DALMIA INDUSTRIES LIMITED Vs. STATE OF U P

JUDGEMENT

(1.) THE validity of the Uttar Pradesh State Cement Corporation Limited (Acquisition of shares) Ordinance, 1991 (hereinafter referred to as the Ordinance) has been challenged in this petition by two Petitioners. The first is the company incorporated under the Companies Act, 1956. The second, a citizen of India, is a share holder of the aforesaid company.

(2.) THE U.P. State Cement Corporation Limited (hereinafter referred to as the corporation) was incorporated as a Government company wherein all the share holders were of the State Government. The Corporation comprises three cement factories which were situated at Chruk, Dalla and Chunar (Kajhrahat). The corporation sustained huge losses right from the year 1972 every year except during the year 1982 -83 On 16th April, 1990, the Principal Secretary, Industries, Uttar Pradesh Government, gave out that the State Government intended to privatise the Corporation. On 20th April, 1990, a Cabinet decision was taken to convert the corporation, a wholly public sector, into a joint sector corporation. For this purpose a meeting was convened on 19th May, 1990 and in that meeting leading manufactures of cement in the country were invited. On the said date a meeting was held at the office of the Principal Secretary, Industries, which was attended by 25 manufacturers. They were informed that the State Government proposed to convert the corporation into a joint sector unit and that the State Government would not make any further investment and that there would be no retrenchment of workmen or workers. The Chief Minister in his budget speech on 15th June, 1990, stated that the losing concern will be put into joint sector. On 27th August, 1990, the State Government issued an order whereby it appointed a Privatising committee (hereinafter referred to as PC) on 11th September, 1990 PC held its meeting and considered the offer of a number of cement manufacturers including the Dalmia Industries Limited. On 11th October, 1990, SB Billimoria and Company, Bombay, was appointed to value the shares of the Corporation. The said company, in December, 1990, submitted its report valuing the shares at Rs. 20/ - each against the face value of Rs. 100/ -. On 16th October, 1990, the Union of the workmen of the corporation preferred writ petition No. 26223 of 1990 in this Court challenging the Government's decision to privatise the corporation. This Court, as an interim measure, stayed the final implementation of the decision over the factories run by the corporation. On 19th November, 1990 a second meeting of the PC took place. In the meanwhile all the other cement manufacturers, who had responded to the invitation, backed out and only the Dalmia Industries remained in the field. The P.C. considered the offer of the Petitioner and finally accepted the same and the Cabinet accepted the recommendation of the P.C. on 14th February, 1991, a Memorandum of Understanding (hereinafter referred to as MOU) was entered into by the State Government with the Dalmia Industries. This memorandum, inter alia, provided that the Dalmia Industries and its associates will hold 51% of the shares of the Corporation, it will take over the management of the Corporation with all its assets and liabilities, it will have a right to nominate 5 Directors: whereas the State Government will have a right to nominate 4 Directors and the Dalmia Industries would be entitled to have one of its Directors as the Managing Director. The State Government passed an order incorporating the MOU. On February 21/22, 1991 shares transfer agreement and financial agreement were entered into providing the transfer of 49% of the shares to the Dalmia Industries pending the order passed in the aforesaid writ petition. On 7th March, 1991, a meeting of the Board of Directors of the Corporation was held. 5 Directors, who had been nominated by the State Government resigned and 5 Directors nominated by the Dalmia Industries were imported at their place. On 12th March 1991, Churk Cement Adhikari Kalyan Samiti filed writ petition no 1003 of 1991 in the Lucknow Bench of this Court praying therein for the quashing of the order of the State Government dated February 13/23, 1991 aforementioned. On 15th March, 1991, in that petition, an interim order was passed staying the implementation of the decision of the Board dated 7th March, 1991. On 10th April, 1991, the said interim was vacated. The writ petition was transferred from Lucknow to Allahabad and was renumbered here as writ petition No. 10607 of 1991. On 12th April, 1990, Sri Pravin Kumar, one of the 5 Directors nominated by Dalmia Industries, was appointed as the Managing Director of the Corporation. On 22nd July 1991 writ petition No. 26223 of 1990 and writ petition No. 1067 of 1991, came up for hearing before a Division Bench consisting of Hon'ble B.P. Jeevan Reddy, CJ (as he then was) and Hon'ble R.B. Mehrotra, J. The counter affidavits filed on behalf of the corporation as well as the Dalmia Industries were before the court. After considering the versions of the Petitioner, the corporation and the Dalmia Industries, the learned Judges recorded certain findings, which, in our opinion, are apposite. They are:

(3.) SHRI D.K. Mittal. the Special Secretary, Government of Uttar Pradesh, Lucknow, has filed a counter affidavit on behalf of the State of Uttar Pradesh, the Respondent No. 1. In paragraph 20(b) to (f) of this affidavit, the averments, inter alia are these, after the transfer of 49 per cent shares of the Corporation, it was found that the Corporation suffered deterioration in the production of the cement and over all market position in respect of availability of cement became worse. The complete unit of the corporation at Dalla came to stand -still due to stiff opposition against the transfer of shares to the Dalmia Industries, and Ors. put up by the employees of the Corporation. The production of cement at Churk and Chunar was also adversely affected to an extent of about 90 per cent due to non functioning of the Dalla Unit and also due to non -cooperation of the workers. The workers of all the units abstained from work to a large extent. As a result of steep fall in production in the corporation, which is the only State undertaking engaged in the production of the cement in U.P. prices of cement went up considerably with the result that the construction work in the entire state suffered badly. Workers of the Corporation were opposed to the privatisation. On coming to know of the transfer of shares, they intensified their agitation virtually paralysing the unit. Workers of the other State Corporations including State Industrial units jointed them. Events took an ugly turn. On 22nd June, 1990, the police had to open fire resulting in the death of 9 persons and injuries to many. The work stopped at Dalla unit. The situation had the potential of major labour unrest Only a small percentage of workers were on duty and no one was working at the Dalla unit since June, 1991. Due to very low production, the workers engaged on daily wages and on casual basis under the management of the corporation were also deprived of employment. The deteriorating condition of the corporation affected the financial resources of the Government in so far as there was a reduction in the revenue receipts of the State Government through various taxes which the corporation was paying to the Government before the transfer of shares It was in the public interest to acquire the shares and, therefore, the State Government took a policy decision to do so.