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PETITIONER: WORKERS OF ROHTAS INDUSTRIES LTD.

       Vs.

RESPONDENT: ROHTAS INDUSTRIES LTD.

DATE OF JUDGMENT24/10/1989

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH SAWANT, P.B. RAMASWAMY, K.

CITATION:  1990 AIR  481            1989 SCR  Supl. (1) 615  1989 SCC  Supl.  (2) 481 JT 1989  Supl.    288  1989 SCALE  (2)873

ACT:     Sick  Industrial  Companies  (Special  Provisions)  Act. 1985:  ss.4  & 10---Rohtas  Industries  Ltd.--Rehabilitation of--Directions far.

HEADNOTE:     Four  large  industrial units owned by  the  respondent- company were closed down with effect from September 9,  1984 resulting in denial of employment to about 10,000 employees. In  the writ petition, the workmen sought immediate  payment of salary and wages for the period since closure and compen- sation  as per the amendment to the Industrial Disputes  Act in  1984  and payment of dues under the provident  fund  ac- count,  gratuity etc. The High Court had in the meantime  on May  22, 1986 appointed a provisional liquidator  under  the Companies Act.     This Court on October 29, 1987 had directed the  Central Government  to make a reference to the Board constituted  in terms  of  s.4 of the Sick Industrial Companies  Act,  1985, which had come into force, to frame a scheme as contemplated under s. 10 thereof for revival of the company and submit it for  consideration of the Court within four months time.  On September 7, 1988, the Court took note of the fact that  the State  of  Bihar  was inclined for  nationalisation  of  the company and directed a committee with the Industries  Secre- tary to the Union of India as its Chairman to be immediately constituted  to work out the modalities of  nationalisation. On December 13, 1988 the Court considered the report of  the committee  indicating that three units, excepting paper  and boards unit, were viable and could be revived, and adjourned the matter to give an opportunity to the parties to  explore the  possibilities  of  revival of the  viable  units.  Till August 8, 1989 no substantial progress had been made. There- after the State of Bihar and the Union of India filed  their statements  separately  and the memorandum prepared  by  the Attorney General was also made available to the Court. In this background the Court,     HELD: 1. Living to about 10000 families has been  denied for over five years and apart from national loss, the  work- men have been

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616 put  to  serious jeopardy. There is a huge amount  of  wages outstanding  to  them. Several financial  institutions  have large dues to recover from the company. The Trustees of  the Debenture  Trust  Deeds  have also sought  to  intervene  to maintain  their claim. Apart from these, the owners  of  the company have also pleaded that they are entitled to  compen- sation  in the event of the properties of the company  being taken  away by way of nationalisation. A lot of  assets  are fast  becoming  useless and will soon become  junk.  If  the company  gets liquidated, the liabilities would turn out  to be far in excess of the assets and notwithstanding first  or second charge on the assets, the creditors may not apprecia- bly benefit. It is, therefore, of paramount importance  that the company in respect of viable units should be revived and allowed to come into production. [620D, A-C]     2.1 The State of Bihar is directed to appoint an  autho- rised officer to be the Rehabilitation Administrator. [620H]     2.2  The  Provisional Liquidator appointed by  the  High Court shall hand over to the Administrator all the assets of the  company  which he had taken over under orders  of  that Court.  The assets of the company not yet taken  over  shall vest forthwith in the Administrator. [621A]     2.3 The assets of the company encumbered with  financial and other institutions shall not be available to be proceed- ed  against for a period of one year, and there shall  be  a moratorium for a period of one year in regard to proceedings taken and pending or to be taken against the company hereaf- ter,  and limitation shall remain suspended for the  period. [621D-E]     2.4  The State Government of Bihar shall deposit  within eight weeks an amount of Rs. 15 crores with the  Administra- tor  against the cost of assets to be taken over. A  similar sum of Rs. 15 crores shall be advanced by the Union of India to  the State from out of plan assistance. The sum  paid  by the  State shall be utilised, in due course for  payment  of arrears  of  wages of the workers and  for  disbursement  of secured  loans of financial institutions and  other  parties for  which  security of the company’s assets had  been  fur- nished.  The  Administrator shall open an account  with  the lead nationalised bank for the State operating at  Dalmiana- gar  into  which the two sums of money  shall  be  credited. [621F-H] 2.5 The Administrator shah set up a Committee with a retired 617 High  Court Judge, a retired District Judge and an  Accounts Officer  to examine the claims of the owners of the  company and  other parties including financial  institutions  within six months and to report the matter to the Court for  direc- tions. [622A]     2.6  An  inventory  of all the articles  shall  be  made within four weeks. Steps shall be taken to form a new compa- ny  within four weeks. Appointment of technical  consultants and other competent officers shall be undertaken within  two months. The retrenched employees shall come back to work  in phases. Steps shall be taken to explore the viability of the paper  unit within three months after the company is  recom- missioned in respect of the three units. Liberty is given to the parties to apply in the event of necessity. [622C-D & E]     2.7 The case shall remain pending, to be called again on March 1, 1990. [622H]

JUDGMENT:

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ORIGINAL JURISDICTION: Writ Petition No. 5222 of 1985. (Under Article 32 of the Constitution of India) (With Writ Petition Nos. 443 and 754 of 1988)     R.K.  Garg, S.K. Verma, P. Anshu Mishra and  R.S.  Singh for the Petitioners in Writ Petition No. 5222 of 1985.     G.B.  Pai  and S.K. Sinha for the  Petitioners  in  Writ Petition No.754 of 1988.     K. Parasaran, Attorney General, G. Ramaswamy, Additional Solicitor  General, Ms. A. Subhashini, Probir Mitra  and  K. Swamy for the Respondents. The following Order of the Court was delivered:     Workmen of Rohtas Industries Limited situated at  Dalmi- anagar  in District Rohtas within the State of Bihar sent  a letter addressed to Hon’ble the Chief Justice of this  Court on  8th  of July, 1985, alleging that the Company  had  four units, namely, paper and boards, cement, asbestos and  vege- table ghee plant; the management closed down the  industries with  effect  from 9th of September, 1984, and  have  denied employment  to  about 10,000 employees. It was  prayed  that there should be immediate restoration of electricity to  the colony, payment 618 of  salary and wages for the period since closure should  be directed and compensation as per the amendment to the Indus- trial Disputes Act in 1984 and dues under the provident fund account,  gratuity etc. should also be directed to be  paid. This letter was registered as a writ petition and notice was issued. In the meantime by order dated 22.5. 1986, the Patna High  Court  appointed a Provisional  Liquidator  under  the Companies Act. In the writ proceedings before this Court the employers,  the Provisional Liquidator, the State  of  Bihar and the Union of India have, in due course, appeared.     On  27.4.1987,  the Court made an interim order  in  the matter  of  payment of arrear-wages by sale  of  assets.  On 22.7.1987, the Court took note of the fact that the proposal for  restructuring of the Company was afoot in terms of  its suggestion and stated that claims of the financial  institu- tions  would be considered later. On October 28,  1987,  the Court stated:               "This Court had issued notice to the Union  of               India  and learned Attorney General to  ascer-               tain  if it is possible to revive the  company               which has suddenly gone sick. Learned Attorney               General  states  that  in  the  meantime  Sick               Industrial Companies (Special Provisions) Act,               1985 which received assent of the President on               8th  January, 1986 has come into force  and  a               Board  in terms of section 4 thereof  has  now               been constituted. He suggests that a reference               may be made to that Board and the Board may be               called upon to frame the Scheme as contemplat-               ed under section 18 of the Act for revival  of               the company and instead of allowing the Scheme               to  be dealt with further under the  Act,  the               Board may be called upon to submit its  Report               along  with  the Scheme for  consideration  of               this  Court. He also submits that in the  spe-               cial  facts of the case there is no  necessity               to  subject the Scheme to a statutory  appeal.               Counsel  for  the petitioners agrees  that  an               effort  may be made as per the  suggestion  of               the learned Attorney General." The Central Government made a reference to the Board  within one  week as directed by the Court and the Board  was  given four  months’  time to frame the Scheme. On  7.9.1988,  this

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Court  took  note of the fact that the State  of  Bihar  was inclined  for nationalisation of the Company. The  Union  of India filed an affidavit that if any proposal is mooted  for nationalisation, it would be supported. This Court stated in this order of 7.9.1988: 619               "On examining the matter in this background we               are of the view that it is in the interest  of               everyone  that  the  industrial  establishment               should be revived and sooner it is the better.               In  these  circumstances,  we  direct  that  a               Committee with the Industries Secretary of the               Union of India as its Chairman be  immediately               constituted  to  work out  the  modalities  of               nationalisation. The Committee should  consist               of  the Secretary, Industries,  Government  of               Bihar, senior representatives of the  creditor               financial  institutions, Finance Secretary  of               Government of India or his representative  and               representative  of Reserve Bank of India.  The               Committee should examine the matter and submit               its report within six weeks  ...........  "               On 9.8.1989, the Court took note of the report               by saying:               "The report submitted to this Court  indicates               that  three  units excepting  paper  unit  are               viable  and  can be revived. On  the  13th  of               December,  1988,  this  Court  considered  the               report  and  adjourned the matter to  give  an               opportunity  to  the parties  to  explore  the               modalities  of  revival of  the  three  viable               units.  No substantial progress has been  made               as we find. By the adjourned date the  modali-               ties  should  be discussed and  finalised  and               reported to the Court so that an order can  be               made to revive the three units.                         The report indicated that in  regard               to  paper unit, the Committee was not  of  the               opinion  that it was viable. Learned  Attorney               General and Mr. Pal had been requested by  the               Court to explore the possibilities of  revival               of the paper unit. Ms. Subhashini on behalf of               the learned Attorney General states that given               two  weeks’ time further discussions shall  be               held and a complete decision may be reached as               regards the paper unit  ..........  " A  joint memorandum was filed by the Union of India and  the State  of  Bihar on 12.9.1989 which the  Court  rejected  on account  of  the fact that there was no clear  and  definite indication in the memorandum as to revival. Thereafter,  the State  of  Bihar  and the Union of India  have  filed  their statements separately and a copy of the memorandum  prepared by the learned Attorney General and circulated has also been filed before us. We have also heard learned counsel for  the parties in the matter. 620     It is not disputed that there is a huge amount of  wages outstanding  to the workmen. Several financial  institutions have large dues to recover from the Company. The Trustees of the  Debenture Trust Deeds have also sought to intervene  in this  Court to maintain their claim. Apart from  these,  the owners of the Company have also pleaded that they are  enti- tled  to compensation in the event of the properties of  the Company being taken away by way of nationalisation.     As  already noted, the Company has been closed down  for

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more than five years now. A lot of assets are fast  becoming useless  and  will soon become junk. Several  attempts  were made  to dispose of some of the stocks held by the  Official Liquidator  but for one reason or the other it has not  been possible  to  complete the sale and though  this  Court  had directed  that the sale proceeds would be utilised for  pay- ment  of arrears-wages, that has not been  feasible.  Claims have been laid against the Company and are perhaps  awaiting adjudication. If the Company is not revived and gets  liqui- dated, the liabilities would turn out to be far in excess of the assets and notwithstanding first or second charge on the assets,  the  creditors may not  appreciably  benefit.  This Court  cannot  lose sight of the fact that living  to  about 10,000  families  had been denied for over  five  years  and apart  from  national  loss, the workmen have  been  put  to serious  jeopardy. In these circumstances, we are  satisfied that  it  is  of paramount importance that  the  Company  in respect of the viable units should be revived and allowed to come into production. Unless there be a moratorium in regard to the liabilities of the Company for a reasonable time, the attempt to revive the Company in respect of the three  units is  bound  to  be frustrated upon the  intervention  of  the creditors,  whereas  once  the company is  revived  and  big commercial activities are carried on, profit is bound to  be earned and a conscientious and prudent administration  would certainly, in due course, provide adequate funds for  satis- faction  of  the debts. At present the question  is  one  of priorities. It has to be prudently decided as to which  ones should  be allowed to go ahead and which should be  made  to wait.     In  this  background and on the basis of  the  memoranda filed  by the State of Bihar and the Union of India and  the note prepared by learned Attorney General and made available to us by Mr. Pal for the other side with the Attorney Gener- al’s consent, we give the following directions: 1.  The State of Bihar shall appoint an  authorised  officer from the Senior IAS cadre with appropriate commercial  back- ground 621 to be the Rehabilitation Administrator. 2. The Provisional Liquidator appointed by the High Court of Patna shall hand over to the Administrator all the assets of the  Company  which he has taken over under  orders  of  the Court.  Such assets of the Company which have not  yet  been taken  over  by the Provisional Liquidator  shall  upon  the appropriate  officer being designated vest in him  forthwith and he is clothed with the necessary power under our present orders  to  take such steps as are necessary  to  take  over possession of such assets of the Company. In the event of  a dispute  arising  out of the decision of  the  Administrator that the asset is of the company and is to be taken over  by the Administrator, an appeal shall be maintainable before  a Division  Bench  of the Patna High Court and the  Judges  to constitute  such  Bench shall be nominated  by  the  learned Chief Justice. For convenience the same Judges shall contin- ue on the nominated Bench for a reasonable period. 3.  The assets of the Company encumbered with financial  and other  institutions shall not be available to  be  proceeded against for a period of one year from today and there  shall be  a moratorium for a period of one year in regard to  pro- ceedings taken and pending or to be taken against the Compa- ny  hereafter and limitation shall remain suspended for  the period  under our  orders of today. It would be open to  the Court on being moved to extend the moratorium. 4.  The costs of the entire assets to be taken over  by  the

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State Government of Bihar as per the book value and the dues against the company are estimated to be within the limit  of Rs. 15 crores. The State Government of Bihar has  undertaken before  us to deposit the amount of Rs. 15 crores  with  the Administrator  within  eight  weeks from  today.  A  similar amount  of Rs. 15 crores shall be advanced by the  Union  of India to the State of Bihar from out of plan assistance  for the  State. The sum of Rs. 15 crores paid by the State  Gov- ernment  shall  be utilised, in due course, for  payment  of arrears  of  wages to the workers and  for  disbursement  of secured  loans of financial institutions and  other  parties for  which  security of the Company’s assets had  been  fur- nished.  The  Administrator shall open an account  with  the lead  nationalised Bank for the State of Bihar operating  at Dalmianagar  into which the two sums of money being  Rs.  15 crores each shall be credited. 622 5.  The  Administrator  shall set up one  Committee  with  a retired  High Court Judge, a retired District Judge  and  an Accounts  Officer  with at least five years’  experience  as Financial  Advisor  to the State Government to  examine  the claims  of the owners of the Company and other  parties  in- cluding  financial institutions. This should be done  within six  months from now. Once the list of creditors is  settled with  all reasonable particulars, the matter should  be  re- ported to this Court for directions and it shall be open  to this Court to finally indicate the figure at which each such claim shall be settled.     An  inventory of all the articles shall be  made  within four  weeks  from now. Steps shall be taken to  form  a  new company within four weeks from now.     Appointment of technical consultants and other competent officers shall be undertaken within two months hence.     The  asbestos,  cement  and vanaspati  plants  shall  be commissioned  after effecting such repairs as may be  neces- sary.     The  retrenched  employees shall come back  to  work  in phases. The first phase shall admit a thousand workers,  the second  phase shall admit an equal number and in  the  third phase, such number of further workers as may be necessary to run  the industries in a viable way shall be finalised.  All expeditious  steps  as  may be possible shall  be  taken  to provide employment.     Steps  shall  be taken to explore the viability  of  the paper  unit  within three months after the  Company  is  re- commissioned in respect of the three units. Liberty is given to the parties to apply in the event of necessity but it  is made  clear  that no extension in regard to payment  of  the fifteen  crores  of rupees by the State Government  and  the Union  Government shall be granted. Every attempt should  be made  by all concerned to give effect to the  order  keeping its  true  purport and spirit in view. We do not  intend  to leave doubts in any one’s mind that the purpose of our order is  to revive the Company and make it work viably.  Everyone charged with the responsibility of implementing the order of the  Court shall, therefore, be expected to work in  such  a way as would fulfil that purpose.     We  direct  that the case shall remain pending  in  this Court  and  shall not be taken to have been disposed  of  by this order. Call the case on 1st of March, 1990. P.S.S. 623