JAYAJOTHI AND COMPANY RAJAPALAYAM Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) THESE appeals arise out of the judgment of Kunhamed Kutti, J., declining to set aside the order of the Official Liquidator admitting certain claims made for closure compensation and leave allowances to the workers of Shanmugar Mills, Ltd., Rajapalayam (to be referred to hereafter as the company), now under liquidation.The object of the company was to carry on business as cotton-growers in ginning cotton and as spinners and weavers of cotton and silk yarn, etc. The company owns a textile mill Rajapalayam and at the time when liquidation proceedings commenced it employed about 357 workers. The year 1957 was an unfortunate one for the company in that its financial position deteriorated and its own workers added to its difficulties by staging what was called "illegal strikes." There were seven such strikes in the year. That was not the only difficulty created by them. The company's mode of business was to purchase cotton from merchants on credit, convert them into yarn and sell the same in most cases to those who sold cotton in full or partial liquidation of the liability incurred in the purchase of raw material. The workers obstructed delivery of the manufactured yarn by putting forward certain grievances real or imaginary with the result that were few who were willing to supply cotton to be mills. On 23 September, 1957 the company gave notice of a temporary closure of the mills on account of non-availability of raw material. Five days later that notice was converted into one of an indefinite closure of the mills.

(2.) THE mill was actually closed down on 29 October, 1957. But it was stated even then that the management was hoping for better times. THEre was nothing to indicate that the management was closing down the business permanently and discharging its workers.While matters stood thus, on 15 November, 1957 a creditor of the company presented a petition to this Court, Original Petition No. 297 of 1957, for the winding-up of the company on the ground that it was unable to pay its debts. While this petition was pending, the workers raised a dispute as to the justification of the closure of the business, and the Government by their order dated 3 December, 1957 referred the dispute under S.10 of the Industrial Disputes Act for adjudication by the industrial tribunal at Madras. THE reference itself proceeded on the assumption as if there had been a closure and the only matter left for adjudication was as to the justification for it and for the assessment of monetary benefit on the basis of any finding that the tribunal may come to. Efforts were however being made to rehabilitate the company. THE management filed a counter-statement before the tribunal stating the circumstances under which they were obliged to close down the mills and also complaining about the obstructive attitude of the workers which in the main according to them was responsible for the deadlock. Initiation of liquidation proceedings appears to have cooled down the enthusiasm of the management and no one on their behalf took interest in the proceedings before the industrial tribunal. No provisional liquidator had been appointed at the time when the dispute was pending adjudication. THE industrial tribunal was not prepared to wait till something was known about the fate of the winding-up petition. But it is evident that it was appraised of the attempts made in the matters of finding a satisfactory solution to resolve the deadlock in the working of the company to enable it to resume its business. On 11 August, 1958 the tribunal passed the following order :"None has entered appearance in this reference for the management during the last few hearings.

(3.) THE winding-up order is to be stayed permanently on payment in full to the creditors by the Official Liquidator and on a report to that effect being filed in this Court." *It will be apparent from Cl. 11 of the memorandum set out above and also from the other provisions of the scheme, that the workers were treated as employees of the company and the obligation of the lessee was merely to pay the wages, salaries, etc., due to them. THE scheme does not indicate that the workers were to take any fresh employment under the lessee. That this is so, will be clear from the fact that possession of the mills was handed over to the lessee as a going concern by the Official Liquidator. THE mills were being run from the date of the winding-up petition up to the date of the winding-up order with almost all the workers and even thereafter it continued to work. THE only change brought about as a result of the orders of the Court was that the Official Liquidator was running it through his lessee. THE learned Judge appears to have thought that the lessee of the mills directly employed the workers of the company : he held that there was nothing to show that such employment constituted a continued service under the company. That question has to be considered in the light of all that has happened. THE scheme for the working of the mills was the result of a combined effort made by the company, its workers and its creditors, each one of them accepting the position that it was only the continued working of the mills that would improve their position and that liquidation would be prejudicial to all. How best was that object to be achieved was the problem before them. Having regard to the shattered fortunes of the company, a financier who could manage the company for a time was found essential. Such a financier, they found in the appellant. For the advances to be made by him for payment in full to the creditors, the appellant was to have a charge over the assets of the company. He was granted lease of the mills which obliged him to pay Rs. 6, 000 per mensem to the company after payment to the workers. In these circumstances. It is clear to our mind that it will not be right to say that the scheme envisaged termination of the service of the workers by the company, and the re-employment of some or all of them by the lessee afresh as workers under him. On the other hand, the lease was granted as that would be the convenient way of managing the mills for a short period. Factually there was no discontinuity in the services of the workers. Secondly, the effect of the scheme was to stay the winding-up of the company.THE appellant entered into possession of the mills on 12 June, 1960 and it is stated that all but fifteen workers were taken in by the lessee.