TMI Blog1982 (6) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of handing over the said unit to the Gujarat State and for appointment of the Gujrat State Textile corporation as authorised person. The sponsors of the scheme have by Company Petition No. 36 of 1980 sought the sanction of the court under section 391(2) of the Companies Act, 1956 (hereinafter referred to as the Companies Act ), to the scheme they have proposed before the court and which has been approved and adopted by the prescribed statutory majority of the various interests of the company. The sponsors of the scheme have, therefore, by Company Application No. 101 of 1982 sought the directions that pending consideration of the scheme, the hearing of Company Application No. 28 of 1982 moved by the Union of India under section 18FA(1) of the Act be stayed or in the alternative the court may decide as to which out of the two rival proposals of taking over, one by the Union of India and another by the sponsors of the scheme, is beneficial to the interests of the company. A few facts may be noticed in order to appreciate the background of these proceedings. The company was incorporated in I892 and M/s. Hiralal Tricumlal and Sons, a partnership firm, were the managing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pects set out in detail in the said report, the said unit was neither technically nor economically viable. The National Textile Corporation also did not evince any interest in the taking over of this unit. An half-hearted attempt was made by the co-operative society of workers, namely, Manekchowk Katan Vanat Kandar Udyogik Sahakari Mandali Ltd., which had moved this court for taking over the textile unit on lease by a phased programme. This court, has by its order dated July 2, 1979, permitted the said society on certain terms and condition to take over the textile unit by phases in pursuance of which the processing house of the textile unit was takes over by the said society. Unfortunately, however, the arrangement could not materials fully with the result that the society found itself unable to take over other sections of the textile unit and could not also work the processing section which was taken over by them. This court, therefore by its order of July 28, 1980, refused to grant any further extension of time for taking over and terminated the said arrangement. It is in these circumstances that the sponsors of the scheme moved this court by Company Application No.5 of 1980 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves of the mill management, the bankers and: representatives of recognised labour unions were heard by the committee. After holding the third meeting on November 18, 1980, the report was finalised by the committe in its meeting on December 12, 1980, and submitted the said report to the Government India. After the report was submitted, the Union Government moved Company Application No. 28 of 1982 for permission to take over the textile unit. It appears that some of the creditors and shareholders had moved the Delhi High Court challenging the decision of the Central Government by their Civil Writ Petition No. 468 of 1981 to take over the textile unit of the company and also for such orders and directions as to prevent them directly or through its agents from taking over the management the said unit in pursuance of the said decision. Petitioners Nos. 2 and 3 in Company Petition No. 36 of 1980 were amongst the petitioners who had challenged the said decision before the Delhi High Court as stated above. The petition was admitted by the Delhi High Court and an interim relief was granted directing the Central Govt. to maintain the status quo. The said petition came up for hearing before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of such workers should be re-employed. It was also pointed out by the learned counsel that the creditors also would suffer if the Government takes over the unit, since every debt arising out of any loan obtained by the authorised person for the management and control of such undertaking would enjoy priority over all other debts, whether secured or unsecured, which might have been incurred before the management is so taken over. Even as regards the preferential debts, the debts incurred by the authorised person for the management and control of such undertaking shall be entitled to rank equally with them. The learned counsel further pointed out that the shareholders will also suffer, inasmuch as their right to manage and control the industrial undertaking would be virtually lost till the Govt. retains the control and management of such industrial undertaking. In any case, the learned counsel for the sponsors of the scheme also contended that the court has no jurisdiction to grant the directions as prayed for inasmuch as the conditions precedent prescribed in section 18FA(1) are not satisfied since no material has been brought on the record, in spite of the grievance made by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, it must be established that the Central Govt. has formed an opinion about the possibility of running or restarting the industrial undertaking, and, secondly, such undertaking should be run or restarted for maintaining or increasing the production, supply or distribution of articles or class of articles needed by the general public and relatable to the scheduled industry. If these two conditions are satisfied, the court is bound to grant the permission, if an application is made by the Central Govt. under sub-section (1). I have, therefore, to decide whether the Central Govt. has formed the necessary opinion on a consideration of relevant aspects prescribed in the said section. It is common ground that the affairs of the company were investigated under section 15A of the Act for purposes of finding out the possibility of running or restarting the industrial undertaking and the Investigation Committee appointed by the Central Govt. had submitted a report after a detailed investigation of the relevant aspects. The Investigation Committee has in Part IV of the said report summarised its findings and made the necessary recommendations. The material part, so far as relevant for purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the optimum manufacturing programme that the company can undertake after going through the phased modernisation as proposed here, there will be an accumulated loss of Rs. 155.14 lakhs in the five years after restart of the mills, after providing interest and depreciation. Since depreciation is not a cash outflow, the actual cash loss comes to Rs. 86.62 lakhs by subtracting the amount of depreciation from the accumulated loss of Rs. 155.14 lakhs quoted above. This cash loss is almost equivalent to the interest on working capital. Therefore, if the company can be provided with the working capital free of interest or at a marginal rate of interest, it can be saved from cash loss. This situation is possible only if this company can be merged with a healthier and profit-earning company. The committee also recommends that remunerative use of the existing assets of the company, viz ., surplus land, should be made to provide additional revenue to the mill company free of interest. The mill has nearly 15,000 sq. mtrs. of surplus land which, if utilised for construction of a commercial complex, can fetch an estimated additional revenue of Rs. 20 lakhs to Rs. 25 lakhs per year. One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and others by their Civil Writ Petition No. 468 of 1981 and sought appropriate writs, orders and directions to quash and set aside the same, inter alia , on the ground that the petitioners were not heard by the Central Govt. before the decision was taken. The Delhi High Court admitted the petition and directed the Central Govt. to maintain status quo. However, on the counsel for the Govt. of India stating before the Delhi High Court that the Govt. of India was willing to give a hearing to the petitioners without conceding that they had a right to be heard, the petition was disposed of by a short order dated November 10, 1981, of the Division Bench of the said High Court that in view of the statement made by the learned counsel for the Govt. of India, nothing survived in the petition for further adjudication and, therefore, directed the Central Govt. to give a hearing to the petitioners before passing any orders under section 18FA of the Act, and till the hearing was afforded, which was expedited having regard to the urgency of the matter, no further action should be taken by the Government in. the matter of takings over. The notice of hearing was issued to the petitioners of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be possible for them to agitate that question in this court now. In any view of the matter, since the statement on oath of Shri M. Damodaran in his affidavit in Company Application No. 28 of 1981 that the Central Govt. has considered the report of the Investigation Committee and has formed the opinion that there are possibilities of restarting the textile unit of the company and that it should be restarted for maintaining and increasing the production, etc ., of the textile articles needed for the general public has not been controverted by or on behalf of the sponsors of the scheme in their reply affidavit in terms, I do not think that I would be justified in holding that the Central Govt. has not formed the opinion as required under section 18FA (1) of the Act. The only averment made in the reply affidavit of Shri Rameshchandra Gopaldas Parikh, who is one of the directors of M/s. Indequip Chem-Dyes Ltd. and one of the sponsors of the scheme in this behalf, is to be found in para 5, which reads as under: "5. I further say and submit that in order to enable this honourable court to examine the question whether the Central Government has formed the opinion reasonably, rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified in urging that the first requirement prescribed under section 18FA about the formation of the opinion by the Govt. of India is not complied with. The reasons for my view are obvious; Firstly, one of the sponsors of the scheme, viz ., Shri Rajendra Ratilal Shah, who was one of the petitioners in the civil writ petition before the Delhi High Court, had virtually challenged this decision of the Central Govt. to move this court to take over the textile unit of the company. In effect and substance, the challenge in the said petition was as to the opinion of the Central Govt. to take over the management and control of the textile unit of the company. Secondly, the said petition was allowed to be disposed of without any demur by the petitioners of the said petition was allowed to be disposed of without any demur by the petitioners of the said petition which included one of the sponsors of the scheme before me on the ground that nothing survives for further adjudication in view of the willingness expressed by the Central Govt. to give a hearing to the petitioners of the said petition. Thirdly, the sponsors of the scheme in their reply affidavit had not joined issue to the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the Central Government is well founded. Sub-section (2) of section 18FA provides that where an application is made under sub-s.'(1), the High Court shall make an order empowering the Central Govt. to authorise any person or body of persons to take over the management of the industrial undertaking or to exercise functions of control in relation to the whole or any part of the industrial undertaking for a period not exceeding five years. In my opinion, the expression "shall" as used in section 18FA, sub-section (2), is mandatory, and the court is bound to pass an order directing handing over of the management and control of such an industrial undertaking to the authorised person or body of persons in the manner as provided in section 18FA once it has been brought to the notice of the court that the Central Govt. has formed the opinion as required under section 18FA and an application is made in that behalf. The only discretion which is vested in the court under sub-section (2) is that, when an extension is sought by the Central Govt. to continue the management and control of an undertaking taken over under the main enactment of sub-section (2) for a period exceeding five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be interpreted as "may", even then, I do not think that the sponsors of the scheme have been able to make out a case that their proposal to restart the textile unit of the company is more advantageous to the different interest, namely, the workers, shareholders and creditors of the company. The reasons for my view are obvious. The first hurdle in the way of the sponsors of the scheme is that the scheme has not been approved by the statutory creditors. Apart from this infirmity, the very basis of the scheme as proposed by the sponsors is, in my opinion, very nebulous, vague and imprecise. The basis of the scheme is provided in Pt. IV of the scheme. It reads as under: "IV. Basis of the scheme. 1. The scheme is proposed on the basis that the total liabilities of the company as on April 30, 1979, do not exceed Rs. 170 lakhs and permission is given to the sponsors to put the vacant land as well as the buildings so far lying idle to commercial use including the sale or lease of the said land and the building either in one lot or in parts or deal with the same in any other manner and/or carry on construction activities thereon either alone or in collaboration with others. 2. 50% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains is also a factor which cannot be ignored while considering the viability of the scheme. Even assuming that these sponsors of the scheme would be able to overcome this hurdle in a legal and just manner, even then, assuming that the market price of the land in the area where the textile unit of the company is situated is Rs. 1,000 per sq. metre, the amount which can possibly be raised by the sponsors would not be more than Rs. 2 to 3 crores having regard to the open vacant land which is available with the company. The Investigation Committee appointed by the Govt. of India has opined that the initial capital investment for modernisation of the plant would be in sum of Rs. 2.50 crores. Besides the capital investment, the company would also require working funds which have been estimated by the Committee at Rs. 90 lakhs per annum. I do not think, therefore, that the basis of the scheme is workable at all. It should be noted that the Investigation Committee has considered that the commercial use of the surplus land which is admeasuring about 15,000 sq. metres can fetch an additional estimated revenue of Rs. 20 to 25 lakhs per year. This can be possible only if the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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