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Tiruppur Cotton Spinning and Weaving Mills Ltd. Vs. Khimji Poonja and Company and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Judge
Reported in[1988]64CompCas349(Mad)
ActsTamil Nadu Relief Undertakings (Special Provisions) Act, 1969 - Sections 3 and 4; Companies Act, 1956 - Sections 433
AppellantTiruppur Cotton Spinning and Weaving Mills Ltd.
RespondentKhimji Poonja and Company and ors.
Appellant AdvocateHabibulla Badsha, Adv.
Respondent AdvocateS.V. Subramaniam, Adv.
Excerpt:
.....section 433 of companies act, 1956 - petition questioning construction of notification issued by state government - petition challenged order holding that appellant company not entitled to benefits of notifications - notifications issued under statutory power of government - in exercise of statutory power state government laid certain conditions - these conditions enforceable and effective by their own force - compliance with such conditions in exercise of statutory power can never be made dependent upon volition or sweet will of third parties - held, conditions put by state government destructive of power granting exemption can never be relied on for purpose of taking away protection given under section 4 - appeal allowed. - - the learned judge has also observed in his order that..........a common question which is involved relates to the construction of the notification issued by the state government under section 4 of the tamil nadu relief undertakings (special provisions) act, 1969, hereinafter referred to as 'the act'. admittedly, the three respondents have filed application before the company court in their capacity as creditors in which they have asked for winding up of the appellant company under sections 433(c) (e) and (f) of the companies act. the defence of the appellant company is that the state government having issued a notification under sections 3 and 4 of the act, the proceeding in the three company petitions cannot go on because the monetary liabilities on the basis of which the applications for winding up have been made stand suspended as a result of.....
Judgment:

M.N. Chandurkar, C.J.

1. In all these three appeals, a common question which is involved relates to the construction of the notification issued by the State Government under section 4 of the Tamil Nadu Relief Undertakings (Special provisions) Act, 1969, hereinafter referred to as 'the Act'. Admittedly, the three respondents have filed application before the company court in their capacity as creditors in which they have asked for winding up of the appellant company under sections 433(c) (e) and (f) of the Companies Act. the defence of the appellant company is that the STate Government having issued a notification under sections 3 and 4 of the Act, the proceeding in the three company petitions cannot go on because the monetary liabilities on the basis of which the applications for winding up have been made stand suspended as a result of the two notifications. At this stage, it would be proper to refer to the two notifications. the first notification is dated August 4,1984, and is made in exercise of the powers conferred by section 3 of the Act. By that notification, the State Government has declared thus:

'...that the said industrial undertaking, namely, the Tiruppur Cotton Spinning and Weaving Mills Ltd., Tirupur, shall, for a period of one year with effect on and from August 4, 1984, till August 3m, 1985, be a relief undertaking for purposes of the said Act.'

2. On the same day, the Government has issued another notification under section 4 of the Act, which read as follows:

'No II(2)/IND/4432(e)/84: In exercise of the powers conferred by clauses (a) and (b) of section 4 of the Tamil Nadu Relief undertakings (Special Provisions)Act,1969 (Tamil Nadu Act No.21 of 1969), the Governor of Tamil Nadu hereby directs that in relation to the relief undertaking, namely, Tirupur Cotton Spinning and Weaving Mills Ltd.:

(a) the Industrial Disputes Act, 1947 (Central Act No.XIV of 1947),shall apply with the omission of Chapter V-A and section 33-C.

(b) all contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which the said relief undertaking is a party, or which may be applicable to the said relief undertaking, immediately before August 4,1984, shall be suspended in operation and that all the rights, privileges, obligations and the liabilities accruing or arising thereunder before the said date, shall be suspended with effect on and from the said date:

Provided that nothing in this notification shall apply to contracts, assurances of property and agreements entered into by the said relief undertaking with the Tamil Nadu Industrial Investment Corporation Ltd. or any nationalised bank and also to any dues payable to the Tamil Nadu Electricity Board towards the supply of electrical energy:

Provided that nothing in this notification shall apply to contracts,m assurances of property and agreements entered into by the said relief undertaking with the Tamil Nadu Industrial Investment Corporation Ltd. or any nationalised bank and also to any dues payable to the Tamil Nadu Electricity Board towards the supply of electrical energy:

Provided further that the notification is subject to the following conditions, namely:-

(1) a Government nominee shall be co-opted to the board of the relief undertaking in order to ensure that the management does not show any discrimination in discharging the liabilities that would be covered by the notification, and

(2) the relief undertaking shall enter into a written agreement with the creditors, whose dues would stand frozen by virtue of the notification, for discharging their dues in installments to be mutually agreed upon and pay the creditors in such installments without default.

(sd) M.B.Pranesh, Additional Secretary to Government'.

3. The learned judge by the impugned order has taken the view that the appellant-company not having complied with the conditions which are specified in the second proviso of the second notification under section 4 of the Act, the appellant-company will not be entitled to the benefits of the said notification. The learned judge has taken the view that the company has not co-opted to the board of directors, a Government nominee, and that the company could not claim the privilege of being protected by the notification under section 4 of the Act without entering into agreement in writing with the creditors as contemplated under the second proviso. the learned judge has also observed in his order that if all possible attempts made by the company to enter into reasonable arrangements with the creditors were to fail or if the creditors were unreasonable, it was still open to the company to apprise the Government of the impracticable situation and request the Government to grant the relief without any condition attached thereto.

4. In these three appeals, the appellant-company has challenged the order of the learned single judge. We may make it clear at the outset that the appellant-company has not challenged the validity of any part of the notifications. But the argument on behalf of the appellant- company is that it is only recently in march, 1985, that a Government nominee has been appointed to the board of directors and the company would now comply with the requirements of the notification which requires that the relief undertaking shall enter into a written agreement with the creditors,whose dues would stand frozen by virtue of the notification (under section 4 of the Act), for discharging their dues in instalments to be mutually agreed upon and pay the creditors in such instalments without default. the argument of learned counsel for the appellant-company appears to be that while the company does not dispute that it will enter into the agreement as contemplated by the notification with the creditors, the notification cannot be so construed as to deprive the appellant-company of the protection which is given by the two notifications to the appellant- company as a relief undertaking. The argument is that, if the notification is so construed that the two conditions in the second proviso are conditions precedent, then the very purpose issuing the notifications is constured that the two conditions in the second proviso are conditions precedent, then the very purpose of issuing the notification under the ACt will be frustrated because the purpose for which the power under section 3 of the Act can be exercised by the State Government is to enable the continued running or restarting of an industrial undertaking as a measure of preventing, or of providing relief against,unemployment. Therefore, according to learned counsel, if the protection of the two notifications is not made available to the relief undertaking, the very event which was sought to be prevented, namely, unemployment, will occur.

5. Mr.S.V.Subramaniam, Mr.Somayajee and Mr.Vijay Narayan, who argued for the three respondents in the tree appeals, have, however, contended that the appellant company has not challenged the validity of the notifications and it is not open to this court to hold that the condition in clause 2 of the second proviso is bad. They have argued that the suspension of the liabilities contemplated by clause (b) of section 4 of the Act is subject to the conditions laid down in the notification and unless those conditions are satisfied, the protection given to the relief undertaking is not available to the appellant- company. Now,as we have already pointed out, the appellant-company has merely contended that though it has not yet entered into agreement with the creditors, it now proposed to do so after the Government nominee has been co-opted to the board in march, 1985. However, on hearing learned counsel, it appears to us that having regard to the nature of the condition which is put in clause 2 of the order of the Government, it is outside the power of the State Government under section 4(b) of the Act., Section 4 reads as follows:

'4, The Government may, if satisfied that it is necessary or expedient so to do for the purposes specified in section 3, direct, by notification,-

(a) that in relation to any relief undertaking, all or any of the enactments specified in the Schedule shall not apply or shall apply with such adaptations, whether by way of modification, addition or omission, as may be specified in such notification ; or

(b) that all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which any relief undertaking is a party or which may be applicable to any relief undertaking, immediately before the date with effect on and from which the relief undertaking was declared a relief undertaking, shall be suspended in operation or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall be suspended or be enforceable with such modifications and in such manner as may be specified in such notification.'

6. In so far as clause (a) of section 4 is concerned, the power which the State Government can exercise is the power to make certain enactments in the Schedule inapplicable to the relief undertaking or those enactments can be made applicable with such adaptations whether by way of modification, addition or omission, as may be specified in the notification.

7. When we come to clause (b) of section 4 of the Act, the power of the State Government appears to be three-fold . In the first part of clause(b), the power of the Government is to totally suspend the operation of all or any of the contracts, assurances of property, agreements, settlements awards, standing orders or other instruments in force, to which the relief undertaking is a party or which may be applicable to the relief undertaking immediately before the date with effect on and from which the relief undertaking is declared as a relief undertaking. This is a very wide power and the effect of the exercise of the power would be that the relief undertaking is totally relieved, for the time being of all the obligations or the liabilities flowing from the contracts or the instruments which are specified in the opening part of clause(b). Then the second clause has a restrictive operation as compared with the first clause and under that clause the State Government has the power to suspend only all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date and the reference to 'thereunder' is the reference to the instruments specified in the opening part of clause (b). Then the last clause contains a power by which the State Government instead of suspending all or any of the rights, privileges, obligations and liabilities accruing or arising under the instruments referred to earlier, those rights, obligations, etc., can be made enforceable with modifications. The State Government can also specify the manner in which the modified extent of such rights, obligations, etc., can be enforced,. It is to be noticed that each of the parts in section 4(b) is separated by 'or' and 'or' has to be read distinctively., In other worse, there can either be a wholesale suspension of the operation of the instruments specified in clause (b) or there can be a suspension of all or some of the rights and privileges in toto or in part, flowing from those instruments or alternatively such rights or obligations or liabilities can be made enforceable in a modified form and in the manner specified in the notification.

8. We have to read in this case the notification issued under section 4 of the Act in the context of the power which is vested in the State Government under section 4. A reading of clause (b) of the notification will clearly indicate that the phraseology in the first part of clause (b) in section 4 has been reproduced verbatim by the State Government. This will only mean that the State Government has clearly directed that all contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force on August 4,1984, shall be suspended with effect from August 4,1984. We are not concerned with the first proviso in the notification. When we come to the second proviso and especially condition (2) of the second proviso of the notification, the notification is made subject to the conditions specified in clause (2). As already pointed out, condition No.(2) requires the relief undertaking to enter into a written agreement with the creditors, whose dues have been frozen by virtue of the notification, for discharging their dues in installments. these installments have to be mutely agreed upon and one these installments are mutually agreed upon, then the relief undertaking has to pay the creditors in such installments without default. The question which falls for consideration is whether for the failure of the relief undertaking to enter into an agreement with the creditors, the protection given in the first part in clause (b) of the notification cannot at all be availed of. Now, undoubtedly, as a matter of fact, the relief undertaking has not entered into any agreement with its creditors. But we fail to see how the failure of the relief undertaking to enter into an agreement with its creditors can take away the blanket protection which has been given, namely, that the contracts shall stand suspended for a period of one year. As a matter of fact, we find that there is an intrinsic inconsistency in the notification itself. If, in exercise of the power under section 4(b) of the Act, the Government has directed that all contracts, agreements, assurances of property, etc.,. shall stand suspended, the necessary consequence will be that those contracts cannot be given effect to at all. This is clear from the first part of section 4(b) of the Act.

9. An argument is advanced before us that a notification of the State Government must be read as a whole and must be treated as having been issued in the exercise of the power under the last part, that is to say, when the State Government made the notification effective upon the satisfaction of the condition regarding the agreement to pay the liabilities by way of installments to be fixed by mutual agreement, the State Government did so because it has the power to prescribe that the contracts would be enforceable with such modification and in such manner as maybe specified in the notifications., As we have already pointed out, the notification reproduces verbatim the first part of clause (b) of section 4. Once the State Government has reproduced verbatim the first part of clause (b), we must attribute by that part, namely, to suspend entirely the operation of the contracts and that agreements to which the relief undertaking is a party.

10. The power under the first part of section 4(b) and the last part cannot be simultaneously exercised in respect of the same relief undertaking. The second condition in the second proviso would,therefore, be clearly inconsistent with the suspension of all contracts as contemplated by section 4(b) of the Act which does not refer to any conditions. the second inconsistency apparent on the face of clause (b) of the second condition of the notification is that the dues which are owed by the relief under taking have been described as having stood frozen by virtue of the notification, and yet they have to be paid in installments to be fixed by mutual agreement. The recital that the dues have been frozen means that even according to the State Government, the substantive part in clause(b) of the notification has the effect of feeling the liabilities of the clause (b) of the notification has the effect of freezing the liabilities of the relief undertaking. Now, either the liabilities are frozen or they are not frozen. Liabilities cannot be said to be frozen and at the same time required to be discharged which would mean that they are not frozen. When clause(b) of the second proviso in the notification requires with reference to the frozen liabilities that the relief undertaking shall make an arrangement for payment by installments to be mutually agreed upon, then the liabilities cannot be said to be frozen. Requiring payment to be made in respect of a liability which is frozen will be inconsistent with the main part of the notification which provides for a total temporary suspension of all contracts, etd. Now, undoubtedly, the State Government has stated that the notification is subject to the conditions in the proviso. But if the conditions virtually takes away the very protection which is given by the first part of the notification in clause (b) then the substantive part must prevail and not the condition.

11. Though this is enough for us to hold that the protection given to the appellant -company cannot be taken away because it has failed to comply with condition No.2, we find that there is an apparent infirmity in the second proviso to clause (b) of the notification. We must bear in mind that the power which the State Government is exercising when it issues a notification under section 4 of the Act is a statutory power. When, in the exercise of the statutory power, the State Government lays down conditions, those conditions must be enforceable and be effective by their own force. Compliance with such conditions laid down in exercise of a statutory power can never be made dependent upon the volition or the sweet will or the whim of third parties. in other words, if the protection to be given to the relief undertaking in exercise of a statutory power is to be made dependent upon whether a creditor is agreeable to enter into an agreement to receive the debts due by installments or not, this will mean that the effective exercise of the statutory power by the State Government will be at the mercy of third parties, Such restraint on a statutory power of the State Government can never be permissible. We are, therefore, of the view that the conditions which is put by the State Government which is destructive of the power itself can never be relied on for the purpose of taking away the protection given to the relief undertaking under section 4 of the Act.

12. Mr.Somayajee has now contended that the amount which is claimed by his clients from the relief undertaking is for the sale of goods and that the notification does not cover the debts due by the relief undertaking. It is not possible for us to accept this argument. the price payable for the goods purchased by the relief undertaking or for that matter for any purchase of goods is always in pursuance of a contract of sale and the recovery of the price is by way of enforcing the liability of the purchaser to pay the price., Such a case, in our view, will be expressly covered by the wide terminology in clause (b) of section 4 of the Act.

13. Mr. Vijaya Narayan has also contended that if there is a conflict between the main part of the notification and the proviso, the proviso only will prevail. We cannot accept this argument. The normal function of a proviso is to carve out something which is covered by the main provision. In a matter like this, where the very purpose of the protection which was intended by the notification under section 4 (b) of the Act will be defeated by considering the proviso in the manner in which it is sought to be construed by the respondents, we cannot hold that it is the proviso which will prevail and not the substantive part of the notification. In the view which we have taken, we must set aside the order of the learned judge and hold that the relief undertaking is entitled to the protection of section 4 of the ACt,and consequently, the proceedings in the three company petitions cannot go on till such time as the notifications under sections 3 and 4 of the Act, and consequently, the proceedings in the three company petitions cannot go on till such time as the notifications under sections 3 and 4 of the Act are in force.

14. The appeals are thus allowed with costs Rs.500 one set in OSA No.8 of 1985.


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