NATIONAL TEXTILE WORKERS' UNION ETC. v. P.R. RAMKRISHNAN AND OTHERS (2)

Citation: [1983] 1 S.C.R. 922

Court: Supreme Court of India

Bench: P.N. BHAGWATI, O. CHINNAPPA REDDY, E.S. VENKATARAMIAH, BAHARUL ISLAM, AMARENDRA NATH SEN

Case summary

The•e three appeals by special leave raise a ;hort but interesting question of law relating to the right of workmen employed in a conipany to appear and oppose a petition·for winding ....

Judgment text

922 NATIONAL TEXTILE WORKERS' UNION ETC. v. P. R. RAMKRISHNAN AND OTHERS. December IO, 1982 [P. N. BHAGWATI, 0 CHJNNAPPA REDDY, E. S. VBNKATARAMIAH, BAHARUL {SLAM AND AMARENDRA NATH SEN, JJ. ] Indian Companies Act, 1956-S. 433-Petitlon for winding-up ofcompany- Orders likely. to adversely affect interests. of workers-Workers have right to appear and be heard-Workers also entitled ta hearing on their own request when application for appointment of provisional liquidator is being considered-Trade Unions representing workers competent to intervene on behalfofworkers. Companies (Court) Rules, 1959-R. 34=-Provides for procedure only-Does not confer on workers right to appear at hearing of Winding-up petition. The respondents were two grotJps of sharebOtder. s of a private: limited company which had a thousand personi under its employn1ent. A group of shareholders filed a petition for winding-up the company under els. (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. Tt::iree trade. unions representing the employees Of the company filed applications for being im;:ileaded as respondents/interveners in the windingup petition clain1ing that the interests of the employees had bee'n adversely affc\:ted by the interim order. The Company Judge rejected these applications. A Division B~nch of the f-Iigh Court turned down the appeal preferred by one of_tbe unions and that union sought special leave to appeal against _the order ·or the Division Bench-while the other two unions sought special leave to appeal againsc the order of the Company Judge..

The Court granted special leave to all the three unions and perrniued the Con1pany Judge to pass orders on the application pending before him for appointment of a provisional liquidator with the direction that the liquidator shall not tike any st. :ps wh\ch would prejudicially affect the emplojtees. It was contended on behalf of the appellants that siDee an order winding up a company amounts to notice or 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 ~ages, etc.. it would be contra~y to f~ir judicial pr_ocedure and violative of the rule audi alteram partem to deny the employees the right to be '1eard before any order prejudicially affecting their interests is made. The NATIONAL TEXTILES v. P. R.

RAMAKRiSHNAN 923 employees who contribute materially to the working: of a company and enable it to effectively play its socio-econarnic role are equal, if not more important, -,,/ partners in the running of the company and they must be heard io a proceeding for 'windihg tip of the company. It was further urged ihat under L 34 of the Comi>anies (Court) Rules, 1959 tbe employees have a right to appear at the hearirig of a wioding·up petition either to·suppOrt or to ~ppose it. 8 On behalf of the respondents it was contended that the employees of a company have no locus standi in a wiading-up petition as the Act does not contain any provision conferring such a right on them ; that since the Act is a Se1f·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 t , that r.

34 of the Companies (Court) Rules, 1959 does not confer such a right on r thein and that, under the various provisions of the Act·includiog ss. 439 and 440J it is only . the creditors and contributorie's and in certain specified contingencies, the Registrar and the Central Government, who are entitled to participate in ihe proceedings for winding up of a coinpany. It was further coritendcd that in this case it was not even the . eiilployees, but the three trada unioas, who had applied for being heard, and since the trade union·s had no right to be heard, Jheir. applications hild been rightly rejeCtCd. [) Allowing the appeals, ; HELD: By. Majority: Per Bhagwati, Chinnappa Reddy and Baharul Islam, JI. (Yen. ,:ataramiah and Amarendra Nath Sen, JI. dissenting): The workers of a company ar~ entitled to appear at the hearing of the winding-up petition whether to support or to oppose it. . "They have a lrJcus,standl to appear and be beard both befQre .

the petition ,is admitted and an order for R advertisement is made as also after the admission and advertisement of the petition unti! an order ·js 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 proceeaing in the 'CoiJrse of winding up, the interests of the workers may be involved and iii such a case it may be possible to coniend that the workers must be h~ard before an order is made by ~ho co:. 1rt. Even in an application for appoiQtment of a provisional liquidator the workers have a right to t:>e heard if they so wish but neither the petitioner in the winding up petition nor the court is under any Obligation to give no1ice of such application to the workers.

(956 A-El In the instant case the circumstarice that the workers were not ·1ipard by the Company Judge before he passed the order appointing the provisional liquidator would not have the e:ffeet 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 ciiaking 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 servi~ would be ~criously jeopardised and their right to work and earn 924 SUPREME COUR. T REPORTS {! 983) l S. C. R, 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 passiug 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-a~ 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 8 termination of the services of the workers without giving them an opportunity of being heard against the making of such order. Unless there is expre . 439, 447 and 557. Sections 450(2), 466, 478CI), 517, 518, 542, 543, 546(1), 549(1) and 556 show that only the Company. tho official liquidator, liquidator, creditors, contributories oi' the Registrar have a statutory right to participate as of right in the winding4 up proceedings. The work~rs or their trade unions have not been given any such right. [969 C·D; 971 F; 972 E·H; 973 A-Fl NATIONAL TEXTILES v. P. R. RAMAKRISHNAN 929 In re•.

Edward Textiles Ltd. , 38 Company Cases 284 apptoved. (iv) 'Under s. 433, a co·mpany may ·be ·wound up by the court on one ·or more of the following gtounds : (a) if the company ! ta;, by special resolution, resolved that it may be wound u·p. by court ; (ll) if default ls ;made m·delivetmg the statutory report to -the Re'gistrar Or -in holding thersio. tutory Ineeting ; (c) :i_f tbe "Cotnpany does not comtneoce 'its busitiess 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 c8se of a private compaoy, below two ; (e) i(tbe company is unable to pay its debts ; and (f) if tho 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 • c8n have hatd(y any ground lo object.

The pOstiiOn is the ·same when ahy of the defaults mentioQed in (b) and (c) are coinmitted by the 'l! Ompany. ·The officers and empJoyees o-C the cO'mpany also ~fihot~ get over the deficiency in the reqU. ired numbe'r pf members of a ·C<>fil}Jany tefe:rred. to in . (d) above. When a company is unable to pay its debts and~ creditor moves a petition for winding-up under {C) ilbove, he cannot be compelled ·tO prove his claim not merely -agatnst the company but also against the officers and employees. When there . is a de8dtock ih the • ' management -Of the company ariSing out of disputes amongst the directors or when some directors without 8. ny justi6c8tiOii·exChldC some other directOts ftorb. the management,of the c~mpany and a petition for windin·g-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 Riso against the.

officers and employees who 4re 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 oiLly interested in supporting the cause of One set of· > respondents against the other by making cert&. in general submissions. Tho petitioners in the Company Petition would be in a more dis-advintageous position if they have· to face the opposition of the trade unions also in addition to tho 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 litw when there are no compelling reasons to do so. [985 ,E-G] (V) There are spec;:ific provisions in the Act and the Rules (ss. 417 tO 420, 5JO(l)(b) to (f) and 635-B and r. 152 read with Form No. 67) dealing with the rights of employees of a coaipany.

The right to resist a winding-up petition is not ODO such right. [975 D•EJ . . ~ (vi) It js because of some doubts that had been expressed earlier 3boUt the continuance or the empioyinent ofthe employees or a compilny ordered to bO cOmpulsorily wound up that s. 445(3) waS enacted making it clear that the passirig of the otder of winding-Up aiiiOurits to a notice of discharge of the Cil:iployCCs concerned. Section 44~(3) cortesponds to the termination of SetviCe brollgbt. about by the abolition or a p6st uodei' a Governin'ent or by the closil. re Of a bu$iness, ~either of which as the law stands today i-equires c;orqP--IH~n¢ with the .. principles of natural justice. [915 Jl. Cj . 930 SUPREME CQUR1 REPORTS {1983] l S,C,R. (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· deaI with the powers of the Central Government and the Court. They ·do not, however, state that trade unions can as of riaht intervene in the proceedings arising under them. (975 F-H) Bhalchandra Dharmajee Makoli and Ors. v. Alcock, Ashdown and Co. Ltd. and Ors. , 42 Company Cases 190 referred to. i Jn the instant case the High C. ourt has pa1sed necessary orders to protect the interests of the employees. As these orders stand today, the workers can atw8ys approach the High Court by way or a company application for appropriate orders whenever they feel that their working c·onditions are adversely affected during the pendency of the proceedinas. It is not necessary that the workers or the.

tradc·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 t. he facts and in the circumstances or this case including the element of public interest involved in any liquidation proceeding. (985 H; 986 H; 987 A-CJ (viii) In F•rtiliztr Corporation Kamgar Union (Rtgd. ) Sindri and Ori. v. 'Union ofIndia and·Or1. , [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 or a company which ia governed only by -the express provisions of company law and other relevant statutes.

[982 C] (ix) As the Jaw stands today, the w·orkers in a factory owned by a company do not have any hand in the birtl~ of a company, in it_s 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'dernocracy is quite a laudable object. That is the reason for enacting Art. 43-A. Art. 43-A clearly states that the State sb~ll 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 Par1iament to take steps to implement them.. The legislature has not taken concrete steps in this regard. The suggestions made by the committee em~h3size that at present workers have no right to contest winding-up proceeditigs.

It is significant that there is no recommendation made even in this report about tbe right of trade unions to contest winding-up petitions. The court cannot siCP in and intrOduce drastic amendments into the company law. Many of the Directive Principles ai'e 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 ell~ee! ;Js jt~ pt;>wer, this Court steps in. If the executive exceeds its power' NATIONAL TEXTILES v. P. R. RAMAKRISHNAN 1)3j then also this court steps in. If this court exceeds its power what can people do 1 Should they be driven to seek an amendment of the law on every occasion? - The only Proper solution is the observance of re. ~traint~by this court'in its pronounce.

o ments so that they do not go beyond its own legitimate sphere. It may be that the workers who ate likely to be affected by the winding-up need . a larger protec· tion. 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;i989 C] ,8 (x)' The P"roposition that law"should not be -static but-shouldf8row. cannot be disputed. But it should be' the result of the cxci:;cise of legislative judgmellt, particularly when a departure from express provisioμs 9f a statute,or an established p;actice is t~ be made. " A discusSion iDvolving a:ucomprehensiVe view of all interests whiCh are likely to be affected by any dedsion in such 3. matter is not pvssible before a court where only the parties to; a Case or their lawyer~-, are heard. [987 D-F] . . (xi) It is Dot correct to say that there is rio 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 mov¢ the. Central oOveromCot to-, take. a'ppropriate steps under tho Industrial (Developlnent and-Regulation) Act, 1951 the provisions of which proVi4e that where a company owning an industrial' undertaking is being wOund . itp by_ or under the supervision of-thC High Court and the business of such comp8. ily is ndt beina continued, the Central GOv~rnmont may investigate into the possibilit:Y of ru! lning or restarting the indus~rial undertaking. provide relief to it or take steps to ensure that the undertakiD. g is soid as a running concern. or prepare a sch~me. of reconstruction of the CQmpany·and send it to the. trade unions of employees concerned inviting their' suggestions and objections. ·[976 A-H; 977 A-Cl (xii) "Wh!! n ~nee the right to 'contest a winding·up petition is exteitded to· workers either o.

n the principle of equi1Y or of administrative Jaw, on' the same . principle it would logically follow that all others wh'o may have" dealings with the company such as commission agents, ·selling agents. etc. whose contracts with tho 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 BJ .. Ex parte Maclure, [1870]. L. R: S Cb. 737, referred to. (xiii) It is no doubt true that the view of the High Court is also iri ~Con for~ity with the view prevailing- in England.. That does not mean ·that the High Court bas surrendered its judgment to a fo~igp. 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 no. t its origin or agC.

There· is no reason why we should not follow a well-reasoned foreign decision unless it is opposed to our ethics, _trcidition and juris· prudence 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 t_be leading English cases. [987 H: 988 A-Fl ' 932 StJPilBMil coiJllt REPORTs (1983) 1 s. c. R Needle Indullrles (India) Ltd, and Or>. v. Needle Industries Neway (India) Holding Ltd. and Ors. ,. [1981] 3 S. C. R. 698, referred to. · ·~ Per A. marendra Nath Sen, J. (agreeing with Venkataramiah, J. ) (i}, If. the right to panicipate in a winding-up proceeding is to be judged !

i'om the view-poi'nt 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 lhe company but also various other parties and· persons who have 'trade relation~ or dealings with the company must necessarily. be held t! ) h~vo the same rig~t to be heard in such ~a proceeding; further; Iio suit for dis· solution of a partnefsbip Can also be decided without impleadiog 'the employees • ) of' the firlrr and other parties having trade relations with th~ firm. ' [992 A-E; 991 HJ (i~) A c~mpany can only be wound up in accordance with the prov1s1ons Qf the Act. The right to have a company wound-up is a right createci by the statqte.. The entire pioceediog in relation· to the winding-up is governed by -the pr~visions of tt~e Act and the Rules. The Act recog-niSes that a company may go into·liqU. idation without any intervention by the Court and also undef the super- '· vision.

of the court. Where the comp. any goes into liquidation without reference 0 tQ,coqrt~. the. ~ploy~es of the company who have to meet the saine fate of losing· tJ:teir employμ-aent cannot have any voice or say in the procedure to be adopted fo; liqμidation of the company. i992 F-G; 993 B-C] (iii) The right of-appearance-and of being· heard in. a winding-up proceeding has 'Jecn conferred on persons whom the legislature considered to. be· necessary or proper parties for effective adjudication of the proceeding before the " ®:Urt. Jf. a company is. commercially insoJvent and is Unable to. pay its. debt. s, it ll'5. qeqessar~ly to be wound up and the employees can have bar_dly anything to a,ay in. sue~ a case for.. ass_i$ting ibe court in. deciding the m~tter.. [993 B-0] ,. . (iv) Although an employee·cannot claim·to appear and be heard. in: a winding-up petition as a matter-or right, the court-may, in any.

appropriate case, /require or permit any em"loyce to appear at any stage of a winding up proceeding and he3. r 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 bas made suitable provisions in the Act -for safe· ' 8\larding _w~at is cpnsidcrcd to be in the interest of einployecs or in public interest. The introduction of Art. 43A in the Constitution does not affect the position in any. wiiy, Participation in. the management does not by itself create any right to app~ar Rnd be hea_~d in a windjng-:up_ petition. Unless otherwise named person'a~ly, as~ a paity to. sucJi. a petition, no person, merelY on the grouod·tbat·be ..... h~ppens tQ be in the manageo. ient of the company, is entitled to appear and· be heard in a_ winding-up_proceediog. Perso. ns in management-may, if so authorised, appCar and particiPate in such a proceeding on behalf of. the company. .

[995 D; 995·E-H] NATIONAL TEXTILES v.. P. R. RAMAKRISHNAN 933 (vi) The Indian and the English, Companies Acts contain simita'r provisions. As early as in 1870 the English court held that no perSQD had a right to be,heard against a petition for winding-up of. a company except creditors and contributoriCs. Thit -decision still_holds good and is considered good Ja. w.. The English Act has undergone_ changes from time to time with the paisfng- or various ICgislations for the. benefit and . welfare of employees. An order 'winding up company. affects the employees in_England in the sa·me way as it does in India. It canoe! be said that wofkers in England 8re nOt conscious of· the imi:>Ortant role they P,iay 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 hea. rd in a wiriding-up petition is not r'ecogni'sCd in England. Even..

ib our country, though ttie provisions of the Act have undergone chatiges and various enactments tor the . W~lfare of the workers hay~ been· passed from . rihie·tc,- tiiile, the tCgislature has not coli1idered' it 'proper or necessary to amend the Act to confer arty·such right orithe worktrs. [996 A-IY; 996 H; 997 A:-B; 998 F] ' ·' In " Bradford Navigation Company, [1870] S' Ch. A. C. 600, referred fo. Halshury's Laws of England (4th Ed. ) Vol. I! Cp. 614 ;-Palmer's Company. Preccdeots,(7th Ed. ) Part 11, p. 77 and Buckley on the Companies Act, (14th Ed. ) Vol. l,,p. 546 referred to. ' Hind Qve;seas Private Ltd. v. Raghunath frasad Jhunjhunwala and~Or1. , [1976) 2 S. C ,R. 226, distinguished. 2. By majOritY : Per Bhagwati~ Chinnappa Reddy and· Baharul l'la;n;_ JJ. ( Venkataramiah ditd A'marendra Nath Sen, JI. diS$enting) : -Trade· unions are competent- to-make applicatiOns before 'the-·Compa.

ny Judge hearing· a winding-up petition on behalf of the workers i'epresented:-by tbent · [9'56 H] Jn tbis·~case the a"pplitatiOns Were made by, the unions -on behalf of the ~orkmen represented by them . and though made in the name of the Union~ 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 ~o_rk~en arc entitled'tO be heard in a winding-up petition brit Wliether the workmen bave sucli rfg~t when a winding-Up petition is. filed against a company, [939'0-H] ' PlT Venkataramiah and Amarendra Nath Sen; JJ. (dissenting) : In none of the English text books on Compar.. y Law. -tbcre is any statement tb·tliC 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 "wliich more or less correspondS to English Law in this regard. The decision of the Bombay High· Court in In ,. e Edward Textiles· Ltd. is a Clear authority for the propositioD that at any rate trade unioos have no locus standi to op}lose a· windibg-up petition. -We shall proceed to· decide this case on the assumption that the application, for, impleadiog wa;:; made in fact on behalf of the workers and not by the trade uriions. [968 C-F] 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 bearing of a winding-up petition. [955 G; 973 G; 994 E-F] per Bhagwati, Chinnappa Reddy and Baharul Islam, JJ. : The object and purp~se 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, I: The words "every person" in r. 34 o( the . Companies (Court) Rules, 1959 do not entitle a worker who is neither a shareholder nor a cont~ibutory 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 un · R. K. Garg, A. T. M. Sampath and P. N. Ramalingam for the Appellants in CA. Nos. 4066-67/82. NATJONAL TEXTILES •• P. R. RAMAKRISHNAN (Bhagwati, J. ) 935 . V. M. Tarkunde, E. G. Aggarwala, R. Salish, 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 Resl? ondents in ~. A.

4065 of 1982. M. Natesan ·and M. Raghuraman for the Intervenor. The following Judgments were delivered ' BHAGWATI J. The•e three appeals by special leave raise a ;hort but interesting question of law relating to the right of workmen employed in a conipany 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 Indusiries (P) Limited (hereinafter referred to as '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 gronp consisting of respondent Nos. 1 l! l to 5 and the other·consisting of respondent Nos.

7 to 14. Respondent Nos. I to 5 hold ·608 shares and respondent 'nos. 7 to 14 687 sharea 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 . tbe one band and Respondent nos. i 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. I to 5 filed a petition for winding up the Company on two grounds set out in cl_auses (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. I to 5 not only as contributories but also . as creditors of the Company.. ,, Immediately on fil. ing the winding up petition on 13th July 1981, Respondent nos.

I 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 niade by the learned Company 936 SUPREME COURT IUIPOa:ts [19831 I S. C. R; Judge restraining the Company which was respondent no. 6 in the winding up petition as als~ Respondeni nos. 7 to 14 from borrowing any monies from bank. s, 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 mem_bers of the National Textile Workers 'Union, some others were members of the Coimbatore District Nation. al Textile Employees Union, while still some others were members of the Coimbatore District Engineering Workers Union, . The Coimbatore Districi National Textile Employees Union with a view to protecting the interests of its members made an application, being company application no. 880/8i on 28th July 1981 for · impleading itself. as a respondent. The Coimbatore District En. gineering 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 S filed their affidavit in reply to these three applications and the r . principal con1ention 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 petltioo, 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 ~n order dated 14th September 1981 rejecting.

all the three applica· tions on the ground that under the Companies Act 1956, the workmen had no right either io get impleaded in the winding up petition pr even to intervene in· the winding up petition. The Company Judge NATIONAL TEXTILES v. P. R. RAMAKRISHNAN (Bhagwati, J. ) 937 followed the decision of a single Judge of the Bombay High Court in In re Edward Textiles Limited(') in taking this view. The Company Judge conceded and this concession had to be made hecause of . the observatfons of this Court in Fertilizer Corporation Kamgar Union and Ors. v. Union of India and Ors:(') and of the High Court of Bombay in Bhalchandra· Dharamaji Makajiv.. Alcock Ashdown and _Co. Ltd. (') that the factors to be taken into account by. the court B. while disposing of a winding up petition would include the interest of the workmen of the company, but observed that "tlie duty of the '. . court to consider the interest of the worker ~f 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 Cl ~ right specifically conferred only on the creditors and contributories.

" The National Textile Workers Union thereupon preferred an appeal before aDivision Bench of the High Court but the Division Bench also took the same view and held that tliough it was / undoubtedly true that while disposing of a winding ~p petition preferred en 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 siandi 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 filin ~ 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 biit 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 argume11\& ll (I) 38 Company Cases 284. (2) [1981] 2 SCR 52. (3J 42 Company Cases 190. 938 SUPllBME COURT llBPORTS [1983) 1 s. C. k. 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 ~c proceed to discuss the basic and vital question that arises for consideration in these appeals; ft 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. l 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 c. this applicatfon 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 I0th 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 \Vorkers' Union did riot have an opportunity of being heard before the order appointing Proyisional 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 Septeniber, 1981 and this rejection was confirmed by the Diyision Bench of the High Court on 30th September 1981.

The result was that the order appointing Provisional Liquidator of the company came to be inade by the Company Judge without any opportunity being given to the workmen represented by these three Unions to appear and show ~ause 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 NATIONAL TEXTILES, v. P. R. RAMAKRISHNAN (Bhagwati, J.

) 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 apppear a! ld contest the winding up petition or they' have no locus standi ai 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 nieans of livelihood.? It is a· well established principle of administrative law that uo 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, tliey 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.

I 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 tight 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. I 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 ·appli9ations of the 7 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 fi! ed against 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 any one 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 advance_d 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 arty such order might affect the interest of the workmen. It 0 was pointed out on behalf of the three un. ions 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 beard before any such interim order is made.

lt would be contrary to every recognised· principle offair judicial procedure and violative of the rule of dudi alteram par/em 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 plaoed 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 . 1uch person, and be signed by him l' NATIONAL tBXTILBS v. P. R. ilAMAKRiSHNAN (Dhagwati, J.

) 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 tinie 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 live days previous to the day of hearing. ' Such notice shall lie 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 arid clearly I recognises that they are entitled to intervene and. be beard in the winding up petition. Respondent Nos. I to 5 however seriously challenged the locus of the workmen to appear and be ·heard in the ·winding up 'petition and contended ~hat 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 ~ppear 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 t~ 5 is governed solely by the provisio. ns 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 t\l • intervene in the winding up petition, even though the making of a winding up ord~r 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 . J in their capacity as creditors if any part of their wages remained unpaid. by the ·company but they had no locus to. appear in thei~ 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. · ti9~3l i s. c. il. There is one very importani 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 ha• 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 industr¥, a mere legal frame work providing 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 0 which recognised the role of the State as an active ·participant in the social ·and economic life of the citizen in order to bdng about· general welfare and common good of the community. With this change m 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 ofits 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 corpJrate philosophy. IWe 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 i3 certain \ NATIONAL lEXTILES v. P. R.. RAMAKRiSHNAN ·(Bhagwati, J. ) 943. that the old ninteerith century view which regarded a company merely as a legal device adopted by shareholders ! or carrying on trade or business as proprietors has been discarded and a . company 0 is now looked upon as ~ socio-economic instiiution wielding economic power and influencing·the life of the people. "It is now accepted on all hands, even in predominantly capitalist countries, ! hat 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 s'ociety 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 COm,£any as a living, vital and dynamic, social organism with firm and deep rooted affi! iati. ons 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. Taere is another equally, if not more, important factor of production and that is labour. Then there are the financial institutions. and depositors, wh'o provide the additional finance required for production and lasily; 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 bow 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 bea;g-mind that a corporation, . which i~ engaged in production of commodities vitally essential I() the community, has a social character of its 'own and it , must not be regarded as the concern primarily or only of those who invest their llloney in it. '' · 944 SUPR8ME CouRt REPORTS [1983] I S. C. R. Pt. Govind Ballabh Pant also pointed out in one of his speeches : " ... industry is not an isolated concern of the shareholders or the managing . agents alone.

It reacts on the entire people in the country, on their economic conditions, on employment or standard of living, on everything that 8 conduces to the material well being. " · The same view was also expressed at the International Seminar on Current Problems of Corporate Law, Management ·and Practice held in New Delhi where it was observed that "an enterprise is a citizen. Like a citizen it is esteemed and judged by its actions in relation to the community of which it is a member as well as by its economic performance. " That is why it is regarded as one of the paramount objectives of a company . to bring about maximisation of social welfare and commQ_n good.. This necessarily involves reorientation of thinking in regard to the duties and obligations ·of a compmy 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.

There was at one time a serious controversy between two schools of thought, one repr~sented by Adolf Berle and . the other by Professor Dodd, as regards the nature of duties and obligations owed by directors representing management of a company. Adolf Berle took the view that directors are trustees only for sha,reholders-that is the traditional \ view which directly flows from a purely capitalistic approach which identifies ownership and dominion with capital-while Prof. Dodd believed that directors are trustees not only for shareholders but also for the entire ·community. Ultimately, however, in his subsequent book, "Twentieth Century Capitalist· Revolution", Adolf Berle' / conceded that Prof. Dodd was right and that modern directors are not limited· to running business enterprise for maximum profit motive alone, but are in fact administrators of community system or of a social institution.

That is why we find that in recent times there is considerable thinking on the subject of social responsibilities , of corporate ma'nagement and. it is now acknowledged even in highly. developed countries like the United States and England that maxi· misation of social welfare should be tire' legitimate goal of a company and shareholders should be regarded not as proprietors of the company, but merely as . suppliers of capital entitled to no more than reasonabl~ return and the company should be responsible not only to shareholders but also to Workers, consumers and the Other NATIONAL TEXTILES v P. R. RAMAKRISHNAN (Bhagwati, J. ) 945 members of the Community and should be guided by considerations of national economy and progress. This new concept of a Company was felicitously expressed by Desai, J. sitting as a Judge of the Gujarat High Court in Panchmahal Steel Ltd. v.

Universal Stee( Traders(') in the following wnrds : · "Time-honoured approach that the compan}" law must safeguard the interest . of investors and shareholders of the company would be too rigid a framework in which it can now operate. New problems call for a fresh approach. And in ascertaining and devising this fresh approach, the objec- / tive for which the company is formed may provide a guide · line for the direction to be taken. As Prof. De Wool of Belgium puts it, the company has _a three-fold realityeconomic, human and public-each with its own internal logic. The reality of the company is ~uch broader than that of an-association of capital; it is.. a human working community that . performs a collective action for the · common good. In recent years a debate is going on in the world at large on the functions and foundations of corpoo_ rate enterprise.

The ''preservationists" and the ''reformers'' are vigorously propounding their views on the possible reform of company; the modern trend emphasising the public interest in corporate enterprise. '' Tlie learned judge elaborated this ·"modern trend" by quoting from Prof. Gower's. book on "The Principles of Modern Company Law" : "One section of the community whose interests as such are not ' afforded any ptotection, either under this head or by virtue of the provisions (or investor or . creditor protection, are the workers and _employees -0f the taken-over company. This is a particularly uμfortunate facet of tbe principle that the interest of the company' means only the interest of the members and not of those whose livelihood ·is in practice much more closely involved. " We are concerned in these appeals only with the ·relationship of the workers vis-a-vis the company.

It is clear from what we have stated aGove that it is not only the _shareholdets who have•supplied capital who are interested in the enterprise which is being run by company but the workers who supply labour are also equally u) 46 Company Cases 706. , 946 SliPRllME COURt REPORTS [! \)Sj] 1 s. c. R interested because what is produced by the enterprise is the result of labour as well as capital. In fact, 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 a_nd toil, in fact their life itself. The workers ther~fore have a ' special place in a· socialist 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 and they are, at the least, equal partners with capital in the enterprise. Our constitution bas shown profoubd concern for 'the workers and given them a pride of place in the new socio-economic order envisa· ged in the Preamble and the Directive Principles of State Policy. The Preamble contains the profound declaration pregnant with meaning and,hope for millions of peasants and workers that India shall be a socialist democratic republic where social and economic justice will inform all institutions of national life and there. will be equality of status and ·opportunity for all and every endeavour shall be made to promote fraternity ensuring the dignity of the individual. Every one is assured under Article 14 equality before the law and equal protection of the laws and implicit in. this provision is the guarantee of equal remuneration for men and women for some work or work of a similar nature.

Traffic in human beings and begar and other similar forms of forced labour are prohibited under Article 23 and Article 24 mandates that no child below the age of 14 may be e~ployed ·in any factory or mine or engaged in any other hazardous employment. These two Articles recently came up for construction before this Court in People's Union/or Democratic Rights & Ors. 1 v. Union of India. & Or~. ( ) Article 38 imposes obligation on the ·state, albeit unenforceable in a court pf law, to "strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which social justice shall inform all the institutions of the national life".

This is followed by Article 39 which inter alia obliges the State to direct its policy towards securing that the citizens, men and women equally have the right to an adequate means of livelihood, the ownership and control of the material resource·s of the community are so distributed as best to subserve the common good, the operation of the ec~~omic system . H (1) decided on 18th September 1982 (W. P. No 8143of1981). NATIONAL TEXTILES v. p. R. RAMAKRISHNAN (Bhagwati, J. ) 947 does not result in the concentration of wealth and means of pioduc- . ' -.. : . tion to the common detriment, there is equal pay for equal work for both men and women and the. health and strength of . workers, men and women and the tender age of children are not abused and citizens are not forced by ·economic necessity to enter avocations unsuited to their age or strength.

The State is directed by Article 41 to make effective provision, within the limits·of its economic capacity and development, for securing the right to work and Artfole 42 requires the State to. make provision for securing just and humane conditions of work and for maternity relief. Article 43 provides that the . State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, a Iiving wage, conditions of work ensuring decent standard of life and full enjoyment of leisure . and social. and cultural opportunities. Then follows Article 43A which is intended to herald industrial democracy and in the words of Krishna Iyer, J. mark "the end of industrial bonded labour". That Article says 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 o the enterprise should not be lefi entirely in the hands of the suppliers of capital but the workers should also be entitled to participate in it, because in a socialist pattern of society, the enterprise which is centre 9f economic power should be controlled not. only by capital b~t also by labour. It is therefore idle to contend thirty two years after coming into force of the Constitution and particularly after the introduction of. Article 43A in the Constitution that the workers s)lould have no voice in the determination of the question whether the enterprise should continue to . mn or be shut down under an order of the court. It would indeed be strange that the workers who have contributed to the building of the enterprise as a· centre of economic power should have no right to be heard when it is sought • . to demolish that centre of economic power.

- - The principal argument urged against the right of the workers · ;r . to be heard in the winding up petition · was that under the scheme Qf the Companies Act 1956, it is only the creditors aud contributories who' are entitled to appear and be heard in a winding up petition. 7 The Companies Act 1956 is . a self· contained code exhaustive in regard to all matters relating ·to companies and since there is no provision in that Act conferring on the workers a right to intervene 948 SUPREME COUltT ll. llI'ollTS It9S3i I s. c. a. in a winding up petition, no such right can be spelt out in their favour outside the provisions of that Act Respondent Nos. 6 to 9 . relie"d upon various provisions of the Companies Act 1956 in support of their contention that the workers have no locus in a winding up petition but we do not think these provisions lend any support to that contention. The first provision relied upon by Respondent Nos.

6 to 9 was section 439 wqich inter alia provides as to who shall be entitled to make an application for winding up of a company. It is DO doubt true that this section confers the ril! iit to present a winding up petition only on certain specifically enumerated persons and the workers are not included in that enumeration and therefore obviously, the workers have no right to prefer a petition 0 for winding up of a company. The right to apply for winding up of a company being a creature of statute, none other than those on whom the right to present a winding up petition is conferred by the statute can make an application for winding up a ·company and no such right having been conferred on the workers, they cannot prefer a winding up petition against a company. But from this exclusion of the workers from the right to present a winding u·p petition, i. t 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 section 439. It may be that the workers have no right to present a·winding up petition against the company, but if a winding up petition is properly filed by any of · the persons entitled to do so under section 439, they may still be entitled to appear and be heard in support or opposition to the windi_ng up petition. That would depend upon whether their interest is likely to be affected by any otder which may be matle on the winding up petition. The next section relied- upon by respondent Nos. 6 to 9 was section 440 which says that where a company is being wound up voluntarily or subject to the supervision of the court, a petition for its winding up by court may be presented by any person authorised to do so under sectiof.

439 or the official • Liquidator, but the court shall not make a winding up order unless it Is satisfied that the voluntary winding up or winding up subject to • the supervision of the court cannot be continued with due regard to the interests of the creditors or contributories or both. It was iug~d on behalf of respondent Nos. 6 to 9 that this section shows that the winding up of a company_ is intended to be for the benefit of the creditors and the contributories and the interest of rhe workers has no place at all in the winding up and is not required to be taken into account in winding up the company. This argument NATIONAL TEXTILES v. P. R. - RAMAKRJSHNAN (Bhagwati, J. ) 949 is also in our opinion futile because what this section deals with is the stage after the winding up has commenced, whether volu. ntary or subject to the supervision of the · court, while we are concerned with a stage, anterior to the making of a winding up order.

There can be little doubt that the object'of winding up being to 'realise the assets of the company, pay the preferential claims and expenses of · 8 liquidation and then discharge the debts of the creditors in full or pari passu and i(after paying to' the creditors, there is any surplus, distribute the same among the shareholders by way of dividend and .... , ultimately dissolve the company, it is only the creditors and the contributories who would be affected by any action taken in the course of winding up of the company and that is why we find several provisions in the Companies Act 1956 which speak of winding up being carried ori with due regard to the interest of the creditors and the contributories or after consultation with them or confer rights on the creditors and the contribu\ories to make applications for diverse purposes . with a view . to effective winding up of the company.

Such provisions are for instance to be found in section 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560. These provisions apply at a stage ·after a winding up order' is made by the court or the voluntary winding up has commenced or an order is made for . continuance of winding up subject to the supervision of the court, when winding up having "been ordered or resolved, what remains to be done is only to wind up the company, pay the creditors and if there·is any surpllls, distributeJhe same among the shareholders. These provisions do· not deal with a situation prior to the making of the winding up order when the question is whether th'e company should be ·ordered to be wound· up or not. While the company is continuing to subsist, the workers would be employed in th. e enterprise which is being run by the company and they would be earning their livelihood.

from such employment, but if an order for winding np is made, their services would, except in cases where the business of the company is continued, stand terminated by reason of sub-section (3) of section 445 which provides that a winding up order "shall be deemed to be notice of discharge to the officers and employees of the company, except _when the business of • the company is continued. " Ordinarily when a winding up order is made, the business of the company would cease to continue and even ifthe Liquidator is authorised to carry on the business, such i continuance would be only for the beneficial winding up of the company and the logical and inevitable end would be the ultimate .. discontinuance of the business.

The \Daking of a winding up order on a petition for winding up would therefore almost certainly have an adverse consequence on the workers in as much as the continuance of their service would be seriously jeopardised and their right to work and earn their livelihood would be disastrously ·imperilled. Now it is an elementary principle of law, well settled as a result of . several decisions of this Court and particularly the decisions in State of Orissa v. Dr. Bin 1 Pani,(') A. K. Kraipa v. Union of India,(') and Maneka Gandhi v. Union of India(') that no order involving adverse civil consequences can be passed against any person without . giving him an opportun_ity to be beard against the passing of such order and this rule applies irrespective of whether the proceeding in which it is passed is a quasi judicial or an administrative proceeding.

The audi alterum partem rule which mandates that no one shall be condemned unheard -ls one of the basic principles of natural justice and if this rule has been held to be applicable in a quasi-judicial or even in' an administrative proceeding involving adverse civil consequences, it would a fortiori apply in a judicial proceeding such as a petition for winding up of a company. It is difficult to imagine how any system of law which is designed to promote justice through fairplay i;, 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 thelll an opportunity of being heard against tne making of such order.

It would be violative of the basic principle of fair procedure and unless there is express provision in the Companies Act 1956 which forbids the workers from appearing at the hearing of the winding up petition and participating in it, the workers must be held entitled to appear and be hel\rd in the winding up petition. That is the minimum requirement of the principle of audi a/terum partem which cannot. be ignored save on pain of invalidation of the order of winding up. Here we do not find any provision in the Companies Act 1956 which in so many terms exc"ludes the workers from appearing at the hearing of the winding-up petition with a view to supporting or opposing it and the only ground on which the right of the workers to appear and . be heard in the winding up petition is disputed is that there is no ~pecific provision in tile Act entitling them to do so and the right to apply for winding up as also to participate in the.

proceedings in the course of winding up is conferred only on the creditors and the (I) [1967] 2 S. C. R. 625. .. (2) [1970) I S. C. R. 457• (3) lt978] 2 S. C. R. 621. NATIONAL TEXTILES v. P. R. RAMAKIUSHNAN (Bhagwati, J. ) 951 •• contributories. But. we have pointe! i out above that merely because the right to apply for winding up a company is not given to. the workers it does not mean that· they cannot appear to support or oppose a winding up petition whiCh is properly filed. by one or the. other persons specified in section °439. There would, in fact, be no· point in conferring the right to apply for winding up of a company 8 on the workers since they cannot have any interest in demolishing tlie enterprise which is the source of their livelihood and particularly when the only effeci of the windin,g up order would be to render them unemployed and to bring about winding up of the company for the benefit of the creditors and the contributories.

So also the circumstance that the ri)lht to be consulted or to make applications in the course of the winding up of a. company is conferred only on the creditors and the contributories does not in any way militate against the right of the Workers to appear and be heard in the winding up · petition because once the winding up order is made, the assets of the company have to be realised, the creditors have. to be paid and if there is any surplus it has to be distrib! Jted ain~ng the contribu- 0 tories and therefore at that stage it is only the i:re'ditors and the · contributories who have an interest and that is why in the course of the winding· up it is the crec\itors. and the contributories who have been given a voice. Thai has nothing to do. · with the question whether the company should be wound up or not which is question . in which the workers are vitally. concerned and on which they must obviously be heard before ariy decision i~ taken by the court.

This view which we are taking is icy accord with the decision of the High Court ot Bombay, namely, Bhalchandra Dharrnajee Makaji . and Ors. v. Alcock Ashdo. wn & Co, Ltd. & Ors. where the Company Judge, while disposing of an application for appointment of Official Liquidator as Provisional Liquidator, pending the hearing and final disposal of the main petiti0n for winding up, said : "After the amendment of sections 397 and 398 of the Companies Act bl\ sections 10 and II of the Companies (Amendment) Act (Llll of 1963), it would appear that the . affairs of' the company have to be conducted not only in i the best interest of its members for their profit but also in a manner which is not prejudicial to public interest. The element of public interest enters into the management of the companies after 1963. ·The modern corporaiion 'has become the ao'C;pted instrument of social policy, because \,.... it affects a large part of the economic life of the community.

It bas become an instrument for the improvement of the economic standards of the people and for economic growth of the nation. Society depends for some of its needs on corporate enterprise. It has therefore an interest in . its stability and efficiency as an economic institution. The element of public interest also arises from the responsibility for ensuring a minimum wage to the numerous employees in the corporate sector. It is necessary to see . that people who put their labour and lives into a concern get fair wages, continuity of employment and a recognition of their jobs where they have trained themselves to highly skilled an·d specialised work. In deciding whether the court should wind up a company or change its management the court must take into consideration not only the interest of the shareholders and creditors but also public interest in • the shape of the need of the cc,mmunity and the interest of the employees.

This, in my opinion, is the requirement of _sections 397 and 398 of the Companies Act. " If in deciding whether the court should wind up a company or change its management the court must take into consideration not only the interest of the shareholders and creditors but also amongst ' . . other things the· interest of the wor. kers, it is axiomatic that the workers must have an opportunity of being beard for projecting and safeguarding their interest before a _winding up order is made . by the court. The Division Bench of the Madras High Court bas of course conceded in the judgment under appeal that "in considering the question whether to wind up or ncit the court has to take the larger point of public interest including that of the workers into consideration" but that in the opinion of the Division Bench would not "'clothe the workers with any locus staodi to file an application for being heard in the winding up petition.

With the greatest respect to the learned Judges constituting the Division Bench, we must express our emphatic disapproval of this approach. It amounts .. . to the court telling the workers : "No dopbt in deciding whether the company should be wound up or not, we are bound to take into consideration your interest but you need not be neard because we know best' what . your interest requires. " This paternali~tic attitude towards the workers that though they are most vitally concerned and their interest is required to be taken into consideration, they rieed not be heard because the court in its wisdom knows, NATIONAL TEXTILES V. P. R. RAMAKRISHNAN (Bhagwati, J. ) 953 ,. presumably more than the workers themselves, what is in their interest and they should leave their fate ·into . the bands of the, court without even a . whisper of an argument sounds. lik~·a . relic of , by-gone age and must be abandoned.

If the interest of the workers bas to be taken into account, the :workers must have a say because . they know best where their . interest lies and they" must have an opportunity of placing ·bcfore. "tbe court ieleyant material bearin! I upon their·interest. ;,_1 . Considerable reliance was however 'placed ·on behalf cii' respondent Nos.. 6 to 9 on "the statement of the law on this point contained in tiie leading text books on company ·la:w. ilesj:>onderit · j'los. 6 to 9 drew our ·attention to 'Palmer Company Precedents (17th Edn. ) volume 2 at. page 77 'where it is sfated that any creditor or sbareboler may app~ar to . support or opposb the petition 'but"tio one else can do so even if he has'an indirect interest 'in the contihued existence of the company. So also in Buckley on the Companies ·Act (14th Edn. ) at page 546 the law has 'been sfatea in the following terms, naniely, "th"e only persons entitled fo ··be heatd afe tlie company, its creditors and contribuforie's.. ;... '..

tli'e court may 'in it~ discretion hear other person_• who have an interest in order 'to leatli what public grounds there are in favour of, or in 'opposition to,-the winding up...... but such persons can . be heatd only as amid curiae and cannot appeal. " Our attention was also invited to Halsbur)"ii Laws of England 4th Ed. Vol. · 7 'where a similar statement of the law is to be found at page". 614 paragraph 1028. Now it is undoubtedly true_ that according to the statement of the "law contained in these three leading text books, ·it is only the company, the creditors and the contributories who are entitled to appear on the . Winding Up petition and no oth~r' persons have a right to be heard, but this statement of the law is based on the cild decision 'in Re. Bradford Navigation Co. mpany which ·was carried in appeal and decided as Re. Bradford Navigation Company.

This decision given 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 contractual arrangement between ihe shareholders,for the purpose • of carrying on trade or ·business and the workers were looked upoh · as no more than employees. Of the company working under a master and servant relationship and the interest of the public as consumers ~r otherwise was a totally irrelevant consideration and it clifl have no validity in the present times when the entire concept . of a company bas changed and it h11s l;>een · transformed into a dyn11111ic 11odo. -economic institution in which capital and ·labour are both eq~al part~ers, possibly with heavy weightage in favour of labour and 'the interest of the public as consumers as also the general welfare and common good of the community constitute a vital consideration. We cannot allow the dead band of the past to stifle the growth of the living present.

Law cannot stand still ; it must change with the changing social concepts and values. If the bark that protects the tree fails to grow and expand alongwith the tree, it will either choke the tree or if it is a living tree, it will shed that bark and grow a new living bark for itself. Similarly, if the law fails to respond to the needs of changing society, then either it will stifl~ the growl~ of the society and choke its progress or if the . . society is vigorous enough, it will cast away the law which stands i~ the way of its growth. Law must therefore constantly be on the move adqpting itself to the fast changing society and not lag behind. It must shake off the inhibiting legacy of its colonial pa•t and assume a dynamic role in the process of social transformation. We cannot therefore mechanically accept as valid a legal rule which found favour with the English courts in the last century when the doctrine qf laissez faire prevailed.

It may be that even toda y in England the courts may be following the same legal rule which was laid down almost a hundred years ago, but that can be· no rea•on why we in India should continue to do likewise. It is possible that this legal rule inight still be finding a place in the English text books because no case like the present one has arisen in England in the last 30 . years and the English courts might not have had any occasion to consider the acceptability of this legal rule in the · present times. But whatever be the reason why this legal rule continues to remain in the English text books, we cannot be persuaded to adopt it in our country, merely on the ground that it has been accepted as a ~alid rule in England. We have to build out ) own jurisprudence and though we may receive light from whatever source it comes, we cannot surrender our judgment and accept as v:ili r the mere seeking. The court, may well ask the reason why, if some one seeks to be· heard. Wo~kers will ,n.

ot cr~wd the Company Court and the Court will not be helpless to. keep out those whom. it is not necessary to hear. , It is said that workers will not be allowed to intervene. in a partition er a partnership action to oppose partition or dissolution of partnership and so. why should they be allowed to intervene in a winding-up peti· tion. That is begging the question. There is no reason why workers may. not be allowed, in appropriate cases, to intervene in partition and partnership actions to avert disaster and to promote. welfare. As we said, impleading and hearing . are not for. the mere asking and seeking; Re Bradford Navigation Company and •passages ·from. text•. ·. books for which the case is the source of authority were relied upon, 10 urge that none but contributories and creditors may be heard·in winding-up petition. Re Btadford Navigation Company is a relic of an alien past.. Fortunately it·is not a binding precedent.

· While · we have learnt and borrowed a great deal from British· Jurisprudence, / we have been drawing the lioe now and then, here and there, because their law, thelr jurisprlldenee suits their genius and ours must]develop according to our genius. · Our needs are different;· our social; political and economic bases are different; our aspirations are different; our systems are different; the stages of our development are different. We have a written constitution which is omnipresent when oure laws , are made, tested, interpreted or executed. We look to the constitution for guidance and inspiration when we interpret the. laws. The. ~2nd Amendment of-the Constitution has introduced new lights into the Constitutioil'. The Constitution is now openly socialist The· Direciive Principles ofState Policy repeatedly emphasise the role and interest of the workers. Article 43-A, also introduced by the 42nd . ' NATIONAL TllXLiLES v. P. R. RAMAKRISHNAN (Chinnappa Reddy, J.

) 961 Amendment contemplates worke. rs' participation in. the manag