# NAVALKHA & SONS v. SRI RAMANYAJ>AS & ORS

- **Citation:** [1970] 3 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 1969-10-27
- **Case number:** Civil Appeal No. 697 of 1968
- **Bench:** V. Ramaswami, I. D. DuA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/navalkha-sons-v-sri-ramanyaj-as-ors-4901
- **Pages:** 12

## Headnote

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 thereupon 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,
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SUPREME COURT REPORTS
[1970] 3 s.c.R.
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

## Text

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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 thereupon 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,
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SUPREME COURT REPORTS
[1970] 3 s.c.R.
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.
·
In the winding up proceedings of Hyderabad Vegetable Products 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 aforesaid Company in accordance with the terms and conditions menti<med in the order.
Accordingly a sale proclamation August 1.
1964 was drawn and issued by the respondents 2 to 4 inviting
offers for the purchase of movable and immovable properties and
aetionable claims of the Company, as a single unit.
According
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NAVALKHA & SONS v. RAMANYA (Ramaswami, I.)
3
to the terms and conditions of sale the Commissioners were not
bound to accept the highest offer and were at liberty to reject
any offer without assigning any reason.
Immediately after the
.offer was accepted by the Commissioners tbe offeror had to deposit
15 % of the offer amount as initial deposit and the balance of the
amount together with the amount required on non-judicial stamp
paper within 15 days from the date of acceptance. Acceptance
of the offer by the Commisioners was subject to the condition of
confirmation by the High Court and the offeror was entitled to
t~ke delivery of possession of the properties only after such confirmation. It was made abundantly clear in cl. 16 that in all
matters relating to the sale of the properties the decision of the
Commissioners shall be final and shall be binding subject to the
control of the High Court. One of the conditions also was that
the proclamation of sale was to be advertised twice in each of the
ilve leading dailies The Statesman, The Times of India, The
Hindu, Indian Express and the Hindustan Times to ensure wide
publicity and the Commissione·rs were also required to get. the
proclamation printed and distributed among the likely purchasers.
The Commissioners got published the proclamation in four lead- ·
ing dailies only : the Hindu, Indian Express, The Statesman and
the Hindustan Times. No publication was made in the Times of
India nor was the advertisement made twice in any of the said
newspapers. In two of them there were two insertions but in the
remaining papers there was only one insertion. In addition to
the
advertisement
the
Commissioners
got
printed
300
copies and posted them to various industrial co,ncerns.
The last
date fixed for the receipt of the off.ors was September 8, 1964. Not
even a single offer -was received by that time.
The time for receipt of offers was extended by the Court to the end of Noveml'er, 1964 ai the instance of the Commissioners. The appellant
Navalkha & Sons happened to be the sole offeror. It has offered
a sum of Rs. 7,91,001 which was made of Rs. 2,50,000 for the
immovable property and Rs. 5,41,001 for
the machinery.
It
made no offer for the actionable claims.
The appellant made
deposit of Rs. 50,000 in the shape of demand draft drawn on
the State Bank of Hyderabad. The offer was accepted by the
Commissioners on December 2, 1964. The appeilant wa~ called
upon to deposit 15 % of the amoun.t of the offer as initial deposit
immediately and the balance together with the amount required
for non-judicial stamp paper within 15 days from the date of
acceptance.
The appeliant did make the initial deposit.
The
Commissioners then made an application on December 3, 1964
to the High Court for confirmation of the sale. On December 11,
1964 the High Court extended time for payment of the balance
amount for two weeks.
On December 24, 1964 one Gopaldas
Darak made an offer of Rs. 8,50,000 saying that he could not
offer in time because he came to know of the sale only two days
SUPREME COURT REPORTS
(1970] 3 s.c.R.
.Prior to that date and it was due to the fact that there was
no
.adequate· publicity. To show his bona fides he gave a demand
draft for a sum of Rs. l,00,015. 'The learned Judge decided that
the property did not fetch its proper price and there was possibility
-Of higher bids. Instead of directing a fresh auction or calling for
fresh offers the learned Judge thought it proper to
arrange an
-0pen bid in the Court itself on that very day, as between the
appellant and Gopaldas Darak. Before starting the
bid the
learned Judge gave time to the appellant to think over and say
whether it was willing to accept the course decided upon and to
,participate in the auction bids.
The appellant consented and
volunteered to take part in the bid and became the highest bidder
.at Rs. 8,82,009. The 1~arned Judge accepted the said bid as
final bid and concluded the sale in favour of the appellant directing it to pay the balance of the money together with the amount
required for non-judicial stamp on January 31, 1965 making
'it clear that in case of default the deposit already made would be
forfeited.
The appellant paid the balance of the
amount on
January 30, 1965. On the same day one Padam Chand Agarwal
made ~ application (C.A. 44 of 1965) offering Rs. 10,00,000.
He· complained that publicity of the sale of the property was not
adequately made and he came to know of the advertisement very
1ate. He was prepared to enhance the offer to Rs.
10,00.000
and was also willinp, to participate in open bid if the Court so
.decided with Rs. I 0,00,000 as initial bid.
The learned Judge
rejected his request and by his order dated February 19. 1965
·held that the sale should be confirmed in favour of the appellant.
Aggrieved by this Order Padam Chand Agarwal filed appeal no. 4
of 1965. One Ramnuja Das, a contributory also chose to prefer
an appeal (appeal no. 3 of 1965) against the order of confimrntion.
According to him, the publicity given was inadequate and
the first offer given· by the appellant was too low and the Court
has rightly refused io confirm the acceptance of the offer. His
grievance was that the learned Judge should have held the auction
only after due publicity but has not done so and the
cOUrse
followed did not achieve the object of getting adequate price of
the property.
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Both appeals 3 and 4 are. therefore, directed against the confirmation of the auction sale held in Court on December 24, 1964.
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These appeals were allowed by Letters Patent Bench consisting
of the Chief Justice and Kumarayva J.. and the order of the
learned single Judge dated Februarv 19. 1965 read with his pre-
. vious order dated December 24, 1965 was set aside. It was
directed that the learned Judge should take fresh steps for the
sale of the propertv either bv calling sealed tenders or by auction
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in accordance with law. The tenders would be called or the
auction would take olace with the requisite condition of minimum
offer or starting bid of Rs. 10,00,000.
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NAVALKHA & SONS v. RAMANYA (Ramaswami, J.)
5
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It was ar_gued by Mr. V. S. Desai on behalf of the appellants
that the discretion of the learned Company Judge was not erroneously ex.ercised when he accepted the bid of the appellant in the
auction held on December 24, 1964 and consequently there was
no _justification for the Division Bench to interfere with the order
of the learned Single Judge.
We are unable to accept this arguB
ment as correct.
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Rule 273 of Companies (Court) Rules, 1959 is to the following effect :
"Procedure at sale.-Every sale shall be held
by
the Official Liquidator, or, if the Judge shall so direct,
by an agent or an auctioneer approved by the Court,
and subject to such terms and
conditions, if any, as
may be approved by the Court. All sales shall be made
by public auction or by inviting sealed tenders or in
such manner as the Judge may direct."
The principles which should govern confirmation of sales are
well-established. Where the acceptance of the offer by the Com<
missioners is subject to confirmation of the Court the offeror does
not by mere acceptance get any vested right in the property so
that he may demand automatic confirmation of his offer. The
condition of confirmation by the Court operates as a safeguard
against the property being sold at inadequate price whether or not
it is a consequence of any irregularity or fraud in the conduct of
the sale. In every case it is the duty of the Court to satisfy itself
that having regard to the market value of the property t11e price
offered is reasonable. Unless the Court is
satisfied about the
adequacy of the price the act of confirmation of !he sale would
not be a proper exercise of judicial discretion. In Gordhan Das
Chuni Lal v. T. Sriman Kanthimathinatha Pillai(') it was observed that where the property is authorised to be sold by private
contract or otherwise it is the duty of the Court to satisfy itself
that the price fixed is the best that could be expected to be
offered. That is because the Court is the custodian of the interests of the Company and its creditors and the sanction of the
Court required under the Companies Act has to be exercised with
judicial discretion regard being had to the interests of the Company and its creditors as well. This principle was followed in
Rathnaswami Pillai v. Sadapathi Pi//ai(2 ) 'and ·S. Soun!daraian v.
Mis. Roshan & Co.(3 ). In A. Subbaraya Mudaliar v. K.
Sundara;an(') it was pointed out that the condition of confirmation by the Court being a safeguard against the property being
sold at an inadequate prjce, it will be not only proper but neces-·
sary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auc-
(l) A.LR. 19'1 Mad. 2R6.
(3) A.l.R. 1940 Mad. 42.
(2) A.J.R. 1925 Mori. 318.
(4) A.T.R. 1951 M,a. 986.
,
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SUPREME COURT REPORTS
[1970] 3 S.C.ll.
tion held in pursuance of its orders, should see that the price
fetched at the ·auction is an adequate price even though there is
no suggestion of irregularity or fraud. It is well to bear in mind
the other principle which is equally well-settled namely that once
the court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for
refusing confirmation of the sale or offer already received.
(See
the decision of the Madras High Court in Roshan & Co's case(')
In the present case the Division Bench has come to the conclusion that publicity was not as wide as originally proposed by
the Commissioners in their affidavit. The publication was made
in four dailies namely The Hindu, Indian Express, Hindustan
Times and The Statesman.
There was no publication in the
Times of India.
Further out of the four newspapers in which
publication was made only in two there were two insertions and
in the remaining two there was only one insertion. This was contrary to what the Commissioners have promised in their affidavit
dated July 8, 1964. No doubt, other efforts were made for giving publicity but these efforts were not sufficient to attract more
than one offer.
When the case came for confirmation on December 24, 1964 there was an application by Babu Khan that the
property was of much higher value and that fresh offers must be
invited again with wider publicity.
There is also the affidavit of
the State Government dated August 29, 1963 in which the value
of the property was shown as Rs. 13,40,000. Besides, on that
very day, one Gopaldas Darak had come before the Court with
a higher offer showing his bona fides and earnestness by depositing more than one lakh of rupees. He came with the complaint
that there was not sufficient publicity as to attract people from
the north and that as soon as he came to know he gave his offer.
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In these circumstances the learned single Jud2e was right in expressing his reluctance to confirm the offer of Navalkha & Sons.
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He therefore decided to have an open bid as between the appellant
and Darak in the court itself on that very day .. The complaint
of Padam Chand Agarwal is that the second step taken by the
Single Judge of holding an auction without giving wide publicity
was not justified in law. 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 the Judge may
direct. It appears that on April 17, 1964 at the instance of the
Official Liquidator and at the instance of a contributory the
Court. had approved of the terms and conditions of sale which
pravided for ca!ling of sealed tenders. On December 24, 1964
the learned Judge realised the inefficacy. of this course and decided
to abandon the original procedure and put the properties to auction. But having made up his mind to resort to auction the
(I J A.1.R. 1940 Mad. 42 ..
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NAVALKHA & SONS v. RAMANYA: (Ramaswami, I.)
7
learned ] udge confined the auction to only two persons namely
the previous tenderer and the fresh tenderer. The auction in
question no doubt was conducted in a public place but it was not
a public auction because it was not open to the general public
but was confined to two named persons. Secondly it was not held
after due publicity. It was held immediately after it was decided
upon. It is, therefore, obvious that the sale in question was not
a public sale which implies sale after giving notice to the public
wherein every member of the public is at liberty to participate.
No doubt, the device resorted to considerably raised the previous
bid yet it was not an adequate price having regard to the 'market
value of the property to which reference has already been made.
The denial of opportunity to purchase the property by persons
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who would have taken part in the auction bid but for want of
notice is a serious matter. In our opinion the learned Judge having decided on December 24, 1964 that the property should be
put _to auction should have directed auction by public sale instead
of confining it to two ·persons alone. Since there was want of
publicity and there was lack of opportunity to the public to take
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part in the auction tile acceptance of the highest bid by the learned
Judge was 11ot a sound exercise of discretion. It is contended on
behalf of the appellant that confirmation was discretionary with
the court and the Division Bench ought not to have interfered
with the discretion exercised by the Company Judge.
It is true
that the .discretion exercised by the Judge ought not to be interE
fered with ubless ·the Judge has gone wrong on principle. As already pointed out the learned Company Judge .having decided to
put the property to auction went wrong in not holding the auction
as a public auction after due publicity and this has resulted in
prejudice to the Company and the creditors in that the auction
did not fetch adequate price. The prejudice was inherent in the
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method adopted. The petition of Padam Chand Agarwal also
suggest that want of publicity had resulted in prejudice. In these
circumstances the Company Judge ought not to have confirmed
the bid of the appellant in the auction held on December 24,
1964. We are accordingly of opinion that tl\e Division Bench
was right iri holding that the order of the Company Judge elated
February 19, 1965. should be set aside and there should be fresh
sale of the property either by calling sealed tenders or by auction
in accordance with law. The tender will be called or the auction
will take place with the minimum offer or with the starting bid
of ten lakh rupees.
For these reasons we hold that the judgment of. the Division
Bench of the Andhra Pradesh High Court dated September 24.
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1965 is correct and these appeals must be dismissed with costs.
One set of hearing fee ..
V.P.S.
Appeals dismissed.
8
TATANAGAR FOUNDRY CO. LTD.
v.
THEIR WORKMEN
October 27, 1969
[V. RAMASWAMI AND I. D. DUA, JJ.]
Industrial Dispute--Closure and lock out-Distinction between.
Industrial D1'.sputes Act (14 of 1941), s. 25FF,~-C/osure for reasons
not beyond the control of the employer--Cotnpenro.tion pllyable to workn1en.
The appellant informed the respondents, its workmen, of its decision
to close its business.
The reasons for the closure were : (i) financial
condition of the appellant, (ii) non-availability of orders for supply of
goods; and (iii) -non~cooperation of the respondents in certain matters.
The dispute whether the closure was justified was referred to the Industrial Tribunal. The Tribunal held on the evidence : (I) that th<> 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,
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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 immaE:
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,
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[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.
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Maheshwari, for· the
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appellant.
A. K. Nag and S. S. Khanduja, for the respondents.
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TATANAGAR FOUNDRY v. WORKMEN (Ramaswami, I.)
9
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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& establishments 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 establishment 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 notified of the said retrenchment. On September 22, 1966 the Labour
Superintendent, Government of Bihar, Jamshedpur, held conciliation 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 withdrawn 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
F
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 establishment 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 conG sidered 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
H
was received from the Government of Bihar indicating its willingness 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 J amshedpur plant
and decided that it should be closed as early as possible and Mr.
6Sup.no-2
10
SUPREME COURT REPORTS
[1970] 3 S.C.R.
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
from November 21, 1966 for the reasons explained in the notice.
All the workmen were also informed that their services were no
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 disguise of a closure and directed the re-instatement of the _workmen
with full wages for the period they have been out of employment.
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 indicates 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
that on the whole the financial condition of the company in 1966
(I) [1963] J S.C.R. 540.
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'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 immaterial and what is to be seen is whether it is an effective one.
(see the decision of this Court .in Andhra Prabha Ltd. v. Secretary, Madras Union of !ournalists(2 ) 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
1967 shall not be deemed to have been closed down on
(I) {1961] 3 S.C.R. 207, 213.
(l) .a.J.R. 1969 S.C. 90.
(3)[1967] 3 S.C.R. 901.
12
SUPREME COURT REPORTS
(1970] 3 S.C.R.
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 rejection. 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 interfering 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, 194 7.
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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