9911796707
TMI Blog1982 (12) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... ed company called Ramakrishna Industries (P.) Limited (hereinafter referred to as "the company"). The company has three units, one, a textile mill in the name of Jotie Mills which employs about 500 workmen, another, a workshop for the manufacture of textile and other machinery, which employs about 400 workmen, and the third, a printing press, which brings out a Tamil daily called "Nav India" and employs about 103 workmen. It is a closed company in which there are two groups of shareholders, one group consisting of respondents Nos. 1 to 5 and the other consisting of respondents Nos. 7 to 14. Respondents Nos. 1 to 5 hold 608 shares and respondents Nos. 7 to 14 687 shares while the remaining 300 shares belong to a Trust. in which both the groups are equally represented on the Board of Trustees. It appears that a serious dispute arose between respondents Nos. 1 to 5 on the one hand and respondents Nos. 7 to 14 on the other, in regard to the management of the affairs of the company and since the dispute could not be settled amicably,' respondents Nos. 1 to 5 filed a petition for winding up the company on two grounds set out in clauses (e) and (f ) of section 433 of the Companies Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principal contention raised by them was that the National Textile Workers' Union, the Coimbatore District National Textile Employees' Union and the Coimbatore District Engineering Workers Union had no locus standi to appear and oppose the winding up petition, since the workmen who were members of these three unions were neither creditors nor contributories of the company. These three applications came up for hearing before the Company Judge and after hearing full arguments on both sides, the Company Judge made an order dated 14th September, 1981, rejecting all the three applications on the ground that under the Companies Act, 1956, the workmen had no right either to get impleaded in the winding up petition or even to intervene in the winding up petition. The Company Judge followed the decision of a single Judge of the Bombay High Court in In re Edward Textiles Limited, [1968] 38 Comp. Cas. 28, in taking this view. The Company Judge conceded--and this concession had to be made because of the observations of this court in Fertilizer Corporation Kamgar Unions v. Union of India [1981] 59 FJR 237: [1981] 2 SCR 52 and of the High Court of Bombay in Bhalchandra Dharmajee Makaji v. Alco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discuss the basic and vital question that arises for consideration in these appeals, it is necessary to set out a few further facts which may have some bearing on the final relief to be granted by us. On the same day on which respondents Nos. 1 to 5 filed the winding up petition and applied for interim injunction, they also made an application, being Company Application No. 843 of 1981, praying for appointment of Provisional Liquidator of the company. Respondents Nos. 6 to 14 appeared at the time when this application was presented and asked for time to file their affidavit in reply and time was granted by the Company Judge up to 10th August, 1981. Respondents Nos. 6 to 14, thereafter, filed an affidavit in reply on 10th August, 1981, and after hearing both sides in a bitterly contested argument, the Company Judge made an order on 7th December, 1981, appointing the official liquidator as Provisional Liquidator of the Company. The workmen represented by the National Textile Workers' Union, the Coimbatore District National Textiles Employees' Union and the Coimbatore District Engineering Workers' Union did not have an opportunity of being heard before the order appointing Provisiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding-up order because, under the Companies Act, 1956, it is only the creditors and contributories and in certain specified contingencies, the Registrar and the Central Government who can present a petition for winding up a company and the workmen have no locus at all in a winding-up petition except where their dues have remained unpaid in which case they would be entitled to be heard in a winding-up petition, but that would be in their capacity as creditors and not as workmen. It was also urged on behalf of respondents Nos. 1 to 5 that, in any event, even if workmen have a right to intervene in a winding up petition, in the present case, it was not the workmen who had applied for being heard in the winding-up petition but the applications were made by the three Unions and since a Union of workmen has no right to be heard, the applications of the three Unions were rightly rejected. This last contention of respondents Nos. 1 to 5 is obviously untenable and it need not detain us. It is incontrovertible--and this indeed could not be disputed on behalf of respondents Nos. 1 to 5--that the applications were made by the Unions on behalf of the workmen represented by them and though made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rule 34 of the Companies (Court) Rules, 1959, which provides as follows : "Rule 34. Notice to be given by persons intending to appear at the hearing of petition. --Every person who intends to appear at the hearing of a petition, whether to support or oppose the petition, shall serve on the petitioner or his Advocate, notice of his intention at the address given in the advertisement. The notice shall contain the address of such person, and be signed by him or his Advocate, and save as otherwise provided by these Rules shall be served (or if sent by post, shall be posted in such time as to reach the addressee) not later than two days previous to the day of hearing, and in the case of a petition for winding up, not later than five days previous to the day of hearing. Such notice shall be in Form No. 9, with such variations as the circumstances may require, and where such person intends to oppose the petition, the grounds of his opposition, or a copy of his affidavit, if any, shall be furnished along with the notice. Any person who has failed to comply with this Rule shall not, except with the leave of the Judge, be allowed to appear at the hearing of the petition". The argument ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ez faire held sway and it dominated the political and economic scene. This doctrine glorified the concept of a free economic society in which State intervention in social and economic matters was kept at the lowest possible level. But gradually this doctrine was eroded by the emergence of new social values which recognised the role of the State as an active participant in the social and economic life of the citizen in order to bring about general welfare and common good of the community. With this change in socio-economic thinking, the developing role of companies in modern economy and their increasing impact on individuals and groups, through the ramifications of their activities, began to be increasingly recognised. It began to be realised that the company is a species of social organization, with a life and dynamics of its own and exercising a significant power in contemporary society. The new concept of corporate responsibility transcending the limited traditional views about the relationship between management and shareholders and embracing within its scope much wider groups affected by the trading activities and other connected operations of companies, emerged as an important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted in the product manufactured in the concern. Then how can it be said that capital, which is only one of the factors of production, should be regarded as the owner having an exclusive dominion over the concern, as if the concern belongs to it ? A company, according to the new socio-economic thinking, is a social institution having duties and responsibilities towards the community in which it functions. The Supreme Court pointed out as far back as 1950 in Chiranjilal Chaudhury v. Union of India, LI 951] 21 Comp. Cas. 33, at p. 66: "We should bear in mind that a corporation, which is engaged in production of a commodity vitally essential to the community, has a social character of its own and it must not be regarded as the concern primarily or only of those who invest their money in it". Pt. Govind Ballabh Pant also pointed out in one of his speeches : "...industry is not an isolated concern of the shareholders or the managing agents alone. It reacts on the entire people in the country, on their economic conditions, on employment or standard of living, on everything that conduces to the material well being. " The same view was also expressed at the International Seminar on Cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahals Steel Ltd. v. Universal Steel Traders [1976] 46 Comp Cas 706, in the following words (at p. 718): "Time-honoured approach that the company law must safeguard the interest of investors and shareholders of the company would be too rigid a framework in which it can now operate. New problems call for a fresh approach" And in ascertaining and devising this fresh approach, the objective for which the company is formed may provide a guideline for the direction to be taken. As Prof. De Wool of Belgium puts it, the company has a three-fold reality--economic, human and public--each with its own internal logic. The reality of the company is much broader than that of an association of capital; it is a human working community that performs a collective action for the common good. In recent years a debate is going on in the world at large on the functions and foundations of corporate enterprise. The ' preservationists ' and the ' reformers ' are vigorously propounding their views on the possible reform of company, the modern trend emphasising the public interest in corporate enterprise". The learned judge elaborated this "modern trend" by quoting from Prof. Gower's book on "The Principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a similar nature. Traffic in human beings and begar and other similar forms of forced labour are prohibited under article 23 and article 24 mandates that no child below the age of 14 may be employed in any factory or mine or engaged in any other hazardous employment. These two articles recently came up for construction before this Court in People's Union for Democratic Right's case decided on September 18, 1982, [1983] 62 FJR 1. Article 38 imposes an obligation on the State, albeit unenforceable in a court of law, to "strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which social justice shall inform all the institutions of the national life". This is followed by article 39 which, inter alia , obliges the State to direct its policy towards securing that the citizens, men and women equally have the right to an adequate means of livelihood; the ownership and control of the material resources of the community are so distributed as best to sub-serve the common good; the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment; there is equal pay for equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act, 1956, is a self-contained code exhaustive in regard to all matters relating to companies and since there is no provision in that Act conferring on the workers a right to intervene in a winding up petition, no such right can be spelt out in their favour outside the provisions of that Act. Respondents Nos. 6 to 9 relied upon various provisions of the Companies Act, 1956, in support of their contention that the workers have no locus in a winding up petition but we do not think these provisions lend any support to that contention. The first provision relied upon by respondents Nos. 6 to 9 was section 439 which, inter alia , provides as to who shall be entitled to make an application for the winding-up of a company. It is no doubt true that this section confers the right to present a winding up petition only on certain specifically enumerated persons and the workers are not included in that enumeration and, therefore, obviously, the workers have no right to prefer a petition for the winding-up of a company. The right to apply for a winding-up of a company being a creature of statute, none other than those on whom the right to present a winding-up petition is conferred by the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timately dissolve the company, it is only the creditors and the contributories who would be affected by any action taken in the course of winding-up of the company and that is why we find several provisions in the Companies Act, 1956, which speak of winding-up being carried on with due regard to the interest of the creditors and the contributories or after ' consultation with them or confer rights on the creditors and the contributories to make applications for diverse purposes with a view to an effective winding-up of the company. Such provisions are, for instance, to be found in sections 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560. These provisions apply at a stage after a winding-up order is made by the court or the voluntary winding-up has commenced or an order is made for a continuance of winding-up subject to the supervision of the court, when winding-up having been ordered or resolved, what remains to be done is only to wind-up the company, pay the creditors and if there is any surplus, distribute the same among the shareholders. These provisions do not deal with a situation prior to the making of the winding-up order when the question is whether the company should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination of the services of the workers without giving them an opportunity of being heard against the making of such order. It would be violative of the basic principle of fair procedure, and unless there is an express provision in the Companies Act, 1956, which forbids the workers from appearing at the hearing of the winding-up petition and participating in it, the workers must be held entitled to appear and be heard in the winding-up petition. That is the minimum requirement of the principle of audi alteram partem which cannot be ignored save on pain of an invalidation of the order of winding-up. Here, we do not find any provision in the Companies Act, 1956, which in so many terms excludes the workers from appearing at the hearing of the winding-up petition with a view to supporting or opposing it and the only ground on which the right of the workers to appear and be heard in the winding-up petition is disputed is that there is no specific provision in the Act entitling them to do so and the right to apply for winding-up as also to participate in the proceedings in the course of winding-up is conferred only on the creditors and the contributories. But, we have pointed out abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of public interest enters into the management of the companies after 1963. The modern corporation has become the accepted instrument of social policy, because it affects a large part of the economic life of the community, It has become an instrument for the improvement of the economic standards of the people and for economic growth of the nation. Society depends foe some of its needs on corporate enterprise. It has, therefore, an interest in its stability and efficiency as an economic institution. The element of public interest also arises from the responsibility for ensuring a minimum wage to the numerous employees in the corporate sector. It is necessary to see that people who put their labour and lives into a concern get fair wages, continuity of employment and a recognition of their right to their jobs where they have trained themselves to highly skilled and specialised work. In deciding whether the court should wind up a company or change its management the court must take into consideration not only the interest of the shareholders and creditors but also public interest in the shape of the need of the community and the interest of the employees. This, in my opinion, is the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an indirect interest in the continued existence of the company. So also in Buckley on the Companies Acts (14th Edn. ), at page 546, the law has been stated in the following terms, namely: "The only persons entitled to be heard are the company, its creditors and contributories. The court may, in its discretion, hear other persons who have an interest in order to learn what public grounds there are in favour of, or in opposition to, the winding up, but such persons can be heard only as amid curiae, and cannot appeal". Our attention was also invited to. Halsbury's Laws of England, 4th Edn. Vol. 7, where a similar statement of the law is to be found at page 614 para. 1028. Now, it is undoubtedly true that according to the statement of the law contained in these three leading text books, it is only the company, the creditors and the contributories who are entitled to appear on the winding up petition and no other persons have a right to be heard, but this statement of the law is based on the old decision in Re. Bradford Navigation Company, [1869] LR 9 Eq. 80, which was carried in appeal and decided as Re. Bradford Navigation Company, [1870] 5 Ch. App. 600. This decision given by the En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever be the reason as to why-this legal rule continues to remain in the English text books, we cannot be persuaded to adopt it in our country, merely on the ground that it has been accepted as a valid rule in England. We have to build our own jurisprudence and though we may receive light from whatever source it comes, we cannot surrender our judgment and accept as valid in our country whatever has been decided in England. The rule enunciated in Re. Bradford Navigation Company case, [1869] LR 9 Eq. 80, does not commend itself to us and though it has been followed by a single Judge of the Bombay High Court in Re. Edward Textiles Limited, [1968] 38 Comp. Cas. 284, we do not think it represents correct law. We may also mention that on behalf of the appellants some reliance was placed on rule 34 of the Companies (Court) Rules, 1959, in support of their contention that not only the creditors and the contributories but also other persons are entitled to appear at the hearing of a winding-up petition and the workers cannot therefore be excluded. This rule provides that every person who intends to appear at the hearing of a winding-up petition, whether to support or to oppose it, shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed extent it does undoubtedly lends some support to the contention of the appellants. We are, therefore, of the view that the workers are entitled to appear at the hearing of the winding-up petition whether to support or to oppose it so long as no winding order is made by the court, The workers have a locus to appear and be heard in the winding-up petition both before the winding-up petition is admitted and an order for advertisement is made as also after the admission and advertisement of the winding-up petition until an order is made for winding-up the company. If a winding-up order is made and the workers are aggrieved by it, they would also be entitled to prefer an appeal and contend in the appeal that no winding-up order should have been made by the Company Judge. But, when a winding-up order is made and it has become final, the workers ordinarily would not have any right to participate in any proceeding in the course of winding up the company, though there may be rare cases where in a proceeding in the course of winding up, the interest of the workers may be involved and in such a case, it may be possible to contend that the workers must be heard before an order is made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order for winding up shall be deemed- to be a notice of discharge of the officers- and employees of the company, except when the business of the company is continued, it is plain that the future of the workers is at stake and their right to work is in jeopardy as a result of the presentation of the winding-up petition. Unlike the shareholders, to most of whom the shares they hold represent mere investments and to some of whom, the means to control the affairs of the company, to the workers, the life of the company is their own and its welfare is theirs. They are so intimately tied up that their interest in the survival and the well-being of the company is much more than the interest of any shareholder--be he an investor, a corporate commander or a corporate manipulator. How then is it possible that these persons--the workers whose very existence may be under threat of extinction--are to be denied a hearing, even if sought, when a petition for winding-up is presented to a court. It is said that the Companies Act does not contemplate a hearing to the workers. Only contributories and creditors may be heard it seems. Workers may not be allowed to throng the company court, only those wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control and it is one of the Directive Principles of State Policy that the State shall take steps, by suitable legislation or in any other way, to secure the participation of workers in the management of undertakings, establishments or other organizations engaged in any industry. It is in this context of changing norms and waxing values that one has to judge the workers' demand to be heard. And, what do the workers want ? They want to be heard lest their situation be altered unheard. They invoke natural justice, so to claim justice. They invoke the same rule which the courts compel administrative tribunals to observe. Can courts say natural justice need not be observed by them as they know how to render justice without observing natural justice ? It will surely be a travesty of justice to deny natural justice on the ground that courts know better. There is a peculiar and surprising misconception of natural justice, in some quarters, that it is, exclusively, a principle of administrative law. It is not. It is first a universal principle and, therefore, a rule of administrative law. It is that part of the judicial procedure which is imported into the administrative process because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single share out of thousands may be heard, if every petty creditor may be heard, why can't the workers be heard ? It is said that once the workers are allowed to enter the Company Court, the flood gates will be opened, all and sundry will join in the fray and utter confusion will prevail. These are dark forebodings for which there is no possible justification. The interest of the workers is limited. It is the interest of the others, those that battle for control and for power that may create chaos and confusion. It must not be forgotten that the court is the master of the proceedings and the ultimate control is with the court. Parties may not be impleaded for the mere asking or heard for the mere seeking. The court may well ask the reason why, if some one seeks to be heard. Workers will not crowd the Company Court and the court will not be helpless to keep out those whom it is not necessary to hear. It is said that workers will not be allowed to intervene in a partition or a partnership action to oppose the partition or dissolution of a partnership and so why should they be allowed to intervene in a winding-up petition. That is begging the question. There is no reason why worker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and leaders of capitalist economy are undergoing transformation and, are surely acquiring the character of public institutions. The public interest element is now quite a pre-dominant factor in the Companies Act itself. There are several provisions in the Companies Act which take notice of the element of public interest. There are other enactments like the Monopolies and Restrictive Trade Practices Act, the Industries (Development and Regulation) Act, under whose provisions, the activities of a company may be scrutinized in the public interest. There are a host of other legislations involving employment and welfare of labour, to which the managements of companies are subject. The transformation of a company's character from private to public is going on right before our eyes even as the institution of private property is also losing its diathesis. It is in this context of ferment and development that we must consider the problem before us. There is no sanctity attached to the age of a judgment or to the circumstance that the decision is that of an English Court from where we have borrowed most of our company law. Re : Bradford Navigation Company was decided in the heydays of lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Comp. Cas. 706 (SC), at p. 718 : "Time-honoured approach that the company law must safeguard the interest of investors and shareholders of the company would be too rigid a framework in which it can now operate. New problems call for a fresh approach...As Prof. De Wool of Belgium puts it, the company has a three-fold reality--economic, human and public--each with its own internal logic. The reality of the company is much broader than that of an association of capital; it is a human working community that performs a collective action for the common good. In recent years, a debate is going on in the world at large on the functions and foundations of corporate enterprise. The ' preservationists ' and the ' reformers ' are vigorously propounding their views on the possible reform of company, the modern trend emphasising the public interest in corporate enterprise". The case itself is an instructive one and demonstrates how an imaginative Company Judge may help to restructure and infuse new life into a company whose life is ebbing out, within the four corners of the statute and keeping in view the interest not merely of the creditors and the contributories but also the interest of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1981, for the winding-up of the Company under section 433(e) and (f) of the Act on the ground that it was just and equitable to do so in view of the alleged deadlock that had arisen in the administration of the affairs of the Company. The petition charged the members belonging to the group of R. Venkataswami Naidu with acts of misconduct, waste and malversation, a detailed reference to which is unnecessary for purposes of this case. Along with the above petition, the petitioners therein filed Company Application No. 843 of 1981 praying for the appointment of a provisional liquidator and Company Application No. 844 of 1981 for an interim order restraining the Company and other respondents from borrowing moneys from bankers and other financial institutions without prior permission of the Court and from otherwise alienating the assets' of the Company pending disposal of the said application. The learned Company Judge passed an interim order on 13th July, 1981, itself restraining until further orders the eleven respondents named in the application from borrowing any moneys from banks, financial institutions or others without prior permission of the Court and from alienating and/or cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders had no locus standi to be impleaded as respondents to the petition. It may be mentioned here that the Company Petition for winding-up had not yet been advertised at that stage and rule 34 of the Companies (Court) Rules, 1959, was not attracted. The Company Judge dismissed these applications filed by the trade unions for Impleading them as respondents by his order dated September 14, 1981. Against that order only the National Textile Workers' Union (INTUC) filed an appeal before the Division Bench of the High Court being OSA No. 148 of 1981 That appeal was dismissed by the Division Bench on September 30, 1981. The petition for Special Leave to Appeal (Civil) No. 9661 of 1981, was filed before this Court under article 136 of the Constitution by the National Textile Workers Union (INTUC) on November 6, 1981, The said Special Leave Petition came up for orders before a Bench of three Judges on November 19, 1981. On that date, notices were issued to the respondents. The High Court was permitted to pass its orders on the application for appointment of a provisional liquidator which was pending before it but it was ordered that in the event of a provisional liquidator being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fiduciary relationship are virtually identical with those imposed on trustees. The directors are generally expected not to place themselves in a position where their duties towards the company conflict with their personal interests. A company ceases to be in existence on its dissolution which follows the winding-up proceedings which may be either by the Court or voluntary winding-up (either members' voluntary winding-up or creditors' voluntary winding-up) or winding-up subject to supervision of the Court. There are detailed provisions in the Act governing the different winding-up proceedings referred to above. The principles of administrative law which concern the control of governmental power have not much relevance to the administration of the affairs of a company, the primary purpose of administrative law being the imposition of checks on the powers of government or its officers so that they may not either abuse their powers or go out of their legal bounds. In particular, the proceedings relating to a winding-up by the Court are subject to the orders of higher courts in appeal and are not amenable to interference by superior courts as in the case of actions of government or it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and in the case of a private company, below two, (e) if the company is unable to pay its debts, and (f ) if the Court is of opinion that it is just and equitable that the company should be wound up. Section 439 of the Act provides that an application to the Court for the winding-up of a company shall be made by way of a petition presented to the Court subject to the provisions of that section. A petition for the winding-up of a company may be filed by all or any of the following, viz. , the company, its creditors, including any contingent or prospective creditors, or any contributory. Such a petition can be filed by the Registrar of Companies and, in a case falling under section 243, by any person authorised by the Central Government. Sub-section (2) of section 439 of the Act treats certain classes of persons as creditors for purposes of that section. Sub-section (3) of section 439 treats the holder of a fully paid up share also as a contributory even though he may not be liable to contribute any further sum to the assets of a company in the event of its being wound up and a contributory may. file a petition for winding-up provided he is not debarred from doing so by sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng-up order and what a winding-up petition is. It is a substitute for a suit for winding-up a partnership. It is a power applicable by the Act of Parliament to corporations as well as to unincorporated societies. Partners have a right to file a bill one against the other, and to have the usual decree for the administration of the partnership property, and for the settling of the partnership accounts and liabilities. In the case of large companies, winding-up was thought to be a more convenient course than a common partnership suit, but in every other respect it is the same. In a common partnership suit nobody can be made a party, or can be heard, except the partners themselves, and, originally, a winding-up was the same thing. Con tributaries were the only persons who could be heard; but as creditors were interfered with by the operation of the winding-up, the Act of Parliament has made a winding-up a matter both for creditors and contributories. A creditor may present a petition for winding-up, and both creditors and contributories are heard upon that; but it is new to me to say that any person who has an interest in, or a right to or in respect of, some of the property of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) When ascertaining the wishes of creditors, regard shall be had to the value of each creditor's debt. (3) When ascertaining the wishes of contributories, regard shall be had to the number of votes which may be cast by each contributory." That a company, the Official Liquidator, the liquidator, creditors and contributories alone can effectively participate in and contest the winding-up proceedings is clear from some of the other provisions of the Act governing the winding-up proceedings. Under section 450(2) of the Act, before appointing a provisional liquidator, the Court has to give notice to the company and give a reasonable opportunity to it to make its representations, if any, unless, for special reasons to be recorded in writing, the Court thinks fit to dispense with such notice. The Court may, under section 466 of the Act at any time after making a winding-up order, on the application either of the Official Liquidator or of any creditor or contributory, make an order staying the winding-up proceedings on being satisfied that there are good reasons to pass such an order. Section 478(3) authorises any creditor or contributory in addition to the Official Liquidator to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unions have not been given any such right. The words "every person" in rule 34 of the Companies (Court) Rules, 1959, (which is almost similar to the corresponding English Rule) do not entitle a worker who is neither a shareholder nor a contributory to support or oppose a winding-up petition under that rule because they refer only to a person who is otherwise entitled to do so under the Act. We should also bear in mind that an anamolous result that may flow from the acceptance of the case of the workers is that whereas in a winding-up by Court they may get an opportunity to contest the petition, the voluntary winding-up proceedings or winding-up under the supervision of the Court would go on without any such contest although in all cases ultimately the workers will be discharged from service. A construction which leads to such a discriminatory result should be avoided. When once we extend the right to contest a winding-up petition to workers either on the principle of equity or of administrative law, on the same principle it would logically follow that all others who may have dealings with the company such as commission agents, selling agents, etc. , whose contracts with the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as he was concerned. " It is because of some doubts that had been expressed earlier about the continuance of the employment of the employees of a company ordered to be compulsorily wound up that section 445(3) was enacted making it clear that the passing of the order of winding-up amounts to a notice of discharge of the employees concerned. Section 445(3) corresponds to the termination of service brought about by the abolition of a post under a Government or by the closure of a business, neither of which as the law stands today requires compliance with the principles of natural justice. It may, however, attract section 25-FFF of the Industrial Disputes Act, 1947, in appropriate cases. In the Act, there are specific provisions dealing with the rights of employees of a company. Sections 417 to 420 of the Act deal with employees' securities and provident funds and clauses (b) to (f) of section 530(1) deal with preferential payments to be made to the employees of a company in liquidation from out of its assets. Section 635-B of the Act deals with the protection to which the employees are entitled during investigation into the affairs of a company. Rule 152 of the Companies (Court) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n force grant the permission prayed for." The provisions of Chapters III-AA and III-AB of the Industries (Development and Regulation) Act, 1951, confer on the Central Government powers regarding management or control of industrial undertakings owned by companies in liquidation and power to provide relief to certain industrial undertakings including those to which Chapter III-A is applicable. Chapter III-AC of that Act deals with the power of the Central Govt. in respect of liquidation and reconstruction of companies. In particular, section 18-FD(1) of that Act, inter alia , provides that if, on receipt of the report submitted by the authorised person, the Central Govt. is satisfied in relation to a company, owning the industrial undertaking, which is being wound up by the High Court, that its assets and liabilities are such that in the interests of the creditors and contributories the industrial undertaking should be sold as a running concern, as provided in section 18-FE thereof, it may by order decide accordingly. Sub-section (2) of section 188FD of that Act states that notwithstanding anything contained in sub-section (1) thereof the Central Government may prepare a scheme for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikely to prove ineffective. The powers and functions which cannot be delegated by the Board, and which must be within the exclusive jurisdiction of the Board to take policy decision are in respect of the following matters:-- (a) winding-up of the company; (b) changes in the memorandum and articles of association; (c) changes in the capital structure of a company (e. g. , as regards the relationship between the Board and the shareholders, a reduction or increase in the share capital; as regards the relations between the Board and senior management, the issue of securities on a take-over or merger); (d) disposal of a substantial part of the undertaking; (e) the allocation or disposition of resources to the extent not covered in (a) to (d) above; and (f) the appointment, removal, control and remuneration of management, whether as members of the Board or in their capacity as executives or employees. The suggestion regarding (a) to (e) above is on the same line as the present power of the Board to declare dividend. In other words, the shareholders will not be able to exercise powers mentioned in (a) to (e) above unless recommended by the Board. We would, therefore, suggest that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in that case was in the public sector and owned by the Government against which a petition under article 32 of the Constitution was maintainable. Chandrachud, C. J. observed in the course of his judgment at page 243 (of FJR) thus: "Secondly, the right of Petitioners Nos. 3 and 4 and of the other workers, to carry on the occupation of industrial workers, is not, in any manner, affected by the impugned sale. The right to pursue a calling or to carry on an occupation is not the same thing as the right to work in a particular post under a contract of employment. If the workers are retrenched consequent upon and on account of the sale, it will be open to them to pursue their rights and remedies under the Industrial Laws. But the point to be noted is that the closure of an establishment in which a workman is for the time being employed does not by itself infringe his fundamental right to carry on an occupation which is guaranteed by article 19(1)(g) of the Constitution. Supposing a law were passed preventing a certain category of workers from accepting employment in a fertilizer factory, it would be possible to contend then that the workers have been deprived of their right to carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is directly interested and affected, would have no right to complain of the infraction of public duties and obligations. Public enterprises are owned by the people and those who run them are accountable to the people. The accountability of the public sector to the Parliament is in effective because the parliamentary control of public enterprises is ' diffuse and haphazard'. We are not too sure if we would have refused relief to the workers if we had found that the sale was unjust, unfair or mala fide." Krishna Iyer, J. , in his concurring opinion, observed at page 252 (of 59 FJR) thus : "A pragmatic approach to social justice compels us to interpret constitutional provisions, including those like articles 32 and 226, with a view to see that the effective policing of the corridors of power is carried out by the court until other ombudsman arrangements--a problem with which Parliament has been wrestling for too long--emerges. I have dwelt at a little length on this policy aspect and the court process because the learned Attorney-General challenged the petitioner's locus standi either qua worker or qua citizen to question in court the wrongdoings of the public sector although ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors or that the company should not be wound up without consulting the wishes of the workers, then they can certainly claim all such rights. Workers' participation in the affairs of "a company or the ushering in of an industrial democracy is quite a laudable object. That is a reason for enacting article 43-A of the Constitution which requires the State to take steps, by suitable legislation or in any other way, to secure the participation of workers in the management of undertakings, establishments or other organisations engaged in any industry. The Legislature has not taken any concrete steps in this regard. But, can the court step in and introduce drastic amendments into the company law ? Surely, it cannot. Even though there is no express statement in our constitutional law incorporating in it the doctrine of separation of powers, in the interpretation of the Constitution this Court has broadly adopted the said doctrine. (See Smt. Indira Nehru Gandhi v. Shri Raj Narain [1976] 2 SCR 347). Even though by virtue of its power of interpretation of law the court in an indirect way is making law, it should be stated that there are well recognised limitations on the power of the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In this very case, when arguments were going on I suggested that it may be appropriate to issue notice to the Company Law Administration of the Union of India so that the Court could have the benefit of the views of the Government. It was not, however, acceded to by the majority. The presence of the Union Government in the present case as a party might have brought to its attention the need for initiating necessary legislation, if it really felt that it was advisable to do so, for providing an opportunity to the workers of a company also to contest the winding-up proceedings. It is, however, a matter for regret that no tangible steps appear to have been taken to amend the Act even though the Sachar Committee Report which contains many recommendations which when implemented would make the companies which are centres of economic power accountable to the society at large and make them fall in line with the current views on their social responsibilities, was forwarded to the Government more than four years ago. It may be that the employees or their trade unions are interested in requesting the Court to dispose of the factory as a going concern so that their employment may not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1981. The order passed in Company Application No. 844 of 1981, is already set out above. In C. M. P. No. 11159 of 1981, the High Court has passed the following order :-- "This is a petition filed by the appellants in O. S. A. No. 128 of 1981, for permitting the first appellant/company to raise with its Bankers, viz. , Bank of Baroda, Coimbatore, a temporary loan of an amount not exceeding Rs. 5,25,000 for the purpose of paying bonus to the workers of Jothi Mills, as per the Memorandum of settlement entered into between the Company and its workers under section 18(1) of the Industrial Disputes Act, 1947, on 10th October, 1979, by pledging or charging the assets of the Company Though in form the appellants have prayed for raising of a loan for honouring the commitment of Rs. 5,25,000 towards bonus for the workers of Jothi Mills by pledging or charging the assets of the company during the argument the learned counsel for the appellants was willing to avail of the existing facilities in the Central Bank as provided in the order itself. Though for availing the existing Bank facilities there is no need for any specific direction from this court as the order appealed against itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " one. The High Court has decided the case in accordance with the prevailing view in the country. No case in which a different view is taken is cited before us. Nobody disputes the proposition that law should not be static. It should no doubt grow but it should have its legitimate birth and in a case like this in the precincts of the Legislature. It should be the result of the exercise of legislative judgment, particularly when a departure from express provisions of a statute or an established practice is to be made. Judges are not expected to know all aspects of every such matter. A discussion involving a comprehensive view of all interests which are likely to be affected by any decision which makes a serious departure from a well-settled principle of law would not take place before a Court where only the parties to a case or their lawyers are heard. Members of the public also would not know what is happening in Courts. The publicity which a proceeding in the Legislature would receive is not given to the proceedings in Court. Even the elected representatives of the people who are charged with the duty of making laws may not know what is happening in a Court of law. Therefore, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onality, Ashbury Railway Carriage & Iron Co. v. Riche, [1875] LR 7 (HL) 653, dealing with the rule of ultra vires, Royal British Bank v. Tur-quand, [1856] 6 E & B 327 (Exch Ch), laying down the rule of "indoor management", Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. , [1964] AC 465, which establishes the liability for negligent mis-statements in prospectuses, Fvss v. Harbottle, [1843] 2. Hare 461 and Burland v. Earle, [1902] AC 83, dealing with the principle of " the fraud on a minority " and Ebrahimi v. Westbourne Galleries, [1973] AC 360, dealing with the application of the "just and equitable" principle in ordering the winding-up of a company. A reading of the decision of this Court in Needle Industries (India) Ltd. & Ors. v. Needle Industries Newey ( India) Holding Ltd. & Ors. , [1981] 51 Comp Cas743; [1981] 3 SCR 698, rendered by Chandrachud, C. J. , shows the importance of foreign decisions in deciding cases arising under the Indian Company Law which out of necessity has to keep pace with the well-established principles prevailing in many other parts of the world for sustaining international trade and commerce. Adoption of a universal system of mercantile law and obedie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of economy; but is abhorent to India, particularly after the Constitution (42nd Amendment) Act, 1976, by which the "Socialist" and "Secular" concepts have been added and incorporated into the Preamble of our Constitution. Our "Democratic Republic" is no longer merely "Sovereign" but is also "Socialist" and "Secular". A Democratic Republic is not Socialist if in such a Republic the workers have no voice at all. Our Constitution has expressly rejected the old doctrine of the employers' right to "hire and fire". The workers are no longer ciphers; they have been given the pride of place in our economic system. The workers' right to be heard in a winding-up proceeding has to be spelt out from the Preamble and articles 38 and 43-A of the Constitution and from the general principles of natural justice. Amarendra Nath Sen, J. --I have read the judgment of my learned brother Bhagwati, J., and also the judgment of my learned brother Venkataramiah, J. I cannot persuade myself to agree with the judgment of my learned brother Bhagwati, J. I agree with the judgment and order proposed by my learned brother, Venkataramiah, J. I shall indicate my reasons for the view that I have taken. The materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conceded to the employees on these grounds it must logically follow that every employee of a company, whether he is a worker within the meaning of the' Industrial Disputes Act or he is a member of the management staff, must enjoy the same right to appear and be heard in every such proceeding for the winding-up of the company. An order for winding-up affects all the employees of a company, whether they are workers belonging to any trade union or not or whether they are officers of the company, high or low, not being members of any union or association. Further if the right to participate in a winding-up proceeding is to be judged from the view point of the interest of any party who may be prejudicially affected as a result of an order of winding-up being made, various other parties who have trade relations with the company must necessarily be held to have the same right to be heard in a winding-up proceeding. It is common knowledge that various persons, apart from the employees of the company, also depend for their survival on the supplies of various materials, ingredients and components to the company and with the liquidation of a company, all such persons who are making their liv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt for winding-up of the company are specifically mentioned in the Act and only such persons are competent to present the winding-up petition. The procedure to be followed on such a petition for the winding-up of a company being presented to court and the parties who are entitled to be heard on the petition are dealt with and provided for in the Act and the Rules. The right of appearance and of being heard in a winding-up proceeding has been conferred on persons whom the Legislature considered to be necessary or proper parties for effective adjudication of the proceeding before the Court. The Act provides that a creditor to whom a company is indebted in a sum exceeding Rs. 500 and whose debt has not been paid by the company notwithstanding the statutory notice being served on the company is entitled to present a petition for the winding-up of the company and in such a case, the creditor whose debt cannot be properly disputed, is entitled to an order of winding-up on the ground of insolvency of the company. If a company is commercially insolvent and is unable to pay its debts, the company has necessarily to be wound up and the employees of the company can have hardly anything to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the petition on which the Court has been moved for the winding-up of the company to make representation with regard to the same. Rule 9-B requires that copies of the petition in terms of the said Rules are to be furnished to every contributory or creditor of the company and the said rule makes no mention of the employees of the company. I agree with my brother, Venkataramiah, J. that on a proper consideration of the relevant provisions of the Act and also of the Rules, an employee of a company in his capacity as such does not have any right to appear and be heard in a petition presented to Court for the winding-up of the company. It will be noticed on an analysis of the provisions of the Act that from the stage of the formation of the company till the very last stage of its dissolution, company jurisprudence does not recognise any right of an employee in his capacity as an employee of the company in the matter of formation of the company, its functioning and its ultimate winding-up. The Act, however, makes necessary provisions as to deposit of employees security monies with a Scheduled Bank in section 417 of the Act. The Act also makes suitable provision in section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been laid down--" Only the petitioners, the company, and creditors and contributories are entitled to appear on the petition; other parties have no right to be heard, and, even if the Court of first instance elects to hear them as amici curiae, they have no right of appeal". In Palmer's Company Precedents (1th Edn. ), Part II, the following observations appear at p. 77 :-- "Any creditor or shareholder may appear to support or oppose the petition. But no one else can do so, even if he has an indirect interest in the continued existence of the company". On the basis of the decision in Re : Bradford Navigation Co. , [1870] 5 Ch App 600, the following comments have been made at p. 546 in Buckley on the Companies Acts, 14th Edn. , Vol. I :-- "The only persons entitled to be heard are the company, the creditors and contributories. The Court may, in its discretion hear other persons who have an interest in order to learn what public grounds there are in favour of, or in opposition to, the winding-up but such persons can be heard only as amid curiae, and cannot appeal." Various legislations for the benefit and welfare of the employees have since been passed in England and the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the company," (p. 104) These observations, to my mind, are of no assistance in deciding the question involved in this appeal. These observations were made in a different context. These observations, however, indicate that where the provisions of the Indian Act and the English Act are alike, the decisions of the English Courts throw good light and the reasons may be persuasive. It is no doubt true that the decisions of the English Courts do not have a binding effect and the proper course for this Court while considering or interpreting an enactment of the Indian Legislature is to examine the language of the statute to ascertain its proper meaning uninfluenced by any consideration derived from the provisions of the English Law upon which it may have been founded. Principles of construction of a statute are well settled. It is significant to note that no decision of any court in India could be cited where the claim of an employee in his capacity as an employee to participate and be heard in a petition for winding up of the company as a matter of right has been accepted. On the other hand, the settled legal position in this country so far has been that no employee could claim any s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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