TaxTMI 
TaxTMI 
1972 (7) TMI 120
X X X X Extracts X X X X
X X X X Extracts X X X X
....Delisle Road, Parel, Bombay. It ceased production and actually stopped its business since about October 18, 1967. On a creditor's petition, being Company Petition No. 139 of 1967 filed on December 7, 1967 respondent No. 1 Company was ordered to be wound up by this Court on March 12, 1969 and the Official Liquidator (respondent No. 2) was appointed Liquidator thereof with necessary powers under the Companies Act, 1956 to take charge of the assets of the Company and to conduct its affairs in course of winding up and to distribute its assets in accordance with the provisions of the Companies Act. However, it appears that on September 14, 1962 respondent No. 1 Company had executed two Debenture Trust Deeds-one in favour of Gobindram Sakseria Charity Trust to secure the advance of Rs. 39 lacs and interest thereon (respondents Nos. 4, 5 and 6 being the trustees thereof) and the other in favour of the Trustees of Hashimara Industries Ltd. (respondents Nos. 7, 8 and 9 being the trustees thereof) to secure the advance of Rs. 45 lacs and interest thereon; the second debenture deed was subject to the first debenture deed and by the second debenture ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cumstances resulting in the fall in the production of the textile goods manufactured by the Company. Respondent No. 3 the private Receiver appointed by respondents Nos. 7, 8 and 9 (being the Trustees of the second debenture trust deed) filed a petition in this Court, being Misc. Petition No. 4 of 1971 challenging the said order passed by the Central Government on June 2, 1970. It appears that the Committee of Investigators had submitted its report to the Union of India on or about January 5, 1971 and the said report was also challenged by respondent No. 3 in the said writ petition. Mr. Justice Chandrachud who ultimately heard the writ petition by his judgment and order passed on October 9, 1971 set aside the order dated June 2, 1970 and the Central Government was directed not to take any steps in pursuance of the said order or in pursuance of the said report submitted by the Committee of Inspectors on the ground that the order under s. 15 of the said Act could not have been made in June 1970 when the Mills had been closed and remained closed since October 1967. Thereafter the Industries (Development and Regulation) Amendment Ordinance No. XX of 1971 was pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... formation of requisite opinion on relevant materials has not been fulfilled and as such permission sought cannot be granted. Thirdly, it was contended that the alleged formation of opinion was contrary to the principles of natural justice, inasmuch as, no opportunity of being heard was given to respondent No. 3 or the trustees of the second debenture trust deed and as such the requisite opinion even if formed could not be acted upon. Fourthly, the vires of ss. 15A and 18 FA was challenged under art. 14 and art. 19(1)(f) & (g) of the Constitution. Lastly, it was contended that the application seeking permission under s. 15A has been made mala fide with ulterior motive of dispossessing respondent No. 3 of the assets which were in his hands and the same has been made at the behest of the State Government. We may state that respondent No. 2 who is the Official Liquidator has submitted to the orders of the Court and so far as respondents Nos. 4, 5 and 6, who are the trustees of the first debenture trust deed, are concerned, it has been pointed out on their behalf that as the present application is merely for leave to make investigation into the possibility of re-sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s an opinion that there are possibilities of restarting the industrial undertaking in question, then, under s. 18FA power has been conferred upon the Central Government to appoint authorised persons to take over the management of the said undertaking after obtaining the permission of the High Court in that behalf. The material part of 18FA runs as follows: "18FA. Power of Central Government to authorise, with the permission of the High Court, persons to take over management or control of industrial undertakings.- (1) If the Central Government is of opinion that there are possibilities of running or re-starting an industrial undertaking, in relation to which an investigation has been made under section 15A, and that such industrial undertaking should be run or re-started, as the case may be, for maintaining or increasing the production, supply or distribution of articles or class of articles relatable to the scheduled industry, needed by the general public, that Government may make an application to the High Court praying for permission to appoint any person or body of persons to take over the management of the industrial undertaking or to exercise in respect of the whole o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... create a floating charge on the current assets of the industrial undertaking; sub-s. (10) provides that the proceedings in the winding up of the company shall be stayed during the period the undertaking remains under the management and control of authorised person and in computing the period of limitation for the enforcement of any right, privilege, obligation or liability in relation to such undertaking, the period during which such proceedings remained stayed shall be excluded. The next material provision is to be found in s. 29D which gives priority to all debts incurred by the authorised person over all other debts, whether secured or unsecured, incurred before the management of such industrial undertaking has been taken over. Section 20D runs as follows: "29D. Debts incurred by the authorised person to have priority.- Every debt arising out of any loan obtained by the authorised person for carrying on the management of, or exercising functions of control in relation to, an industrial undertaking or part thereof, the management of which has been taken over under section 18A or section 18AA or section 18FA,- (a) shall have priority over all other debts, whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also fairly conceded this position and accordingly the contention that s. 15A is violative of art. 14 of the Act need be considered by us. 8. According to the applicants, the present case squarely falls within the provision of s. 15A of the Act and as such the applicants are entitled to get the necessary permission or leave to make or cause to be made investigation into the possibility of re-starting the industrial undertaking of respondent No. 1 Company. Mr. Nariman, the learned Additional Solicitor General, appearing for the applicants pointed out that the Sakseria Mills Ltd. used to run textile mills at Parel, Bombay and as such owned an industrial undertaking that was engaged in production of cotton textiles and as such is a schedule industry falling within the first schedule of the Act; secondly the said Company owning such scheduled industrial undertaking is being wound up by and under the direction of this Court after passing of the winding up order on March 12, 1969; thirdly, admittedly the business of the said Company has been stopped and is not being continued since October 18, 1967 and therefore all the initial requirements of s. 15 A are satisfied with regard to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the section would be inapplicable. Reliance was also placed upon the expression 'industrial undertaking' which occurs in the section and which has been defined in s. 3(d). The definition runs thus: "'industrial undertaking' means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government;" and the expression 'carried on' occurring in the definition was relied upon. Having regard to the definition of 'industrial undertaking' as occurring in s. 3(d) and in view of the phrase 'the business of such company is not being continued' occurring in s. 15A, it was urged that the section was intended to apply to a company whose business has ceased to continue in the immediate past and the section would not apply to a company whose business has been closed for the last over 3 or 4 years and, therefore, the permission sought could not be granted by this Court. We are unable to accept this contention of counsel urged on behalf of respondents Nos. 3 and 7 to 9 for more than one reason. In the first place, by the very language employed in s. 15A it is clear that the section is applicable to a company which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ession 'industrial undertaking' occurring therein. The entire s. 3 of the Act, which defines several concepts including the concept of industrial undertaking is qualified by the opening words of the section, namely "In this Act, unless the context otherwise requires," and, therefore, unless the context otherwise requires the expression wherever it occurs in the Act should be understood in the sense it has been defined in s. 3(d) but the context of s. 15A clearly suggests that the expression 'industrial undertaking' cannot be understood in the same sense in which the expression has been defined in s. 3(d), for, in terms the section is made applicable to a company which owns an undertaking and which company is being wound up and whose business is not being continued. It is thus clear that in the context of s. 15A the expression 'industrial undertaking' occurring therein cannot be given the same meaning which has been given to that expression by the definition clause. In support of our view, reference may be made to a decision of the Supreme Court reported in V.F & G. Insurance Go. v. Fraser & Ross . [1960] A.I.R S.C 971., where in spite of the expression 'insurer' having been defined....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edent as mentioned in s. 15A was not fulfilled and as such the permission sought should not be granted by this Court. It was pointed out that the condition precedent has been expressed in the following words in the section: "...the Central Government may, if it is of opinion that it is necessary, in the interests of the general public and, in particular, in the interests of production, supply or distribution of articles or class of articles relatable to the concerned scheduled industry, to investigate into the possibility of running or re-starting the industrial undertaking, make an application to the High Court...." 12. It was urged that the power to investigate into the affairs of a company in liquidation was conditioned upon the formation of requisite opinion and the opinion must be as to the necessity of conducting an investigation into the possibility of re-starting the undertaking in the interest of the general public and in particular in the interests of production, supply or distribution of concerned articles and what was urged was that it was not shown that the requisite opinion was formed on relevant materials or on materials having reasonable nexus on the bas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... out of employment increasing the acute problem of unemployment in the country and affording employment to such workers by re-starting the Mills would be in the interest of general public; (e) the Mill being export-oriented has substantial potential of earning foreign exchange; (f) that the written down value of the assets of the Mill was Rs. 58.91 lacs as on April 8, 1967 while the market value may be much more; (g) that due to resistence offered by the Receiver in 1970 the plant and machinery could not be inspected by the members of the Committee appointed under order dated June 2, 1970 but the immediate prior technical survey carried out by the survey team of the Textile Commissioner's Office in July 1966 in respect of the Mills showed that the machinery was by and large found to be reasonably satisfactory. It has been stated that after taking into consideration the aforesaid facts including, in particular, the interest of general public which included unemployment of about 4000 workers and the interest of production, supply and distribution of cotton textiles, the deponent Shri B.D Kumar, Joint Secretary and the Hon'ble Minister concerned formed the opinion that it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taking action under s. 15A. Further the purpose for which the opinion is to be formed is quite clear, inasmuch as, action taken under that provision merely results in an investigation being made with the permission of this Court into the possibility of restarting the undertaking. It is thus clear that no adverse civil consequence flowed affecting any vested right of any person like respondent No. 3 or respondents Nos. 7 to 9 and as such, in our view, there would be no question of following principles of natural justice or giving a hearing to persons like respondents Nos. 3 and 7 to 9 before formation of opinion by the Central Government. Mr. Desai for respondents Nos. 7 to 9 faintly referred to the provisions of s. 18(1) of the Act under which power has been conferred upon person or body of persons appointed to make any investigation under s. 15A to call for assistance from any person or persons possessing special knowledge of any matter relating to the investigation during the course of investigation and pointed out that persons like respondent No. 3 or respondents Nos. 7 to 9 may be called upon to render assistance to the person or body of persons so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ations is to take over the management of an undertaking, and even so there is discrimination in between the two investigations, inasmuch as, for the investigation under s. 15 certain procedure has been prescribed by framing rules which provide for hearing to be given to the Management but no such procedure has been prescribed by any rules for the investigation to be undertaken under s. 15A and, therefore, the investigation contemplated under s. 15A has been discriminated and treated differently and as such s. 15A is repugnant to art. 14. The third leg of the argument to support the challenge to the vires of s. 15A under art. 14 was that for taking over the management of an undertaking of a company which was being wound up and whose business is not being continued, two different procedures-one under the general law and the other under s. 15A and s. 18FA of the Act-were available to the Central Government and the latter procedure under s. 15A and s. 18FA of the Act was positively disadvantageous and prejudicial to the creditors of the company and since it was open to the Central Government at its sweet will to pick and choose any one of the two procedures that were available to it, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and that authorised persons could not be said to be "other authority" as contemplated by art. 12. The learned Additional Solicitor General rejoined by saying that the authorised persons who were to take over the management under s. 18FA will have to be regarded as falling within the expression "other authority" occurring in art. 12. On the question as to whether the authorised person contemplated by s. 18FA of the Act would be "other authority" within the meaning of that expression as used in art. 12, reliance was placed by counsel on both sides on a couple of authorities, which supported each one's rival contentions e.g Electricity Board, Rajasthan v. Mohan Lal . [1967] A.I.R S.C 1857. and Pramodrai Shamaldas v. L.I Corp. . 1968 71 Bom. L.R 286. The question not being free from doubt we do not propose to deal with or decide it and, in our view, it is really unnecessary to decide that question as, on merits, for reasons we shall presently indicate, we find no substance in any of the arguments raised to support the challenge to the vires of s. 15A under art. 14 of the Constitution. 17. On the point whether within the group or class of Companies falling under s. 15A any absol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned scheduled industry, to investigate into the possibility of running or restarting the industrial undertaking,...." 18. These words clearly indicate that the power conferred by the section is conditioned by the formation of opinion as to the necessity of investigating into the possibility of re-starting particular industrial undertaking in the interest of general public and in particular in the interests of production, supply or distribution of the concerned articles manufactured by the undertaking. In other words, unless the requisite opinion is formed by the Central Government that it is necessary in the interest of general public and in particular in the interest of production, supply or distribution of concerned articles to investigate into such possibility of restarting any particular industrial undertaking, no application as contemplated by s. 15A could be made by the Central Government to this Court. Even if the undertaking happens to be a scheduled undertaking falling in the First Schedule, having regard to its magnitude and capacity or having regard to the glut that may be obtaining in the market in the articles manufactured by it, the Central Government may form the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the Central Government by reason of particular relevant provision that is to be found in the section itself. In this context we may refer to a decision of the Supreme Court in Inder Singh v. The State of Rajasthan . [1957] A.I.R S.C 510.. In that case the provision of s. 15 of Rajasthan (Protection of Tenants) Ordinance No. 9 of 1949, which authorised the Government to exempt any person or class of persons from the operation of the Act was challenged on the ground that the section did not lay down the principles on which exemption could be granted and that the decision of the matter was left to the unfettered and uncanalised discretion of the Government and that therefore the section was repugnant to art. 14 and the Supreme Court took the view that though that particular section did not itself indicate the grounds on which exemption could be granted, the preamble to the Ordinance set out with sufficient clearness the policy of the Legislature; and as that governed s. 15 of the Ordinance, the decision of the Government thereunder could not be said to be unguided. The preamble to the Ordinance ran as follows: "Whereas with a view to putting a check on the growing te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tigations was the same, namely to take over the management of the industrial undertaking of a particular Company discrimination was bound to result, inasmuch as for the investigation to be undertaken under s. 15 certain procedure was prescribed by framing rules, whereas for the investigation under s. 15A no procedure and no rules had been framed and as such the investigation contemplated under s. 15A has been discriminated against and, therefore, the provisions of s. 15A are violative of art. 14. The argument, in our view, merely requires to be stated to be rejected, for the simple reason that before invoking equality clause under art. 14, it must be shown that the two things or two matters are similarly situated or similarly circumstanced and are given unequal treatment and if s. 15 and s. 15A are carefully scrutinised, it will appear clear that the two investigations contemplated by the aforesaid two provisions can in no sense be said to be investigations of same character. In the first place, under s. 15 the investigation contemplated is in respect of scheduled undertaking which is a running concern while s. 15A is applicable to an undertaking of a Company which is being wound u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppointed, the Government could apply to the Liquidator for taking over the management of the undertaking on leave and licence basis on certain terms including payment of yearly or monthly licence fees that were usually fixed by the High Court and it was further pointed out that usually the High Court on fixing the terms permitted the Government to take over the management of the Mills for certain period and the amount of licence fee was available to the Liquidator in winding up proceedings. But on the other hand, if s. 15A and s. 18FA were resorted to by the Central Government for taking over the management of the undertaking of the Company in liquidation, then, there is no provision in the Act directing the Government to pay any licence fee for running the Mills; not only that but if loans were raised by the authorised persons appointed to run the undertaking, such debts have been given priority over all secured and unsecured creditors of the Company under s. 29D of the Act. It was, therefore, urged that out of these two procedures, the one under the Act was more prejudicial to the creditors of the Company and it was left to the sweet will of the Central Government as to which of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the second debenture trust deed was not affected by the appointment of Official Liquidator. 24. Secondly it has been pointed out that an attempt was made by the State Government after the Company had gone into liquidation to run the said Mills on the leave and licence basis under the Unemployment Relief Scheme but those negotiations failed in April 1970 when the Government of Maharashtra withdrew its own offer on the ground that the workers were unwilling that the management should receive annual licence fee of Rs. 8 lacs. It has been further pointed out that no sooner negotiations failed in April 1970 the Central Government issued its order on June 2, 1970 under s. 15(a)(i) of the Act appointing a Committee of Inspectors to undertake an investigation to ascertain whether there has been or is likely to be a substantial fall in the volume of production of cotton textiles manufactured by the Mills without any justification and that order was struck down by this Court on October 9, 1971 at the instance of respondent No. 3 and that thereafter the present application has been made by the Central Government at the behest of the State Government. On these facts it was u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommittee of Inspectors to undertake an investigation under s. 15(a)(i) was struck down by this Court on October 9, 1971, that was not on merits but on the ground that on a proper interpretation of the section action under s. 15(a)(i) could not be taken in respect of Mills which had closed its business in October 1967. The language of s. 15(a)(i) clearly warranted that view. It was also doubtful as to whether an order under s. 15(a)(i) could be made in respect of a company which was being wound up and, therefore, with a view to remove all doubts an Ordinance No. XX of 1971 was passed inserting new s. 15A which was expressly made applicable to a company which was being wound up and the affidavit in rejoinder filed on behalf of the applicants clearly shows that it was after passing of the Ordinance and the coming into force of new s. 15A that the Central Government applied its mind to the formation of opinion as required by s. 15A and after requisite opinion was formed the present application has been preferred. As discussed earlier, the opinion required to be formed under s. 15(a)(i) is entirely different from the opinion that is required to be formed by the Central Government u....