Case Law Companies Act National Textile Workers Union Etc Vs P R Ramkrishnan And Others

Case Law Companies Act

National Textile Workers Union Etc Vs

P R Ramkrishnan And Others 

 

DATE OF JUDGMENT-10/12/1982

 

BENCH: BHAGWATI, P.N.

BENCH: BHAGWATI, P.N. REDDY, O. CHINNAPPA (J) VENKATARAMIAH, E.S. (J) ISLAM, BAHARUL (J) SEN, AMARENDRA NATH (J)

 

CITATION: 1983 AIR   75  1983 SCR  (1)   9 1983 SCC  (1) 228 1982 SCALE  (2)1144

CITATOR INFO : RF   1992 SC 248  (76) D  1992 SC2093  (17)

 

ACT: Indian Companies Act, 1956-S. 433-Petition for winding- up of company-Orders likely to adversely affect interests of workers-Workers have  right to  appear and  be heard-Workers also  entitled   to  hearing   on  their  own  request  when application for  appointment of  provisional  liquidator  is being considered-Trade Unions representing workers competent to intervene on behalf of workers. Companies (Court)   Rules,  1959-R.   34-Provides  for procedure only-Does not confer on workers right to appear at hearing of Winding-up petition.

HEADNOTE: The respondents  were two groups of  shareholders of a private limited  company which  had a thousand persons under its employment. A group of shareholders filed a petition for winding-up the  company under  cls. (e) and (f) of s. 433 of the Indian  Companies Act,  1956 along with applications for an interim  injunction and  for appointment of a provisional liquidator. The  Company Judge passed an order of injunction restraining the  company  from  borrowing  any  moneys  from banks, financial  institutions or  others without  the prior permission of the court. Three trade unions representing the employees  of  the  company  filed  applications  for  being impleaded  as  respondents/interveners  in  the  winding  up petition claiming  that the  interests of  the employees had been adversely  affected by  the interim  order. The Company Judge rejected  these applications.  A Division Bench of the High Court  turned down  the appeal  preferred by one of the unions and that union sought special leave to appeal against the order  of the  Division Bench while the other two unions sought special  leave to  appeal against  the order  of  the Company Judge.  The Court  granted special  leave to all the three unions  and permitted the Company Judge to pass orders on the  application pending  before him for appointment of a provisional  liquidator   with  the   direction   that   the liquidator  shall   not   take   any   steps   which   would prejudicially affect the employees. It was contended on behalf of the appellants that since an  order   winding  up  a  company  amounts  to  notice  of termination of services of its employees under s. 445(3) and since even  an interim  order freezing  the resources of the company might affect the interest of the employees by making it difficult  for the  company to  pay their wages, etc., it would be  contrary to  fair judicial procedure and violative of the  rule audi  alteram partem  to deny the employees the right to  be heard  before any order prejudicially affecting their interests is made. The 923 employees who  contribute materially  to the  working  of  a company and enable it to effectively play its socio-economic role are  equal, if  not more  important,  partners  in  the running  of  the  company  and  they  must  be  heard  in  a proceeding for  winding up  of the  company.

 

It  was further urged that  under r.34  of the Companies (Court) Rules, 1959 the employees  have a  right to  appear at  the hearing of a winding-up petition either to support or to oppose it. On behalf       of the respondents it was contended that the employees of  a company have no locus standi in a winding-up petition  as   the  Act   does  not  contain  any  provision conferring such  a right  on them;  that since  the Act is a self-contained Code  exhaustive in  regard  to  all  matters relating to  a company,  no such right could be spelt out in their favour outside the provisions of the Act that r. 34 of the Companies  (Court) Rules,  1959 does  not confer  such a right on  them and that, under the various provisions of the Act including  ss. 439 and 440, it is only the creditors and contributories and  in certain  specified contingencies, the Registrar and  the Central  Government, who  are entitled to participate in  the proceedings for winding up of a company. It was  further contended  that in this case it was not even the employees,  but the  three trade unions, who had applied for being  heard, and since the trade unions had no right to be heard, their applications had been rightly rejected. Allowing the appeals, ^ HELD :  By Majority : Per Bhagwati, Chinnappa Reddy and Baharul Islam,  JJ. (Venkataramiah  and Amarendra  Nath Sen, JJ. dissenting): The workers  of a company are entitled to appear at the hearing of  the winding-up petition whether to support or to oppose it.  They have  a locus standi to appear and be heard both before  the petition  is  admitted  and  an  order  for advertisement is  made  as  also  after  the  admission  and advertisement of  the petition  until an  order is  made for winding up  the company.

The workers  also have  a right of appeal against  a winding  up order.  But when  a winding-up order 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 interests 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 the court. Even in an application for appointment of a provisional liquidator the workers have a right  to be  heard  if  they  so  wish  but  neither  the petitioner in the winding up petition nor the court is under any obligation  to give  notice of  such application  to the workers. [956 A-E] In the  instant case  the circumstance that the workers were not  heard by  the Company  Judge before  he passed the order appointing  the provisional  liquidator would not have the effect  of vitiating  the order  but it would be open to the workers  to apply  to the court for vacating that order. [956 F-G] (i) The  making of a winding-up order on a petition for winding-up would  have an adverse consequence on the workers inasmuch as  the  continuance  of  their  service  would  be seriously jeopardised and their right to work and earn 924 their livelihood  would be disastrously imperilled. It is an elementary principle  of law that no order involving adverse civil consequences  can be passed against any person without giving him an opportunity to be heard against the passing of such order.

If the audi alteram partem rule has been held to be  applicable   in  a   quasi-judicial  or   even   in   an administrative proceeding,  it would  a fortiori  apply in a judicial proceeding  such as  a petition for winding-up of a company. No  system of  law which  is  designed  to  promote justice through  fair-play in action can permit the court to make a  winding-up order  which has  the effect  of bringing about termination  of the  services of  the workers  without giving them an opportunity of being heard against the making of such  order. Unless there is express provision in the Act which forbids the workers from appearing at the hearing, the workers must  be held entitled to appear and be heard in the winding-up petition. [950 A-E] State of  Orissa v. Dr. Bina Pani, [1967] 2 S.C.R. 625; A.K. Kraipak  v. Union  of India,  [1970] 1  S.C.R. 457  and Maneka Gandhi  v.  Union  of  India,  [1978]  2  S.C.R.  621 referred to. (ii) There       is no  provision in  the Act which excludes the workers  from appearing  at the  hearing of a winding-up petition. Merely because the right to apply for winding up a company is  not given  to them  it  does  not  follow  as  a necessary consequence  that the  workers have  no  right  to appear and be heard in a winding-up petition filed by one or more of  the persons  specified in  s. 439.  In fact,  there would be  no point  in conferring  that right on the workers since they  cannot have  any  interest  in  demolishing  the enterprise which is the source of their livelihood. So also, the circumstance  that the  right to make applications or be consulted in  the course  of the  winding up of a company is conferred under  s. 440 and other provisions of the Act only on the  creditors and  contributories does  not in  any  way militate against  the right  of the workers to appear and be heard in  the winding-up petition. Once the winding-up order is made,  the assets of the company have to be realised, the creditors to  be paid  and if there is any surplus it has to be distributed  among the  contributories and, therefore, at that stage,

it is only the creditors and contributories who have an  interest and  that is  why in  the  course  of  the winding up  it is  the creditors and contributories who have been given  a voice.  Sections 440, 464, 466, 478, 517, 542, 543, 549,  556, 557  and 560  deal with  a stage  after  the winding up  has commenced. These sections have nothing to do with the  question whether the company should be wound up or not. [950 F; 948 D-F; 951 B; 951 C-E; 949 A-H] (iii) After the amendment of ss. 397 and 398 of the Act by ss. 10 and 11 of the Companies (Amendment) Act, 1963, the court, while  deciding whether a company should be bound up, has to  take into consideration not only the interest of the shareholders and  editors but  also public  interest in  the shape of  the need  of the  community and  the  interest  of employees. It  is therefore  axiomatic that the workers must have an  opportunity  of  being  heard  for  projecting  and safeguarding their  interest before  a winding-up  order  in made. [951 G: 952 E-F] In the  instant case,  the Division  Bench of  the High Court, after  conceding that  the court  had  to  take  into consideration the  interest of  the workers,  went wrong  in holding that  the workers  had no  locus standi  to file  an application for being heard in the winding-up petition. [952 G-H; 953 A-B] 925 Fertilizer Corporation  Kamgar Union  and Ors. v. Union of India and Ors., [1981] 2 S.C.R. 52, referred to.

Bhalchandra Dharmajee Makaji and Ors. v. Alcock Ashdown and Co. Ltd. and Ors., 42 Company Cases 190, approved. (iv) It  is true that according to the statement of law contained in  the leading  text books  on Company Law, it is only the  Company, the  creditors and the contributories who are entitled to appear in a winding-up petition and no other persons have  a right to be heard. This statement of the law is based on a decision rendered by the English Courts over a hundred years  ago when  a company  was regarded merely as a legal device brought into being as a result of a contractual arrangement between  the shareholders  for  the  purpose  of carrying on  trade or  business and  the workers were looked upon as  no more than employees of the company working under a master  and servant  relationship and  the interest of the public as  consumers or  otherwise was  a totally irrelevant consideration. It  can have no validity in the present times when the entire concept of a company has changed. [953 F-H] In re.  Bradford Navigation  Company [1870]  5 Ch. A.C. 600, held inapplicable. In re.  Edward Textiles  Limited, 38 Company Cases 984, overruled. (v) Our Constitution has shown profound concern for the workers and  given them  a pride  of place in the new socio- economic order  envisaged in  the Preamble and the Directive Principles of  State Policy.  Article 43A  states  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 organisations engaged  in any  industry. The  constitutional mandate is therefore clear and undoubted that the management of the  enterprise should  not be left entirely in the hands of the  suppliers of  capital but the workers should also be entitled to  participate in  it.

In  a socialist  pattern of society the  enterprise which  is a centre of economic power should be controlled not only by capital but also by labour. It cannot  therefore be  contended that  the workers  should have no  voice in  the determination of the question whether the enterprise  should continue to run or be shut down under an order  of the  court. The workers who have contributed to the building  of the enterprise have every right to be heard when it is sought to demolish that centre of economic power. [946 C; 947 D-F] People’s Union  for Democratic Rights v. Union of India and Ors.  (W.P. No.  8143 of  1981 decided  on September 18, 1982) referred to. (vi) 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,  interested   because  what   is  produced  by  the enterprise is  the result  of labour as well as capital. The owners of  capital bear  only  limited  financial  risk  and otherwise contribute  nothing  to  production  while  labour contributes a  major share  of the product. While the former invest only  a part  of their moneys the latter invest their sweat and toil; in fact, their life itself. 926 The workers  therefore have a special place in a socialistic pattern of  society. They  are no more 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; they supply labour without which capital would be impotent. [945 G-H: 946 A-B] (vii)

The concept of  a company  has undergone radical transformation in  the last  few decades. The old nineteenth century view  which regarded  a company  merely as  a  legal device adopted  by shareholders  for carrying  on  trade  or business as  proprietors has been discarded and a company is now looked  upon as  a  socioeconomic  institution  wielding economic power  and influencing  the life of the people. The view that  a company is the property of the shareholders can no longer  be regarded  as valid.  Apart  from  capital  and labour there  are other  factors  which  contribute  to  the production of  national wealth;  the financial  institutions and depositors  who provide  the additional finance required for production and the consumers and the rest of the members of the  community who  are vitally interested in the product manufactured. A company, according to the new socio-economic thinking,  is   a  social   institution  having  duties  and responsibilities towards the community in which it functions and one  of its  paramount  objectives  is  to  bring  about maximisation  of   social  welfare  and  common  good.  This necessarily involves  reorientation of thinking in regard to the duties and obligations of the company not only vis-a-vis the  shareholders   but  also  vis-a-vis  the  rest  of  the community  affected  by  its  operations  such  as  workers, consumers and  the Government representing the society. [942 B; 943 A G; 944 C-D] Chiranjit Lal Chowdhri v. Union of India, [1950] S C.R. 869, referred to. Panchmahal Steel  Ltd. v.       Universal Steel  Traders, 46 Company Cases 706 approved. per Chinnappa Reddy, J. (concurring) (i) Quite       apart from  s. 445(3),  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.  The workers  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.

They cannot be denied a hearing when their very existence is under threat of extinction. [957 D-G] (ii) It  is not  correct to say that natural justice is exclusively a principle of administrative law. It is first a universal principle and, therefore, a rule of administrative law. Courts,  even more  than administrators,  must  observe natural justice. [959 A-C] (iii) The       Act does  not  prohibit  a  hearing  to  the workers. It  does not  provide for  all situations.  The law “falls to  be applied  to a  growing  and  changing  subject matter”.   The    Company   Judge   must   acknowledge   the transformation which  corporations are  presently undergoing from capitalist  contrivances into socialist instruments and recognize the reality of the workers interest. The 927 working classes, all the world over, are demanding “workers’ control” and  “industrial democracy”. They want the right to work to  be  secured.  Our  Constitution  has  accepted  the workers’ entitlement  to  control  and  it  is  one  of  the Directive Principles  of State Policy. It is in this context of changing norms and waxing values that the workers’ demand to be heard has to be judged. [957 G-H; 958 B-C-E-F-G] (iv) The  duty to hear those asking to be heard is not dependent on the vesting of any right under the very statute in respect  of which  jurisdiction is being exercised by the Court but on any right whatever which may come under threat. It is  not the law that rights other than those created by a particular statute  may be  taken away  in proceedings under that statute  without affording  a hearing to those desiring to be heard. [959 D-E]

(v) It  is not correct to say 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. 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. The court may ask the reason why, if someone asks to be heard. [960 B- C] (vi) The  contention that since workers are not allowed to intervene  in a  partition or  dissolution of partnership they should also not be allowed to intervene in a winding-up petition cannot  be accepted. There is no reason why workers may not  be allowed,  in appropriate  cases to  intervene in such actions  to avert disaster and to promote welfare. [960 D] (vii) There  is good  reason for  holding that  In       re. Bradford Navigation  Company is  not valid  in  the  present times. It  was decided  in the heydays of laissez faire at a time when individualism dominated every field and the public interest  was  but  a  slow  runner.  Now  the  position  is reversed. In  Britain itself  Corporate law  and labour  law have changed  considerably. After nationalisation of certain important and  crucial industries  a considerable measure of workers’ control of management of industry has been achieved in that  country. One should rather look to the Constitution for guidance  and inspiration  while interpreting  the laws. After  the   42nd  Amendment,  the  Constitution  is  openly Socialist.  The   Directive  Principles   of  State   Policy emphasize the  role and  interest of  the workers.  Art. 43A contemplates workers’ participation in the management of the industry. There  are several  provisions in  the Act  itself which take  notice of  the element of public interest. There are other  enactments like  the Monopolies  and  Restrictive Trade  Practices  Act  and  the  Industries  Regulation  and Development Act  under whose  provisions the activities of a company may  be scrutinized  in public  interest. There  are legislations involving  employment and  welfare of labour to which the  managements of  the companies  are  subject.  The problem before  the court must be considered in this context of ferment and development. [962 F; 961 G-H; 962 A-B; 960 G-H; 961 D-F] In re.  Bradford Navigation  Company, [1870] 5 Ch. A.C. 600, held inapplicable.

Panchmahal Steel  Ltd. v. Universal Steel  Traders, 46 Company Cases 706 approved. 928 per Baharul Islam, J. (concurring) The  statement  of  law  contained  in   the  English authorities cited by counsel for respondents may be good law for England  with altogether  a different  system of economy but it  is not applicable in our country, particularly after the Constitution  (42nd Amendment)  Act, 1976,  by which the “Socialist” and “Secular” concepts have been incorporated in the Preamble  to our  Constitution. The workers’ right to be heard in  a winding-up  proceeding has  to be spelt out from the Preamble  and Arts.38 and 43-A of the Constitution and from the general principles of natural justice. [990 D-F] per Venkataramiah and Amarendra Nath Sen, JJ. (dissenting) Under the  existing law the workers or their unions may make any  suggestions to  the Court  at any  stage but  they cannot claim  to be  impleaded as  parties to the winding-up petition as of right. The privilege of making suggestions to the court  in public interest is different from the right to be impleaded  as a party with the concomitant right to enter into contest  with the  other parties and of making an order in appeal  before higher  courts. The latter right has to be conferred expressly  by the statute in any person who wishes to exercise it. [979 D] (i) The  principles of administrative law 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 winding-up by 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 its officers. [967 H, 968 A-B]

 

(ii) The  law on the question as to who can be heard as of right in a winding-up proceeding is clear and is based on the decision  of  the  English  Court  in  In  re.  Bradford Navigation Company.  The decision may be of the last century but there is hardly any justification to depart from it even now unless  compelled by  the statute to do so.[970 B-D; 971 E] In re.  Bradford Navigation  Company, [1870] 5 Ch. A.C. 600, referred to. Halsbury’s Laws  of England  (4th Ed.) Vol. 7 Para 1028 referred to. (iii)That only the company, creditors and contributories (apart  from the  Central Government  or  the Registrar when  they choose  to intervene  under the express provisions of  the Act)  are entitled  to participate in the winding-up proceedings  is clear  from ss. 439, 447 and 557. Sections 450(2),  466, 478(3),  517, 518,  542, 543, 546(1), 549(1) and  556 show  that only  the Company,  the  official liquidator, liquidator,  creditors,  contributories  or  the Registrar have  a statutory right to participate as of right in the  winding-up proceedings.  The workers  or their trade unions have not been given any such right. [969 C-D; 971 F; 972 E-H; 973 A-F] 929 In re.  Edward Textiles  Ltd.,  38 Company  Cases  284 approved. (iv) Under s. 433, a company  may be  wound up by the court on  one or  more of the following grounds : (a) if the company has,  by special resolution, resolved that it may be wound up  by court; (b) if default is made in delivering the statutory  report   to  the  Registrar  or  in  holding  the statutory meeting;  (c) if the company does not commence its business within  a year  from its incorporation, or suspends its business  for a whole year; (d) if the number of members is reduced,  in the  case of  a public company, below seven, 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. As regards the ground mentioned at (a), when a  company has  passed a special resolution that it may be wound up by the court, the employees and workers can have hardly any  ground to  object. The position is the same when any of  the defaults  mentioned in (b) and (c) are committed by the  company. The  officers and  employees of the company also cannot  get over  the deficiency in the required number of members  of a  company referred  to in  (d) above. When a company is  unable to  pay its  debts and a creditor moves a petition for  winding-up  under  (e)  above,  he  cannot  be compelled to  prove his claim not merely against the company but also against the officers and employees. When there is a deadlock in  the management  of the  company arising  out of disputes  amongst  the  directors  or  when  some  directors without any  justification exclude some other directors from the management  of the company and a petition for winding-up is filed  under (f),  above, it  would  be  unreasonable  to expect the  excluded directors  to fight a case both against the directors  who are  responsible for  their exclusion and also against  the officers  and employees  who  are  neither creditors nor  contributories but  who may be supporting the contesting directors. [968 H; 969 A-B; 969 F-H; 970 A-B] In the  instant case,  it is  seen from  the grounds of objection filed  by the  trade unions  that  they  are  only interested in supporting the cause of one set of respondents against the other by making certain general submissions. The petitioners in  the Company  Petition would  be  in  a  more disadvantageous position if they have to face the opposition of the  trade unions  also in addition to the respondents to that petition.  Such a  situation should  not be  created by extending   the area   of  controversy   by   a   liberal interpretation of  the provisions  of law  when there are no compelling reasons to do so. [985 E-G] (v) There  are specific  provisions in  the Act and the Rules (ss. 417 to 420, 530(1)(b) to (f) and 635-B and r. 152 read with  Form No. 67) dealing with the rights of employees of a  company.

 

The  right to resist a winding-up petition is not one such right. [975 D-E] (vi) 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  s. 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. [975 B-C] 930 (vii) It is true that public interest which may include within its  scope interests of employees of a company has to be kept  in view  by the courts in exercising certain powers under the  Act. Sections  388-B, 394,  396, 397  and 408  do refer to  the concept  of public  interest. These provisions deal with  the powers  of the  Central  Government  and  the Court. They  do not, however, state that trade unions can as of right  intervene in  the proceedings  arising under them. [975 F-H] Bhalchandra  Dharmajee   Makaji  and  Ors. v.  Alcock, Ashdown and Co. Ltd. and Ors., 42 Company Cases 190 referred to. In the instant case the High Court has passed necessary orders to  protect the  interests of the employees. As these orders stand today, the workers can always approach the High Court by way of a company application for appropriate orders whenever  they   feel  that  their  working  conditions  are adversely affected  during the  pendency of the proceedings. It is  not necessary  that the  workers or  the trade unions should be  impleaded as  parties to  the winding-up petition enabling them  to contest the same; their presence on record is not  necessary for  a complete and effectual adjudication of the  petition. The  trade unions  are, therefore, neither necessary nor  proper parties  to the winding-up petition on the facts  and in  the circumstances  of this case including the element  of public  interest involved in any liquidation proceeding. [985 H; 986 H; 987 A-C] (viii) In Fertilizer Corporation  Kamgar Union  (Regd) Sindri and  Ors. v. Union of India and Ors., [1981] 2 S.C.R. 52 the  court was  concerned with  operations  in  a  public sector company  and the  activities of  the government.  The observations contained  therein cannot have any relevance to a case  involving the affairs of a company which is governed only by  the express  provisions of  company law  and  other relevant statutes. [982 C] (ix) As  the law stands today, the workers in a factory owned by  a company  do not  have any hand in the birth of a company, in its workingur ding its existence and also in its death by  dissolution. Workers’ participation in the affairs of a  company or  the ushering in of an industrial democracy is quite  a laudable object. That is the reason for enacting Art. 43-A.

 

Art. 43-A  clearly states  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  etc.  The  High-powered  Expert  Committee  on Companies and  MRTP Act, has made certain recommendations in this behalf in paragraphs 11.27 and 18.137 of its report and it is  for the  Parliament to  take steps to implement them. The legislature has not taken concrete steps in this regard. The suggestions  made by  the committee  emphasize  that  at present  workers   have  no   right  to  contest  winding-up proceedings.  It   is   significant   that   there   is   no recommendation made  even in  this report about the right of trade unions  to contest  winding-up  petitions.  The  court cannot step  in and  introduce drastic  amendments into  the company law.  Many of  the Directive Principles are still to be implemented  by  passing  appropriate  legislation.  This Court cannot  compel  the  executive  by  issuing  writs  to implement  the  policy  underlying  them.  There  are  well- recognized limitations  on the  power of  the  court  making inroads into  the legitimate  domain of  the legislature. If the legislature  exceeds its  power, this Court steps in. If the executive exceeds its power, 931 then also  this court  steps in.  If this  court exceeds its power what  can people do ? Should they be driven to seek an amendment of  the law  on every  occasion ?  The only proper solution is the observance of restraint by this court in its pronouncements so  that  they  do  not  go  beyond  its  own legitimate sphere. It may be that the workers who are likely to be  affected by  the winding-up need a larger protection. That can  be done  only by  legislative action.  This  Court cannot make  any order which will conflict with the existing law. [982 G-H; 983 A; 977 E-F; 983 G; 983 B-D; 989 C] (x) The  proposition that       law should not be static but should grow  cannot be disputed. But 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.

 

A discussion involving a comprehensive view  of all  interests which are likely to be affected by  any decision  in such  a matter is not possible before a  court where  only the  parties to  a case or their lawyers are heard. [987 D-F] (xi) It  is not  correct to  say that there is no other remedy at  all for  workmen who are likely to be affected by the winding-up  order made  by the  court. It is open to the workers or their trade unions to move the Central Government to take  appropriate steps under the Industrial (Development and Regulation)  Act, 1951  the provisions  of which provide that where  a company  owning an  industrial undertaking  is being wound up by or under the supervision of the High Court and the business of such company is not being continued, the Central Government  may investigate  into the possibility of running or  restarting the  industrial undertaking,  provide relief to it or take steps to ensure that the undertaking is sold  as   a  running   concern,  or  prepare  a  scheme  of reconstruction of  the company  and send  it  to  the  trade unions of employees concerned inviting their suggestions and objections. [976 A-H; 977 A-C] (xii) When       once the  right  to  contest  a  winding-up petition is  extended 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  company  are  going  to  be terminated by  reason of  its liquidation  also have  to  be allowed to  contest the  proceedings. Such  a claim  is  not permissible. [974 B] Ex parte Maclure, [1870] L.R. 5 Ch. 737, referred to. (xiii) It  is no  doubt true  that the view of the High Court is  also in  conformity with  the view  prevailing  in England.  That  does  not  mean  that  the  High  Court  has surrendered its  judgment to a foreign practice because that is the  very view  which is  being followed  till now in the Indian Courts.  A  foreign  decision  is  either  worthy  of acceptance or not depending upon the reasons contained in it and not  its origin or age. There is no reason why we should not follow  a well-reasoned  foreign decision  unless it  is opposed  to  our  ethics,  tradition  and  jurisprudence  or otherwise  unsuited  to  our  conditions.  Moreover,  it  is difficult,  even   though  it  may  not  be  impossible,  to administer the  company law  as it  is now in force in India without the  aid of  the principles laid down by some of the leading English cases. [987 H: 988 A-F] 932 Needle Industries (India)  Ltd.  and  Ors.  v.  Needle Industries Neway  (India) Holding  Ltd. and  Ors.,

 

[1981]  3 S.C.R. 698, referred to. per Amarendra Nath Sen, J. (agreeing with Venkataramiah, J.) (i)  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,  it  must logically follow that not only every employee of the company but also  various other  parties and  persons who have trade relations or  dealings with  the company must necessarily be held  to  have  the  same  right  to  be  heard  in  such  a proceeding;  further,   no  suit   for  dissolution   of   a partnership can  also  be  decided  without  impleading  the employees  of  the  firm  and  other  parties  having  trade relations with the firm. [992 A-E; 991 H] (ii) A  company can only be wound up in accordance with the provisions  of the  Act. The  right to  have  a  company wound-up is  a right  created by  the  statute.  The  entire proceeding in  relation to the winding-up is governed by the provisions of the Act and the Rules. The Act recognises that a company  may go  into liquidation without any intervention by the  Court and  also under  the supervision of the court. Where the company goes into liquidation without reference to court, the employees of  the company  who have  to meet the same fate  of losing  their employment cannot have any voice or say in the procedure to be adopted for liquidation of the company. [992 F-G; 993 B-C] (iii) 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. If a  company is commercially insolvent and is unable to pay its debts,  it has  necessarily  to  be  wound  up  and  the employees can have hardly anything to say in such a case for assisting the court in deciding the matter. [993 E-G] (iv) Although an employee cannot claim to appear and be heard in  a winding-up  petition as  a matter  of right, the court may,in any  appropriate case,  require or permit any employee to  appear at  any stage of a winding up proceeding and hear  him, if  it is of the opinion that it is necessary in the  interest of administration of justice and for proper disposal of any matter. [998 H; 999 A] (v) The legislature has made suitable provisions in the Act for  safeguarding  what  is  considered  to  be  in  the interest  of   employees  or   in   public   interest.

 

The introduction of Art. 43A in the Constitution does not affect the position  in any  way. Participation  in the  management does not  by itself  create any right to appear and be heard in a  winding-up petition. Unless otherwise named personally as a  party to  such a  petition, no  person, merely  on the ground that  he happens  to be  in  the  management  of  the company, is  entitled to appear and be heard in a winding-up proceeding. Persons  in management  may, if  so  authorised, appear and participate in such a proceeding on behalf of the company. [995 D; 995 E-H] 933 (vi) The  Indian and the English Companies Acts contain similar provisions.  As early  as in  1870 the English court held that  no person  had a  right to  be  heard  against  a petition for  winding-up of  a company  except creditors and contributories.  That  decision  still  holds  good  and  is considered good  law. The  English Act has undergone changes from time  to time  with the passing of various legislations for the  benefit and  welfare of employees. An order winding up a  company affects  the employees  in England in the same way as  it does  in India. It cannot be said that workers in England are not conscious of the important role they play in the functioning  of a  company. Despite all these, the right of an  employee or  any trade union representing the workers to participate  and be heard in a winding-up petition is not recognised in  England. Even  in  our  country,  though  the provisions of  the Act  have undergone  changes and  various enactments for  the welfare  of the workers have been passed from time  to time,  the legislature  has not  considered it proper or  necessary to  amend the  Act to  confer any  such right on the workers. [996 A-D; 996 H; 997 A-B; 998 F] In re  Bradford Navigation       Company, [1870]  5 Ch. A.C. 600, referred to. Halsbury’s Laws  of England (4th Ed.) Vol. III. p. 614; Palmer’s Company  Precedents (7th  Ed.) Part  II, p.  77 and Buckley on  the Companies  Act, (14th  Ed.) Vol.  I, p.  546 referred to. Hind  Overseas   Private  Ltd.

 

v.  Raghunath   Prasad Jhunjhunwala and Ors., [1976] 2 S.C.R 226, distinguished. 2. By  majority:  Per  Bhagwati,  Chinnappa  Reddy  and Baharul Islam,  JJ. (Venkataramiah  and Amarendra  Nath Sen, JJ.  dissenting):   Trade  unions   are  competent  to  make applications before  the Company  Judge hearing a winding-up petition on  behalf of the workers represented by them. [956 H] In this  case the       applications were made by the unions on behalf of the workmen represented by them and though made in the  name of  the Unions the applications were in reality and substance  applications of  the workmen who were members of each  respective Union.  The controversy therefore really is not  whether the  unions of  workmen are  entitled to  be heard in  a winding-up petition but whether the workmen have such right  when a  winding-up petition  is filed  against a company. [939 G-H] per  Venkataramiah  and  Amarendra   Nath   Sen,   JJ. (dissenting): In  none of  the English text books on Company Law there  is any  statement to the effect that trade unions of officers  and employees of a company for whose winding-up a petition  is filed  would be  entitled as  of right  to be impleaded as  parties and to contest the petition. It is not also  shown  that  any  such  right  of  a  trade  union  is recognised by  the Indian Law which more or less corresponds to English  Law in  this regard.  The decision of the Bombay High Court  in  In  re  Edward  Textiles  Ltd.  is  a  clear authority for  the proposition that at any rate trade unions have no  locus standi  to oppose  a winding-up  petition. We shall proceed to decide this case on the assumption that the application for impleading was made in fact on behalf of the workers and not by the trade unions. [968 C-F] 934 In re  Edward Textiles  Ltd.,  38 Company  Cases  284, referred to. 3. By  the Full Court: Rule 34 of the Companies (Court) Rules, 1959 does not confer a right on the workers to appear at the  hearing of a winding-up petition. [955 G; 973 G; 994 E-F] per Bhagwati,  Chinnappa Reddy  and Baharul Islam, JJ.: The object  and purpose of r. 34 is not to confer a right on anyone to  appear at  the hearing of the winding-up petition but merely  to provide  for the  procedure  to  be  followed before a  person who  is otherwise  entitled to  appear in a winding-up petition  can  be  heard  in  support  of  or  in opposition to the winding-up petition. [955 F] per Venkataramiah, J: The words “every person” in r. 34 of the Companies (Court) Rules, 1959 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. An  anomalous 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. [973 G-H; 974 A] per Amarendra  Nath Sen, J.: Rule 34 only lays down the procedure to  be followed  by any  person who  intends to be heard at  the hearing  of a  petition; it does not deal with the right of any person to appear at the hearing nor does it create any  such right in any person. Rule 9B in part III of the Rules makes specific provision in that behalf. [994 E-F]

 

 

JUDGMENT: CIVIL APPELLATE  JURISDICTION: Civil Appeals Nos. 4065- 67 of 1982. Appeals by       special leave from the judgments and orders dated 30.11.81  and 14.9.1981  of the  Madras High  Court in O.S.A. No.  148 of  1981 and  Company Appeal Nos. 880-881 of 1981. M.K. Ramamurthy,  Somyaji, Ambrish       Kumar,  Miss  Nitya Ramakrishnan for the Appellants in CA. No. 4065/82. G. Vasanta  Pai, S.N.  Kacker,  O.C.  Mathur  and  D.N. Mishra for  the Respondents  in CA. 4065 of 1982 and for the Appellants in CA. Nos. 4066-67/82. R.K Garg, A.T.M. Sampath  and P.N.  Ramalingam for the Appellants in CA. Nos. 4066-67/82. 935 V.M. Tarkunde,  E.C. Aggarwala,  R. Satish, V.K. Pandia and T.S.  Vishwanath Rao  for the  Respondent Nos.  6-9  and 11.14 in CA. Nos. 4066-67 of 1982. O.C. Mathur,  Ravinder Narain  and D.N.  Mishra for the Respondents in C.A. 4065 of 1982. M. Natesan and M. Raghuraman for the Intervener. The following Judgments were delivered BHAGWATI J.  These three appeals by special leave raise a short  but interesting  question of  law relating  to  the right of  workmen employed in a company to appear and oppose a petition  for winding  up of  the company. The controversy between the  parties arises out of a petition for winding up a private  limited company called Ramakrishna Industries (P) Limited (hereinafter  referred to as a 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 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 100 workmen. It is a closed company in which there are two  groups   of  shareholders,   one  group  consisting  of respondent  Nos. 1 to 5  and  the  other  consisting  of respondent Nos  7 to  14.

 

Respondent  Nos. 1  to 5  hold 608 shares and  respondent 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 Respondent nos. 1 to  5 on  the one  hand and Respondent 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, Respondent 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, 1956. One ground was that the Company  is unable  to pay  its debts  and the other was that it  is just  and equitable  that the  Company should be wound up.  The winding  up petition  was filed by Respondent nos. 1 to 5 not only as contributories but also as creditors of  the  Company.  Immediately  on  filing  the  winding  up petition on 13th July 1981, Respondent nos. 1 to 5 submitted an application,  being company  application no. 844 of 1981, for an  interim injunction  and on  this application,  an ex parte order was made by the learned Company 936 Judge restraining  the Company which was respondent no. 6 in the winding up petition as also Respondent nos. 7 to 14 from borrowing any  monies from  banks, financial institutions or others without  the prior  permission of  the Court and from alienating and/or  creating any  charge or  encumbrance over any of the assets of the Company in its various enterprises. The  immediate   consequence  of  this  ex  parte  order  of injunction was  that the  Jotie Mills Employees Co-operative Store stopped  issuing any  provisions or  supplies  to  the workmen from 18th July 1981 and the workmen were also unable from  23rd  July  1981  to  enjoy  the  benefits  under  the Employees  State   Insurance  Scheme.

 

The   workmen   also apprehended that  on  account  of  the  ex  parte  order  of injunction, they  may not  be able  to get their wages which were due  to be  paid on  7th August  1981. Now  some of the workmen were  members of the National Textile Workers Union, some others were members of the Coimbatore District National Textile Employees Union while still some others were members of the  Coimbatore District  Engineering Workers  Union. The Coimbatore District  National Textile Employees Union with a view to  protecting the  interests of  its members  made  an application, being  company application  no. 880/81  on 28th July  1981  for  impleading  itself  as  a  respondent.  The Coimbatore District  Engineering Workers  Union also  made a similar application  to the  Company Judge  on the same day, being Company  Application No.  881 of  1981.  So  also  the National Textile  Workers Union  made an  application, being company application no. 883 of 1981, to the Company Judge on 29th July 1981 praying that it may be permitted to intervene in the  winding up  petition and  that the ex parte order of injunction may  be vacated.  Respondent nos.  1 to  5  filed their affidavit in reply to these three applications and the 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 937 followed the  decision of  a single Judge of the Bombay High Court in  In re  Edward Textiles  Limited(1) 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 Union  and Ors.  v. Union  of India and  Ors.(2) and  of  the  High  Court  of  Bombay  in Bhalchandra Dharamaji  Makaji  v.  Alcock  Ashdown  and  Co. Ltd.

 

(3) that  the factors  to be  taken into  account by the court while disposing of a winding up petition would include the interest  of the  workmen of  the company,  but observed that “the  duty of the court to consider the interest of the worker of  the company  would not  create a  right  in  such workers to  intervene in the absence of express provision in the  Companies   Act  and   in  the   teeth  of  such  right specifically   conferred   only   on   the   creditors   and contributories.”  The   National   Textile   Workers   Union thereupon preferred an appeal before a Division Bench of the High Court  but the  Division Bench  also took the same view and held  that though  it was  undoubtedly true  that  while disposing of  a winding  up petition preferred on the ground that it  is just  and equitable  to wind up the company, the court must consider the interest of the workmen, it does not mean “that  everybody who  is  remotely  interested  in  the company can  file an  application to  implead himself  as  a party in the petition for winding up” and “merely because in considering the question whether to wind up or not the court has also  to  take  the  larger  point  of  public  interest including that  of the  workers into  consideration, it will not  clothe  the  Unions  with  any  locus  standi  to  file applications for  impleading themselves  as parties or to be heard  in   the  company   petition.

 

”  The   Division  Bench accordingly rejected  the appeal  and this led to the filing of Special  Leave Petition No. 9661 of 1981 in this Court by the National  Textile Workers Union. The Coimbatore District National Textile Employees Union and the Coimbatore District Engineering Workers  Union did not prefer any appeal against the judgment  of the Company Judge before the Division Bench of the High Court but they preferred Special Leave Petitions Nos. 10248  and 10249 of 1981 directly in this Court against the judgment  of the  Company Judge. We issued notice on all the three  Special Leave  Petitions and when the Respondents appeared before  us, we  intimated  to  them  that  we  will dispose of the entire controversy between the parties on the Special Leave  Petitions and  that is  how full and detailed arguments 938 were advanced  before us at the hearing of the Special Leave Petitions. We  now proceed  to dispose  of these cases after granting special  leave to  appeal  in  each  of  the  three special leave petitions. Before we proceed  to  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  respondent 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.  Respondent 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  upto 10th  August, 1981.

 

Respondent 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 Provisional Liquidator  was passed  by  the  Company  Judge, because  as   pointed  out  above,  their  applications  for impleading themselves  as parties in the winding up petition or in  any event,  for being  allowed to  intervene  in  the winding up  petitions were  rejected by the Company Judge on 14th September, 1981 and this rejection was confirmed by the Division Bench of the High Court on 30th September 1981. The result was  that the order appointing Provisional Liquidator of the  company came to be made by the Company Judge without any opportunity  being given  to the  workmen represented by these three  Unions to  appear and  show cause  against  the making of  such order.  It may be pointed out that the order appointing Provisional  Liquidator was  stayed for some time by the  Division Bench  of  the  High  Court  in  an  appeal preferred by respondent Nos. 6 to 14 but the application for stay was  ultimately dismissed by the Division Bench and the Official Liquidator  immediately thereafter  took charge  of the affairs of the company. We may now proceed to consider the question that arises for determination  before us.  The question, briefly stated, is: when a 939 petition for winding up a company is filed in court, are the workmen of  the company entitled to ask the court to implead them as  parties in the winding up petition or to allow them to appear  and contest  the winding up petition or they have no locus  standi at  all so  far as  winding up  petition is concerned and  they must helplessly watch the proceedings as outsiders though  the result  of the winding up petition may be to  bring about  termination of  their services  and thus affect them  vitally by  depriving them  of their  means  of livelihood  ?

 

It  is   a  well  established  principle  of administrative law  that no  order entailing  adverse  civil consequences can  be made by the State or a public authority unless the  person affected  is afforded  an opportunity  to show cause against the making of such order by controverting the allegations  made against  him and  presenting  his  own positive case,  but in case of a winding up petition, it was contended on  behalf of respondents Nos. 2 to 5, that though the  result  of  successful  termination  of  a  winding  up petition may,  and in  most cases, would be to put an end to the services  of the  workmen and throw them on the streets, they are  not entitled to an opportunity to be heard against the making  of the  winding  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 respondent 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 respondent  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 respondent Nos.  1 to  5-that the  applications were made by the Unions  on behalf of the workmen represented by them and though made in the name of the unions, the applications were in reality  and substance  applications of  the workmen  who were members  of  each  respective  union.  The  controversy therefore really  is not  whether the  unions of workmen are entitled to  be heard  in a  winding up petition but whether the workmen  have such  right when  a winding up petition is filed against 940 a company.  We may  straight away  point out that though the applications  made   by  the  Coimbatore  District  National Textile  Employees   and  Coimbatore   District  Engineering Workers Union  were for  impleading them  as parties  in the winding up  petition, it was conceded on behalf of these two unions that  they were  not pressing  their applications for being added as parties, because there was no procedure known to Companies Act 1956 for any one to be impleaded as a party in  a  winding  up  petition  and  even  the  creditors  and contributories were  not entitled to be added as parties and they were  claiming only the right to appear and be heard in support or  opposition  to  the  winding  up  petition.  The contention of  these two  unions was therefore a limited one and that  was also  the narrow contention advanced on behalf of National Textile Workers

 

Union, namely, that the workmen represented by  them  were  entitled  to  intervene  in  the winding up  petition and  to be  heard before  any order was made by  the Company  Judge  in  the  winding  up  petition, because any  such order  might affect  the interest  of  the workmen. It  was pointed  out on  behalf of the three unions that even if an interim order were to be made by the Company Judge  which  might  prejudicially  affect  the  workmen  by freezing the  resources of  the company  so as  to  make  it difficult for the company to pay the wages of the workmen or bringing about  stoppage of  the  business  of  the  company resulting in  non-payment or  diminution of  their wages  or termination of  their services,  the workmen  must surely be afforded an  opportunity to be heard before any such interim order is  made. It  would be  contrary to  every  recognised principle of  fair judicial  procedure and  violative of the rule of  audi alteram  partem which  constitutes one  of the basic principles  of natural  justice to deny to the workmen the right to be heard before an order is made by the Company Judge prejudicially  affecting their interest. Additionally, reliance was  also placed  on behalf  of the three unions on 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 941 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  urged on  behalf of  the three unions was that this rule  confers a  right on  the workmen to appear at the hearing of  the winding  up petition either to support it or to oppose  it and  clearly recognises that they are entitled to intervene  and be  heard  in  the  winding  up  petition. Respondent Nos.  1 to  5 however  seriously  challenged  the locus of  the workmen  to appear and be heard in the winding up petition  and contended  that so  far as  the winding  up petition  is   concerned,

 

it  is  only  the  creditors  and contributories and  in certain  specified contingencies  the Registrar and  the Central  Government who  are entitled  to appear at  the hearing of the winding up petition whether to support or  to oppose  it. The  right to  be  heard  in  the winding up  petition, contended  respondent Nos.  1 to  5 is governed solely  by the provisions of the Companies Act 1956 and since  no such  right is conferred on the workmen by any provision of  the Companies  Act 1956,  the workmen  are not entitled to  intervene in  the  winding  up  petition,  even though the  making of  a winding  up  order  may  result  in termination of  their services.  The workmen,  according  to respondent Nos.  1 to  5, could appear at the hearing of the winding up petition and make their submissions only in their capacity as  creditors if  any part  of their wages remained unpaid by  the company  but they  had no  locus to appear in their capacity  as workers. These rival contentions urged on behalf of  the parties raised an interesting question of law which we shall now proceed to consider. 942 There is one very important consideration which we must bear in  mind while  dealing with  this question  and it  is necessary to  advert to it at the present stage. The concept of a  company has  undergone radical  transformation in  the last few decades. The traditional view of a company was that it was  a convenient mechanical device for carrying on trade and industry, a mere legal frame work providing a convenient institutional container  for holding and using the powers of company  management.

 

The  company  law  was  at  that  time conceived merely  as a  statute  intended  to  regulate  the structure and  mode  of  operation  of a  special  type  of economic institution called company. This was the view which prevailed for  a long  time in juristic circles all over the democratic world  including United States of America, United Kingdom and  India. That  was the  time when the doctrine of laissez 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  being 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 organisation, 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 feature of contemporary thought on  the role  of the  corporation in modern society. The adoption  of the  socialistic pattern  of society as the ultimate goal  of the country’s economic and social policies hastened  the   emergence  of   this  new   concept  of  the corporation. The  socio-economic objectives  set out in Part IV of the Constitution have since guided and shaped this new corporate philosophy.  We shall  presently refer  to some of the Directive  Principles of State Policy set out in Part IV which clearly  show the  direction in  which  the  corporate sector is intended to move and the role which it is intended to play  in the social and economic life of the nation. But, one thing is certain 943 that the  old  nineteenth  century  view  which  regarded  a company merely as a legal device adopted by shareholders for carrying on  trade  or  business  as  proprietors  has  been discarded and  a company  is now  looked upon  as  a  socio- economic institution wielding economic power and influencing the life of the people. It is  now accepted on all hands, even in predominantly capitalist countries,  that a  company is  not property. The traditional view  that the  company is  the property  of the shareholders is  now an exploded myth. There was a time when a group controlling the majority of shares in a company used to say:

 

“This is  our concern.  We can do what we like with it.” The  ownership of the concern was identified with those who  brought  in  capital.  That  was  the  outcome  of  the property-minded capitalistic society in which the concept of company originated.  But this view can no longer be regarded as  valid  in  the  light  of  the  changing  socio-economic concepts and  values. Today  social scientists  and thinkers regard a  company as  a living,  vital and  dynamic,  social organism with  firm and  deep rooted  affiliations with  the rest of  the community  in which  it functions.  It would be wrong  to  look  upon  it  as  something  belonging  to  the shareholders.  It   is  true  that  the  shareholders  bring capital, but  capital is  not enough.  It is only one of the factors which  contributes to  the  production  of  national wealth. There  is another  equally, if  not more,  important factor of  production and that is labour. Then there are the financial  institutions  and  depositors,  who  provide  the additional finance required for production and lastly, there are the  consumers and  the  rest  of  the  members  of  the community  who   are  vitally   interested  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  owner having  an exclusive  dominion over the  concern, as  if  the  concern  belongs  to  it?  A company, according to the new socio-enconomic 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 Chiranjeetlal v. Union of India: “We should  bear in mind that a corporation, which is       engaged   in  production   of  commodities  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.” 944 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 Current Problems of Corporate Law, Management and Practice held  in New  Delhi where  it was observed that “an enterprise is  a citizen.  Like a citizen it is esteemed and judged by  its actions in relation to the community of which it is a member as well as by its economic performance.

 

” That is why  it is regarded as one of the paramount objectives of a company  to bring about maximisation of social welfare and common good.  This  necessarily  involves  reorientation  of thinking in  regard to  the  duties  and  obligations  of  a company not  only vis-a-vis the shareholders but also vis-a- vis the  rest of  the community  affected by  its operations such as  workers, consumers  and the Government representing the society.  There was  at one  time a  serious controversy between two  schools of  thought, one  represented by  Adolf Berle and the other by Professor Dodd, as regards the nature of duties  and obligations  owed by  directors  representing management of  a company.  Adolf Berle  took the  view  that directors are  trustees only  for shareholders-that  is  the traditional  view   which  directly   flows  from  a  purely capitalistic  approach   which  identifies   ownership   and dominion  with   capital-while  Prof.   Dodd  believed  that directors are  trustees not  only for  shareholders but also for  the  entire  community.  Ultimately,  however,  in  his subsequent book,  “Twentieth Century Capitalist Revolution”, Adolf Berle  conceded that  Prof. Dodd  was right  and  that modern  directors   are  not  limited  to  running  business enterprise for  maximum profit motive alone, but are in fact administrators  of   community  system   or  of   a   social institution. That  is why we find that in recent times there is  considerable   thinking  on   the  subject   of   social responsibilities of  corporate  management  and  it  is  now acknowledged even  in highly  developed countries  like  the United  States  and  England  that  maximisation  of  social welfare should  be the  legitimate goal  of  a  company  and shareholders should  be regarded  not as  proprietors of the company, but  merely as  suppliers of capital entitled to no more than  reasonable  return  and  the  company  should  be responsible not  only to  shareholders but  also to workers, consumers and the other 945 members  of   the  Community   and  should   be  guided   by considerations of  national economy  and progress.  This new concept of  a Company was felicitously expressed by Desai, J sitting as  a Judge  of the Gujarat High Court in Panchmahal Steel Ltd.  v. Universal  Steel Traders(1)  in the following words: “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 guide line 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 of Modern Company Law”: “One  section of the community whose interests as such are not  afforded any  protection, either under this head or by  virtue  of  the  provisions  for  investor  or  creditor protection, are  the workers and employees of the taken-over company. This  is a  particularly unfortunate  facet of  the principle that  the interest  of the  company means only the interest of the members and not of those whose livelihood is in practice much more closely involved.” We       are  concerned  in  these  appeals  only  with  the relationship of  the workers  vis-a-vis the  company. It  is clear from what we have stated above 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 946 interested because what is produced by the enterprise is the result of  labour as well as capital. In fact, the owners of capital bear  only  limited  financial  risk  and  otherwise contribute nothing  to production while labour contributes a major share  of the  product While  the former invest only a part of  their moneys,  the latter  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 no more 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.  They supply  labour without which capital  would be impotent and they are, at the least, equal  partners   with  capital   in  the   enterprise.  Our constitution has  shown profound concern for the workers and given them  a pride of place in the new socio-economic order envisaged in  the Preamble  and the  Directive Principles of State Policy. The Preamble contains the profound declaration pregnant with  meaning and hope for millions of peasants and workers that  India shall be a socialist democratic republic where  social   and  economic   justice  will   inform  all institutions of  national life and there will be equality of status and  opportunity for all and every endeavour shall be made to  promote fraternity  ensuring  the  dignity  of  the individual. Every  one is  assured under Article 14 equality before the law and equal protection of the laws and implicit in this provision is the guarantee of equal remuneration for men and  women for  some work  or work  of 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 Rights  & Ors.v. Union of India & Ors.(1) Article 38 imposes  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 subserve the common good, the operation of the economic system 947 does not  result in the concentration of wealth and means of production to  the common  detriment, there is equal pay for equal work  for both  men  and  women  and  the  health  and strength of  workers, men  and women  and the  tender age of children are  not abused  and citizens  are  not  forced  by economic necessity to enter avocations unsuited to their age or strength.  The State  is directed  by Article  41 to make effective provision,  within  the  limits  of  its  economic capacity and development, for securing the right to work and Article 42 requires the State to make provision for securing just and humane conditions of work and for maternity relief. Article 43  provides  that  the  State  shall  endeavour  to secure, by  suitable legislation or economic organisation or in any other way, a living wage, conditions of work ensuring decent standard  of life  and full  enjoyment of leisure and social and  cultural opportunities. Then follows Article 43A which is  intended to herald industrial democracy and in the words of Krishna Iyer, J. mark “the end of industrial bonded labour”.

 

That  Article says 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  organisations   engaged  in  any industry. The  constitutional mandate is therefore clear and undoubted that  the management  of the enterprise should not be left  entirely in  the hands  of the suppliers of capital but the  workers should  also be  entitled to participate in it,  because   in  a   socialist  pattern  of  society,  the enterprise which  is a  centre of  economic power  should be controlled not  only by  capital but  also by  labour. It is therefore idle to contend thirty two years after coming into force  of   the  Constitution  and  particularly  after  the introduction of  Article 43A  in the  Constitution that  the workers should  have no  voice in  the determination  of the question whether the enterprise should continue to run or be shut down  under an  order of  the court. It would indeed be strange  that  the  workers  who  have  contributed  to  the building of  the enterprise  as a  centre of  economic power should have  no right  to be  heard when  it  is  sought  to demolish that centre of economic power. The principal  argument urged  against the right of the workers to  be heard  in the  winding up  petition was  that under the  scheme of  the Companies Act 1956, it is only the creditors and  contributories who are entitled to appear and be heard in a winding up petition. The Companies 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 948 in a  winding up petition, no such right can be spelt out in their favour  outside the  provisions of that Act Respondent 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 Respondent  Nos. 6 to 9 was section 439  which inter  alia provides  as to  who shall be entitled to make an application for 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 winding up of a company. The right to  apply for 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 statute can make an application for winding up a company and no such right having  been conferred  on the  workers,

 

they  cannot prefer a  winding up  petition against  a company.  But from this exclusion  of the  workers from  the right to present a winding up  petition, it  does not  follow  as  a  necessary consequence that  the workers have no right to appear and be heard in  a winding  up petition filed by one or more of the persons specified in section 439. It may be that the workers have no  right to  present a winding up petition against the company, but  if a  winding up petition is properly filed by any of the persons entitled to do so under section 439, they may still  be entitled  to appear and be heard in support or opposition to  the winding  up petition.  That would  depend upon whether  their interest is likely to be affected by any order which may be made on the winding up petition. The next section relied  upon by  respondent Nos.  6 to 9 was section 440 which  says that  where a  company  is  being  wound  up voluntarily or  subject to  the supervision  of the court, a petition for its winding up by court may be presented by any person authorised to do so under section 439 or the official Liquidator, but  the court shall not make a winding up order unless it  is satisfied  that the  voluntary winding  up  or winding up subject to the supervision of the court cannot be continued with  due regard to the interests of the creditors or contributories  or  both.  It  was  urged  on  behalf  of respondent Nos.  6 to  9 that  this section  shows that  the winding up of a company is intended to be for the benefit of the creditors and the contributories and the interest of the workers has  no place  at all  in the  winding up and is not required to be taken into account in winding up the company. This argument 949 is also  in our  opinion futile  because what  this  section deals with  is the stage after the winding up has commenced, whether voluntary  or subject  to  the  supervision  of  the court, while  we are  concerned with a stage anterior to the making of a winding up order. There can be little doubt that the object  of winding up being to realise the assets of the company,  pay   the  preferential  claims  and  expenses  of liquidation and then discharge the debts of the creditors in full or  pari passu  and if  after paying  to the creditors, there  is   any  surplus,  distribute  the  same  among  the shareholders by  way of dividend and ultimately 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  effective winding  up of  the company. Such provisions are for instance to be found in section 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  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  be ordered  to be wound up or not. While the company is  continuing to  subsist,  the  workers  would  be employed in the enterprise which is being run by the company and  they  would  be  earning  their  livelihood  from  such employment, but  if an  order for  winding up is made, their services would,  except in  cases where  the business of the company is  continued, stand  terminated by  reason of  sub- section

 

(3)  of section 445 which provides that a winding up order “shall  be deemed  to be  notice of  discharge to  the officers and  employees of  the  company,  except  when  the business of  the company  is continued.”  Ordinarily when  a winding up  order is made, the business of the company would cease to  continue and  even if the Liquidator is authorised to carry on the business, such continuance would be only for the beneficial winding up of the company and the logical and inevitable end  would be  the ultimate discontinuance of the business. The making of a winding up order 950 on  a   petition  for  winding  up  would  therefore  almost certainly have  an adverse  consequence on the workers in as much as  the continuance of their service would be seriously jeopardised  and   their  right   to  work  and  earn  their livelihood would  be disastrously  imperilled. Now  it is an elementary principle  of law,  well settled  as a  result of several  decisions   of  this  Court  and  particularly  the decisions in  State of  Orissa v.  Dr.  Bini  Pani,(1)  A.K. Kraipa v.  Union of  India,(2) and Maneka Gandhi v. Union of India(3) that  no order involving adverse civil consequences can be  passed against  any person  without  giving  him  an opportunity to  be heard  against the  passing of such order and this rule applies irrespective of whether the proceeding in  which   it  is   passed  is   a  quasi  judicial  or  an administrative proceeding.  The  audi  alterum  partem  rule which mandates that no one shall be condemned unheard is one of the  basic principles of natural justice and if this rule has been  held to  be applicable in a quasi-judicial or even in an  administrative  proceeding  involving  adverse  civil consequences,

 

it  would  a  fortiori  apply  in  a  judicial proceeding such  as a  petition for winding up of a company. It is  difficult to  imagine how  any system of law which is designed to  promote justice  through fairplay in action can permit the  court to  make a  winding up order which has the effect of  bringing about 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 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 alterum partem  which cannot  be ignored  save  on  pain  of 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 951 contributories. But,  we have  pointed out above that merely because the  right to  apply for winding up a company is not given to  the workers  it does  not mean  that  they  cannot appear to  support or  oppose a winding up petition which is properly filed  by one  or the  other persons  specified  in section 439. There would, in fact, be no point in conferring the right  to apply  for winding  up of  a  company  on  the workers since  they cannot  have any interest in demolishing the enterprise  which is  the source of their livelihood and particularly when  the only  effect of  the winding up order would be  to render  them  unemployed  and  to  bring  about winding up  of the  company for the benefit of the creditors and the  contributories. So  also the  circumstance that the right to  be consulted or to make applications in the course of the  winding up  of a  company is  conferred only  on the creditors  and  the  contributories  does  not  in  any  way militate against  the right  of the workers to appear and be heard in the winding up petition because once the winding up order is  made,  the  assets  of  the  company  have  to  be realised, the  creditors have to be paid and if there is any surplus it  has to  be distributed  among the contributories and therefore at that stage it is only the creditors and the contributories who  have an  interest and that is why in the course of  the winding  up  it  is  the  creditors  and  the contributories who have been given a voice.

 

That has nothing to do  with the question whether the company should be wound up or  not which  is a  question in  which the  workers  are vitally concerned and on which  they must obviously be heard before any decision is taken by the court. This view       which we  are taking  is in  accord with the decision of  the High  Court of  Bombay, namely, Bhalchandra Dharmajee Makaji  and Ors.  v. Alcock  Ashdown &  Co. Ltd. & Ors.  where   the  Company  Judge,  while  disposing  of  an application  for   appointment  of  Official  Liquidator  as Provisional  Liquidator,   pending  the  hearing  and  final disposal of the main petition for winding up, said: “After the  amendment of  sections 397  and 398 of the  Companies  Act  by  sections       10  and  11  of  the Companies (Amendment)  Act (LIII  of  1963),  it  would appear that  the affairs  of the  company       have  to  be conducted not  only in the best interest of its members for their       profit but  also in  a manner  which is  not prejudicial to  public interest.  The element of public interest enters  into the       management of  the companies after 1963. The modern corporation has 952 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 for 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  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 requirement of sections 397 and 398 of the Companies Act.” If 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 amongst other things the interest of the workers, it is axiomatic that the workers must have an opportunity of being heard for  projecting and safeguarding their interest before a winding  up order is made by the court. The Division Bench of the  Madras High  Court has  of course  conceded  in  the judgment under  appeal that  “in  considering  the  question whether to  wind up  or not the court has to take the larger point of  public interest including that of the workers into consideration” but that in the opinion of the Division Bench would not  “clothe the workers with any locus standi to file an application  for being  heard in the winding up petition. With the greatest respect to the learned Judges constituting the Division Bench, we must express our emphatic disapproval of this  approach. It  amounts  to  the  court  telling  the workers: “No doubt in deciding whether the company should be wound up  or not,  we are  bound to  take into consideration your interest but you need not be heard because we know best what your  interest requires.”  This paternalistic  attitude towards the  workers  that  though  they  are  most  vitally concerned and  their interest  is required  to be taken into consideration, they  need not  be heard because the court in its wisdom knows, 953 presumably more  than the  workers themselves,  what  is  in their interest  and they  should leave  their fate  into the hands of  the court  without even  a whisper  of an argument sounds like  a relic of a by-gone age and must be abandoned. If the interest of the workers has to be taken into account, the workers  must have  a say  because they  know best where their interest  lies and  they must  have an  opportunity of placing before  the court  relevant  material  bearing  upon their interest. Considerable reliance  was however       placed on behalf of respondent Nos.

 

6 to  9 on the statement of the law on this point contained  in the  leading text  books on company law. Respondent Nos.  6 to 9 drew our attention to Palmer Company Precedents (17th  Edn.) volume  2 at  page 77  where  it  is stated that  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.  So  also  in  Buckley  on  the Companies Act  (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 amici curiae and cannot appeal.” Our attention was also invited to Halsbury’s Laws  of England  4th Ed.  Vol. 7 where a similar statement of  the law  is to  be found at page 614 paragraph 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 which was carried in appeal and  decided   as  Re.  Bradford  Navigation  Company.  This decision given  by the  English Courts  over a hundred years ago when  a company  was regarded  merely as  a legal device brought into  being as a result of a contractual arrangement between the  shareholders for  the purpose  of  carrying  on trade or  business and  the workers  were looked  upon as no more than  employees of  the company  working under a master and servant  relationship and  the interest of the public as consumers   or    otherwise   was   a   totally   irrelevant consideration and  it can  have no  validity in  the present times when  the entire  concept of a company has changed and it has been transformed into a dynamic 954 socio-economic institution  in which  capital and labour are both equal partners, possibly with heavy weightage in favour of labour  and the  interest of  the public  as consumers as also the  general welfare  and common  good of the community constitute a  vital consideration.

 

We cannot allow the dead hand of the past to stifle the growth of the living present. Law cannot  stand still;  it must  change with  the changing social concepts  and values.  If the  bark that protects the tree fails  to grow  and expand  alongwith the tree, it will either choke  the tree  or if  it is  a living tree, it will shed that  bark and  grow a  new  living  bark  for  itself. Similarly, if  the law  fails to  respond to  the  needs  of changing society,  then either  it will stifle the growth of the society  and choke  its progress  or if  the society  is vigorous enough,  it will  cast away the law which stands in the way  of its  growth. Law must therefore constantly be on the move  adopting itself  to the  fast changing society and not lag  behind. It  must shake off the inhibiting legacy of its colonial  past and  assume a dynamic role in the process of social  transformation. We  cannot therefore mechanically accept as  valid a  legal rule  which found  favour with the English courts  in the  last century  when the  doctrine  of laissez faire  prevailed. It  may  be  that  even  today  in England the  courts may  be following  the same  legal  rule which was laid down almost a hundred years ago, but that can be no reason why we in India should continue to do likewise. It is possible that this legal rule might still be finding a place in  the English  text books  because no  case like the present one  has arisen  in England in the last 30 years and the English  courts might  not  have  had  any  occasion  to consider the acceptability of this legal rule in the present times. But  whatever be  the  reason  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  (supra)  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 (supra), 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 955 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, shall serve on the petitioner  or his  advocate notice  of his intention at the address given in the advertisement and such notice shall be in form No. 9 and where such person intends to oppose the winding up petition, the grounds of his opposition or a copy of his  affidavit if  any shall  be furnished along with the notice. The  appellants contended  that under  this Rule any one who  wants to appear in a winding up petition can do so, provided he serves on the petitioner or his advocate, notice of his  intention at  the address given in the advertisement and complies  with the  other requirements  of this Rule and therefore if  the workers desire to appear at the hearing of the winding  up petition,  they are  entitled to  do so. The answer given  on behalf  of respondent  Nos. 6  to 9 to this contention was  that Rule  34 is  applicable  only  after  a winding up  petition is  admitted and  an order  is made for advertisement of  the winding  up petition  and  it  has  no application at  the stage  when the  winding up  petition is before the court only for the purpose of deciding whether or not it  should be admitted and advertised. It was also urged on behalf  of respondent  Nos. 6 to 9 that in any event Rule 34 does not confer a right on any and every person to appear at the  hearing of  the winding  up petition,  intends so to appear he  must take  various steps  set out  in  that  Rule beginning with  service of  notice on  the petitioner or his advocate before  he can be heard on the winding up petition. We are  inclined to agree with this contention of respondent Nos. 6  to 9.

 

It is  obvious that the object and purpose of Rule 34 is not to confer a right on any one to appear at the hearing of the winding up petition but merely to provide the procedure to  be followed  before a  person who is otherwise entitled to  appear in a winding up petition can be heard in support or  opposition of the winding up petition. This rule cannot  therefore  be  relied  upon  by  the  appellants  as conferring a  right on  the workers to appear at the hearing of a  winding up petition. But, one thing is clear that this Rule does  postulate  that  apart  from  the  creditors  and contributories there  may be  other persons who are entitled to appear  at the hearing of the winding up petition because it is  not confined  in its application to the creditors and contributories  but   uses  the  generic  impression  “every person” and  to this limited extent it does undoubtedly lend some support to the contention of the appellants. 956 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 up 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  the court.

 

We think  that even  when  an application for  appointment of  a provisional liquidator is made by the petitioner in a winding up petition, the workers would have  a right  to be heard if they so wish because the appointment of a provisional liquidator may adversely affect the interest  of the  workers. But we may make it clear that neither the  petitioner nor  the court  would be  under  any obligation  to  give  notice  of  such  application  to  the workers. It  would be  for the  workers to  apply for  being heard and  if they  do so,  they would be entitled to appear and  be   heard  on   the  application  for  appointment  of provisional liquidator. The workers therefore in the present case  had  a  right  to  be  heard  before  the  provisional liquidator was  appointed  by  the  Company  Judge  but  the circumstance that  the workers  were not  so heard would not have  the   effect  of   vitiating  the   order   appointing provisional liquidator,  because on the view taken by us, it would be  open to  the workers  to apply  to the  court  for vacating that  order and  it would  be for  the court  after considering the  material produced before it and hearing the parties to  decide whether  that order  should be vacated or not. We accordingly  allow the appeals, set aside the order, dated 14th September 1981 made by a Single Judge of the High Court and  confirmed by the Division Bench on 13th September 1981 and  direct that  the three Unions shall be entitled to appear and  be heard  in the winding up petition. There will be no order as to costs of these appeals. 957 CHINNAPPA REDDY, J. I agree with my brother Bhagwati. I wish to add a few words not because I have much more to say, nor ever hope to say what he has said, more felicitously but because my brother Venkataramiah has disagreed and my regard for him compels me to add a few words of explanation.

 

“… you  take my       life when  you  do  take  the  means whereby I live” (Shakespeare: The Merchant Venice). This indeed  is the  cry of  the workers of Ramakrishna Industries (P)  Ltd. who desire to be heard before the bread is taken  out of  their mouths. A battle royal appears to be raging between  two rival  groups  of  shareholders  of  the company. A  petition for  winding-up the  company  has  been presented by  one group  of shareholders. And an application for the  appointment of  a provisional liquidator too. Quite apart from  Sec. 445 (3) of the Companies Act which provides that the  order for  winding-up shall be deemed to be 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 who  buy, sell  and  control shares and  the usurers,  the  stockbrokers  and  the  money brokers. Those  who invest  money may  be heard,  those  who invest their  lives may  not be heard. No. The Companies Act does not  prohibit a  hearing to  the workers. The Companies Act does  not say  who may  be heard. The Companies Act does not provide  for all  situations.

 

The  Company  Judge  must decide some  matters. He  must use  his imagination. He must use his  discretion. But,  without transgressing  any  legal norms Company Law is not a field in which 958 ‘finality is  to be  expected’. The law ‘falls to be applied to  a   growing  and   changing  subject  matter’.  This  is recognised in  the report  of the  Jenkins Committee  in the United Kingdom  and in  this country,  in the  Statement  of Objects and  Reasons to the Companies Amendment Act of 1974. So, when  new situations  arise, as indeed they are bound to arise having  regard  to  the  complexities  of  growth  and change, the  Company Judge cannot retreat into the Corporate shell but  must expand and expound. He must take the bull by the horns.  as it  were. He  must recognise  and expose  the reality of  the workers’  interest and  the dubiety  of  the interest  of   the   others.   He   must   acknowledge   the transformation which  corporations are  presently undergoing from capitalist contrivances into socialist instruments. No doubt, it was the creative genius of the bourgeoisie that invented  the corporations  and the companies, invested them with  a corporate  soul and  a juristic personality and called them  legal entities in order to meet the growing and complex  demands  of  modern  industry  and  management,  to conduct business and commercial activities more conveniently and efficiently,  and essentially to foster, consolidate and stabilise the capitalist system of society under whose aegis alone the  exploiting class  could thrive  and  continue  to exploit the working class. Corporations became the symbol of competitive  capitalism.   But  the   historical   processes continue at work. The movement is now towards socialism. The working classes, all the world over, are demanding ‘workers’ control’ and  ‘Industrial Democracy’. They want security and the right  to work  to be secured. They want the control and direction of  their lives  in their own hands and not in the hands  of  the  industrialists,  bankers  and  brokers.  Our constitution  has   accepted  the  workers’  entitlement  to 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  organisations 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 959 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 of  its universality.  “It is of the essence of most systems of  justice-certainly of the Anglo-Saxon System-that in litigation  both sides  of a dispute must be heard before decision. ‘Audi  Alterum Partem’  was the  aphorism  of  St. Augustine which  was adopted  by the  courts at  a time when Latin Maxims  were fashionable”.  ‘Audi Alterum Partem is as much a  principle of  African’ as  it is  of  English  legal procedure;  a   popular  Yoruba   saying  is:   ‘wicked  and iniquitous is  he who  decides a  case upon the testimony of only one  party to  it” (T.O.  Elias: The  Nature of African Customary Law).  Courts even  more than  administrators must observe natural justice.

 

It is  said that  the Companies Act does not confer any special rights on the workers, they are virtual strangers to the Act  and so why should they be heard in the petition for winding-up ?  The duty  to hear  those asking to be heard is not dependent  on the  vesting of  any right  under the very statute in  respect of which jurisdiction is being exercised by the court, but on any right whatever which may come under threat. Surely  it is  not the  law that  rights other  than those created  by a  particular statute may be taken away in proceedings under  that statute  without affording a hearing to those  desiring to  be heard. If the statute says only so and so  will be heard and no other, of course, no other will be heard.  If the statute does not say who may be heard, but prescribes the  procedure for  the hearing,  that  procedure must be  followed by every one who want to be heard and what applies to  one will  apply to  the other.  If creditors and contributories desire  to be  heard and  are heard, so shall workers. After  hearing the workers, the court may say that, on the  facts and  circumstances of  the  case,  it  is  not necessary to  hear them  further; but  they cannot be turned away at  the very  threshold.

 

It  may be  that it is not for them to support or oppose the winding-up petition for any of the traditional reasons. But they may make suggestions which may avert  winding-up, save  the company  and save their own lives. They  may have  suggestions to make for restructuring the company  or for  the transfer  of the  undertaking as  a running business.  The workers  themselves may  offer to run the industry  forming themselves  into a  society. They  may have a myriad suggestions to 960 make, which  they can do if they are allowed to be heard. If every holder  of 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 partition or dissolution of 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 workers may not be allowed, in  appropriate   cases,  to   intervene  in  partition  and partnership  actions   to  avert  disaster  and  to  promote welfare. As  we said, impleading and hearing are not for the mere asking and seeking. Re Bradford   Navigation  Company  and  passages  from textbooks for which the case is the source of authority were relied upon,  to  urge  that  none  but  contributories  and creditors may  be heard  in winding-up petition. Re Bradford Navigation Company  is a relic of an alien past. Fortunately it is  not a  binding precedent.  While we  have learnt  and borrowed a  great deal  from British  Jurisprudence, we have been drawing  the line now and then, here and there, because their law,  their jurisprudence  suits their genius and ours must  develop   according  to  our  genius.  Our  needs  are different; our  social, political  and  economic  bases  are different; our  aspirations are  different; our  systems are different; the  stages of  our development are different. We have a  written constitution  which is  omnipresent when our laws are  made, tested,  interpreted or executed.

 

We look to the constitution  for  guidance  and  inspiration  when  we interpret the  laws. The  42nd Amendment of the Constitution has  introduced   new  lights  into  the  Constitution.  The Constitution  is   now  openly   socialist.  The   Directive Principles of State Policy repeatedly emphasise the role and interest of  the workers.  Article 43-A,  also introduced by the 42nd 961 Amendment  contemplates   workers’  participation   in   the management of  industry. Other  Directive Principles require the State  to make provision for securing the right to work, for securing  just and  humane conditions  of work  and  for securing the  right to  an adequate means of livelihood. The State is enjoined to direct its policy towards securing that the ownership  and control  of the material resources of the community are  so distributed as best to subserve the common good and  that the operation of the economic system does not result  in   the  concentration   of  wealth  and  means  of production  to   the  common  detriment.  Obviously,  it  is nationalisation that  is in  view and  nationalisation  must mean  the   setting  up   of  public  corporations  and  the transformation   of   private   corporations   into   public corporations.  Truly  the  Constitution  envisages  workers’ control  and   nationalisation  as   two  of  the  roads  to socialism.  Private   corporations  hitherto   regarded   as bastions of  private  property  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  predominant 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 Regulation and Development  Act, under whose provisions, the activities of a  company may  be scrutinised  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 laissez faire  at a  time when individualism dominated every field and the public interest was but a slow runner. Now the position is  reversed. Laissez faire has long been dethroned and all  interests  are  increasingly  subordinated  to  the public interest.  Corporations  are  themselves  assuming  a public character  and function  like mini  States but surely they will  not be  allowed to function as slave States where the voice of the slave may never be heard. In Britain       itself corporate  law and  labour law  have changed considerably  and  are  still  changing.  Courts  no longer view trade 962 unions with suspicion, as conspiracies as they once did. The right to  work, the  right to  collectively bargain  and the right to  strike are  well recognised. After nationalisation of  certain   important  and   crucial  industries   by  the successive Labour  Governments,  workers’  participation  in management has  become a  reality and  today a  considerable measure of  workers’ control of management has been achieved in industry. There are       now persistent  demands that Company Law too should recognise the interest of workers in a company. Prof. Gower in his “The Principles of Modern Company Law” says:- “One section    of the  community whose interests as such are not afforded any protection, either under this head or  by virtue       of the  provisions for  investor or creditor protection,  are the  workers and employees of the  taken        over  company.   This  is  a  particularly unfortunate facet of the principle that the interest of the company means only the interest of the members, and not of  those whose livelihood is in practice much more closely involved”. Again he says, later, “The vexed  question of  the relationship  between the employees and the company which employs them is, in fact, a  dominant theme  in the  current  debate  which flows over       from company to labour law. It is generally accepted that  it is  unreal for company law to ignore, as at  present our       law largely  does, that the workers are as  much, if not more, a part of the company as the members of it”. That is the way the wind is blowing in Britain and there is, therefore, good reason for holding that the rule in Bradford Navigation Company is not valid in the present times.

 

I may   conclude  by  a  reference  to  the  following observations made  in another connection by D.A. Desai, J in Panchmahals Steel Ltd. v. Universal Steel Traders(1). “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 963 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  interests   not  merely   of  the   creditors  and  the contributories but also the interests of the workers. Viewed from  any angle,  of  natural  justice,  of       the constitution or  of the  expanding theory  of  company  law, there, appears to be no obstacles to a Company Judge hearing the workers,  when asked,  after a  winding up  petition  is presented. I agree with the order proposed by Bhagwati, J. VENKATARAMIAH, J. I had  the privilege  of reading the draft judgment  prepared by my learned brother, Bhagwati, J. but I regret my inability to agree with him. Messrs Ramakrishna  Industries  (P)  Ltd.  (hereinafter referred to  as ‘the  Company’) which  is  carrying  on  its business at  Coimbatore in  the State  of Tamil  Nadu  is  a closely held  private limited company governed by the Indian Companies Act,  1956 (hereinafter referred to as ‘the Act’). The Company’s  paid up capital is Rs. 15,95,000 divided into 1595 equity shares of Rs. 1,000 each, the bulk of 964 which is  held by  the  members  of  a  Hindu  family  whose relationship is as follows: V. Rangaswami Naidu = Chinnammal (wife) (deceased)            (deceased) (7 shares) (10 shares) V. Kamalammal =R. Venkata-  P.R. Rama- = Mrs. Raje- (wife)swami Naidu  Krishnan     swari (164 shares) (20 shares) (34 shares) Ramakrishnan (85 shares) V. Radha-      V. Mano-  V. Rajkumar krishnan haran (148 shares) (164 shares)   (146 shares)    =Thulasi = Anusuya K. Prabhu      R. Baba Chandersekhar    S.R.K. Prasad (160 shares)   (168 shares) (161 shares) The group of R. Venkataswami Naidu holds 642 shares and the group  of P.R.  Ramakrishnan is  holding 608  shares. 17 shares stand in the name of late V. Rangaswami Naidu and his wife  and  300  shares  are  held  by  V.  Rangaswami  Naidu Educational  Trust.

 

R. Venkataswami   Naidu   and   P.R. Ramakrishnan are trustees for  life of  V. Rangaswami Naidu Educational Trust having control over the shares held by the Trust. They  are also  treated as  Life  Directors.  Only  5 shares stand  in the  name of  others. V.  Kamalammal,  Mrs. Rajeswari Ramakrishnan,  V. Radhakrishnan  V. Manoharan,  K. Prabhu and  R.  Baba  Chandersekhar  are  directors  and  V. Rajkumar is  the  Managing  Director  of  the  Company.  The Company is  thus under  the exclusive control and management of the  members belonging to one family. Serious differences having arisen  amongst them  regarding the management of the affairs of the Company, P.R. Ramakrishnan, his wife and sons filed a  petition being  Company Petition  No. 30 of 1981 on the file  of the  High Court  of Madras on July 13, 1981 for the winding-up of the Company under section 965 433(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  July 13,  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  creating any  charge or  encumbrance over any of the assets of the Company in its various enterprises. The above  interim order  was passed even though on the same date  application   was  opposed  by  the  counsel  for  the respondents therein.

 

The case  was  adjourned  for  further consideration to  August 10,  1981. On  August 19, 1981, the above interim order was made absolute in the following terms :- “In  the   result  there  will  be  an  injunction restraining respondents  1 to  6  from  borrowing  any moneys from banks, financial institutions or others and from  alienating and/or  creating   any   charge   or encumbrance  over any  of  the  assets  of  the  first respondent company  in its  various enterprises  except that the first respondent company is entitled to honour any pending  contract entered  into by the company with third  parties   before   the   presentation   of  the application, all its existing commitments vis-a-vis its staff and labourers, electric  charges, central excise duty,  LIC   premium, payments   due   to   employees cooperative stores, telephone bills and sales-tax dues, availing the  existing bank  facilities with any of its bankers, subject  to the condition that the particulars for all  these payments  and the source from which such payments were to be met, are furnished in detail to the applicants. It  is again made clear that the company is always  at        liberty  to  approach  court  for  further directions 966 and that  the applicant’s  right  to  impugn  any  such transaction under section 536(2) is left untouched”. In the meanwhile three trade unions viz. the Coimbatore District National  Textile Employees’ Union, Coimbatore; the Coimbatore District  Engineering Workers’  Union, Coimbatore and the  National Textile Workers’ Union (INTUC), applicants in Company  Application  Nos.  880,  881  and  883  of  1981 respectively  applied  to  the  Court  to  implead  them  as respondents to the winding up petition i.e. Company Petition No. 30  of 1981  alleging  that  their  interests  had  been adversely affected  by the  interim order which according to them had  the effect  of preventing  the management  of  the Company from  paying amounts  due to workers and also making payments for  securing supplies to the stores from which the workers were  buying articles  of food and other provisions. These applications  were opposed  by the  petitioners in the winding-up petition  stating that  the  trade  unions  being neither creditors nor 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. 1961  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 appointed,  he   should  not  take  any  steps  which  would prejudically affect the workers. The above order was further modified by this Court on December 1, 1981. The petition was posted for  hearing and  disposal before  a  Bench  of  five Judges as  the matter  involved an important question of law relating to  the locus  standi of  the trade  unions  to  be impleaded as  respondents to a winding-up petition and their right to oppose or support it. 967 Petitions for  Special Leave  to  Appeal  (Civil) Nos. 10248 and 10249 of 1981 filed respectively by the Coimbatore District  National   Textile  Employees’ Union  and  the Coimbatore  District  Engineering  Workers’

 

Union  directly against the  order of  the Company Judge dated September 19, 1981 rejecting  their applications  for being  impleaded  as parties to  the Company  Petition are  also heard along with the above  Petition for  special leave to appeal (Civil) No. 9661 of 1981. At the  outset it       should be noted that the company law in force in India i.e. the Act, as in England, is an amalgam of certain  principles of the law of contract, of the law of persons and  of the  law of  partnership which  require  the partners of  a firm  to be  just and  faithful towards  each other. A  company is  an association  of  persons  for  some common object or objects. A Company has a legal personality. It is  an artificial  person as opposed to a natural person. It comes  into existence  on its  registration in accordance with law.  The memorandum of association and the articles of association of  a company which are filed at the time of its registration are  considered as the constitutional documents which contain  the fundamental  terms which  govern it.  The memorandum contains  conditions some  of which  are basic to its existence even though they may be alterable by following the prescribed  procedure. The  articles which  contain  the terms relating  to the internal regulation may be altered by the members  by passing appropriate resolution. The articles are, however,  subject to  the terms of the memorandum. Both these documents  should, however,  conform to  the Act.  The actions of  the company are subject to the doctrine of ultra vires whose  purpose is  to protect investors in the company and to protect the interests of its creditors. The directors of a  company are  its agents  and they stand in a fiduciary relationship to  the company. The duties of good faith which are imposed  by this  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 968 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 winding- up by  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  its officers. The  winding-up proceedings  by Court are governed by the Act and the Rules made thereunder. We have  been taken  through various English text books on Company  Law such  as ‘Palmers Company Law’, ‘Gore Browne on Companies’,  ‘Buckley on  the Companies Acts’ and Gower’s Principles or  Modern Company  Law. In none of them there is any statement to the effect that officers and employees (who are not  creditors or contributories) of a company for whose winding-up a petition is filed would be entitled as of right to be  impleaded as  parties and  to contest  the  petition. There is  also no  authority of  English Courts  recognising such a  right in  any trade union. It is not also shown that any such  right of a trade union is recognised by the Indian law which  more or  less corresponds  to English law in this regard The  decision of  the Bombay High Court In re. Edward Textile Ltd.(1)  is a  clear authority  for the  proposition that any  rate trade unions have no locus standi to oppose a winding-up petition. We shall  proceed to decide this case on the assumption that the  application for  impleading was  made in  fact  on behalf of the workers and not by the trade unions. The main  argument urged in support of these appeals is that because  under section 445(3) of the Act the passing of a winding-up  order of  a company  by the Court amounts to a notice of discharge to the officers and the employees of the Company,  except   when  the  business  of  the  company  is continued, the  officers and employees should be afforded an opportunity to  contest a  winding-up petition  after  being impleaded as parties and if possible avoid the winding-up of the company.  To appreciate this contention, it is necessary to refer  to some  of the provisions of the Act. Section 433 of the Act sets out six circumstances in which a company may be wound  up by  the Court.

A company may be wound up by the Court on  one or  more of the following grounds, namely, (a) if the company has by 969 special resolution,  resolved that  the company may be wound up by  the Court,  (b) if  default is made in delivering the statutory  report   to  the  Registrar  or  in  holding  the statutory meeting,  (c) if the company does not commence its business within  a year  from its incorporation, or suspends its business  for a whole year, (d) if the number of members is reduced,  in the  case of  a public company, below seven, and in  the case  of 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 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 by 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  (4) of  section 439. The Registrar can file a petition under clauses (b), (c), (d), (e) and (f) of  section  433  of  the  Act  subject  to  the  conditions specified in  section  439  except  in  cases  where  he  is authorised under section 439(1)(f) Sub-sections (6), (7) and (8) of  section 439 of the Act refer to the other conditions governing the filing of a winding-up petition. When  a   company  has   passed  a  special  resolution resolving that the company may be wound up by the Court, the employees and  workers can  have hardly any ground to object to the  winding-up of  the company. The position is the same when any of the defaults mentioned in clauses (b) and (c) of section 433  of the  Act are  committed by  the company. The officers and  employees of  the company also cannot get over the deficiency  in the  required  number  of  members  of  a company referred  to in  clause (d)  of section  433. When a company is  unable to  pay its  debts, a creditor may move a petition for  the winding-up of the company. Such a creditor cannot be  compelled to  prove his  claim not merely against the company  but also  against the  officers and  employees.

 

When there is a deadlock 970 in the  management of  the company  arising out  of disputes amongst the  directors or  where some  directors without any justification  exclude   some  other   directors  from   the management of  the company,  it  would  be  unreasonable  to expect the excluded directors to fight the case both against the directors  who are  responsible for  their exclusion and also against  the officers  and employees  who  are  neither creditors nor  contributories but  who may be supporting the contesting directors.  The law on the question as to who can be heard  as of  right in a winding-up proceeding is set out in paragraph  1028 in Volume 7 of Halsbury’s Laws of England (4th Edition) thus: “….Only  the   petitioner,    the   company,   and creditors and  contributories are entitled to appear on the petition; other parties have no right to         be heard,  and, even  if  court  of first instance  elects to  hear them as amici curiae, they have no right of appeal.” The above       passage is  based on  the  decision  of  the English Court in In re. Bradford Navigation Company(1) where Sir W.M. James, L J. observed at page 601 thus: “I am    of opinion  that this preliminary objection must prevail.  It appears       to me  that the  Appellants’ argument is  based       upon  a  misconception  of  what  a winding-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. Contributories 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 971 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 company, large or small, has right  to appear  as  a  litigant  here, because that company chooses to apply for an order with respect  to  itself.  In  this  case  the  company  was desirous of  being wound  up.

 

I  am of opinion that the winding-up order  does  not  in  the  slightest  degree derogate from  any right  whatever which  any member of the public       has with respect to this canal The winding- up will  deal with such rights  as the partners in the partnership can  deal with  themselves. The  Court will deal with it just as the partners themselves could have dealt with  it”…In the  Court below  the Court  might very well  say to  a person  so situated,  “I should be glad to  hear you as amicus  curiae, if  you  have  an interest, that  I may  know what  public grounds  there are.” There  the Court  might use its discretion,  and think it  right to hear such an objection; but when it comes before me on a Petition of Appeal from the Order, then  the  Appellant  must  show  that  he  fills  some character in  which he has a right to litigate with the company. I am of opinion that he does not fill any such character, and  that the  Petition of  Appeal  must  be refused with costs.” This decision  may be  of the last century but there is hardly any  justification to  depart from it even now unless compelled by the statute to do so. That only the company,  creditors  and  contributories (apart from  the Central  Government or  the Registrar  when they choose  to intervene  under the  express provisions  of law)  are   entitled  to   participate  in   the  winding-up proceedings is  emphasised by  sections 447  and 557  of the Act. They read: “447. Effect    of  winding-up  order-An  order  for winding-up a company shall operate in favour of all the creditors and  of all the contributories of the company as if  it had  been made  on the  joint petition  of  a creditor and of a contributory.” “557. Meetings to ascertain wishes of creditors or contributories.-(1) In  all  matters  relating  to       the winding-up 972 of a company, the Court may- (a)    have  regard  to  the  wishes  of  creditors  or contributories of  the company, as proved to it by any sufficient evidence; (b)  if it       thinks fit  for the purpose of ascertaining those wishes,    direct meetings of the creditors or contributories to be called, held and conducted in such manner as the Court directs; and (c)  appoint a  person to       act as  chairman of any such meetings and to report  the result thereof to the Court.

 

(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 given 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  part  in  the  public  examination  of promoters, directors  etc. held for the purpose of enquiring into  the   conduct  of   such  promotees  or  directors  in connection with the promotion or formation or the conduct of the business of the company. Section 517 of the Act provides that in  a voluntary winding-up, an arrangement entered into by the  company and  the creditors  as provided  therein  is binding on  the creditors  and any  creditor or contributory who is aggrieved by such arrangement may 973 appeal to  the Court.

 

Under section  518, the liquidator or any contributory or any creditor may apply to the Court in a voluntary winding-up  proceeding to  determine any  question arising in the winding-up of a company. Under section 542 of the Act on the application of the Official Liquidator or the liquidator, or  any creditor  or contributory of the company the Court may, if it thinks fit and proper so to do, declare that any  persons who were knowingly parties to the carrying on of  business  of  the  company  with  intent  to  defraud creditors  or   any  other   person  shall   be   personally responsible for  all or  any of  the debts or liabilities as the Court may direct. The Court can exercise power to assess damages against  delinquent directors  of a company which is ordered to  be wound-up under section 543 on the application of the  Official Liquidator, or of the Liquidator, or of any creditor or contributory made within the prescribed time. In the case  of a  voluntary winding-up  under section  546 any creditor or contributory may apply to the Court with respect to exercise  of any  power by  the liquidator  under section 546(1). Section  549(1) of the Act provides that at any time after the making of an order for the winding-up of a company by or  subject to the supervision of the Court, any creditor or contributory of the company may, if the Supreme Court, by rules prescribed  so  permit  and  in  accordance  with  and subject to  such rules but not further or otherwise, inspect the books  and  papers  of  the  company.  Any  creditor  or contributory may  under section  556 apply  to the  Court to enforce the  duty of  liquidator to  make returns etc. These and other  provisions of the Act show that only the company, the    Official     Liquidator,    liquidator,    creditors, contributories or  the Registrar  have a  statutory right to participate as  of right  in the  winding-up proceedings  as provided in  the Act. The workers or their trade 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 974 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 such as commission agents,  selling agents etc. whose contracts with the company  are going  to be  terminated by  reason of  its liquidation also  have to be allowed to contest the winding- up proceedings.  Such a  claim is  not permissible.  On this question, it  may be useful to refer to the case of Ex Parte Maclure. In  that case  a person  entered into  an agreement with an  insurance company  to act  as their  agent for five years, and  to transact  no business except for the company, in consideration  of which  he was to receive a fixed salary and also  a  commission  of  10  percent,  on  all  business transacted. Before  the five  years expired  the company was wound up voluntarily. It was held, affirming the decision of Romilly M.R.,  that the  agent was  not  entitled  to  prove against the  company for  the loss  of his commission during the remainder of the term of five years. James L.J. said: “I am clearly  of opinion  that the  Master of  the  Rolls  was right…..It is the case of a person engaging a servant, and saying, ‘I  engage you  for five years, I will pay you 500 a year for that period-that sum is secured to you-and then, in order to  give you  an inducement  to carry  on the business effectually, properly, and prudently, I will give you 10 per cent, commission  upon the  net profits to be earned by that business.

 

I am of opinion that this was a contract which did not give  the servant the right to determine what the extent of the  business was  to be.  He could  not  call  upon  the directors to issue new policies to accept new premium, or to take new  risks, if  they were not minded to do it. He could not  say,  ‘Such  a  person  has  brought  in  a  policy  of insurance, and  you must  accept that.”  Because if he had a right to  say ‘You must carry on the business’ he would also have a  right tc  say ‘You must carry on the business in the usual and proper manner,’ and that would be giving a servant the right  of controlling the master in the mode in which he chose to  carry on  his business.  Now, I am quite satisfied that the meaning of the contract was nothing of the kind. It was  never  intended  to  give  the  servant  the  right  of dictating as  to the  extent of  business, whether  more  or less, or nothing, but be simply took the chance of 975 the company finding it a profitable business and carrying it on. The  company had  a right  to reduce  the business  to a minimum ; and if they had a right to reduce it to a minimum, they had  a right  to reduce  it to nothing-as far 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) Rules, 1959 (read with Form  No. 67)  relates to proof of arrears of workmen’s wages. The  right to resist a winding-up petition is not one such right. It is  true that  public  interest       which  may  include within its  scope interests of employees of a company has to be kept  in view  by the  Court as  observed in  Bhalchandra Dharmajee Makaji  and Ors.  v. Alcock,  Ashdown and Co. Ltd. and Ors.

 

(1)  in exercising  certain powers  under  the  Act. Sections 388-B, 394, 396, 397 and 408 of the Act do refer to the concept  of public  interest. These provisions deal with the power  of the  Central Government  to remove  managerial personnel from  office on  the recommendation  of  the  High Court,  compromises,   arrangements  and  reconstruction  of companies and  power of  the Court  and  the  Government  to prevent oppression or mismanagement of affairs of a company. They do  not, however,  state that  trade unions  can as  of right intervene in the proceedings arising under them. 976 It is  not correct to say that there is no other remedy at all  for workmen  who are  likely to  be affected  by the winding-up order  made by  the Court.  Section 15-A  of  the Industrial (Development  and Regulation)  Act, 1951 (Act No. 65 of  1951) which  applies  to  textile  industry  as  well confers  power  on  the  Central  Government  to  carry  out investigation into  the affairs of a company in liquidation. It reads : “15-A. Power    to investigate into the affairs of a company in       liquidation-(1) Where  a company, owning an industrial undertaking  is being  wound up       by or under the supervision  of the High Court, and the business of such  company  is       not  being  continued,  the  Central Government  may,  if  it  is  of  opinion  that  it  is necessary, in  the interest  of the general public and, in particular,  in the  interests of production, supply or distribution  of  articles  or  class  of  articles relatable to  the  concerned  scheduled  industry,  to investigate  into  the  possibility   of  running   or restarting  the   industrial   undertaking,   make   an application to the High Court praying for permission to make, or  cause to       be made, an investigation into such possibility by  such person  or body of persons as that Government may appoint for the purpose. (2)Where an  application is  made by    the  Central Government under sub-section

 

(1), the High Court shall, notwithstanding anything  contained  in  the  Companies Act, 1956 (1 of 1956) or in any other law for the time being in force grant the permission prayed for.” The provisions  of Chapters  III-AA and  III-AB of  the Industrial (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  Government   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  Government  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 its creditors and 977 contributories the industrial undertaking should be solid as a running  concern, as  provided in section 18-FE thereof it may by  order decide accordingly. Sub-section (2) of section 18-FD of  that  Act  states  that  notwithstanding  anything contained in  sub-section

 

(1) thereof the Central Government may prepare  a scheme  for reconstruction of a company if it is satisfied  having regard  to all  relevant  circumstances mentioned therein  that it  is proper  to do so. When such a scheme is prepared, the Central Government has to send it to the registered  trade  unions,  if  any,  of  the  employees concerned for their suggestions and objections. (See section 18-FF(3)).  Any   scheme  finally   approved  would  prevail notwithstanding anything  contained in sections 391 to 394-A (both inclusive)  of the  Act. It  is open to the workers or their trade  unions to  move the  Central Government to take appropriate steps under the aforesaid provisions in order to protect the  interests of  the workers  who are likely to be affected by the winding-up orders. Article 43A of the Constitution clearly states 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 organisation  engaged  in  any  industry.  The  High-powered Expert Committee  on  Companies  and  MRTP  Acts  headed  by Justice Rajinder  Sachar of  the Delhi  High Court  has also made certain recommendations about provisions to be made for workers’ participation  in management  of  companies.  (Vide paragraphs 18.127  to 18.143  of the Report). Parliament may take early  steps to  implement some  of the recommendations made by  the said Committee. It is significant that there is no recommendation  made even  in this Report about the right of trade  unions to  contest winding-up  petitions.  If  the workers are  issued shares  then  they  would  no  doubt  be entitled to  participate in  the winding-up  proceedings  as contributories. This  may be  one way of solving the problem by legislative  means.

 

Another  way of  providing a forum to the  workers  representative  in  matters  relating  to  the winding-up of  a company  is to amend section 292 of the Act as suggested  in para 11.27 and para 18.137 of the Report of the Sachar  Committee. Those paragraphs are reproduced below for ready reference: “11.27  The  workers’    representation  on  company Board makes it necessary to provide that companies must ensure that  certain decisions are necessarily taken at the Board level and the Board do not delegate 978 the powers in respect of these matters to committees or other functionaries  in the organisation, otherwise the participation of  workers at  the Board level is likely 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 takeover 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  section 292 be amended to provide for the exercise of  the foregoing  powers of  the Board  of  a company  which   is   required   by   law        to   ensure participation of workers in management.” “18.137 In order to ensure effective participation by workers’  representatives at the Board level section 292 should be amended to provide that certain decisions are necessarily  taken only  at the  Board level and no delegation to  Committees of  the       Board  or  to  other functionaries is made.” 979 These suggestions emphasise that  at  present  workers have no right to contest winding-up proceedings. It is  also open  to Parliament  to make  a law  on the lines of sections 63 to 69 of the Employment Protection Act, 1975 passed  by the Parliament in the United Kingdom to give any additional  protection necessary  for  workmen  who  are likely  to   be  affected   adversely  by   the   winding-up proceedings. (See Palmer’s Company Law (22nd Edn. Vol. I, p. 919)). Parliament  may also  consider the  introduction of a provision corresponding  to section  74 of the Companies Act of 1980  passed by  the British  Parliament. Such  steps may mitigate any hardship that may be caused to the workers as a consequence of the winding-up of a company. It has  to be  emphasised that  the privilege of making suggestions to the Court in the public interest is different from  the  right  to  be  impleaded  as  a  party  with  the concomitant right  to enter  into  contest  with  the  other parties and  of taking  an order  in  appeal  before  higher courts. The  latter right  has to  be conferred expressly by the statute  on any  person who wishes to exercise it. Under the existing  law, the  workers or their unions may make any suggestions to  the Court at any stage but they cannot claim to be  impleaded as parties to the winding-up petition as of right. The decision  of this  Court in  Fertilizer Corporation Kamgar Union  (Regd.), Sindri and Ors. v. Union of India and Ors.(1) does  not lend  any support to the case of the trade unions. In  that case  which  attracted  the  principles  of administrative law  the petitioner  trade union pleaded that Article  14,   Article  19(1)(g)  and  Article  311  of  the Constitution had  been violated by the sale of the plant and equipment of  a factory  in which  its members were working. Ultimately the  petition was dismissed by this Court. One of the distinguishing features of that case is that the factory involved 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 pages 60-61 thus: “Secondly, the right of Petitioners 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 980 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  fertiliser factory,  it would be possible to contend then that the workers have been deprived of their right to carry on an occupation. Even assuming  that some  of the workers may eventually have to  be retrenched in the instant case, it will not be possible  to say  that their  right to       carry on  an occupation has been violated. It would be open to them, though undoubtedly it will  not be  easy, to  find out other avenues  of       employment  as  industrial  workers. Article 19(1)(g)  confers a  broad and  general  right which is  available to  all persons  to do       work of any particular kind and of their choice. It does not confer the right  to hold  a particular  job or  to  occupy  a particular post of one’s choice. Even under Article 311 of the  Constitution, the right to continue in service falls with the abolition  of the  post  in  which  the person is  working.

 

The workers in the instant case can no more   complain  of   the  infringement   of  their fundamental right under Article  19(1)(g) than  can  a Government servant       complain of  the termination of his employment on the abolition of his post. The choice and freedom of the workers to work as industrial workers is not affected  by the  sale. The sale may at the highest affect their locum, but it does not affect their locus, to work  as industrial workers. This is enough unto the day on Art. 19(1)(g).” On the  question of locus standi of workers to maintain the petition,  the learned  Chief Justice  observed at pages 65-66 thus: “That disposes  of the  question  as    regards  the maintainability of       the writ  petition.  But,  we  feel concerned to  point out  that the       maintainability of a writ petition which 981 is correlated  to the  existence  and  violation  of  a fundamental right is not always to be confused with the locus to  bring proceedings under Article 32. These two matters often  mingle and coalesce with the result that it becomes       difficult to  consider them  in water-right compartments. The       question whether  a person  has  the locus to  file a proceeding depends mostly and often on whether he       possesses a  legal right  and that right is violated. But,  in an  appropriate case,  it may become necessary in the changing awareness of legal rights and social obligations       to  take  a  broader  view  of  the question of locus to initiate a proceeding, be it under Article 226 or under Article 32 of the Constitution. If public property  is  dissipated,  it  would  require  a strong   argument         to   convince   the   Court   that representative segments  of the  public or       at least  a section of       the public 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 ineffective 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 would have found that the  sale was  unjust, unfair  or mala fide.” Krishna Iyer,  J. in his concurring opinion observed at pages 70-71 thus: “A pragmatic approach to social justice compels us to interpret constitutional provisions, including those like Arts. 32  and  226,  with  a  view  to  see  that 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 wrong doings of the public sector although he  maintained that  what had been done by the Corporation was both bona fide and correct. We certainly agree that judicial interference with the  Administration   cannot  be  meticulous  in   our Montesquien 982 system of separation of powers. The court cannot usurp or abdicate, and the parameters of judicial review must be  clearly   defined  and   never  exceeded.   If  the Directorate of  a Government  company has acted fairly, even if  it has  faltered in  its  wisdom,  the  court cannot, as a super-auditor, take the Board of Directors to task.  This function  is limited  to testing whether the administrative  action has  been fair and free from the taint of unreasonableness  and  has  substantially complied with  the norms  of procedure  set for  it  by rules, of public administration.” A reading of the  aforesaid passages  shows  that  the Court was concerned in that case with operations in a public sector company  and the  activities of the Government. These observations cannot  have any  relevance to a case involving the affairs  of a  company which is governed only by express provisions of company law and other relevant statutes. As the  law stands today, workers cannot contend that a factory owned  by and  individual proprietor,  on his death, should not  be divided  amongst his  heirs, even though they may lose their jobs. They cannot resist a partition suit, in which one  of the  items of  property in  respect  of  which relief is  claimed is the factory in which they are working, filed by  a junior  member of Hindu joint family against the manager contending  that the  said factory  is the  separate property of  the  manager  and  should  not,  therefore,  be partitioned merely  because  they  may  be  discharged  from service in  the event of the suit being decreed. They cannot resist the  suit for  dissolution of  a firm  which owns the factory in  which  they  are  working  even  though  at  the distribution of the assets of the firm, the factory may have to be  dismantle and  sold. The position cannot be different in the  case of a company which is wound up by the Court. As the law  stands today,  the workers  in a factory owned by a company do  not have  any hand in the birth of a company, in its working  during its  existence and  also in its death by dissolution. If  the law expressly says that a memorandum of a company  should be  signed by some future employees of the company, or that there should be workers’ representatives on its board  of directors  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 the reason 983 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 (1).  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 making inroads into the legitimate domain of the Legislature. If the Legislature exceeds its  power, this  Court steps  in. If  the Executive exceeds its  power, then  also this  Court steps in. If this Court exceeds its power, what can people do ? Should they be driven to  seek an  amendment  of  the  law  on  every  such occasion ?  The only  proper solution  is the  observance of restraint by  this Court  in its pronouncements so that they do not go beyond its own legitimate sphere. It is true that there are now new kinds of weapons like consumers’ protection agitations against big companies whose activities are  likely to  affect the  life of the community adversely. But,  for those  agitations to  be effective  the Legislature should  wake up  and make appropriate laws under which  the   consumers  can   bring  action  against  erring companies. In the absence of any such law, this Court cannot issue directions to the companies on the basis of complaints from the members of the public. There are       several areas  where it is necessary for the Legislature to make law. A reading of the provisions in Part IV of  the Constitution shows that many of them are still to be implemented  by the  passing of  appropriate legislation. Article 41  of the  Constitution dealing  with the  right to work, Article  43 dealing with living wages etc for workers, Article 44  which insists upon the introduction of a uniform civil code  for all citizens and Article 47 dealing with the duty of  the State  to raise  the level of nutrition and the standard of  living of  the people  are some of the articles which have to be implemented either by the Legislature or by the Executive. 984 Would this  Court compel  the Executive by issuing a writ to implement the  policy underlying  Article 41, Article 43 and Article 47 without being backed up by necessary laws ? Would this Court  enforce a  uniform civil  code in respect of all citizens, without the aid of an appropriate legislation even though  the   concept  of   equality  is  enshrined  in  the Constitution and  Article 44 specifically requires the State to endeavour to secure for all citizens a uniform civil code ? It  may not  do so  The only  solution for  many of  these social problems  is to  appeal to  the appropriate organs of the State  to do their assigned job in the best interests of the Community.

 

It is  wrong to  think that by some strained construction of  law, the  Court can  find solution  to  all problems. 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 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 going  concern  so  that  their  employment  may  not  be affected. How  are they  interested in supporting one set of directors against  whom charges  of waste,  misappropriation and mismanagement  are made by the other set who are alleged to have  been totally  excluded from  management by attempts amounting to  oppression ?  In the  instant case  the  trade unions  concerned  have  filed  almost  a  common  statement containing their  grounds  of  objection  along  with  their notice to  appear in  the proceedings filed under Rule 34 of the  Companies   (Court)  Rules   1959   pursuant   to   the advertisement issued by the 985 Court. The  grounds of  objection filed  by  the  Coimbatore District National Textile Employees’ Union are set out below in extenso : 1.        That the  Company  Petition  is  not  maintainable under    the   Companies  Act,   1956,   hereinafter referred to as the `Act’. 2.        That no  case has been made out by the petitioners under section 433(f) of the Act.

 

3. That, on  the facts and circumstances of the case, it is not just  and equitable  that  the  company should be wound up. 4.That  another   remedy   is   available to the petitioners and  hence the Company cannot be wound up by virtue of section 443(2) of the Act. 5. That the  objector craves  leave  to  reserve  his right to  amplify and    elaborate the above grounds in the  counter  affidavit  to  be  filed  to    the company petition.” It is seen from the foregoing that the trade unions are only interested  in supporting  the cause of the respondents against whom  allegations are made by the petitioners in the Company Petition  by  making  certain  general  submissions, without traversing  the various  allegations made in it. The respondents who  are already  on record and who are actually contesting the  petition are  capable of looking after their interests and  need not  rely upon  the support of the trade unions who  are neither creditors nor contributories and who do not  know the  details of  the internal administration of the affairs  of the  Company. The petitioners in the Company Petition would be in a more disadvantageous position if they have to face the opposition of the trade unions also. Such a situation should  not be  created by  extending the  area of controversy by a liberal interpretation of the provisions of law when there are no compelling reasons to do so. The High Court has in this case passed necessary orders in order  to protect  the  interests  of  the  employees  in Company Application  No. 844 of 1981 and in C.M.P. No. 11159 of 1981.  The order passed in Company Application No. 844 of 1981 is already set out above. 986 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 10.10.1979 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 gives  such   liberty,  the  learned  counsel  for       the appellants by  way of abundant caution requires such an interim direction in this petition. The learned counsel for the  respondents pointed  out that  availing of the existing  facilities   referred  to  in  the  order  of Shanmukhan, J.,  is a facility that was available as on 13.7.1981

 

we think  the   learned  counsel  for  the respondents is  well-founded in  this contention. (sic) But  even  so  if   the  Banks  as  on  13.7.1981  the petitioners are  entitled to avail the same in order to honour the  commitment relating  to bonus  for workers. Since  the   order  under  appeal  itself  permits  the petitioners to  avail of  the existing  Bank facilities with any  of its  Bank though  the application  in form asked for       raising of the loan with the Bank of Baroda, Coimbatore, we  make it  clear that  it is  open to the petitioners to  avail of  the Bank loan facilities with the Central  Bank within  the limits  prescribed as  on 13.7.1981. This  is the only clarification that need be given in  this  petition  and  no       further  orders  are necessary.” (emphasis added) These orders  show that  the High Court has kept in its view the interests of workers while giving directions in the case from 987 time to  time and  that there  is no  longer any  ground  to complain about. According to the petitioners in the winding- up petition  the occasion  for the  complaint of the workers had been  cleverly engineered by the contesting respondents. Be that  as it  may, as  the orders  of the High Court stand today the workers can always approach it by way of a company application for  appropriate orders  whenever they feel that their working  conditions are  adversely affected during the pendency of  the proceedings.  It is  not necessary that the workers or  the trade  unions should be impleaded as parties to  the  Company  Petition  enabling  them  to  contest  the winding-up  petition.   Their  presence  on  record  is  not necessary for  complete and  effectual adjudication  of  the winding-up  petition.   The  trade  unions  are,  therefore, neither necessary  nor  proper  parties  to  the  winding-up petition on  the facts and in the circumstances of this case including the  element of  public interest  involved in  any liquidation proceeding. Before concluding

 

it should  be stated  that it is not correct to  hold that the order of the High Court `smacks of elitism’ or  `sounds like  a relic  of feudal  age’ or is an `obnoxious’ 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 effected 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 is  always better  to  leave  such  matters  to  the  decision  of  the Legislature, instead  of the  court, sometimes by a majority of one assuming power to make a new law. It is  no doubt true that the view of the High Court is also in conformity with the view prevailing in England. That does not  mean that  the  High  Court  has  surrendered  its judgment to a foreign 988 practice, because  that is  the very  view  which  is  being followed till now in the Indian courts. We should not forget that the  very concept  of company  law is  foreign  to  our country. It  originated in Great Britain and our company law contained  in   successive  Acts   passed  by   the   Indian Legislature is modelled on British law and experience. There is a  large body of company jurisprudence which is common to all the  Commonwealth countries. There may, however, be some local changes  but the  pattern appears  to be  common.  The practice of  relying on  foreign decisions  whatever may  be their age only when they are in conformity with what we wish to hold  and of condemning them only on the ground that they are ancient  foreign decisions  when they do not accord with our views is not correct.

 

A foreign decision (even though it may not  be binding)  is either  worthy of acceptance or not depending upon  the reasons  contained in  it and not on its origin or age. There is no reason why we should not follow a well reasoned  foreign decision  unless it is opposed to our ethics, tradition and jurisprudence or otherwise unsuited to Indian conditions.  Can we say that the law of habeas corpus which has  found its way into India from England is bad only because it  came from  a foreign  country or  has an ancient origin ? The writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari referred to in Art. 32 and  Art. 226  of the  Constitution of India, the rule of promissory estoppel,  the principle  of audi  alterum partem and many  other principles  which are  applied by the Indian courts  are  all  of  foreign  origin.  Even  the  socialist principle is  not entirely of Indian origin. It is difficult to shut our eyes to realities of life. Moreover, it  is difficult       even though  it may  not be impossible to  administer the  company law  as it  is now in force in  India without  the aid of the principles laid down by some of the leading English cases like Salomon v. Salomon & Co.(1) laying down the principle of corporate personality, Ashbury Railway Carriage & Iron Co. v. Riche(2) dealing with the rule  of ultra  vires, Royal British Bank v. Turguand(3) laying down  the rule of `indoor management’, Hedley Byrne & Co. Ltd.  v. Heller & Partners Ltd.(4) which establishes the liability for negligent mis-statements in prospectuses, Foss v. 989 Harbottle(1)  and  Burland  v.  Earle(2)  dealing  with  the principle of  `the fraud  on a  minority’  and  Ebrahimi  v. Westbourne Galleries(3)  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.(4) rendered by Chandrachud,

 

C.J. shows the  importance of  foreign decisions in deciding case 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 an universal system of mercantile law and obedience to the conventions of the  International   Labour  Organisation   constitute   two important compulsions of modern international economic life. It may  be that the workers who are likely to be affected by the winding-up  need a  larger protection.  That can be done only by legislative action. This Court cannot, however, make any order which will conflict with the existing law. In the  result the       appeals fail  and are dismissed. No costs. BAHARUL ISLAM,  J. I  have carefully read the judgments prepared and  orders proposed  by my  Brothers Bhagwati  and Venkataramiah JJ.  I entirely  agree with  Bhagwati  J.  and regret my  inability to  agree  with  Venkataramiah  J.  Any provision of  any statute  has to  be interpreted keeping in view  the   letter  and  spirit  of  the  Constitution.  Any interpretation that is not in consonance with the letter and spirit of the Constitution is obnoxious and unacceptable. In the winding-up proceedings in question, the National Textile Workers’  Union filed  the petition  before the High Court with  a prayer  to  be  heard  before  any  order  for winding-up  was   passed.  The   reason  was   the  workers’ apprehension of  termination of  their services  in case  of winding up  of the  Company. It is true, there is no express provision in  the Companies Act giving the workers any right to be  heard in  a winding  up proceeding  before the Court. There  is   no  express  bar  either.  Learned  counsel  for Respondents Nos.  6 to  9, in support of his contention that the workers had no right to be 990 heard in  a winding  up proceeding, cited Halsbury’s Laws of England, volume  7 page  614 para  1028 (4th  Edition).

 

The learned author has stated the law on the subject thus : “Only the  petitioner, 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 at the first instance elects to hear them as amici curiae, they have no right of appeal.” This  statement  of  the  law  has       been  made  on  the authority  of   the  judgment  in  Bradford  Navigation  Co. rendered as early as 1870: (1970) 5 Ch. A, Page 600). Learned counsel  also cited  Palmer Company  Precedents (17th Edition)  Vol. 2,  page 77,  in which  the law  to the above effect  was stated. Learned counsel has submitted that the Company  Law in  India is the same as in the Company Law in England.  The law  cited may be good law for England with altogether a  different system of economy ; but is abhorrent 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 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 material  facts of  this case       have been set out in the judgment  of my  learned brother Bhagwati J. and also in the judgment  of my  learned brother  Venkataramiah, J.  The arguments advanced 991 from the  Bar have  been considered by both of them. It does not, therefore, become necessary for me to reproduce them in this judgment. Whether the employees of a Company in their capacity as employees can  claim as  a matter  of right to appear and be heard in a petition presented to court for the winding-up of the Company, is the question for decision in this case. The right       of an employee in his capacity as such to be heard in  a proceeding  for winding-up of a company has been canvassed as  a proposition  of law. The contention urged on behalf of  the trade  unions representing the workers of the company is  that whenever a petition is presented to a Court for the  winding up  of a  company,  the  employees  of  the company have  the right  to appear  and be heard in the said proceeding. The principal  argument advanced on behalf of the trade unions representing  the workers  is that the employees of a company are equal partners of the management of the company, if not  the more  important one, and the company, in view of the socio-economic  role it  plays and it has to play in the country, can  no longer  be considered  to be the concern of the members  of the  company. Further,  the argument is that the employees very materially contribute to the working of a company and  help the  company in  effectively  playing  its socio-economic role  and promoting the interests not only of the company, but also the larger interests of the nation and an order of winding up seriously affects the interest of the employees,  virtually   taking  away   the  means  of  their livelihood.

 

It  has been  submitted  that  as  an  order  of winding up of the company affects so seriously the interests of the  employees, the employees must have a say and must be heard in a proceeding for winding up before the Court. I have  earlier observed  that the       arguments  advanced from the  Bar on  behalf of the trade unions have been noted at length by my learned brothers Bhagwati and Venkataramiah, JJ. The  arguments no doubt express noble sentiments which I share ;  but, in my opinion, the arguments fail to establish that the  employees have a right to appear and be heard in a petition presented  to a  Court for  the  winding  up  of  a company. If  the right  is to  be conceded  to 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 992 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 living out of their  dealings   with  the   company  have  to  go  without occupation  and   have  to  face  disaster.

Persons  having existing contracts  with  the  company  are  also  seriously prejudiced when  an order  of winding  up of  the company is made. If the  test of  injury  and  adversely  affecting       the interests are considered to be sufficient to entitle a party to a  hearing in  a proceeding  on the footing that they are persons aggrieved,  no suit for dissolution of a partnership can also  be decided without impleading the employees of the firm and  various other  parties having trade relations with the firm,  as the  dissolution of  a firm  may prejudicially affect the  interests of  the employees or the various other persons dealing with the firm. It has  to be  borne in mind that a company can only be wound up  in accordance  with the  provisions of  the Indian Companies Act.  The right  to have  a company  wound up is a right created  by the  Statute.  The  entire  proceeding  in relation to  the winding up of a company is regulated by the statute,  namely,  the  Indian  Companies  Act  (hereinafter referred to  as the Act) and the procedure to be followed is further supplemented  by the  provisions  contained  in  the rules made  under the  Act known  as the  Companies  (Court) Rules, 1959 (hereinafter referred to as the Rules).

 

The various  modes of  winding up of the company, under what circumstances  a company  may be  wound up by Court and who are the persons competent to present a petition to Court for the  winding up  of the  company and who are the persons entitled to 993 be heard on such a petition, are provided for in the Act and in the Rules. It has to be borne in mind that apart from the right of the Court  to order  the winding  up  of  a  company  in  an appropriate case,  the Act  recognises that a company may go into liquidation  without any  intervention by the Court and also under  the supervision of Court, provided the necessary conditions laid  down in the Act in this regard are complied with.  Where  the  Company  goes  into  liquidation  without reference to  court or  under the  supervision of the Court, the employees  of the company who have to meet the same fate of losing their employment, as and when the company is wound up by  the Court, do not and cannot have any voice or say in the procedure  to be  adopted for  the  liquidation  of  the company. In the  case of winding up of any company by Court, the parties who can move the Court 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 winding up of the  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 in such a case for assisting the Court in deciding the matter. My learned       brother Venkataramiah,  J. has  referred to the various  provisions of  the Act  and  also  to  relevant Rules, which  go to  indicate that  no  such  right  of  the employees  to   appear  and  participate  in  a  winding  up proceeding is  recognised. Rule  34 of  the Rules  on  which strong reliance was placed by the learned counsel 994 appearing on  behalf of  the trade  unions, is  not  of  any assistance. The said Rule reads as follows:-

 

“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 same 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.” This particular  Rule appears in Part I and in Part I of the Rules, general provisions are made. This Rule only lays down the procedure to be followed by any person who intends to be heard at  the hearing  of a  petition, whether to support or oppose the  petition, and  this Rule  does not deal with the competence or  right of  any particular  person to appear at the hearing  of any  petition nor  does this rule create any right in  any person.  Part III  of the Rules makes specific provisions with  regard to  winding up  by Court. Rule 9B in Part III reads:- “Every contributory  or creditor  of    the  company shall be  entitled to be furnished by the petitioner or by his  advocate with  a copy of the petition within 24 hours of  his requiring  the same       on  payment  of  the prescribed charges.

 

” For properly  and effectively adjudicating upon any winding- up petition,  the parties  must necessarily know the grounds 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 9B 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 995 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 S.  417 of the Act. The Act also makes suitable provision in Section 418 about Provident Funds of Employees. Necessary provisions for preferential payment of wages or salary of an employee in  case of  winding-up of a company have been made in Section  530  of  the  Act.  For  safeguarding  what  the Legislature considers to be public interest, the Legislature in various  sections of the Act has made suitable provisions casting  various  obligations  on  the  company  with  penal consequences and has conferred powers on the Government. The introduction  of Art. 43A in the Constitution which reads-“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 organisations engaged  in any  industry”-does not affect the position in  any way.  Participation in  the management of a company does  not by  itself create  any right  in any  such person to  appear and  be heard  in a  winding-up  petition.

Unless otherwise named personally as a party to a winding-up petition, no  person merely on the ground that he happens to be in  the management of the company is entitled as a matter of right  to appear and be heard in a winding-up proceeding. Persons in  management of  the company  may, if  they are so authorised,  appear   and  participate   in  a   winding  up proceeding on  behalf of  the company  and representing  the company. They  will, however,  be entitled to appear if they are members  or creditors of the company in such capacities, but not  as members  of the  management.  A  director  of  a company must  of necessity  be a  member of  the company, as provided in the Act. 996 It is worth mentioning that the Indian Companies Act is based on the English Companies Act and both the Acts contain more or  less similar  provisions.  The  provisions  of  the Indian Companies  Act with  regard to  the winding-up of the Company are  almost alike to the provisions contained in the English Companies Act. As early as 1870 the English Court in Re: Bradford  Navigation Co.(1)  held on  a consideration of the provision  of the English Act that no person had a right to be  heard against  a petition for winding-up of a company except creditors  and contributories.  It is  no doubt  true that this decision, still holds good and is considered to be good  law,   as  will   be  evident  from  the  comments  in authoritative text  books on the subject. In Halsbury’s Laws of England  (4th Edn.), Vol. VII at p. 614, 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  curiea, they have no  right of  appeal.” In  Palmer’s Company  Precedents (7th 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. (supra), the  following comments have been made at p. 546 in Buckley on the Companies Act, 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 amici curiae, and cannot appeal.” Various legislations for the benefit and welfare of the employees have  since been passed in England and the Company Act in England also did undergo various changes from time to time. The  employees of a company in England are affected in the same way as the employees of a company in India when an 997 order for  winding up  of the  company is made. It cannot be said that  workers in  England are  not conscious  of  their status and  position and  of the important role they play in the proper functioning of a company and in England there are also  the   trade  unions  of  the  workers  for  defending, protecting and  improving the  conditions and  rights of the workers. Despite  all these, the right of an employee or any trade union  representing the  workers to participate and be heard in a winding-up petition is not recognised in England.

 

I have  to observe that Mr. Ramamurthi, learned counsel appearing for  one of  the trade  unions,  has  placed  very strong reliance  on the following observations of this Court in the  case of  Hind Overseas  Private Limited v. Raghunath Prasad Jhunjhunwala and Ors.(1):- “Although the    Indian Companies Act is modelled on the English Companies Act, the Indian Law is developing on its  own lines.       Our law  is also making significant progress of  its own  as and  when necessary. Where the words used in both the Acts are identical, the English decisions may  throw good       light  and  reasons  may  be persuasive. But  as the Privy Council observed long ago in Ramanandi Kuer v. Kalawati Kuer(2).

It has  often been  pointed out by this Board that where  there is    a positive  enactment of the Indian  Legislature,  the  proper  course  is  to examine  the  language  of  that  statute  and  to ascertain its    proper meaning  uninfluenced by any consideration derived from the  previous state of the law  or of  the English  Law upon which it may have been founded. If it was true in the twenties it is more apposite now that the background conditions and circumstances of the Indian society, the  needs and requirements of our country call  for a  somewhat different  treatment.  We will have to adjust  and adapt,  limit or  extend, the principles derived 998 from English  decisions, entitled as they are to great respect, suiting  the conditions of our society and the country in   general always,  however, with  one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles  of directors of powerful groups for power to manage the company.” These observations,  to my  mind, are  of no  assistance  in deciding  the   question  involved  in  this  appeal.  These observations  were   made  in   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 unifluenced 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 such  right. It is interesting to note that though in  this country also the provisions of the Companies Act have  undergone various  changes from  time to  time and various enactments  for the welfare of the workers have been passed from time to time, the Legislature in our country did not consider  it proper or necessary to amend the provisions of the  Indian Companies Act to confer any such right on the workers. I, however,  wish to  make it  clear that although  an employee of  a company  as an  employee of  a company cannot claim to appear and be heard in a petition for winding-up of the company  as a  matter of  right, yet  in any appropriate case the  Court in  a winding-up  proceeding may  require or permit any  employee to  appear at any stage of a winding-up proceeding and hear him, if the Court be of the opinion that the employee or the employees should be heard in 999 the interests  of administration  of justice  and for proper disposal of  any matter.  It appears that in this very case, the Court  at an  earlier stage  of the  proceeding had,  in fact,  heard   the  employees   and  redressed   their  just grievance. With these observations I agree with the order proposed by my learned brother Venkataramiah, J. H.L.C.

Appeals allowed. 1000

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