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In the Matter of Willcox Buckwell India Ltd. Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCivil Petition No. 29 of 1971 and Civil Appeal No. 177 of 1971
Judge
Reported inILR1972Delhi598
ActsCompanies Act, 1956 - Sections 17(1); Industrial Disputes Act, 1947 - Sections 25FF
AppellantIn the Matter of Willcox Buckwell India Ltd.
RespondentUnion of India
Advocates: I.N. Shroff,; R.L. Aggarwal,; Jitendra Sharma,;
Cases ReferredLtd. v. K. N. Mohd. Khan
Excerpt:
(i) companies act (1956) - sections 17(1)(g), 394 & 395--scheme of amalgamation of two companies--power to amalgamate with another not found in memorandum of association of either company--effect of.; where a scheme of amalgamation was opposed on the ground that the memorandum of association of the transferor company did not give any right or power to amalgamate with another company and/or transfer its undertaking to another concern and likewise the memorandum of association of the transferee company did not empower the latter to amalgamate with another company :; (repelling the above objection) that while ordering the transferor company to be dissolved by making an order under section 394 the court it not limited by the fact that the memorandum does not contain any such express.....s. rangarajan, j. (1) willcox buckwell india ltd., a public limited company (hereinafter referred to as the transferor company), incorporated under the companies act, has prayed for sanctioning of the scheme of amalgamation, which has been duly resolved by it with the larsen & toubro limited, another public limited company (hereinafter referred to as the transferee company), on the terms and conditions mentioned in paragraph 6 of the petition (c.p. 29/71). the same is opposed by the central government to which notice went under section 391 of the companies act; the labour union of the. transferor company has not opposed the amalgamation as such but only a certain amendment sought for in company application no. 177 of 197.1. (2) the transferee company has an authorised capital of rs......
Judgment:

S. Rangarajan, J.

(1) Willcox Buckwell India Ltd., a public limited company (hereinafter referred to as the Transferor Company), incorporated under the Companies Act, has prayed for sanctioning of the Scheme of Amalgamation, which has been duly resolved by it with the Larsen & Toubro Limited, another public limited company (hereinafter referred to as the Transferee Company), on the terms and conditions mentioned in paragraph 6 of the Petition (C.P. 29/71). The same is opposed by the Central Government to which notice went under Section 391 of the Companies Act; the labour union of the. Transferor Company has not opposed the amalgamation as such but only a certain amendment sought for in Company Application No. 177 of 197.1.

(2) The transferee Company has an Authorised Capital of Rs. 5,00,00,000 divided into 20,000, 5% Free of Tax Preference Shares of Rs. 100.00 each and 48,00,000 Equity Shares of Rs. 10.00 each. The Issued, Subscribed and Paid up capital of the Trans- feree Company is Rs. 4,14,30,000.00 consisting of 15,000.00 Preference Shares (2,000 redeemable on six months' notice) and 39,93,000 Equity Shares. The Authorised but yet un-issued capital of the Transferee Company is Rs. 85,70,000.00. The objects of the Transferor Company are in brief to acquire, exploit and carry on in India the agency business and representation of Caterpillar Tractor Company and its allied equipment manufacturer of America and Deere and Company of America and other manufacturers of America and United Kingdom. The objects for which the Transferee Company was formed include carrying on business as importers and traders in industrial plant and equipment, tractors, and earth moving equipment, etc., manufacturers of switch, gear, motor starters and equipment for the Chemical pharmaceutical and allied industries and for the dairy industry and the execution of civil, mechanical and electrical contracts.

(3) The Memorandum of Association of the Transferor Company sets out the objectives of the Company, among others, in 111(1), which runs as follows:

'(1)To sell or dispose of the undertaking of the Company, or any part thereof for such consideration as the Company may think fit, and in particular for shares, debentures or securities of any other company and to promote any Company or companies for the purpose of acquiring all or any of the property, rights and liabilities of this company, or for any other purpose and to take or otherwise acquire and hold shares therein'. The Memorandum of Association of the Transferee Company includes, among its objects, the following: III. '(b) To carry on business as civil, mechanical, electrical, Chemical and agricultural engineers, as manufacturers, and as importers and exporters, commission agents (and merchants and as agents for ships and shipowners and as agents) for foreign manufacturers and merchants. (n) To acquire and take over the whole or part of the business, property, goodwill and liabilities of any person, firm or company carrying on or about to carry on any business which this Company is authorised to carry on or possessed of any property in rights suitable for the purposes of this Company. (r) To take or otherwise acquire or hold shares in any other Company, having objects altogether or in parts similar to those of this Company or carrying on any business capable of being conducted so as directly or indirectly to benefit this Company. (s) To purchase, take on lease or in exchange, hire or otherwise acquire any real and personal property and rights or privileges which the Company may think necessary or convenient for the purposes of its business and in particular any land, buildings, easements, machinery, plant and stock-in-trade. . (u) To acquire and deal with the property following: (1) The business property and liabilities of any company, firm or person carrying on any business within the objects of this Company. (2) Lands, buildings, easements or other interests in real estate. (3) Plant, machinery, personal estate and effects. (4) Patents, patent rights or inventions, copy-rights, design, trade marks or secret processes and agencies, prospecting or other licenses, concessions and grants and to work the same'.

(4) Company Appn. No. 58 of 1971 was filed by Willcox on 28-1-1971 under Section 391(1) of the Companies Act containing the scheme of amalgamation of Willcox with Larsen; some further amendments were made by means of Company Application No. 80 of 1971 filed on 12-2-1971. Orders were passed by Prakash Narain, J. on 15-2-1971, ordering Company Application No. 80 of 1971 and giving directions, in Company Petition No. 58 of 1971, regarding the holding of meetings of the shareholders and the creditors. Separate meetings were held as directed on 29-3-1971 under the chairmanship of Shri B. N. Nayyar and the report was filed by Shri Nayyar on 5-4-1971. Company Petition No. 29 of 1971 was filed on 12-4-1971 as required by Rule 79 of the Companies (Court) Rules, 1959 for confirmation of the scheme of amalgamation under Section 394 of the Companies Act. On the same date yet another application (Company Application No. 179 of 1971) was filed under Section 392(l)(b) read with Section 394(l)(b)(vi) of the Act and Rules 81 and 82 of the Companies (Court) Rules, 1959 for permission to delete the original paragraph 4 of the Scheme and to substitute a new paragraph in its place. On 15-4-1971 the Government of.India (Department of Company Affairs) referred the application of the transferee company to the Monopolies and Restrictive Trade Practices Commission under Section 23(6) of the said Act. Company Application No. 29 of 1971 was ordered to be duly advertised and notice was also ordered to the Central Government and Registrar of Companies. On account of the pendency of this matter before the Monopolies and Restrictive Trade Practices Commission the petition was adjourned from time to time and objections were filed to Company Application No. 177 of 1971 alone by Shri O. P. Bhatia who happens to be not only an employee but also a shareholder of Willcox. The Central Government also filed objections. The Official Liquidator asked for the assistance of a Chartered Accountant for filing his report and ultimately the Official Liquidator filed his report on 9-8-1971 that the affairs of Willcox had not been conducted in a manner prejudicial to the interests of its members or to public interest.

(5) Company Petition No. 29/71 is opposed by the Central Government on the ground that the Memorandum of Association of the Transferor Company does not give any right or power to amalgamate with another company and/or transfer its undertaking to another concern and that in the absence of such a power the Scheme as proposed is ultra vires. It is also urged that the Memorandum of Association of the 'Transferee Company also does not empower the Transferee Company to amalgamate with another company. The contention put forward is that the question of the amalgamation depends not upon Sections 394 and 395 of the Companies Act, but upon the question whether the companies that are amalgamating are empowered to effect such anamalgamation.

(6) Paragraph 4 of Company Petition No. 29 of 1971 is sought to be amended by Company Application No. 177 of 1971 to the effect that the Transferee Company will on such transfer take over such employees of the Transferor Company as are willing to join the Transferee Company and that the services of those who are so willing will not be treated as having been broken for the purposes of the Provident Fund Rules or for Gratuity or for any like purpose but will be reckoned for these purposes from the date of their respective appointments with the Transferor Company; they will be paid by the Transferee Company such retrenchment compensation as may be payable by the Transferor Company under law or under their service agreements with the Transferor Company. Employees who are not willing to join, will be merely paid such retrenchment compensation as may be due under the law or under the service contracts with the Transferor Company.

(7) The Willcox Employees Union has opposed only the amendment sought for in Company Application No. 177 of 1971. I shall revert to this later.

(8) The first question for consideration is whether the amalgamation is permissible and the resolution concerning the amalgamation could be sanctioned by Court.

(9) Section 17(l)(g) of the Companies Act, 1956 reads as follows:

'17(1)A company may, by special resolution, alter the provisions of its memorandum so as to change the place of its registered office from one State to another, or with respect to the objects of the company so far as may be required to enable it- * * * * (g) to amalgamate with any other company or body of persons. The following provisions of Part Vi, Chapter V of the Companies Act, which deal with arbitration, compromise arrangements and re-constructions are also important: Section 390(b) defines the expression 'arrangement', employed in Section 391, as including a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods. Section 391 enables the Court to sanction acompromise or a compromise arrangement between a company and its creditors or any class of them, or between a company and its members or any class of them. The Court, while sanctioning such a compromise arrangement in respect of a company shall have power (under Section 392(l)(a), to supervise the carrying out of the compromise or arrangement and at the time of making such order or at any time. thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may think fit. Section 393 deals with information as to compromises or arrangements with creditors and members. When it is shown to the Court that the compromise or arrangement has been proposed for the purpose, of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies and that under the Scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme is to be transferred by the Transferor Company to the Transferee Company, the Court may, under Section 394, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters : (i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company; (ii) the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; (iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company: (iv) the dissolution, without winding up, of any transferor company, (v) the provision to bemade for any persons who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement; and (vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction and amalgamation shall be fully and effectively carried out.

(10) It is needless to notice the two provisos to sub-section (1). Under sub-section (2), when such an order is made by the Court the property shall be transferred and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company. Rule 7 of the Companies (Court) Rules, 1959, framed by the Supreme Court in exercise of the powers conferred by sub-section (1) and (2) of section 43 of the Act, prescribes the mode of making an application for confirming the compromise or arrangement. The application is to be in Form No. 40. The order is to be made in Form No. 42 (Rule 84 provides to this effect), clause (5) of which reads as follows :

'(5)That the transferor company do within 14 days aft6r the date of this order cause a certified copy of this order to be delivered to the Registrar of Companies for registration and on such certified copy being so delivered the transferor company shall be dissolved (where the Court directs that the transferor company should be dissolved from any other date, the clause should be altered accordingly) and the Registrar of companies shall place all documents relating to the transferor company and registered with him on the file kept by him in relation to the transferee company and the file relating to the said two companies shall be consolidated accordingly'.

(11) Under section 394A the Court shall give notice of every application made to it under Section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections. The Central Government have opposed the said amalgamation on the ground that it is beyond the powers of both the transfers and transferee companies.

(12) Shri I. N. Shroff learned Counsel for the Petitioner, has drawn my attention to the following observations of A. N. Ray,J. (as his Lordship then was in Hari Krishna Lohia v. Hoolungooree Tea Co. Ltd. (1970) (40) RC 458:

'INTERESTINGand elaborate arguments were made by counsel for both the parties as to various types of amalgamation. The various provisions of the Companies Act and, in particular, sections 391 to 396 and 494, were referred to by counsel for both the parties in aid of their rival contentions. Counsel for the appellant contended that the provisions contained in section 17 of the Companies Act indicate that if a company wanted. to amagamate with another company and if no such power was found in the memorandum it would not be lawful for the company to amalgamate without incorporating such power in the memorandum. Counsel for the respondent on the other hand contended that the provisions contained in sections 391 to 396 and 494 of the Companies Act would indicate that amalgamation would be a statutory right incertain cases and in other cases amalgamation would be resorted to by the company on the strength of specific power in the memorandum. For the purpose of the present appeal it need be only said that if a company by virtue of its power in the memorandum desires to amalgamate with another company without coming to a court of law such amalgamation would be valid and there could becases where a company desling to amalgamate would have to come to a court of law. The power to amalgamate may flow from the memorandum or it may be acquired by resorting to the statute. Section 17 of the Companies Act indicates that a company which desires to amalgamate with another company will fake necessary steps to come before a court for alteration of its memorandum in aid of such amalgamation. ' The statute confers a right on a company to alter its memorandum in aid of amalgamation with another company. The provisions contained in sections 391 to 396 and 494 illustrate some instances of statutory power of amalgamating a company with another company without any specific power in the memorandum'.

(13) In that case what was asked for was a bare power to amalgamate by' amending the Memorandum of Association of the company in the view that the shareholders and all persons affected by the proposed amalgamation will have sufficient opportunity to meet the case of amalgamation when the company will apply and

'WHENthe Court will issue notice to the shareholders as also to the other persons as contemplated in the Companies Act. No opinion was expressed on the rival contentions of the parties. It was submitted for the respondent who wanted the power to amalgamate, that there could be amalgamation without coming to court if such a power appeared in the Memorandum, the other method was to come before the court whenever there was agreement. In yet another decision reported in 1966 (2) Company Law Journal 208 (Naga suree Tea Co. Ltd. v. Ram Chandra Karnani and others' (2) A. N. R&y;, J. indicated that Section 17 of the Act contained inherent power of amalgamation of companies and observed as follows; 'The company desires to have an order that special resolution by which the memorandum is charged is that one of the objects of the company is to amalgamate and that the power to amalgamate be deemed to have been there. There is no limitation on the power of the Court to make an order to that effect. Any order will relate back like an order of amendment of plaint with the result that the order will have the effect that the company has the power-in the memorandum.'

Under Section 206 of the English Act, whether a company is

'BEINGwound up or not, it is possible for it to be reconstructed or amalgamated with another company under a scheme of arrangement approved by its members and creditors and sanctioned by the Court. It was, however, held in Re Oceanic Steam Navigation Co. (1939) Ch. 41 that such a reconstruction could be carried out only if it has power to do so by its memorandum of association. Pennington in his book on Company Law (Second Edition, page 735) explained the said position on the ground that the English Companies Act, 1948 merely enable a scheme of arrangement to be made binding on dissenting members or creditors if it could be carried on with their consent, and that no scheme which is ultra virus the company could be carried out even with the unanimous consent of its member's and creditors. Pennington points out that in this respect reconstructions and amalgamations under a scheme of arrangement differ from such transactions in a winding up, where they may be carried out whether they are authorised by the company's memorandum or not and cites Southhall v. British Mutual Life Assurance Co., (1871) Ch. App. 614 in support of this proposition. In Chapter 16 (commencing from page 436) Pennington discusses compromises and arrangement. He discusses the limitation on the court's powers. Subject to certain limitations the Court may allow a company the greatest freedom in devising schemes to suit their requirements and will approve those schemes if they are fair to all whose interests are affected. The courts will not sanction something which the parties could not do by agreement (Re Oceanic Steam Navigation Co. (3). If any act was done and the law permitted it only subject to conditions the arrangements seek to dispense with those conditions, those schemes could not be sanctioned under any provision of the Companies Act.

(14) Observing that 'the word amalgamation' has no definite legal meaning', Buckley (The Companies Acts, Thirteenth Edition, page 586) points out that it contemplates a state of things under which one company is absorbed into another. Dr. J. Charlesworth (The Principles of Company Law, Sixth Edition, page 293) also states that the expression 'amalgamation'' has no definite legal meaning except suggesting that either two or more companies join together to form another company (which is possible in the U.K. but not in India) or where one company absorbs another. He refers (on page-292) to the Memorandum of Association frequently giving power to the company to sell its undertaking for shares in another company. He also refers to Re Oceanic Steam Navigation Co. (3) (at page 294) as not permit the court to sanction an arrangement involving transactions ultra virus the company.

(15) After discussing Re Oceanic Steam Navigation Co. (3) and other causes, Pennington (Company Law, Second Edition p. 736) points out as follows:

'IT is submitted that notwithstanding these decisions any kind of reconstruction or amalgamation can now be carried out under a scheme of arrangement. Since those decisions there has been added to the Companies Acts a section (by the Companies Act, 1929, s. 54, now Companies Act, 1948, s. 208) under which the court may make certain ancillary orders when approving a reconstruction or, amalgamation under a scheme .of arrangement, and so it is now clearly contemplated that any reconstruction or amalgamation may be carried out in that way (The wording of the Companies Act, 1948, s. 208(1) is general; the court can make orders under it whenever an arrangement is 'proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies'. Furthermore, although the point is now of no importance in view of the section just referred to, it does seem that the original rule applied by the court was self-destructive if carried to its logical conclusion, and that it was thereforee incorrect. In the cases dealt with above the court treated reconstruction or amalgamation by way of sale of the company's undertaking for shares in a voluntary winding up as the only alternative to reconstruction or amalgamation by way of a scheme of arrangement, whereas, as has already been shown, the court has always had power to approve any reconstruction or amalgamation in any kind of winding up, whether or not the conditions on a sale for shares are fulfillled. Consequently, if a reconstruction or amalgamation could only be approved under a scheme of arrangement if there were no other way of carrying it out, it could never be approved at all, because it could always be carried out by way of a compromise of arrangement in a compulsory or voluntary winding up'.

(16) L. C. B. Gower (The Principles of Modern Company Law. Third Edition, at page -620) has referred to Re Oceanic Steam Navigation Co. (3) as afootnote; the proposition stated in the text is that the Court would not approve a scheme which is ultra virus the company. He, however, points out (in the footnote) that if the members of a company agree to the scheme this difficulty can be avoided by amending the objects clause of the memorandum under section 5. But this solution, he points out, is not available where the members get nothing under the scheme and thereforee have no inducement to change the objects, as was the case in Re Oceanic Steam Navigation Co. (!) the result of allowing that would have been to enable the members to hold the creditors up to ransom; if it was clear that there was no equity left for the members, their consent can be dispensed with to a scheme intra virus the company. He - points out further as follows at page 620-21 :

'THEscheme may provide for the formation of a new company (or, of course, the acquiring company may be an existing company which may have to increase its own capital) to take over the undertaking of the old, or on an amalgamation, to acquire the undertakings of companies, the members and creditors of which accept shares or debentures in the new company in substitution for their former rights. All consequential orders for completing the transaction can then be made by the court. But this is subject to two limitations. In the first place, section 208 applies only when all the companies concerned are registered. companies (s. 208(5) ), and secondly, notwithstanding its wide provisions, it does not enable contracts of a personal nature to be transferred (Nokes v. Doncaster Amalgamated Collieries (1940) A. C. 1014, H. L. See Chap. 10, pp. 200, 201, supra). Hence.arrangements will have to be made to secure a voluntary novation of contracts of service and the like. If the reorganisation merely affects members, meetings of creditors will not be needed, but the court will not make orders under section 208 without ensuring that creditors are protected (Clydesdale Bank, 1950 S. C. 30).'

(17) It is worth recalling that Form No. 42 itself provides that while making an order under section 394 (under Rule 84) even variations to suit the circumstances may be made in Form 42; clause 5 of the said Form provides for the transfer of a company being dissolved from the date of the order or from any other date. The power of the Court to sanction a compromise during the course of winding up is not strictly confined to what is in the Memorandum of Association. From this very-premise, thereforee, while ordering the transferor company to be dissolved by making an order under Section 394 the Court is not limited by the fact that the Memorandum does not contain any such express power to amalgamate In Southhdil (already noticed) the Court of Appeal confirmed the decision of the Master of the Rolls Permitting the amalgamation of the Mutual Life Assurance Society with another under Section 161 of the Companies Act 1862. The company in that case had no power under the deed of settlement to sell its business to another company. This was achieved by passing a resolution for voluntary winding up and directing the liquidator to carry out the agreement Form No. 42 specifically provides for the transferor company to wind up not only from the date of the order but if the circumstances require, from any other date also. It is in this light that understand the observations of A. N. Ray, J. pertaining to a court's power to permit amalgamalaon, even apart from the memorandum of Association itself containing such a power. The observations of A. N. Ray, J. are also seen to be in line with those of the Judicial committee of the Privy Council in Parashuram Detaram Shamdasani v. Tata Industrial Bank, Ltd. A.I.R. 1928 PC 180

'THEfirst contention of the appellant was that the scheme of amalgamation was ultra virus of the Tata Bank altogether. For that purpose the memorandum and articles of association of the. bank were submitted by him to a rigid scrutiny with a view to show that such a scheme as that here resolved upon was not thereby authorised. With reference to this part of the appellant's argument it is enough to say that the scheme does not depend for its validity upon the constitution of the Tata Bank; it rests solely upon statute. The only question on this issue, so far as the Tata Bank is concerned, is whether the scheme is one authorised by S. 213, Companies Act, and upon that question there can in their Lordships view be no doubt that it was'.

(18) The mere consent of the majority of the shareholders and creditors of the scheme does not conclude the issue whether the scheme should be sanctioned. As Chandrachud, J. pointed out in Pioneer Dyeing House Ltd. v. Dr. Shanker Vishnu Marathe 37 Company Cases 546 the jurisdiction of the Court which is called upon to sanction a scheme, 'transcends the mere consideration that a majority of those affected by the scheme is willing to submit to the scheme'. But a scheme to reconstruction of a company which is ordered to be wound up must postulate that on some reasonable hypothesis it is possible to revive the business of the company. On scrutiny of the above as well as the decision in Calicut Bank Ltd. v. Devani Ammal and others : AIR1940Mad621 it is seen that in these cases it was not possible to revive the business of the companies.

(19) If one looks at the history of corporate growth every conceivable legal means appears to have been used to keep a corporation to a single defined and manageable enterprise; corporation lawyers had spent more of their time on the law of ultra virus which dealt with corporations that tried to transcend the limits that had been set for them. Lacking a conscience, it had no . morals arid Was prima facie dangerous. That is why throughout history society has attempted to control and-constrict the corporation (Edward Meson: Competition and Public Policy: Yale Review, Vol. Xliii, Autumn 1953). But with the Monopolies and Restrictive Trade Practices Act, 1969 having been placed on the statute book these (such general) considerations are no longer of that importance. The present proposal has been cleared by the Monopolies Commission under the said Act to which this proposal was sent by the Government of India (Department of Company Affairs) for enquiry and report. The Commission unanimously recommended approval being granted to the amalgamation. It was explained by the Government of India that the main object of the scheme is to combine the resources and organisational set up of the two Undertakings with a view to improve efficiency and achieve economy as both of them are distributors of caterpillars, John Deer tractors, cranes etc. in different regions of the country. It was felt that the combined sales and service organisation would result in economy of operation and cut out wasteful duplication.

(20) The immediate justification for the amalgamation was that the Transferor Company was suffering losses year after years and would have to be closed down unless taken over by the Transferee Company and run as a unit of theirs. The amalgamation, it was felt, was not likely to lead to the Transferee Company's dominance in any products or services or add to their market share. The amalgamation would not, thereforee, lead to any significant concentration of economic power, but in fact would be expedient in the public interest particularly when it would save waste of economic resources and prevent unemployment resulting from any closure of the Transferor Company. The means and capacity of the Transferee Company to run the Transferor Company successfully-after amalgamation is not in question. To the aspect of public interest I shall revert presently.

(21) Section 445(3) of the Companies Act provides that the winding up order shall be deemed to be a discharge of the officers and employees of the Company except when the business of the Company is continued. The. scheme of amalgamation is to be put through by winding up the Transferor Company. The preferential payments which have to be made to the employees in winding up are seen to be far less advantageous than what is now offered, to them. According to Section 530(2) of the Companies Act the sum for which priority can be given in respect of wages and salary shall in no single case exceed one thousand rupees. The retrenchment compensation that is now offered in a single case is as high as Rs. 17,450,00.00.

(22) Expectations have no doubt been raised by reason of the original proposal, which was to take employees of the Transferor Company on the same terms as before as far as possible. Even at the meeting of the shareholders and creditors clearifications in this regard are stated to have been obtained. Shri O. P. Bhatia, who is both a shareholder as well as an employee of the company, has, in the course of his objections, relied upon such assurances given on behalf of the Transferee Company by one of its Directors, Shri Mani. It is stated by him that at a meeting of the shareholders held at 10 A.M. on 21-3-1971 under the chairmanship of Shri Bhupindra Nath Nayyar clearification in respect of the expression 'as far as possible' was given by staling that those words were only 'technical and legal language' and that Shri Mani promised that all the staff of the Transferor Company would be transferred to the Transferee Company on the same service conditions as were prevalent in the Transferor Company. Shri Mani has filed a detailed reply affidavit staling that the expression 'as far as possible' governed the phrase 'on the same terms on which they are employed by the Transferor Company' and that it would have been open to the Transferee Company to make change in the existing terms of employees, terms as near to the existing terms of the Transferor Company but so as to be consistent with terms prevailing in the Transferee Company. This part of the scheme (paragraph 4) was not in line with the provisions of Chapter V-A of the Industrial Disputes Act, 1947 and particularly Section 25FF thereof. It is explained by Shri 1. N. Shroff, learned counsel for the petitioner, that the amendment sought of the said paragraph 4 was not only to bring the proposal in line with the above legal provision but also to clarify and amplify the rights and obligations of the employees/workmen of the Transferor Company and the Transferor company qua each other as also the rights and obligations of the employees/workmen of the Transferor Company and the Transferee Company qua each other on the amalgamation coming into force.

(23) For the purpose of appreciating the scope of the amendment sought for it would be necessary to refer to the following provisions of the Industrial Disputes Act:

'25F.No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until- 10-2 H. G. Delhi/72 (a) the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice: Provided that no such notice shall be necessary if the retrenchment is under an agreement which specifies a date for the termination of service; (b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay (for every completed year of continuous service) or any part thereof in excess of six months; and (c) notice in the prescribed manner is served on the appropriate Government (or such authority as may be specified by the appropriate Government by notification in the Official Gazette). 25FF. Where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, from the employer in relation to that undertaking to a new employer, every workman who has been in continuous service for not less than one year in that undertaking im- mediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of section 25F, as if the workman had been retrenched: Provided that nothing in this section shall apply to a workman in any case where there has been a change of employers by reason of the transfer, if- (a) the service of the workman has not been interrupted by such transfer; (b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favorable to the workman than those applicable to him immediately before the transfer, and (c) the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer'.

(24) Section 25FFF which relates to the payment of retrenchment compensation to workmen in case of closing down of undertaking does not apply to the present case. The legal position has been explained by the House of Lords in Nokes v. Doncaster Amalgamated Collieries, Limited (1940 Appeal Cases 1014K8) referred to in the extract cited from L.C.B. Gower earlier. When an order is made by the Court under Section 154 of the Companies Act, 1929 (corresponding to the present Section 394), for the amalgamation of two companies a contract of service existing at the date of the amalgamation between the workman and the Transferor Company does not automatically become a contract of service between the workman and the Transferee Company. Section 25F and 25FF of the Industrial Disputes Act, 1947 applies to the present case. No worker could be compelled to work in the Transferee Company on a scale which is anything less than what obtained in the Transferor Company. There being no precisely identical scales in the Transferee Company the employees of the Transferor Company could not be fitted into identical scales in the Transferee Company. For this reason there is the risk to the Transferee Company of the employees of the Transferor Company claiming retrenchment compensation in addition to the pay which they are currently drawing from the Transferor Company.

(25) Shri I. N. Shroff explains that in these circumstances it has become necessary to comply with Section 25FF of the Industrial Disputes Act by giving all the workers the benefit of the retrenchment compensation and that it is not practicable for the Transferee Company, which employs nearly 8000 persons, to give different scales of pay for the few hundred workers of the Transferor Company in the eventuality of the Transferor Company being amalgamated with the Transferee Company. But during the hearing when I put to Shri 1. N. Shroff the human aspect of the workmen concerned not having further employment opportunities in the Transferee Company if they are to be paid retrenchment compensation only and thrown out of employment, Shri Shroff agreed that the Transferee Company would take all employees of the Transferor Company wholesale, or such of those who are willing, even after paying to each of them retrenchment compensation in the manner according to the scales of pay explained in detail in the various charts (No. A to D) which he filed in to Court. A perusal of the same shows that care has been taken in the matter of complying with law by (a) working out retrenchment compensation payable in respect of each of those workers and (b) by fitting them into comparable grades and scales of pay by taking into account the factors like the service in his present grade (or even in the previous grade if that was beneficial to him) in the Transferor Company. The scales of pay appear to have been generally higher in the Transferor Company than in the Transferee Company, but the dearness allowance paid by the Transferee Company seems higher than the Transferor Company and this works out favorably to those employees of the Transferor Company up to Rs. 450.00 p.m. level and disadvantageous to those at a level higher than Rs. 450.00. But this disparity could not be helped because it does not seem reasonable to insist on the Transferee Company carving out different scales and grades of pay for employees of the Transferor Company than what generally obtain in the Transferee Company. This is probably the best that could happen to the employees of the Transferor Company when it seems beyond dispute that but for the Transferee Company taking up and running the Transferor Company the latter would have to come to a grinding halt. Having given my anxious consideration to the terms that have been offered by the Transferee Company to the employees of the Transferor Company it seems that no unfair advantage is sought to be taken by the Transferee Company in the matter of fitting the employees of the Transferor Company into the Transferee Company; even those employees of the Transferor Company who lose about a few hundred rupees are compensated by the award of lump sum retrenchment compensation. The advantage of the proposal to the employees of the Transferor Company is that while every employee of the Transferor Company is paid retrenchment compensation according to law he is also offered employment opportunities on terms which are seen to be fairly equitable and fair; nobody may have even to serve in a lower position, which might be hurtful to his pride; even if it is so the option not to join is there. The difficulty of those working in a grade only for a very brief period has been sought to be overcome by placing them according to the previous position held by them and being given the benefit of their total service in the previous as well as in the existing position. Even here, the employees themselves have been given a choice. The fairness of this method may become clearer by making reference to one of them by way of illustration. In the case of Stenographers they are in Grades A and B in the Transferee Company, the former commencing from Rs. 170.00 and going up to Rs. 435.00 and the latter commencing from Rs. 140.00 and going up to Rs. 335.00. Shri S. Gopalakrishnan, Stenographer-Assistant in the Transferor Company, gets total monthly emoluments of Rs. 1102.00 (his basic pay being Rs. 420.00). If he becomes Stenographer A (for the reason that he had spent only two years in his present position in the Transferor Company) his total emoluments would come to Rs. 714.00, whereas if he becomes Stenographer B his total monthly emoluments would be Rs. 888.00. It will be a matter for him to choose whether he becomes Stenographer A or Stenographer B though it may be better for him to choose becoming Stenographer B and also have the chance of being promoted in due course from Grade B to Grade A in the Transferee Company. In either case, however, he would be getting retrenchment compensation of Rs. 6360.48. It is needless to illustrate further.

(26) The disadvantage to the employees of the Transferor Company is that they will, after payment of retrenchment compensation, be fresh employees in the Transferee Company, in spite of their previous service in the Transferor Company being taken into account for payment of Provident Fund etc. and to the extent relevant even for the payment of fixing their pay grade and scale in the Transferee Company.

(27) I have preferred to go into these details of how the employees of the Transferor Company can be fitted into the Transferee Company instead of confining myself to the question whether the labour itself has locus standi to object to the amalgamation in an endeavor to make the employees of the Transferor Company see that this is probably the best they could hope for in this proceeding.

(28) The grievance of labour is that they are not getting the benefit of the higher pay they are drawing (and the scale) in the Transferor Company and are also not getting the benefit of the continuity of service except for working out their corresponding scales of pay in the Transferee Company (according to Transferee Company's scales) and Provident Fund. But Shri I. N. Shroff, learned counsel for the petitioner, cited a number of decisions of the Supreme Court: (State of Bombay v. The Hospital Mazdoor Sabha, Air 1900 S.C. 610 (9), Workmen of Subong Tea Estate v. Outgoing Management of Subong Tea Estate : (1964)ILLJ333SC , Commissioner of Income Tax v. Gemini Cashew Sales Corporation, Air 1967 S.C. 1959 (ll) and The Board of Directors of the South Arcot Electricity Distribution Co., Ltd. v. K. N. Mohd. Khan : (1970)IILLJ44SC (12). They show that Section 25FF has to be strictly complied with and non-compliance with the same would render the impugned retrenchment invalid and inoperative. Even if a single benefit as before is not given there will be no compliance with Section 25FF. The proviso to Section 25FF makes Section 25FF inapplicable only in three eventualities:

(A)Where the service is not interrupted by such transfer. (b) the terms and conditions of service applicable to the workmen after such transfer are not in any way less favorable to him than those applicable to him immediately before the transfer, and (c) the new employer is under the terms of such transfer or otherwise legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.

(29) It is apprehended that in the light of the Larsen situation not permitting the exact scales of pay being given to the workers of Transferor Company after transfer, the Transferee Company is likely to run the risk of not complying strictly with Section 25FF. The feeble answer atempted is that all the workmen concerned will agree to their not getting retrenchment compensation in the event of their being granted the same pay and scales as they are at present drawing. The difficulty implicit in this approach is that no workman may legitimately contract himself out of a benefit given by this statute; to this difficulty is super-added that of the Transferee Company finding it not possible to grant scales of pay higher than those granted by it to other workers elsewhere in its organisation to the workers of the Transferor Company. The Company Judge dealing with a proposal of amalgamation will not be able to grapple with considerations, which are strictly not germane to the question of whether amalgamation should be permitted or not. The workers, except to the extent they can rank as creditors would have no locus standi, strictly speaking, in the matter of objecting to an amalgamation. In the event of amalgamation the strictly legal liabilities alone could be fastened upon the Transferee Company as per the scheme of amalgamation put forward. The legal liability is to be determined according to Section 25FF of the Industrial Disputes Act, which requires the payment of retrenchment compensation to all the workers; when the Transferee Company agrees to pay such retrenchment compensation in order to discharge their strictly legal obligations in this regard no other legal consideration is permissible. Yet the interest of labour would lie in the direction of being given further employment opportunities in the event of all or any of them being willing to take advantage of some opportunities. It was in this light that I put it to Shri I. N. Shroff, learned counsel for the petitioner, whether the Transferee Company would consider taking all the workers of the Transferor Company, even after payment of retrenchment compensation, en bloc if they were willing and fit them suitably, may be as fresh entrants, in the Transferee Company by working out their pay and scales of pay in a manner commensurate with the position that they occupied in the Transferor Company and the quality of service put in by them. When the Transferee Company agreed to do so it seemed to me it was a fair gesture quite in keeping with the earlier expressed desire to have all of them with continuity of service with old scales of pay as far as possible. I also suggested it to Shri R. L. Aggarwal, learned counsel for labour, to bring to my attention any particular case of hardship which could be relieved to the extent possible within the scope of the principles which the petitioner had put forward. I have not been assisted in this regard except to be told that in the case of all these employees of the Transferor Company, who were already drawing a much higher salary, they should be given that salary. This was not agreeable to the

(30) Transferee Company, they are not willing to do so in addition to the payment of retrenchment compensation. If it came to that, labour was willing to forego their retrenchment compensation but the difficulty in this regard has already been explained.

(31) In these circumstances I am unable to find any force in the contention put forward on behalf of labour that the amendment sought for should be refused in the public interest. While the public interest has to be taken into account by a court concerned with granting permission to amalgamate this does not appear to be a case where especially having regard to the stand taken by the petitioner before me as explained at length above there is anything against public interest in the matter of amalgamation being permitted. The hard reality is, as was seen from the assessment made by the Department of Company Affairs itself, that the Transferor Company which has been continuously incurring heavy losses could not 'be run economically without the proposed amalgamation. It has also been sufficiently explained how in the event of winding up the compensation that the workers of the Transferor Company would get would be very much less than the retrenchment compensation being offered to them by the Transferor Company; not merely that further employment opportunities also have been offered. Detailed working sheets have been supplied as to where and how the workers of the Transferor Company would be placed after the amalgamation. There is only one aspect which might probably unnerve labour and that is the prospect of all or any of them being discharged. But having regard to the fact that the Transferor Company would be run as a separate unit of production by the Transferee Company, this apprehension may not be realistic. But then, this does not appear to be a valid or reasonable ground on which a Company Judge can legitimately refuse to grant permission to amalgamate in the circumstances that obtain in the present case. It would be much more than what a Company Judge can attempt while ordering amalgamation of two companies to sort out every problem connected with the labour of that company which has to be wound up as a necessary step in amalgamation. The permission to amalgamate could not be withheld in the public interest when the Transferee Company undertakes to squarely meet with all its legal obligations in the matter of paying such retrenchment compensation as the law requires. The Transferee Company has in this case gone much beyond the payment of mere retrenchment compensation by offering to take all employees of the Transferor Company in the manner stated in the working sheets supplied by them, in addition to the payment of retrenchment compensation. It would be for the employees of the Transferor Company to accept those terms and avail themselves of the employment opportunities offered to them in addition to the payment of retrenchment compensation. The claims made by labour upon the management in the matter of increased pay or better service conditions have, if necessary to be the subject of collective bargaining and resolution through law of such industrial disputes as may arise. There could even be a settlement under Section 18 of the Industrial Disputes Act during the course of conciliation proceedings. Unless this happens the Transferee Company may not be able. even if it is feasible, to fix the present scales of pay of the Transferor Company as originally contemplated by them except under a proper agreement which can be enforced according to law when labour might forego their retrenchment compensation in view of better scales of pay. All these, thereforee, would have necessarily to be relegated to a future occasion; they would be foreign to the scope of what the Company Judge might have to take into consideration in granting or withholding permission to the scheme of amalgamation, when the Transferee Company has agreed to meet with its liability to labour according to law and even to give further employment opportunities in addition to payment of retrenchment compensation.

(32) There was no opposition to Company Petition No. 29 of 1971 nor was there any objection put forward to Company Application No. 177 of 1971 except to say that the amendment should not be allowed. It was not contended that in the eventuality of the amendment being allowed the labour were opposed to the amalgamation itself. At the conclusion of the arguments Shri R. L. Aggarwal made a suggestion that in the event of amalgamation being ordered an opportunity should be given to them to file their objections to the amalgamation itself. I do not think that this request can properly be acceded to at this stage having regard to the stand taken by labour by merely opposing the amendment and not raising any objection to amalgamation itself. It is in this context that it is relevant to notice that except to the extent to which the employees of the Transferor Company can figure as creditors. They have no locus standi to oppose the amalgamation. Shri R. L. Aggarwal points out that in this case the opposition is by Shri O. P. Bhatia, who is not merely an employee but is also a shareholder. But this by. itself does not make any real difference because the Transferee Company is stated to have 93% interest in the Transferor Company and it would not be possible lor a single dissident to hold up the amalgamation. The mere fact that he occupies a dual capacity of employee and shareholder cannot enable him to raise any objection as an employee when the employees themselves, as a class, have no locus standi to oppose this amalgamation.

(33) Nor is there any force in the contention that in the light of the amendment this question should be again referred back to another meeting of the shareholders and creditors. In the circumstances, explained in detail, no purpose would be served by the said procedure being adopted nor does it appear to be called for.

(34) I am satisfied that it is a fit and proper case for allowing the amendment sought for in C.A. 177 of 1971. I am also satisfied that the scheme of amalgamation sought for in Company Petition No. 29 of 1971, as amended in pursuance of Company Application No. 177 of 1971, should be sanctioned. If any particular employee of the Transferor Company does not find it worth his while to join the Transferee Company on the scales and terms indicated in the working sheets filed in the case it would be for him (or them) not to join the Transferee Company. I have only to state that the figures regarding the amount of retrenchment compensation payable have been worked out by the Transferee Company and that if there is any error in this regard it will be open to the concerned parties to have the same duly corrected by the Transferee Company. Company Petition No. 29 of 1971. as amended in Company Application No. 177 of 1971, is ordered and sanction is accorded to the scheme of amalgamation as sought for in Company Petition No. 29 of 1971 with paragraph 4 there in amended as ordered in Company Application No. 177 of 1971. The petitioners are at liberty to apply to this Court for such directions as are necessary with regard to the working of the arrangement. The petitioners shall file with the Registrar of Companies a certified copy of the order within 14 days from the receipt of the certified copy of the order by this Court. Even though the arrangement is to come into force as per the resolution it has been made clear by Shri I. N. Shroff that the Transferee Company would not be claiming back from the employees of the Transferor Company the remuneration paid to them up to the time when this amalgamation becomes effective.

(35) It is hereby ordered that the Transferor Company (Willcox) will stand dissolved from 16-6-1972 (in order to conveniently calculate salaries due and other payments). A formal order of winding up of the Transferor Company will be drafted by the Registry. Company Petition No. 29 of 1971 as well as Company Application No. 177 of 1971 are accepted accordingly. In the circumstances, I make no order as to costs.


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