1990 (9) TMI 355 - HC - Indian Laws

Summary

Issues Involved:
1. Dismissal of the winding-up petition filed by the company.
2. Financial incapacity and operational suspension of the company.
3. Conflict between the Companies Act, 1956 and the Industrial Disputes Act, 1947.
4. Insolvency and inability to pay debts.
5. Interests of the company's workmen and employees.
6. Consent terms between the company and its workmen.
7. Role of the State Government and CIDCO in the company's financial crisis.

Detailed Analysis:

1. Dismissal of the Winding-Up Petition Filed by the Company:
The appeal challenges the dismissal of the winding-up petition filed by the company under Section 433(a), (e), and (f) of the Companies Act, 1956. The petition was initially dismissed by the learned Single Judge, who held that the provisions of the Industrial Disputes Act prevailed over the Companies Act, as the petition was filed by the company itself, a piece of beneficial legislation regulating employer-employee relationships.

2. Financial Incapacity and Operational Suspension of the Company:
The company was incorporated on November 15, 1979, as CIDCO Transport Corporation Limited, and later renamed Bombay Metropolitan Transport Corporation Ltd. It faced significant financial losses and labor troubles between 1980-1984. In February 1984, the company's fleet was immobilized, and it had no liquid funds. A meeting with the Chief Minister of Maharashtra led to the decision to close the company's services, which were taken over by the Maharashtra State Road Transport Corporation (MSRTC). Subsequently, the company suspended its operations and declared a lock-out.

3. Conflict Between the Companies Act, 1956 and the Industrial Disputes Act, 1947:
The most important issue in the appeal was whether there was a conflict between the Companies Act and the Industrial Disputes Act concerning the winding up of a company that is an industrial establishment. The court held that, harmoniously construed, there is no conflict between the provisions of the two statutes, and they operate in distinct and separate fields. The Industrial Disputes Act applies when an employer intends to close down an undertaking, while the Companies Act deals with the winding up of a company, leading to its dissolution.

4. Insolvency and Inability to Pay Debts:
The company had accumulated significant losses and liabilities, far exceeding its assets. The Comptroller and Auditor General of India noted the company's accumulated loss at the end of March 1985 was Rs. 579.21 lakhs, far exceeding its paid-up capital of Rs. 10.00 lakhs. The company's liabilities as of March 31, 1986, were Rs. 9,26,79,000 due to CIDCO and approximately Rs. 1,00,00,000 due to its employees and workmen, while its assets were significantly lower. The court concluded that the company was in no position to pay its debts or run its business, and no financial institution would reasonably provide it with funds.

5. Interests of the Company's Workmen and Employees:
The court considered the interests of the company's workmen, noting that the company had not conducted business since 1984, leading to a dwindling value of its assets and increasing liabilities. The consent terms between the company and 1700 workmen, represented by respondents 1 to 4, stated that the proceeds from the sale of the company's assets would first pay the dues of the employees and workmen, with any balance going to CIDCO. The court emphasized that the workmen's interests would be better served by winding up the company and distributing the proceeds accordingly.

6. Consent Terms Between the Company and Its Workmen:
The consent terms agreed upon by the company and its workmen included the sale of the company's properties and the payment of dues to employees and workmen first. The new corporation proposed by the State Government would consider applications from former workers and employees of the company, giving them preference for employment based on suitability determined by an expert committee.

7. Role of the State Government and CIDCO in the Company's Financial Crisis:
The State Government, in its affidavit, stated that it had no plans to revive the company or provide financial assistance. The court noted that the company's financial position, not that of CIDCO or the State Government, was relevant to the winding-up petition. The court also dismissed the argument that the State Government was obliged to subsidize the company due to its operational losses incurred while following government orders.

Conclusion:
The court allowed the appeal, setting aside the judgment and order of the learned Single Judge. The petition for winding up the company was made absolute, with the Official Liquidator remaining as the Provisional Liquidator during a six-week stay of the order's operation. The court emphasized that the winding-up was just and equitable, given the company's inability to pay its debts and the lack of prospects for revival.