1982 (12) TMI 126 - SC - Companies Law

Winding up Application for Provisions where Government decides to follow course of action specified in section 18FD(2)

Issues Involved:
1. Locus standi of workmen to appear and oppose a winding-up petition.
2. Provisional Liquidator appointment without hearing workmen.
3. Interpretation of relevant sections of the Companies Act, 1956, and related rules.
4. Application of principles of natural justice and audi alteram partem.
5. Consideration of workers' interests in winding-up proceedings.

Analysis:

1. Locus Standi of Workmen to Appear and Oppose a Winding-Up Petition:

The primary issue in these appeals is whether workmen employed in a company have the right to appear and oppose a petition for winding-up of the company. The controversy arises from a petition for winding-up Ramakrishna Industries (P.) Limited due to disputes between two groups of shareholders.

The workmen, represented by three unions, sought to intervene in the winding-up petition, arguing that the interim injunction had adversely affected their interests. The Company Judge rejected their applications, stating that under the Companies Act, 1956, workmen had no right to be impleaded or intervene in the winding-up petition. This view was upheld by the Division Bench of the High Court.

The Supreme Court, however, recognized the evolving role of companies in modern society, emphasizing that a company is not merely a property of shareholders but a socio-economic institution. The Court held that workers, being vital stakeholders, have a right to be heard in the winding-up petition, as their interests are significantly affected by such proceedings. The Court stated, "It would be violative of the basic principle of fair procedure... to deny to the workmen the right to be heard before an order is made by the Company Judge prejudicially affecting their interests."

2. Provisional Liquidator Appointment Without Hearing Workmen:

The workmen did not have an opportunity to be heard before the Company Judge appointed the Official Liquidator as Provisional Liquidator. The Supreme Court noted that the appointment of a Provisional Liquidator could adversely affect the workmen's interests and held that they should have been given an opportunity to be heard.

However, the Court clarified that the absence of such a hearing would not vitiate the order appointing the Provisional Liquidator, as the workmen could apply to the court for vacating the order.

3. Interpretation of Relevant Sections of the Companies Act, 1956, and Related Rules:

The Court examined various provisions of the Companies Act, 1956, including sections 433, 439, 440, 445, and 557. It noted that while these sections did not explicitly confer a right on workmen to appear in winding-up petitions, they also did not expressly exclude them.

The Court emphasized the principle of natural justice, stating that "no order involving adverse civil consequences can be passed against any person without giving him an opportunity to be heard." The Court found that the workmen, whose interests are vitally affected by a winding-up order, must be heard before such an order is made.

4. Application of Principles of Natural Justice and Audi Alteram Partem:

The Court reiterated the principle of audi alteram partem, which mandates that no one shall be condemned unheard. It held that this principle applies to judicial proceedings, including winding-up petitions, and that workmen must be given an opportunity to be heard before any order affecting their interests is made.

The Court stated, "The audi alteram partem rule... is one of the basic principles of natural justice and if this rule has been held to be applicable in a quasi-judicial or even in an administrative proceeding involving adverse civil consequences, it would, a fortiori, apply in a judicial proceeding such as a petition for the winding-up of a company."

5. Consideration of Workers' Interests in Winding-Up Proceedings:

The Court recognized the significant role of workers in the functioning of a company and the socio-economic impact of winding-up proceedings on them. It emphasized that workers are equal partners with capital in the enterprise and that their interests must be considered in such proceedings.

The Court held that the workers have a right to be heard in winding-up petitions to protect their interests and ensure fair judicial procedure. It stated, "It would indeed be strange that the workers who have contributed to the building of the enterprise... should have no right to be heard when it is sought to demolish that center of economic power."

Conclusion:

The Supreme Court allowed the appeals, set aside the orders of the Company Judge and the Division Bench of the High Court, and directed that the three unions be entitled to appear and be heard in the winding-up petition. The Court emphasized the evolving role of companies, the principles of natural justice, and the significant interests of workers in such proceedings. The judgment underscores the importance of fair procedure and the right of workers to be heard in matters that vitally affect their livelihood.

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