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TMI Blog2010 (12) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... with sections 10 and 392 of the Companies Act, 1956 and hence, in any case, all these issues which are raised by the applicants cannot be and should not be allowed by this court, in their favour. Considering the foregoing discussion and taking overall view of the matter and keeping in mind the statutory provisions and the judicial precedents, the court is of the firm view that both these applications deserve to be rejected both on the ground of jurisdiction as well as on merits. - 115 & 157 OF 2009 - - - Dated:- 16-12-2010 - K.A. PUJ, J. Sunit Shah, Shalin N. Mehta Pinakin M. Raval and Ms. Pooja K. Dave for the Applicant. K.S. Nanavati and Nandish Chudgar for the Respondent. JUDGMENT K.A. Puj, J. Since common issue is involved in both these company applications and since they were heard together, the same are being disposed of by this common judgment and order. 2. Initially, both these company applications were admitted by this court on April 27, 2009 and by detailed order, interim relief was refused. Being aggrieved by the said interim order, the applicants have approached the apex court by way of Special Leave Petition (Civil) Nos. 16428-16430 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance group of Industries on June 4, 2002 and hence, the management control came in the hands of Reliance group of Industries. In the meeting of the board of directors of IPCL, a resolution came to be passed on January 15, 2007, whereby a decision was taken to revert back the age of superannuation of supervisory employees from 60 years to the original superannuation age of 58 years. However, the said decision was to be made applicable for those supervisory employees, who attained 58 years of age on or before April 1, 2009 and would retire on April 1, 2009 and those supervisory employees who attain 58 years of age after April 1, 2009, to retire on the date they attain such age. It was further resolved in the said meeting of the board authorising the whole-time director of the company to take further action for implementing the said resolution. Pursuant to the said resolution, impugned office memorandum was issued by the competent authority of Human Resources Department of IPCL on March 8, 2007, conveying the decision taken by the board of directors. The said office memorandum was forwarded to all supervisory employees who were connected to intranet computers as well as the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on became effective as directed by the High Court as well as in view of the provisions contained in the scheme of amalgamation. Even the OJ Appeal filed by the shareholders was dismissed by the Division Bench on December 26, 2007 and the one filed by the labour union was dismissed on March 18, 2008. 7. On the basis of the pleadings contained in the applications, affidavits, amendments and further affidavits, major submissions are made on behalf of the applicants by learned advocate Mr. Sunit Shah. He developed his case mainly on the basis of the amendment made in the original company application. The disinvestment policy contemplates various modes of disinvestment. One of the modes is by way of strategic sale of the company was adopted. In the mode of strategic sale, the transaction has two elements (I) transfer of block of shares to the strategic partner and (II) transfer of management control to the strategic partner. Both take at a different time. In the process of disinvestment, the Government's one of the main concerns was protection of the employees. The disinvestment process included execution of three transaction documents. One of the documents included the shareholders' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso not before this court. Mr. Shah further submitted that RIL was in control and management of IPCL with effect from June, 2002. The disinvestment policy does not permit strategic partner to change service terms and conditions detrimental and adversely affecting the interest of the employees and, therefore, it is not open for the RIL in control of IPCL to change the terms and conditions of service of employees after June, 2002. RIL cannot change the terms and conditions through the process of disinvestment, i.e., after June 4, 2002 and before September 5, 2007. If that be so, then the strategic partner can very well defeat the assurance relating to employees of IPCL as contemplated by the disinvestment policy and shareholders' agreement. He further submitted that the interpretation put forward by the opponent would run counter to the letter and spirit of protection of the employees with regard to continuity of service on same terms and conditions. He further submitted that the scheme itself is a part of the disinvestment process and the process commences with execution of the documents and is achieved with the sanction of scheme of amalgamation. He has, therefore, submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not assign any reason for reducing the superannuation age. Though the said office memorandum does not refer to the name of any competent authority, during the course of hearing of these applications, a copy of the board of directors resolution dated January 15, 2007, is produced. However, the said resolution does not contain any reason. Even if it is assumed that the board of directors did pass a resolution and had an authority to pass a resolution, in view of the disinvestment policy and shareholders' agreement, the same is not in consonance with the principles laid down by the apex court in relation to the change in superannuation age of the employees. He further submitted that the decision to reduce superannuation age is based on irrelevant issues. For bringing uniformity, superannuation age was reduced prior to the scheme of amalgamation. The contention of the uniformity is also not well convincing as the courts have recognised two class of employees with different set of service in case of amalgamation and merger and it is to be based on intelligible differentia. He further submitted that the reason of the uniformity runs counter to the object of disinvestment policy. He has, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the argument of one court is wrong because there were two courts sanctioning the scheme right from the beginning. Hence, the application is not barred by vice or lack of jurisdiction. Lastly, Mr. Shah has submitted that by agreeing to continue employees with the same service conditions under the disinvestment policy, the shareholders' agreement and the scheme, specific performance of service conditions is accepted by RIL. Now to permit them to argue that the service can be terminated and only compensation can be asked runs counter to the scheme/disinvestment policy/shareholders' agreement. Alternatively, he has submitted that if specific performance is not possible in that case, adequate compensation is required to be paid to the applicants. 14. Mr. Shah relied on the decision of the apex court in the case of Bhola Nath J. Thaker v. State of Saurashtra, AIR 1954 SC 680, for the proposition that two sets of employees with two sets of service conditions are permissible. In this case, it is held that the covenant could be looked at to see whether the new sovereign had waived his rights to ignore the rights given under the laws of the former sovereign. The cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah further relied on the decision of the apex court in the case of National Textile Workers' Union v. P.R. Ramakrishnan [1983] 53 Comp Cas 184 , for the proposition that what should be the approach of the court towards the employees in company matters. The court held that it is not only the shareholders who have supplied capital who are interested in the enterprise which is being run by a company but the workers who supply labour are also equally, if not, more interested because what is produced by the enterprise is the result of labour as well as capital. While the shareholders invest only a part of their moneys, the workers invest their sweat and toil, in fact their life itself. The workers therefore have a special place in a socialist pattern of society. They are not mere vendors of toil, they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital may, very much more. In view of the Preamble, the Directive Principles of State Policy and particularly introduction of article 43A, it is idle to contend that the workers should have no voice in the determination of the question whether the enterprise should continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally applicable to all its employees in other spheres of Government service. In the circumstances, it could not be said that the bank's attitude was unreasonable, particularly when the age of retirement of the new entrants was quite consistent with the conditions prevailing in almost all the sectors of public employment. Therefore, the classification of the employees into two categories, i.e., those falling under rules 1 and 2 of the Rules for age of retirement and those falling under rule 3 thereof satisfies the tests of a valid classification laid down under articles 14 and 16 of the Constitution and rule 3 could not be declared as unconstitutional. 20. Mr. Shah further relied on the decision of the apex court in the case of H.L. Trehan v. Union of India [1989] 65 Comp Cas 673, wherein it is held that where the management of Caltex Oil Refining (India) Ltd., (CORIL) to which management of the undertaking of Caltex (India) Ltd., had been transferred, altered the conditions of service of the staff of the Caltex (India) Ltd., to their disadvantage without giving them an opportunity of being heard, the order altering the conditions was liable to be set aside. There can be no depriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is true that while sanctioning the scheme, it is open to the company court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the court so specifies a date, such date would be the date of amalgamation/date of transfer. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it, the date of amalgamation/ date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. 23. Mr. Shah further relied on the decision of the apex court in the case of Ahmedabad Education Society v. Gilber B. Shah AIR 2004 SC 1167, wherein teachers were appointed in private primary school run by Ahmedabad Education Society. Contract of service contained in the Society's Leave Rules provided that teachers would retire at the age of 60 years. Since the original terms and conditions of the contract, the teachers were appointed up to a particular age, i.e., up to age of 60 years, they could be considered as appointed for a definite period. The teachers were wrongly retired at the age of 50 years instead of 60 years. The court directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court. Directions sought by the applicants are essentially against RIL for implementing clause 8 of the scheme sanctioned by the Bombay High Court. IPCL stands dissolved and has ceased to exist. He has, therefore, submitted that if at all the jurisdiction under section 392 of the Companies Act is to be exercised, as is available, it would be available with the Bombay High Court and not with this court. 26. Mr. Nanavati has further submitted that so far as the proceedings relating to the sanctioning of the scheme of amalgamation of IPCL with RIL is concerned, since the registered office of IPCL was within the territorial jurisdiction of this court, while for RIL, proceedings were filed before the Bombay High Court, because the registered office of RIL is within the territory of Maharashtra. Now IPCL already stands dissolved, while it is only RIL which is in existence, whose registered office is at Mumbai and it is only the Bombay High Court, who has jurisdiction over RIL, under the provisions of the Companies Act, 1956. 27. Mr. Nanavati has further submitted that the word "court" as provided in section 2(11) read with section 10 of the Companies Act, 1956, with reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proceedings of Company Petition No. 93 of 2007 which is for sanctioning of the scheme before this court and should have objected to such a scheme. The present applicants chose not to raise any grievance at the relevant time despite full knowledge of the office memorandum and its resultant effect at the relevant time itself. Not only that, the said office memorandum dated March 8, 2007, has already been given effect to, for the purpose of calculation of the compensation with regard to the VRS, which was floated on March 13, 2007 and 212 supervisory employees were relieved pursuant to their opting for VRS in the first week of April, 2007. Thus, the office memorandum dated March 8, 2007, has already been given effect to and implemented and is in operation since March 8, 2007. Despite implementation and operation of office memorandum dated March 8, 2007, from the even date, the applicants have only now chosen to approach this court at the very fag end for the first time by filing the application on March 24, 2009, when the applicants are being relieved/superannuated on March 31, 2009, or later as the case may be, in terms of the office memorandum dated March 8, 2007. Such conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the service condition, as prevailing on March 8, 2007, the superannuation age was 58 years. 31. Mr. Nanavati further submitted that clause 8.1 of the scheme envisages that when all the permanent employees of the transferor company become employees of the transferee company with effect from the effective date, their terms and conditions as to the employment and remuneration would not be less favourable than those on which they are engaged or employed by the transferor company. Clause 8.1 clearly stipulates that all the permanent employees of IPCL who are in employment with IPCL, as on the effective date (September 5, 2007) shall merge with the transferee company (RIL) with effect from September 5, 2007. Therefore, it is clear that the terms and conditions of service or conditions of employment which were prevalent prior to the effective date, i.e., up to the period during which the employees were employed by the transferor company would not be altered by the transferee company so as to be less favourable. In the instant case, employees of IPCL continued to be employed by IPCL up to the effective date, i.e., September 5, 2007 and therefore, what is to be seen is the terms and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be said to be covered within the direction with regard to payment of salary, perquisites and other benefits. Therefore, the said direction would not be covering the said condition of service with regard to age of superannuation. 33. Mr. Nanavati further submitted that without prejudice to this argument, with regard to the interpretation and meaning of the words "before amalgamation", the undertaking of IPCL consisting of employees was transferred and amalgamated with RIL only on the effective date as per the true and correct meaning of Part-II with regard to "transfer of undertaking" of the scheme and particularly by virtue of clause 8.1 of the scheme. 34. Mr. Nanavati further submitted that from the perusal of clause C with regard to Chapter-"General", it appears that the scheme of amalgamation is divided into five parts. The Part-II deals with transfer of undertaking of the transferor company to the transferee company. Part-II is consisting of clauses 4 to 9, which are with regard to Transfer of Undertaking. The term "Undertaking" is defined in clause 1.12, which includes, inter alia, all assets, properties, secured and unsecured debts, agreements, contracts, permits, lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferee company, up to including the effective date September 5, 2007, on and from the effective date, the transferor company stood dissolved and hence, business, obviously would be carried on by the transferee company alone. Thus, there is no ambiguity but it is crystal clear that the undertaking is sought to be transferred from the transferor company to the transferee company in different parts of different times. Some parts of the undertaking of IPCL are sought to be transferred and amalgamated with RIL on the appointed date, i.e., April 1, 2006, while the other parts of the undertaking of IPCL are sought to be transferred and amalgamated with RIL on the effective date, i.e., September 5, 2006. 36. Mr. Nanavati further submitted that clause 8 deals with the employees portion of the undertaking. Sub-clause (2) of clause 1.12 provides that the employees shall be included in the whole of the undertaking. Thus, it is clear that the employees form a separate portion of the undertaking as a whole. Clauses 8 and particularly 8.1 provides for the said part of the undertaking, i.e., the employees part which shall be transferred from the transferor company to the transferee company wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the significance of the appointed date is only for certain purposes, such as for accounting purposes including that for identification and quantification of assets, properties, for identification of liabilities, debts, etc. While it is the effective date on which the actual amalgamation of the two companies take place. 38. In support of this submission, he relied on the following decisions : (i)In the case of HCL Ltd., In re [1994] 80 Comp Cas 228 (Delhi), the court held that (headnote) : the companies explained that the appointed date had been taken for identification and quantification of the assets and liabilities of the existing company on the basis of the audited balance-sheet of the existing company for the financial year ending June 30, 1990, for the purpose of fixation of the share valuation for the share exchange rate. The scheme nowhere sought transfer artificially of new assets in July, 1990. All the assets sought to be transferred were in fact in existence on the appointed date. The appointed date was distinct from the effective date, which was the date on which all consents and approvals required under the scheme were obtained and on which the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssume the role of a civil court or of an Industrial Tribunal/Labour Court and adjudicate upon the dispute with regard to the conditions of service of the employees of the company. Such role of the company court is not envisaged by the scheme of the Companies Act and particularly the provision of section 392 thereof. 40. In support of the above submission, Mr. Nanavati relied on the following decisions : (i)In the case of Divya Vasundhara Financiers (P.) Ltd., In re [1984] 56 Comp Cas 487 (Guj.), this court held (headnote) : that the power of the court under section 392(1)(b) of the Companies Act, 1956, is of wide amplitude. But it cannot be said that it is a power without any limitation. There is an inbuilt limitation on the power of the court in the section itself. The limitation is that it can be invoked only for purposes of proper working of the compromise or arrangement. The power is a power of superintendence which is to be exercised by issuing appropriate directions or effecting necessary modifications so as to ensure the proper working of such compromise or arrangement. This power cannot be invoked for purposes of determination or adjudication of any right or interest cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after it has sanctioned a scheme for reconstructing a company in winding up does not empower the court to issue directions which do not relate to either the sanctioned scheme itself or its working in relation to the company which the scheme seeks to reconstruct, and sections 392 and 394 have refrained from making any specific provision and left the matter to directions by the court. The court further held that the company should seek to set aside the income-tax demand under the provisions of any other law as the company court cannot assume corrective jurisdiction to set aside regular assessments under the Income-tax Act, 1961. (iii)In the case of Union of India v. Asia Udyog (P .) Ltd. [1974] 44 Comp Cas 359 (Delhi), the court held that the process of the transferee company and the consequential transfer of the assets and liabilities of the transferor company to that of the transferee company did not depend on or could be said to be incomplete without the discharge of such liability by the transferee company. The liability of the transferee company to pay the creditors of the transferor company could not be a step in aid of the amalgamation but would be a consequence of it. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amation. Admittedly, the parties have already approached the civil court for various reliefs and the suits are pending. The court in these proceedings cannot go into the matter as to who were the real shareholders of the merged company. The instant application, on the facts, was found to be not maintainable under section 392 of the Companies Act and the same was ordered to be dismissed. (v)In the case of Meghal Homes (P.) Ltd. v. Shree Niwas Girni K.K. Samiti [2007] 78 SCL 482 (SC), the apex court held that (headnote of 139 Comp Cas) : section 392 only gives power to the court to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This is only a power that enables the court to provide for proper working of compromise or arrangement, it cannot be understood as a power to make substantial modifications in the scheme approved by the members in a meeting called in terms of section 391 of the Act. (vi)In the case of S.K. Gupta v. K.P. Jain [1979] 49 Comp Cas 342 (SC), the apex court held that sub-section (2) of section 392 provides the legislative exposition as to who can move the court for ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicants cannot be specifically enforced inasmuch as the contracts are determinable in nature, and the matter would be covered within the mischief of section 14 of the Specific Relief Act, 1963. 42. In support of the above submission, Mr. Nanavati relied on the following decisions : (i)In the case of State Bank of India v. S.N. Goyal [2008] 8 SCC 92, the court held that contract of personal service is not specifically enforceable, having regard to bar contained in section 14 of the Specific Relief Act, 1963. Even if termination of contract of employment (by dismissal or otherwise) is found to be illegal or in breach, the remedy of an employee is only to seek damages and not specific performance. The courts will neither declare such termination to be a nullity nor declare that the contract of employment subsists nor grant the consequential relief of reinstatement. Three well-recognised exceptions to this rule are : (a) where a civil servant is removed from service in contravention of the provisions of article 311 of the Constitution of India (or any law made under article 309) ; (b) where a workman having the protection of the Industrial Disputes Act, 1947, is wrongly termin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laration that the contract of service, still subsisted would not be made in the absence of special circumstances, because of the principle that court do not ordinarily enforce specific performance of contracts of service ; (ii) if the master rightfully ends the contract, there can be no complaint. If the master wrongfully ends the contract, then the servant can pursue a claim for damages. So even if the master wrongfully dismisses the servant in breach of the contract, the employment is effectively terminated ; (iii) the terms and conditions of service mentioned in statute 151 have proprio vigore no force of law. They become terms and conditions of service only by virtue of their being incorporated in the contract. Without the contract, they have no vitality and can confer no legal rights. 43. Mr. Nanavati further submitted that the applicants have alleged fraud at paragraph 12 of the memo of Company Application No. 115 of 2009 wherein it has been contended that non-disclosure of office memorandum dated March 8, 2007, in the proceedings before the learned company judge leading up to the sanction of scheme of amalgamation amounts to an act of fraud. In this context, he has submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 392 of the Act. The applicants, by raising the contention, are seeking a declaration that the service conditions of the employees remained frozen as was prevalent at the time of disinvestment of IPCL. He has, therefore, submitted that all the contentions raised by way of an amendment, are baseless, devoid of merits and are beyond the scope of section 392 of the Companies Act. He has also submitted that there is no violation of the provisions contained in the disinvestment policy and allegations made by the applicants in this regard are also baseless. 45. Considering all these submissions, either on law or on merits, Mr. Nanavati has submitted that both the applications should be rejected with cost. 46. Having heard learned counsels appearing for the parties and having considered their rival submissions in light of the statutory provisions, decided case laws on the subject and the provisions of the scheme of amalgamation duly sanctioned by this court and by now stands finalised, the court is of the view that before dealing with the issues on merits certain preliminary issues raised by the company will have to be decided. The first and foremost issue raising preliminary objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lications are filed against RIL, the said applications should have been filed before the Bombay High Court having jurisdiction over the company. The contention raised by the applicants that since the scheme has been sanctioned by this court, this court is equally having the jurisdiction to entertain these applications. This contention will have to be considered in the light of the provisions contained in section 392 of the Act, which deals with the power of the court to enforce compromise and arrangement. It reads as under : "392. (1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it- (a)shall have power to supervise the carrying out of the compromise or an arrangement ; and (b)may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may, consider necessary for the proper working of the compromise or arrangement. (2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of superannuation was to be considered in accordance with the circular dated March 8, 2007, i.e., the age of superannuation to be 58 years. The said office memorandum was also implemented in the sense that around 270 supervisory employees had opted for VRS and they were relieved in the first week of April, 2007 on payment of compensation on the basis of age of retirement at 58 years. The company application was filed by IPCL before this court on March 14, 2007. The order was passed on March 6, 2007, for convening meeting of the shareholders, secured creditors and unsecured creditors. The advertisements were published in the newspapers on March 20, 2007. The petition was admitted on April 23, 2007 and it was finally sanctioned by the court on August 16, 2007. The certified copy of the judgment and order was filed with the Registrar of Companies on September 5, 2007. Even OJ Appeal preferred by the shareholders as well as the labour unions were dismissed on December 26, 2007 and March 18, 2008, respectively. Despite the fact that the applicants were aware about all these developments and still they have chosen to remain silent. The conduct of the applicants, therefore, leads thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the undertaking of IPCL are transferred and amalgamated with RIL on the appointed date, i.e., April 1, 2006, while the other parts of the undertaking of IPCL are transferred and amalgamated with RIL on the effective date, i.e., September 5, 2007. The properties, assets, debts, liabilities, etc. are transferred on the appointed date and amalgamated with RIL on the appointed date while the undertaking consisting of parts such as encumbrances (mortgages, charges, etc.), contracts, deeds, etc., legal proceedings, and employees are transferred from IPCL and amalgamated with RIL with effect from the effective date. It is settled position that the significance of the appointed date is only for certain purposes such as for accounting purposes including the purpose of identification and quantification of assets, properties, identification of liabilities, debts, etc. For all other purposes, practically, it is the effective date on which the actual amalgamation of the two companies take place. Clause 8.1 of the scheme specifically provides that the employees of the IPCL shall be transferred to RIL with effect from the effective date, i.e., September 5, 2007. The impugned office memorandu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions would also not bring the applicants' case any further. There is no dispute about the proposition that two sets of employees with two sets of service conditions are permissible. However, before the effective date, if some changes are brought in by the transferor company, those changes are not considered to have been done at the behest of the transferee company despite the fact that such changes are made in the service conditions prior to the effective date. The applicants cannot rely on the original service conditions and on that basis, they cannot seek any relief from the transferee company, i.e., RIL in the present case. As stated earlier, as per the provisions in clause 8 of the scheme, RIL has not made any changes in the service conditions of the applicants and hence, the applicants could not insist that for them, different set of service conditions must be accepted. Thus, the reliance placed by Mr. Shah on the decisions of the apex court in the case of Bholanath J. Thaker (supra), Life Insurance Corpn. of India (supra) and B.S. Yadav (supra), is wholly uncalled for and irrelevant and these cases have no application to the facts of the present case. 55. There is al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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