1982 (2) TMI 235 - HC - Companies Law

Powers of Central Government to authorise with permission of High Court to takeover management or control of industrial undertaking

Issues Involved:
1. Granting or refusing stay of the order for taking over management of the mill.
2. Consequences of granting or refusing stay on workers, production, and economic activity.
3. Legal provisions under Section 18FA of the Industries (Development and Regulation) Act, 1951.
4. Impact on shareholders, creditors, and the public.

Issue-wise Detailed Analysis:

1. Granting or Refusing Stay of the Order for Taking Over Management of the Mill:

The primary issue addressed is whether to grant a stay on the order allowing the Central Government to take over the management of the mill. The court weighed the pros and cons, noting that granting a stay would result in continued unemployment, starvation, and misery for about 4,000 workers, non-production of essential commodities (cloth), and the continued locking up of a productive unit. Conversely, refusing the stay would cause no prejudice to any party involved, including the official liquidator, secured creditors, and workers, all of whom agreed that the Central Government should manage the industrial unit.

2. Consequences of Granting or Refusing Stay on Workers, Production, and Economic Activity:

Granting a stay would block economic activity in Bhavnagar and prevent the restarting of the mill, which had been closed for about 18 months. Refusing the stay would brighten the prospects of a sponsor coming forward to offer a scheme to run the mills and potentially fetch a better price for the industrial unit as a running concern compared to selling the machinery at a public auction. The court emphasized that granting a stay could cause immense and irreversible damage, undermining the credibility of the judicial system due to delays.

3. Legal Provisions Under Section 18FA of the Industries (Development and Regulation) Act, 1951:

The court discussed the legal framework under Section 18FA, which allows the Central Government to take over the management of industrial undertakings with the High Court's permission. The Central Government must be satisfied that there are possibilities of running or restarting the industrial undertaking and that it is desirable for maintaining or increasing the production, supply, or distribution of articles needed by the general public. The court noted that the Central Government had already formed this opinion, indicating the possibility and desirability of restarting the mill.

4. Impact on Shareholders, Creditors, and the Public:

The appellant, a shareholder and unsecured creditor, argued against the takeover. However, the court found no evidence of prejudice to the appellant or others if the stay was refused. On the contrary, restarting the mill would benefit the shareholders, creditors, and public by increasing the value of the company's assets and providing essential commodities and employment. The court highlighted that no other shareholders or creditors had challenged the order, and the official liquidator and secured creditors supported the takeover.

Conclusion:

The court concluded that the order under appeal should not be stayed, as staying it would cause greater harm than good. The authorized person should be allowed to take over the management and control of the undertaking, subject to the result of the appeal and the control of the company court. The application for stay was therefore rejected.

← Previous Next →