ORDER
1. “Bury the employer” is a rather unusual and ungrateful prayer made by the petitioner Union in the present petition for winding up of the respondent company, the employer of the employees under it. The union appears to be bent upon to prepare a coffin for ceremonious burial of the company in the interest of the other creditors at large. No serious efforts to revive the industrial activities of the company appear to have been made either by the Board of Directors or by the employees and the union. It is to the contrary that the Union is seeking to get the company finally wound up under sections 433, 434 and 439 of the Companies Act, 1956. The Union has sought this relief (?) on the ground that the Company has failed and neglected and is unable to pay to the 77 employees their alleged claim computed by the Union in the particulars of claim (Exh. G) to the tune of Rs. 4,58,47,598-74 comprising of wages for December 1999, 30 days gratuity, 30 days compensation, leave wages, wages and dearness allowance.
2. The respondent company has filed affidavit in reply of its Managing Director disputing the whole claim and contentions of the Union. It has contended that the activities of the company were stopped in or about April 1994 and that the Company was closed. It has challenged the claim of the Union for wages till December, 1999 as the employees had not done any work and that they were gainfully employed elsewhere. It has also questioned legality of the other items and their factual correctness. It has mainly contended that the employees and the Union have alternative remedies under various labour laws i.e. the Industrial Disputes Act, 1947, the Payment of Gratuity Act, 1971 etc. and that the Union has already filed one complaint of uufair labour practice under the provisions of the M.R.T.U. and PULP Act, 1971 on behalf of some of the employees and the same is pending for final disposal before the Industrial Court, Maharashtra, at Mumbai. The company has further pointed out that out of total 145 employees 30 had sought voluntary retirement and thereafter out of 115, 59 had settled with the company leaving 56 employees and finally it has contended that they are not entitled to full wages till December, 1999 and that the other claims computed by the Union in its Exh. 6 are illegal, baseless and erroneous and that the company is not liable to pay the alleged claim as “a debt” which is bona fide under dispute.
3. The company has also seriously contended the maintainability of such winding up petition by a union which has no lawful locus to file a petition under Section 439 of the Companies Act, 1956 read with Sections 433 and 434.
4. I have carefully gone through the pleadings and I have heard both the learned Advocates for their parties. I may state at the outset that my efforts to bring about an amicable settlement of dues of the 56 employees did not bear any fruits as Shri Shaikh the learned advocate for the Union continued to insist for full wages till May 2001 as their services were not terminated and therefore, according to him all the terminal dues should be computed till that date. Obviously the company did not agree with the said huge demands. However, the company has deposited a sum of Rs. 17,62,5007- payable to the 19 of the employees who had accepted the VRS but were not paid their dues. This figure is worked out before the learned Mediator, Shri Justice D.R. Dhanuka. The company has no objection if the said amount is allowed to be withdrawn by the said employees and I have accordingly ordered. This amount includes interest on the actual VRS amount payable, upto May 2001. Fair enough ! The company was agreeable to extend the same benefits to the remaining 56 employees on par with the 19 but it was not agreeable to the Union.
5. I have concentrated on the principal points of pleadings of the parties and have avoided minor points and details which form part of the record and can be referred if need be.
6. Shri Rohit Kapadia, the learned Sr. Counsel for the Company has questioned the locus of the petitioner Union and also the maintainability of the Petition on other points, viz. debt/claim is not ascertained and correctly computed according to the provisions of the I.D. Act, 1947 and the Payment of Gratuity Act, 1971 and the terms of the Settlements governing the service conditions of the employees. Shri Kapadia has further submitted that the alleged claims will have to be properly determined and computed in accordance with law by the appropriate forum specifically created for such purpose. According to the learned Counsel there are major miscalculations in the chart of the claims prepared by the Union and that the Company Court cannot undertake such onerous exercise to compute the correct legal dues of the concerned employees. He has further pointed out that the company has already challenged the decisions of the BIFR/AIPR recommending winding up of the company under Article 226 of the Constitution of India and is awaiting the hearing of its Writ Petition before this Court. Shri Kapadia further submits that it has paid and satisfied all its creditors and by November, 200] the Bank debt to the tune of Rs. 1 crore 40 lakhs would be paid. He has also pointed out that no creditor has filed a winding up petition. According to him it is not that the company is “unable” to pay its debt. He reiterates that his clients have already deposited the admitted dues of the VRS employees and the company was further ready and willing to pay to the remaining 56 employees on par with the 19 VRS employees. Shri Kapadia has relied on the judgment of the Supreme Court on the point of locus of a Union to file a winding petition under the provisions of the Companies Act, 1956, , National Textile Workers Union etc. v. P.R. Ramkrishnan and Ors. As far as the ratio of this judgment is concerned Shri Shaikh the learned advocate for the petitioner Union does not have any quarrel. He however, submits that the Union represents the unpaid employees of the Company collectively and therefore, it can file such a petition on behalf of the unpaid employees who form a class of unpaid creditors under Section 434 of the
Companies Act, 1956. Before I deal with this submission it would be appropriate to reproduce para 7 of the Judgment of the Supreme Court (supra) which answers the contention on behalf of the petitioner-Union.:
7. 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 in a winding up petition, no such right can be spelt out in their favour outside the provisions of that Act. Respondents Nos. 6 to 9 relied upon various provisions of the Companies Act, 1956 in support of their contention that the workers have no locus in a winding up petition but we do not think these provisions lend any support of that contention. The first provision relied upon by respondents Nos. 6 to 9 was Section 439 which inter alia provides as to who shall be entitled to make an application for 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 respondents 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 authorized to do so under Section 439 of 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 respondents 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 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 or a winding up order. There can be little doubt that the object of winding up being to release 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 sections 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560. These provisions apply at a stage after a winding up order is made by the Court or the voluntary winding up has commenced or an order is made for 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 for 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 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 authorized 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 on a petition for winding up would therefore almost certainly 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 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 Stale of Orissa v. Dr. Bina Pani, and Maneka Gandhi v. Union of India, 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 whether the proceeding in which it is passed is a quasi-judicial or an administrative proceeding. The audi alterant partem rule which mandates that no one shall be condemned unheard is one of the basis 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 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. 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 petition and participating in it, the workers must be held entitled to appear and be heard in the winding up petition. That is the minimum requirement of the principle of audi alteram partem which cannot be ignored save on pain of invalidation of the order of winding up. Here we do not find any provision in the Companies Act, 1956 which in so many terms excludes the workers from appearing at the hearing of the winding up petition with a view to supporting or opposing it and the only ground on which the right of the workers to appear and be heard in the winding up petition is disputed is that there is no specific provision in the Act entitling them to do so and the right to apply for winding up as also to participate in the proceedings in the course of winding up is conferred only on the creditors and the contributories. But, we have pointed out 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 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.” (emphasis is given by me)
7. It is therefore, crystal clear that “the workers have no right to prefer a petition for winding up of a company”. If that is so, I fail to understand how a Union can present such a petition claiming to represent a class of unpaid employees” collectively as creditors of the company.
8. Apart from the fact that the present trade union movement is under an imminent threat of slipping down in the hands of the underworld dons and sundry muscle power of localities who would abuse such right to wind up companies to blackmail, terrorise and threaten the employers to destroy the industries and even muffle any dissent from a reasonable section of the working class, a trade union cannot certainly be called a creditor to be able to file a winding up petition under Section 439 of the Act. I must however say to the credit of the petitioner Union that there is no allegation that it is not carrying on its trade union activities, bona fide. However, speaking generally it would be most hazardous to the industries and equally dangerous to the employers and the labour even to think of conceding such a right to any trade unions which function under one “leader” or “boss” who controls and dictates the members. These provisions of the Act have far reaching effects and repercussion as they threaten economic death of the companies and therefore, they will have to be very strictly construed not to expand the scope to bring in its fold the parties as creditors which were never intended even remotely by the legislature. Though there is a grain of truth in the submission of Shri Shaikh that an employee who is not paid his legal or statutory dues would be a creditor I cannot judicially dare to read an unpaid employee as a creditor in the provisions of the Company Law. One employee is enough to bring about disaster in the industrial sphere if he is allowed to maintain a winding up petition as a creditor. There is another stronger reason for not treating a Union and unpaid workmen/employees as creditors of a company to enable them to maintain a winding up petition and that is the efficacious and legitimate remedy provided by the Central and the State Legislatures for recovery of their dues. There are 4 main enactments arming the Unions and the employees to recover their dues from their employers, viz. The Industrial Disputes Act, 1947 The Payment of Wages Act, 1936, The Payment of Gratuity Act, 1971 and The State Acts, viz. The Bombay Industrial Relations Act, 1946 and the M.R.T.U. & P.U.L.P. Act, 1971. There are other special enactments which are self contained codes providing for remedies for recovery of dues, such as ESI Act, 1950, E.P.F. Act, 1952, Workmen’s Compensation Act, 1926. These enactments have created special machinery to deal with the disputes and the claims of the employees as expeditiously as possible free from the unnecessary and avoidable procedural shackles of the civil litigation. In the presence of expeditious and special remedy it would be absolutely unreasonable to allow a Union and/or unpaid employees to abuse the process of the Companies Act.
9. The petitioner Union has, indeed, abused the process of the Companies Act by filing the present petition for winding up of the company. The union has already resorted to such remedy under the M.R.T.U. and P.U.L.P. Act, 1971. Its complaint of Unfair Labour Practice is already pending before the Industrial Court. Having already resorted to the labour law remedy it is not open to the Union to file the present Petition. It is pertinent to note that no other legitimate creditor has sought winding up orders of the company and that they have been paid and are being paid and further the company has paid full dues of one set of workers and is willing to pay to the rest of the others. In my opinion this petition is ex facie unreasonable and oppressive. The union could have and it ought to have legitimately pursued the efficacious remedy under the labour enactments specifically intended to safeguard and protect the interest of the working class. I fail to understand why the complaint (ULP) No. 481/1994 filed by the Union is still pending and why the Industrial Court has still not been able to dispose of. It may be that the company might have put forward its plea of being before the B.I.F.R./A.LF.R. Those proceedings are now over and the Industrial Court should proceed to dispose it of as expeditiously as possible, hopefully within a period of four months i.e. before the end of 2001.
10. In my opinion the claims in Exh. G will have to be based on tangible basis of law and not on the basis of wishful thinking of the Union. Tp wit, I fail to understand how and on what lawful basis claims for gratuity and compensation are made in the said Exh. G. There is no whisper in the whole petition to support such claims. Even assuming every law- point in favour of the Union, the total baselessness and vagueness of the claims of the alleged debt against company would go in favour of the company which has bona fide disputed the alleged debts. A glance at the Exh. G would leave no manner of doubt that the alleged claims are just figments of imagination creating false hopes in the minds of the employees.
11. The law on the point of maintainability of a winding up petition is very well settled by the Supreme Court by now, when a legitimate alternative remedy is available to recover the debt. The Supreme Court has held as under in the judgment of Hind Overseas Private Limited v. Kaghunath Prasad Jhunjhunwala and Anr., .
36. Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latter provision where the petition is presented on the ground that it is just and equitable that the company should be wound up the Court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioner’s and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
37. Again under Sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief under Section 433(f) based on the just and equitable Clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company.
And further the Supreme Court in the case of Pradeshiya Industrial and Investment Corporation of U. P. v. North India Petrochemicals Ltd. and Anr., , has held as under :
29. It is beyond dispute that the machinery for winding up will be allowed to be utilised merely as a means for realising its debts due from a Company. In Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami this Court quoted with approval the following passage from Buckley on the Companies Acts, (13th Edn. P. 451):
“It is well settled that a winding up petition is not a legitimate
means of seeking to enforce payment of the debt which is bona
fide disputed by the company. A petition presented ostensibly for
a winding up order but really to exercise pressure will be
dismissed, and under circumstances may be stigmatised as a
scandalous abuse of the process of the Court.”
30. Examined in the light of the above, we are unable to uphold the judgment of the Courts below on the facts narrated above. Our reasons are as under:–
1. The basis of the claim of the first respondent for Rs. 72.50 lakhs is the promoters agreement dated July 1, 1988. This agreement has been cancelled by the appellant by notice dated October 31, 1992. Though the learned Single Judge of the High Court referred to this aspect he had not pursued it further. He has not considered as to what would be the consequence. Unfortunately, the Division Bench has overlooked this aspect when it held thus :
“In the present case, there is an allegation in the petition that there was an agreement between the Company and Dalmia Dairy Industries for promoting the petitioner Company and that under the terms of that agreement the Company had to pay certain amounts. There is nothing on record to suggest that such an agreement was not entered into.”
2. The first respondent is not a creditor. The appellant is not a debtor because it is a financial institution for an amount which is agreed to be subscribed, neither the learned Single Judge nor the Division Bench has decided this important question whether there is a debt and the company has either neglected or is unable to pay. .
3. The same claim is the subject matter of arbitration which is pending adjudication. Therefore, there is no definiteness about it.
4. In view of all these, there is no prima facie dispute as to the debt.
5. The defence raised is a substantial one and not more moonshine. We find it difficult to appreciate the reasoning of the learned Single Judge when he holds that there are arguable issues and, therefore, the winding up petition has to be admitted. On this aspect the Courts below failed to note that the admission of the winding up petition is fraught with serious consequence as far as the appellant is concerned.
Section 443(2) which reads as under has clinched the point.
443(2) Where the. petition is presented on the ground that it is just and equitable that the company should be wound up, the Court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
12. Malice, ulterior motives, trade union rivalry and unscrupulous trade union leaders getting set up by the rivals in the trade and industry cannot be ruled out in the present days when the tribe of honest dedicated trade union leaders is getting vanished. By construing Section 439 neither the trade unions nor the employees, even if unpaid, can be added as a class of creditors to exercise the right to file petition for winding up a company. It would prove to be an additional weapon in the hands of unscrupulous to terrorise the employers who refuse to yield to any unreasonable, unjust and illegal demands by them. These provisions even for genuine creditors are called as “vehicle of oppression” to pressurise the debtor-companies. No trade union leader can be allowed to sit on the steering wheel of this vehicle of oppression by stretching the definition of a creditor.
13. Shri Kapadia under instructions from his clients has offered to make payments to the 56 employees as shown in the table which is taken on record for ready reference marked as Exh. X. The computations indicate that the employees would be paid their legal dues and 50% back wages till May 2001 to the tune of Rs. 1,28,11,793/-. In my opinion this was the best offer made by the company. Unfortunately the union has rejected this offer for the reasons best known to its leader. It would still be open for the employees enmass to approach the Company to accept the amount in full and final settlements of their dispute or continue to grope in the uncertain and litigative corners until for the end of the coming decade.
14. I have fully demonstrated hereinabove that the petitioner Union and the employees have legitimate and more efficacious remedy under the labour laws for recovery of their legal dues from the Company. In these circumstances the company petition cannot be entertained and the same is dismissed. I spare the Union from Cost.