2008 (3) TMI 477 - HC - Companies Law

Amalgamation - rights of employees - Held that - While substantially dismissing the appeal and confirming the order of the learned Company Judge granting sanction to the scheme of amalgamation of Indian Petrochemicals Corporation Ltd. (IPCL) with Reliance Industries Ltd. (RIL) we direct that the persons who were in employment with Indian Petrochemicals Corporation Ltd. as on the date of the judgment of the learned Company Judge i.e. 16-8-2007 shall be given an option within one month from today informing them that those employees who do not wish to continue with Reliance Industries Ltd. shall be entitled to exercise within two months from today the option not to continue with Reliance Industries Ltd. and upon exercise of such option they shall be entitled to receive compensation under the provisions of section 25FF of the Industrial Disputes Act 1947 i.e. the workmen who had been in continuous service for not less than one year as on 16-8-2007 with IPCL shall be entitled to compensation for services rendered to IPCL for the period up to 16-8-2007 in accordance with the provisions of section 25F of Industrial Disputes Act 1947. It shall also be mentioned in the notice that those who continue with Reliance Industries Ltd. will not be entitled to such compensation. In view of pendency of these proceedings for almost one year and also in view of the fact that the period of notice to be given under this order for fresh option shall also be for at least one month there will be no need to give any notice or wages in lieu of one month s notice as contemplated by section 25F of the Industrial Disputes Act 1947.The notice as per this order shall be given by communicating the same to all the associations of employees/unions of workmen of erstwhile IPCL and by putting up the notice on the notice boards within the premises of all the units of erstwhile IPCL. We also direct that the statement made by Mr. K.S. Nanavati as recorded in para 36 hereinabove shall be treated as added to sub-clause (a) in clause 8 (8.1) of the Scheme as sanctioned by the learned Company Judge.Subject to the directions contained and clarification made in the preceding para the appeal is dismissed.

Issues Involved:
1. Workers' right to participate in the formulation of the scheme of amalgamation.
2. Transfer of employees of the transferor company to the transferee company without their consent.
3. Rights of employees of the transferor company who do not opt to join the transferee company.
4. Conditions of service of workers of the transferor company after amalgamation.
5. Public interest considerations in sanctioning the scheme of amalgamation.

Issue-Wise Detailed Analysis:

1. Workers' Right to Participate in Formulation of the Scheme of Amalgamation:
The appellants argued that workers should have been consulted during the negotiation and formulation of the amalgamation scheme, citing Articles 39, 41, 42, 43, 43A, and 46A of the Constitution and sections 3A and 3B of the Industrial Disputes Act. The court found no statutory provision or legal principle requiring consultation with workers for formulating the scheme. It was noted that sections 391 to 394 of the Companies Act, 1956, do not mandate such consultation. The court referenced the decision in Gujarat Nylons Ltd. v. Gujarat State Fertilizer Co., which held that workers have no right to hold meetings to express their opinion on amalgamation but can express their views before the Company Court during proceedings.

2. Transfer of Employees of Transferor Company Without Their Consent:
The appellants contended that transferring employees to the transferee company without their consent is illegal. The court referred to Management, Mettur Beardsell Ltd. v. Workmen of Mettur Beardsell Ltd., which held that employees' consent is not necessary for the transfer under section 25FF of the Industrial Disputes Act. However, the court acknowledged the need for employees' implied or express consent to establish a new employment relationship with the transferee company. The court also referenced BCPP Mazdoor Sangh v. NTPC, which emphasized the necessity of a tripartite agreement for transferring employees.

3. Rights of Employees of Transferor Company Who Do Not Opt to Join Transferee Company:
The court discussed the implications of section 25FF of the Industrial Disputes Act, which provides retrenchment compensation to employees if their service is terminated due to the transfer of the undertaking. The proviso to section 25FF exempts the need for compensation if the transferee company ensures continuity of service and maintains favorable terms and conditions. The court held that employees who do not wish to join the transferee company are entitled to retrenchment compensation from the transferor company. The court directed that employees be given an option to either join the transferee company or receive compensation.

4. Conditions of Service of Workers of Transferor Company After Amalgamation:
The appellants argued that the scheme did not address issues like pay, DA, seniority, and promotion. The court found that clause 8.1 of the scheme adequately protected employees' rights by ensuring continuity of service and terms not less favorable than those with the transferor company. The court held that future disputes regarding service conditions should be addressed through appropriate forums under industrial law. The court referenced Gujarat Nylons Ltd. v. Gujarat State Fertilizers Ltd., which held that the Company Court's jurisdiction does not extend to deciding future service conditions post-amalgamation.

5. Public Interest Considerations in Sanctioning the Scheme of Amalgamation:
The appellants argued that the scheme should be examined for public interest, not just shareholders' and employees' interests. The court referenced Hindustan Lever Employees' Union v. Hindustan Lever Ltd., which emphasized considering public interest in amalgamations involving foreign companies. However, the court noted that both IPCL and RIL are Indian companies, and the scheme met the "prudent business management test." The court found no grounds to reject the scheme on public interest considerations.

Conclusion:
The court dismissed the appeal, confirming the order of the learned Company Judge sanctioning the scheme of amalgamation. The court directed that employees of IPCL be given an option to either join RIL or receive retrenchment compensation. The court also recorded a statement by the respondent ensuring that retrenchment compensation, gratuity, and other terminal benefits would be computed by considering continuous service with both IPCL and RIL.

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