National Textile Workers' Union Vs. P.R. Ramkrishnan & Ors [1982] INSC 94 (10 December 1982)

BHAGWATI, P.N.

REDDY, O. CHINNAPPA (J) VENKATARAMIAH, E.S. (J) ISLAM, BAHARUL (J) SEN, AMARENDRA NATH (J)

CITATION: 1983 AIR 75 1983 SCR (1) 9 1983 SCC (1) 228 1982 SCALE (2)1144

CITATOR INFO :

RF 1992 SC 248 (76) D 1992 SC2093 (17)

ACT:

Indian Companies Act, 1956-S. 433-Petition for winding- up of company-Orders likely to adversely affect interests of workers-Workers have right to appear and be heard-Workers also entitled to hearing on their own request when application for appointment of provisional liquidator is being considered-Trade Unions representing workers competent to intervene on behalf of workers.

Companies (Court) Rules, 1959-R. 34-Provides for procedure only-Does not confer on workers right to appear at hearing of Winding-up petition.

HEADNOTE:

The respondents were two groups of shareholders of a private limited company which had a thousand persons under its employment. A group of shareholders filed a petition for winding-up the company under cls. (e) and (f) of s. 433 of the Indian Companies Act, 1956 along with applications for an interim injunction and for appointment of a provisional liquidator. The Company Judge passed an order of injunction restraining the company from borrowing any moneys from banks, financial institutions or others without the prior permission of the court. Three trade unions representing the employees of the company filed applications for being impleaded as respondents/interveners in the winding up petition claiming that the interests of the employees had been adversely affected by the interim order. The Company Judge rejected these applications. A Division Bench of the High Court turned down the appeal preferred by one of the unions and that union sought special leave to appeal against the order of the Division Bench while the other two unions sought special leave to appeal against the order of the Company Judge. The Court granted special leave to all the three unions and permitted the Company Judge to pass orders on the application pending before him for appointment of a provisional liquidator with the direction that the liquidator shall not take any steps which would prejudicially affect the employees.

It was contended on behalf of the appellants that since an order winding up a company amounts to notice of termination of services of its employees under s. 445(3) and since even an interim order freezing the resources of the company might affect the interest of the employees by making it difficult for the company to pay their wages, etc., it would be contrary to fair judicial procedure and violative of the rule audi alteram partem to deny the employees the right to be heard before any order prejudicially affecting their interests is made. The 923 employees who contribute materially to the working of a company and enable it to effectively play its socio-economic role are equal, if not more important, partners in the running of the company and they must be heard in a proceeding for winding up of the company. It was further urged that under r.34 of the Companies (Court) Rules, 1959 the employees have a right to appear at the hearing of a winding-up petition either to support or to oppose it.

On behalf of the respondents it was contended that the employees of a company have no locus standi in a winding-up petition as the Act does not contain any provision conferring such a right on them; that since the Act is a self-contained Code exhaustive in regard to all matters relating to a company, no such right could be spelt out in their favour outside the provisions of the Act that r. 34 of the Companies (Court) Rules, 1959 does not confer such a right on them and that, under the various provisions of the Act including ss. 439 and 440, it is only the creditors and contributories and in certain specified contingencies, the Registrar and the Central Government, who are entitled to participate in the proceedings for winding up of a company.

It was further contended that in this case it was not even the employees, but the three trade unions, who had applied for being heard, and since the trade unions had no right to be heard, their applications had been rightly rejected.

Allowing the appeals,

HELD : By Majority : Per Bhagwati, Chinnappa Reddy and Baharul Islam, JJ. (Venkataramiah and Amarendra Nath Sen, JJ. dissenting):

The workers of a company are entitled to appear at the hearing of the winding-up petition whether to support or to oppose it. They have a locus standi to appear and be heard both before the petition is admitted and an order for advertisement is made as also after the admission and advertisement of the petition until an order is made for winding up the company. The workers also have a right of appeal against a winding up order. But when a winding-up order has become final, the workers ordinarily would not have any right to participate in any proceeding in the course of winding up, the company though there may be rare cases where in a proceeding in the course of winding up, the interests of the workers may be involved and in such a case it may be possible to contend that the workers must be heard before an order is made by the court. Even in an application for appointment of a provisional liquidator the workers have a right to be heard if they so wish but neither the petitioner in the winding up petition nor the court is under any obligation to give notice of such application to the workers. [956 A-E] In the instant case the circumstance that the workers were not heard by the Company Judge before he passed the order appointing the provisional liquidator would not have the effect of vitiating the order but it would be open to the workers to apply to the court for vacating that order.

[956 F-G] (i) The making of a winding-up order on a petition for winding-up would have an adverse consequence on the workers inasmuch as the continuance of their service would be seriously jeopardised and their right to work and earn 924 their livelihood would be disastrously imperilled. It is an elementary principle of law that no order involving adverse civil consequences can be passed against any person without giving him an opportunity to be heard against the passing of such order. If the audi alteram partem rule has been held to be applicable in a quasi-judicial or even in an administrative proceeding, it would a fortiori apply in a judicial proceeding such as a petition for winding-up of a company. No system of law which is designed to promote justice through fair-play in action can permit the court to make a winding-up order which has the effect of bringing about termination of the services of the workers without giving them an opportunity of being heard against the making of such order. Unless there is express provision in the Act which forbids the workers from appearing at the hearing, the workers must be held entitled to appear and be heard in the winding-up petition. [950 A-E] State of Orissa v. Dr. Bina Pani, [1967] 2 S.C.R. 625;

A.K. Kraipak v. Union of India, [1970] 1 S.C.R. 457 and Maneka Gandhi v. Union of India, [1978] 2 S.C.R. 621 referred to.

(ii) There is no provision in the Act which excludes the workers from appearing at the hearing of a winding-up petition. Merely because the right to apply for winding up a company is not given to them it does not follow as a necessary consequence that the workers have no right to appear and be heard in a winding-up petition filed by one or more of the persons specified in s. 439. In fact, there would be no point in conferring that right on the workers since they cannot have any interest in demolishing the enterprise which is the source of their livelihood. So also, the circumstance that the right to make applications or be consulted in the course of the winding up of a company is conferred under s. 440 and other provisions of the Act only on the creditors and contributories does not in any way militate against the right of the workers to appear and be heard in the winding-up petition. Once the winding-up order is made, the assets of the company have to be realised, the creditors to be paid and if there is any surplus it has to be distributed among the contributories and, therefore, at that stage, it is only the creditors and contributories who have an interest and that is why in the course of the winding up it is the creditors and contributories who have been given a voice. Sections 440, 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560 deal with a stage after the winding up has commenced. These sections have nothing to do with the question whether the company should be wound up or not. [950 F; 948 D-F; 951 B; 951 C-E; 949 A-H] (iii) After the amendment of ss. 397 and 398 of the Act by ss. 10 and 11 of the Companies (Amendment) Act, 1963, the court, while deciding whether a company should be bound up, has to take into consideration not only the interest of the shareholders and editors but also public interest in the shape of the need of the community and the interest of employees. It is therefore axiomatic that the workers must have an opportunity of being heard for projecting and safeguarding their interest before a winding-up order in made. [951 G: 952 E-F] In the instant case, the Division Bench of the High Court, after conceding that the court had to take into consideration the interest of the workers, went wrong in holding that the workers had no locus standi to file an application for being heard in the winding-up petition. [952 G-H; 953 A-B] 925 Fertilizer Corporation Kamgar Union and Ors. v. Union of India and Ors., [1981] 2 S.C.R. 52, referred to.

Bhalchandra Dharmajee Makaji and Ors. v. Alcock Ashdown and Co. Ltd. and Ors., 42 Company Cases 190, approved.

(iv) It is true that according to the statement of law contained in the leading text books on Company Law, it is only the Company, the creditors and the contributories who are entitled to appear in a winding-up petition and no other persons have a right to be heard. This statement of the law is based on a decision rendered by the English Courts over a hundred years ago when a company was regarded merely as a legal device brought into being as a result of a contractual arrangement between the shareholders for the purpose of carrying on trade or business and the workers were looked upon as no more than employees of the company working under a master and servant relationship and the interest of the public as consumers or otherwise was a totally irrelevant consideration. It can have no validity in the present times when the entire concept of a company has changed. [953 F-H] In re. Bradford Navigation Company [1870] 5 Ch. A.C. 600, held inapplicable.

In re. Edward Textiles Limited, 38 Company Cases 984, overruled.

(v) Our Constitution has shown profound concern for the workers and given them a pride of place in the new socio- economic order envisaged in the Preamble and the Directive Principles of State Policy. Article 43A states that the State shall take steps by suitable legislation or in any other way to secure the participation of workers in the management of undertakings, establishments or other organisations engaged in any industry. The constitutional mandate is therefore clear and undoubted that the management of the enterprise should not be left entirely in the hands of the suppliers of capital but the workers should also be entitled to participate in it. In a socialist pattern of society the enterprise which is a centre of economic power should be controlled not only by capital but also by labour.

It cannot therefore be contended that the workers should have no voice in the determination of the question whether the enterprise should continue to run or be shut down under an order of the court. The workers who have contributed to the building of the enterprise have every right to be heard when it is sought to demolish that centre of economic power.

[946 C; 947 D-F] People's Union for Democratic Rights v. Union of India and Ors. (W.P. No. 8143 of 1981 decided on September 18, 1982) referred to.

(vi) It is not only the shareholders who have supplied capital who are interested in the enterprise which is being run by a company but the workers who supply labour are also equally, interested because what is produced by the enterprise is the result of labour as well as capital. The owners of capital bear only limited financial risk and otherwise contribute nothing to production while labour contributes a major share of the product. While the former invest only a part of their moneys the latter invest their sweat and toil; in fact, their life itself.

926 The workers therefore have a special place in a socialistic pattern of society. They are no more vendors of toil; they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital;

they supply labour without which capital would be impotent.

[945 G-H: 946 A-B] (vii) The concept of a company has undergone radical transformation in the last few decades. The old nineteenth century view which regarded a company merely as a legal device adopted by shareholders for carrying on trade or business as proprietors has been discarded and a company is now looked upon as a socioeconomic institution wielding economic power and influencing the life of the people. The view that a company is the property of the shareholders can no longer be regarded as valid. Apart from capital and labour there are other factors which contribute to the production of national wealth; the financial institutions and depositors who provide the additional finance required for production and the consumers and the rest of the members of the community who are vitally interested in the product manufactured. A company, according to the new socio-economic thinking, is a social institution having duties and responsibilities towards the community in which it functions and one of its paramount objectives is to bring about maximisation of social welfare and common good. This necessarily involves reorientation of thinking in regard to the duties and obligations of the company not only vis-a-vis the shareholders but also vis-a-vis the rest of the community affected by its operations such as workers, consumers and the Government representing the society. [942 B; 943 A G; 944 C-D] Chiranjit Lal Chowdhri v. Union of India, [1950] S C.R. 869, referred to.

Panchmahal Steel Ltd. v. Universal Steel Traders, 46 Company Cases 706 approved.

per Chinnappa Reddy, J. (concurring) (i) Quite apart from s. 445(3), it is plain that the future of the workers is at stake and their right to work is in jeopardy as a result of the presentation of the winding- up petition. The workers are so intimately tied up that their interest in the survival and the well-being of the company is much more than the interest of any shareholder.

They cannot be denied a hearing when their very existence is under threat of extinction. [957 D-G] (ii) It is not correct to say that natural justice is exclusively a principle of administrative law. It is first a universal principle and, therefore, a rule of administrative law. Courts, even more than administrators, must observe natural justice. [959 A-C] (iii) The Act does not prohibit a hearing to the workers. It does not provide for all situations. The law "falls to be applied to a growing and changing subject matter". The Company Judge must acknowledge the transformation which corporations are presently undergoing from capitalist contrivances into socialist instruments and recognize the reality of the workers interest. The 927 working classes, all the world over, are demanding "workers' control" and "industrial democracy". They want the right to work to be secured. Our Constitution has accepted the workers' entitlement to control and it is one of the Directive Principles of State Policy. It is in this context of changing norms and waxing values that the workers' demand to be heard has to be judged.

[957 G-H; 958 B-C-E-F-G] (iv) The duty to hear those asking to be heard is not dependent on the vesting of any right under the very statute in respect of which jurisdiction is being exercised by the Court but on any right whatever which may come under threat.

It is not the law that rights other than those created by a particular statute may be taken away in proceedings under that statute without affording a hearing to those desiring to be heard. [959 D-E] (v) It is not correct to say that once the workers are allowed to enter the company court, the flood gates will be opened, all and sundry will join in the fray and utter confusion will prevail. The court is the master of the proceedings and the ultimate control is with the court.

Parties may not be impleaded for the mere asking. The court may ask the reason why, if someone asks to be heard. [960 B- C] (vi) The contention that since workers are not allowed to intervene in a partition or dissolution of partnership they should also not be allowed to intervene in a winding-up petition cannot be accepted. There is no reason why workers may not be allowed, in appropriate cases to intervene in such actions to avert disaster and to promote welfare. [960 D] (vii) There is good reason for holding that In re.

Bradford Navigation Company is not valid in the present times. It was decided in the heydays of laissez faire at a time when individualism dominated every field and the public interest was but a slow runner. Now the position is reversed. In Britain itself Corporate law and labour law have changed considerably. After nationalisation of certain important and crucial industries a considerable measure of workers' control of management of industry has been achieved in that country. One should rather look to the Constitution for guidance and inspiration while interpreting the laws.

After the 42nd Amendment, the Constitution is openly Socialist. The Directive Principles of State Policy emphasize the role and interest of the workers. Art. 43A contemplates workers' participation in the management of the industry. There are several provisions in the Act itself which take notice of the element of public interest. There are other enactments like the Monopolies and Restrictive Trade Practices Act and the Industries Regulation and Development Act under whose provisions the activities of a company may be scrutinized in public interest. There are legislations involving employment and welfare of labour to which the managements of the companies are subject. The problem before the court must be considered in this context of ferment and development.

[962 F; 961 G-H; 962 A-B; 960 G-H; 961 D-F] In re. Bradford Navigation Company, [1870] 5 Ch. A.C.

600, held inapplicable.

Panchmahal Steel Ltd. v. Universal Steel Traders, 46 Company Cases 706 approved.

928 per Baharul Islam, J. (concurring) The statement of law contained in the English authorities cited by counsel for respondents may be good law for England with altogether a different system of economy but it is not applicable in our country, particularly after the Constitution (42nd Amendment) Act, 1976, by which the "Socialist" and "Secular" concepts have been incorporated in the Preamble to our Constitution. The workers' right to be heard in a winding-up proceeding has to be spelt out from the Preamble and Arts. 38 and 43-A of the Constitution and from the general principles of natural justice. [990 D-F] per Venkataramiah and Amarendra Nath Sen, JJ. (dissenting) Under the existing law the workers or their unions may make any suggestions to the Court at any stage but they cannot claim to be impleaded as parties to the winding-up petition as of right. The privilege of making suggestions to the court in public interest is different from the right to be impleaded as a party with the concomitant right to enter into contest with the other parties and of making an order in appeal before higher courts. The latter right has to be conferred expressly by the statute in any person who wishes to exercise it. [979 D] (i) The principles of administrative law have not much relevance to the administration of the affairs of a company, the primary purpose of administrative law being the imposition of checks on the powers of government or its officers so that they may not either abuse their powers or go out of their legal bounds. In particular, the proceedings relating to winding-up by court are subject to the orders of higher courts in appeal and are not amenable to interference by superior courts as in the case of actions of government or its officers. [967 H, 968 A-B] (ii) The law on the question as to who can be heard as of right in a winding-up proceeding is clear and is based on the decision of the English Court in In re. Bradford Navigation Company. The decision may be of the last century but there is hardly any justification to depart from it even now unless compelled by the statute to do so.[970 B-D; 971 E] In re. Bradford Navigation Company, [1870] 5 Ch. A.C. 600, referred to.

Halsbury's Laws of England (4th Ed.) Vol. 7 Para 1028 referred to.

(iii) That only the company, creditors and contributories (apart from the Central Government or the Registrar when they choose to intervene under the express provisions of the Act) are entitled to participate in the winding-up proceedings is clear from ss. 439, 447 and 557.

Sections 450(2), 466, 478(3), 517, 518, 542, 543, 546(1), 549(1) and 556 show that only the Company, the official liquidator, liquidator, creditors, contributories or the Registrar have a statutory right to participate as of right in the winding-up proceedings. The workers or their trade unions have not been given any such right.

[969 C-D; 971 F; 972 E-H; 973 A-F] 929 In re. Edward Textiles Ltd., 38 Company Cases 284 approved.

(iv) Under s. 433, a company may be wound up by the court on one or more of the following grounds : (a) if the company has, by special resolution, resolved that it may be wound up by court; (b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting; (c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; (d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two; (e) if the company is unable to pay its debts; and (f) if the court is of opinion that it is just and equitable that the company should be wound up. As regards the ground mentioned at (a), when a company has passed a special resolution that it may be wound up by the court, the employees and workers can have hardly any ground to object. The position is the same when any of the defaults mentioned in (b) and (c) are committed by the company. The officers and employees of the company also cannot get over the deficiency in the required number of members of a company referred to in (d) above. When a company is unable to pay its debts and a creditor moves a petition for winding-up under (e) above, he cannot be compelled to prove his claim not merely against the company but also against the officers and employees. When there is a deadlock in the management of the company arising out of disputes amongst the directors or when some directors without any justification exclude some other directors from the management of the company and a petition for winding-up is filed under (f), above, it would be unreasonable to expect the excluded directors to fight a case both against the directors who are responsible for their exclusion and also against the officers and employees who are neither creditors nor contributories but who may be supporting the contesting directors. [968 H; 969 A-B; 969 F-H; 970 A-B] In the instant case, it is seen from the grounds of objection filed by the trade unions that they are only interested in supporting the cause of one set of respondents against the other by making certain general submissions. The petitioners in the Company Petition would be in a more disadvantageous position if they have to face the opposition of the trade unions also in addition to the respondents to that petition. Such a situation should not be created by extending the area of controversy by a liberal interpretation of the provisions of law when there are no compelling reasons to do so. [985 E-G] (v) There are specific provisions in the Act and the Rules (ss. 417 to 420, 530(1)(b) to (f) and 635-B and r. 152 read with Form No. 67) dealing with the rights of employees of a company. The right to resist a winding-up petition is not one such right. [975 D-E] (vi) It is because of some doubts that had been expressed earlier about the continuance of the employment of the employees of a company ordered to be compulsorily wound up that s. 445(3) was enacted making it clear that the passing of the order of winding-up amounts to a notice of discharge of the employees concerned. Section 445(3) corresponds to the termination of service brought about by the abolition of a post under a Government or by the closure of a business, neither of which as the law stands today requires compliance with the principles of natural justice.

[975 B-C] 930 (vii) It is true that public interest which may include within its scope interests of employees of a company has to be kept in view by the courts in exercising certain powers under the Act. Sections 388-B, 394, 396, 397 and 408 do refer to the concept of public interest. These provisions deal with the powers of the Central Government and the Court. They do not, however, state that trade unions can as of right intervene in the proceedings arising under them.

[975 F-H] Bhalchandra Dharmajee Makaji and Ors. v. Alcock, Ashdown and Co. Ltd. and Ors., 42 Company Cases 190 referred to.

In the instant case the High Court has passed necessary orders to protect the interests of the employees. As these orders stand today, the workers can always approach the High Court by way of a company application for appropriate orders whenever they feel that their working conditions are adversely affected during the pendency of the proceedings.

It is not necessary that the workers or the trade unions should be impleaded as parties to the winding-up petition enabling them to contest the same; their presence on record is not necessary for a complete and effectual adjudication of the petition. The trade unions are, therefore, neither necessary nor proper parties to the winding-up petition on the facts and in the circumstances of this case including the element of public interest involved in any liquidation proceeding. [985 H; 986 H; 987 A-C] (viii) In Fertilizer Corporation Kamgar Union (Regd) Sindri and Ors. v. Union of India and Ors., [1981] 2 S.C.R.

52 the court was concerned with operations in a public sector company and the activities of the government. The observations contained therein cannot have any relevance to a case involving the affairs of a company which is governed only by the express provisions of company law and other relevant statutes. [982 C] (ix) As the law stands today, the workers in a factory owned by a company do not have any hand in the birth of a company, in its workingur ding its existence and also in its death by dissolution. Workers' participation in the affairs of a company or the ushering in of an industrial democracy is quite a laudable object. That is the reason for enacting Art. 43-A. Art. 43-A clearly states that the State shall take steps by suitable legislation or in any other way to secure the participation of workers in the management of undertakings etc. The High-powered Expert Committee on Companies and MRTP Act, has made certain recommendations in this behalf in paragraphs 11.27 and 18.137 of its report and it is for the Parliament to take steps to implement them.

The legislature has not taken concrete steps in this regard.

The suggestions made by the committee emphasize that at present workers have no right to contest winding-up proceedings. It is significant that there is no recommendation made even in this report about the right of trade unions to contest winding-up petitions. The court cannot step in and introduce drastic amendments into the company law. Many of the Directive Principles are still to be implemented by passing appropriate legislation. This Court cannot compel the executive by issuing writs to implement the policy underlying them. There are well- recognized limitations on the power of the court making inroads into the legitimate domain of the legislature. If the legislature exceeds its power, this Court steps in. If the executive exceeds its power, 931 then also this court steps in. If this court exceeds its power what can people do ? Should they be driven to seek an amendment of the law on every occasion ? The only proper solution is the observance of restraint by this court in its pronouncements so that they do not go beyond its own legitimate sphere. It may be that the workers who are likely to be affected by the winding-up need a larger protection.

That can be done only by legislative action. This Court cannot make any order which will conflict with the existing law.

[982 G-H; 983 A; 977 E-F; 983 G; 983 B-D; 989 C] (x) The proposition that law should not be static but should grow cannot be disputed. But it should be the result of the exercise of legislative judgment, particularly when a departure from express provisions of a statute or an established practice is to be made. A discussion involving a comprehensive view of all interests which are likely to be affected by any decision in such a matter is not possible before a court where only the parties to a case or their lawyers are heard. [987 D-F] (xi) It is not correct to say that there is no other remedy at all for workmen who are likely to be affected by the winding-up order made by the court. It is open to the workers or their trade unions to move the Central Government to take appropriate steps under the Industrial (Development and Regulation) Act, 1951 the provisions of which provide that where a company owning an industrial undertaking is being wound up by or under the supervision of the High Court and the business of such company is not being continued, the Central Government may investigate into the possibility of running or restarting the industrial undertaking, provide relief to it or take steps to ensure that the undertaking is sold as a running concern, or prepare a scheme of reconstruction of the company and send it to the trade unions of employees concerned inviting their suggestions and objections. [976 A-H; 977 A-C] (xii) When once the right to contest a winding-up petition is extended to workers either on the principle of equity or of administrative law, on the same principle it would logically follow that all others who may have dealings with the company such as commission agents, selling agents.

etc. whose contracts with the company are going to be terminated by reason of its liquidation also have to be allowed to contest the proceedings. Such a claim is not permissible. [974 B] Ex parte Maclure, [1870] L.R. 5 Ch. 737, referred to.

(xiii) It is no doubt true that the view of the High Court is also in conformity with the view prevailing in England. That does not mean that the High Court has surrendered its judgment to a foreign practice because that is the very view which is being followed till now in the Indian Courts. A foreign decision is either worthy of acceptance or not depending upon the reasons contained in it and not its origin or age. There is no reason why we should not follow a well-reasoned foreign decision unless it is opposed to our ethics, tradition and jurisprudence or otherwise unsuited to our conditions. Moreover, it is difficult, even though it may not be impossible, to administer the company law as it is now in force in India without the aid of the principles laid down by some of the leading English cases. [987 H: 988 A-F] 932 Needle Industries (India) Ltd. and Ors. v. Needle Industries Neway (India) Holding Ltd. and Ors., [1981] 3 S.C.R. 698, referred to.

per Amarendra Nath Sen, J. (agreeing with Venkataramiah, J.) (i) If the right to participate in a winding-up proceeding is to be judged from the view-point of the interest of any party who may be prejudicially affected as a result of an order of winding-up being made, it must logically follow that not only every employee of the company but also various other parties and persons who have trade relations or dealings with the company must necessarily be held to have the same right to be heard in such a proceeding; further, no suit for dissolution of a partnership can also be decided without impleading the employees of the firm and other parties having trade relations with the firm.

[992 A-E; 991 H] (ii) A company can only be wound up in accordance with the provisions of the Act. The right to have a company wound-up is a right created by the statute. The entire proceeding in relation to the winding-up is governed by the provisions of the Act and the Rules. The Act recognises that a company may go into liquidation without any intervention by the Court and also under the supervision of the court.

Where the company goes into liquidation without reference to court, the employees of the company who have to meet the same fate of losing their employment cannot have any voice or say in the procedure to be adopted for liquidation of the company. [992 F-G; 993 B-C] (iii) The right of appearance and of being heard in a winding-up proceeding has been conferred on persons whom the legislature considered to be necessary or proper parties for effective adjudication of the proceeding before the court.

If a company is commercially insolvent and is unable to pay its debts, it has necessarily to be wound up and the employees can have hardly anything to say in such a case for assisting the court in deciding the matter. [993 E-G] (iv) Although an employee cannot claim to appear and be heard in a winding-up petition as a matter of right, the court may, in any appropriate case, require or permit any employee to appear at any stage of a winding up proceeding and hear him, if it is of the opinion that it is necessary in the interest of administration of justice and for proper disposal of any matter. [998 H; 999 A] (v) The legislature has made suitable provisions in the Act for safeguarding what is considered to be in the interest of employees or in public interest. The introduction of Art. 43A in the Constitution does not affect the position in any way. Participation in the management does not by itself create any right to appear and be heard in a winding-up petition. Unless otherwise named personally as a party to such a petition, no person, merely on the ground that he happens to be in the management of the company, is entitled to appear and be heard in a winding-up proceeding. Persons in management may, if so authorised, appear and participate in such a proceeding on behalf of the company.

[995 D; 995 E-H] 933 (vi) The Indian and the English Companies Acts contain similar provisions. As early as in 1870 the English court held that no person had a right to be heard against a petition for winding-up of a company except creditors and contributories. That decision still holds good and is considered good law. The English Act has undergone changes from time to time with the passing of various legislations for the benefit and welfare of employees. An order winding up a company affects the employees in England in the same way as it does in India. It cannot be said that workers in England are not conscious of the important role they play in the functioning of a company. Despite all these, the right of an employee or any trade union representing the workers to participate and be heard in a winding-up petition is not recognised in England. Even in our country, though the provisions of the Act have undergone changes and various enactments for the welfare of the workers have been passed from time to time, the legislature has not considered it proper or necessary to amend the Act to confer any such right on the workers. [996 A-D; 996 H; 997 A-B; 998 F] In re Bradford Navigation Company, [1870] 5 Ch. A.C.

600, referred to.

Halsbury's Laws of England (4th Ed.) Vol. III. p. 614;

Palmer's Company Precedents (7th Ed.) Part II, p. 77 and Buckley on the Companies Act, (14th Ed.) Vol. I, p. 546 referred to.

Hind Overseas Private Ltd. v. Raghunath Prasad Jhunjhunwala and Ors., [1976] 2 S.C.R 226, distinguished.

2. By majority: Per Bhagwati, Chinnappa Reddy and Baharul Islam, JJ. (Venkataramiah and Amarendra Nath Sen, JJ. dissenting): Trade unions are competent to make applications before the Company Judge hearing a winding-up petition on behalf of the workers represented by them. [956 H] In this case the applications were made by the unions on behalf of the workmen represented by them and though made in the name of the Unions the applications were in reality and substance applications of the workmen who were members of each respective Union. The controversy therefore really is not whether the unions of workmen are entitled to be heard in a winding-up petition but whether the workmen have such right when a winding-up petition is filed against a company. [939 G-H] per Venkataramiah and Amarendra Nath Sen, JJ.

(dissenting): In none of the English text books on Company Law there is any statement to the effect that trade unions of officers and employees of a company for whose winding-up a petition is filed would be entitled as of right to be impleaded as parties and to contest the petition. It is not also shown that any such right of a trade union is recognised by the Indian Law which more or less corresponds to English Law in this regard. The decision of the Bombay High Court in re Edward Textiles Ltd. is a clear authority for the proposition that at any rate trade unions have no locus standi to oppose a winding-up petition. We shall proceed to decide this case on the assumption that the application for impleading was made in fact on behalf of the workers and not by the trade unions. [968 C-F] 934 In re Edward Textiles Ltd., 38 Company Cases 284, referred to.

3. By the Full Court: Rule 34 of the Companies (Court) Rules, 1959 does not confer a right on the workers to appear at the hearing of a winding-up petition. [955 G; 973 G; 994 E-F] per Bhagwati, Chinnappa Reddy and Baharul Islam, JJ.: The object and purpose of r. 34 is not to confer a right on anyone to appear at the hearing of the winding-up petition but merely to provide for the procedure to be followed before a person who is otherwise entitled to appear in a winding-up petition can be heard in support of or in opposition to the winding-up petition. [955 F] per Venkataramiah, J: The words "every person" in r. 34 of the Companies (Court) Rules, 1959 do not entitle a worker who is neither a shareholder nor a contributory to support or oppose a winding-up petition under that rule because they refer only to a person who is otherwise entitled to do so under the Act. An anomalous result that may flow from the acceptance of the case of the workers is that whereas in a winding-up by court they may get an opportunity to contest the petition, the voluntary winding-up proceedings or winding-up under the supervision of the court would go on without any such contest although in all cases ultimately the workers will be discharged from service. A construction which leads to such a discriminatory result should be avoided. [973 G-H; 974 A] per Amarendra Nath Sen, J.: Rule 34 only lays down the procedure to be followed by any person who intends to be heard at the hearing of a petition; it does not deal with the right of any person to appear at the hearing nor does it create any such right in any person. Rule 9B in part III of the Rules makes specific provision in that behalf. [994 E-F]

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 4065- 67 of 1982.

Appeals by special leave from the judgments and orders dated 30.11.81 and 14.9.1981 of the Madras High Court in O.S.A. No. 148 of 1981 and Company Appeal Nos. 880-881 of 1981.

M.K. Ramamurthy, Somyaji, Ambrish Kumar, Miss Nitya Ramakrishnan for the Appellants in CA. No. 4065/82.

G. Vasanta Pai, S.N. Kacker, O.C. Mathur and D.N. Mishra for the Respondents in CA. 4065 of 1982 and for the Appellants in CA. Nos. 4066-67/82.

R.K Garg, A.T.M. Sampath and P.N. Ramalingam for the Appellants in CA. Nos. 4066-67/82.

935 V.M. Tarkunde, E.C. Aggarwala, R. Satish, V.K. Pandia and T.S. Vishwanath Rao for the Respondent Nos. 6-9 and 11.14 in CA. Nos. 4066-67 of 1982.

O.C. Mathur, Ravinder Narain and D.N. Mishra for the Respondents in C.A. 4065 of 1982.

M. Natesan and M. Raghuraman for the Intervener.

The following Judgments were delivered BHAGWATI J. These three appeals by special leave raise a short but interesting question of law relating to the right of workmen employed in a company to appear and oppose a petition for winding up of the company. The controversy between the parties arises out of a petition for winding up a private limited company called Ramakrishna Industries (P) Limited (hereinafter referred to as a company). The Company has three units, one a textile mill in the name of Jotie Mills which employs about 500 workmen, another, a workshop for manufacture of textile and other machinery which employs about 400 workmen and the third a printing press which brings out a Tamil daily, called "Nav India" and employs about 100 workmen. It is a closed company in which there are two groups of shareholders, one group consisting of respondent Nos. 1 to 5 and the other consisting of respondent Nos. 7 to 14. Respondent Nos. 1 to 5 hold 608 shares and respondent nos. 7 to 14 687 shares while the remaining 300 shares belong to a Trust in which both the groups are equally represented on the Board of Trustees. It appears that a serious dispute arose between Respondent nos.

1 to 5 on the one hand and Respondent nos. 7 to 14 on the other in regard to the management of the affairs of the company and since the dispute could not be settled amicably, Respondent nos. 1 to 5 filed a petition for winding up the Company on two grounds set out in clauses (e) and (f) of section 433 of the Companies Act, 1956. One ground was that the Company is unable to pay its debts and the other was that it is just and equitable that the Company should be wound up. The winding up petition was filed by Respondent nos. 1 to 5 not only as contributories but also as creditors of the Company. Immediately on filing the winding up petition on 13th July 1981, Respondent nos. 1 to 5 submitted an application, being company application no. 844 of 1981, for an interim injunction and on this application, an ex parte order was made by the learned Company 936 Judge restraining the Company which was respondent no. 6 in the winding up petition as also Respondent nos. 7 to 14 from borrowing any monies from banks, financial institutions or others without the prior permission of the Court and from alienating and/or creating any charge or encumbrance over any of the assets of the Company in its various enterprises.

The immediate consequence of this ex parte order of injunction was that the Jotie Mills Employees Co-operative Store stopped issuing any provisions or supplies to the workmen from 18th July 1981 and the workmen were also unable from 23rd July 1981 to enjoy the benefits under the Employees State Insurance Scheme. The workmen also apprehended that on account of the ex parte order of injunction, they may not be able to get their wages which were due to be paid on 7th August 1981. Now some of the workmen were members of the National Textile Workers Union, some others were members of the Coimbatore District National Textile Employees Union while still some others were members of the Coimbatore District Engineering Workers Union. The Coimbatore District National Textile Employees Union with a view to protecting the interests of its members made an application, being company application no. 880/81 on 28th July 1981 for impleading itself as a respondent. The Coimbatore District Engineering Workers Union also made a similar application to the Company Judge on the same day, being Company Application No. 881 of 1981. So also the National Textile Workers Union made an application, being company application no. 883 of 1981, to the Company Judge on 29th July 1981 praying that it may be permitted to intervene in the winding up petition and that the ex parte order of injunction may be vacated. Respondent nos. 1 to 5 filed their affidavit in reply to these three applications and the principal contention raised by them was that the National Textile Workers Union, the Coimbatore District National Textile Employees Union and the Coimbatore District Engineering Workers Union had no locus standi to appear and oppose the winding up petition, since the workmen who were members of these three unions were neither creditors nor contributories of the company. These three applications came up for hearing before the Company Judge and after hearing full arguments on both sides, the Company Judge made an order dated 14th September 1981 rejecting all the three applications on the ground that under the Companies Act 1956, the workmen had no right either to get impleaded in the winding up petition or even to intervene in the winding up petition. The Company Judge 937 followed the decision of a single Judge of the Bombay High Court in In re Edward Textiles Limited(1) in taking this view. The Company Judge conceded and this concession had to be made because of the observations of this Court in Fertilizer Corporation Kamgar Union and Ors. v. Union of India and Ors.(2) and of the High Court of Bombay in Bhalchandra Dharamaji Makaji v. Alcock Ashdown and Co.

Ltd.(3) that the factors to be taken into account by the court while disposing of a winding up petition would include the interest of the workmen of the company, but observed that "the duty of the court to consider the interest of the worker of the company would not create a right in such workers to intervene in the absence of express provision in the Companies Act and in the teeth of such right specifically conferred only on the creditors and contributories." The National Textile Workers Union thereupon preferred an appeal before a Division Bench of the High Court but the Division Bench also took the same view and held that though it was undoubtedly true that while disposing of a winding up petition preferred on the ground that it is just and equitable to wind up the company, the court must consider the interest of the workmen, it does not mean "that everybody who is remotely interested in the company can file an application to implead himself as a party in the petition for winding up" and "merely because in considering the question whether to wind up or not the court has also to take the larger point of public interest including that of the workers into consideration, it will not clothe the Unions with any locus standi to file applications for impleading themselves as parties or to be heard in the company petition." The Division Bench accordingly rejected the appeal and this led to the filing of Special Leave Petition No. 9661 of 1981 in this Court by the National Textile Workers Union. The Coimbatore District National Textile Employees Union and the Coimbatore District Engineering Workers Union did not prefer any appeal against the judgment of the Company Judge before the Division Bench of the High Court but they preferred Special Leave Petitions Nos. 10248 and 10249 of 1981 directly in this Court against the judgment of the Company Judge. We issued notice on all the three Special Leave Petitions and when the Respondents appeared before us, we intimated to them that we will dispose of the entire controversy between the parties on the Special Leave Petitions and that is how full and detailed arguments 938 were advanced before us at the hearing of the Special Leave Petitions. We now proceed to dispose of these cases after granting special leave to appeal in each of the three special leave petitions.

Before we proceed to discuss the basic and vital question that arises for consideration in these appeals, it is necessary to set out a few further facts which may have some bearing on the final relief to be granted by us. On the same day on which respondent Nos. 1 to 5 filed the winding up petition and applied for interim injunction, they also made an application, being Company Application No. 843 of 1981, praying for appointment of Provisional Liquidator of the company. Respondent Nos. 6 to 14 appeared at the time when this application was presented and asked for time to file their affidavit in reply and time was granted by the Company Judge upto 10th August, 1981. Respondent Nos. 6 to 14 thereafter filed an affidavit in reply on 10th August, 1981 and after hearing both sides in a bitterly contested argument, the Company Judge made an order on 7th December 1981 appointing the official liquidator as Provisional Liquidator of the Company. The workmen represented by the National Textile Workers' Union, the Coimbatore District National Textiles Employees' Union and the Coimbatore District Engineering Workers' Union did not have an opportunity of being heard before the order appointing Provisional Liquidator was passed by the Company Judge, because as pointed out above, their applications for impleading themselves as parties in the winding up petition or in any event, for being allowed to intervene in the winding up petitions were rejected by the Company Judge on 14th September, 1981 and this rejection was confirmed by the Division Bench of the High Court on 30th September 1981. The result was that the order appointing Provisional Liquidator of the company came to be made by the Company Judge without any opportunity being given to the workmen represented by these three Unions to appear and show cause against the making of such order. It may be pointed out that the order appointing Provisional Liquidator was stayed for some time by the Division Bench of the High Court in an appeal preferred by respondent Nos. 6 to 14 but the application for stay was ultimately dismissed by the Division Bench and the Official Liquidator immediately thereafter took charge of the affairs of the company.

We may now proceed to consider the question that arises for determination before us. The question, briefly stated, is: when a 939 petition for winding up a company is filed in court, are the workmen of the company entitled to ask the court to implead them as parties in the winding up petition or to allow them to appear and contest the winding up petition or they have no locus standi at all so far as winding up petition is concerned and they must helplessly watch the proceedings as outsiders though the result of the winding up petition may be to bring about termination of their services and thus affect them vitally by depriving them of their means of livelihood ? It is a well established principle of administrative law that no order entailing adverse civil consequences can be made by the State or a public authority unless the person affected is afforded an opportunity to show cause against the making of such order by controverting the allegations made against him and presenting his own positive case, but in case of a winding up petition, it was contended on behalf of respondents Nos. 2 to 5, that though the result of successful termination of a winding up petition may, and in most cases, would be to put an end to the services of the workmen and throw them on the streets, they are not entitled to an opportunity to be heard against the making of the winding up order, because under the Companies Act 1956, it is only the creditors and contributories and in certain specified contingencies, the Registrar and the Central Government who can present a petition for winding up a company and the workmen have no locus at all in a winding up petition except where their dues have remained unpaid in which case they would be entitled to be heard in a winding up petition, but that would be in their capacity as creditors and not as workmen.

It was also urged on behalf of respondent Nos. 1 to 5 that in any event, even if workmen have a right to intervene in a winding up petition in the present case, it was not the workmen who had applied for being heard in the winding up petition but the applications were made by the three unions and since a Union of workmen has no right to be heard, the applications of the three unions were rightly rejected. This last contention of respondent Nos. 1 to 5 is obviously untenable and it need not detain us. It is incontrovertible- and this indeed could not be disputed on behalf of respondent Nos. 1 to 5-that the applications were made by the Unions on behalf of the workmen represented by them and though made in the name of the unions, the applications were in reality and substance applications of the workmen who were members of each respective union. The controversy therefore really is not whether the unions of workmen are entitled to be heard in a winding up petition but whether the workmen have such right when a winding up petition is filed against 940 a company. We may straight away point out that though the applications made by the Coimbatore District National Textile Employees and Coimbatore District Engineering Workers Union were for impleading them as parties in the winding up petition, it was conceded on behalf of these two unions that they were not pressing their applications for being added as parties, because there was no procedure known to Companies Act 1956 for anyone to be impleaded as a party in a winding up petition and even the creditors and contributories were not entitled to be added as parties and they were claiming only the right to appear and be heard in support or opposition to the winding up petition. The contention of these two unions was therefore a limited one and that was also the narrow contention advanced on behalf of National Textile Workers' Union, namely, that the workmen represented by them were entitled to intervene in the winding up petition and to be heard before any order was made by the Company Judge in the winding up petition, because any such order might affect the interest of the workmen. It was pointed out on behalf of the three unions that even if an interim order were to be made by the Company Judge which might prejudicially affect the workmen by freezing the resources of the company so as to make it difficult for the company to pay the wages of the workmen or bringing about stoppage of the business of the company resulting in non-payment or diminution of their wages or termination of their services, the workmen must surely be afforded an opportunity to be heard before any such interim order is made. It would be contrary to every recognised principle of fair judicial procedure and violative of the rule of audi alteram partem which constitutes one of the basic principles of natural justice to deny to the workmen the right to be heard before an order is made by the Company Judge prejudicially affecting their interest. Additionally, reliance was also placed on behalf of the three unions on Rule 34 of the Companies (Court) Rules 1959 which provides as follows:

"Rule 34. Notice to be given by persons intending to appear at the hearing of petition-Every person, who intends to appear at the hearing of a petition, whether to support or oppose the petition, shall serve on the petitioner or his advocate, notice of his intention at the address given in the advertisement. The notice shall contain the address of such person, and be signed by him 941 or his advocate, and save as otherwise provided by these rules shall be served (or if sent by post, shall be posted in such time as to reach the addressee) not later than two days previous to the day of hearing, and in the case of a petition for winding up not later than five days previous to the day of hearing. Such notice shall be in Form No. 9, with such variations as the circumstances may require, and where such person intends to oppose the petition, the grounds of his opposition, or a copy of his affidavit if any, shall be furnished along with the notice. Any person who has failed to comply with this rule shall not except with the leave of the Judge, be allowed to appear at the hearing of the petition." The argument urged on behalf of the three unions was that this rule confers a right on the workmen to appear at the hearing of the winding up petition either to support it or to oppose it and clearly recognises that they are entitled to intervene and be heard in the winding up petition.

Respondent Nos. 1 to 5 however seriously challenged the locus of the workmen to appear and be heard in the winding up petition and contended that so far as the winding up petition is concerned, it is only the creditors and contributories and in certain specified contingencies the Registrar and the Central Government who are entitled to appear at the hearing of the winding up petition whether to support or to oppose it. The right to be heard in the winding up petition, contended respondent Nos. 1 to 5 is governed solely by the provisions of the Companies Act 1956 and since no such right is conferred on the workmen by any provision of the Companies Act 1956, the workmen are not entitled to intervene in the winding up petition, even though the making of a winding up order may result in termination of their services. The workmen, according to respondent Nos. 1 to 5, could appear at the hearing of the winding up petition and make their submissions only in their capacity as creditors if any part of their wages remained unpaid by the company but they had no locus to appear in their capacity as workers. These rival contentions urged on behalf of the parties raised an interesting question of law which we shall now proceed to consider.

942 There is one very important consideration which we must bear in mind while dealing with this question and it is necessary to advert to it at the present stage. The concept of a company has undergone radical transformation in the last few decades. The traditional view of a company was that it was a convenient mechanical device for carrying on trade and industry, a mere legal frame work providing a convenient institutional container for holding and using the powers of company management. The company law was at that time conceived merely as a statute intended to regulate the structure and mode of operation of a special type of economic institution called company. This was the view which prevailed for a long time in juristic circles all over the democratic world including United States of America, United Kingdom and India. That was the time when the doctrine of laissez faire held sway and it dominated the political and economic scene. This doctrine glorified the concept of a free economic society in which State intervention in social and economic matters was kept at the lowest possible level.

But gradually this doctrine was eroded by the emergence of new social values which recognised the role of the State as an active participant in the social and economic life of the citizen in order to being about general welfare and common good of the community. With this change in socio-economic thinking, the developing role of companies in modern economy and their increasing impact on individuals and groups, through the ramifications of their activities, began to be increasingly recognised. It began to be realised that the company is a species of social organisation, with a life and dynamics of its own and exercising a significant power in contemporary society. The new concept of corporate responsibility transcending the limited traditional views about the relationship between management and shareholders and embracing within its scope much wider groups affected by the trading activities and other connected operations of companies, emerged as an important feature of contemporary thought on the role of the corporation in modern society.

The adoption of the socialistic pattern of society as the ultimate goal of the country's economic and social policies hastened the emergence of this new concept of the corporation. The socio-economic objectives set out in Part IV of the Constitution have since guided and shaped this new corporate philosophy. We shall presently refer to some of the Directive Principles of State Policy set out in Part IV which clearly show the direction in which the corporate sector is intended to move and the role which it is intended to play in the social and economic life of the nation. But, one thing is certain 943 that the old nineteenth century view which regarded a company merely as a legal device adopted by shareholders for carrying on trade or business as proprietors has been discarded and a company is now looked upon as a socio- economic institution wielding economic power and influencing the life of the people.

It is now accepted on all hands, even in predominantly capitalist countries, that a company is not property. The traditional view that the company is the property of the shareholders is now an exploded myth. There was a time when a group controlling the majority of shares in a company used to say: "This is our concern. We can do what we like with it." The ownership of the concern was identified with those who brought in capital. That was the outcome of the property-minded capitalistic society in which the concept of company originated. But this view can no longer be regarded as valid in the light of the changing socio-economic concepts and values. Today social scientists and thinkers regard a company as a living, vital and dynamic, social organism with firm and deep rooted affiliations with the rest of the community in which it functions. It would be wrong to look upon it as something belonging to the shareholders. It is true that the shareholders bring capital, but capital is not enough. It is only one of the factors which contributes to the production of national wealth. There is another equally, if not more, important factor of production and that is labour. Then there are the financial institutions and depositors, who provide the additional finance required for production and lastly, there are the consumers and the rest of the members of the community who are vitally interested in the product manufactured in the concern. Then how can it be said that capital, which is only one of the factors of production, should be regarded as owner having an exclusive dominion over the concern, as if the concern belongs to it? A company, according to the new socio-enconomic thinking, is a social institution having duties and responsibilities towards the community in which it functions. The Supreme Court pointed out as far back as 1950 in Chiranjeetlal v. Union of India:

"We should bear in mind that a corporation, which is engaged in production of commodities vitally essential to the community, has a social character of its own and it mus