Kerala High Court
Messrs. Uttam Holdings Ltd vs State Of Kerala on 5 February, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE N.NAGARESH
FRIDAY, THE 05TH DAY OF FEBRUARY 2021/16TH MAGHA,1942
WP(C).No.28713 OF 2010(L)
PETITIONERS:
1 MESSRS. UTTAM HOLDINGS LTD.,
A COMPANY INCORPORATED UNDER THE PROVISIONS
OF THE COMPANIES ACT,1956 AND
HAVING ITS REGISTERED OFFICE AT 79,
MITTAL CHAMBERS NARIMAN POINT,
MUMBAI-400 021,
THROUGH ITS AUTHORIZED REPRESENTATIVE,
MR.MANN SINGH MEENA.
2 GITCO TRADERS PVT.LTD.,
A COMPANY INCORPORATED UNDER THE PROVISIONS
OF THE COMPANIES ACT, 1956 AND
HAVING ITS REGISTERED OFFICE AT 79,
MITTAL CHAMBERS NARIMAN POINT,
MUMBAI-400021,
REPRESENTED BY ITS DIRECTOR,
MR.RAM DANTAL.
3 NLIVE HEALTH CARE LTD.,
A COMPANY INCORPORATED UNDER THE PROVISIONS
OF THE COMPANIES ACT, 1956 AND
HAVING ITS REGISTERED OFFICE AT PLOT NO.56,
ROAD NO.17 MIDC,
ANDHERI (EAST), MUMBAI-400 093
REPRESENTED BY ITS DIRECTOR,
MS.NEETA DESAI
WPC No.28713/2010
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4 ZUBER FINVEST PVT. LTD.,
A COMPANY INCORPORATED UNDER THE PROVISIONS
OF THE COMPANIES ACT, 1956 AND
HAVING ITS REGISTERED OFFICE AT 79,
MITTAL CHAMBERS,
NARIMAN POINT, MUMBAI-400021,
REPRESENTED BY ITS DIRECTOR,
MS.NEETA DESAI.
5 DINESH AGARWAL,
PLOT NO.56, ROAD NO.17,
MIDC, ANDEHRI (EAST),
MUMBAI-400 093.
BY ADVS.
SRI.SANTHOSH MATHEW
SRI.SATHISH NINAN
SRI.ARUN THOMAS
SRI.JENNIS STEPHEN
RESPONDENTS:
1 STATE OF KERALA,
REPRESENTED BY CHIEF SECRETARY TO GOVERNMENT,
GOVERNMENT SECRETARIAT,
THIRUVANANTHAPURAM.
2 KERALA STATE TEXTILES CORPORATION LIMITED,
THIRUVANANTHAPURAM, KERALA.
BY ADV. SRI.ASISH K.JOHN ADV.COMMISSIONER
BY ADV. ADVOCATE GENERAL SRI.C.P.SUDHAKARA
PRASAD
R2 BY SRI.P.U.SHAILAJAN, SC, KERALA STATE
TEXTILE CORPORATION LTD
GOVERNMENT PLEADER SRI. S.KANNAN
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY
HEARD ON 05-02-2021, THE COURT ON THE SAME DAY DELIVERED
THE FOLLOWING:
WPC No.28713/2010
:3:
[CR]
N. NAGARESH, J.
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W.P.(C) No.28713 of 2010
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Dated this the 5th day of February, 2021
JUDGMENT
~~~~~~~~~
Petitioners 1 to 4 are incorporated Companies.
Petitioners 1 to 4 along with the 5 th petitioner claim to hold
70.81% of equity shares in M/s. Kerala Spinners Limited.
Petitioners state that M/s. Kerala Spinners Limited
(hereinafter referred to as "the Company", for brevity) is a
Private Sector Company promoted by Birlas and was
engaged in the manufacture and sale of textile yarn in its
factory at Komalapuram in Alappuzha District. Since the
year 1998, the Company was incurring losses for various
WPC No.28713/2010
reasons. At this stage, in the year 2001, the petitioners
acquired a majority of equities of the Company, with an
intention to make the Company viable and profitable.
2. Things did not go in the desired direction and the
Company declared lock out on 22.03.2003. The Company
applied for closure under Section 25(O) of the Industrial
Disputes Act, 1947. The Company had to be referred to the
Board for Industrial and Financial Reconstruction
(hereinafter called "BIFR", for short). Pending consideration
of rehabilitation of the Company, the BIFR appointed Indian
Overseas Bank as the Operating Agency invoking Section
17 (1) of the Sick Industrial Companies (Special Provisions)
Act, 1985 (SICA). The Company was declared sick on
07.09.2006. While the issue of revival of the Company was
pending consideration before the BIFR, the 1 st respondent-
State of Kerala promulgated Ordinance dated 19.11.2009,
subsequently replaced by the Kerala Spinners Limited,
Alappuzha (Acquisition and Transfer of Undertaking) Act 4
of 2010.
WPC No.28713/2010
3. By the impugned Act 4 of 2010, the right of the
ownership of the petitioners in respect of the Company has
been acquired by the Government and transferred to the
Kerala State Textiles Corporation Limited. According to the
petitioners, the assets of the Company were undervalued.
The assets are of value of about ₹45 Crores. The Act 4 of
2010 values the assets at ₹454.67 lakhs only. Petitioners
contended that the gross undervaluation is in violation of the
right of the petitioners under Article 14 of the Constitution of
India. The right of the petitioners to trade and business has
been deprived by the Act 4 of 2010, in violation of Article
19(1)(g) of the Constitution of India.
4. The meagre amount of compensation of ₹1,000/-
per annum given for the deprivation of Management is
illusory and violates Article 300-A of the Constitution of
India. Arbitrariness is writ large in the State action, since
from among a number of companies from Kerala pending
reference before the BIFR, only the petitioner's Company
has been chosen for acquisition. Enacting Act 4 of 2010
WPC No.28713/2010
during the pendency of reference proceedings before the
BIFR would make the Act 4 of 2010 illegal and
unconstitutional, contended the petitioners.
5. The 1st respondent filed a counter affidavit in the
writ petition. The 1st respondent pointed out that the
Company was lying closed with effect from 23.03.2003.
Livelihood of 500 workers and their families were adversely
affected. They were put to penurious conditions. The
Company was declared sick by the BIFR on 07.09.2006 and
the BIFR appointed M/s. Indian Overseas Bank as
Operating Agency. Due to non-cooperation of the
management, revival programs could not be materialised in
the BIFR proceedings.
6. In such circumstances, the Government
convened several meetings with the management of the
Company and representatives of trade unions for a viable
solution. In view of the recalcitrant attitude of the
management of the Company, the Government felt it
absolutely necessary and expedient to take over the
WPC No.28713/2010
Company by Government itself. Accordingly, Ordinance
No.24/2009 was promulgated on 17.11.2009. The
Ordinance was replaced by a Bill and the Bill was passed by
the Legislative Assembly on 29.12.2009. The valuation of
assets as projected by the petitioners is exorbitant,
contended the 1st respondent. The 1st respondent stated
that, the liability of the company towards workmen alone was
about ₹5.18 Crores, which was settled after the takeover.
Act 4 of 2010 overrides all proceedings before the BIFR. In
fact, the BIFR was informed of the proposal of takeover by
the State.
7. The BIFR in its hearing held on 16.09.2009
consented to takeover of the Company and opined that if the
Government intends to takeover the Company, it has to file
appropriate proposal with the Operating Agency. The
Government of Kerala accordingly informed the Operating
Agency its intention to takeover the Company. Requisite
application was submitted on 12.10.2009. The legislative
power exercised by the State is not in violation of or in
WPC No.28713/2010
derogation of any of the provisions of the Sick Industrial
Companies (Special Provisions) Act, 1985.
8. The 2nd respondent-Kerala State Textiles
Corporation Limited filed counter affidavit and defended the
writ petition. The 2nd respondent pointed out that the Act 4
of 2010 was preceded by Ordinance No.24/2009 dated
17.11.2009. The modalities for transfer of the Company to
the 2nd respondent were initiated following the Ordinance.
The 1st respondent took over possession of the assets and
transferred the same to the 2nd respondent for revival of the
Mill. Now, the 2nd respondent holds possession of all the
assets and has made substantial investments for revival of
the Mill. The petitioners cannot challenge the Act 4 of 2010
without challenging the Ordinance also. The Ordinance is
not under challenge.
9. The 2nd respondent further stated that as per
Section 16 of the Act 4 of 2010, the Government has
appointed the Commissioner of Payments for the purpose of
disbursing the amounts payable to the owner of the
WPC No.28713/2010
Company. If the petitioners have any grievance regarding
compensation, they have to approach the Commissioner.
The Act 4 of 2010 overrides all proceedings before the
BIFR. The Government took the initiative of taking over,
with the knowledge of the BIFR. The writ petition is
therefore without any merit.
10. I have heard the learned counsel for the
petitioners, learned Government pleader appearing for the
1st respondent and the learned Standing Counsel appearing
for the 2nd respondent.
11. The questions arising for consideration in this writ
petition are:-
1) Whether the State of Kerala lacks legislative
power to enact Act 4 of 2010?
2) Whether in view of Section 22 of the Sick
Industrial Companies (Special Provisions) Act, 1985,
the consent of the BIFR is necessary for takeover of
a Company which is under reference to the BIFR?
WPC No.28713/2010
3) Whether the Act 4 of 2010 offends the right of the
petitioners under Articles 14 or 19(1)(g) or 300-A of
the Constitution of India?
4) Whether the compensation offered to the owners
of the Company is adequate?
5) Whether the State of Kerala has followed due
process of law, while enacting the Act 4 of 2010?
12. Section 3 of Ext.P5 Act, 2010 reads as follows:-
"3. Acquisition of rights of owners in
respect of sick textile undertaking -
(1) On the appointed day, the sick textile
undertaking and the right, title and interest of the
owner in relation to such sick textile undertaking shall,
by virtue of this Act, stand transferred to, and shall
vest absolutely in the State Government.
(2) The sick textile undertaking which stands
vested in the State Government under sub-section (1)
shall, immediately after it has so vested, stand
transferred to, and vest in the State Textile
Corporation."
So, the Company as well as the right, title and interest of the
owner in relation to the Company stands acquired by and
stood vested in the State Government, in view of Section 3.
WPC No.28713/2010
13. The effect of such vesting is laid down in Section
4 of the Act, 2010 which is as follows:-
"4. General effect of Vesting -
(1) The sick textile undertaking referred to in
section 3 shall be deemed to include all assets, rights,
lease-holds, powers, authorities and privileges and all
property, movable and immovable including lands,
buildings, workshops, stores, instruments, machinery
and equipment, cash balances, cash on hand,
reserve funds, investments and book debts and all
other rights and interests in, or arising out of, such
property as were immediately before the appointed
day in the possession, power or control of the
authorised person and all books of account, registers
and all other documents of whatever nature relating
thereto and shall also be deemed to include the
liabilities and obligations specified in sub-section (2)
of section 5.
(2) All property as aforesaid which have vested in
the State Government under sub-section(1) of section
3 shall, by reason of such vesting, be freed and
discharged from any trust, obligation, mortgage,
charge, lien and all other encumbrances affecting it,
and any attachment, injunction or decree or order of
any court restricting the use of such property in any
manner shall be deemed to have been withdrawn.
(3) Where any licence or other instrument in
relation to the sick textile undertaking had been
granted at any time before the appointed day to an
owner by the Central Government or a State
Government or any other authority, the State Textile
Corporation shall, on and from the appointed day, be
deemed to be substituted in such licence or other
instrument in place of the owner referred to therein as
if such licence or other instrument had been granted
WPC No.28713/2010
to the State Textile Corporation and it shall hold such
licence or the sick textile undertaking specified in such
other instrument for the remainder of the period for
which the owner would have held such licence or the
sick textile undertaking under such other instrument.
(4) Every mortgagee of any property which has
vested under this Act in the State Government and
every person holding any charge, lien or other interest
in or in relation to any such property shall give, within
such time and in such manner as may be prescribed,
an intimation to the Commissioner, of such mortgage,
charge, lien or other interest.
(5) For the removal of doubts, it is hereby declared
that the mortgagee of any property referred to in sub-
section(2) or any other person holding any charge, lien
or other interest in, or in relation to, any such property
shall be entitled to claim, in accordance with his rights
and interest, payment of the mortgage money or other
dues, in whole or in part, out of the amount specified
in relation to such property, in the First Schedule, but
no such mortgage, charge, lien or other interest shall
be enforceable against any property which has vested
in the State Government.
(6) If, on the appointed day, any suit, appeal or
other proceeding of whatever nature in relation to any
matter specified in sub-section (2) of section 5 in
respect of the sick textile undertaking, instituted or
preferred by or against the textile company or the
authorised person, is pending, the same shall not
abate, be discontinued or be, in any way, prejudicially
affected by reason of the transfer of the sick textile
undertaking or of anything contained in this Act but the
suit, appeal or other proceedings may be continued,
prosecuted and enforced by the State Textile
Corporation."
Therefore, all properties of the Company including the rights
of the Company over landed assets, are deemed vested with
WPC No.28713/2010
the State Government.
14. As far as legislative competence of the State to
enact the law, the source of power can be traced to Entry 42
(Acquisition and requisitioning of property) in List III and as
far as landed assets are considered, the power can be
traced to Entry 18 (Land, that is to say, right in or over land,
land tenures including the relation of landlord and tenant,
and the collection of rents; transfer and alienation of
agricultural land; land improvement; and agricultural loans;
colonization) in List II also. Therefore, legislative
competence of the State is beyond doubt.
15. The further contention of the petitioners is that
when the Company was under reference pending with the
BIFR, the state legislature has no power to acquire or
takeover the Company, without the leave of the Board
constituted under Sick Industrial Companies (Special
Provisions) Act, 1985. The Sick Industrial Companies
(Special Provisions) Act has been enacted by the Union
Parliament with a view to securing the timely detection of
WPC No.28713/2010
sick and potentially sick companies owning industrial
undertakings, the speedy determination by a Board of
experts of the preventive, ameliorative, remedial and other
measures which need to be taken with respect to such
companies and the expeditious enforcement of the
measures so determined and for matters incidental thereto.
16. The Sick Industrial Companies (Special
Provisions) Act contemplates reference of Sick Industrial
Companies to the BIFR. The BIFR would make such
enquiry as required to determine whether the Company has
become Sick Industrial Company. On the basis of such
enquiry, the BIFR is empowered to appoint an Operating
Agency for the sick company. The Operating Agency is
expected to frame a scheme for financial reconstruction of
the Sick Industrial Company. If the BIFR is of the opinion
that the Sick Industrial Company is not likely to make its net
worth exceeds the accumulated losses within a reasonable
time while meeting all its financial obligations and that the
Company as a result is not likely to become viable in future
WPC No.28713/2010
and that it is just and equitable that the company should be
wound up, in that case the BIFR can order winding up of the
Company.
17. The Kerala Spinners Limited was referred to the
BIFR and the BIFR appointed Indian Overseas Bank as
Operating Agency. It is an admitted case that no revival
programme could be materialised by the Operating Agency.
Ext.P4 summary record of the proceedings of the hearing
held before the BIFR would show that the Government of
Kerala submitted before the BIFR that the Government
intends to takeover the unit in the interest of all concerned.
Based on the submission, the BIFR directed that
Government of Kerala/KSIDC may consider to file an
appropriate proposal with the Operating Agency for Change
of Management.
18. The counter affidavit filed by the 1st respondent
would show that the Government of Kerala accordingly
expressed its intention to takeover the Company to the BIFR
through the Operating Agency and filed the required
WPC No.28713/2010
application as directed by the BIFR. It was thereafter that
the Ordinance No.24/2009 was promulgated and later the
Act 4 of 2010 was enacted. Therefore, it has to be assumed
that the acquisition of the Company by the State of Kerala
was known to the BIFR.
19. Furthermore, when a Company is referred to the
BIFR, the Board is only discharging a statutory function.
Takeover of the Company has been effected by a State
legislation. Pendency of the statutory proceedings before a
statutory authority cannot ordinarily be a bar for any
legislature to exercise its legislative functions. This Court
finds no illegality in enacting the Act 4 of 2010 during the
pendency of proceedings before BIFR.
20. It is an admitted fact that even after purchase of
majority stake in the Company by the petitioners, the
Company could not perform and lockout was declared. An
application for closure of the establishment was made by the
petitioners invoking Section 25(O) of the Industrial Disputes
Act. Therefore, it is clear that the Company was not
WPC No.28713/2010
managed well prior to the acquisition of majority stake by the
petitioners and even thereafter. There were about 500
employees working in the Company who were denied wages
for a long period. Taking into account the entire facts, the
State Government decided to acquire the Company in order
to revive the same and also to give relief to the workmen.
The action of the state Government is not arbitrary and
therefore the petitioners cannot be heard to contend that
their right under Article 14 is violated.
21. As regards violation of the rights conferred on the
petitioners under Article 19(1)(g) of the Constitution of India
is concerned, petitioners 1 to 4 being incorporated
Companies, they are not citizens capable of exercising the
fundamental rights guaranteed under Article 19(1)(g). The 5 th
petitioner alone is a citizen who can contend that his right to
engage in trade and business is affected. By the Act 4 of
2010, the 1st respondent has taken over the Company in
which the 5th petitioner has only 0.20% of equity. The right of
the 5th petitioner to engage in any business or trade is not
WPC No.28713/2010
prohibited or curtailed by the Act 4 of 2010. Merely for the
reason that the Government has taken over a Company in
which the 5th petitioner holds only 0.20% equity, it cannot be
said that fundamental right guaranteed to the 5 th petitioner
under Article 19(1)(g) is violated. The argument in that
regard is therefore liable to be rejected.
22. The Act 4 of 2010 has been enacted by the State
legislature following due process and the Act has received
the assent of the Governor. Since the Act 4 of 2010 has
been brought into force following due process of law and by
the authority of law, the petitioners cannot be heard to
contend that the right guaranteed to them under Article 300-
A of the Constitution of India is violated. The right to hold
property given under Article 300-A is not absolute and the
State is competent to take away the said rights with the
authority of law.
23. The only remaining argument of the petitioners is
that the compensation granted by Ext.P5 Act 2010 is too
negligible and therefore illusory. According to the
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petitioners, the assets of the Company is worth about ₹45
Crores whereas the valuation under the Act is only ₹454.67
lakhs. As the compensation provided under the Act, 2010 is
illusory, the Act is liable to be set aside as unconstitutional.
Scanning the provisions of the Act, it is seen that the Act 4 of
2010 has made a specific provision relating to payments that
may become due under the Act.
24. Under Section 16 of the Act 4 of 2010, the State
Government has to appoint a Commissioner for the purpose
of disbursing amounts payable to the owner of the sick
textile undertaking. Section 18 of the Act contemplates
claims to be made to the Commissioner appointed under
Section 16. There are provisions for examination, admission
or rejection of the claims. The Act 4 of 2010 also provides
that a claimant who is dissatisfied with the decision of the
Commissioner may prefer an appeal against the decision to
the principal civil court of original jurisdiction within the local
limits of whose jurisdiction the sick textile undertaking is
situated. As the Act 4 of 2010 has provided a separate
WPC No.28713/2010
machinery for payment of claims and also has provided for
Appellate Forum, this Court finds that any issue relating to
compensation will have to be taken up in accordance with
the provisions of the Act 4 of 2010.
In view of the findings made hereinabove, this
Court finds no merit in the writ petition. The writ petition is
accordingly dismissed.
Sd/-
N. NAGARESH, JUDGE
aks/02.02.2021
WPC No.28713/2010
APPENDIX
PETITIONERS' EXHIBITS:
EXHIBIT P1 PHOTOCOPY OF THE ORDER OF BIFR DATED
07/09/2006.
EXHIBIT P2 PHOTOCOPY OF THE ORDER OF BIFR DATED
16/04/2009.
EXHIBIT P3 PHOTOCOPY OF THE ORDER DATED
28/02/2008 IN WPC NO. 6873/2008 OF
THIS HON'BLE COURT.
EXHIBIT P4 PHOTOCOPY OF THE ORDER OF BIFR DATED
16/09/2009.
EXHIBIT P5 PHOTOCOPY OF ACT 4 OF 2010.
EXHIBIT P6 AFFIDAVIT OF MR. D.K.SINGH, I.A.S.
ADDITIONAL RESIDENT COMMISSIONER
GOVERNMENT OF KERALA IN APPEAL
NO.149/2007 BEFORE THE APPELLATE
AUTHORITY FOR INDUSTRIAL AND
FINANCIAL RECONSTRUCTION.
EXHIBIT P7 PHOTOCOPY OF THE MEMORANDUM AND
ARTICLES OF ASSOCIATION OF KERALA
SPINNERS LIMITED, ALAPPUZHA.
RESPONDENTS' EXHIBITS:
EXHIBIT R2(A) TRUE COPY OF THE GOVERNMENT ORDER
G.O.(MS) NO.107/2009/ID DATED
27/08/2009.
EXHIBITS OF ADVOCATE COMMISSIONER:
ANNEXURE C-1 NOTICE DATED 13/10/2010 ISSUED TO THE
COUNSELS ON EITHER SIDE.
ANNEXURE C-2 REPORT OF THE ENGINEER.
WPC No.28713/2010
ANNEXURE C-3 INVENTORY PREPARED BY THE ADVOCATE
COMMISSIONER AT THE PREMISES.
ANNEXURE C-4 PHOTOGRAPHS (FIVE NOS.)
SR
