Skip to content


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

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberO.S.A. No. 8 to 10 of 1985
Judge
Reported inAIR1986Mad12
ActsTamil Nadu Relief Undertakings (Special Provisions) Act, 1969 - Sections 4
AppellantTiruppur Cotton Spinning and Weaving Mills Ltd
RespondentKhimji Poonja and Co. and ors.
Appellant AdvocateHabibullah Badsha and ;Subbia, Advs.
Respondent AdvocateS.V. Subramaniam, ;Vijaynarayan and ;Somayajee, Advs.
Excerpt:
.....on basis of which applications for winding up suspended as result of two notifications issued by state government - findings of judge that appellant company will not be entitled to benefits of notifications - whether findings of judge valid and sustainable - where very purpose of protection which was intended by notification under section 4 (b) will be defeated by considering proviso in manner in which it is sought to be construed by respondents - proviso of notification will not prevail over substantive part of notification - held, findings of judge invalid and unsustainable. - - 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..........a. common question which is involved relates to the construction of the notification issued by the state government under s. 4 of the tamil nadu relief undertakings (special provisions) act 1969, hereinafter referred to as the act. admittedly, the three respondents have filed applications before the company court in their capacity as creditors in which they have asked for winding up of the appellant company under s. 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 ss. 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.....
Judgment:

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 S. 4 of the Tamil Nadu Relief Undertakings (Special Provisions) Act 1969, hereinafter referred to as the Act. Admittedly, the three respondents have filed applications before the Company Court in their capacity as creditors in which they have asked for winding up of the appellant company under S. 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 Ss. 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 4th August 1984 and is made in exercise of the powers conferred by S. 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 the 4th August 1984, till the 3rd August 1985, be a relief undertaking for purposes of the said Act.'

On the same day, the Government issued another notification under S. 4 of the Act, which reads as follows -

'No. II (2)/IND/4432 (0)/84 - In exercise of the powers conferred by clauses (a) and W of S. 4 of the Tamil Nadu Relief Undertakings (Special Provisions) Act, 1969, (Tamil Nadu Act 21 of 1969), the Governor of Tamil Nadu hereby directs that in relation to the relief undertaking, namely, Tiruppur Cotton Spinning and Weaving Mills Ltd,

(a) the Industrial Disputes Act 1947 (Central Act XIV of 1947) shall apply with the omission of Chapter V.A and S. 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 the 4th August 1984, shall be suspended in operation and that all the rights, privileges, obligations and the liabilities coming or arising there under before the said date, shall be suspended with effect on and from the said date;

Provided that nothing in this Notification shall apply to contract, 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 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'.

2. 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 S.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, Government nominee, and that the Company could not claim the privilege of being protected by the Notification under S.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 is 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.

3. 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 in 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 S. 4 of the Act) for discharging their dues in installments to be mutually agreed upon and pay the creditor in such installments without default. The argument of the 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 relief undertaking. The argument is that if the notification is so construed that the two conditions in the second proviso are condition precedent, then the very purpose for issuing the notification under the Act will be frustrated because the purpose for which the power under S. 3 of the Act can be exercised by the State Government is to enable the continued running or restarting of a State Industrial Undertaking as a measure of preventing or of providing relief against unemployment. Therefore, according to the 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 take place.

4. Mr. S. V. Subramaniam, Mr. Somayajee and Mr. Vijay Narayan, who argued for the three respondents in the three 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 S. 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 agreements 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 the 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 S. 4(b) of the Act. S. 4 reads as follows -

'4. The Government may, if satisfied that it is necessary or expedient so to do for the purposes specified in, S. 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 adaptation, 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 there under before the said date, shall be suspended or be enforceable with such modifications and in such manner as may be specified in such notification.'

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

5. When we come to clause (b) of S. 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 under taking 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 there under before the said date and the reference there under 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 411 or any of the rights, privileges, obligations and liabilities accruing or, arising under the instrument 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 S. 4(b) is separated by 'or' and 'or' has to be read disjunctively. In other words, there can either be a wholesale suspension of the operation of the instrument 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.

6. We have to read in this case the notification issued under S. 4 of the Act, in the context of the power, which is vested in the State Government under S. 4. A reading of the clause (b) of the notification will clearly indicate that the phraseology in the first part of clause (b) in S. 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 4th August 1984 shall be suspended with effect from 4th August 1984. We are not concerned with the first proviso in the notification. When we come to the second proviso and especially conditions (2) of the second proviso, of the notification, the notification is made subject to the conditions 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 mutually agreed upon and once 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 either 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. It in exercise of the power under S. 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 S. 4(b) of the Act.

7. 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 may be specified in the notification. As we have already pointed out, the notification reproduces verbatim the first part of clause (b) of See. 4. Once the State Government has reproduced verbatim, the first part of clause (b), we must attribute the intention of the State Government to give a protection intended by that part, namely, to suspend entirely the operation of the contracts and the agreements to which the relief undertaking is a party. The power under the first part of S. 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 S. 4(b) of the Act, which does not refer to any conditions. The second inconsistency apparent on the face of the clause (b) of the second condition of the notification is that the dues, which are owed by the relief undertaking, 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 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 etc., Now, undoubtedly, the State Government has stated that the notification is subject to the conditions in the proviso. But if the condition 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.

8. 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 the 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 S. 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 is given to the relief undertaking and if 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 debt 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 condition which is put by the State Government which is distinctive of ' the power itself can never be relied on for the purpose of taking away the protection given to the relief undertaking under S. 4 of the Act.

9. 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 S. 4 of the Act.

10. Mr. Vijay Narayan has also contended that if there is a conflict between the main part of the notification and the proviso, the proviso itself 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 S. 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 S. 4 of the Act, and consequently the proceedings in the three company petitions cannot go on till such time as the notifications under Ss. 3 and 4 of the Act are in force.

11. The appeals are thus allowed with costs; Rs.500 one set in O. S. A. 8 of 1985.

12. Appeals allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //