UNION OF INDIA Vs. MANEKCHOWK AND AHMEDABAD MFG COMPANY LIMITED

JUDGEMENT

(1.) These three company applications arise out of the proceedings of taking over the Manek Chowk and Ahmedabad Manufacturing Company Ltd. (in winding up) (hereinafter referred to as the Company). By two company applications namely Company Application No. 28 of 1981 and 82 of 1982 the Union of India and by Company Application No. 101 of 1981 the shareholders and the creditors of the Company the petitioners herein (hereinafter referred to as the Sponsors of the Scheme) have taken out summonses for directions. The Union of India has sought the direction that a permission under sec. 18 FA (1) of the Industries (Development and Regulation) Act 1951 (hereinafter referred to as the Act) to take over the textile unit of the Company be granted for the purposes of handing over the said unit to the Gujarat State and for appointment of the Gujarat State Textile Corporation as authorised persons. The Sponsors of the Scheme have by Company Petition No. 36 of 1980 sought the sanction of the Court under sec. 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 the Company Application No. 28 of 1981 moved by the Union of India under sec. 18 FA (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 be noticed in order to appreciate the background of these proceedings.

(2.) The Company was incorporated in 1892 and Messrs Hiralal Tricumlal and Sons a partnership firm were the managing agents of the Company till 31/12/1965. One Shri Dinubhai Hiralal was appointed as the Managing Director of the Company with effect from 1/01/1966 for a period of five years. The textile unit of the Company was closed down with effect from 31/03/1968. Some of the creditors of the Company filed the winding up petitions in this Court in July 1968 in which this Court appointed provisional liquidator. M/s. Indequip Limited one of the major creditors of the Company had sponsored and moved a scheme of compromise between the Company and the creditors and members which was sanctioned by this Court by its order of 10/12/1969 The provisional liquidator therefore handed over the possession of the textile unit of the Company to the Board of Directors on 5/05/1970 and the unit was recommenced in October 1970. It should be noted that in August 1967 the Union Bank of India had sanctioned to the Company a loan in the sum of Rs. 13 lakhs against guarantee from the Government of Gujarat. One of the conditions of the said guarantee was that the Company would appoint on its Board of Directors two nominees of the Government of Gujarat. The textile unit was run and managed under the aforesaid scheme till October 1976 but again due to the financial difficulties came to a standstill and since this Court found that it was not possible to work the scheme directed by its order of 12/12/1977 to wind up the Company and the Official Liquidator was appointed as the liquidator in charge of the Company. The Official Liquidator in spite of his best efforts could not attract any person for taking over the textile unit of the Company either on lease or by way of outright sale so that it could be recommenced. There was no response in spite of repeated public notices inserted by the Official Liquidator from the persons in the textile industry or from the State Government or the Central Government or even from the National Textile Corporation with the result that the textile unit remained closed. The Government of Gujarat had appointed an expert committee in about March 1977 to report about the technical viability of the unit under the chairmanship of one Shri I. C. Shah a leading expert of repute in the textile industry. The said committee submitted its report about the viability of the said unit and in the opinion of the said committee on consideration of all the relevant aspects 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 Cooperative Society of Workers namely Manekchowk Katan Vanat Kamdar Udyogik Sahakali Mandli Limited which has moved this Court for taking over the textile unit on lease by a phase programme. This Court has by its order dated 2-7-79 permitted the said Society on certain terms and conditions to take over the textile unit by phases in pursuance of which the processing house of the textile unit was taken over by the said society. Unfortunately however the arrangement could not materialise 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 28/07/1980 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 21/01/1980 for directions under sec. 391 of the Companies Act for convening the meetings of the different interests of the Company to adopt with or without modification the proposed scheme for restarting the textile unit. This Court has by its order dated 18-4-80 directed the convening of meetings of the various interests on different dates as specified therein for the purposes of consideration and adopting the said scheme with or without modification. Various meetings of the shareholders creditors secured unsecured and statutory and workers were convened to consider the said scheme. The proposed scheme has been approved by the prescribed majority of the secured as well as unsecured creditors shareholders and workmen. The Union Bank of India which is a major secured creditor of the Company also supported the scheme. The statutory creditors did not approve of the Scheme and they were therefore kept outside the scheme by the sponsors of the scheme proposed to negotiate with them directly. The Sponsors of the Scheme therefore moved this Court on 11/07/1980 by filing the Company Petition No. 36 of 1980 under sec. 391 (2) of the Companies Act for sanctioning the said scheme of compromise. This Court has directed the issuance of notice to the Central Government under sec. 394-A of the Companies Act which was accordingly served on the Central Government on 4/08/1980 This Court had directed the sponsors of the Scheme to deposit a sum of Rs. 50 0 in all with the Official Liquidator so as to enable them complete the work of cleaning and greasing the textile unit so that in case of the sanction being granted by this Court to the scheme of arrangement no unnecessary time may be wested in recommencing the textile unit. It is at this stage that the Central Government made an application under sec. 15-A of the Act for obtaining permission to investigate into the possibility of running or starting the textile unit of the Company. This Court by its order of 20/08/1980 granted the permission as prayed for. In pursuance of the said permission the Central Government appointed a committee to investigate into at possibility of recommencing the textile unit. The said committee at its first meeting on the 26th and 27th of September 1980 had held on the spot inspection of the textile unit so as to ascertain the condition of the machinery and the general lay out etc. The second meeting was held on 3rd and 4/11/1980 when the representatives of the mill management the Bankers and representative of recognised labour unions were heard by the Committee. After holding the third meeting of 18/11/1980 the report was finalised by the committee in its meeting on 12/12/1980 and submitted the said report to the Government of India. After the report was submitted the Union Government moved the Company Application No. 28 of 1980 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 of the said unit in pursuance of the said decision. Petitioners Nos. 2 and 3 of 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 Government to maintain the status quo. The said petition came up for hearing before the Delhi High Court on 10/11/1981 when the counsel for the Government of India stated that the Government was willing to give a hearing to the petitioners without conceding that the petitioners were entitled to be heard before the proposed action was taken under sec. 18 (FA) of the Act. On that statement the Delhi High Court by its order on 10/11/1981 disposed of the petition with the direction that till the petitioners were heard by the Central Government no farther action in purSuance of the impugned decision should be taken and the matter be disposed of at the earliest date in view of the urgency of the question Accordingly a notice of hearing was issued on 26/11/1981 and the hearing was given to the petitioners of the said writ petition .The Joint Secretary who had given the hearing by his order of 24/03/1982 negatived the objections of the said objectors and recommended that the Government should press its application before this Court for permission to take over the industrial unit of the Company. Accordingly the Company Application No. 82 of 1982 has been moved by the Union of India. It is in the light of this backdrop that T have to decide whether the permission as prayed for by the Government of India should be granted under sec. 18-FA of the Act or the proposal of the Sponsors of the Scheme for sanctioning the Scheme to restart the textile undertaking of the Company be granted.

(3.) At the time of hearing of this group of applications it was urged on behalf of the sponsors of the scheme that the directions as prayed for by the Union of India in Company Applications Nos. 28/81 and 82/82 if granted by this Court would not only cause prejudice to the different interests of the Company but would cause a great harm to each of them. It as pointed out by the learned Counsel for the Sponsors of the scheme that the first casualty of the Government taking over the textile unit of the Company would be the interest of the workers inasmuch as there is no obligation on the authorised person who will be placed in the control and management of the said textile unit to employ all the former employees of the said undertaking whose services became discharged by reason of the winding up of the Company and it would be a discretion of the authorised person as to whom out of such workers should be 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 Government 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 condition precedent prescribed in sec. 18 are not satisfied since no material has been brought on the record inspite of the grievance made by the sponsors of the scheme in the reply affidavit to oppose the directions prayed for by the Union of India for taking over that the Central Government has formed necessary opinion in respect of the textile unit in question. In submission of the learned Counsel for the sponsors of the scheme the Scheme proposed by them and approved by the statutory majority in more favourable and in the interest of the workers creditors and the shareholders of the Company.