cas. 33, at p. 66: "We should bear in mind that a corporation, which is engaged in production of a commodity vitally essential to the community, has a social character of its own and it must not be regarded as the concern primarily or only of those who invest their money in it". Pt. Govind Ballabh Pant also pointed out in one of his speeches : "...industry is not an isolated concern of the shareholders or the managing agents alone. It reacts on the entire people in the country, on their economic conditions, on employment or standard of living, on everything that conduces to the material well being. " The same view wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitting as a Judge of the Gujarat High Court in Panchmahals Steel Ltd. v. Universal Steel Traders [1976] 46 Comp Cas 706, in the following words (at p. 718): "Time-honoured approach that the company law must safeguard the interest of investors and shareholders of the company would be too rigid a framework in which it can now operate. New problems call for a fresh approach" And in ascertaining and devising this fresh approach, the objective for which the company is formed may provide a guideline for the direction to be taken. As Prof. De Wool of Belgium puts it, the company has a three-fold reality economic, human and public each with its own internal logic. The reality of the company is much broader than that of an association of capital; it is a human working community that performs a collective action for the common good. In recent years a debate is going on in the world at large on the functions and foundations of corporate enterprise. The ' preservationists ' and the ' reformers ' are vigorously propounding their views on the possible reform of company, the modern trend emphasising the public interest in corporate enterprise". The learned judge elaborated this "modern tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al remuneration for men and women for same work or work of a similar nature. Traffic in human beings and begar and other similar forms of forced labour are prohibited under article 23 and article 24 mandates that no child below the age of 14 may be employed in any factory or mine or engaged in any other hazardous employment. These two articles recently came up for construction before this Court in People's Union for Democratic Right's case decided on September 18, 1982, [1983] 62 FJR 1. Article 38 imposes an obligation on the State, albeit unenforceable in a court of law, to "strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which social justice shall inform all the institutions of the national life". This is followed by article 39 which, inter alia , obliges the State to direct its policy towards securing that the citizens, men and women equally have the right to an adequate means of livelihood; the ownership and control of the material resources of the community are so distributed as best to sub-serve the common good; the operation of the economic system does not result in the concentration of wealth and means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to appear and be heard in a winding up petition. The Companies Act, 1956, is a self-contained code exhaustive in regard to all matters relating to companies and since there is no provision in that Act conferring on the workers a right to intervene in a winding up petition, no such right can be spelt out in their favour outside the provisions of that Act. Respondents Nos. 6 to 9 relied upon various provisions of the Companies Act, 1956, in support of their contention that the workers have no locus in a winding up petition but we do not think these provisions lend any support to that contention. The first provision relied upon by respondents Nos. 6 to 9 was section 439 which, inter alia , provides as to who shall be entitled to make an application for the winding-up of a company. It is no doubt true that this section confers the right to present a winding up petition only on certain specifically enumerated persons and the workers are not included in that enumeration and, therefore, obviously, the workers have no right to prefer a petition for the winding-up of a company. The right to apply for a winding-up of a company being a creature of statute, none other than those on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , distribute the same among the shareholders by way of dividend and ultimately dissolve the company, it is only the creditors and the contributories who would be affected by any action taken in the course of winding-up of the company and that is why we find several provisions in the Companies Act, 1956, which speak of winding-up being carried on with due regard to the interest of the creditors and the contributories or after ' consultation with them or confer rights on the creditors and the contributories to make applications for diverse purposes with a view to an effective winding-up of the company. Such provisions are, for instance, to be found in sections 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560. These provisions apply at a stage after a winding-up order is made by the court or the voluntary winding-up has commenced or an order is made for a continuance of winding-up subject to the supervision of the court, when winding-up having been ordered or resolved, what remains to be done is only to wind-up the company, pay the creditors and if there is any surplus, distribute the same among the shareholders. These provisions do not deal with a situation prior to the making of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion can permit the court to make a winding-up order which has the effect of bringing about termination of the services of the workers without giving them an opportunity of being heard against the making of such order. It would be violative of the basic principle of fair procedure, and unless there is an express provision in the Companies Act, 1956, which forbids the workers from appearing at the hearing of the winding-up petition and participating in it, the workers must be held entitled to appear and be heard in the winding-up petition. That is the minimum requirement of the principle of audi alteram partem which cannot be ignored save on pain of an invalidation of the order of winding-up. Here, we do not find any provision in the Companies Act, 1956, which in so many terms excludes the workers from appearing at the hearing of the winding-up petition with a view to supporting or opposing it and the only ground on which the right of the workers to appear and be heard in the winding-up petition is disputed is that there is no specific provision in the Act entitling them to do so and the right to apply for winding-up as also to participate in the proceedings in the course of windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members for their profit but also in a manner which is not prejudicial to public interest. The element of public interest enters into the management of the companies after 1963. The modern corporation has become the accepted instrument of social policy, because it affects a large part of the economic life of the community, It has become an instrument for the improvement of the economic standards of the people and for economic growth of the nation. Society depends foe some of its needs on corporate enterprise. It has, therefore, an interest in its stability and efficiency as an economic institution. The element of public interest also arises from the responsibility for ensuring a minimum wage to the numerous employees in the corporate sector. It is necessary to see that people who put their labour and lives into a concern get fair wages, continuity of employment and a recognition of their right to their jobs where they have trained themselves to highly skilled and specialised work. In deciding whether the court should wind up a company or change its management the court must take into consideration not only the interest of the shareholders and creditors but also public interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny creditor or shareholder may appear to support or oppose the petition but no one else can do so even if he has an indirect interest in the continued existence of the company. So also in Buckley on the Companies Acts (14th Edn. ), at page 546, the law has been stated in the following terms, namely: "The only persons entitled to be heard are the company, its creditors and contributories. The court may, in its discretion, hear other persons who have an interest in order to learn what public grounds there are in favour of, or in opposition to, the winding up, but such persons can be heard only as amid curiae, and cannot appeal". Our attention was also invited to. Halsbury's Laws of England, 4th Edn. Vol. 7, where a similar statement of the law is to be found at page 614 para. 1028. Now, it is undoubtedly true that according to the statement of the law contained in these three leading text books, it is only the company, the creditors and the contributories who are entitled to appear on the winding up petition and no other persons have a right to be heard, but this statement of the law is based on the old decision in Re. Bradford Navigation Company, [1869] LR 9 Eq. 80, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the English courts might not have had any occasion to consider the acceptability of this legal rule in the present times. But, whatever be the reason as to why-this legal rule continues to remain in the English text books, we cannot be persuaded to adopt it in our country, merely on the ground that it has been accepted as a valid rule in England. We have to build our own jurisprudence and though we may receive light from whatever source it comes, we cannot surrender our judgment and accept as valid in our country whatever has been decided in England. The rule enunciated in Re. Bradford Navigation Company case, [1869] LR 9 Eq. 80, does not commend itself to us and though it has been followed by a single Judge of the Bombay High Court in Re. Edward Textiles Limited, [1968] 38 Comp. Cas. 284, we do not think it represents correct law. We may also mention that on behalf of the appellants some reliance was placed on rule 34 of the Companies (Court) Rules, 1959, in support of their contention that not only the creditors and the contributories but also other persons are entitled to appear at the hearing of a winding-up petition and the workers cannot therefore be excluded. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not confined in its application to the creditors and contributories but uses the generic expression "every person" and to this limited extent it does undoubtedly lends some support to the contention of the appellants. We are, therefore, of the view that the workers are entitled to appear at the hearing of the winding-up petition whether to support or to oppose it so long as no winding order is made by the court, The workers have a locus to appear and be heard in the winding-up petition both before the winding-up petition is admitted and an order for advertisement is made as also after the admission and advertisement of the winding-up petition until an order is made for winding-up the company. If a winding-up order is made and the workers are aggrieved by it, they would also be entitled to prefer an appeal and contend in the appeal that no winding-up order should have been made by the Company Judge. But, when a winding-up order is made and it has become final, the workers ordinarily would not have any right to participate in any proceeding in the course of winding up the company, though there may be rare cases where in a proceeding in the course of winding up, the interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application for the appointment of a provisional liquidator too, Quite apart from section 445(3) of the Companies Act which provides that the order for winding up shall be deemed- to be a notice of discharge of the officers- and employees of the company, except when the business of the company is continued, it is plain that the future of the workers is at stake and their right to work is in jeopardy as a result of the presentation of the winding-up petition. Unlike the shareholders, to most of whom the shares they hold represent mere investments and to some of whom, the means to control the affairs of the company, to the workers, the life of the company is their own and its welfare is theirs. They are so intimately tied up that their interest in the survival and the well-being of the company is much more than the interest of any shareholder be he an investor, a corporate commander or a corporate manipulator. How then is it possible that these persons the workers whose very existence may be under threat of extinction are to be denied a hearing, even if sought, when a petition for winding-up is presented to a court. It is said that the Companies Act does not contemplate a hearing to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their own hands and not in the hands of the industrialists, bankers and brokers. Our Constitution has accepted the workers' entitlement to control and it is one of the Directive Principles of State Policy that the State shall take steps, by suitable legislation or in any other way, to secure the participation of workers in the management of undertakings, establishments or other organizations engaged in any industry. It is in this context of changing norms and waxing values that one has to judge the workers' demand to be heard. And, what do the workers want ? They want to be heard lest their situation be altered unheard. They invoke natural justice, so to claim justice. They invoke the same rule which the courts compel administrative tribunals to observe. Can courts say natural justice need not be observed by them as they know how to render justice without observing natural justice ? It will surely be a travesty of justice to deny natural justice on the ground that courts know better. There is a peculiar and surprising misconception of natural justice, in some quarters, that it is, exclusively, a principle of administrative law. It is not. It is first a universal principle and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... themselves into a society. They may have myriad suggestions to make, which they can do if they are allowed to be heard. If every holder of a single share out of thousands may be heard, if every petty creditor may be heard, why can't the workers be heard ? It is said that once the workers are allowed to enter the Company Court, the flood gates will be opened, all and sundry will join in the fray and utter confusion will prevail. These are dark forebodings for which there is no possible justification. The interest of the workers is limited. It is the interest of the others, those that battle for control and for power that may create chaos and confusion. It must not be forgotten that the court is the master of the proceedings and the ultimate control is with the court. Parties may not be impleaded for the mere asking or heard for the mere seeking. The court may well ask the reason why, if some one seeks to be heard. Workers will not crowd the Company Court and the court will not be helpless to keep out those whom it is not necessary to hear. It is said that workers will not be allowed to intervene in a partition or a partnership action to oppose the partition or dissolution of a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visages workers' control and nationalisation as two of the roads to socialism. Private corporations hitherto regarded as bastions of private property and leaders of capitalist economy are undergoing transformation and, are surely acquiring the character of public institutions. The public interest element is now quite a pre-dominant factor in the Companies Act itself. There are several provisions in the Companies Act which take notice of the element of public interest. There are other enactments like the Monopolies and Restrictive Trade Practices Act, the Industries (Development and Regulation) Act, under whose provisions, the activities of a company may be scrutinized in the public interest. There are a host of other legislations involving employment and welfare of labour, to which the managements of companies are subject. The transformation of a company's character from private to public is going on right before our eyes even as the institution of private property is also losing its diathesis. It is in this context of ferment and development that we must consider the problem before us. There is no sanctity attached to the age of a judgment or to the circumstance that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude by a reference to the following observations made in another connection by D. A. Desai, J. in Panchmahals Steel Ltd. v. Universal Steel Traders, [1976] 46 Comp. Cas. 706 (SC), at p. 718 : "Time-honoured approach that the company law must safeguard the interest of investors and shareholders of the company would be too rigid a framework in which it can now operate. New problems call for a fresh approach...As Prof. De Wool of Belgium puts it, the company has a three-fold reality economic, human and public each with its own internal logic. The reality of the company is much broader than that of an association of capital; it is a human working community that performs a collective action for the common good. In recent years, a debate is going on in the world at large on the functions and foundations of corporate enterprise. The ' preservationists ' and the ' reformers ' are vigorously propounding their views on the possible reform of company, the modern trend emphasising the public interest in corporate enterprise". The case itself is an instructive one and demonstrates how an imaginative Company Judge may help to restructure and infuse new life into a company whose life is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Educational Trust having control over the shares held by the Trust. They are also treated as life directors. Only 5 shares stand in the names of others. V. Kamalammal, Mrs. Rajeswari Ramakrishnan, V. Radhakrishnan, V. Manoharan, K. Prabhu and R. Baba Chandersekhar are directors and V. Rajkumar is the managing director of the Company. The Company 13 thus under the exclusive control and management of the members belonging to one family. Serious differences having arisen amongst them regarding the management of the affairs of the Company, P. R. Ramakrishnan, his wife and sons filed a petition being Company Petition No. 30 of 1981, on the file of the High Court of Madras on 13th July, 1981, for the winding-up of the Company under section 433( e ) and ( f ) of the Act on the ground that it was just and equitable to do so in view of the alleged deadlock that had arisen in the administration of the affairs of the Company. The petition charged the members belonging to the group of R. Venkataswami Naidu with acts of misconduct, waste and malversation, a detailed reference to which is unnecessary for purposes of this case. Along with the above petition, the petitioners therein filed Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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 befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions some of which are basic to its existence even though they may be alterable by following the prescribed procedure. The articles which contain the terms relating to the internal regulation may be altered by the. members by passing appropriate resolution. The articles are, however, subject to the terms of the memorandum. Both those documents should, however, conform to the Act. The actions of the company are subject to the doctrine of ultra vires the purpose of which is to protect investors in the company and to protect the interests of its creditors. The directors of a company are its agents and they stand in a fiduciary relationship to the company. The duties of good faith which are imposed by this fiduciary relationship are virtually identical with those imposed on trustees. The directors are generally expected not to place themselves in a position where their duties towards the company conflict with their personal interests. A company ceases to be in existence on its dissolution which follows the winding-up proceedings which may be either by the Court or voluntary winding-up (either members' voluntary winding-up or creditors' voluntary winding-up) or winding-up subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. To appreciate this contention, it is necessary to refer to some of the provisions of the Act. Section 433 of the Act sets out six circumstances in which a company may be wound up by the Court. A company may be wound up by the Court on one or more of the following grounds, namely, ( a ) if the company has, by special resolution, resolved that the company may be wound up by the Court, ( b ) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting, ( c ) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year, ( d ) if" the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two, ( e ) if the company is unable to pay its debts, and ( f ) if the Court is of opinion that it is just and equitable that the company should be wound up. Section 439 of the Act provides that an application to the Court for the winding-up of a company shall be made by way of a petition presented to the Court subject to the provisions of that section. A petition for the winding-up of a company may be filed by all or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion as to who can be heard as of right in a winding-up proceeding is set out in paragraph 1028 in Volume 7 of Halsbury's Laws of England (4th Edition) thus : "...Only the petitioner, the company, and creditors and contributories are entitled to appear on the petition; other parties have no right to be heard, and, even if the court of first instance elects to hear them as amici curiae, they have no right of appeal. " The above passage is based on the decision of the English Court in In re Bradford Navigation Company, [1870] 5 Ch 600, where Sir W. M. James, L. J., observed at page 601 thus: " 'I am of opinion that this preliminary objection must prevail. It appears to me that the appellant's argument is based upon a misconception of what a winding-up order and what a winding-up petition is. It is a substitute for a suit for winding-up a partnership. It is a power applicable by the Act of Parliament to corporations as well as to unincorporated societies. Partners have a right to file a bill one against the other, and to have the usual decree for the administration of the partnership property, and for the settling of the partnership accounts and liabilities. In the case of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for winding-up a company shall operate in favour of all the creditors and of all the contributories of the company as if it had been made on the joint petition of a creditor and of a contributor." "557. Meetings to ascertain 'wishes of creditors or contributories. (1) In all matters relating to the winding-up of a company, the Court may ( a )have regard to the wishes of creditors or contributories of the company, as proved to it by any sufficient evidence; ( b )if it thinks fit for the purpose of ascertaining those wishes, direct meetings of the creditors or contributories to be called, held and conducted in such manner as the Court directs; and ( c )appoint a person to act as chairman of any such meetings and to report the result thereof to the Court. (2) When ascertaining the wishes of creditors, regard shall be had to the value of each creditor's debt. (3) When ascertaining the wishes of contributories, regard shall be had to the number of votes which may be cast by each contributory." That a company, the Official Liquidator, the liquidator, creditors and contributories alone can effectively participate in and contest the winding-up proceedings is clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 549(1) of the Act provides that at any time after the making of an order for the winding-up of a company by or subject to the supervision of the Court, any creditor or contributory of the company may, if the Supreme Court, by rules prescribed so permit and in accordance with and subject to such rules but not further or otherwise, inspect the books and papers of the company. Any creditor or contributory may under section 556 apply to the Court to enforce the duty of liquidator to make returns, etc . These and other provisions of the Act show that only the company, the Official Liquidator, liquidator, creditors, contributories or the Registrar have a statutory right to participate as of right in the winding-up proceedings as provided in the Act. The workers or their trade unions have not been given any such right. The words "every person" in rule 34 of the Companies (Court) Rules, 1959, (which is almost similar to the corresponding English Rule) do not entitle a worker who is neither a shareholder nor a contributory to support or oppose a winding-up petition under that rule because they refer only to a person who is otherwise entitled to do so under the Act. We should also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ou must accept that'. Because, if he had a right to say 'You must carry on the business' he would also have a right to say 'You must carry on the business in the usual and proper manner', and that would be giving a servant the right of controlling the master in the mode in which he chose to carry on his business. Now, I am quite satisfied that the meaning of the contract was nothing of the kind. It was never intended to give the servant the right of dictating as to the extent of business, whether more or less, or nothing, but he simply took the chance of the company finding it a profitable business and carrying it on. The company had a right to reduce the business to a minimum; and if they had a right to reduce it to a minimum, they had a right to reduce it to nothing as far as he was concerned. " It is because of some doubts that had been expressed earlier about the continuance of the employment of the employees of a company ordered to be compulsorily wound up that section 445(3) was enacted making it clear that the passing of the order of winding-up amounts to a notice of discharge of the employees concerned. Section 445(3) corresponds to the termination of service brought abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being continued, the Central Government may, if it is of opinion that it is necessary, in the interest 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 praying for permission to make, or cause to be made, an investigation into such possibility by such person or body of persons as that Government may appoint for the purpose. (2) Where an application is made by the Central Government under sub-section (1), the High Court shall, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or in any other law for the time being in force grant the permission prayed for." The provisions of Chapters III-AA and III-AB of the Industries (Development and Regulation) Act, 1951, confer on the Central Government powers regarding management or control of industrial undertakings owned by companies in liquidation and power to provide relief to certain industrial undertakings including those to which Chapter III-A is applicable. Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the winding-up proceedings as contributories. This may be one way of solving the problem by legislative means. Another way of providing a forum to the workers' representative in matters relating to the winding-up of a company is to amend section 292 of the Act as suggested in para. 11. 27 and para. 18. 137 of the Report of the Sachar Committee (See [1978] 48 Comp. Cas. (St.) 157.). Those paragraphs are reproduced below for ready reference: "11. 27. The workers' representation on company Board makes it necessary to provide that companies must ensure that certain decisions are necessarily taken at the Board level and the Board do not delegate the powers in respect of these matters to committees or other functionaries in the organization, otherwise the participation of workers at the Board level is likely to prove ineffective. The powers and functions which cannot be delegated by the Board, and which must be within the exclusive jurisdiction of the Board to take policy decision are in respect of the following matters: ( a ) winding-up of the company; ( b ) changes in the memorandum and articles of association; ( c ) changes in the capital structure of a company (e. g. , as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person who wishes to exercise it. Under the existing law, the workers or their unions may make any suggestions to the court at any stage but they cannot claim to be impleaded as parties to the winding-up petition as of right. The decision of this Court in Fertilizer Corporation Kamgar Union ( Regd. ) , Sindri Ors. v. Union of India Ors. , [1981] 59 FJR 237; [1981] 2 SCR 52, does not lend any support to the case "of the trade unions. In that case which attracted the principles of administrative law the petitioner trade union pleaded that article 14, article 19(1)( g ) and article 311 of the Constitution had been violated by the sale of the plant and equipment of a factory in which its members were working. Ultimately, the petition was dismissed by this court. One of the distinguishing features of that case is that the factory involved in that case was in the public sector and owned by the Government against which a petition under article 32 of the Constitution was maintainable. Chandrachud, C. J. observed in the course of his judgment at page 243 (of FJR) thus: "Secondly, the right of Petitioners Nos. 3 and 4 and of the other workers, to carry on the occupation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition which is correlated to the existence and violation of a fundamental right is not always is be confused with the locus to bring a proceeding under article 32. These two matters often mingle and coalesce with the result that it becomes difficult to consider them in water-tight compartments. The question whether a person has the locus to file a proceeding depends mostly and often on whether he possesses a legal right and that right is violated. But, in an appropriate case, it may become necessary in the changing awareness of legal rights and social obligations to take a broader view of the question of locus to initiate a proceeding, be it under article 226 or under article 32 of the Constitution. If public property is dissipated, it would require a strong argument to convince the court that representative segments of the public or at least a section of the public, which is directly interested and affected, would have no right to complain of the infraction of public duties and obligations. Public enterprises are owned by the people and those who run them are accountable to the people. The accountability of the public sector to the Parliament is in effective because the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the manager contending that the said factory is the separate property of the manager and should not, therefore, be partitioned merely because they may be discharged from service in the event of the suit being decreed. They cannot resist the suit for dissolution of a firm which owns the factory in which they are working even though at the distribution of the assets of the firm, the factory may have to be dismantled and sold. The position cannot be different in the case of a company which is wound up by the court. As the law stands today, the workers in a factory owned by a company do not have any hand in the birth of a company, in its working during its existence and also in its death by dissolution. If the law expressly says that a memorandum of a company should be signed by some future employees of the company, or that there should be workers' representatives on its board of directors or that the company should not be wound up without consulting the wishes of the workers, then they can certainly claim all such rights. Workers' participation in the affairs of "a company or the ushering in of an industrial democracy is quite a laudable object. That is a reason for enacting art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and the standard of living of the people are some of the articles which have to be implemented either by the Legislature or by the Executive. Would this Court compel the Executive by issuing a writ to implement the policy underlying article 41, article 43 and article 47 without being backed up by necessary laws ? Would this Court enforce a uniform civil code in respect of all citizens, without the aid of an appropriate legislation even though the concept of equality is enshrined in the Constitution and article 44 specifically requires the State to endeavour to secure for all citizens a uniform civil code ? It may not do so. The only solution for many of these social problems is to appeal to the appropriate organs of the State to do their assigned job in the best interests of the community. It is wrong to think that by some strained construction of law, the Court can find solution to all problems. In this very case, when arguments were going on I suggested that it may be appropriate to issue notice to the Company Law Administration of the Union of India so that the Court could have the benefit of the views of the Government. It was not, however, acceded to by the majority. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition by making certain general submissions, without traversing the various allegations made in it. The respondents who are already on record and who are actually contesting the petition are capable of looking after their interests and need not rely upon the support of the trade unions who are neither creditors nor contributories and who do not know the details of the internal administration of the affairs of the company. The petitioners in the Company Petition would be in a more disadvantageous position if they have to face the opposition of the trade unions also. Such a situation should net be created by extending the area of controversy by a liberal interpretation of the provisions of law when there are no compelling reasons to do so. The High Court has in this case passed necessary orders in order to protect the interests of the employees in Company Application No. 844 of 1981 and in C. M. P. No. 11159 of 1981. The order passed in Company Application No. 844 of 1981, is already set out above. In C. M. P. No. 11159 of 1981, the High Court has passed the following order : "This is a petition filed by the appellants in O. S. A. No. 128 of 1981, for permitting the first appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders of the High Court stand today the workers can always approach it by way of a company application for appropriate orders whenever they feel that their working conditions are adversely affected during the pendency of the proceedings. It is not necessary that the workers or the trade unions should be impleaded as parties to the Company Petition enabling them to contest the winding-up petition. Their presence on record is not necessary for a complete and effectual adjudication of the winding-up petition. The trade unions are, therefore, neither necessary nor proper parties to the winding-up petition, on the facts and in the circumstances of this case, including the element of public interest involved in any liquidation proceeding. Before concluding it should be stated that it is not correct to hold that the order of the High Court "smacks of elitism" or "sounds like a relic of feudal age" or is an "obnoxious" one. The High Court has decided the case in accordance with the prevailing view in the country. No case in which a different view is taken is cited before us. Nobody disputes the proposition that law should not be static. It should no doubt grow but it should have its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Indian conditions. Can we, say that the law of habeas corpus which has found its way into India from England is bad only because it came from a foreign country or has an ancient origin ? The writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari referred to in article 32, and article 226 of the Constitution of India, the rule of promissory estoppel, the principle of audi alteram partem and many other principles which are applied by the Indian Courts are all of foreign origin. Even the socialist principle is not entirely of Indian origin. It is difficult to shut our eyes to realities of life. Moreover, it is difficult even though it may not be impossible to administer the company law as it is now in force in India without the aid of the principles laid down by some of the leading English cases like Salomon v. Salomon Co. , [1897] AC 22, laying down the principle of corporate personality, Ashbury Railway Carriage Iron Co. v. Riche, [1875] LR 7 (HL) 653, dealing with the rule of ultra vires, Royal British Bank v. Tur-quand, [1856] 6 E B 327 (Exch Ch), laying down the rule of "indoor management", Hedley Byrne Co. Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6 to 9, in support of his contention that the workers had no right to be heard in a winding-up proceeding, cited Hals-bury's Laws of England, Volume 7, page 614, para. 1028 (4th Edition). The learned author has stated the law on the subject thus: "Only the petitioner, the company and creditors and contributories are entitled to appear on the petition; other parties have no right to be heard, and even if the Court at the first instance elects to hear them as amid curiae, they have no right of appeal." This statement of the law, has been made on the authority of the judgment in Bradford Navigation Co. rendered as early as 1870 : ([1870] 5 Ch. App. , page 600). Learned counsel also cited Palmer Company Precedents (17th Edition), Vol. 2,- page 77, in which the law to the above effect was stated. Learned counsel has submitted that the Company Law in India is the same as the Company Law in England. The law cited may be good law for England with altogether a different system of economy; but is abhorent to India, particularly after the Constitution (42nd Amendment) Act, 1976, by which the "Socialist" and "Secular" concepts have been added and incorporated into the Preamble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s very materially contribute to the working of a company and help the company in effectively playing its socio-economic role and promoting the interests not only of the company, but also the larger interests of the nation and an order of winding-up seriously affects the interests of the employees, virtually taking away the means of their livelihood. It has been submitted that as an order of winding-up of the company affects so seriously the interests of the employees, the employees must have a say and must be heard in a proceeding for winding-up before the Court. I have earlier observed that the arguments advanced from the Bar on behalf of the trade unions have been noted at length by my learned brothers Bhagwati and Venkataramiah, JJ. The arguments, no doubt, express noble sentiments which I share; but,' in my opinion, the arguments fail to establish that the employees have a right to appear and be heard in a petition presented to a Court for the winding-up of a company. If the right is to be conceded to the employees on these grounds it must logically follow that every employee of a company, whether he is a worker within the meaning of the' Industrial Disputes Act or he is a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d up by Court and who are the persons competent to present a petition to Court for the winding-up of the company and who are the persons entitled to be heard on such a petition, are provided for in the Act and in the Rules. It has to be borne in mind that apart from the right of the Court to order the winding-up of a company in an appropriate case, the Act recognises that a company may go into liquidation without any intervention by the Court and also under the supervision of Court, provided the necessary conditions laid down in the Act in this regard are complied with. Where the Company goes into liquidation without reference to court or under the supervision of the Court, the employees of the company who have to meet the same fate of losing their employment, as and when the company is wound up by the Court, do not and cannot have any voice or say in the procedure to be adopted for the liquidation of the company. In the case of winding-up of any company by Court, the parties who can move the Court for winding-up of the company are specifically mentioned in the Act and only such persons are competent to present the winding-up petition. The procedure to be followed on such a pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mply with this rule shall not, except with the leave of the Judge, be allowed to appear at the hearing of the petition". This particular rule appears in Part I and in Part I of the Rules, general provisions are made. This rule only lays down the procedure to be followed by any person who intends to be heard at the hearing of a petition, whether to support or oppose the petition, and this rule does not deal with the competence or right of any particular person to appear at the hearing of any petition nor does this rule create any right in any person. Part III of the Rules makes specific provisions with regard to a winding-up by Court. Rule 98 in Part III reads: "Every contributory or creditor of the company shall be entitled to be furnished by the petitioner or by his advocate with a copy of the petition within 24 hours of his requiring the same on payment of the prescribed charges". For properly and effectively adjudicating upon any winding-up petition, the parties must necessarily know the grounds contained in the petition on which the Court has been moved for the winding-up of the company to make representation with regard to the same. Rule 9-B requires that copies of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if they are members or creditors of the company in such capacities, but not as members of the management. A director of a company must of necessity be a member of the company, as provided in the Act. It is worth mentioning that the Indian Companies Act is based on the English Companies Act and both the Acts contain more or less similar provisions. The provisions of the Indian Companies Act with regard to the winding-up of the company are almost alike to the provisions contained in the English Companies Act. As early as 1870 the English Court in Re: Bradjora Navigation Co. [1870] 5 Ch App 600, held on a consideration of the provisions of the English Act that no person had a right to be heard against a petition for winding-up of a company except creditors and contributories. It is no doubt true that this decision still holds good and is considered to be good law, as will be evident from the comments in authoritative text books on the subject. In Halsbury's Laws of England (4th Edn. ), Vol. VII, at p. 614, it has been laid down " Only the petitioners, the company, and creditors and contributories are entitled to appear on the petition; other parties have no right to be heard, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved long ago in Ramanandi Kuer v. Kalawati Kuer, AIR 1928 PC 2 (at p. 4): 'It has often been pointed out by this Board that where there is a positive enactment of the Indian Legislature, the proper course is to examine the language of that statute and to ascertain its proper meaning, uninfluenced by any consideration derived from the previous state of the law or of the English Law upon which it may be founded'. If it was true in the twenties it is more apposite now that the background conditions and circumstances of the Indian society, the needs and requirements of our country call for a somewhat different treatment. We will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of our society and the country in general always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for power to manage the company," (p. 104) These observations, to my mind, are of no assistance in deciding the question involved in this appeal. These observations wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
