1982 (6) TMI 239 - 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. Jurisdiction of the court to grant directions under section 18FA(1) of the Industries (Development and Regulation) Act, 1951.
2. Comparison of the two proposals for taking over the management of the textile unit: one by the Union of India and another by the sponsors of the scheme.

Detailed Analysis:

Issue 1: Jurisdiction of the Court
The court examined whether it had the jurisdiction to grant the directions sought by the Union of India under section 18FA(1) of the Industries (Development and Regulation) Act, 1951. The relevant section reads:
> "If the Central Government is of opinion that there are possibilities of running or restarting an industrial undertaking, in relation to which an investigation has been made under section 15A, and that such industrial undertaking should be run or restarted, as the case may be, for maintaining or increasing the production, supply or distribution of articles or class of articles relatable to the scheduled industry, needed by the general public, that Government may make an application to the High Court praying for permission to appoint any person or body of persons to take over the management of the industrial undertaking or to exercise in respect of the whole or any part of the industrial undertaking such functions of control as may be specified in the application."

The court concluded that two conditions must be satisfied: the Central Government must form an opinion about the possibility of running or restarting the industrial undertaking, and that such undertaking should be run or restarted for maintaining or increasing the production, supply, or distribution of articles needed by the general public. If these conditions are met, the court is bound to grant permission.

The court found that the Central Government had indeed formed the necessary opinion based on the Investigation Committee's report, which concluded that the textile unit could be restarted in phases. The court also noted that the sponsors of the scheme had previously challenged the Government's decision in the Delhi High Court, which had directed the Government to give a hearing to the petitioners. The Joint Secretary of the Government of India had subsequently rejected the objections and recommended pressing the application before the High Court for permission to take over the unit.

Therefore, the court held that it had jurisdiction to entertain and decide the applications moved by the Union of India.

Issue 2: Comparison of the Two Proposals
The court considered which proposal-either by the Union of India or the sponsors of the scheme-was more beneficial for the interests of the workers, creditors, and shareholders of the company.

The sponsors of the scheme argued that their proposal was more advantageous, emphasizing that the Government's takeover would harm the interests of the workers, creditors, and shareholders. They pointed out that the Government's authorized person would not be obligated to re-employ all former employees and that debts incurred by the authorized person would enjoy priority over existing debts.

However, the court found that under section 18FA(2), once the Central Government forms the necessary opinion and makes an application, the court is bound to grant permission to take over the management of the industrial undertaking. The court noted:
> "The expression 'shall' as used in section 18FA, sub-section (2), is mandatory, and the court is bound to pass an order directing handing over of the management and control of such an industrial undertaking to the authorized person or body of persons."

The court also considered the viability of the sponsors' scheme and found it to be "nebulous, vague, and imprecise." The scheme's basis was the commercial exploitation of the company's vacant land and idle buildings, which faced significant hurdles, including compliance with the Urban Land (Ceiling and Regulation) Act, 1976, and the real estate market conditions.

The court concluded that the proposal by the Union of India was more feasible and advantageous, particularly since the Investigation Committee had recommended that the Government take over the unit and recognized the need for substantial investments for modernization and working capital.

Conclusion
The court dismissed Company Application No. 101 of 1982 made by the sponsors of the scheme and allowed Company Applications Nos. 28 of 1981 and 82 of 1982 made by the Union of India. The court granted permission to the Union of India to take over the textile unit of Manekchowk and Ahmedabad Mfg. Co. Ltd. for a period not exceeding five years and directed the official liquidator to hand over the management to the Gujarat Textile Corporation Ltd. as the authorized person.

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