NATIONAL TEXTILE WORKERS UNION Vs. P R RAMAKRISHNAN
LAWS(SC)-1982-12-13
SUPREME COURT OF INDIA (FROM: BOMBAY)
Decided on December 10,1982

NATIONAL TEXTILE WORKERS' UNION Appellant
VERSUS
P.R.RAMAKRISHNAN Respondents

JUDGEMENT

BHAGWATI - (1.) THESE three appeals by special leave raise a short but interesting question of law relating to the right of workmen employed in a company to appear and oppose a petition for winding up of the company. The controversy between the parties arises out of a petition for winding up a private limited company called Ramakrishna Industries (P.) Limited (herein- after referred to as a 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 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 100 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 Act, 1956. One ground was that the Company is unable to pay its debts and the other was that it is just and equitable that the Company should be wound up. The winding up petition was filed by respondents Nos. 1 to 5 not only as contributories but also as creditors. of the Company. Immediately on filing the winding up petition on 13/07/1981, respondents Nos. 1 to 5 submitted an application, being company application No. 844 of 1981, for an interim injunction and on this application, an ex parte order was made by the learned Company judge restraining the company which was respondent No. 6 in the winding up petition as also respondents Nos. 7 to 14 from borrowing any monies from banks, financial institutions or others without the prior permission of the Court and from alienating and / or creating any charge or encumbrance over any of the assets of the Company in its various enterprises. The immediate consequence of this ex parte order of injunction was that the Jotie Mills Employees Co-operative Store stopped issuing any provisions or supplies to the workmen from 18th July, 1981 and the workmen were also unable from 23/07/1981 to enjoy the benefits under the Employees' State Insurance Scheme. The workmen also apprehended that on account of the ex parte order of injunction, they may not be We to get their wages which were due to be paid on 7/08/1981. Now some of the workmen were members of the National Textile Workers Union, some others were members of the Coimbatore District National Textile Employees Union while still some others were members of the Coimbatore District Engineering Workers' Union. The Coimbatore- District National Textile Employees Union with a view to protecting the interests of its members made an application, being company application No. 880/81 on 28/07/1981 for impleading itself as a respondent. The Coimbatore District Engineering Workers Union also made a similar application to the Company Judge on the same day, being Company Application No. 881 of 1981. So also the National Textile Workers Union made an application, being company application No. 883 of 1981, to the Company Judge on 29/07/1981 praying that it may be permitted to intervene in the winding up petition and that the ex parte order of injunction may be vacated. Respondents Nos. 1 to 5 filed their affidavit in reply to these three applications 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 14/09/1981 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 Com Cas 284 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 Union v. Union of India, (1981) 2 SCR 52 and of the High Court of Bombay in bhalchandra Dharmaji Makaji v. Alcock Ashdown and Co. Ltd., (1972) 42 Com Cas 190 : (1973 Tax LR 1768), that the factors to be taken into, account by the Court while disposing of a winding up petition would include the interest of the workmen of the company, but observed that "the duty of the Court to consider the interest of the worker of the company would not create a right in such workers to intervene in the absence of express provision in the Companies Act and in the teeth of such right specifically conferred only on the creditors and contributories." The National Textile Workers Union thereupon preferred an appeal before a Division Bench of the High Court but the Division Bench also took the same view and held that though it was undoubtedly true that while disposing of a winding up petition preferred on the ground that it is just and equitable to wind up the company, the Court must consider the interest of the workmen, it does not mean "that everybody who is remotely interested in the company can file an application to implead himself as a party in the petition for winding up" and "merely because in considering the question whether to wind up or not the Court has also to take the larger point of public interest including that of the workers into consideration, it will not clothe the Unions with any locus standi to file applications for impleading themselves as parties or to be heard in the company petition." The Division Bench accordingly rejected the appeal and this led to the filing of Special Leave Petition No. 9661 of 1961 in this Court by the National Textile Workers Union. The Coimbatore District National Textile Employees Union. and the Coimbatore District Engineering Workers Union did not prefer any appeal against the judgment of the Company Judge before the Division Bench of the High Court but they preferred Special Leave Petitions Nos. 10248 and 10249 of 1981 directly in this Court against the judgment of the Company Judge. We issued notice on all the three Special Leave Petitions and when the respondents appeared before us, we intimated to them that we will dispose of the entire controversy between the parties on the Special Leave Petitions and that is how full and detailed arguments were advanced before us at the hearing of the Special Leave Petitions. We now proceed to dispose of these cases after granting special leave to appeal in each of the three special leave petitions.
(2.) 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 10/08/1981. Respondents Nos. 6 to 14 thereafter filed an affidavit in reply on 10/08/1981 and after hearing both sides in a bitterly contested argument, the Company Judge made an order on 7/12/1981 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 before the order appointing Provisional Liquidator was passed by the Company Judge, because as pointed out above, their applications for impleading themselves as parties in the winding up petition or in any event, for being allowed to intervene in the winding up petitions were rejected by the Company judge on 14/09/1981 and this rejection was confirmed by the Division Bench of the High Court on 30/09/1981. The result was that the order appointing Provisional Liquidator of the company came to be made by the Company Judge without any opportunity being given to the workmen represented by these three Unions to appear and show cause against the making of such order. It may be pointed out that the order appointing Provisional Liquidator was stayed for some time by the Division Bench of the High Court in as appeal preferred by respondents Nos.. 6 to 14 but the application for stay was ultimately dismissed by the Division Bench and the Official Liquidator immediately thereafter took charge of the affairs of the company. We may now proceed to consider the question that arises for determination before us. The question, briefly stated, is : when a petition for winding up a company is filed in Court are the workmen of the company entitled to ask the Court to implead them as parties in the winding up petition or to allow them to appear and contest the winding up Petition or they have no locus standi at all so far as winding up petition is concerned and they must helplessly, watch the proceedings as outsiders though the result of the winding up petition may be to bring about termination of their services, and thus affect them vitally by depriving them of their means of livelihood? It is a well established principle of administrative law that no order entailing adverse civil consequences can be made by the State or a public authority unless the person affected is afforded an opportunity to show cause, against the making of such order by controverting the allegations made against him. and, presenting his own Positive case, but in case of a winding up petition, it was contended on behalf of respondents Nos. 2 to 5, that though the result of successful termination of a winding Up petition may, and in most cases, would be to put an end to the services of the workmen and throw them on the streets, they are not entitled to an opportunity to be 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 petiton, 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 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 represented by them and though made in the name of the unions, the applications were in reality and substance applications of the workmen who were members of each respective union. The controversy therefore really is not whether the unions of workmen are entitled to be heard in a winding up petition but whether the workmen have such right when a winding up petition is filed against a company. We may straightway point out that though the applications made by the Coimbatore District National Textile Employees and Coimbatore District Engineering Workers Union were for impleading them as parties in the winding up petition, it was conceded on behalf of these two unions that they were not pressing their applications for being added as parties, because there was no procedure known to Companies Act, 1956 for any one to be impleaded as a party in a winding up petition and even the creditors and contributories were not entitled to be added as parties and they were claiming only the right to appear and be heard in support or opposition to the winding up petition. The contention of these two unions was therefore a limited one and that was also the narrow contention advanced on behalf of National Textile Workers' Union, namely, that the workmen represented by them were entitled to intervene in the winding up petition and to be heard before any, order was made by the Company Judge in the winding up petition, because any such order might affect the interest of the workmen. lit was pointed out on behalf of the three unions that even if an interim order were to be made by the Company Judge which might prejudicially affect the workmen by freezing the resources of the company so as to make it difficult for the company to pay the wages of the workmen or bringing about stoppage of the business of the company resulting in nonpayment or diminution of their wages or termination of their services, the workmen must surely be afforded an opportunity to be heard before any such interim order is made. It would be contrary to every recognised principle of fair judicial procedure and violative of the rule of audi alteram partem which constitutes one of the basic principles of natural justice, to deny to the workmen the right to be heard before an order is made by the Company Judge prejudicially affecting their interest. Additionally, reliance was also placed 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 riot later than five days previous to the day of bearing. 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 hearing of the petition." The argument urged on behalf of the three unions was that this rule confers a right on the workmen to appear at the hearing of the winding up petition either to support it or to oppose it and clearly recognises that they are entitled to intervene and be heard in the winding up petition. Respondents Nos. 1 to 5 however seriously challenged the locus of the workmen to appear and be heard in the winding up petition and contended that so far as the winding up petition is concerned, it is only the creditors and contributories, and in certain specified contingencies the Registrar and the Central Government who are entitled to appear at the hearing of the winding up petition whether to support or to oppose it. The right to be heard in the winding up petition, contended respondents Nos. 1 to 5 is governed solely by the provisions of the Companies Act, 1956 and since no such right is conferred on the workmen by any provision of the Companies Act; 1956, the workmen are not entitled to intervene in the winding up petition, even though the making of a winding up order may result in termination of their services. The workmen, according to respondents Nos. 1 to 5, could appear at the hearing of the winding up petition, and make their submissions only in their capacity as creditors if any part of their wages remained unpaid by the company but they had no locus to appear in their capacity as workers. These rival contentions urged on behalf of the parties raised an interesting question of law which we shall now proceed to consider. There is one very important consideration which we must bear in mind while dealing with. this question and it is necessary to advert to it at the present stage. The concept of a company has undergone radical transformation in the last few decades. The traditional view of a company was that it was a convenient mechanical device for carrying on trade and industry, a mere legal framework providing a convenient institutional container for holding and using the powers of company management. The company law was at that time conceived merely as a statute intended to regulate the structure and mode of operation of a special type of economic institution called company. This was the view which prevailed for a long time in juristic circles all over the democratic world including United States of America, United Kingdom and India. That 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 organisation, 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 operations of companies, emerged as an important feature of contemporary thought on the role of the corporation in modern society. The adoption of the socialistic pattern of society as the ultimate goal' of the country's economic and social policies hastened the emergence of this new concept of the corporation. The socio-economic objectives set out in Part IV of the Constitution have since guided and shaped this new corporate philosophy. We shall presently refer to some of the Directive Principles of State Policy set out in Part IV which clearly show the direction in which the corporate sector is intended to move and the role which it is intended to play in the social and economic life of the nation. But, one thing is certain that the old nineteenth century view which regarded a company merely as a legal device adopted by shareholders for carrying on trade or business as proprietors has been discarded and a company is now looked upon as a socio-economic institution wielding economic power and influencing the life of the people.
(3.) IT is now accepted on all hands, even in predominantly capitalist countries, that a company is not property. The traditional view that the company is the property of the shareholders is now an exploded myth. There was a time when a group controlling the majority of shares in a company used to say : "This is our concern. We can do what we like with it." The ownership of the concern was identified with those who brought in capital. That was the outcome of the property-minded capitalistic society in which the concept of company originated. But this view can no longer be regarded as valid in the light of the changing socio-economic concepts and values. Today social scientists and thinkers regard a company as a living, vital and dynamic, social organism with firm and deep rooted affiliations with the rest of the community in which it functions. IT would be wrong to look upon it as something belonging to the shareholders. IT is true that the shareholders bring capital, but capital is not enough. IT is only one of the factors which contributes to the production of national wealth. There is another equally, if not more, important factor of production and that is labour. Then there are the financial institutions and depositors, who provide the additional finance required for production and lastly, there are the consumers and the rest of the members 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 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 Charanjitlal v. Union of India : "We should bear in mind that a corporation, which is engaged in production of commodities 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 was also expressed at the International Seminar on Current Problems of Corporate Law, Management and Practice held in New Delhi where it was observed that "an enterprise is a citizen. 'like a citizen it is esteemed and judged by its actions in relation to the community of which it is a member as well as by its economic performance." That is why it is regarded as one of the paramount objectives of a company to bring about maximisation of social welfare and common good. This necessarily involves reorientation of thinking in regard to the duties and obligations of a company not only vis-a-vis the shareholders but also vis-a-vis the rest of the community affected by its operations such as workers, consumers and the Government representing the society. There was at one time a serious controversy between two schools of thought, one represented by Adolf Berle and the other by Professor Dodd, as regards the nature of duties and obligations owed by directors representing management of a company. Adolf Berle took the view that directors are trustees only for shareholders - that is the traditional view which directly flows from a purely capitalistic approach which identifies ownership and dominion with capital - while Prof. Dodd believed that directors are trustees not only for shareholders but also for the entire community, Ultimately, however, in his subsequent book, "Twentieth Century Capitalist Revolution", Adolf Berle conceded that Prof. Dodd was right and that modern directors are not limited to running business enterprise for maximum profit motive alone, but are in fact administrators of community system or of a social institution. That is why we find that in recent times there is considerable thinking on the subject of social responsibilities of corporate management and it is now acknowledged even in highly developed countries like the United States and England that maximisation of social welfare should be the legitimate goal of a company and shareholders should be regarded not as proprietors of the company, but merely as suppliers of capital entitled to no more than reasonable return and the company should be responsible not only to shareholders but also to workers, consumers and the other members of the Community and should be guided by considerations of national economy and progress. This new concept of a Company was felicitously expressed by Desai, J. sitting as a Judge of the Gujarat High Court in Panchmahal Steel Ltd. v. Universal Steel Traders (1976) 46 Com Cas 706 : (1976 Tax LR 1666 ) in the following words : "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 guide line for the direction to be taken. As Prof. De Wool of Belgium puts it, the company has a threefold 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 trend" by quoting from Prof. Gower's book on "The Principles of Modern. Company Law" : "One section of the community whose interests as such are not afforded any protection, either under this head or by virtue of tile provisions for investor or creditor protection, are the workers and employees of the taken over company. This is a particularly unfortunate facet of the principle that the interest of the company means only the interest of the members and not of those whose livelihood is in practice much more closely involved." We are concerned in these appeals only with the relationship of the workers vis-a-vis the company. It is clear from what we have stated above that it is not only the shareholders who have supplied capital who are interested in the enterprise which is being run by a company but the workers who supply labour are also equally, if not, more interested because what is produced by the enterprise is the result of labour as well as capital. In fact, the owners of capital bear only limited financial risk and otherwise contribute nothing to production while labour contributes a major share of the product. While the former invest only a part of their moneys, the latter invest their sweat and toil, in fact their life itself, The workers therefore have a special place in a socialist pattern of society. They are not mere vendors of toil, they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital - nay, very much more. They supply labour without which capital would be impotent and they are, at the least, equal partners with capital in the enterprise. Our constitution has shown profound concern for the workers and given them a pride of place in the new socio-economic order envisaged in the Preamble and the Directive Principles of State Policy. The Preamble contains the profound declaration pregnant with meaning and hope for millions of peasants and workers that India shall be a socialist domocratic republic where social and economic justice will inform all institutions of national life and there Will be equality of status and opportunity for all and every endeavour shall be made to Promote fraternity ensuring the dignity of the individual. Every one is assured under Article 14 equality before the law and equal Protection of the laws and implicit in this Provision is the guarantee of equal 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 Art. 23 and Art. 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 Rights v. Union of India, decided on 18th Sept., 1982 . Article 38 imposes 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 subserve the common good, the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment, there is equal pay for equal work for both men and women and the health and strength of workers, men and women and the tender age of children are not abused and citizens are not forced by economic necessity to enter avocations unsuited to their age or strength. The State is directed by Article 41 to make effective provision, within the limits of its economic capacity and development, for securing the right to work and Article 42 requires the State to make provision for securing just and humane conditions of work and for maternity relief. Article 43 provides that the State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, a living wage, conditions of work ensuring decent standard of life and full enjoyment of leisure and social and cultural opportunities. Then follows Article 43-A which is intended to herald industrial democracy and in the words of Krishna Iyer, J. mark "the end of industrial bonded labour". That Article says 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 organisations engaged in any industry. The constitutional mandate is therefore clear and undoubted that the management of the enterprise should not be left entirely in the hands of the suppliers of capital but the workers should also be entitled to Participate in it, because in a socialist pattern of Society, the enterprise which is a centre of economic power should be controlled not only by capital but also by labour. It is therefore idle to contend thirty two years after coming into force of the Constitution and particularly after the introduction of Article 43-A in the Constitution that the workers should have no voice in the determination of the question whether the enterprise should continue to run or be shut down under an order of the Court. It would indeed be strange that the workers who have contributed to the building of the enterprise as a centre of economic power should have no right to be heard when it is sought to demolish that centre of economic power.;


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