2002 (2) TMI 1217 - HC - Companies Law

Court partially allows writ petition, quashes Government Order affecting petitioner. Valid resignation, winding-up commenced, prosecution untenable.

The court partially allowed the writ petition, quashing the Government Order (G.O. (D) No. 972) dated 28-10-1999 as it pertained to the petitioner. The ... Winding up - Offences by officers of companies in liquidation and managers whose liability is unlimited Issues Involved:1. Prosecution of the petitioner under section 25-O of the Industrial Disputes Act, 1947.2. Validity of the petitioner's resignation as a director.3. Applicability of the Companies Act, 1956, regarding the winding-up process.4. Legality of the Government Order (G.O. (D) No. 972) dated 28-10-1999.Detailed Analysis:1. Prosecution of the petitioner under section 25-O of the Industrial Disputes Act, 1947:The petitioner was prosecuted for allegedly violating section 25-O of the Industrial Disputes Act, 1947, which mandates that an employer must obtain prior permission from the government before closing down an undertaking. The Government Order (G.O. (D) No. 972) dated 28-10-1999, was issued based on the Labour Commissioner's report to prosecute the petitioner for closing the factory without obtaining such permission. However, the petitioner argued that the company was in the process of winding up under the Companies Act, 1956, and thus, the requirement for permission under section 25-O did not apply. The court found that since the winding-up process had commenced with the passing of a special resolution, the prosecution under section 25-O was not tenable.2. Validity of the petitioner's resignation as a director:The petitioner submitted his resignation as an alternate director on 1-9-1998, which was accepted by the company. The resignation was effective from the date of submission, as evidenced by the company's records and Form No. 32 filed with the Registrar of Companies. The court cited precedents (e.g., S.B. Shankar v. Amman Steel Corpn., V.K. Lakshmana Mudaliar v. Emperor) to affirm that a director's resignation takes effect from the date of submission. Therefore, the petitioner was not a director at the time of the alleged closure and could not be held liable for the violation of section 25-O.3. Applicability of the Companies Act, 1956, regarding the winding-up process:The petitioner argued that the winding-up process commenced with the passing of a special resolution on 6-11-1998, under sections 433 and 484 of the Companies Act, 1956. The court recognized that the winding-up process legally begins when the resolution is passed, and thus, the company was not required to seek government permission for closure under the Industrial Disputes Act. The court acknowledged that the winding-up petition (C.P. No. 335 of 1999) was still pending, and the company was no longer operational.4. Legality of the Government Order (G.O. (D) No. 972) dated 28-10-1999:The court examined the Government Order, which directed the prosecution of the petitioner and other directors for closing the industrial establishment without prior permission. Since the petitioner had resigned before the closure and was not involved in the decision to wind up the company, the court held that the Government Order was not applicable to him. The writ petition was allowed in favor of the petitioner, quashing the Government Order as it pertained to him.Conclusion:(i) The writ petition is partly allowed, quashing the Government Order (G.O. (D) No. 972) dated 28-10-1999, in so far as it pertains to the petitioner.(ii) The Government Order remains valid concerning the management of Grandoe India Limited and the other three directors mentioned.(iii) No costs.(iv) WPMP No. 7650 of 2000 is closed.