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2016 (2) TMI 777 - GUJARAT HIGH COURT

2016 (2) TMI 777 - GUJARAT HIGH COURT - TMI - Locus standi to make the application - prayer for impleadment - sanction of Scheme of Compromise under companies act - the effect is that all the secured creditors have been paid, though the substantial dues of the workmen, who have first priority as per Section529A of the Companies Act, and who are to be given overriding preferential payment, are still pending - whether Representative Union is authorized to represent the workmen and no other recogni .....

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d Gaurishankar Baswanti Vs. Laxmi Vishnu Textile Mills [2008 (7) TMI 994 - SUPREME COURT].

A submission has been advanced on behalf of the applicant that this Court may consider the present application as one for leave to appear at the hearing of the petition, under Rule34 of the Rules. The applicant had notice of the petition which, admittedly, was advertised. It, however, did not file any objections within the stipulated period of time. It has now appeared belatedly by the present a .....

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d by the Representative Union at the relevant point of time. For this purpose, the presence of the applicant is not necessary.

Mr.S.I.Nanavati, learned Senior Advocate has clarified that the secured creditors have been paid by the Sponsor of the Scheme and not through the funds of the Company. This aspect further reduces the relevance of the submissions made on behalf of the applicant. For the aforestated reasons, this Court is of the considered view that the applicant, not being the .....

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TI, SENIOR ADVOCATE AND MR SN SOPARKAR, SENIOR ADVOCATE WITH MR AS VAKIL, ADVOCATE, MS AMEE YAJNIK, ADVOCATE, MR ROSHAN DESAI, OFFICIAL LIQUIDATOR CAV JUDGMENT 1. The applicant herein has taken out these Judges Summons, seeking the permission of the Court to be joined as partyrespondent in Company Petition No.264/2008. The applicant describes itself as Prakash Mills Kamdar Samiti , through its Convener Shri Shamsuddin Shaikh. 2. In order to appreciate the background in which the Judges Summons h .....

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ucture of the building, were put to sale by the Official Liquidator. It is stated that, as per the information available to the applicant, the movable assets were sold and the land admeasuring about 36971.25 sq.mtrs., is still available with the Official Liquidator. Opponents Nos.1 and 2 have come out with a proposed Scheme of Compromise between the secured creditors, statutory creditors, workmen and equity shareholders. It is the case of the applicant that during the proceedings leading up to t .....

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f prejudicing their interest. It is alleged that the workers have not been taken into confidence about the Scheme and the authorized person of the TLA had agreed to the Scheme proposed by the said opponents, in order to gain undue advantage from opponents Nos.1 and 2. It is the case of the applicant that the compromise arrived at between the TLA and opponents Nos.1 and 2, is not in the interest of the workers, therefore, the applicant, which is a separate body, had to be formed in order to prote .....

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in the Company Petition No.264/2008, which has been filed for sanction of Scheme of Compromise proposed by the present opponents Nos.1 and 2 (petitioners therein) with the creditors, workmen and shareholders of the Company, under the provisions of Section391 of the Companies Act, 1956 ( the Companies Act , for short), becomes necessary as the TLA did not take the workmen into confidence and dispensed with the meeting, supporting the Scheme. That, the effect is that all the secured creditors have .....

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ndue advantage from opponents Nos.1 and 2, with a malafide motive. It is submitted that it is, therefore, necessary to implead the applicant to protect the interest of the workmen and bring correct facts to light. 4.3 That, the Scheme proposed by opponents Nos.1 and 2 is not for the revival of the Company but to get the benefit of the steep rise in the market price of the land of the Company, which cannot be permitted at the cost of the interest of the workmen. The concerned opponents have never .....

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yet not been sanctioned. In this view of the matter, it would be in the interest of the workmen to raise objections regarding the viability of the Scheme, which they can do only if impleaded. 4.4 That due to the steep rise in the price of the land of the Company, it would be possible to satisfy the claims of all the workers upon its sale. There would be a balance amount available, which could be further distributed towards interest and other dues. This can only be done if proper representation .....

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e permission of the Court. Hence, the TLA is not competent to defend the interest of the workmen as it cannot take a policy decision in their favour. For this reason as well, the impleadment of the applicant becomes necessary. 4.6 That, the opponents cannot object to the impleadment of the applicant, as it is undisputed that more than 95% of the workmen have received only a meagre amount so far. Neither the TLA nor opponents Nos.1 and 2 have locus standi to oppose the impleadment of the applican .....

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in appropriate proceedings before competent forum that the closure was effected after following prescribed procedure and the services of workers were determined in accordance with law and after completing all formalities, mere assertion without any supporting documents that the company had no workers on its pay roll at the relevant time particularly after 1.1.1992 would not be of any assistance to the company in claiming and in satisfying Court's anxiety that there is no claim from, or liab .....

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s. However in present case the petitioner has, without placing on record any supporting material, claimed that there are no claims from workmen. On the other hand official liquidator has asserted that claim and dues in the sum of about ₹ 2.54 crores are outstanding. 10.11 Duty is cast on the court to be extra cautious as regards claim of workmen and it is court's duty and obligation to ensure that all precautions and measures are taken to ascertain as to whether there are any unpaid du .....

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39;s assertions. 10.12 If there are such claims then it would be permissible to the Court, rather an obligation on the Court, to direct the companyapplicant to make appropriate provision in the scheme and / or to provide appropriate and sufficient measures in the order and to prescribe proper and sufficient safeguards to protect the interest and claims of the workmen and in the event of petitioner's refusal or failure to comply, to decline the sanction and reject the scheme. 11. The company .....

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from the conferment of status of representative union under provisions of BIR Act. Cancellation of said status does not automatically result into cancellation of union s registration as an association / union under the provisions of Trade Unions Act. Besides this, it is Court's authority, jurisdiction, privilege and discretion to allow relevant and necessary material and details from other source and Court may, if the details are found satisfactory and reliable, take it into consideration. .....

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resentative Union. The procedure for declaring the union as a Representative Union has been laid down in Sections13 and 14 of the said Act. There is a difference between a recognized union under the Industrial Disputes Act, 1947, and a Representative Union under the GIR Act. The intent and object of enacting the GIR Act is that, instead of individual bargaining, there should be collective bargaining; therefore, only the Representative Union is authorized to represent the workmen and no other rec .....

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lear who, or what, the applicant is and when it was formed or incorporated. Neither is it clear under which law the applicant has been formed. Under the GIR Act, which is applicable in the present case, the law does not permit any other body except the Representative Union to represent the workmen. 5.2 It is pointed out that in the causetitle of the application, the applicant is described as Prasad Mills Kamdar Samiti, through its Convener Shri Shamsuddin Shaikh . However, in the causetitle of t .....

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in Shaikh appears to have deposed in his individual capacity. 5.3 It is submitted that there is no consistent description of the proper designation of Shri Shamsuddin Shaikh, who sometimes describes himself as a Convener of the Committee, sometimes as the Secretary of the Committee, sometimes as a member of the new representative committee and sometimes deposes an affidavit in his individual capacity. It is contended that no Vakalatnama has been filed on behalf of 521 persons, who are supposed t .....

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.4 Learned Senior Counsel would further submit that by the order dated 26.02.2014, the Deputy Registrar under the Trade Unions Act, 1926, has cancelled the registration of the TLA. However, this order has been stayed by the Industrial Tribunal, vide its order dated 16.06.2014. Though a condition has been imposed that the TLA shall not take any policy decision without the permission of the Court, however, the policy decision regarding the sanction of the proposed Scheme has already been taken by .....

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of the submissions that only the Representative Union can represent the workmen and take a binding decision on their behalf, the learned Senior Counsel has relied heavily upon the judgment of the Supreme Court in the case of Shivanand Gaurishankar Baswanti Vs. Laxmi Vishnu Textile Mills and others, reported in AIR 2009 SC 825. 5.6 The relevant extracts of the said judgment are reproduced below : 29. Again, who has approached this Court? Neither a secured nor an unsecured creditor. Nor a represe .....

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has urged that the workmen have not been paid their dues and injustice had been done to them. To us, even there, the appellant is not right. A Representative Union has taken a decision which is binding on all employees. That aspect, however, we will deal with at a later stage. 30. ***** STATUS AND POSITION OF REPRESENTATIVE UNION 31. The learned counsel for the appellant contended that respondent No. 8 could not have agreed to accept a meagre amount of ₹ 22 crores when the outstanding dues .....

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ndustrial Relations Act, 1946, it is the 'Representative Union' which has all powers to enter into a settlement on behalf of workers in the industry and it is only that Union which can take a decision under 1946 Act. The said decision would bind not only the members of the Union, but also to those workers who are not members of such Union. 33. The learned counsel, in this connection, invited our attention to various provisions of 1946 Act. As the Preamble of the Act declares, the Act has .....

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of Employers and Employees, and appearance on their behalf. 35. Section 27 enables the State Government to recognize any combination of employers as Association of Employers in an industry in any local area and to represent an employer in any proceeding under the Act. Section 27A correspondingly provides for appearance on behalf of employees. It is, however, in negative terms and enacts that save as provided in certain cases (Sections 32 and 33), "no employee shall be allowed to appear or a .....

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y in the area. ***** 38. The aforesaid provisions came up for consideration before this Court in Girja Shankar Kashi Ram v. Gujarat Spinning and Weaving Co. Ltd., (1962) Supp 2 SCR 890. In that case, 'G' closed its business and sold its assets to 'T'. The old company discharged all its workmen when it closed the business. The new company restarted the business and employed all the workmen of the old company. At the time of closure of 'G', a dispute was pending between the .....

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ensation for closure. The Representative Union appeared before the Labour Court and contended that the application was liable to be dismissed in view of the compromise arrived at between the Mill Company and Representative Union. The Labour Court upheld the objection and dismissed the application. The order was confirmed by Industrial Court in appeal as well as by the High Court in a petition under Article 227. The employees approached this Court. 39. This Court considered the relevant provision .....

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urt stated : "It will be seen that S. 27A provides that no employee shall be allowed to appear or act in any proceeding under the Act, except through the representative of employees, the only exception to this being the provisions of Sections 32 and 33. Therefore, this section completely bans the appearance of an employee or of any one on his behalf in any proceeding after it has once commenced except through the representative of employees. The only exceptions to this complete ban are to b .....

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there is no exception in Section 27A in favour of the employee, who might have made an application under Section 42(4), to appear on his own behalf and the ban which is placed by Section 27A will apply equally to such an employee. In order however to soften the rigour of the provisions of Section 27A, for it may well be that the representative of employees may not choose to appear in many proceedings started by an employee under S. 42(4), exceptions are provided in Ss. 32 and 33. The scheme of t .....

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nce of any one else except the representative of employees under Section 30 of the Act. 42. It was argued that if such interpretation i s accepted, there would be tyranny of the Representative Union. This Court, however, negatived even that argument and observed that the socalled tyranny or motive of Representative Union cannot change the legal position and it has no relevance if the intention of the Legislature is clear and unambiguous. 43. ***** 44. Again, in Textile Labour Association, Bhadra .....

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r question arose. The Court reiterated the law laid down in Girja Shankar and held that once the Representative nion appears on behalf of the employees in a proceeding before a Labour Court under 1946 Act, individual workman has no locus standi. According to the Court, combined reading of Sections 27A, 30, 32, 33 and 80 of the Act make it clear that consistent with the avowed policy and prevention of exploitation of workmen and augmentation of their bargaining power, the Legislature has clothed .....

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ant provisions of the Act. In case the employees find that the Representative Union is acting in a manner which is prejudicial to their interests, their remedy lies in invoking the aid of the Registrar under Chapter III of the Act requesting him to cancel the registration of the union. (emphasis supplied) 5.7 The learned Senior Counsel has submitted that the Supreme Court has held in the above judgment that the malafide or bonafide of the representative union have no relevance in construing the .....

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relied upon the judgment dated 27.02.2013, passed by a Division Bench of this Court (Coram: Hon ble Mr. Justice Ravi R. Tripathi and Hon ble Mr.Justice R.D.Kothari) in Civil Application No.11829/2010 in Letters Patent Appeal No.110/2009 and connected matters, wherein it is held as below : 4. Be that as it may, the question which falls for consideration of this Court is whether under Bombay Industrial Relations Act, any employee, an individual workman or group of workmen or for that reason any o .....

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Now a combined reading of sections 80, 27A, 30, 32 and 33 of the Act leaves no room for doubt that consistent with its avowed policy of preventing the exploitation of the workers and augmenting their bargaining power, the Legislature has clothed the representative union with plenary power to appear or act on behalf of the employees in any proceedings under the Act,and has deprived the individual employees or workmen of the right to appear or act in any proceeding under the Act where the represe .....

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ovisions of ss. 32 and 33. Therefore, this section completely bans the appearance of an employee or of any one on his behalf in any proceeding after it has once commenced except through the representative of employees. The only exceptions to this complete ban are to be found in sections 32 and 33. (emphasis supplied) 5.1 The aforesaid decision lays down in no uncertain terms that the present applicants will have no right whatsoever to prosecute the proceedings in which they want to get themselve .....

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t:- It has to be remembered that malafides or bonafides of a representative union has no relevance while considering the provisions of section 27A and sections 32 and 33 of the Act which taken together impose an absolute ban on the appearance of any individual employee in any proceeding under the Act where the representative union chooses to appear act as representative of the employees 5.6 Learned Senior Advocate for the mill company submitted that only to satisfy the conscience of the Court, m .....

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later on, many of them having found that the settlement is in the interest of the workers, have taken the benefits following the terms and conditions of settlement and as on date, only 150 workers are left who have not agreed to take the benefit under the settlement. 5.7. ***** 5.8 ***** 6. The Court has no hesitation in holding that the issue is well covered by the aforesaid decisions of the Honble the Apex Court and the present applicants have no locus standi and therefore, the present applic .....

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014. In the affidavit in support of the Judges Summons, there is no mention of the delay or the reasons why such delay is required to be condoned. No explanation, whatsoever, emerges to explain the delay. The Scheme was advertised as per Section391 of the Companies Act on 14.10.2008. Nobody has come forward to object. The applicant has not uttered even a single word, though it is deemed to have full knowledge. The prayer of the applicant to join it as partyrespondent does not deserve to be grant .....

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if it considers it proper. In this view of the matter, the prayer of the applicant for joining is not justified. 5.11 It is further contended that it is not factually correct that the registration of the TLA as a Representative Union stands cancelled, in view of the stay order granted by the Industrial Tribunal. However, even if that had been the position, the applicant would have had no right to represent the workmen, in the absence of it being a Representative Union. When the TLA sanctioned t .....

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es Act, it is submitted that this section comes into play when the Company Court is considering the consequences of winding up and distribution of the sale proceeds. In the present case, the Company Petition is for the revival of the Scheme, therefore, this section has no relevance. 5.13 That, though it is true that the secured creditors have been fully paid up, however, such payment has not been made from the Company s assets. They have been paid by the Sponsor, that is, opponent No.2 herein. T .....

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ion No.135/2005 and connected matters, relied upon by the learned advocate for the applicant, it is submitted by the learned Senior Counsel that, in that case the question before the Court was if the registration is cancelled under the GIR Act, whether the representative union would lose its status or still continue as a recognized union. Paragraph11 of the judgment does not assist the contention raised by the applicant. The case before the Court was factually different from the present applicat .....

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intending to appear at the hearing of the petition and prescribes a time limit for opposing the petition. It is submitted that the applicant has not filed any objections within the stipulated period of time, therefore, it cannot appear, except with the leave of the Court. In any case, there is no respondent to a petition of this nature. As per procedure, the objections are to be filed within the stipulated period of time and the objector to be heard. The prayer for impleadment is, therefore, mi .....

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t. In the absence of any reasonable cause or cogent reasons, the application of the applicant deserves to be rejected. 7. Mr.Roshan Desai, learned counsel for the Official Liquidator, has submitted that whether to join a partyrespondent to the petition, or not, is the prerogative of the Court. It is submitted that while winding up the Company, the TLA, which is the Representative Union, has submitted the claims of all the workers, including those of the applicant. The said claims were got verifi .....

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uish the judgment of the Supreme Court in Shivanand Gaurishankar Baswanti Vs. Laxmi Vishnu Textile Mills and others (Supra.), by submitting that the said judgment was rendered on the facts of that case. He submits that in the case before the Supreme Court, everything was over when the Court was moved as the Scheme had been sanctioned, whereas the present is a case where there is no question of delay, as the Consortium which is objecting to the impleadment of the applicant has no locus standi. Th .....

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in the High Court of Bombay had held as below : 22. The judgment of the Supreme Court in Meghal Homes (supra) is sought to be distinguished by learned Senior Counsel appearing on behalf of the Appellant on the ground that in that case, there was a private arrangement between the promoters and developer under which the assets of the company in liquidation were sought to be sold to the developer whereas in the present case, there would be no transfer of the assets of the company and the assets wou .....

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the Supreme Court would apply to this case. First and foremost, the judgment of the Supreme Court clearly holds that the earlier decision of a Division Bench of this Court dated 4 April 1985 which had placed a considerable degree of importance on the reopening and the revival of the textile mill reflected the correct position of law. Secondly, the subsequent judgment of the Division Bench of this Court which had sought to distinguish the revival of the business activity from the revival of the .....

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c interest, commercial morality and to whether there exists a bonafide intention to revive the business of the company. 23. Applying the test which has been enunciated by the Supreme Court in Meghal Homes (supra), we are of the view that the exercise of the discretion by the learned Single Judge was correct and proper. The object and purpose of the Company application is not to revive the business of the Company. The whole purpose is to dispose of the assets by embarking upon real estate constru .....

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o show that the objects clause permitted carrying on of real estate business, it is evident from the averments in the company application that the Appellants themselves proceeded on the basis that an amendment of the objects would be required in order to enable the company to enter upon real estate construction. Whether such an amendment would or would not be granted is something which may depend upon the decision of the competent authority in future but it is evident that presently, the carryin .....

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** 27. ***** 28. Before we conclude, we may note that RMSS a registered union of the objecting workers has sought to allege that RMMS as a representative union is alone entitled to represent the textile mill workers. We make it clear that for the purposes of these proceedings, the legality and the validity of the MOU which was entered into by RMSS with the Appellants has not been been an issue which falls for consideration. Insofar as the locus of the workmen represented by Mr.Singhvi is concern .....

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reported in (2004) 9 SCC 741, wherein the Supreme Court has held as below: 8. The effect of Sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen's dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under Section 529A to the extent of the workmen dues. The purpose of Section 529A is to ensure that the workme .....

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the secured creditors are to be treated pari passu and have to be treated as prior to all other dues. 9.3 The learned advocate for the applicant has further relied upon the judgment of the Supreme Court in Jitendra Nath Singh Vs. Official Liquidator and others, reported in (2013) 1 SCC 462, wherein the Supreme Court has held as below : The first limb of the proviso to Section 529(1) of the Companies Act creates a statutory charge over the security of every secured creditor to the extent of the w .....

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e company which has not been given as security by the company to the secured creditor. Rather, the language of the first limb of this proviso makes it crystal clear that the security of every secured creditor created dehors the proviso to Section 529(1) of the Companies Act is statutorily subjected to a pari passu charge in favour of the workmen by the first limb of the proviso to Section 529(1) of the Companies Act. (Para 12) 9.4 Yet another judgment relied upon by the learned advocate for the .....

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ctive parties at length and thoughtfully considered the submissions advanced at the Bar as well as the judicial pronouncements relied upon by the learned counsel for the respective parties. 11. The applicant claims to be a Committee comprising of 521 workmen of the Company. What exactly is the official status of the applicant Committee, does not clearly emerge from either the causetitle of the application, the affidavit filed in support of the Judges Summons and the two additional affidavits, af .....

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such local area. Section14 is regarding the registration of the Representative Union after following the procedure envisaged therein. It is not disputed by the applicant that the TLA is the Representative Union under Section14 of the GIR Act. What is being canvassed by the applicant is that the registration of the TLA has been cancelled by an order dated 26.02.2014, passed by the Deputy Registrar under the Trade Unions Act, 1926. Though the order of cancellation has been stayed by the Industria .....

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confidence and has, in collusion with the Sponsor of the Scheme, given its sanction to the Scheme vide an affidavit dated 26.07.2008, deposed by Shri Jagjivan Khimjibhai, one of the officebearers of the TLA. According to the applicant, while doing so, the Representative Union has not taken the interest of the workmen into consideration. It is further alleged that the TLA is committing violation of its byelaws and indulging in illegal activities, therefore, the majority of the workmen, who are t .....

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nt is that the presence of the applicant is necessary to ensure that the interest of the workmen does not suffer. 14. The learned advocate for the applicant has placed reliance upon a judgment of the High Court of Bombay in Forbes & Company Ltd. Vs. Official Liquidator of Bombay High Court (Supra.), which is a judgment regarding the winding up of a company. In the view of this Court, this judgment would not be relevant in the factual and legal scenario of the present application. 15. Another .....

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dra Nath Singh Vs. Official Liquidator and others (Supra.), is also regarding Sections529A and 529 of the Companies Act. In the view of this Court, it would not be applicable to the present case which is an application for impleadment as a partyrespondent. 17. The judgment of the High Court of Punjab and Haryana relied upon by the learned advocate for the applicant, namely, Bank of New York Mellon Vs. JCT Ltd. (Supra.), is also regarding the winding up of a company. For the same reasons as above .....

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various other judgments of the Supreme Court. The law with regard to a Representative Union is now settled and has been clearly stated by the Supreme Court, as below : 32. Even this contention has no force. The learned counsel for the Union, in our opinion, is right in submitting that under the Bombay Industrial Relations Act, 1946, it is the 'Representative Union' which has all powers to enter into a settlement on behalf of workers in the industry and it is only that Union which can tak .....

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the employee at whose instance proceedings might have been started under Section 42(4) of the Act. The Court held that if the Representative Union appears, the decision taken by that Union would be final and binding. (emphasis supplied) 19. Admittedly, the TLA is the Representative Union which has already taken a decision to accord its consent to the Scheme. When there is a Representative Union, duly recognized as such under the GIR Act, in the view of this Court, the applicant, which is purpor .....

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on record, and not disputed by the learned counsel for the applicant, that the order of cancellation has been stayed by the Industrial Tribunal, though with certain conditions. One of the conditions is that the TLA will not take any policy decision without the permission of the Court. However, the policy decision to accord sanction to the Scheme has already been taken on 26.07.2008. The order of cancellation of the registration has been passed on 26.02.2014 and conditionally stayed by the Indus .....

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. Laxmi Vishnu Textile Mills and others (Supra.), this Court is unable to accept the submissions advanced on behalf of the applicant that its impleadment is necessary to represent the case of the workmen and protect their interest. 22. A contention has been raised that the majority of the workmen comprising the applicant Committee do not have faith in the TLA. Allegations of malafide have also been made regarding the act of sanction by the TLA, to the Scheme. In this regard, the Supreme Court ha .....

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the present application, it follows that the applicant has no right to appear or act in the proceedings under the GIR Act, where the Representative Union has entered appearance and has acted as a representative of the employees. 24. The allegations of malafide and loss of confidence in the Representative Union, therefore, have no relevance in view of the dictum of the Supreme Court. 25. A submission has been advanced on behalf of the applicant that this Court may consider the present applicatio .....

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