R G N PRICE OFFICIAL LIQUIDATOR OF THE ANDHRA PAPER MILLS CO Vs. M CHANDRASEKHARAN PRESIDENT OF THE ANDHRA PAPER MILLS

JUDGEMENT

(1.) This is an appeal against the order of Panchapakesa Sastry J. made in chambers in the winding up of the Andhra Paper Mills Co, Ltd (in liquidation). The material facts necessary for the disposal of this appeal are as follows:

(2.) The company was incorporated under the Indian Companies Act in January 1929 with an authorised capital of Rs. 23,00,000 but with a paid up capital of about Rs. 12,00,000. The company appears to have been under-capitalised, and it became necessary to borrow by way of debentures, first in 1935 a sum of Rs. 6,00,000 and again in 1938 a sum of Rs. 5,00,000. The debentures were secured by two deeds dated 20th September 1935 and 19th September 1938. Under these debenture trust deeds, practically the entire premises of the Mills and all the machinery, plants, fittings, etc., attached to the Mills were mortgaged, to secure payment of the amounts due to the debenture holders. There were other provisions in the debenture deed which conferred rights on the debenture holders & the trustees for the debenture holders to take possession of the Mills on default of payment of interest & to work the Mills, if they chose, or to bring the mortgaged premises to sale. It appears that in pursuance of such provisions, the debenture trustees under the trust deed took possession of the Mills sometime in 1940 and were running the Mills till October 1945, when the Mills were handed back to the company. It is common ground that again the debenture trustees on behalf of the debenture holders under the first deed took possession of the mortgaged premises on 14-2-1947 as there were large arrears of interest. Thereafter, there was an agreement between the directors of the company and the debenture trustees which was confirmed at a meeting of the Board of Directors of the company held on 20th February 1947. As it was necessary in the interests of the Company that the factory should remain working, and as at the request of some of the directors the trustees had expressed their willingness to work the factory on the risk and account of the company for some time, it was resolved that certain persons be constituted into a sub-committee for the purpose of recommending proposals for future management and for negotiating with the trustees within a period of three months and it was further resolved that the trustees may, in the meantime, work the factory at the risk and on account of the company for the benefit of the debenture holders. In accordance with this agreement, the debenture trustees began to work the Mills. On 2nd May 1947 there was an extra-ordinary general meeting of the holders of the first mortgage debentures at which inter alia the following resolutions were proposed and carried: R.G.N. Price, Official Liquidator of the Andhra Paper Mills Co., Ltd., (in liqn.) vs. M.... Page 3 of 9

(3.) Whereas the company has been incurring an annual loss of about Rs. 2 1/2 lakhs every year as disclosed in the balance sheets and whereas in the year 1946-47 also the company had incurred a loss to the same extent and whereas after taking possession the debenture trustees agreed to work the same for a period of three months and whereas even during this period the company has suffered a loss to the same extent, resolved that this meeting of the debenture holders hereby decides not to carry on the business of the company and to discontinue the same within a reasonable time and to proceed further to take necessary steps for realising the mortgaged premises and further resolved that the trustees shall give notice to the company about the debenture holders' intention to proceed to realise the mortgaged premises by sale through public auction or otherwise. On 24th May 1947, the debenture trustees in possession of the Mills put up a notice that the trustees regretted that they had to close down the Mills with a view to avoid further loss and that workmen and members of the staff would be paid the wages earned upto, and including Monday, the 26th May, plus extra wages for 13 days in lieu of notice and shift workers would be paid for Sunday the 25th May in addition, and that members of the staff would be paid their salaries up to and including Monday the 26th May plus one month's salary as notice pay. Certain members of the staff and workmen specified in a separate list were to continue to work. In accordance with this notice, the gates of the Mills were closed on that day. On behalf of the workers a telegram was despatched to the Honourable the Minister for Labour, Government of Madras, praying for Government's intervention in view of the sudden closure of the Mills. On 24th June 1947 the Government passed an order under Section 10(1)(c) of the Industrial Disputes Act, 1947, referring the industrial dispute, which had arisen between the workers and the management of the Andhra Paper Mills Co. Ltd., in regard to the closure of the Mills, to an Industrial Tribunal. The District and Sessions Judge, East Godavari, was constituted the tribunal to adjudicate on this dispute. On the next day, the Government passed an order, Ex. P. 4 under Section 10(3) of the Industrial Disputes Act, 1947, prohibiting the continuance of the lock-out which was in existence in the Andhra Papers Mills in connection with the industrial dispute which had been referred for adjudication on the previous day. There was a request by the debenture trustees to withdraw this order prohibiting the lock-out but they were informed by the Government that the order would not be R.G.N. Price, Official Liquidator of the Andhra Paper Mills Co., Ltd., (in liqn.) vs. M.... Page 4 of 9 withdrawn, Ex. P. 6. 3. The Industrial Tribunal conducted an enquiry and passed an award on the 16th August 1947 (Ex. P. 7). An advocate and a pleader appeared for the management of the Andhra Paper Mills Co. Ltd., represented by the debenture trustees in possession, whereas another pleader appeared for the workers' Union represented by its President. The learned District Judge, after an elaborate examination of the evidence adduced before him, held that the closure of the Mills from 24th May 1947 was unwarranted and amounted to a lockout which must be deemed to be an illegal lock-out. One of the grounds on which he came to this conclusion was the pendency of a dispute between the workers and the management of the Mills which had been referred to him by order of Government dated 31st January 1947 under Clause (c) of Sub-rule (1) of Rule 81-A of the Detence of India Rules as continued in force by Section 2 of the Emergency Provisions (Continuance) Ordinance, 1946, (Ordinance No. XX of 1946). The dispute so referred related to wages, increments, dearness allowance, leave facilities, and other terms of service. The award was duly forwarded to the Government, and the Government declared the award to be binding under Section 15, Sub-section (2) of the Industrial Disputes Act, on 5th September 1947 (Ex. P. 7-a)