1987 (4) TMI 490 - HC - Companies Law

Petition for Winding Up Dismissed, Costs Awarded

The petition for winding up under Section 433(a), (e), and (f) of the Companies Act, 1956 was dismissed with costs. The court found the petition mala ... - Issues Involved:1. Grounds for winding up under Section 433(a), (e), and (f) of the Companies Act, 1956.2. Opposition by Maharashtra General Kamgar Union and workers.3. Financial and operational history of the petitioner-company.4. Labour disputes and strikes.5. Previous applications under Section 25-O of the Industrial Disputes Act.6. Financial insolvency and commercial viability.7. Public utility service considerations.8. Legal principles including res judicata and lifting the corporate veil.9. Conflict between the Companies Act and the Industrial Disputes Act.10. Constitutional implications on workers' rights.Detailed Analysis:1. Grounds for Winding Up:The petition for winding up was based on Section 433(a), (e), and (f) of the Companies Act, 1956. The petitioner argued that a special resolution for winding up had been passed, the company was unable to carry on its business, and it was just and equitable for the company to be wound up.2. Opposition by Maharashtra General Kamgar Union and Workers:The petition was opposed by the Maharashtra General Kamgar Union and a representative of 1,700 workers. The opposition was grounded on the argument that the petition was mala fide and intended to bypass the provisions of the Industrial Disputes Act.3. Financial and Operational History:The company, initially a part of CIDCO, was incorporated to provide transport services in New Bombay. It continuously ran at a loss due to subsidized routes, government-imposed routes, and concessional passes. The financial statements showed accumulated losses, and the company had significant debts, particularly to CIDCO.4. Labour Disputes and Strikes:From 1982 onwards, the company faced labour problems, culminating in an indefinite strike in February 1984. This led to a lock-out and an application under Section 25-O of the Industrial Disputes Act for permission to close down, which was initially granted but later overturned by the Industrial Appellate Tribunal and upheld by the High Court.5. Previous Applications under Section 25-O:The company made multiple applications under Section 25-O of the Industrial Disputes Act, citing financial incapacity and labour issues. These applications were rejected, with the appellate authority and the High Court emphasizing the company's role as a public utility service and the hardship that closure would cause to the public.6. Financial Insolvency and Commercial Viability:The petitioner argued that the company was commercially insolvent, with liabilities exceeding assets, and no prospect of raising finances or making a profit. However, the court noted that the company had not made any attempts to restart the business or raise funds, and the buses were still in running condition as evidenced by their use by MSRTC.7. Public Utility Service Considerations:The court emphasized the company's role as a public utility service and the public interest in its continued operation. The company's monopoly status, state control, and the public's reliance on its services were significant factors against winding up.8. Legal Principles Including Res Judicata and Lifting the Corporate Veil:The court held that the petition was not barred by res judicata but noted that the financial incapacity argument had already been decided against the petitioner. The court also considered the principle of lifting the corporate veil, recognizing the company as an instrumentality of the state, which carried out functions of public importance.9. Conflict Between the Companies Act and the Industrial Disputes Act:The court acknowledged a conflict between the winding-up provisions of the Companies Act and the closure provisions of the Industrial Disputes Act. It held that the Industrial Disputes Act, being a beneficial and later legislation, should prevail, thereby preventing the winding up of the company without compliance with Section 25-O.10. Constitutional Implications on Workers' Rights:Although raised, the court did not delve into the constitutional arguments regarding workers' rights under Articles 21, 39A, and 41, as the petition was dismissed on other grounds.Conclusion:The petition for winding up was dismissed with costs. The court found the petition to be mala fide, aimed at circumventing the Industrial Disputes Act, and contrary to public interest. The financial insolvency argument was rejected, and the court held that the Industrial Disputes Act provisions prevailed over the Companies Act in this context.