1967 (7) TMI 85 - HC - Companies Law

Summary

Issues Involved:
1. Sanctioning of the scheme of arrangement.
2. Rights and liabilities of the employees.
3. Applicability of sections 391 and 394 of the Companies Act.
4. Binding nature of the agreement dated 25th August 1965.
5. Government companies' rights under the Companies Act.

Detailed Analysis:

1. Sanctioning of the Scheme of Arrangement:
The court sanctioned a scheme of arrangement proposed by the Rivers Steam Navigation Company Limited, which involved transferring all properties and assets to a new company, Central Inland Water Transport Corporation Limited. The new company would undertake all liabilities of the existing company, including those in favor of the State Bank of India and the Chartered Bank. The scheme was approved by the members, secured creditors, and unsecured creditors, with significant support from each group.

2. Rights and Liabilities of the Employees:
An affidavit-in-opposition was filed by the Inland Steam Navigation Workers' Union, expressing concerns that the scheme would prejudice the rights of employees. The court acknowledged the importance of protecting the employees' rights and modified the scheme to ensure that:
- The new company would employ as many existing staff as possible.
- Employees not taken over by the new company would be paid all dues and compensations under the law.
- The Government of India would provide necessary funds to the existing company to pay these dues.

The court emphasized that the scheme did not intend to affect the employees' lawful dues and that the workers' interests were considered as part of the larger interest of the company.

3. Applicability of Sections 391 and 394 of the Companies Act:
The appellants contended that the provisions of sections 391 and 394 of the Companies Act did not apply to the scheme as it was neither an amalgamation nor a reconstruction but a transfer to a successor company. The court rejected this contention, stating that the scheme was indeed a case of reconstruction. The court found that the scheme met the requirements of sections 391 and 394, as it involved the transfer of the company's assets and liabilities to a new entity.

4. Binding Nature of the Agreement Dated 25th August 1965:
The appellants argued that the agreement dated 25th August 1965, between the Rivers Steam Navigation Company Limited and the workmen, should bind the new company. The court noted that the agreement was a settlement under the Industrial Disputes Act and had binding character. However, the court found that the agreement had become incapable of implementation due to the closure of the company and the transfer of its assets and liabilities to the new company. The court left open the question of whether the agreement could be enforced in future proceedings.

5. Government Companies' Rights Under the Companies Act:
The appellants argued that the scheme should not be sanctioned as both the transferor and transferee companies were government companies. The court rejected this argument, stating that government companies are entitled to the same rights and privileges under the Companies Act as any other company. The court emphasized that the provisions of the Companies Act apply to government companies, and they can take recourse to sections 391 and 394 for sanctioning schemes of arrangement.

Conclusion:
The court upheld the scheme of arrangement, ensuring that employees' rights were protected, and the scheme complied with the relevant provisions of the Companies Act. The appeal was dismissed, and each party was ordered to bear its own costs. The court also extended the dates mentioned in the scheme due to the pendency of the appeal.