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Union of India Vs. Manekchowk and Ahmedabad Manufacturing Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberCompany Petition No. 36 of 1980 with Company Application Nos. 28, 82 and 101 of 1982
Judge
Reported in[1985]58CompCas729(Guj); (1983)1GLR445
ActsCompanies Act, 1956 - Sections 39(2), 391 and 391(2); Industries (Development and Regulation) Act, 1951 - Sections 15A, 18FA, 18FA(1) and 18FA(2)
AppellantUnion of India
RespondentManekchowk and Ahmedabad Manufacturing Co. Ltd.
Cases ReferredUnion of India v. Vijay
Excerpt:
company - winding up - sections 39 and 391 of companies act, 1956 and sections 15a and 18fa of industries (development and regulation) act, 1951 - textile unit of company closed down - some creditors filed winding-up petition - court appointed provisional liquidator - union of india sought direction to take over textile unit of company - shareholders and creditors of company sought sanction of scheme proposed by them to restart textile undertaking - said unit neither technically nor economically viable - alternative scheme proposed by sponsors not more advantageous than government proposal - court granted permission to government to take over textile units of company. - - , one of the major creditors of the company, had sponsored and moved a scheme of compromise between the company.....mehta, j. 1. these three company applications arise out of the proceedings taking over the manekchowk and ahmedabad mfg. co. ltd. (in winding-up) (hereinafter referred to as 'the company'). by two company applications, namely, company application nos. 28 of 1981 and 82 of 1982, the union of india and by company application no. 101 of 1982 the shareholder and the creditors of the company the petitioners herein (hereinafter referred to as 'the sponsors of the scheme') have taken out summons for directions. the union of india has sought a direction that permission under s. 18fa(1) of the industries (development and regulation) act, 1951 (hereinafter referred to as 'the act'), to take over the textile unit of the company be granted for the purposes of handing over the said unit to the gujarat.....
Judgment:

Mehta, J.

1. These three company applications arise out of the proceedings taking over the Manekchowk and Ahmedabad Mfg. Co. Ltd. (In winding-up) (hereinafter referred to as 'the company'). By two company applications, namely, Company Application Nos. 28 of 1981 and 82 of 1982, the Union of India and by company Application No. 101 of 1982 the shareholder and the creditors of the company the petitioners herein (hereinafter referred to as 'the sponsors of the scheme') have taken out summons for directions. The Union of India has sought a direction that permission under s. 18FA(1) of the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as 'the Act'), to take over the textile unit of the company be granted for the purposes of handing over the said unit to the Gujarat State and for appointment of the Gujarat State Textile Corporation as authorised persons. The sponsors of the scheme have by Company Petition No. 36 of 1980 sought the sanction of the court under s. 39(2) of the Companies Act, 1956 (hereinafter referred to as 'the Companies Act'),to the scheme they have proposed before the court and which has been approved and adopted by the prescribed statutory majority of the various interests of the company. The sponsorers of the scheme have, therefore by Company Application No. 101 of 1982 sought the directions that pending consideration of the scheme, the hearing of Company Application No. 28 of 1982 moved by the Union of India under s. 18FA(1) of the Act be stayed or in the alternative the court may decide as to which out of the two rival proposals of taking over, one by the Union of India and another by the sponsors of the scheme, is beneficial to the interests of the company. A few facts may be noticed in order to appreciate the background of these proceedings.

2. The company was incorporated in 1892 and M/s. Hiralal Tricumlal and Sons, a partnership firm, were the managing agents of the company till December 31, 1965. One Shri Linubhai Hiralal was appointed as the managing director of the company with the effect from January 1, 1966, for a period of five years. The textiles unit of the company was closed down with effect from March 31, 1968. Some of the creditors of the company filed winding-up petitions in this court in July, 1968, in which this court appointed a provisional liquidator. M/s. Indequip Ltd., one of the major creditors of the company, had sponsored and moved a scheme of compromise between the company and creditors and members which was sanctioned by this court by its order of December 10, 1969. The provisional liquidator, therefore, handed over the possession of the textiles unit of company to the board of directors on May 5, 1970, and the unit was recommended in October, 1970. It should be noted that in August, 1967, the Union Bank of India had sanctioned to the company loan in the sum of Rs. 13 lakhs against guarantee from the Govt. of Gujarat. The textile unit board of Director two nominees of Govt. of Gujarat. The textiles unit was run and managed under the aforesaid scheme till October, 1976 but again due to financial difficulties, it came to a standstill and since this court found that it was not possible to work the scheme, directed by its order of December 12, 1977, to wind up the company and the official liquidator was appointed as the liquidator in charge of the company. The official liquidator inspite of his best efforts, could not attract any person for taking over the textile unit of the company either on lease or by way of outright sale so that it could be recommenced. There was no response in spite of repeated public notices inserted by the official liquidator from persons in textile industry or from the State Govt. or the Central Govt. or even from the National Textiles Corporation with the result that the textile unit remained closed. The Govt. of Gujarat had appointed an expert committee in about March, 1977, to report about the technical viability of the unit under the chairmanship of one Shri I. C. Shah, a leading expert of repute in the textile industry. The said committee submitted its report about the viability of the said unit and in the opinion of the said committee, on a consideration of all the relevant aspects set out in detail in the said report, the said unit was neither technically no economically viable. The National Textiles Corporation also did not evince any interest in the taking over of this unit. An half hearted attempt was made by the co-operative society of workers namely, Manekchowk Katan Vanat Kandar Udyogik Sahakari Mandali Ltd., which had moved this court for taking over the textile unit on lease by a phased programme. This court, has by its order dated July 2, 1979, permitted the said society on certain terms and conditions to take over the textile units by phases in pursuance of which the processing house of the textile unit was taken over by the said society. Unfortunately, however, the arrangement could not materialise fully with the result the society found itself unable to take over other section of the textiles unit and could not also work the processing section which was taken over by then. This court, therefore, by its order of July 28, 1980, refused to grant any further extension of time for taking over and terminated the said arrangement. It is in these circumstances that the sponsors of the scheme moved this court by Company Application No. 5 of 1980 on January 21, 1980, for direction under s. 391 of the Companies Act for convening a meeting of the different interests of the company to adopt with or without modification the proposed scheme for restarting the textile unit. This court has, by its order dated April 18, 1980, directed the convening of meetings of the various interests on different dates as specified therein for purposes of consideration and for adopting the said scheme with or without modification. Various meetings of the share holders, creditors, secured, unsecured and statutory, and workers were convened to consider the said scheme has been approved by the prescribed majority of the secured as well as unsecured creditors, shareholders and workmen. The Union Bank of India, which is a major secured creditor of the company, also supported the scheme. The statutory creditors did not approve of the scheme and they were, therefore kept outside the scheme by the sponsor of the scheme, therefore, proved this court on July 11, 1980, by filing Company Petition No. 36 of 1980 s. 391(2) of the Companies Act for sanctioning the said scheme of compromise. This court has directed the issuance of notice to the Central Govt. under 394A of the Companies Act which was accordingly served on the Central Govt. on deposit a sum of Rs. 50,000 in all with the official liquidator so as to enable them to complete the work of cleaning and greasing the textile unit so that in case of the sanction being granted by this court to the scheme of arrangement, no time may be wasted in recommencing the textile unit. It is at this stage that the Central Govt. Made an application under s. 15A of the Act for obtaining permission to investigate into the possibility of running or starting the textile unit of the company. This court, by its order of August 20, 1980, granted the permission as prayed for. In pursuance of the said permission, the Central Govt. appointed a committee to investigate into the possibility of recommencing the textile unit. The said committee, at its first meeting on 26th and 27th of September, 1980, had held an on-the-spot inspection of the textile unit so as to ascertain the condition of the machinery and the general layout, etc. The second meeting was held on 3rd and 4th November, 1980, when the representatives of the mill management, the bankers and representatives of recognised labour unions were heard by the committee. After holding the third meeting on November 18, 1980, the report was finalised by the committee in its meeting on December 12, 1980, the report was finalised by the committee in its meeting on December 12, 1980, and submitted, the Union Government moved Company Application No. 28 of 1982 for permission to take over the textile unit. It appear that some of the creditors and shareholder had moved the Delhi High Court challenging the decision of the Central Govt. by their Civil Writ Petition No. 468 of 1981 to take over the textile unit of the company and also for such orders and directions as to prevent them directly or through its agent from taking over the management of the said unit in pursuance of the said decision. Petitioners Nos. 2 and 3 in Company Petition No. 36 of 1980 were amongst the petitioners who had challenged the said decision before the Delhi High Court as stated above. The petition was admitted by the Delhi High Court and interim relief was granted directing the Central Govt. to maintain the status quo. The said petition came up for hearing before the Delhi High Court on November 10, 1981, when the counsel for the Govt. of India stated that Govt. willing to give hearing to the petitioner without conceding that the petitioners were entitled to be heard before the proposed action was taken under s. 18FA of the Act. On that statement, the Delhi High Court by order on November 10, 1981, disposed of the petition with the direction that till the petitioners were heard by the Central Govt., no further action in pursuance of the impugned decision should be taken and the matter be disposed of at the earliest date in view of the urgency of the question. Accordingly a notice of hearing was issued on November 26, 1981, and a hearing was given to the petitioners on the said writ petition. The joint secretary, who had given hearing by his order of March 24, 1982, negatived the objection of the said objectors and recommended that the Govt. should press its application before this court for permission to take over the industrial unit of the company, Accordingly, Company Application No. 82 of 1982 has been moved by the Union of India. It in the light of this backdrop that I have to decided whether the permission as prayed for by the Govt. of India should be granted under s. 18FA of the Act, or the proposal of the sponsors of the scheme for sanctioning the scheme to restart the textile undertaking of the company be granted.

3. At the time of hearing of this group of applications, it was urged on behalf of the sponsors of the scheme that the directions as prayed for by the Union of India in Company Application Nos. 28 of 1982 and 82 of 1982, if granted by this court, would not only cause prejudice to the different interests of the company but would cause great harm to each of them It was pointed out by the learned counsels for the sponsors of the scheme that the first casualty of the Government taking over the textile unit of the company would be the interest of the workers inasmuch as there is no obligation on the authorised person who will be placed in control and management of the said textile unit to employ all the former employees of the said undertaking whose services became discharged by reason for the winding up of the company and it would be discretion of the authorised person as to who out of such workers sold be re-employed. It was also pointed out by the learned counsel that the creditors also would suffer if the Govt. takes over unit, since every debt arising out of any loan obtained by the authorised person for the management and control of such undertaking would enjoy priority over all other debts, whether secured or unsecured, which might have been incurred before the management is so taken over. Even as regards the preferential debts, the debts incurred by the authorised person for the management and control of such undertaking shall be entitled to rank equally with them. The learned counsel further pointed out that the shareholder will also suffer, inasmuch as their right to manage and control the industrial undertaking would be virtually lost till the Govt. retains the control and management of such industrial undertaking. In any case, the learned counsel for the sponsors of the scheme also contended that the court has no jurisdiction to grant the direction as prayed for inasmuch as the condition precedent prescribed in s. 18FA(1) are not satisfied since no material has been brought on the record, in spite of the grievance made by the sponsor of the scheme in the reply affidavit to oppose the direction prayed for by the Union of India for taking over, (to show) that the Central Govt. has formed the necessary opinion in respect of the textile unit in question. In the submission of the learned counsel for the sponsors of the scheme the scheme proposed by them and approved by the statutory is more favourable and in the interest of the workers, creditors and shareholders of the company.

4. Two questions, therefore, arise for my consideration, namely, (i) whether the court has jurisdiction to grant the directions as prayed for by the Union of India, and (ii) if yes, which is the better alternative out of the two proposals for taking over - one by the Union of India and another by the sponsors of the scheme - for taking over under the scheme, having regard to the overall interests of the workers, creditors and the shareholders.

5. Re : Question No. 1 :- I do not think that the learned counsel for the sponsors of the scheme was justified in contending that the court has no jurisdiction to grant the directions under s. 18FA(1) of the Act. The said sub-section reads as under :

'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 restarting an industrial undertaking, in relation to which an investigation has been made under section 15A, and that such industrial undertaking should be run or restarted, 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 or any part of the industrial undertaking such functions of control as may be specified in the application.'

6. Two conditions are to be satisfied before the court can grant permission to the Central Govt. to appoint any person or body of persons to take over the management of an industrial undertaking in relation to which an investigation has been made under s. 15A of the Act. Firstly, it must be established that the Central Govt. has formed an opinion about the possibility of running or restarting the industrial undertaking, and, secondly, such undertaking should be run or restarted for maintaining or increasing the production, supply or distribution of articles or class of articles needed by the general public and relatable to the scheduled industry. If these two conditions are satisfied, the court is bound to grant the permission, if an application is made by the Central Govt. under sub-s. (1). I have, therefore, to decide whether the Central Govt. has formed the necessary opinion on a consideration of relevant aspects prescribed in the said section. It is common ground that the affairs of the company were investigation under s. 15A of the Act for purposes of finding out the possibility of running or restarting the industrial undertaking and the Investigation Committee appointed by the Central Govt. had submitted a report after a detailed investigation of the relevant aspects. The Investigation Committee has in Part IV of the said report summarised its findings and made the necessary recommendations. The material part, so far as relevant for purposes of these applications, read as under :

'CONCLUSIONS AND RECOMMENDATIONS :

On the basis of a personal visit to the mill, discussions with the representatives of the management, labour and bank, and written statements from various organisations, the committee has prepared a detailed report on the viability of restarting the Ahmedabad & Manekchowk Mfg. Co. Ltd. The detailed report has been given earlier. The overall conclusions and recommendations of the committee regarding restarting of the mills are given below :

1. The conditions of the existing machinery in the mill is on the whole very unsatisfactory. In particular, most of the, if not all, machinery in the spinning department is obsolete and much of it is in a scrap condition. Most of the machinery in the weaving department is in a reasonable condition, whereas the machinery in the processing section is in a good condition on the whole.

2. The financial picture of the company so gloomy. The accumulated loss up to date is approximately rupees one crore and the net worth of the company is negative. Past liabilities amount to approximately Rs. 1.7 crores.

3. In the present condition, the working of the mill cannot be considered viable under any circumstances. Unless substantial investments on renovation and modernisation of the machinery is carried out and unless adequate provision for working capital is made, the mill cannot be restarted.

4. Having considered the various alternatives, the committee has concluded that it would be advisable to restart the mill in three phases :-

(a) In the first phase, only the processing department should be restarted, since minimum of investment is necessary here. Processing is recommended to be carried out on a job-work basis.

(b) In the second phase, it is proposed that the weaving department should be started with purchased yarn and the cloth so produced would be processed in the mills' own process house. If surplus capacity is available in the process house, this can be utilised in the form of job-work.

(c) In the third and final phase, spinning department should be started after proper modernisation and the mill would produce its own yarn and cloth and will finish it for marketing.

5. The committee estimates that the expenditure on modernisation will amount to a total of Rs. 2.58 crores which would be phased in the following manner :-

8. Considering the optimum manufacturing programme that the company can undertake after going through the phased modernisation as proposed here, there will be an accumulated loss of Rs. 155.14 lakhs in the five years after restart of the mills, after providing interest and depreciation. Since depreciation is not a cash outflow, the actual cash loss comes to Rs. 86.62 lakhs by subtracting the amount from the accumulated loss of Rs. 155.14 lakhs quoted above. This cash loss is almost equivalent the interest on working capital. Therefore, if the company can be provided with the working capital free of interest or at a marginal rate of interest, it can be merged with a healthier and profit earning company.

The committee also recommends that remunerative use of the existing assets of the company, viz., surplus land, should be made to provide additional revenue to the mill company free of interest. The mill has nearly 15,000 sq.mtrs. of surplus land which, if utilised for construction of a commercial complex, can fetch an estimated additional revenue of Rs. 20 lakhs to Rs. 25 lakhs per year.

One such scheme proposing a merger is pending before the Gujarat High Court (vide annexure X) which offers facilities for working capital and commercial utilisation of available land.

11. The second alternative would be for the State or the Central Government to take over this unit. For undertaking the take-over, the Government must recognise and be prepared for continuing cash losses for a period of at least five years amounting to approximately Rs. 90 lakhs.'

7. In Company Application No. 28 of 1981, one Shri M. Damodaran, who happened to be a Deputy Secretary in the Government of India, Ministry of Commerce, Dept. of Textiles at New Delhi, filed an affidavit in support of the summons taken out in the said application for permission under s. 18FA(1) of the Act. It has been, inter alia, stated in the said affidavit that the Govt. of India had, after obtaining the permission under s. 15A of the Act from this court, appointed an Investigation Committee under the chairmanship of Dr. P. C. Mehta to investigate into the possibility of running or restarting the textile unit of the company. As regards the opinion of the Government on a consideration of the said report, the deponent has stated in paras. 3 to 5 of the said affidavit as under :

'3. The aforesaid Investigation Committee submitted its report to the Government of India on December 24, 1980. The Government has considered the report of the Committee and its observations, suggestions and recommendations and it has formed the opinion that there are possibilities of restarting the aforesaid industrial undertaking and that the said undertaking should be restarted for maintaining and increasing the production, surplus and distribution of textile articles which are needed by the general public.

4. The Government of India has decided to move this Hon'ble Court for permission to appoint the Gujarat State Textile Corporation Ltd. to take over the management of industrial undertaking.

5. I say that the facts stated in paragraphs 1 to 4 are true according to my information derived from records.'

8. It appears that after Company Application No. 28 of 1982 was moved by the Union of India, the aforesaid decision of Govt. of India was challenged in the Delhi High Court by Shri Rajendra Ratilal Shah (who is one of the sponsors of the scheme and petitioner No. 2 in Company Application No. 101 of 1982), and others by their Civil Writ Petition No. 468 of 1981 and sough appropriate writs, others and directions to quash and set aside the same, inter alia, on the ground that the petitioners were not heard by Central Govt. before the decision was taken. The Delhi High Court admitted the petition and directed the Central Govt. to maintain status quo. However, on the counsel for the Govt. of India stating before the Delhi High Court that the Govt. of India was willing to give a hearing to the petitioners without conceding that they had a right to be heard, the petition was disposed of by a short order dated November 10, 1981, of the Division Bench of the said High Court that in view of the statement made by the learned counsel for the Govt. of India, nothing survived in the petition for further adjudication and, therefore, directed the Central Govt. to give a hearing to the petitioners before passing any orders under s. 18FA of the Act, and till the hearing was afforded, which was expedited having regard to the urgency of the matter, no further action should be taken by the Government in the matter of taking over. The notice of hearing was issued to the petitioners of the said civil writ petition for the hearing to be made on December 10, 1981, by the Joint Secretary of the Govt. of India in the Ministry of Commerce. In response to the said notice, only one petitioner, namely, Gopaldas Parikh, appeared for personal hearing along with his counsel. On behalf of the petitioners, appearing before the joint Secretary in the course of hearing, all the contentions which are urged before me were raised by the learned counsel on behalf of the sponsors of the scheme. None of the contentions impressed the joint Secretary, who by his reasoned order rejected the same and held that the Government should press its application before the Gujarat High Court for permission to take over the industrial undertaking. The facts of the hearing as well as the final order made by the Joint Secretary have been deposed to in the additional affidavit filed in Company Application No. 82 of 1982 by Shri M. Damodaran, Deputy Secretary to the Govt. of India. The order of the Joint Secretary rejecting the contentions of the petitioners in the civil writ petition has also been annexed to the said affidavit. I do not think, before me as was sought to be done by their learned counsel that the first condition about the formation of the opinion by the Central Govt. has not been established. As a matter of fact, the challenge virtually to this very decision of the Govt. of India in the Delhi High Court in Civil Writ Petition No. 468 of 1981, and one of the grounds of challenge was that the said decision of the Govt. of India was vitiated since no opportunity of hearing was given to the persons affected, namely, petitioners in the said petition. The petitioners in the said petition did not object to the Division Bench disposing of the writ petition since the Central Govt. showed its willingness to give them a hearing. If, therefore, the sponsors of the scheme, out of whom Shri Rajendra Ratilal Shah, who was one of the petitioners in the said civil writ petition, had a grievance that in fact no opinion had been formed by the Government, they would not have allowed the petition to be disposed of on short ground as was done by the Delhi High Court. In any case, if they had not urged before the Delhi High Court that in fact no opinion was formed by the Central Govt., I am afraid, it would not be possible for them to agitate that question in this court now. In any view of the matter, since the statement on oath of Shri M. Damodaran in his affidavit in Company Application No. 28 of 1981 that the Central Govt. has considered the report of the Investigation Committee and has formed the opinion that there are possibilities of restarting the textile unit of the company, and that it should be restarted for maintaining and increasing the production, etc., of the textile articles needed for the general public has not been controverted by or on behalf of the sponsors of the scheme in their reply affidavit in terms, I do not think that I would be justified in holding that the Central Govt. has not formed the opinions as required under s. 18FA(1) of Act. The only averments made in the reply affidavit of Shri Rameshchandra Gopaldas Parikh, who is one of the directors of M/s. Indequip Chem-Dyes Ltd. and one of the sponsors of the scheme in this behalf is to be found in para 5, which reads as under :

'5. I further say and submit that in order to enable this honourable court to examine the question whether the Central Government has formed the opinion reasonably, rationally and such a decision is not based on extraneous considerations, the Central Government ought to be called upon to place before this Hon'ble court the report of the Investigation Committee appointed by the Central Government under the permission of this Honourable court. I say that it is well settled that mere assertion that the Central Government has formed the required opinion is not conclusive and this Honourable court has jurisdiction to examine whether such an opinion in fact has been formed, and if such an opinion is purported to have been formed, whether the Government has acted arbitrarily or unreasonably or mala fide or in total disregard of the provisions of law. I, therefore, say and submit that this honourable court ought to call upon the Central Government to produce the report of the Investigation Committee and examine the averments made by the Central Government in its affidavit that it has formed its opinion as required by section 18FA of the IDR Act. I say that the decision of the Central Government is arbitrary, unreasonable and based on extraneous considerations.'

9. It is no doubt true that I have directed the learned counsel for the Central Govt. to produce the necessary file to satisfy this court as to whether in fact an opinion had been formed by the Govt. of India or not and who formed the opinion. The learned counsel for the Govt. of India had also assured in the course of hearing of these applications on 13th and 14th of May, 1982, to file the necessary affidavit or to produce the file within a week in support of the aforesaid averment about the formation of the opinion in the reply affidavit of Shri M. Damodaran. In spite of this assurance, no further affidavit has been filed, nor the necessary record produced as assured by the learned counsel for the Central Govt. till today, that is June 3, 1982. Mr. R. H. Mehta for Mr. K. S. Nanavati wanted to take out some summons for directions which have become necessary in high of the non-fulfillment of its assurance to the court of the file the necessary affidavit and/or to produce the record in support of the statement of Shri. M. Damodaran in his reply affidavit. I do not think that any further direction is necessary in view of the matter which I am now inclined to take on the material which is existing. I do not think that the learned counsel for the sponsors of the scheme is justified in urging that the first requirement prescribed under s. 18FA about the formation of the opinion by the Govt. of India is not compiled with. The reasons for my view are obvious. Firstly, one of the sponsors of the scheme, viz., Shri Rajendra Ratilal Shah, who was one of the petitioners in the civil writ petitions before the Delhi High Court, had virtually challenged this decision of the Central Govt. to move this court to take over the textile unit of the company. In effect and substance, the challenge in the said petition was as to the opinion of the Central Govt. to take over the management and control of the textile unit of the company. Secondly, the said petition was allowed to be disposed of without any demur by the petitioners of the said petition which included one of the sponsors of the scheme before me on the ground that nothing survives for further adjudication in view of the willingness expressed by the Central Govt. to give a hearing to the petitioners of the said petition. Thirdly, the sponsors of the scheme in their reply affidavit had not joined issue to the statement made on oath by Shri Damodaran in his reply affidavit that the Govt. of India has formed the necessary opinion as required under s. 18FA of the Act for moving the High Court for permission. The sponsors of the scheme have challenged the opinion of the Government as vitiated, inter alia, on the ground of arbitrariness based on extraneous considerations and, therefore, bad in law and void. Fourthly, in the reply affidavit filed on behalf of the sponsors of the scheme before me, it has not been urged in terms that the necessary files of the Central Govt. should be called for the satisfaction of the court. In that view of the matter, therefore, I am of the opinion that the first condition prescribed in s. 18FA is satisfied.

10. The second condition that the restarting of the industrial undertaking was necessary for maintaining and increasing the production, supply and distribution of the textile articles needed for the general public is also satisfied since in para. 3 of the affidavit of Shri M. Damodaran, a statement oath has been made to that effect. As a matter of fact, this is the second aspect of the same question on which the Central Govt. has to form the opinion, and if I an satisfied, which I am, that the Central Govt. has formed such an opinion, I do not think that the first contention of the learned counsel for the sponsors of the scheme that the court has no jurisdiction can be sustained. I am, therefore, of the opinion that the court has jurisdiction to entertain and decide these two application moved by the Union of India.

11. Re : Question No. 2. - The learned counsel for the sponsors of the scheme was at great pains to emphasis that the scheme proposed by the sponsors is a better alternative than the proposal of the Govt. of India to take over the control and management of the textile unit of the company. The learned counsel for the Central Govt. urged that the courthouse no discretion to consider the alternative scheme proposed by the sponsors if the court is satisfied the alternative scheme proposed by the sponsors if the court is satisfied that the Central Govt. has formed the opinion as required under s. 18FA of the Act so as to enable the Central Govt. to make an application to take over any industrial undertaking in respect of which an investigation has been made under. 15A of the Act. I am of the opinion that the contention of the learned counsel for the Central Government is well founded. Sub-s. (2) of s. 18FA provides that where an application is made under sub-s. (1), the High Court shall make an order empowering the Central Govt. to authorise any person or body of persons to take over the management of the industrial undertaking or to exercise functions of control in relation to the whole or any part of the industrial undertaking for a period not exceeding five years. In my opinion, the expression 'shall' as used in s. 18FA, sub-s. (2), is mandatory, and the court is bound to pass an order direction handing over of the management and control of such an industrial undertaking to the authorised person or body of persons in the manner as provided in s. 18FA once it has been brought to the notice of the court that the Central Govt. has formed the opinion as required under s. 18FA and an application is made in that behalf. The only discretion which is vested in the court under sub-s. (2) is that, when an extension is sought by the Central Govt. to continue the management and control of an undertaking taken over under the main enactment of sub-s. (2) for a period exceeding five years, the court may make an order directing/permitting the authorised person to continue to manage such undertaking or to exercise functions of control in relation to such undertaking. The overall limits on the power of the court is that the continuance shall not, in any case, be permitted to exceed 12 years. A combined reading of the main enactment of sub-s. (2) and its first proviso makes it clear that when an application is made under sub-s. (1) by the Central Govt. after it formed the opinion about the possibilities of running or restarting the industrial undertaking in the interest of maintaining or increasing the production, supply and distribution of articles needed by the general public, the court is under an obligation and bound to grant the permission to the Central Govt. to take over the management and control of such an industrial undertaking and it is only when the extension is sought beyond the completion if initial period of five years that the court has a discretion to grant such extension subject, however, to a maximum period of 12 years. If, therefore, the court is under an obligation to grant permission to the Central Govt. to take over, I do not think that it would be open to consider as to which of the alternatives out of the two, namely, one by the Central Govt. and another by the sponsors of the scheme to take over the management of the textile unit of the company, is more advantageous to the different interests of the company.

12. My attention has been drawn to the decision of the learned single judge of the Bombay High Court in Union of India v. Vijay . [1977] 47 Comp Cas 348 where, in almost Manufacturing similar circumstances, the learned judge of the Bombay High Court held that the expression 'shall' in s. 18FA(2) of the Act is mandatory and the court is bound to pass an order directing the handing over of the industrial undertaking to the authorised person once it has been brought to the notice of the High Court that the opinion has been formed by the Central Govt. and an application is made in that behalf, and that the court was not in such circumstances bound to consider the alternative scheme for reorganisation or arrangement of the said company moved by some interested parties. Assuming that the power of the court under sub-s. (2) of s. 18FA is discretionary, and the word 'shall' is to be interpreted as 'may', even then, I do not think that the sponsors of the scheme have been able to make out a case that their proposal to restart the textile unit of the company is more advantageous to the different interests, namely, the workers, shareholders and creditors of the company. The reasons for my view are obvious. The first hurdle in the way of the sponsors of the scheme is that the scheme has been approved by the statutory creditors. Apart from this infirmity, the very basis of the scheme as proposed by the sponsors is, in my opinion, very nebulous, vague and imprecise. The basis of the scheme is provided in Pt. IV of the scheme. It reads as under :-

'IV. Basis of the scheme. - 1. The scheme is proposed on the basis that the total liabilities of the company as on April 30, 1979, do not exceed Rs. 170 lakhs and permission is given to the sponsors to put the vacant land as well as the buildings so far lying idle to commercial use including the sale or lease of the said land and the building either in one lot or in parts or deal with the same in any other manner and/or carry on construction activities thereon either alone or in collaboration with others.

2. 50% of the amount realised by putting the land and building to commercial use shall be utilised for modernisation of the plant and machinery and the remaining 50% of the realisation shall be utilised for discharging the liabilities of the bank.'

13. To put it tersely, the entire scheme has been rested on the assumption that the sponsors would be able to put the vacant land as well as the buildings of the company so far lying idle to commercial use including the sale or lease of the said land and the building either in one lot or in parts. If this so the basis of scheme, I am afraid, there would be many hurdles and impediments which are difficult to comprehend fully at this stage which the sponsors of the scheme shall have to overcome in order to commercially exploit the vacant land as well as the idle buildings. If there is a vacant land, the constraints prescribed by the Urban Land (Ceiling and Regulation) Act, 1976, shall have to be overcome and unless the Government permits to exempt the vacant land from the provisions of the Ceiling Act, it would not be possible for them to commercially exploit the same. Assuming that the provisions of the Ceiling Act do not apply to the land of the company, even then in the present state of the (real) estate market, it would be difficult for the sponsors of the scheme to commercially exploit the land and buildings without making substantial investment of capital. The present modus operand in the (real) estate market is too well known to be emphasised and I do not think that the sponsors of the scheme would be able to earn the full benefit from the land and buildings of the company unless they are prepared to indulge in the sharp practices of transferring the properties for consideration in excess of the sharp practices of transferring the properties for consideration in excess of the apparent consideration stated in the instrument of transfer which would expose them to the acquisition proceedings under the I.T. Act also. Apart from these hurdles in the real estate market, the initial investment of capital for putting the vacant land as well as buildings of the company to commercial use would pose very serious problems before the sponsors of the scheme and unless some developers are associated with the development project, it would not be possible for the sponsors of the scheme to achieve their object of commercially exploiting the vacant land and idle buildings of the company. The incidence of tax on capital gains is also a factor which cannot be ignored while considering the viability of the scheme. Even assuming that these sponsors of the scheme would be able to overcome this hurdle in a legal and just manner, even then, assuming that the market price of the land in the area where the textile unit of the company is situated is Rs. 1,000 per sq. metre, the amount which can possibly be raised by the sponsors would not be more that Rs. 2 to 3 crores having regard to the open vacant land which is available with the company. The Investigation Committee appointed by the Govt. of India has opined that the initial capital investment for modernisation of the company would also require working funds which have been estimated by the Committee at Rs. 90 lakhs per annum. I do not think, therefore, that the basis of the scheme is workable at all. It should be noted that the basis of the scheme is workable at all. It should be noted that the Investigation Committee has considered that the commercial use of the surplus land which is admeasuring about 15,000 sq. metres can fetch an additional estimated revenue of Rs. 20 to 25 lakhs per year. This can be possible only if the Government takes over this industrial undertaking since the State Govt. can permit the authorised person to put the surplus land to commercial use on the terms and conditions which it may think proper to impose under the Ceiling Act. In that view of the matter, therefore to impose under the Ceiling Act. In that view of the matter, therefore, I do not think that the alternative scheme proposed by the sponsors can be said to be more advantageous in nature than the proposal of the Govt. of India.

14. The result is that Company Application No. 101 of 1982 made by the sponsors of the scheme should be dismissed and Company Applications Nos. 28 of 1981 and 82 of 1982 made by the Union of India should be allowed. I, therefore, make the judge's summons in Company Application No. 28 of 1981 absolute in terms of prayer (a) of the said summons and grant permissions to the Union of India to take over the textile units of Manekchowk and Ahmedabad Mfg. Co. Ltd. entirely with the lands, buildings and machineries for a period not exceeding five years and direct the official liquidator to hand over the management of this undertaking to the Gujarat Textile Corporation Ltd. as authorised person in the manner provided for the Industries (Development and Regulation) Act, 1951. The official liquidator before handling over the possession of the undertaking shall make a complete inventory of this industrial undertaking and delivery a copy therefore to the authorised person. I further direct that the official liquidator before handling over such possession to such authorised person. Must receive all charges, coat and expenses except in regard to any proceedings that he might have taken as official liquidator or incurred by him as official liquidator till the date he hands over the possession. There should be no order as to cost in these application. In view of the order made in these applications there should be no order in Company Petition No. 36 of 1980 including no order as to costs.

15. After the dictation of this order was completed, Mr. H. M. Mehta, learned counsel for the Central Govt., sought my permission to file an additional affidavit of one Shri V. K. Chowdhary, Deputy Secretary to the Government of India Ministry of Commerce (Department of Textiles) as directed by this court. I told him to file the affidavit though the dictation of the order was completed. The additional affidavit of Shri V. K. Chowdhary does not make any difference on the overall view which I have taken of the matter but on the contrary, it supports the say of the Government that the Central Government has formed the necessary opinion in the matter.


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