IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 6324 of 2000 For Approval and Signature: Hon'ble MR.JUSTICE M.S.SHAH ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- ICICI LIMITED Versus STATE OF GUJARAT -------------------------------------------------------------- Appearance: MS INDIRA JAYSINGH AND MR SB VAKIL instructed by SINGHI & BUCH ASSO. for Petitioners MR SN SHELAT, ADDITIONAL ADVOCATE GENERAL with MR AD OZA, GOVERNMENT PLEADER for Respondent No. 1 MR BJ SHELAT with MR ASHOK L SHAH for Respondent No. 2 MR MJ THAKORE, MR SN SOPARKAR and MR PC KAVINA for Interveners. -------------------------------------------------------------- CORAM : MR.JUSTICE M.S.SHAH Date of decision: 08/12/2000 C.A.V. JUDGEMENT In this petition under Article 226 of the Constitution, three public Financial Institutions, viz. ICICI Ltd., Industrial Development Bank of India and IFCI Ltd. (hereinafter referred to as ICICI, IDBI and IFCI respectively or as "public financial institutions") have challenged the notification dated 22.10.1999 (annexure "C") issued by the State of Gujarat under the provisions of Bombay Relief Undertakings (Special Provisions) Act, 1958 (hereinafter referred to as "BRU Act") in favour of respondent No.2-Gujarat Telephone Cables Ltd, a public limited company. The petitioners have also prayed for a writ to restrain the State Government from issuing any fresh notification in favour of respondent No.2-Company or renewing the notification issued under BRU Act in favour of respondent No.2. 2. The petitioners are public financial institutions which had advanced loans to respondent No.2-Gujarat Telephone Cables Ltd (hereinafter referred to as "the respondent Company" or "the Company"). The petitioners had advanced loans in various categories to the respondent Company as per the statements at Annexures A and B respectively. The particulars of advances, outstandings and arrears as in April/May 2000 are as under :- --------------------------------------------------------- Advances Outstan- Arrears Dues as dings on (Rupees in lacs) --------------------------------------------------------- (1) (2) (3) (4) (5) (6) --------------------------------------------------------- 1. ICICI 8557 5096 2979 15.04.2000 2. IDBI 700 1206 1206 01.04.2000 3. IFCI 111 101 101 11.05.2000 Total 6403 4286 ------------------------------------------------------- 3. According to the petitioners, the respondent-Company committed breach of loan agreements and failed to: (a) furnish periodical information/reports on its financial performance, monthly cash flows and other informations requested by the petitioners from time to time. (b) appoint representative of petitioner No.1 as nominee Director on the Board of the Company. (c) issue Equity Shares of the Company consequent to the notice of conversion issued by petitioner No.1. 4. Being dissatisfied with the conduct of the Company, the ICICI by their without prejudice notice dated 15.3.2000 called upon the Company to convert whole of the outstanding amount of the loan of Rs.500 lacs and part of the debenture facility to the extent of Rs.2000 lacs (amounting to Rs.222.2 lacs) into fully paid up equity shares of Rs.10 each at par as on 31.3.2000 in terms of relevant agreements. By letter dated 21.3.2000 the Company through its advocate denied the contents of the letter and informed the ICICI Ltd. that the respondent Company had been declared by the State Govt as a relief undertaking under BRU Act for a period of 12 months from 22.10.1999. The petitioners therefore through advocate sent notice dated 12.6.2000 to the State Government in the Labour & Employment department, Industries & Mines Department and Finance Department calling upon the heads of the said departments to furnish various particulars, interalia, whether the State Govt had given any loan guarantee or any other financial assistance to the respondent company, whether the respondent-Company had disclosed to the State Government the various loan agreements and commitments made by it to the petitioner institutions and also as to what was the basis on which the Government had purported to reach satisfaction under section 3 of the BRU Act. Thereafter, the petitioners filed the present petition on 3rd July 2000. During pendency of the petition, the State Government issued another notification dated 6.10.2000 extending the protection under the BRU Act in favour of the respondent Company for a further period of 12 months from 22.10.2000. The petition is heard and disposed of as containing challenge to the said renewal notification dated 6.10.2000 as well. CONTENTIONS ON BEHALF OF PETITIONERS 5. At the hearing of this petition, the learned counsel for the petitioners have raised the following contentions: 5.1 The State Government had no authority or jurisdiction to issue notification in favour of the respondent Company as the BRU Act applies only to industrial undertakings started, acquired or otherwise taken over by the State Government and carried on or proposed to be carried on by itself or under its authority or to which any loan, guarantee or other financial assistance has been given by the State Government. The Company does not fall in any of these categories. 5.2 The object of the Act is to make temporary provisions for industrial relations and other matters as a measure of preventing unemployment or of unemployment relief and with that object the legislature has empowered the State Govt to direct suspension of all or any of the legislations in the schedule to the Act and also to suspend or to apply after modifications of any of the settlements, etc. made under any of the laws under the Schedule to the Act and also to suspend the rights, privileges, obligations and liabilities under any such laws, agreements etc mentioned in the schedule relating to Industrial relations, such as Industrial Employment (Standing) Orders Act, 1946, Industrial Disputes Act, 1947, Bombay Industrial Relations Act, 1946, Bombay Shops and Establishments Act, 1948 etc. Thus the object of the Act is only to empower the State Government to suspend the rights and privileges of the employees and the duties, obligations and liabilities of the employer Company. Clause (iv) of Section 4(1)(a) of the BRU Act is required to be read ejusdem generis in light of preceding clauses. The Act was not intended to affect any remedy of a commercial nature incurred in the ordinary course of business, and hence, the notification is ultra vires the Act and therefore the notification deserves to be quashed and set aside. 5.3 The loans and advances made by the petitioners to the respondent-Company are recoverable under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "DRT Act"). Section 34 of the said Act gives an overriding effect to the DRT Act over all other laws except a few. The BRU Act is not one of those excepted and, therefore, the DRT Act, which is a Central Act with a overriding provision overrides the BRU Act which is a State Act. 5.4 Large amounts of public moneys have been invested in the respondent Company and the impugned notifications dated 22.10.1999 and 6.10.2000 will have the effect of defrauding the public of moneys due from the respondent Company to the petitioners - public financial institutions. If at all any Company is sick and deserves any temporary protection against recovery, there is a special law dealing with sick industrial Companies, namely, Sick Industrial Companies (Special) Provisions Act, 1985 (hereinafter referred to as "the SICA") and any suspension of commercial liability can only take place under "SICA" and not under any other law. 5.5 The impugned notifications were issued without issuing any public notice or without giving any opportunity of hearing to the petitioners who are secured creditors and are public financial institutions. Reliance is placed on the decision dated 2.12.1999 of this Court in Goyal M.G. Gases vs. State of Gujarat, 2000(1) GLH 661 for contending that any such notification under the BRU Act issued without issuing public notice or without providing opportunity of hearing to the creditors is liable to be declared illegal and liable to be quashed. 5.6 The respondent company has been making profits and has also been paying wages to its workers and salaries to its employees running into crores of rupees. The respondent Company has been making profits regularly and constantly even after paying all workers' dues. Hence there was no justification for exercising powers under the BRU Act. The State Government has refused to disclose the material inspite of specific request made by the petitioners. There is no material on the basis of which the State Government could have reached the satisfaction under section 3 of BRU Act for declaring the respondent company a relief undertaking. The impugned notification, therefore, suffers from non-application of mind and is a case of colourable exercise of so-called powers vested in the State Government for completely extraneous and oblique purposes to benefit the private interest of the respondent Company and therefore the impugned notification is arbitrary and malafide. SUBMISSIONS ON BEHALF OF RESPONDENTS 6.0 On the other hand, Mr S.N. Shelat, learned Additional Advocate General for the State Government and Mr.B.J.Shelat with Mr.Ashok L.Shah for the respondent Company have made the following submissions:- 6.1 The State Government had given cash subsidy of Rs.15 lacs to the respondent Company. The State Government has also given Sales Tax deferment to the tune of Rs.19.06 crores to the respondent Company. The State had further granted benefit of Sales Tax exemption to the tune of Rs.54.61 crores to another unit of the respondent Company. In view of such financial assistance given by the State Government to the respondent Company the provisions of the BRU Act are applicable to the respondent Company as the State Government is interested in survival and growth of the respondent Company. 6.2 The Division Bench of this Court has also upheld the constitutional validity of the provisions of the BRU Act in M/s D.S.Patel & Co vs The Gujarat State Textile Corporation Ltd & Ors., (1972) 13 GLR 33. The Division Bench has held that the State Government can exercise the powers under the BRU Act even to grant temporary protection to a relief undertaking against its secured creditors under section 4(1)(a)(iv) of the Act, hence, there is no question of reading the provisions of said sub-clause ejusdem generis with the previous clauses which relate to suspension of provisions of laws pertaining to industrial relations etc. 6.3 The provisions of the DRT Act only provide a remedy and the said Act is not concerned with the rights of the creditors whereas the provisions of the BRU Act empower the State Govt to suspend the substantive rights of the creditors and therefore there is no conflict between the two Acts nor does the DRT Act override the provisions of the BRU Act; they operate in two different fields without overlapping each other. 6.4 The object of the BRU Act is different from the object of the SICA and even if SICA is applicable, the applicability of the BRU Act is not excluded. 6.5 While exercising powers under section 4(1)(a)(iv) the State Government exercises quasi-legislative powers and therefore there is no question of giving opportunity of hearing before exercising such powers. The decision in Goyal M.G. Gases (Supra) deserves to be reconsidered. 6.6 The impugned notification was issued with a view to see that 489 workers who are working with the respondent Company may not lose their job and question of unemployment may not arise. Over and above the said number of workers directly employed by the Company, there are approximately 380 contract workers and they are also likely to lose their job if the respondent Company is not declared as a "relief undertaking". 7.0 The learned counsel for the respondent-Company has made further submissions on facts including the alleged dues of the petitioners. 7.1 The claim made by the petitioners about their outstanding dues and arrears from the petitioners are denied. It is contended that the petitioners have charged excessive interest and penal interest and they have not given due credit for various payments made by the respondent Company. If proper accounts are taken hardly Rs.20 crores would be in arrears as against Rs.30 crores as claimed by the ICICI. As regards the alleged dues of IDBI, the said claim is also denied. As regards the alleged dues of IFCI it is stated that the dues of the IFCI would not be more than Rs.57 lacs and it is not Rs.101 lacs as claimed by the IFCI. As regards borrowings and repayments, the following figures are given by the respondent-Company as stated in their affidavit in reply :- --------------------------------------------------------- Petitioner- Borrowings Repayment made by crditors Respondent No. 2 (Rupees in lacs) --------------------------------------------------------- ICICI Rs.11267 approx. Rs.11568 approx. *SCICI Rs. 575 " Rs. 116 " IDBI Rs. 700 " Rs. 139 " IFCI Rs. 111 " Rs. 239 " ----------------- ----------------- Total Rs.12653 Rs.12063 ----------------- ----------------- *(Debts to SCICI have merged into the debts to ICICI) 7.2 As regards the claim of the ICICI to appoint their representatives as nominee Directors on the Board of the respondent Company it is submitted that in view of suspension of all rights, privileges, obligations and liabilities, the ICICI can not appoint its representative as Director on the board of the respondent Company. As regards the requisition of ICICI for conversion of its loan into equity shares of the respondent-Company, it is stated that the first requisition was issued on 15.9.1999 for conversion of Rs.781 lacs into equity shares of the respondent Company, and the respondent Company did, in fact, issue equity shares of Rs.781 lacs to the ICICI on 27.9.1999 and that this material fact has been concealed by the petitioners. However, when the ICICI issued second notice of conversion on 15.3.2000 claiming conversion of Rs.722 lacs into equity shares of the respondent Company, by that time the respondent Company was already declared as "a relief undertaking" under the BRU Act, and therefore, the rights and privileges of the ICICI or the obligations and liabilities of the respondent Company under the agreements entered into between the parties in the year 1996-97 had already stood suspended. There was no question of respondent Company being required to comply with the conditions of notice dated 15.3.2000. Hence, there was no default or breach of agreement on the part of the respondent Company. The agreement dated 30.12.1997 under which conversion of Rs.500 lacs was claimed did not contain any clause for conversion. 7.3 The petitioners can file suits against the respondent company under the provisions of DRT Act but in view of suspension of all rights of the petitioners under various agreements and notification dated 22.10.1999 under BRU Act the petitioners have no enforceable operative right against the respondent Company and therefore presently it can not invoke provisions of the DRT Act. 7.4 The allegations of conspiracy between the respondents inter se are denied. The powers under BRU Act have been exercised on relevant considerations. The respondent Company is one of the leading companies in the country engaged in manufacturing telecommunication cables and its sole buyer is Government of India through its Department of Telecommunications (DOT). At times, even MTNL also places orders for telecommunication cables with the Company which has a very modern plant for manufacturing PIJF telephone cables. The Company pays Central Excise duty to the extent of Rs.21.55 Crores per annum. The Company is situated in an industrially backward area and the Government of Gujarat is encouraging industries to be established in the said area. 7.5 The Company provides employment to 750 persons consisting of 450 permanent employees and 220 employees through contract and is regularly paying all dues of its employees including provident fund and ESI dues. The annual wage bill of the Company is about Rs.360 lacs. 7.6 The respondent Company is trying its best to pay up its various creditors. The Ahmedabad Electricity Company (AEC) had filed a winding up petition claiming Rs.140 lacs. The matter was settled and pursuant to consent terms the Company has already paid up a total amount of Rs.100 lacs towards principal and has also paid a substantial part of interest to the AEC. Similarly, the Company has paid dues of its other creditors like M/s P.G.Foils Ltd, M/s Garware Polyester Ltd and M/s Systematic Steels of Bombay. The Company is regularly paying the said creditors without any default even where no winding up petitions are filed. 7.7 The performance of the Company in terms of annual production turnover and profits for the last fou --------------------------------------------------------- Financial | Production | Turnover | Gross Profit Year | (lac KMs) | (Rupees | (after interest | | in lacs) | but before taxa- | | | tion) | | | (Rupees in lacs) --------------------------------------------------------- | | | 1996-97 | 19.16 | 16037 | 720 | | | 1997-98 | 28.42 | 21170 | 565 | | | 1998-99 | 30.41 | 19930 | 620 | | | 1999-2000 | 22.14 | 16554 | --------------------------------------------------------- The respondent Company is going through severe liquidity crunch for reasons beyond its control. Therefore, it has not been able to pay up the dues of the petitioners but the present liquidity crunch is only a temporary phase. The Company's assets are more than its debts and the Company will come over this phase in the near future but if in the meantime the creditors like petitioners are allowed to exercise their rights, the operations of the company would come to a grinding halt resulting into unemployment of hundreds of persons, hence, the State Government has rightly exercised its powers under the BRU Act while issuing the notification dated 22.10.1999. The petitioners are fully secured and have charge/s on various assets of the respondent-Company. The present day value of such properties of the respondent Company are almost about Rs.100 crores, far more than the claim of the petitioners taken together. Hence, the petitioners are not at all adversely affected by the publication of said the notification. STATUTORY PROVISIONS AND IMPUGNED NOTIFICATIONS 8. Before dealing with the rival contentions, it is necessary to set out the relevant provisions of the BRU Act and the impugned notifications :- Preamble to the Bombay Relief Undertakings (Special Provisions) Act, 1958 reads as under: "An act to make temporary provisions for industrial relations and other matter to enable the State Government to conduct, or to provide loan guarantee or financial assistance for the conduct of, certain industrial undertakings as a measure of preventing unemployment or of unemployment relief. Whereas it is expedient to make temporary provisions for industrial relations and other matters to enable the State Government to conduct, or to provide loan guarantee or financial assistance for the conduct of certain industrial undertakings as a measure of preventing unemployment or of unemployment relief; It is hereby enacted in the Ninth Years of the Republic of India as follows". Section 3 of the Act reads as under: "3. Declaration of relief undertaking: (1) If at any time it appears to the State Government necessary to do so, the State Government may, by notification in the official gazette, declare that an industrial undertaking specified in the notification, whether started, acquired or otherwise taken over by the State Government, and carried on or proposed to be carried on by itself or under its authority, or to which any loan guarantee or other financial assistance has been provided by the State Government shall, with effect from the date specified for the purpose in the notification be conducted to serve as a measure of preventing unemployment or of unemployment relief and the undertaking shall accordingly be deemed to be a relief undertaking for the purposes of this Act. (2) A notification under subsection (1) shall have effect for such period not exceeding twelve months as may be specified in the notification; but it shall be renewable by like notifications from time to time for further periods not exceeding twelve months at a time, so however that all the periods in the aggregate do not exceed ten years". Section 4 of the Act reads as under: "4. Power to prescribe industrial relations and other facilities temporarily for relief undertakings: (1) Notwithstanding any law, usage, custom, contract, instrument, decree, order, award, submission, settlement, order or other provisions whatsoever, the State Government may, by notification in the Official Gazette, direct that-- (a) in relation to any relief undertaking and in respect of the period for which the relief undertaking continues as such under subsection (2) of section 3-- (i) all or any of the laws in the Schedule to this Act or any provisions thereof shall not apply and such relief undertaking shall be exempt therefrom, or shall, if so directed by the State Government, be applied with such modifications which do not however affect the policy of the said laws, as may be specified in the notification; (ii) all or any of the agreements, settlements, awards or standing orders made under any of the laws in the Schedule to this Act, which may be applicable to the undertaking immediately before it was acquired or taken over by the State Government or before any loan, guarantee or any other financial assistance was provided to it by, or with the approval of the State Government for being run as a relief undertaking shall be suspended in operation, or shall, if so directed by the State Government, be applied with such modifications as may be specified in the notification; (iii) rights, privileges, obligations and liabilities shall be determined and be enforceable in accordance with clauses (i) and (ii) and the notification; (iv) any right, privilege, obligation or liability accrued or incurred before the undertaking was declared a relief undertaking and any remedy for the enforcement, thereof shall be suspended and all proceedings relative there to pending before any Court, Tribunal, officer or authority shall be stayed; (b) the right, privilege, obligation or liability referred to in clause (a) (iv) shall, on the notification ceasing to have force, revive and be enforceable and the proceedings referred to therein shall be continued; Provided that in computing the period of limitation for the enforcement of such right, privilege, obligation or liability the period during which it was suspended under clause (a)(iv) shall be excluded notwithstanding any thing contained in any law for the time being in force. (2) A notification under subsection (1) shall have effect from such date, not being earlier than the date referred to in subsection 3, as may be specified therein and the provisions of section 21 of the Bombay General Clauses Act, 1904 (Bom I of 1904) shall apply to the power to issue such notification. SCHEDULE 1. The Industrial Employment (Standing Orders) Act, 1946(XX of 1946) 2. The Industrial Disputes Act, 1947(XIV of 1947) 3. The Bombay Industrial Relations Act, 1946 (XI of 1947) 4. The Bombay Shops and Establishments Act, 1948(Bom.LXXIV of 1948) 5. ( * * *) 6. ( * * * ) SAURASHTRA ACT 7. The Saurashtra Shops and Establishments Act, 1951 (Sau Act No.X of 1951) 8. ( * * * ) The impugned Notification dated 22.10.1999 under sections 3 and 4 of the BRU Act reads as under: " LABOUR AND EMPLOYMENT DEPARTMENT NOTIFICATION SACHIVALAYA, GANDHINAGAR DATED 22.10.1999 The Bombay Relief Undertakings (Special Provisions) Act, 1958. No.GHR 99-174-BRU-1099-4341-M(3) In exercise of the powers conferred by Section 3 of Bombay Relief Undertakings (Special Provisions) Act, 1958 (hereinafter referred to as the said Act) the Government of Gujarat hereby declares that the Industrial Undertaking, namely, the Gujarat Telephone Cables Ltd, Ahmedabad (referred to as "the said undertaking") shall be conducted to serve as a measure of preventing unemployment with effect from 22.10.1999 and the said undertaking shall accordingly deemed to be a relief undertaking for the purpose of the said Act for a period of 12 months from 22.10.1999 and in exercise of the powers conferred by sub clause (4) of clause (a) of subsection (1) of Section 4 of