OJA/240/2007 1 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 240 of 2007 In COMPANY PETITION No. 93 of 2007 In COMPANY APPLICATION No. 126 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE MOHIT S.SHAH and HONOURABLE MR.JUSTICE K.A.PUJ ================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? To be circulated to Labour Courts & Industrial Tribunals in the State ================================================= IPCL EMPLOYEES' ASSOCIATION & 1 - Appellant(s) Versus INDIAN PETROCHEMICAL CORPORATION LIMITED - Opponent(s) ================================================= Appearance : MR GIRISH PATEL Sr. Advocate with MR SHALIN N MEHTA for Appellant(s) : 1 - 2. MR KS NANAVATI, Sr. Advocate with MR NANDISH CHUDGAR FOR NANAVATI ASSOCIATES for Opponent(s) : 1, ================================================= CORAM : HONOURABLE MR.JUSTICE MOHIT S.SHAH and HONOURABLE MR.JUSTICE K.A.PUJ Date : 18/03/2008 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE MOHIT S.SHAH) This Original Jurisdiction appeal is directed against the judgment and order dated 16.8.2007 in Company Petition No.93 of OJA/240/2007 2 JUDGMENT 2007 by which the learned Company Judge sanctioned the scheme of amalgamation of the petitioner-Company- Indian Petrochemicals Corporation Ltd. (hereinafter referred to as “IPCL” or “the transferor Company) having its registered office at Baroda with Reliance Industries Ltd. (hereinafter referred to as “RIL” or “Reliance” or the “transferee Company) having its registered office at Mumbai. 2. Reliance Industries Ltd. having its registered office at Bombay filed Company Application No.283 of 2007 before the Bombay High Court. Pursuant to the order dated 16.3.2007 in the said application, RIL held separate meetings of equity shareholders, secured creditors (including debenture holders) and unsecured creditors of RIL on 21.4.2007. The Chairman of the said meeting submitted his report before the Bombay High Court and the RIL filed Company petition No.345 of 2007 before the Bombay High Court for sanctioning the same scheme of amalgamation of IPCL with RIL. The said company petition was allowed and the scheme was sanctioned by the Bombay High Court by its order dated 12.6.2007 as modified by order dated 11.7.2007. 3. Before setting out the contentions urged by the appellants, we may indicate the broad facts leading to filing of the petition for sanctioning the scheme of amalgamation. 3.1 By Resolution of the Board of Directors of IPCL and of the Board of Directors of Reliance Industries Ltd., the two companies decided for amalgamation of IPCL with RIL and for that purpose to follow the procedure prescribed by and under the provisions of Sections 391 to 394 of the Companies Act, 1956 (hereinafter referred to as “the Act”). By order dated 16.3.2007 in Company Application No.126 of 2007, this Court directed IPCL to convene separate meetings of equity shareholders, secured creditors (including debenture holders) and unsecured creditors of OJA/240/2007 3 JUDGMENT IPCL under the Chairmanship of Hon'ble Mr Justice SD Dave a retired Judge of this Court. 3.2 Accordingly, three separate meetings were held at Baroda on 14.4.2007 under the Chairmanship of Hon'ble Mr Justice SD Dave. The Chairman submitted his report dated 18.4.2007 placing on record the result of the meetings as under:- (A) The scheme came to be approved by overwhelming majority of the equity shareholders present and voting as per the following details :- “(i) 7,632 Equity Shareholders holding in the aggregate, 20,37,73,286 equity shares constituting 97.04% in number and representing 99.89% in value of the Equity Shareholders, present in person or by proxy and voting at the Meeting, voted in favour of the Scheme. (ii) 233 Equity Shareholders holding in the aggregate, 2,28,705 equity shares constituting 2.96% in number and representing 0.11% in value of the Equity Shareholders present in person or by proxy and voting at the Meeting, voted against the Scheme. (iii) Votes of 54 Equity Shareholders holding 11,74,879 Equity Shares, were declared invalid.” (B) The secured creditors (including debenture holders) unanimously approved the scheme as per the following particulars:- (i) 51 Secured Creditors (including Debenture holders) having claims against the Applicant Company of an aggregate value of Rs.355.34 crore and constituting 100% in number representing 100% in value of the Secured Creditors (including Debenture Holders), present in person or by proxy and voting at the Meeting, voted in favour of the Scheme. (ii) No Secured Creditor (including Debenture holder) of the Applicant Company voted against the Scheme. (iii) The votes of 3 Secured Creditors having claims against the Applicant Company of an aggregate value of Rs.0.25 OJA/240/2007 4 JUDGMENT crore were declared invalid.” (C) Similarly the unsecured creditors present and voting also unanimously approved the scheme as per the following details:- “(i) 635 Unsecured Creditors having claims against the Applicant Company of an aggregate value of Rs.687.48 crore and constituting 100% in number representing 100% in value of the Unsecured Creditors present in person or by proxy and voting at the Meeting, voted in favour of the Scheme. (ii) No Unsecured Creditor of the Applicant Company voted against the Scheme. (iii) The votes of 4 Unsecured Creditors having NIL claims against the Applicant company were declared invalid.” (emphasis supplied) 3.3 In light of the above report, IPCL (the transferor Company) filed Company Petition No.93 of 2007, giving rise to the present appeal, seeking sanction of the Company Court to the scheme of amalgamation of IPCL (transferor Company) with RIL (transferee Company). The petition was also supported by affidavit dated 18.4.2007 of the Company Secretary, IPCL stating that the petitioner-Company (IPCL) had complied with the directions given by the Company Court in Company Application No.126 of 2007 and that the scheme was approved by requisite majority of shareholders and creditors of the Company. 3.4 When the petition came up for preliminary hearing on 23.4.2007, the learned Company Judge admitted the petition, fixed it for final hearing on 19.6.2007 and directed publication of the advertisement in two daily newspapers viz. Times of India, Ahmedabad edition and Gujarat Samachar, Ahmedabad and Baroda editions. Notices were also issued to the Regional Director and the Official Liquidator. The Official Liquidator was directed to obtain OJA/240/2007 5 JUDGMENT services of a Chartered Accountant and to submit the report on the affairs of the Company. The Official Liquidator attached to this Court also submitted his report dated 18th June 2007 along with the Chartered Accountant's Investigation Report dated 4.6.2007 indicating that by sanctioning the scheme the interests of the members and the public at large would not be prejudiced. The Regional Director submitted his report indicating that the Government of India had no objection to approval of the scheme and also stating that scheme was not against the public policy. The Bombay Stock Exchange Ltd. and the National Stock Exchange of India Ltd. where the shares of the transferor and transferee Company were listed, granted their no objection to the scheme under the provisions of Section 24(f) of the listing agreements. 3.5 It appears that the Company petition was extensively heard by the learned Company Judge. The objections lodged by 21 equity shareholders as well as the objections lodged by IPCL Employees' Association, IPCL Employees' Union and Petro Chemicals Kamdar Union were considered by the learned Company Judge who ultimately allowed the Company petition by judgment dated 16.8.2007, which is impugned in this appeal filed on 24.10.2007. 4. In the meantime, after the above judgment, IPCL filed caveat on 22.8.2007 in the OJ Appeals likely to be filed against the above judgment. It is the case of the respondent-IPCL (now Reliance Industries Ltd.) that the IPCL received the certified copy of the judgment on 5.9.2007 and that the said certified copy was filed with the Registrar of Companies, Gujarat State, Ahmedabad in prescribed Form 21 on 5.9.2007 itself; similarly, the order of the Bombay High Court was also filed by the RIL with the Registrar of Companies, Maharashtra State, Mumbai on 5.9.2007 and that thus the scheme became effective on 5.9.2007, the appointed date being 1.4.2006. It is also the case of the respondent-IPCL (now RIL) that OJA/240/2007 6 JUDGMENT the scheme has been implemented by the Company by taking various steps in compliance of the same; including fixing record date for issue of shares (12.10.2007), listing approval from the stock exchange (16.10.2007) and despatch of physical share certificates to members who had still not dematerialized their shares (17.10.2007) and declaration of quarterly financial results of RIL post-merger with IPCL, to all stock exchanges and dissemination of information to all shareholders (18.10.2007). 5. On 24.10.2007, this appeal has been filed by IPCL Employees' Association having membership of about 2039 employees and IPCL Employees' Union having membership of about 1602 employees. The third trade union being Petro Chemicals Kamdar Union having membership of about 1296 members has not challenged the said judgment of the learned Company Judge. The total number of employees of IPCL before amalgamation was about 14,000 (as indicated in para 36.20 of the judgment under appeal). 6. OJ Appeal No.241 of 2007 was filed by 17 equity shareholders of IPCL on the same day i.e. on 24.10.2007. That appeal has been dismissed by our judgment dated 28.12.2007. 7. Mr Girish Patel, learned counsel with Mr Shalin Mehta for the appellants has raised the following broad contentions:- A. While the learned Company Judge has accepted that the workers have locus standi to appear in the proceedings under Sections 391 to 394 of the Companies Act, the learned Company Judge has erred in not accepting the contention of the workers that since the IPCL employees are directly affected by the scheme they have a right to be informed, to represent, to be heard, to be taken into confidence, to be involved and to participate in the amalgamation proceedings OJA/240/2007 7 JUDGMENT even before the Company petition is presented before the Court for sanction of the scheme. The workers have a right of participation in the decision making process of their employer especially when it is a public limited Company. The workers have not claimed any right to veto over the scheme but nevertheless they claim a right of participation in the decision making process regarding amalgamation. Alternatively, even if the workers had no right to participate in the amalgamation proceedings, the workers having rendered 20 to 30 years of service under IPCL had a right to fair representation by IPCL itself when IPCL was negotiating with RIL about the contents of the scheme of amalgamation, at least as regards the impact of the scheme upon the employees' life, interest and prospects. As RIL (transferee Company) had a commanding position in IPCL (transferor Company) with 46.54% share capital, it was RIL in the name of IPCL which was determining the terms and conditions of IPCL employees. This has resulted into denial of fair consideration and protection of the interest and rights of IPCL employees even after their transfer to RIL. B. Clause 8 of the scheme of amalgamation declares and directly transfers the employees of IPCL to RIL and makes them the employees of RIL without any consent or consultation or even notice to the IPCL employees. A transfer of employment can only be by way of tripartite agreement amongst the transferor company (IPCL), the transferee company (RIL) and the employees of IPCL. Hence clause 8 of the scheme purporting to transfer the employees of IPCL to RIL without their consent is illegal and contrary to public policy embodied in Section 23 of the Indian Contract Act. OJA/240/2007 8 JUDGMENT If IPCL employees are not given the option to join or not to join RIL and without ascertaining their wish if the IPCL employees are absorbed in RIL, any subsequent resignation or voluntary retirement by erstwhile IPCL employees would not entitle them to retrenchment compensation under Section 25F or 25FF. On the other hand, if it is considered to be termination of services by IPCL as a result of the transfer, it would be considered as deemed retrenchment under Section 25FF of the Industrial Disputes Act, 1947 and the workers will be entitled to retrenchment compensation. (The judgmet of the learned Company Judge deals with this issue on pages 334 to 336 – para 36.2) C. Future Conditions of Service C/1. The first part of clause 8 of the scheme of amalgamation simply provides for continuity of service and guarantee of terms and conditions not less favourable than those erstwhile terms and conditions which the IPCL employees had. A detailed representation dated 10.4.2007 submitted by the employees associations was not considered by IPCL nor were the workers' representatives invited for discussion. (para 36.17 – page 365 of the judgment of the learned Company Judge). C/2. The second part of clause 8 containing the so-called clarification that the workers of IPCL shall not by virtue of the scheme be eligible for the benefits of any employment policies or other benefits which may be available to the RIL employees is clearly illegal. (para 36.5 and 36.19 pages 339 and 366 of the judgment of the learned Company Judge). The effect of clause 8 of the scheme would be preservation of existing rights and terms and conditions of IPCL employees in OJA/240/2007 9 JUDGMENT RIL and the exclusion of the IPCL employees from the benefits available to the RIL employees which would mean that IPCL employees would be treated as a segregated and marginalized class which would continue to rot as ex-IPCL employees without any future. The IPCL workers ought to have been given an option whether they want to continue as ex-IPCL employees or whether they want to join the main stream of RIL employees. IPCL ought to have discussed with the workers and settle at the very time of amalgamation, the questions relating to the immediate impact of amalgamation on the employees, such as fitment, seniority, promotion, transfers, old settlements, unions, future reshuffling of the office etc.. However, IPCL has left all these issues to the mercy of RIL. The scheme of amalgamation itself should contain all the aforesaid issues having immediate impact of amalgamation on employees of the transferor company. The workers should not be driven to litigation before appropriate forum in respect of such issues. C/3. The Company Court considering the question of granting sanction to the scheme of amalgamation has comprehensive jurisdiction to deal with all the matters including the matters pertaining to the status and terms and conditions of employment of employees of the transferor company (IPCL, in this case). The Company Court cannot decline to consider the questions raised by the workers because apart from the forum of the Company Court considering sanctioning the scheme of amalgamation, the workers of the transferor company have no other forum or proceedings where they can raise their OJA/240/2007 10 JUDGMENT grievance. The Company Court is, therefore, bound to consider the fairness of the scheme in respect of the workers. D. The Company Court in exercise of its power to sanction the scheme of amalgamation is also required to ensure that the scheme is in public interest and that private economic forces and corporate power conform to the values, ideals and principles of the Constitution. 8. On the other hand, Mr KS Nanavati, learned counsel for the respondent-Company has raised the following preliminary objection :- The order of the Company Court sanctioning the scheme of amalgamation passed on 16.8.2007 had already been implemented before the present appeal was filed because the certified copy of the order was filed in the prescribed form with the Registrar of Companies, Gujarat State Ahmedabad on 5.9.2007. Similarly, the order of the Bombay High Court sanctioning the scheme of amalgamation in the petition filed by the transferee company- RIL was also filed with the Registrar of Companies, Maharashtra at Mumbai on 5.9.2007. Thus the scheme became effective on 5.9.2007; the appointed date being 1.4.2006. The orders were filed with the Registrar of Companies in the prescribed forms through electronic filing on 5.9.2007. Intimations were given to the stock exchanges and the RIL shares were issued to the IPCL shareholders in electronic form and to those who had not dematerialized their shares, physical share certificates were despatched on 17.10.2007. Trading approval was also given by the stock exchange on 22.10.2007 and quarterly financial results of RIL post-merger with IPCL were was also declared to all stock exchanges and disseminated to all shareholders on 18.10.2007. In this view of the matter, the appeal filed on 24.10.2007 against IPCL was not competent and otherwise also infructuous. OJA/240/2007 11 JUDGMENT 9. Apropos the above preliminary objection raised on behalf of the respondent, Mr Girish Patel, learned counsel for the appellants has submitted that the appellants requested the learned Company Judge for stay of order sanctioning the scheme of amalgamation in order to enable the appellants to prefer this appeal and to obtain the appropriate interim orders. However, the learned Company Judge did not grant any such stay. In view of the voluminous record and judgment of the learned Company Judge running into 495 pages, the appellants took some time to prefer the appeal which was filed within the period of limitation after deducting the time requisite for obtaining the certified copy. It is, therefore, submitted that the facts narrated on behalf of the respondent cannot be held out against the appellants and for this reason alone, the appeal cannot be treated as not maintainable or infructuous. 10. Having heard the learned counsel for the parties, we do find that in view of the voluminous record of the company petition and also the bulk of the judgment running into 495 typed pages, the appellants needed some time to prepare the appeal memo and the paper-books. In the meantime, the learned Company Judge having declined to stay operation of the order sanctioning the scheme of amalgamation, the transferor company as well as the transferee company took the necessary steps towards implementation of the scheme of amalgamation resulting into the transferor company already having been amalgamated into the transferee company before the appeal came to be filed on 24.10.2007. In these peculiar facts and circumstances of the case, therefore, we are not inclined to dismiss the appeal at the threshold. The question as to what would happen in case the judgment of the learned Company Judge were to be disturbed would arise if we find any substance in the merits of the contentions raised by the appellants. OJA/240/2007 12 JUDGMENT 11. Before we proceed to deal with the merits of the contentions, we may quote the relevant clauses in the scheme of amalgamation particularly clause 8. “8. EMPLOYEES 8.1 Upon the coming into effect of this Scheme : (a) All the permanent employees of the Transferor Company who are in employment as on the Effective Date shall become the employees of the Transferee Company with effect from the Effective Date without any break or interruption in service and on terms and conditions as to employment and remuneration not less favourable than those on which they are engaged or employed by the Transferor Company. It is clarified that the employees of the Transferor Company who become employees of the Transferee Company by virtue of this Scheme, shall not be entitled to the employment policies and shall not be entitled to avail of any schemes and benefits that may be applicable and available to any of the employees of the Transferee Company (including the benefits of or under any Employee Stock Option Schemes applicable to or covering all or any of the employees of the Transferee Company), unless otherwise determined by the Transferee Company. The Transferee Company undertakes to continue to abide by any agreement/settlement, if any, entered into by the Transferor Company with any union/employee of the Transferor Company. (b) The existing provident fund, gratuity fund and pension and/or superannuation fund or trusts or retirement funds or benefits created by the Transferor Company or any other special funds created or existing for the benefit of the concerned employees of the Transferor Company (collectively referred to as the “Funds”) and the investments made out of such Funds shall, at an appropriate stage, be transferred t the Transferee Company to be held for the benefit of the concerned employees. The Funds shall, subject to the necessary approvals and permission and at the discretion of the Transferee Company, either be continued as separate funds of the Transferee Company for the benefit of the employees of the Transferor Company or be transferred to an merged with other similar funds of the Transferee Company. In the event that the Transferee Company does not have its own fund with respect to any such Funds, the Transferee Company may, subject to necessary approvals and permissions, continue to maintain the existing Funds separately and contribute thereto, until such time as the Transferee Company creates its own funds at which time the Funds and the investments and contributions pertaining to the employees of the Transferor Company shall be transferred to such funds of the Transferee Company. OJA/240/2007 13 JUDGMENT 8.2 With effect from the first of the dates of filing of this Scheme with the High Courts and up to and including the Effective Date the Transferor Company shall not vary or modify the terms and conditions of employment of any of its employees, except with the written consent of the Transferee Company.” In the petition, for seeking sanction for the Scheme of Amalgamation, the transferor company prayed for various reliefs in para 28, including the following :- “(e) for an order under Section 394 of the Companies Act, 1956, that all permanent employees of the petitioner Company as on the Effective Date shall become the employees of the Transferee Company in accordance with the provisions set out in the Scheme; (f) for an order under Section 394 of the Companies Act, 1956 that upon the Scheme taking effect, the petitioner Company be dissolved by this Hon'ble Court without an order of winding up.” DISCUSSION Contention : A : Workers' Right to Participate in Formulation of the Scheme of Amalgamation 12. The learned counsel for the appellants has submitted that the workers have right to be consulted in the process of negotiations. They were never consulted, while finalizing the scheme or in the decision making process. Even if the law is silent on the issue, such a requirement should be read into Section 391 of the Companies Act. It has been seriously urged on behalf of the unions that the sanction should be refused because the workmen were not associated in the process of negotiation of the amalgamation and were not made parties to the preparation and finalization of the terms of the amalgamation. Referring to Articles 39, 41, 42, 43, 43A and 46A of the Constitution as well as the provisions of Industrial Disputes Act regarding Joint Management OJA/240/2007 14 JUDGMENT Council, it is urged that such requirement should be read into the Scheme for Amalgamation. 13. The reply on behalf of the respondent is that no statutory provision is cited by the Unions nor any binding precedent referred to in support of this contention, that, either the workers should have been consulted at the time of preparation of the Scheme or during negotiations or when a decision to merge IPCL with RIL was taken. In absence of such provision, it cannot be said that the Scheme is against law. It is further submitted that even otherwise, the objections that the workers have the right to be heard at the time of the hearing of the petition need not be considered, since they have been already heard and no objection has been taken to the locus of workmen to object to the Scheme. 14. Having considered the rival submissions -- 14.1 It appears that Sections 391 to 394 of the Companies Act, 1956 are a complete Code in themselves subject to their juxtaposition