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R.G.N. Price, Official Liquidator of the Andhra Paper Mills Co., Ltd., (In Liqn.) Vs. M. Chandrasekharan, President of the Andhra Paper Mills Workers Union - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtChennai High Court
Decided On
Case NumberO.S. Appeal No. 45 of 1949
Judge
Reported inAIR1951Mad987; [1951]21CompCas251(Mad); (1951)IIMLJ185
ActsCompanies Act, 1913 - Sections 171 and 230(1); Industrial Disputes Act, 1947 - Sections 15(2)
AppellantR.G.N. Price, Official Liquidator of the Andhra Paper Mills Co., Ltd., (In Liqn.)
RespondentM. Chandrasekharan, President of the Andhra Paper Mills Workers Union
Appellant AdvocateK. Narasimha Aiyar, Adv. for Short Bewes and Co., ;
Respondent AdvocateS. Viswanathan, Adv.
DispositionAppeal dismissed
Cases ReferredBharat Bank Ltd. Delhi v. Employees of Bharat Bank
Excerpt:
.....act of 1913 would come to end only in manner provided therein. - - he traced the right of the debenture holders as mortgagees to carry on the business to the well-established rule that where the mortgage security includes a business carried on upon the mortgaged premises, the mortgagee, on entering, is entitled to carry on the business for a reasonable time with a view to sell. as already mentioned, the resolutions of both the board of directors of the company as well as of the debenture holders make it abundantly clear that the trustees, though they entered upon the mortgaged premises in exercise of their rights under the deed, carried on the business of the company only in pursuance of an agreement between them and the company to work the mills 'at the risk and. even if we..........fittings, etc., attached to the mills were mortgaged, to secure payment of the amounts due to the debenture holders. there were other provisions in the debenture deed which conferred rights on the debenture holders & the trustees for the debenture holders to take possession of the mills on default of payment of interest & to work the mills, if they chose, or to bring the mortgaged premises to sale. it appears that in pursuance of such provisions, the debenture trustees under the trust deed took possession of the mills sometime in 1940 and were running the mills till october 1945, when the mills were handed back to the company. it is common ground that again the debenture trustees on behalf of the debenture holders under the first deed took possession of the mortgaged premises on.....
Judgment:

Rajamannar, C.J.

1. This is an appeal against the order of Panchapakesa Sastry J. made in chambers in the winding up of the Andhra Paper Mills Co, Ltd (in liquidation). The material facts necessary for the disposal of this appeal are as follows:

2. The company was incorporated under the Indian Companies Act in January 1929 with an authorised capital of Rs. 23,00,000 but with a paid up capital of about Rs. 12,00,000. The company appears to have been under-capitalised, and it became necessary to borrow by way of debentures, first in 1935 a sum of Rs. 6,00,000 and again in 1938 a sum of Rs. 5,00,000. The debentures were secured by two deeds dated 20th September 1935 and 19th September 1938. Under these debenture trust deeds, practically the entire premises of the Mills and all the machinery, plants, fittings, etc., attached to the Mills were mortgaged, to secure payment of the amounts due to the debenture holders. There were other provisions in the debenture deed which conferred rights on the debenture holders & the trustees for the debenture holders to take possession of the Mills on default of payment of interest & to work the Mills, if they chose, or to bring the mortgaged premises to sale. It appears that in pursuance of such provisions, the debenture trustees under the trust deed took possession of the Mills sometime in 1940 and were running the Mills till October 1945, when the Mills were handed back to the company. It is common ground that again the debenture trustees on behalf of the debenture holders under the first deed took possession of the mortgaged premises on 14-2-1947 as there were large arrears of interest. Thereafter, there was an agreement between the directors of the company and the debenture trustees which was confirmed at a meeting of the Board of Directors of the company held on 20th February 1947. As it was necessary in the interests of the Company that the factory should remain working, and as at the request of some of the directors the trustees had expressed their willingness to work the factory on the risk and account of the company for some time, it was resolved that certain persons be constituted into a sub-committee for the purpose of recommending proposals for future management and for negotiating with the trustees within a period of three months and it was further resolved that the trustees may, in the meantime, work the factory at the risk and on account of the company for the benefit of the debenture holders. In accordance with this agreement, the debenture trustees began to work the Mills. On 2nd May 1947 there was an extra-ordinary general meeting of the holders of the first mortgage debentures at which inter alia the following resolutions were proposed and carried:

'1. Resolved that the meeting of the debenture holders approves of the trustees', action in entering into possession of the debenture premises on 14th February 1947.

2. Resolved that the meeting approves of the debenture trustees' action in agreeing at the instance and request of the Board of Directors of the Andhra Paper Mills Co. Ltd., to work the factory for a period of three months at the risk and on account of the Andhra Paper Mills Co., Ltd.

3. Whereas the company has been incurring an annual loss of about Rs. 2 1/2 lakhs every year as disclosed in the balance sheets and whereas in the year 1946-47 also the company had incurred a loss to the same extent and whereas after taking possession the debenture trustees agreed to work the same for a period of three months and whereas even during this period the company has suffered a loss to the same extent, resolved that this meeting of the debenture holders hereby decides not to carry on the business of the company and to discontinue the same within a reasonable time and to proceed further to take necessary steps for realising the mortgaged premises and further resolved that the trustees shall give notice to the company about the debenture holders' intention to proceed to realise the mortgaged premises by sale through public auction or otherwise.' . On 24th May 1947, the debenture trustees in possession of the Mills put up a notice that the trustees regretted that they had to close down the Mills with a view to avoid further loss and that workmen and members of the staff would be paid the wages earned upto, and including Monday, the 26th May, plus extra wages for 13 days in lieu of notice and shift workers would be paid for Sunday the 25th May in addition, and that members of the staff would be paid their salaries up to and including Monday the 26th May plus one month's salary as notice pay. Certain members of the staff and workmen specified in a separate list were to continue to work. In accordance with this notice, the gates of the Mills were closed on that day. On behalf of the workers a telegram was despatched to the Honourable the Minister for Labour, Government of Madras, praying for Government's intervention in view of the sudden closure of the Mills. On 24th June 1947 the Government passed an order under Section 10(1)(c) of the Industrial Disputes Act, 1947, referring the industrial dispute, which had arisen between the workers and the management of the Andhra Paper Mills Co. Ltd., in regard to the closure of the Mills, to an Industrial Tribunal. The District and Sessions Judge, East Godavari, was constituted the tribunal to adjudicate on this dispute. On the next day, the Government passed an order, Ex. P. 4 under Section 10(3) of the Industrial Disputes Act, 1947, prohibiting the continuance of the lock-out which was in existence in the Andhra Papers Mills in connection with the industrial dispute which had been referred for adjudication on the previous day. There was a request by the debenture trustees to withdraw this order prohibiting the lock-out but they were informed by the Government that the order would not be withdrawn, Ex. P. 6.

3. The Industrial Tribunal conducted an enquiry and passed an award on the 16th August 1947 Ex. P. 7. An advocate and a pleader appeared for the management of the Andhra Paper Mills Co. Ltd., represented by the debenture trustees in possession, whereas another pleader appeared for the workers' Union represented by its President. The learned District Judge, after an elaborate examination of the evidence adduced before him, held that the closure of the Mills from 24th May 1947 was unwarranted and amounted to a lockout which must be deemed to be an illegal lock-out. One of the grounds on which he came to this conclusion was the pendency of a dispute between the workers and the management of the Mills which had been referred to him by order of Government dated 31st January 1947 under Clause (c) of Sub-rule (1) of Rule 81-A of the Detence of India Rules as continued in force by Section 2 of the Emergency Provisions (Continuance) Ordinance, 1946, (Ordinance No. XX of 1946). The dispute so referred related to wages, increments, dearness allowance, leave facilities, and other terms of service. The award was duly forwarded to the Government, and the Government declared the award to be binding under Section 15, Sub-section (2) of the Industrial Disputes Act, on 5th September 1947 (Ex. P. 7-a)

4. Meanwhile, on 22nd August 1947, there was an application made to this court for the winding up of the company. After notice, on the 4th September 1947 a provisional liquidator was appointed by Clark J. and eventually on 23rd September 1947 a winding up order was passed. There was correspondence between the lawyers for the workers and the liquidator relating to the demand by the workers for payment of wages as per the award of the Industrial Tribunal. When the liquidator pointed out that there was no direction as such in the award to pay any wages to the workmen, the Government intervened with an order that the wages should be paid from the date of the closure of the Mills to the date of the winding up order. Thereupon, the liquidator called on the workers to submit their claims and when their claims were submitted, he passed an order wholly rejecting them. An application was then filed by the Union on behalf of the workers for a direction to the liquidator to admit the claims of the workers to wages during the period abovementioned and to give them priority over the other debts of the company under Section 230 of the Indian Companies Act. The application was heard by Panchapakesa Sastry J. who allowed the application to this extent, viz, that he held that the workers were entitled to be paid the amount of their salary as claimed in the schedule, after deduction of the amounts admitted to have been received by them for any portion of the period from 24th May 1947, and that the workers would be entitled to a priority in respect of two months' salary prior to the winding up order but for the remainder they would share rateably with the other creditors. The Official Liquidator, on behalf of the Company in liquidation, has appealed against this order.

5. The contention which was most strongly pressed before us on behalf of the appellant by Mr. K. Narasimha Aiyar was that on and from 14th February 1947, when the debenture trustees took possession of the mortgaged premises and began to carry on the business, there was a change in personality and the workers could no longer be deemed to be the workers of the company. Reference was made to the terms of the first debenture deed and reliance was placed in particular on the following clauses therein:

'Clause 6: So soon as the principal moneys shall become payable and the security enforceable under the last preceding clause, the trustees shall enter upon and take possession of the mortgaged premises and shall forthwith summon a meeting of the debenture holders for the purpose of determining whether the business or any part thereof shall be carried on by the debenture holders or whether it shall be realised by sale or otherwise.

Clause 7: In the event of the debenture holders , resolving in such meeting by an extra-ordinary resolution (as hereinafter denned in Clause 119) to carry on the business of the company or any part thereof the trustees may, subject to any directions given by the debenture-holders at such meeting, either themselves carry on the said business or appoint a person as receiver to carry on and manage the same at a salary not exceeding three hundred a month to be approved by a resolution of the debenture-holders......'

He also relied on the operative portion of the deed under which the Company conveyed, transferred and assigned unto the trustees, the mortgaged premises. He traced the right of the debenture holders as mortgagees to carry on the business to the well-established rule that

'Where the mortgage security includes a business carried on upon the mortgaged premises, the mortgagee, on entering, is entitled to carry on the business for a reasonable time with a view to sell......' 'He becomes the owner of the premises and stands, as regards his powers in the place of the mortgagor.'

It is this principle that is laid down in 'Chaplin v. Young', (1864) 55 E R 395. The implication of this rule is brought out in the following passage from the judgment of the Master of the Rolls (Sir John Romilly) in that case: 'In the case of a mortgage of the business, if he enters into possession, he becomes the owner of the business and he stands exactly, as regards his powers, in the place of the mortgagor and accordingly he is accountable to the owner of the equity of redemption for everything which he either has received, or might have received, or ought to have received while he continued in such possession.' There are two answers to this contention. The first is that the contention is opposed to the actual facts. Mr. Narasimha Aiyar was unable to fit in what actually happened with the scheme of the provisions in the debenture deed. As already mentioned, the resolutions of both the Board of Directors of the company as well as of the debenture holders make it abundantly clear that the trustees, though they entered upon the mortgaged premises in exercise of their rights under the deed, carried on the business of the company only in pursuance of an agreement between them and the Company to work the Mills 'at the risk and. on account of the company'. The only way in which Mr. Narasimha Aiyar attempted to get over this difficulty was by asking us to treat this agreement as a superfluity. We are unable to agree with him. The second answer is that even if the debenture trustees, on behalf of the debenture holders, had exercised their right to carry on the business of the company, the company would not cease to exist as a legal entity and the business would continue to be the business of the company, though it may be carried on by the debenture-holders as mortgagees. There was only a change of management together with a right to appropriate the profits from the business, but there was no change of personality. It is wrong and misleading to speak of a company as such being mortgaged or sold. A reference to the debenture deed shows what the mortgaged premises are. They include almost all the valuable assets of the company; but the incorporated company, as such, cannot, of its very nature, be the subject of a mortgage or conveyance. A company which is incorporated under the Indian Companies Act can come to an end only in the manner provided in that Act. That this was understood to be the position by all concerned is evident from the fact that the Industrial dispute referred to the Tribunal was described as one between the workers and the management of the company. Counsel who appeared before the Tribunal are described as counsel appearing for the management of the Andhra Paper Mills Co., Ltd. represented by the debenture trustees in possession.

6. The two cases cited by Mr. Narasimha Aiyar do not help him in any way. In 'Midland Counties District Bank Ltd. v. Attwood', (1905) 1 Ch D 357, a distinction was drawn between a voluntary winding up and a compulsory winding up of a company. It was held by Warring-ton J. that when the company is being voluntarily wound up, there is no change in the personality of the employer whereas such a change would take place in a compulsory winding up. The actual point which arose in that case was whether the voluntary winding up of a company operated in itself as a wrongful dismissal of the servants of the company. It was not suggested that in the case before us the workers must be deemed to have been dismissed when the debenture trustees went into possession and carried on the business under an agreement with the company. The decision in 'Brace v. Calder', (1895) 2 QBD 253 dealt with a partnership. Four persons constituted a partnership and they agreed to employ the plaintiff as manager of a branch of a business for a certain period. Before the period had expired, two of the partners retired and therefore there was, in law, a dissolution of the partnership, but the business was carried on by the remaining two who were willing to employ the plff. on the same terms but he declined to serve them and brought an action for wrongful dismissal. It was held by the majority of the Court of appeal that the dissolution of the partnership operated as a wrongful dismissal of the plaintiff but that he was only entitled to nominal damages. This case brings out the essential difference between a partnership and a company. By the retirement of two of the partners, the original partnership as such came to an end. In the case of a company, any change in the management, would not put an end to the company as such. This contention of Mr. Narasimha Aiyar cannot therefore prevail.

7. The next contention which was most seriously pressed was based on Section 171 of the Indian Companies Act, which runs thus :

'When a winding up order has been made, or a provisional liquidator has been appointed, no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose'.

The reference by the Government and the Award by the Industrial Tribunal were long before the date of the appointment of a provisional liquidator and the winding up order. So Mr. Narasimha Aiyar's contention had to be confined to the only thing which happened after the order appointing a provisional liquidator on 4th September 1947, viz., the declaration by the Government under Section 15(2) of the Industrial Disputes Act on 5th September 1947. It is not quite clear what could have been done, whether the Government should have applied to the winding up Court for permission, or the workmen should have made a similar application but it was contended leave was necessary under the section. We see no substance whatever in this contention. Even if we construe the words 'other legal proceeding' in the widest manner possible, we fail to see how the declaration made by the Government can be held to be a 'legal proceeding'. Section 15(2) of the Industrial Disputes Act says that on receipt of an award from the Industrial Tribunal, the Government 'shall, by order in writing, declare the award to be binding'. There is no proceedings taken by the Government. The order is a mere mechanical administrative act. The adjudication was really by the Tribunal, and the award is the formal expression of that adjudication. Mr. Narasimha Aiyar contended that the declaration by the Government is 'the spark of life' without which the award would be a dead inert affair. The exact scope of the order by the Government under Section 15(2) of the Industrial Disputes Act was discussed in a recent decision of the Supreme Court in 'Bharat Bank Ltd. Delhi v. Employees of Bharat Bank', : (1950)NULLLLJ921SC , Fazl Ali J. said :

'It is to be noted that under Section 15, Industrial Disputes Act, 1947, in cases where the appropriate Government is not a party to the dispute, all that the Government has to do on receiving the award of the tribunal is to declare it to be binding and to state from what date and from what period it will be binding. Section 15(2) is mandatory and it provides 'on receipt of such award, the appropriate Government shall by order in writing declare the award to be binding......Thus the Government cannot alter, or cancel, or add to the award, but the award must be declared to be binding as it is. In substance, therefore, the adjudication of the tribunal amounts to a final determination of the dispute which binds the parties as well as the Government.''

Mahajan J. at page 198 observes likewise :

'It was however, strenuously urged that the award of the tribunal had no binding force by itself and unless the appropriate Government made a declaration in writing under Clause (2) of Section 15 this award was a lifeless document and had no sanction behind it and therefore it could not have been contemplated that it would be appealable even by special leave. In my opinion, this contention is unsound. The provisions of Clause (2) of Section 15 leave no discretion in the Government either to affirm, modify or reject the award. It is bound to declare it binding. It has no option in the matter. In such a situation it is the determination by the tribunal that matters. Without that determination Government cannot function. It does not possess the power either to adjudicate the dispute or to alter it in any manner whatsoever. That power vests in the tribunal alone. The rights of the parties are really affected by the adjudication contained in the award, not by the Government's declaration which is automatic'.

Apart from this legal position we are of opinion that Section 171 of the Indian Companies Act would have no application to enquiries, investigations and orders made either by Government or statutory bodies in exercise of statutory powers. In 'In re Pontypridd &c.; Tramways Co.', (1889) 58 L J Ch 536 the corresponding provision in the English Act of 1862 was held not to apply to an enquiry under Section 42 of the Tramways Act, 1842, on the ground that the statutory proceeding which was being taken was in no way a proceeding against the company. This contention must therefore fail.

8. Mr. Narasimha Aiyar sought to attack the award on its merits. He was unable to cite any authority to justify such a course. Section 15 Sub-section (4) of the Industrial Disputes Act expressly enacts that an award declared to be binding under Section 15 shall not be called in question in any manner. Apart from this provision, we think that the Official Liquidator cannot be permitted to examine the correctness of the adjudication of the Industrial Tribunal or a reference to which the company was a party represented by the debenture trustees, when there is no allegation of fraud or collusion. No doubt the Official Liquidator can refuse to accept a debt, though it is the subject of a decree against the insolvent if there is evidence that the decree was fraudulently and collusively obtained and there was no real debt at all. But in the absence of fraud and collusion, or apparent miscarriage of justice, the Official Liquida-: tor would have no power to go behind the decrees and adjudications of competent Courts and tribunals. It is sufficient to cite the following observations of Lord Esher, M. R. in 'In re Flatau, Ex parte Scotch Whisky Distillers', (1889) 22 Q. B. D. 83

'It is not necessary now to repeat that, when an issue has been determined in any other Court, if evidence is brought before the Court of Bankruptcy of circumstances tending to show that there has been fraud, or collusion, or miscarriage of justice, the Court of Bankruptcy has power to go behind the judgment and to inquire into the validity of the debt. But that the Court of Bankruptcy is bound in every case as a matter of course to go behind a judgment is a preposterous proposition.'

We therefore did not allow Mr . Narasimha Aiyar to attack the correctness of the findings arrived at by the Industrial Tribunal. We may also mention that, having gone through the award, we are convinced that there has been no miscarriage of justice. At the most Mr. Narasimha Aiyar's contention would come to this, viz., that the Tribunal erred in law, but every error of law would not result in miscarriage of justice.

9. Finally, Mr. Narasimha Aiyar objected to the priority allowed by the learned Judge in respect of the salary for two months prior to the date of the winding up order. In allowing this priority the learned Judge only purported to apply Section 230 (1) (c) of the Indian Companies Act, under which

'all wages of any labourer, or workmen, not exceeding five hundred rupees for each, whether payable for time or piecework, in respect of services rendered to the company'

within the two months next before the date of the winding up order, shall be paid in priority to all other debts. The argument on behalf of the Liquidator was that the workmen actually did not render any service to the company during that period as the Mills had been closed from 24th May 1947. No direct decision was cited to us on this point; but it appears to have been held in England that when a workman is absent from the business on account of illness and with the concurrence of the employer, or when an employee is compelled to leave the service on account of his master's inability to payhis salary, the right of priority is not lost. See'In re Green; Ex parte Sanders', (1836) 2 Deac40 and 'Re Closson Ex parte Harris', (1845) 5L T (O S) 203. Vide also Halsbury's Laws ofEngland, Vol. II, page 290, note (i). The sameprinciple must apply to the case of an illegallock-out. We therefore agree with the learnedJudge in having allowed priority to this extent.

10. The appeal fails and is dismissed withcosts.


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