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TMI Blog1977 (4) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... AA(1) of the Regulation Act. It does not appear to be necessary for the purpose of answering the above question to go into any minute factual details. In order to get a bird's eye view of the relevant circumstances in which the above-mentioned question has arisen, it may, however, be stated that the Amritsar Sugar Mills Company Ltd. (hereinafter called "the company") is an industrial undertaking duly registered under the Companies Act with registered office at Amritsar having a sugar factory in Rohana in the State of Uttar Pradesh and a vanaspati ghee factory in Amritsar, that on January 10, 1974, the management of the sugar factory was taken over by the U.P. State Government under rule 115(2) of the Defence and Internal Security of India Rules, 1971 (hereinafter referred to as "the D.I.R".), that the management of the vanaspati ghee factory was taken over by the body of persons appointed by the Central Government under section 18AA(1) of. the Regulation Act, in pursuance of the notification, dated September 13, 1947, reading as below : "Whereas the Central Government is satisfied from the documentary evidence in its possession : ( i )that Amritsar Oil Works, Amritsar, a fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73, filed this petition for the winding up of the company, which petition had subsequently been published under the Companies (Court) Rules by the order of the court, dated July 27, 1973. It is the common case of both sides that the taking over of the sugar mills by the U.P. State Government under the D.I.R. has no effect on the petition for winding up of the company and does not attract either the provision of section 18E(1)( c ) or any other such provision. Proceedings for winding up against the company appear to be ex parte . The State Bank of India (one of the secured creditors of the company) has intervened with the leave of the court and is contesting the petition. Consequent upon the taking over of the vanaspati mill by the Central Government, notice was issued to it under order of the learned single judge, dated September 27, 1974. The Central Government did not put in appearance in response to the notice. Mr. I.N. Shroff, the learned counsel for the State Bank of India, contended before the learned single judge that once an undertaking is taken over either in whole or in part under section 18AA(1) of the Regulation Act, section 18E(1)( c ) of that Act would be attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to comply with such directions, or ( b )an industrial undertaking in respect of which an investigation has been made under section 15 (whether or not any directions have been issued to the undertaking in pursuance of section 16), is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest, the Central Government may, by notified order, authorise any person or body of persons to take over the management of the whole or any part of the undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order...... Explanation. The power to authorise a body of persons under this section to take over the management of an industrial undertaking which is a company includes also a power to appoint any individual, firm or company to be the managing agent of the industrial undertaking on such terms and conditions as the Central Government may think fit". "Industrial undertaking" is defined in section 3( d ) as below : "'industrial undertaking' means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, which could have been or can be avoided ; or ( iii )there has been or is likely to be a rise in the price of any article or class of articles relatable to that industry or manufactured or produced in the industrial undertaking or undertakings, as the case may be, for which there is no justification ; or ( iv )it is necessary to take any such action as is provided in this Chapter for the purpose of conserving any resources of national importance which are utilised in the industry or the industrial undertaing or undertakings, as the case may be; or ( b )any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest; " the Central Government could not make or cause to be made any investigation into the circumstances of the case under section 15 of the Act, and unless such an investigation had been made, neither any direction could issue under section 16 on the violation of which clause ( a ) of section 18A(1) could come into force, nor any direction or order could be passed under clause ( b ) of section 18A (1). Consequently, a long time had to elapse between the forming of the opinion by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erfering with an undertaking which was being wound up by or under the supervision of the court. This exception was carved out by sub-section (3) of section 18AA in the following words : "Nothing contained in sub-section (1) and sub-section (2) shall apply to an industrial undertaking owned by a company which is being wound up by or under the supervision of the court". Sub-section (5) of section 18AA has made the provisions of sections 18A to 18E (both inclusive) also applicable to the industrial undertaking in respect of which a notified order has been made under sub-section (1) of section 18AA. We are concerned in the present proceedings with sub-clause ( c ) of section 18E(1) directly and with sub-section (2) of that section for purposes of interpretation. Both these are, therefore, quoted below: "18E. (1) Where the management of an industrial undertaking being a company as denned in the Indian Companies Act, 1913, is taken over by the Central Government, then, notwithstanding anything contained in the said Act or in the memorandum or articles of association of such under taking, ............. ( c ) no proceeding for the winding up of such undertaking or for the appointme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has neither responded to the notice issued to it by this court nor put in appearance to support the objection raised by Mr. Shroff. I have already noticed above the scheme of the Regulation Act up to the stage of the introduction of section 18AA(3). The obvious purpose of the introduction of Chapter III-AA containing section 18FA is to provide for the management and control of an industrial undertaking owned by companies in liquidation which were otherwise saved from interference by the Central Government by virtue of the exception contained in section 18AA(3). Similarly, the power to provide relief to certain industrial undertakings (a subject with which we are not concerned) was brought in by the introduction of Chapter III-AB, and provisions for regulation or reconstruction of companies were made in section 18FC to section 18FH contained in Chapter III-AC and amendment to the power to control supply, distribution, price, etc., of certain articles was made By the introduction of section 18G as contained in Chapter III-B of the Regulation Act. It is in this manner that machinery has been provided for extension of the scope of interference with an industrial undertaking even whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( vi )if the persons in charge of the undertaking have by reckless investment or reckless encumbering of its assets or by diversion of its funds brought about a situation likely to affect its production ; or ( vii )if the undertaking has been closed for three months or more and such closure is prejudicial to the industry though there is no lack of machinery or funds to re-start the factory in the public interest. All impediments in the way of achieving the above objects have been removed by the different provisions in the Regulation Act. Care has at the same time been taken to disturb the ordinary law of the land to the minimum possible extent for achieving the above-mentioned objectives. This effort accounts for provisions like those for taking over the control of only part of an undertaking, for obtaining permission of the High Court in certain contingencies, for fixing the maximum period for which the control can be taken over and the like. The requirement of the consent of the Central Government requisite under section 18E(1)( c ) has to be read in the same light. This requirement being in the nature of a restriction on the right of a creditor or shareholder conferred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt can make an order in the case of a company in liquidation empowering the Central Government to authorise any person to take over the management of the undertaking or to exercise functions of control in relation to the whole or any part of the undertaking for the relevant period. Under the proviso to that sub-section, the High Court can permit such authorised person to continue to manage the undertaking or its part even after the Central Government gives up the control by giving such permission or authority for a period up to two years at a time, but not exceeding twelve years in all. Sub-section (3) of section 18FA reads as follows : "(3) Where an order has been made by the High Court under subsection (2) the High Court shall direct the official liquidator or any other person having, for the time being, charge of the management or control of the industrial undertaking, whether by or under the orders of any court, or any contract or instrument or otherwise, to make over the management of such undertaking or the concerned part, as the case may be, to the authorised person and thereupon the authorised person shall be deemed to be the official liquidator in respect of the indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or an industrial undertaking "which is a company", the expressions are intended to refer to the whole of the company unless a part thereof is clearly referred to. Where, on the other hand, reference is to an undertaking owned by a company, it is intended to cover the undertaking or part thereof in respect of which some order has been passed and not necessarily the entire under taking of the company. Last but not the least is the language of the notification itself. In its opening part it clearly says that the Central Government is satisfied from the documentary evidence in its possession that the Amritsar Oil Works, Amritsar, " factory of the industrial undertaking known as.......".. In the operative part of the notification again the Central Government has authorisied a body of persons appointed by it to take over the management of the said industrial undertaking "in so far as it relates to the said factory "subject to the conditions specified in the notification. All this clearly indicates that the management of the industrial undertaking which is the company (being a company as defined in the Indian Companies Act) has not been taken over by the Central Government, and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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