2007 (7) TMI 407 - HC - Companies Law

Court Dismisses Winding-up Petitions for Government Companies, Ruling on Bihar Reorganisation Act

The court dismissed the winding-up petitions for the three Government companies, holding that they must continue to function as inter-State corporations ... Winding up - three companies would be held to be inter-State corporations - Held that:- In the present case, neither the law has been enacted nor the agreement has been reached between the successor States nor any direction has been issued by the Central Government. In the circumstances, according to this court, notwithstanding the provisions contained in the Companies Act, the aforesaid Government companies, by virtue of the provisions contained in sub-section (4) of section 46 and sub-section (1) of section 65 of the Bihar Reorganisation Act, have to function in the areas in which they were functioning immediately before the appointed day until a law is framed, an agreement is reached between the successor States or directions are issued by the Central Government. The Bihar Reorganisation Act, 2000, being a Central Act was not required to be brought within the Schedule to the Inter-State Corporations Act by exercising the enabling powers contained in section 5 of the said Act. In the circumstances, the winding up petitions filed to wind up the aforesaid three Government companies, Bihar State Small Industries Corporation Ltd., Bihar State Pharmaceutical and Chemical Development Corporation Ltd., and Bihar State Agro-Industries Development Corporation are dismissed. Issues Involved:1. Financial condition of the Government companies.2. Compliance with court directives for winding up.3. Public interest considerations.4. Opposition from workers and employees' unions.5. Impact of the Bihar Reorganisation Act, 2000.6. Applicability of the Inter-State Corporations Act, 1957.7. Legal provisions for dissolution of inter-State corporations.Detailed Analysis:1. Financial Condition of the Government Companies:The judgment addresses the precarious financial condition of M/s. Bihar State Small Industries Corporation Ltd., M/s. Bihar State Pharmaceutical and Chemical Development Corporation Ltd., and M/s. Bihar State Agro-Industries Development Corporation, which were unable to discharge their routine liabilities, including payment of salaries and wages to employees. This financial instability led to a directive from a Full Bench of the High Court in the case of *Manikant Pathak v. State of Bihar* [1997] (1) PLJR 664, mandating the removal of political chairmen from the boards and initiating winding-up actions.2. Compliance with Court Directives for Winding Up:In compliance with the court's directive, the State Government, as a shareholder, directed the companies to decide on winding up. Subsequently, the board of directors of M/s. Bihar State Small Industries Corporation Ltd. decided to wind up the company on 16-5-1998, which was endorsed by shareholders on 31-12-1998. Similar decisions were taken for the other two companies, as mentioned in the respective company petitions.3. Public Interest Considerations:The learned Advocate General argued that due to the financial instability of the corporations, it was in the public interest to wind them up under the Companies Act, as it was neither feasible nor practical for these Government companies to continue functioning.4. Opposition from Workers and Employees' Unions:Workers and employees' unions opposed the winding-up petitions, arguing that the companies had significant assets, including profitable units like the Ambapali Bihar Emporium in New Delhi, which was earning profits and partially meeting salary obligations. They contended that M/s. Bihar State Small Industries Corporation Ltd. was viable and should not be wound up.5. Impact of the Bihar Reorganisation Act, 2000:The Bihar Reorganisation Act, 2000, bifurcated the State of Bihar into Bihar and Jharkhand. According to sections 46(4) and 65(1) of the Act, the Government companies became inter-State corporations and were to continue functioning in their respective areas until a law was enacted, an agreement was reached between the successor States, or directions were issued by the Central Government.6. Applicability of the Inter-State Corporations Act, 1957:The workers' union argued that the companies had become inter-State corporations under the Reorganisation Act, and any dissolution required a scheme approved by the Central Government. The Advocate General countered that the companies were not covered under the Inter-State Corporations Act, 1957, as they were not statutory companies and no notification under section 5 of the Act had been issued.7. Legal Provisions for Dissolution of Inter-State Corporations:The court concluded that by virtue of sections 46(4) and 65(1) of the Bihar Reorganisation Act, the Government companies must continue to function until a law is enacted, an agreement is reached, or directions are issued by the Central Government. The court dismissed the Advocate General's argument that the companies needed to be included in the Schedule to the Inter-State Corporations Act, 1957, through a notification, stating that the Bihar Reorganisation Act, 2000, being a Central Act, was beyond the purview of section 5 of the Inter-State Corporations Act.Conclusion:The winding-up petitions for the three Government companies, namely Bihar State Small Industries Corporation Ltd., Bihar State Pharmaceutical and Chemical Development Corporation Ltd., and Bihar State Agro-Industries Development Corporation, were dismissed. The court held that these companies must continue to function as inter-State corporations under the provisions of the Bihar Reorganisation Act, 2000, until further legal or administrative actions are taken.