# NATIONAL TEXTILE WORKERS' UNION ETC v. P.R. RAMKRISHNAN AND OTHERS

- **Citation:** [1983] 1 S.C.R. 922
- **Court:** Supreme Court of India
- **Decided:** 1983
- **Case number:** Civil Appeals .Nos. 4065-67 of 1982
- **Bench:** P.N. Bhagwati, 0 Chjnnappa Reddy, E.S. Vbnkataramiah, Baharul {Slam, Amarendra Nath Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/national-textile-workers-union-etc-v-p-r-ramkrishnan-and-others-8804
- **Pages:** 78

## Headnote

Indian Companies Act, 1956-S. 433-Petitlon for winding-up of companyOrders 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 behalf of workers.
Companies (Court) Rules, 1959-R. 34=-Provides for procedure only-Does
not confer on workers right to appear at hearing of Winding-up petition.
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 si Dee 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
.•
-,,/
,
r
;
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.
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
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

## Text

_Characters 0–39,849 of 205,656. This is a partial read: ask again with offset=39849 for what follows._

A
B
c
D
E
F
G
H
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 of companyOrders 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 behalf of workers.
Companies (Court) Rules, 1959-R. 34=-Provides for procedure only-Does
not confer on workers right to appear at hearing of Winding-up petition.
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 si Dee 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
.•
-,,/
,
r
;
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.
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
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
8
c
[)
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
F
In the instant case the circumstarice that the workers were not ·1ipard by
G
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
H
A
8
c;
0
E
F
G
H
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
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<Js provision in
the Act which forbids the workers from appearing at the hearing, the workers
must be held entitled to appear and be heard in the winding-up petition.
[950 A-E]
StateofOrissav.Dr.BinaPani, [1967] 2 SC.R. 625;A.K. Kraipak v.
Union of lndia, (1970] 1 S.C.R. 457 and Maneka Gandhi v, Union of lndia, [1978]
'i S.C.R. 621 referred to.
(ii) There is no provision in the Act which excl~des the workCrs from
appearing at the hearing of a winding-up .petition. Merely because the right to
apply for winding up a company is not given to them it does .not fo11ow as a
necessary consequence that the workers have no right .to appear and be heared in
a winding-up petition filed by one or more of the persons specified in s. 439. In
fact, there- would be no point in conferring that right on the workers since they
cannot have any interest in demolishing the enterprise which is the source of their
livelihood. So also, the circumstance that the right to make applications or be
consulted in the course of the winding up of a company is conferred under s. 440
and other provisions of the Act only on the creditors and contributories does not
"in any way militate against the right of the workers to appear and be heard in the
.winding·up petition. Once the
winding~up order is made, the assets of the
company have to be realised, the creditors to be paid and if there is any surplus
it bas to be distributed among the contributories and, therefore, at that stage, it is
only the creditors and contributories who have an interest and that is why in the
course of the wiading up it is the creditors and contribiltories who have been
given a voice. Sections 440, 464, 466, 478, 517, 542, 543, 549, 556, 557 and 560
deal with a stage after the winding up bas commenced, These sections have
nothing to do with the question whether the company should be wound up or
not. [950 F; 948 D-F; 951 B; 951 C-E; 949 A·H] .
(iii) After the amendment of ss. 397 and 398 of the Act by ss.10 and 11
of the Companies (Amendn1ent) Act, 1963, the court, while deciding whether a
company should be bound up, has to take into consideration not only the interest
of the shareholders and editors but also public interest in the shape of the need of
the community and the interest of employees. It is therefore axiomatic that the
workers must have an opportunity of being heard for projecting and safeguard·
ing their interest before a winding-up order in made. [951 G: 952 B-F]
Jn the instant case, the Division Bench of the High Court, after conceding
that the court had to take into consideration the interest of the workers, went
. wrong in holding that the workers had no locus standi to file an application for
being heard in the winding-up. petition.
[952 G-Hi 953 A-B]
-'----·
'
•
...
NATIONAL TEXTILES V. P.R. RAMAKRISHNAN
925
Fertilizer Corporation Kamgar Union and Ors. v. Union of India and Ors.,
A
(1981] 2 S.C.R. 52, referred to.
Bha/chandra Dharmajee Makaji and Ors. v. Alcock A.shdown and Co. Ltd.
and Ors., 42 Company Cases 190, approved.
(iv) It is true that according to the statement of law contained in the
.leading text books on Compan·y Law, it is only the Company, the creditors
and the contributories who are entitled to appear in a winding·UP petition and
·no other persons have a right to be heard. This statement of the law is based
'on a decision rendered by the English Courts over a hundred years ago when
a company was regarded merely as a legal device brought into being as a result
of a contractual arrangement between the shareholders for the purpose of carrying
on trade or business and the workers were lookec1 .. ~upon as no more than
employees of the company working under a master and servant reJationsbip and
the interest of the public as consumers or otherwise was a tota1ly irrelevant consi·
deratiOn. It can have no validit:Y in the present times when the entire concept of
a company has changed. [953 F-H)
In re. Bradford Na,igatlon Company, [1870) 5 Ch. A.C. 600, held in'
applicable.
In re. Edwal"d Textiles Limited, 38 Con:ipany Cases 984, overruled.
(v) Our Constitution bas shown profound concern for the workers and
given them a pride of place in the new socio-economic order envisaged in the
Preamble and the Directive Principles of State Policy: Article 43A states that
the State shall take steps by suitable legislation or in any other way to secure the
participation of workers in the management of undertakings, establishments or
other organisations engaged in any industry. The constitutioOat mandate
is therefore clear and undoubted that the management of the enterprise should not
be left en.tirely in lhe hands of the suppliers of capital but the workers should 3.lso
be entitled to participate in it. In a socialist paitern of society the enterprise
which is a centre of econoril.ic power should be controlled not only by capital but
also by labour. It cannot therefore be conteaded that the workers should have
'no voice in the determination of the qUestion whether the enterprise should
continue to run or be shut down uri.der an order of the court. The workers who
have contributed to the building of the enterprise have every right to be beard
when it is sought to demol!sh that centre of economic power. [946 C; 947 l)...F]
Peop/e~s Uition for Democratic Rlihts v. Union of India and Ors. (W.P.
c
D
E
F
No. 8143 of 1981 decided on September 18, 1982) referred to.
(i,
(vi) It is not only the shareholders who have supplied capital who are
interested in the enterprise which is being run by a company but the Workers who
supply labour are also '.]equally, interested· because what iS produced by the
enterprise is the result of labour 3s well as capital. Tbe owners of capital bear
only limited financial risk and otherwise contribute nothing to production while
labour contributes a major share of the product. While the former invest only a
part of their moneys the latter invest their sweat and toil ; in fact, their Jife itself.
H
A
B
c
D
926
stJPRBME COURT REPORTS
The workers therefore have a special place in a socialistic pattern of society. They
are no more vendors of toil; they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as
capital ; they supply labour without which capital would be impotent.
[945 G-H: 946 A-BJ
(vii) The concept of a company has'uodergone radical transformation in
the last few decades. The old nineteenth ,century view which regarded a company
merely as a legal device adopted by shareholders for carrying on trade or business
as proprietors bas been discarded and a company. is now looked upon as a sllcio ..
economic institutio~ wielding economic power and influencing the life of the
people. The view that a company is the property of the shareholders can no
longer be regarded as valid. Apart from capital and labour there are other
factors which contribute to the production of national wealth; the financial
itistitutions aud depositors who provide the additional finance required for pro·
duction· and the consumers and the re'it of the members of the community who
are vitally interested ill the product manufactured. A company, according to the
new socio-economic thinking, is a social institutiOn having duties and responsi~
bili!ies towards the community in which it functions and one of its paramount
objectives is to bring about ma"imisation of social welfare aad common good.
This necessarily involves reorientation of tbinking in regard to the duties and
obligations Of the company not only vis-a-vis the shareholders but also vis-a-vis
the rest of the community affected by its operations such as workers, consumers
and the Government representing the society. [942 B; 943 A· G; 944 C-D]
Chlranjit Lal Chowdliri v. Union of lndia, (1950] S C.R. 869, referred to.
Panchmahal Steel Ltd. v. Universal Steel Traders, 46 Company Cases 706
E ·
approved.
G
H
per Chinnappa Reddy, J. (concurring)
(i} Quite apart from _s. 445(3), it is plain that the future of the'workers is
at stake and their right to work is in jeopardy as a result of the presentation o(
the winding·up petition. The workers are so intimately ti~d up tbat their interest
in the survival and the well-being of the company is much more tban the interest
of any shareholder. They cannot be denied a beariog when thei; very existence
is under threat of extinction. [957 D-G]
(ii) It is not correct to say that natural justice is e"clusively a principle
of administrative Jaw. It is first a universal principle and, therefore, a rule of
administrative Jaw. Courts, even morrc than administrators, must obseive natural
justice. [959 A-CJ
(iii) The Act does not prohibit a hearing to the workers. It ·does not
providC for all situations. The law ''falls to be applied tO a growing and changing
subject matter". The Company Judge must acknowledge the transformation
which corporations are presently undergoing fr0m capitalist contrivances into
socialist instruments and recognize the
~eality of the workers' interest. The
•
..I
•
•
- '
•
NATIONAL TEXTILES. V. P.R. RAMAKRISHNAN
927
working classes, all the world over, are dCmanding "workers· control" and
"industrial democracy". They want the right to work to be secured. ·our
Constitution has accepted the workers' entitlement to control and it is one of the
Directive Prin_ciples of State Policy. It_ is in this context of changing norms- and
waxing values that the workers' demand to be heard has to be judged.
[957 G-H; 958 B-C-E-F-G]
(iv) The duty ·to hear those asking to be beard is not dependent on the
vesting of any right under the very statute in respect of which jurisdiction is being
exercised by the Court but on any right whatever which may come under threat.
It is not the law that rights other than those created by a particular statute may
be taken awaY in proceedings under that statute without affording a bearing to
those desiring to be heard. [959 D-Bl
(v) It is not correct to say that once the workers are allowed to enter the
comPany court, the flood gates will be opened, all and sundry will join
in . the fray and utter .confusion will prevail. The court is the master of the
proceedings and the uitimate control is with the court. Parties may· not be
impleaded for the mere asking. The court may ask the reason why, if someone
asks to be heard. · [960 B·C]
(vi) The contention that since workers are· not allowed to intervene in a
partition or dissolution of partnership they should also not be ailowed to
intervene in a windiog-up petition cannot be accepted. There is no reason why
workers may not be allowed, in appropriate cases to intervene in such actions to
avert _disaster and to promote welfare". [960 D]
(vii) There is good reason for holding that In re. Bradford Navigation
Company is not valid in the present timeS. It was decided in the heydays of
laissez faire at a time when individualism dominated every field and the public
interest was but a slow runner. Now the position is reversed. In Britain itself
Corporate law and labour law have changed considerably. After nationalisation
of certain imp.ortant and crucial indu'stries a considerable measure of workers'
control of management of industry has been achieved in that country. One should
rather look to the ConstitutiOo for guidance and inspifation while interpreting the
Jaws. After the 42nd Amend1nent, the Constitution is openly Socialist. The
Directive Principles of State Policy emphasize the role and interest of the workers.
Art. 43A contemplates ·workers• participation in the management of the industry.
There are several provisions in the Act itself which take notice of the element of
public interest. There are other enactments like the Monopolies and Restrictive
Trade Practices Act and the Industries Regulation ·and. Development Act under
whose provisions the activities of a company may be scrutinized in public interest.
There are legislations invcilving.emPloyment ond welfare of labour to which the
mailagements of the compan.ies are subject. The problem before the court must
be considered in this context of ferment and development.
[962 F; 961 G-H; 962 A-B; 960 G-H; 961 D·F]
In re. Bradford Navigation Company,· [1870] S Ch. A.C. 600, held in·
applicable.
Panchmahal Steel Ltd. v. Universal Stlel Traders, 46 Co'mpany Cases 706
approved.
. .
A
B
c
D
E
G
H
A
B
0
D
928
SUPREME COURT JlEPOR'ft;
[1983) I s.c.R.
per Baharul Islam, J. (concurring)
The s!atcment of law contained in the English autborilies cited by counsel
for respondents may be good law for England with altogether a different system
of econon1y but it is not applicable in our country, particularly-after the Constitution (42nd Amendment) Act, 1976, by which the "Socialist" and "Secular"
concepts have been incorporated- in the Preamble to our Constitution. The
workers' right to be heard in a winding-up proceeding has to be spelt out from
the Preamble and Arts. 38 and 43-A of the Constitution and from the general
principles of natural justice. (990 D-FJ
per Venkalaramiah and Amarendra Nath Sen, JJ. (dissenting)
Under the existing law the workers or their unions may make any suggestions to the Court at any stage but they cannot claim to be impleaded as parties
to the winding-up petition as of right. Tbe privilege of making suggestions to
the court in public interest is different from the right to be impleaded as a party
with the conco1nitant right to enter into c~ntest with the other parties and of
making an order in appeal before higher courts. Tlie latter right bas to be
conferred expressly by the statute in any person who wishes to exercise it. [979 D]
(i) The principles of administrative law have not much relevance to the
administration of the affairs of a
company,
the
primary
purpose
of
administrative law being the imposition of checks on the powers of govern~
ment or its officers so .that they may not either abuse their powers or go
out of their legal bounds. In particular, the proceedings relating to winding-up
by court are subject to the orders of higher courts in appeal and are not amenable
~.!.
to interference by superior cotlrts as in the case of actions of government or its
officern. (967 H, 968 A-BJ
G
H
(ii) The Jaw on the question as to who can be heard as of right in a
winding-up proceeding is clear and is based on the decision of the English Court
in In re. Bradford Navigation Company. The decision may be of the last century
but there is hardly any justilication to depart from it even now unless compelled
by the statute to do so.(970 B-D; 971 E]
In re. Bradford Navigation Company, (1870] 5 Cll. A.C. 600 • referred
to.
Halsbury's Laws of England (4th Ed.) Vol. 7 Para 1028 referred to.
(iii) That only the company, creditors and contributories (apart from the
Central Government or the Registrar when they choose to intervene under the
express provisions of the Act) are entitled to participate in the windin&·up
proceedings is clear from s<>. 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 winding
4 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 th er sio.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]
B
c
D
In the instant case_.-it is seen from the grounds of objection filed by the
E
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]
F
(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 of the 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
.
G
H
'
A
B
c
D
E
F
G
H
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.
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 of India 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'
i
•
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
men ts 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]
(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
'
A
,8
c
D
E
G
H
A
B
) c
0
E
G
H
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 supervision. of the court. Where the comp.any goes into liquidation without reference
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 proA
visions. 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 a
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
B
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 ori the worktrs. [996 A-IY; 996 H; 997 A:-B; 998 F]
'
·' C
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]
D
E
F
G
H
A
B
c
D
E
F
G
934
SUPREME COURT REPORTS
[1983] .I s.c.e.
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.