NAVALKHA & SONS v. SRI RAMANYA DAS & ORS.

Citation: [1970] 3 S.C.R. 1; 1969 INSC 303

Court: Supreme Court of India

Bench: V. RAMASWAMI , I.D. DUA

Judgment date: 1969-10-27

Case summary

1969 INSC 303. Supreme Court of India judgment dated 1969-10-27. NAVALKHA & SONS v. SRI RAMANYA DAS & ORS. Read the judgment and case details on LawSphereX.

Judgment text

2. SUPREME COURT REPORTS [1970] 3 s. c. R. I • NAVALKHA & SONS v. SRI RAMANYAJ>AS & ORS. October 27, 1969 [V. RAMASWAMI AND I. D. DuA, JJ. ] Companies (Court) Rules, 1959, r, 273-Sale of properties of com· pany in liquidation-Principles to be followed by Judfe exercising > discretion. Jn the winding up proceedings of a company in liquidation, the official liquidator and a share-holder sought permission of the High Court for the sale of immovable and movable p·roperties and actionable claims of the company. The company Judge appointed commissioners for the sale in accordance with the terms and conditions mentioned in bis order. One of the conditions was that the proclamation of sale was to be advertised twice in each of 5 leading daily newspapers. The commissioners had the proclamation published in only 4 dailies and it was only . in two of them that there were two insertions.

No offer having been received, the time fixed was extended when the appellant made his offer as the sole offeror. The commissioners applied to the Judge for confirmation of sale, but before the sale in favour Of the appellant was confirmed another person made an offer of a larger amount complaining that he could not make the 'offer earlier as there was no adequate publicity. The Judge there-upon arranged an open bid in the Court itself on that very day, as between the appellant and the ""w offeror. . The appellant became the highest bidder and the appellant was directed to pay the balance of amount by a part~cular. date, but again, before the sale in his favour could be confirmed;. a third person made an application offering a still large amount, complaining of the want of adequate pubJicity and advertisement of the sale. The Judge rejected the application and confirmed the sale in favour of the appellant.

Jn appeal, the Letters Patent Bench set aside the order af the single Judge and directed that he should take fresh steps for sale of the property either by calling for sealed tenders or by auction in accordance with law. In appeal to this Court, HELD : When the acceptance of an offer by the commissioner is subject to confirmation by the court, the offeror does not by me're acceptance get any vested right in the property and he cannot demand aul! '· -!! latic confirmation of his offer. It is the duty of the court to satisfy itself that having regard to the market value of the property the price offered is reasonable, even though there is no suggestion of irregularity or fraud. Otherwise, the act of confirmation of the sale would not be a proper exercise of judicial discretion. But once the court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid !? round for refusing confilrmation of the sale or offer already received.

[5 D-F; 6 A-BJ In the present case, the publicity was not as wide as originally pro· posed. Therefore. the single Judge was right in refusing tO confirm t~e first offer of the appellant. and holding an auction.. But he erred m confinin~ the auC:tion to two persons only. ·The auction was ne dou. bt conducted in a public place but it was not open to the general pubhc, nor was it held after due publicily. Therefore, the sale was not a public ' sale, wh~ch impli~s .. a sale after giving notice to the public with liberty to t~e pubhc to par11c1pate. Rule 273 of the Companies (Court) Rules, provides that all sales shall be made by public auction, or by inviting sealed tenders, or in . such manner as tlte Judge mc;y direct.

Since the're was want of publicity and there was lack of opportunity to the public to take part in the auction, and there was inherent prejudice in the method adopted by the Judge, the acceptance of the appellant's bid by the Judge \Vas not a sound exercise of discretion and the Division Bench was right in directing a fresh sale. [6 B. C; 7 A-B, C-D. F] Gordhan D,as Chuni Lal v. T. Sriman Kanth_hnathinatha Pillai, A. I. R. 1921 Mad. 286, Rathnaswami Pillai v. Sadapathi Pillai. A. I. R. 1925 Mad. •. 318, S. Soundarajan v. M/s. Roshan & Co. A. l. R. 1940 Mad. 42, and A. Subbraya Muda/iar v. Sundararajan, A. I. R. 1951 Mad. 986, referred. to. Crv1L APPELLATE JURISDICTION : Civil Appeals Nos. 1085 and 1086 of 1967. Appeals from the judgment and decree dated September 24, 1965 of the Andhra Pradesh High Court in 0. S. A. Nos. 3 and 4 of 1965. V. S. Desai and P. C. Bhartari, for the appellants (in both the appeals). P. Ram Reddy and A. V. V. Nair, for respondent No. 5 {ID C. A. No.

1085 of 1967) and respondent No. 6 (in C. A. No. 1086 . • of 1967). R. V. Pillai, for respondent No. 6 (in C. A. No. 1085 of 1967) and respondent No. 5 (in C. A. No. 1086 of 1967). The Judgme;nt of the Court was delivered by Ramaswami, J. These appeals are brought by certificaie from the judgment of the Andhra Pradesh High Court dated September 24, 1965 in O. S. A. Nos. 3 and 4 of 1965. · v In the winding up proceedings of Hyderabad Vegetable Pro-ducts Co. , Ltd. (in liquidation) the 5th respondent (Official Liquidator) sougbt permission of the Court for the sale of im- . movable and movable properties and actionable claims of the Company. This application was Company Application no. 67 of 1963. A shareholder of the Company one Sirajuddin Babu Khan also made an application C. A. No. 93 of 1964 to a similar effect. On these applications an order was passed by Jagan Mohan Reddy J.

, on April 17, 1964 appointing respondents 2, 3 and 4 as Joint Commissioners for the purpose of selling immovable and movable properties and actionable claims of the afore-said Company in accordance with the terms and conditions men-ti appel· lant's undertaking was closed down completely and that there was a final 'i"'d irrevocable termination of the business; (2) but that the closure was not bona fide and W3' a lock out; ·and (3) that the closure was not due to unavoidable circumstances beyond the control of the appellant. In appeal to this Court, , HELD : ( 1) In the case of a closure, the employer does not m""ely close down the place of business. but he closes the business finally and irrevocahly. The closure bas to be genuine bona,fide and effective, and not a mere preten<'<'. The motive however, behind the closure is imma- E: tcrial.

Jn the present case the circumstances showed that there had been in fact a closure of the business, and therefore, the further findi11g of the Tribunal that it was a lock-out should be set aside. [IO F-H; 11 B-D] Management of Express Newspapers Ltd. v. Workers &: Staff employed wtder it and Ors. (1963) 3 S. C. R. 540, Tea District Labour AssociJltion v. Ex-Employees of Tea Districts Labour Assodation, (1960] 3 S. C. R. W7, 213, Andhra Prabha Ltd. v. Secretary, Madras Union of Journalists, [1967] 3 S. C. R. 901 and Kalinga Tubes Ltd. v. Their Workmen, A. I. R. 1969 S. C. 90, followed. (2) As the closure was not due to circumstances beyond. the control of the appellant the respondents were eO. titled to compensation under the main clause of s. 25FFF of the Industrial Disputes Act, 1947. [12 C-D] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 697 of 1968. Appeal by special leave from the award dated September 15, 1967 of the Industrial Tribunal, Bihar, Patna in reference No. 4 of 1967.

• B. Sen, B. P. Maheshwari and R. K. Maheshwari, for· the appellant. A. K. Nag and S. S. Khanduja, for the respondents. TATANAGAR FOUNDRY v. WORKMEN (Ramaswami, I. ) 9 The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought by certificate from the award of the Industrial Tribunal, Bihar dated September 15, 1967. The appellant, Tatanagar Foundry Co. , Ltd. , is incorporated in the State of West Bengal and owns two manufacturin& establish-ments one located at Belur in the State of West Bengal and the other in J amshedpur in Bihar. The appellant carries on its business at Belur but has now closed its business at Jamshedpur with effect from November 20, 1966. At the time of the closure the appellant employed 136. 0 workmen in its Jamshedpur establish-ment where it was producing cast iron pipes, specials and heavy grey iron castings including ingots, moulds etc.

On September 20, 1966 the appellant issued a notice in respect of its business at Jamshedpur that due to shortage of orders and other economic reasons, about 120 workmen are being retrenched and the Commissioner of Labour, Government of Bihar, Patna was duly noti-fied of the said retrenchment. On September 22, 1966 the Labour Superintendent, Government of Bihar, Jamshedpur, held conci-liation proceedings at which the appellant agreed to retain the services of 14 of the retrenched workmen and the union agreed to the retrenchment of the remaining workmen. On or about October 12, 1966 by a notice of the same date, the appellant desired to retrench about 400 workmen, but at the intervention of the Superintendent of Labour the notice was temporarily with-drawn with a view to discuss the matter with the union. Accordingly a meeting was fixed on October 21, 1966 between the appellant and the union at Jamshedpur but the said meeting could not take place.

On October 29, 1966 the appellant by a notice laid off nearly 600 workmen for want of supplies of good quality raw material. In a letter dated November 8, 1966 the Superintendent of Labour, Jamshedpur wrote that the General Secretary of the union had put up a proposal for running the Jamshedpur es-tablishment of the appellant on a cooperative basis and requested Mr. G. D. Agarwalla, Director of the appellant to place the matter before the Board of Directors of the appellant. At their meeting on November 17, 1966 the Board of Directors considered the letter dated November 8, 1966 of the Labour Superintendent and resolved that if the State Government should be desirous of running the J amshedpur plant on a cooperative basis Sri G. D. Agarwa! la was authorised to conduct negoiiations with • the State Gbvernment of Bihar. But no further communication was received from the Government of Bihar indicating its willing-ness or intention to run the J amshedpur branch of the apoellant.

At its meeting on November 17, 1966 the Board of Directors of the appellant considered the situation in the Jamshedpur plant and decided that it should be closed as early as possible and Mr. 6Sup. no-2 Agarwa! la was authorised to take necessary steps to effect the closure. Pursuant to the decision of the Board of Directurs Mr. Agarwalla issued a notice dated November 19, 1966. By the said notice the workmen of the appellant were informed of its decision to close the business at Jamshedpur for good with effect I from November 21, 1966 for the reasons explained in the notice. All the workmen were also informed that their services were no B longer required after November 21, 1966 and the workers should consider themselves as discharged with effect from the said date. On February 3, 1967 \he Government of Bihar referred the following dispute to the Industrial Tribunal, Bihar for adjudic,-tion under s.

IO(l)(d) of the Industrial Disputes Act, 1947 (14 of 1947): "Whether the closure of the Tatanagar· Foundry Co. Ltd. , Jamshedpur is justified? If not, to what relief and compensation the workmen are entitled? " By its award dated September 15, 1967 the Industrial Tribunal held that it was satisfied that the closure of the Jamshedpur business of the appellant was not a closure but a Jock out in the dis-guise of a closure and directed the re-instatement of the _workmen with full wages for the period they have been out of employ-ment. In support of this appeal it was argued in the first place that the Industrial Tribunal had no jurisdiction to go into the ques. tion whether the closure of the Jamshedpur business was justified or not for financial or other reasons. The contention was that the Tribunal having found that the factory had in fact closed down it had no jurisdiction to _go into the question whether the closure could have been avoided.

In our opinion the argument is well founded and must be accepted as correct. The distinction between a lock out and a closure has been explained by the decision -of this Court in the Managemellf of Express Newspapers Ltd. v. Workers & Staff employed under it and others('). It was pointed out in that case that in the case of a closure the employer does no( merely close down the place of business but he closes the business itself finally and irrevocably. A lockout on the other hand indi-cates the closure of the plac'! of business and not closure of the business itself. In the present case the totality of facts and circumstances would . lead to the conclusion that the undertakin,? at '' Jamshedpur was closed down completely and was a final and irrevocable termination of the business itself. But the Tribunal bas come to a finding that the closure of the business was not bona fide but the closure wa5 done in order to victimise the workmen.

As regards the financial position the Tribunal took the view H that on the whole the financial condition of the company in 1966 (I) [1963] J S. C. R. 540. 'J'ATANAGAR FOUNDRY v. WORKMEN (Ramaswami, !. ) 11 has not worsened to such an extent as to reasonably constitute a good ground for closing the business altogether. It might have been a ground for reorganising the company or rationalising it by retrenchmemt or otherwise but it could not be a ground for winding up the business altogether. In our opinion the finding of the Tribunal on this point is defective in law. It is now well established that in the case of a closure the employer does not merely close down the place of business but he closes the business finally and irrevocably. The closure has to be genuine and bona fide in the sense that it should be a closure in fact and not a mere pretence of closure. (see the decision of this Court in Tea District Labour Association v. Ex-Employees of Tea Districts Labour Association(').

The motive behind the closure is im-material and what is to be seen is whether it is an effective one. (see the decision of this Court . in Andhra Prabha Ltd. v. Secre- 2 tary, Madras Union of ! ournalists( ) and Kalinga Tubes Ltd. v. Their Workmen('). Taking into account the entire set of circumstances and facts in the present case we are of opinion that there has been in fact a closure of the J amshedpur business and the finding of the Tribunal that there was a lock out is defective in law and must be set aside. The next question is whether the workmen were entitled to compensation under s.

25FFF of the Industrial Disputes Act which states : "(l ) Where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of sub-section (2), be entitled to notice and compensation in accordance with the provisions of section 25F, as if the workman had been retrenched : Provided that where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under clause (b) of section 25F shall not exceed his average pay for three . months. · Explanation.

-An undertaking which is closed down by reason merely of financial difficulties (including financial losses) or accumulation of undisposed of stocks or tlie expiry of the period of the lease or the licence granted to it where the period of the lease or the licence expires on or after the first day of ApriL 1:1 1967 shall not be deemed to have been closed down on (I) {1961] 3 S. C. R. 207, 213. (3)[1967] 3 S. C. R. 901. (l) . a. J. R. 1969 S. C. 90. account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section. " The Tribunal has found that the appellant was not right in its contention that the closure was due to unavoidable circumstances beyond its control.

According to the appellant the main r~ns for the closure are : ( 1) financial condition of the appellant, (2) non-availability of orders for supply of goods; (3) non-cooperation from the workmen in standardisation of the working force and for reduction of the high percentage of rejec-tion. The Tribunal has gone into the oral and documentary evidence adduced by the parties and reached the i;onclusion that the closure of the business was not due to unavoidable circumstances beyond the control of the appellant. We see no reason for inter-fering with the finding of the Tribunal on this aspect of the case. The result, therefore, is that the workmen are entitled to compensation under the main clause of s. 25FFF of. the Industrial Disputes Act, 1947. We accordingly modify the award of the Industrial Tribunal dated September 15, 1967 and allow the appeal to the extent indicated. There will be no order as to costs. V. P. S. Appeal partly allowed. •

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