1987 (3) TMI 529 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of the Rajasthan Relief Undertakings (Special Provisions) Act, 1961.
2. Competence of the State Legislature to enact laws affecting winding up of companies.
3. Interpretation of "Legal Proceeding" under Section 4(b) of the Act.
4. Applicability of Entries 43, 44, and 95 of List I versus Entries 23 and 33 of List III in the Seventh Schedule of the Constitution of India.

Issue-wise Detailed Analysis:

1. Validity of the Rajasthan Relief Undertakings (Special Provisions) Act, 1961:
The creditor-petitioners challenged the validity of the Act, arguing that it falls under Entries 43, 44, and 95 of List I (Union List), thus beyond the competence of the State Legislature. The non-petitioner company contended that the Act falls under Entries 23 and 33(a) of List III (Concurrent List). The court examined the preamble, statement of objects and reasons, and relevant sections of the Act, concluding that the Act aims to prevent unemployment and ensure the continued operation of certain industrial undertakings. The court found the Act to be valid, emphasizing its primary objective of social security and economic stability, which falls under Entries 23 and 33 of List III.

2. Competence of the State Legislature to Enact Laws Affecting Winding Up of Companies:
The creditor-petitioners argued that matters related to winding up of companies fall exclusively under Entry 43 of List I, and thus, the State Legislature lacks the competence to enact laws affecting such matters. The court acknowledged that while Section 4(1)(b) of the Act does affect pending winding up proceedings, the true character of the Act is to provide relief to certain undertakings and prevent unemployment. The court applied the doctrine of pith and substance, determining that the Act's primary objective falls within the State Legislature's competence under Entries 23 and 33 of List III, despite its incidental effect on winding up proceedings.

3. Interpretation of "Legal Proceeding" under Section 4(b) of the Act:
The creditor-petitioners contended that the term "legal proceeding" should not include winding up proceedings and that the word "court" should not include the High Court. The court found that the expression "legal proceeding" is of the widest amplitude, encompassing any proceeding before any court, including winding up proceedings before the High Court. The court noted that excluding such proceedings would defeat the Act's objective, as most industries are incorporated companies.

4. Applicability of Entries 43, 44, and 95 of List I versus Entries 23 and 33 of List III in the Seventh Schedule of the Constitution of India:
The court examined the relevant entries in the Seventh Schedule. Entries 43 and 44 of List I deal with the incorporation, regulation, and winding up of corporations, while Entry 95 deals with the jurisdiction and powers of all courts except the Supreme Court. Entries 23 and 33 of List III cover social security, employment, and trade and commerce in certain industries. The court concluded that the Act falls within Entries 23 and 33 of List III, as its primary objective is to prevent unemployment and ensure the continued operation of certain industries. The incidental effect on winding up proceedings does not alter the Act's true character.

Conclusion:
The court overruled the objections raised by the creditor-petitioners, upholding the validity of the Rajasthan Relief Undertakings (Special Provisions) Act, 1961. The proceedings of winding up shall remain stayed in view of the notification issued under Section 4 of the Act.