Case: Bombay Metropolitan Transport Corporation Limited Vs. Servants of The B.M.T.C. (Cidco)

Bom. 355, "if the petitioners have made out a case for the winding up of the company, if they have placed materials before the court which satisfy the Court that the company is insolvent, if they have placed materials before the Court which satisfy the court that the substratum of the company is gone, it is difficult to understand what the motive of the petitioners had got to do with the question whether an order of winding up should be made or not. " Where the company is not in a position to pay its debts and finds that its substratum had gone it is entitled to resort to winding up proceedings after a resolution as provided by Section 433 (1) (a) and it is difficult to see how such proceedings can be an abuse of process. Where the company is unable to pay its debts, winding up ought generally to follow in the public interest, so that the public does not unwarily deal with the company and jeopardise its interests. ( 30 ) IT is difficult to see how it is in the interests of the workmen of the company to oppose its winding-up. The company has not done business since 1984. Since then the value of its assets has dwindled and the amount of its liabilities has increased. Consequently, the workmens slice of the cake would have become increasingly smaller.( 31 ) IN the consent terms which were taken on record as aforestated, it was agreed between the company and respondents 1 to 4, as representing 1700 workmen of the company, that the liquidator would sell either by private treaty or by public auction the companys properties. He would also receive moneys payable by the MSRTC to the company in respect of some 50 buses. From the moneys that would be received by the Liquidator, the companys workmen and employees would be paid their dues first and CIDCO, the solitary other creditor, would be paid only if there was any amount left over. Lest there be any doubts on this score, we make it clear that the moneys that are received by the Official Liquidator upon the sale of the assets of the company and the moneys received from the MSRTC for the buses will be used, in the first instance, towards paying all the dues of the companys employees and workman. Mr. Paranjape, learned counsel for the State Government, has told us that CIDCO and the State Government are agreeable and accept this. By reason of this, the companys liability to its employees and workmen will be met. ( 32 ) THE consent terms also provided that the new Corporation that was proposed to be established by the Government under the Road Transport Corporation Act, 1950, would consider the application of former workers and employees of the company at the time of recruiting staff but would be free to absorb or employ such workers or employees as it, in its discretion thought fit after screening. Pursuant to queries raised by us, Mr. Paranjape has now made a statement on behalf of the State Government which we record:"The new organization contemplated for providing for transport in New Bombay will be strictly run on commercial basis. The Government believes that in the BMTC the recruitment was indiscriminate even in supervisory categories. In certain categories there was over-staffing. Therefore the new organization will, on the expert advice, determine its requirements of staff and workers. The employees of the BMTO no doubt will be given preference in the employment in the new organization, but as fresh recruits, and if found suitable. The suitability will be decided on the employee concerned possessing the requisite trade skill and satisfactory past record with the BMTC. Only such employees against whom no criminal cases are pending will be considered. For the purpose of determining suitability, an Expert Committee will be appointed by the new organisation and on scrutiny will arrange the names in accordance with seniority of service with BMTC in a particular category. While determining staff and workers requirement in the new organisation it may be necessary to form out certain operations such as retreading of tyres etc., and to that extent the staff and workers requirement of the new organization will be reduced. The new organization will start its operation in the beginning on modest scale and will gradually go on expanding them. Therefore recruitment will be done as and when required. So far as past legal dues and/or terminal benefits of the employees of the BMTC are concerned, they will have to be met from the proceeds of sale of all the assets of the BMTC by appropriating them towards the payment of these dues on the first priority basis; and for the same neither the state nor the new organisation will be liable in any manner whatsoever."This statement makes it clear that the employees and workmen of the company will be given preference for employment in the new corporation and that their suitability will be decided by an expert committee. In addition, it has been stated to us by Mr. Paranjape that the fact that the workmen and employees had been employed by the company will not be treated as a black mark against them. There is accordingly, a fair hope that a large number of the companys workmen will find jobs in the new corporation. ( 33 ) A great many of the companys workmen are project-affected persons and had been given employment in the company on that score. If the fact that their services with the company have now come to an end gives them any cause for action against the State, they shall be free to take such action. ( 34 ) THE company has satisfied us that it has passed a special resolution that it be wound up by the Court, that it unable to pay its debts and that its substratum had gone so that it is just and equitable that it should be wound up.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]( 14 ) IT is our view, having heard Mr. Chinoy for the company, Mr. Rana for theon notice, and Mr. Ganguli for the respondent 5 that, as urged by Mr. Chinoy and Mr. Rana, harmoniously constructed, there is no conflict between the provisions of the two statutes and that they operate in distinct and separate26 ) MR. Ganguli, fairly did not contest the insolvent circumstances of the company. He argued that the company was wholly owned by CIDCO which, in turn, was wholly owned by the State government. The company had been incorporated for running transport service for New Bombay. Such service could not be run by the Government. The transport services had not been run on a commercial basis by the company. Its losses were due to the introduction of highly subsidised routes; to the introduction of routes meant only to facilitate the transport of government servants; to the issuance of concessional passes to students; to the rise in dearness and other allowances and to the rise in dearness of fuel, lubricants, tyres andIn the circumstances, it was not open to the company to seek its winding up. Public utility services could not make a grievance of the losses they sustained. In any event, the company had been mismanaged. It had taken over buses purchased by CIDCO which were not in a fit condition to run and 10 had to be scrapped. There was no purchase planning,were purchased at random and haphazardly from a small retail shop where the quality of what was available was doubtful. There had been thefts ofand cash. Contracts for the construction of the bus bodies had not been awarded at the lowest tender rates. Destination boards had been ordered without inviting tenders. Having regard to these acts of mismanagement, the company could not take advantage of its own wrong and claim to be wound up on the ground of commercial insolvency. That the liabilities exceeded the assets of the company was not, in the circumstances, a ground to wind up the company. The State Government was obliged to subsidise the company since it had allowed it to be so run. The State Government was a party to the appeal and the court should direct it to subsidise thein the companys income because the company had obliged to run its buses as per the State Governments orders. Even if the company was commercially insolvent, it was the interest of the general public resident and working in New Bombay and of the workmen of the company that had to be considered. There was fraud and mala fides in the passing of the special resolution seeking the winding of the company under the orders of the Court because the company could not have complied with the provisions of the said act in so far as voluntary winding up was concerned. The only object was get rid of workmen and, having failed to get permission under Sectionthe company had restored to the special resolution. The villagers in the New Bombay area had passed resolutions expressing satisfaction with the services rendered by the company so that it was not open to the company to urge that there was dissatisfaction with its services. The corporate veil had to be lifted when the State carried on business through the instrumentality of a company. It was not just and equitable to wind up such a company. If it was beyond the powers of the Company Court to issue directions to the State Government to fund the company so as to enable it to be run, such directions could be obtained in a writ petition and the company should, therefore, not be wound up. Additionally, if the company was not wound up but remained a going concern, the workmen could arrive at a settlement with it.( 27 ) WHETHER or not a writ Court would have power to compel the State Government to fund the company so as to enable it to be revived and run we are clear that the Court entertaining apetition cannot do so. If it was thought that a writ Court could do so, proceedings in that behalf ought to have been filed long28 ) THE company is a legal entity. It is a limited liability company. It is the financial position of the company which is relevant to thepetition and not the financial position of either its principal shareholder, CIDCO, or of the State Government. The lifting of the corporate veil, assuming it can be done in winding up proceedings, can make this position no29 ) THAT the company is unable to pay its debts is not, as it cannot be, disputed. It is not relevant that the company got into its present strained financial position due to its own misdoings or mismanagement, nor is the motive behind the filing of thepetition relevant. This court said in Bachharaj Factories v. Hirjee Mills, (AIR) 1955 Bom. 355,  "if the petitioners have made out a case for the winding up of the company, if they have placed materials before the court which satisfy the Court that the company is insolvent, if they have placed materials before the Court which satisfy the court that the substratum of the company is gone, it is difficult to understand what the motive of the petitioners had got to do with the question whether an order of winding up should be made or not. " Where the company is not in a position to pay its debts and finds that its substratum had gone it is entitled to resort to winding up proceedings after a resolution as provided by Section 433 (1) (a) and it is difficult to see how such proceedings can be an abuse of process. Where the company is unable to pay its debts, winding up ought generally to follow in the public interest, so that the public does not unwarily deal with the company and jeopardise its30 ) IT is difficult to see how it is in the interests of the workmen of the company to oppose itsThe company has not done business since 1984. Since then the value of its assets has dwindled and the amount of its liabilities has increased. Consequently, the workmens slice of the cake would have become increasingly32 ) THE consent terms also provided that the new Corporation that was proposed to be established by the Government under the Road Transport Corporation Act, 1950, would consider the application of former workers and employees of the company at the time of recruiting staff but would be free to absorb or employ such workers or employees as it, in its discretion thought fit after screening. Pursuant to queries raised by us, Mr. Paranjape has now made a statement on behalf of the State Government which we record:"The new organization contemplated for providing for transport in New Bombay will be strictly run on commercial basis. The Government believes that in the BMTC the recruitment was indiscriminate even in supervisory categories. In certain categories there wasTherefore the new organization will, on the expert advice, determine its requirements of staff and workers. The employees of the BMTO no doubt will be given preference in the employment in the new organization, but as fresh recruits, and if found suitable. The suitability will be decided on the employee concerned possessing the requisite trade skill and satisfactory past record with the BMTC. Only such employees against whom no criminal cases are pending will be considered. For the purpose of determining suitability, an Expert Committee will be appointed by the new organisation and on scrutiny will arrange the names in accordance with seniority of service with BMTC in a particular category. While determining staff and workers requirement in the new organisation it may be necessary to form out certain operations such as retreading of tyres etc., and to that extent the staff and workers requirement of the new organization will be reduced. The new organization will start its operation in the beginning on modest scale and will gradually go on expanding them. Therefore recruitment will be done as and when required. So far as past legal dues and/or terminal benefits of the employees of the BMTC are concerned, they will have to be met from the proceeds of sale of all the assets of the BMTC by appropriating them towards the payment of these dues on the first priority basis; and for the same neither the state nor the new organisation will be liable in any manner whatsoever."This statement makes it clear that the employees and workmen of the company will be given preference for employment in the new corporation and that their suitability will be decided by an expert committee. In addition, it has been stated to us by Mr. Paranjape that the fact that the workmen and employees had been employed by the company will not be treated as a black mark against them. There is accordingly, a fair hope that a large number of the companys workmen will find jobs in the new33 ) A great many of the companys workmen arepersons and had been given employment in the company on that score. If the fact that their services with the company have now come to an end gives them any cause for action against the State, they shall be free to take such34 ) THE company has satisfied us that it has passed a special resolution that it be wound up by the Court, that it unable to pay its debts and that its substratum had gone so that it is just and equitable that it should be wound up