CASE NO.: Appeal (civil) 6217 of 1999 PETITIONER: STATE OF U.P. and ANR. RESPONDENT: UPTRON EMPLOYEES' UNION CMD-I and ORS. DATE OF JUDGMENT: 26/04/2006 BENCH: B.P. SINGH & ALTAMAS KABIR JUDGMENT:
JUDGMENT
B.P. SINGH, J.
The State of Uttar Pradesh is the appellant in these appeals Civil Appeal
No. 6176/1999 has been preferred against the order of the Board of
Industrial and Financial Reconstruction (hereinafter referred to as the
“BIFR”) dated 28.8.1998 whereby it directed the State of Uttar Pradesh to
make on account payment to the workers towards their wages for the period
June, 1998 on wards on humanitarian grounds. Civil Appeal Nos.
6171-6172/1999 has been preferred against the order of the High Court of
Delhi whereby the writ petition preferred by the State of Uttar Pradesh
against the order of BIFR dated 27.8.1997, as affirmed by the Appellate
Authority vide its order dated 6.5.1998, was rejected. Civil Appeal No.
6217/1999 has been preferred against the interim order of the High Court of
Judicature at Allahabad, Bench at Lucknow dated 23.12.1998 directing the
State of Uttar Pradesh to pay salary to the workers of M/s. UPTRON, as
directed by the BIFR till the State Government takes final decision in the
matter relating to revival/rehabilitation proposal made by it.
A few facts which are relevant may be noticed at the threshold. M/s. UPTRON
is a company incorporated under the Companies Act, 1956 and is a subsidiary
of U.P. Electronics Corporation, a company wholly owned and controlled by
the State of Uttar Pradesh. UPTRON became a sick industry since its net
worth became negative and, therefore, a Reference was made under Section 15
of The Sick Industrial Companies (Special Provisions) Act, 1985
(hereinafter referred to as “SICA”). The Reference was made on 22.1.1994
and M/s. UPTRON was declared a sick industry on 19.8.1994. The Industry
Finance Corporation of India (IFCI) was appointed the Operating Agency. It
appears from the record that advertisements were issued in normal course
inviting proposals for take over and/or revival of the sick unit. From the
Order of the BIFR dated 27.8.1997 it appears that advertisement was issued
pursuant to its order dated 29.1.1997 but no viable acceptable offer was
received. The Company had proposed a one time settlement whereby it offered
to pay off 100% of the principal amount and only 25% of the interest due.
However, for whatever reasons this proposal made no progress in the absence
of a confirmation by the State Government. M/s. UPTRON India Ltd. stated
that it had made a fresh proposal which had been submitted to the
Government and that the Government was likely to consider it on 1.9.1997.
In these circumstances, the BIFR considered the matter and passed certain
directions by its order of 27.8.1997. It directed the Operating Agency to
make an indepth study of the proposal submitted by M/s. UPTRON to the State
Govt, of Uttar Pradesh and to make its suggestions. It was directed to
submit its report within 10 weeks after holding a joint meeting with the
concerned parties. It also directed the Managing Director of M/s. UPTRON to
discuss the matter further the concerned banks with a view to obtain their
consent as to the minimum acceptable quantum of one time settlement and
quantum of sacrifices in terms of waiver of interest. M/s. UPTRON was also
directed to have discussions with the Chief Secretary of the Govt. of Uttar
Pradesh in regard to the quantum of funds proposed to be inducted by the
Govt. of Uttar Pradesh for revival/rehabilitation of M/s. UPTRON. The last
direction made by the BIFR was in the nature of a direction to the Govt. of
Uttar Pradesh to make arrangements for payment of salaries/wages of the
workers till the proposed package of revival/rehabilitation of M/s. UPTRON
was finalised by the BIFR. This last direction for payment of
salaries/wages to the workers of M/s. UPTRON was challenged by the U.P.
Electronics Corporation before the Appellate authority under SICA which was
dismissed. Thereafter, the State of Uttar Pradesh filed a writ petition
before the High Court of Delhi which was dismissed by order dated 9.9.1998.
As noticed earlier, C.A. Nos. 6171-6172/1999 have been preferred against
the aforesaid order of the High Court of Delhi.
From the order of the BIFR dated 28.8.1998 it would appear that there was a
proposal submitted by the State of U.P. for the revival of M/s. UPTRON. The
Operating Agency was directed to examine the proposal and hold a joint
meeting and submit its report by 17.7.1998. It also appears that the
Operating Agency prepared a background note to be considered in the joint
meeting wherein it was estimated that a sum of Rs. 171.04 crores was
required for the revival of the sick industrial unit. The fund was to be
provided by the Govt. of Uttar Pradesh. The joint meeting considered the
proposals of the Govt. of Uttar Pradesh in the light of the background note
prepared by the Operating Agency and though no final decision was taken,
the financial institutions and the banks took time to consider the matter
particularly by reference to the working capital loans after receiving the
concrete proposal from M/s. UPTRON. Ultimately, the State Bank of India on
behalf of the consortium of banks did not respond and it appears that no
further development took place. The Operating Agency also found the
proposal received from the State Government to be sketchy and not providing
any details relating to the assumptions underlying the projections.
It appears from the said order that the Special Secretary of the Govt. of
Uttar Pradesh submitted before the BIFR that the revival package for the
company has been discussed with the Chief Secretary and thereafter the
Chief Minister. Although the same had been approved in principle by the
Chief Minister, the matter had been sent to the Prime Minister’s office who
sought commitment from the State Government about its contribution. Some
time was prayed for to enable the Government to take a decision in the
matter and to convey its views. The order of the BIFR also notes the fact
that the State Government had given a sum of Rs. 6.98 crores in addition to
Rs. 2 crores for payment of salaries by way of loan carrying interest @ 22%
per annum. The workers had received their wages for the period November,
1997 to May, 1998 but no payment had been made for the period subsequent
thereto. The order of the BIFR thereafter directed the State Government to
make on account payment to the workers towards their wages after May, 1998
. This order of the BIFR is challenged before us in C.A. No. 6176/1999.
In the same order the BIFR noted that the case had been before the Board
since August, 1994 and no rehabilitation scheme could be finalised
primarily on account of the State Government not being able to take a
decision regarding infusion of funds for rehabilitation of the company. It,
therefore, directed the Government of Uttar Pradesh to convey their
decision positively within eight weeks to the Operating Agency and the BIFR
whether it could induct Rs. 171.04 crores as envisaged in the scheme
submitted by the Government of Uttar Pradesh for the revival of M/s.
UPTRON. The Board also indicated that in case the State Government was not
agreeable to provide the amount as aforesaid, the Bench may pass further
appropriate orders which may include issue of show cause notice for winding
up of the company without holding any further hearing. If the Govt. of
Uttar Pradesh was willing to provide the necessary funds the directions
would be made accordingly. Some other directions were made which we do not
consider necessary to notice at this stage.
While the position stood thus, the M/s. UPTRON Employees Union – respondent
No. 1 herein and two other associations of the workers and officers of M/s.
UPTRON filed a writ petition before the High Court of Judicature at
Allahabad, Lucknow wherein it was stated that the Cabinet of Uttar Pradesh
had taken a decision of closure of M/s. UPTRON on 1.12.1998 as appeared
from the press reports. The press report showed that M/s. UPTRON had
incurred a loss to the tune of Rs. 330 crores which was not the correct
figure. Having regard to the fact that financial institutions were willing
to waive a part of the liability, the loss if any was only Rs.93 crores.
Reliance was placed on a photocopy of news item published on 2.12.1998 in
the Hindustan Times a local daily. In the writ petition it was prayed that
a writ of mandamus be issued restraining the Govt. of U.P. from
implementing the Cabinet decision of December 01, 1998. It was also prayed
that a writ of mandamus be issued restraining the opposite parties from
closing the Company without waiting for the decision of BIFR. It was also
prayed that a suitable direction be issued to the opposite party to honour
the order of BIFR dated 27.8.1997 for payment of salary to the employees of
M/s.UPTRON. It is not necessary to notice the other prayers in the writ
petition. In this writ petition an interim order was passed by the High
Court on 23.12.1998. From a perusal of the order of the High Court it
appears that the Additional Advocate General for the State objected to the
maintainability of the writ petition inasmuch as the matter was pending
before the BIFR. He also informed the Court that the State Government had
not passed any order regarding closure of M/s. UPTRON. This was
controverted by the writ petitioners who asserted that such a decision had
been taken by the Cabinet and in fact the Principal Secretary (Electronics)
of the State of U.P. had passed an order on 9.12.1998 for the
rehabilitation of the workers. The High Court noticed the submission urged
on behalf of the State Government that it had not yet taken a final
decision to close M/s. UPTRON and the matter was being considered
by the BIFR, and the State Government had been asked to indicate as to
whether it was in a financial position to revive the unit. The High Court
passed an interim order in view of the aforesaid circumstances directing
the State Government to pay salary to the workers pursuant to the order
passed by the BIFR till the State Government took a final decision in that
regard. C.A. Nos. 6216-6217/1999 have been preferred against the said
interim order of the High Court of Judicature at Allahabad, Lucknow Bench,
Lucknow.
In all the appeals before us the submission urged on behalf of the State of
Uttar Pradesh is that the BIFR had no jurisdiction in a proceeding under
SICA to make a direction to the State Government to pay the wages due to
the workers of a sick company. It has also been the stand of State of Uttar
Pradesh that M/s. UPTRON India Ltd. is a subsidiary of U.P. Electronics
Corporation Limited, which is a company wholly owned and controlled by the
State of Uttar Pradesh. In any event, it was submitted that there was no
provision in the SICA which authorises the BIFR to pass an order directing
the State of Uttar Pradesh to pay the salaries/wages of the employees of a
sick company in regard to which an inquiry is pending before the BIFR.
One fact which may be noticed is that the Government of Uttar Pradesh has
since informed the BIFR by its letter of 12.1.1999 that it is not willing
to induct any further funds for the revival/rehabilitation of M/s. UPTRON.
It is suggested that in the circumstances the BIFR may, if so advised, wind
up M/s. UPTRON since the State Government is not in a position to provide
the requisite funds for its revival.
In view of the submissions urged before us it is necessary to notice the
relevant provisions of the SICA. There is no dispute about the fact that
M/s. UPTRON is a sick company within the meaning of that term in SICA. A
“sick industrial company” has been defined under Section 3(0) of the Act to
mean, an industrial company (being a company registered for not less than
five years) which has at the end of any financial year accumulated losses
equal to or exceeding its entire net worth. There is no dispute that the
net worth of M/s. UPTRON is negative. Under Section 15 of SICA if any
industrial company has become sick an obligation is cast upon its Board of
Directors to make a Reference to the BIFR for determination of the measures
which shall be adopted with respect to the company. This has to be done in
the manner and within the period prescribed by Section 15. on receiving
such a Reference, the BIFR is required by Section 16 of the Act to make
such inquiry as it may deem fit for determining whether any industrial
company has become a sick industrial company. If after making inquiry under
Section 16, the BIFR is satisfied that the company has become a sick
industrial company, it is required to decide as soon as may be by order in
writing whether it is practicable for the company to make its network
exceed the accumulated losses within a reasonable time. This is provided in
Section 17 of SICA. Sub-section (2) of Section 17 is applicable if it is
found practicable for a sick industrial company to make its net worth
exceed the accumulated losses within a reasonable time. In such a situation
the BIFR may give to such a company directions so as to enable it to make
its network exceed the accumulated losses. However, if that is not
possible, the BIFR must proceed under sub-section (3) of Section 17. If the
Board comes to the conclusion that it is necessary or expedient in the
public interest to adopt all or any of the measures specified in Section 18
in relation to the said company, it may as soon as may be, by order in
writing, direct the operating agency specified in the order to prepare a
scheme providing for such measures in relation to the company. Under
Section 18 the Operating Agency is required to prepare such a scheme with
respect to such a company providing for any one or more of the measures
enumerated in sub-clauses (a) to (f) of sub-section (1) of Section 18. The
scheme prepared by the Operating Agency is then examined by the BIFR and
necessary steps taken in accordance with the remaining provisions of
Section 18. Section 19 deals with Schemes which relate to preventive,
ameliorative, remedial and other measures with respect to any sick
industrial company. In such a scheme provision is made for financial
assistance by way of loans, advances or guarantees or reliefs or
concessions or sacrifices from the Central Government, a State Government,
any scheduled bank or other bank, a public financial institution or State
level institution or any institution or other authority etc.
Section 20 of the Act mandates that where the BIFR after making inquiry
under Section 16 after consideration of the relevant facts and
circumstances, and after giving an opportunity of being heard to all the
parties, is of the view that the sick industrial company is not likely to
make its net worth exceed the accumulated losses within a reasonable time
while meeting all its financial obligations, and that the company as a
result thereof is not likely to become viable in future, and that it is
just and equitable that the company should be wound up, shall forward its
opinion to the concerned High Court, which on the basis of the opinion of
the Board, may order winding up of the sick industrial company in
accordance with the provisions of the Companies Act.
None of the provisions noticed above provide that while considering a
scheme for revival, the BIFR has authority to direct payment of wages to
the workers of the sick industrial company. It is quite apparent that
though the matter has remained under consideration of the BIFR since the
year 1994 no viable acceptable proposal has so far been received. At one
time the State of Uttar Pradesh had shown some interest in reviving the
sick unit but now by its letter dated 12.1.1999 it has made its position
clear that it is not in a position to induct the necessary funds. In fact,
it had suggested that the unit may be wound up.
Learned counsel appearing on behalf of the State of Uttar Pradesh has
referred to the decisions of this Court in the case of A.K. Bindal and Anr.
v. Union of India and Ors., [2003] 5 SCC, 163 and Officer & Supervisors of
I.D.P.L. v. Chairman & M.D., I.D.P.L. and Ors., [2003] 6 SCC, 490 and
submitted that in similar circumstances this Court held in A.K. Bindal’s
case (supra) that if a sick industrial company sustaining losses
continuously over a period, failed to pay salaries and dues to its
employees, the workmen and employees cannot claim any legal right to ask
for a direction to the Central Government to meet the additional
expenditure which may be incurred on account of revision of pay scales. We
notice that the aforesaid decision was rendered in a case where the company
concerned had been declared to be a sick industrial company under SICA and
the matter was under consideration of the BIFR. This Court observed:
“17. The legal position is that identity of the government company remains
distinct from the Government. The government company is not identified with
the Union but has been placed under a special system of control and
conferred certain privileges by virtue of the provisions contained in
Sections 619 and 620 of the Companies Act. Merely because the entire
shareholding is owned by the Central Government will not make the
incorporated company as Central Government. It is also equally well settled
that the employees of the government are not civil servants and so are not
entitled to the protection afforded by Article 311 of the Constitution
(Pyare Lal Sharma v. Managing Director). Since employees of government
companies are not government servants, they have absolutely no legal right
to claim that the Government should pay their salary or that the additional
expenditure incurred on account of revision of their pay scale should be
met by the Government. Being employees of the companies it is the
responsibility of the companies to pay them salary and if the company is
sustaining losses continuously over a period and does not have the
financial capacity to revise or enhance the pay scale, the petitioners
cannot claim any legal right to ask for a direction to the Central
Government to meet the additional expenditure which may be incurred on
account of revision of pay scales.”
This Court specifically held that the economic viability or the financial
capacity of the employer is an important factor which cannot be ignored
while fixing the wage structure, otherwise the unit itself may not be able
to function and may have to close down which will inevitably have
disastrous consequences for the employees themselves.
The same legal position has been reiterated by this Court in the case of
Officer & Supervisors of I.D.P.L. v. Chairman & M.D., I.D.P.L. and Ors.
(supra), this Court observed in paras 7 and 8 as under:-
“7. In the above background, the question which arises for consideration is
whether the employees of public sector enterprises have any legal right to
claim revision of wages that though the industrial undertakings or the
companies in which they are working did not have the financial capacity to
grant revision in pay scale, yet the Government should give financial
support to meet the additional expenditure incurred in that regard.
8. We have carefully gone through the pleadings, the annexures filed by
both sides and the orders passed by the BIFR and the judgments cited by the
counsel appearing on either side. Learned counsel for the contesting
respondent drew our attention to a recent judgment of this Court in A.K.
Bindal v. Union of India in support of her contention. We have perused the
said judgment. In our opinion, since the employees of government companies
are not government servants, they have absolutely no legal right to claim
that the Government should pay their salary or that the additional
expenditure incurred on account of revision of their pay scales should met
by the Government. Being employees of the companies, it is the
responsibility of the companies to pay them salary and if the company is
sustaining losses continuously over a period and does not have financial
capacity to revise or enhance the pay scale, the petitioners, in our view,
cannot claim any legal right to ask for a direction to the Central
Government to meet the additional expenditure which may be incurred on
account of revision of pay scales. We are unable to countenance the
submission made by Mr. Sanghi that economic viability of the industrial
unit or the financial capacity of the employer cannot be taken into
consideration in the matter of revision of pay scales of the employees.”
We may observe that in both cases the earlier decision of this Court in
Heavy Engineering Mazdoor Union v. State of Bihar and Ors., [1969] 1 SCC,
765 was noticed and applied.
Counsel for the respondents have placed reliance on Workmen of Rohtas
Industries v. Rohtas Industries and Ors., [1995] Supp 4 SCC, 5. In that
case this Court passed an order directing the State Government and the
Central Government to contribute a sum Rs. 30 crores each with a view to
work the industry which has closed down, having regard to its potential.
However, as noticed by the Court, the experiment did not yield any result
and this Court noted that the uprecedented course adopted by this Court of
assuming direct control over the functioning of the undertaking with a view
to secure its revival and rehabilitation had failed, and it was therefore
constrained to put an end to the proceedings and permit resumption of the
winding up proceedings before the High Court. It would, thus, appear that
the order passed in the matter of Rohtas Industries (supra) was passed in
the peculiar facts of the case and no principle had been laid down that in
such a case it is the duty or obligation of the State Government or the
Central Government to provide funds for payment of dues of workers.
Reliance was also placed on the decision of this Court in the case of
Kapila Hingorani v. State of Bihar, [2003] 6 SCC, 1. The order passed
therein was passed in the peculiar facts and circumstances, where a large
number of employees employed in a large number of government corporations
and undertakings were not paid their dues for years together. Invoking the
principle enshrined in Articles 21 and 23 of the Constitution, this Court
directed the State of Bihar to deposit a sum of Rs. 50 crores before the
High Court for disabursement of the salaries to the employees of the
corporations. It also vested a discretion in the High Court to direct
disabursement of some funds to the needy employees on adhoc basis so as to
enable them to sustain themselves for the time being. There was also a
clear direction that the rights of the workmen shall be considered in terms
of Section 529A of the Companies Act. There are observations in the
judgment of this Court to the effect that the Government/public sector
undertakings being “State” would be constitutionally liable to respect life
and liberty of all persons in terms of Article 21 of the Constitution. They
therefore, must do so in cases of their own employees. The Government of
the State of Bihar for all intent and purport is the sole shareholder.
Although in law, its liability towards the debtors of the company may be
confined to the shares held by it, but having regard to the deep and
pervasive control it exercises over the government companies in the matter
of enforcement of human right and/or rights of the citizen to life and
liberty, the State has also an additional duty to see that the rights of
the employees of such corporations are not infringed. Having said so, the
Court in para 74 of the judgment said,
“74. We, however, hasten to add that we do not intend to lay down a law, as
at present advised, that the State is directly or vicariously liable to pay
salaries/remunerations of the employees of the public sector undertakings
or the government companies in all situations, We, as explained
hereinbefore, only say that the State cannot escape its liability when a
human rights problem of such magnitude involving the starvation deaths
and/or suicide by the employees has taken place by reason of non-payment of
salary to the employees of public sector undertakings for such a long
time.”
It would, thus, appear that this Court did not lay down any principle of
law of universal application and passed appropriate orders only in the
compelling circumstances noticed by it. We are, therefore, satisfied that
in respect of a sick industrial company, even if it be a subsidiary of a
government company, there is no legal obligation cast upon the State
Government to pay the wages due to the workmen. The rights of workmen are
governed by the relevant provisions of the Companies Act where their claim
has been accorded priority. Moreover, in any view of the matter we find
nothing in SICA which authorises the BIFR to pass an interim order
directing the State Government in such circumstances to pay the wages due
to the employees of the sick industrial company. We, therefore, allow all
these appeals and set aside the impugned orders.
These appeals are, accordingly allowed with no order as to costs.
Before parting with this case, we must notice that the proceedings under
SICA in the instant case are pending before the BIFR since August, 1994. We
are told that in view of the pendency of the appeals before this Court the
BIFR as well as the High Court did not proceed further in the matters. This
is rather unfortunate, because in the absence of any order of stay passed
by this Court in these proceedings, the High Court as well as the BIFR
should have proceeded with the matters before them and concluded the
proceedings. It is most unfortunate that a sick industrial company which
needs immediate attention and treatment has to wait for 12 years with no
result in sight. The BIFR must be conscious of the fact that in the sick
industrial companies the liabilities accummulate as time passes and,
therefore, the condition of the sick unit becomes worse day after day. If a
proceeding before the BIFR is not concluded within a reasonable time, it
becomes counter productive because rather than reviving the sick industrial
unit it makes it more sick and, therefore, it becomes even more difficult
to revive such an undertaking. One can well imagine what may be the dues
now payable to the workmen and employees of the sick industrial company in
this case. If no one was willing to submit a viable proposal in the year
1994, it will be even more difficult today to secure a proposal for the
revival of the company. The pendency of the proceedings before the BIFR for
almost 12 years has made the situation worse. The network of the sick unit
was negative to begin with and as of date the dues to the workmen and the
interest etc., payable to other creditors may have to be added to the
liabilities of the company. We only wish to impress upon the BIFR that
proceedings under SICA must not be kept pending for so long and having
regard to the fact that every day’s delay adversely affects the financial
condition of the undertaking a final decision one way or the other must be
taken within a reasonable time. We also cannot lose sight of the fact that
the protective provisions of SICA places the creditors of the sick
industrial company in a rather precarious position, since they are not able
to realize their dues from the sick industrial company in view of the
provision of Section 22 of SICA. It is only desirable that the formulation
of the scheme and its execution must be done within a reasonable time.
We do hope and trust that the BIFR will now take up the matter and dispose
of the proceedings within a short period, say, within a period of six
months from the date of receipt of a copy of this order or its production
by any of the parties before it. Similarly, the writ petition pending in
the High Court should also be disposed of as early as possible and
preferably within a period of six months from today.