River steam navigation co. ltd. In. re (1967) 2 comp. LJ 106

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Facts

Rivers Steam Navigation Company Limited, the petitioner, requested that this court sanction a compromise or arrangement that would be binding on all of the company’s members, secured creditors, and unsecured creditors, as well as orders that all of the company’s properties and assets be transferred and vest in the new company, free of mortgages and charges.

Issue

The State Bank also alleged to be a borrower of the firm, filing a lawsuit in this court to recover Rs. The Indian government borrowed and advanced huge amounts of money from time to time, totaling Rs. 1.6 crores, and filed a lawsuit against the corporation. 1 crore in 1961, with an additional amount of Rs. The company began operating a river transportation service between Calcutta and Assam. The Chartered Bank continued to be the company’s creditor to the tune of Rs. In both West Bengal and Assam, the company hired a substantial number of employees and laborers. In the month of December 1958, he received Rs. 30 lakhs and another amount of money totaling Rs. Following the end of hostilities with Pakistan, it was assumed that service from East Pakistan could be resumed. Because of the value of the company’s revenue, the Government of India has purchased numerous shares in the company since 1965.

A petition for dissolution was filed on June 21, 1966. The admission of the winding-up application resulted in the publication of advertisements.

According to the lawsuit, the company’s winding-up would result in the layoff of a considerable number of employees. The company’s entire properties were discovered to be mortgaged, paid, or hypothecated. According to reports, the new corporation intends to hire the bulk of the former workforce on terms and conditions that are favorable to the new company. According to the petition, the firm was facing a huge loss year after year, particularly because of significant liabilities related to previous borrowings. In this sense, the Indian government agreed to establish a new rupee corporation to take over the company’s loans, which were backed and protected by the company’s properties and assets. The upkeep of river transportation in Assam and West Bengal is said to be a logistical imperative and of national significance, despite the fact that it might be unprofitable purely from a commercial standpoint.

The arrangement was presented to the members, guaranteed creditors, and unsecured creditors at a conference. If unsecured creditors who voted in favor of the arrangement had a worth of Rs. 5,000, they would be paying the entire sum owed upon the scheme’s approval, whilst the others would be paid Rs. The new corporation would hire as many of the original company’s personnel and employees as it deemed acceptable and appropriate for its operations, under whatever terms and conditions it deemed appropriate. The meeting’s outcome was announced by the chairman, and the declaration was filed on February 17th, 1967. A provision was then included that allows the system to be added to, altered, varied, or modified in response to court orders. in installments, of the amount of their dues as seen in the company’s statements of account. The members’ gross worth was sterling 7,27,325-0-0. ‘The’ The new corporation would pay the Chartered Bank the money owed, and the Chartered Bank’s lawsuit would be diminished. The worth of the creditors who came to the meeting was. The current company’s other creditors, which included unsecured creditors other than the State Bank of India, the Chartered Bank, the Government of India, and the creditors, had to be charged Rs. 5,000 or, if the sum owed to them was less than Rs. 5,000, the amount due to them was to be paid. Following the court’s acceptance of the arrangement, the former corporation would be closed and all creditors would be paid, and the current business would be disbanded without winding up in accordance with the court’s decision.

Arguments

Mahindra Chandra Chakra arty, Assistant Secretary of the Inland Steam Navigation Workers’ Union, filed an affidavit in opposition. On the one side, there was an arrangement dated August 25, 1965, between the Rivers Steam Navigation Co. Limited and the current company’s workers, who were served by the Inland Steam Navigation Workers’ Union. He said in the affidavit that he was specifically authorized to render the affidavit on behalf of employers through a power of attorney. will be dissolved without being wound up, based on an order from this court. There are a few features in the affidavit that must be listed. The deponent has stated that if the court approves the arrangement, the Rivers Steam Navigation Company Limited will be closed and all dues of all workers will be paid in full. The deponent recommended in paragraphs 11 and 12 of the affidavit that two clauses be inserted in the structure and that the scheme be changed or adjusted as stated by the deponent. On March 6, 1967, the affidavit was confirmed. For starters, it was said that approving the arrangement would jeopardize the rights of hundreds of workers as creditors, whose rights would have been prioritized if the winding up had gone ahead. In the second place, the deponent argued that the corporation should make arrangements for the payment of all dues to the company’s workers under the terms of the Industrial Disputes Act and the agreement dated August 25, 1955. The deponent went on to say that substantial amounts of money were owed to the employees on account of dues under an award dated October 8, 1963, the legality of which the corporation had questioned in the Supreme Court.

The following are some of the provisions of the settlement: To begin with, the retirement age will be lowered to 57 years. Fourth, for five years from the date of the arrangement, i.e., until December 31, 1969, there will be no retrenchment of clerical workers at Calcutta Ghats, except if moved to some other business institution. Employees, bosses, and the conciliation officer all signed this document. The deal also had a provision indicating the number of people who will retire. The agreement dated August 25, 1965, to which the deponent referred in his affidavit can be found on pages 109 to 112 of the paper book.

In the affidavit-in-reply, the company’s counsel emphasizes three issues. There is an affidavit-in-reply, which can be located on page 195, and the relevant paragraphs about the affidavit-in-reply can be found starting at paragraph 40. First, the plan was not meant to influence workers and, regardless of the scheme, those employees would receive full reimbursement of their lawful dues before the company was wound up. Third, the workers were not allowed to attend the conference, according to paragraph 48 of the affidavit-in-reply, since no compromise or negotiation with them was ever intended.

The schemes contemplated by Section 391 of the Companies Act do not extend to any scheme involving two government-owned companies. Fourth, the clauses of Sections 391 and 394 of the Companies Act do not apply in this situation since it was neither an amalgamation nor a reconstruction, but only a transition to a successor corporation. Counsel for the appellants made four contentions based on these facts: first, that the employers are borrowers, and that if a worker is a borrower and is not represented at the conference, it violates Section 391 of the Companies Act, and therefore the arrangement is evil.

The appellant’s counsel relied on paragraphs 3, 4, and 5 of the letter, which can be found on page 119. It can be noted that this figure does not exist in the affidavit documentation and was provided by appellants’ counsel as a request. Counsel for the appellants has stated that the employers’ point does seem to be of significant significance, with a value of about Rs. Second, it was stated that those who retired under the Tripartite Agreement of August 25, 1965 would have their dues settled by February 25, 1967. Clause 5(III) applied to clerical workers being able to resign early and receive full provident fund compensation, including regular gratuity and ex gratia grants worth two and a half months’ salary. The sum is 75 lakhs. Third, it was stated that an appeal was pending in the Supreme Court regarding other points in the letter, namely, dues under the Special Tribunal’s award and dues under the terms of the Tribunal Award of 1949, and that a final decision would be made after the final determination of the proceedings. As a result, counsel for the appellants argued that there was sufficient evidence to hold that the workmen were creditors, but that they were not allowed to participate in the meeting and that no notice was given to them, and that on January 30, 1967, when the matter was mentioned on behalf of the workmen and they requested proxies, they were denied any proxy.

Summary of the judgment and decision

The educated judge amended the scheme by adding three clauses in paragraph 7 which will appear on page 270 of the paper book, at the request of the parties appearing, as can be seen on page 260 of the decision and page 269 of the order. The following is the three changes:

a) Contrary to any legitimate objections to any actual employee or workers, the new firm shall take as many of the current labor workforce as can be fairly taken up by said transferee company. 

b) It is left to the said transferee company’s bona fide judgment as to precisely how many can be hired.

c) Those workers who are unable to be taken over shall be compensated by the transferor corporation all moneys owed to them under the constitution, as well as all permissible and lawful compensations payable to them under the Industrial Disputes Act or else legally admissible, and that such moneys shall be given by the Government of India to an established transferor company that will pay these dues.

To demonstrate the conditions and reasoning that led to the alteration, it is appropriate to appeal to those conclusions made by the learned judge.

First, the learned judge stated on page 223 of the judgment that the main concern was that, because the company was really transferring all of its property and assets to the new company, Central Inland Water Transport Corporation Limited, the workers and employees must have some kind of sensible and fair protection of their rights, either to keep as many as possible in the company or to terminate as many as possible.

“The new company will hire as many of the original company’s personnel and employees as it deems acceptable and sufficient for its operations, on terms and conditions determined by the new company.” Employees of the original company that are not replaced by the new company will be paying money due and payable to them under the statute by the existing company. Sen gave the following promise in court:

The Government of India decides to pay the secured and unsecured creditors the amounts owed, as specified in the scheme proposed in the Rivers Steam Navigation Company Limited’s petition.

The Government of India will provide the funds required for the new Central Inland Water Transport Corporation Limited to pay the Chartered Bank of India the sum specified in the scheme for settlement.

This promise was repeated during the appeal hearing, and it is hoped that it would be respected and honored.

In light of this guarantee, the learned judge noted on page 224 of the judgment that the public and national interest, as well as the interests of labor and workers, require the creation of a scheme to sort out the equities between various parties. The learned judge addressed the labor’s arguments, noting on page 250 of the paper book that the scheme, compromise, or arrangement with creditors or members obviously made it difficult for the company to carry on its normal business in a normal manner, and that, as a result, it could not be said as a matter of law that such a scheme would have little effect or impact. The scheme should be approved, and the scheme should be changed by making a provision whereby the new business will hire all employees and personnel of the current company in the Assam establishment on the basis of continuous operation transition to the new company, according to paragraphs 11 and 17 of Nalini Kanta Sarma’s affidavit. 

In the other hand, counsel representing the appellant argued that the resolution in this case, dated August 25, 1965, was a compromise within the scope of Section 2 of the Industrial Disputes Act, and that such a settlement must have a contractual character and could not be taken away by the scheme or affected by the scheme. Settlement, as specified in Section 2(p) of the Industrial Disputes Act, 1947, is a written arrangement between the employer and workers reached outside of a conciliation process and signed in the manner prescribed by the parties.

Counsel for the appellant placed reliance on this decision in order to contend that the agreement or settlement dated 25th August, 1965, would be binding not only on the Rivers Steam Navigation Company Limited but also on the new company which was formed and which became a party to the scheme.


Counsel for the respondent, on the other hand, contended that an agreement or settlement might be binding under Section 18 of the Industrial Disputes Act but its binding character was not that it would prevail over the provisions of the Companies Act in the sense that the agreement would be superior to other statutes. At page 253 of the paper book it was observed in the judgment as follows : ” It is not a question of proposed retrenchment of the staff of the Ghat establishment but in effect to really close down the company as a whole and to transfer its assets and liabilities to a new company set up by the Government of India,” The further observation at page 254 of the paper book is as follows: “The real point of merit, however, on this point so far as the Government is concerned, is that the agreement with the Ghat staff has now become incapable of implementation as a result of the Indo-Pakistan hostilities and the consequent closure of the company and that the notice of intention to close the establishment was given to the concerned Union nearly a year ago.” The further observation in the judgment at page 254 of the paper book is as follows : ” If the company and its business cease to exist due to circumstances beyond its control, it will be illogical and incomprehensible to say or hold that an agreement between such a company which cannot exist any more except by transferring all its assets and liabilities to a new transferee company must still bind the transferee who as a part of its liabilities must carry the burden of the agreement between that transferor company and its workmen made under circumstances which are now so totally changed that the whole substratum of the transferor company with whom the agreement was made, is completely gone. 

Analysis and conclusion

I am of opinion that the questions, first, whether there is a closure of the company within the meaning of the Industrial Disputes Act, secondly, whether the agreement dated 25th August, 1965, is capable of enforcement, thirdly, whether the workers or workmen are entitled to prefer and assert their claims on the agreement dated 25th August, 1965, and fourthly, whether the Rivers Steam Navigation Company Limited and the new transferee company are entitled to assert that there has been a closure and further that the agreement is not capable of enforcement should all be left open for the rival contentions to be pursued in the proper form and on proper materials and in the proper jurisdiction.

The third contention on behalf of the appellant was that the provisions contained in Section 391 of the Companies Act were not available to a Government company. In Section 617, it is indicated that Government company means any company in which not less than fifty-one percent of the paid up share capital is held by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary of a Government company as defined. Section 620 of the Companies Act indicates that the Government may, by notification, direct that any of the provisions of the Companies Act, other than Sections 618, 619 and 619A, specified in the notification shall not apply to any Government company or shall apply to any Government company only with such exceptions, modifications and adaptations as may be specified in the notification. To suggest that a Government company will be deprived of the right conferred by Section 391 of the Companies Act is to denude the provisions of the Companies Act of their content and character and to deprive the Government company of the rights under the statute. If the Government company is entitled to take recourse to the Companies Act, I do not see any reason as to why it should be described as a sham just because it is a Government company.


The fourth contention on behalf of the appellants was that the provisions of Section 394 of the Companies Act were not applied in the present case. It was said that, Section 394 would indicate that where an application is made to the court under Section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section and it is shown to the court that the compromise or arrangement has been proposed for the purpose or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies and under the scheme the whole or any part of the undertaking, property or liabilities of the scheme is “to be transferred, the court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all matters mentioned therein.  It has to be found out from the scheme read as a whole whether it is a case of reconstruction or whether it is a case of amalgamation. In the present case, the entire affidavit evidence as also the way the petition was presented and the manner in which the scheme has been sanctioned prove beyond any measure of doubt that it is a case of reconstruction.” Whether the words “the existing company shall be closed” mean that there is a closure of the company within the contemplation and meaning of the Industrial Disputes Act is left open. Counsel for the respondents invited our attention to the fact that some dates appear in the scheme.

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