1987 JTR(SC) 467
1987 AIR(SC) 1574 ; 1987 AIR(SC) 1576 ; 1987 BLJR 739 ; 1987 62 CompCas 101 ; 1987 1 CurCC(SC) 1064 ; 1987 2 GLH 63 ; 1987 2 JT 345 ; 1987 1 Scale 1041 ; 1987 1 Scale 1147 ; 1987 Supp SCC 306 ; 1987 SCC(L&S) 158 ; 1987 1 UJ 705 ; 1987 KHC 994
O. CHINNAPPA REDDY AND V. KHALID, JJ.
Transfer Petn. No. 4 of 1987,
D/- 28-4-1987.
Shree Vallabh Glass Works Ltd., Petitioners
Versus
Industrial Credit and Investment Corporation of India Ltd. and others, Respondents.
(A) The constitutional provision for transfer of cases under Article 139A is engaged when matters pending before a High Court involve questions of such complexity or public importance that they require adjudication by a different High Court. Although the specific acts and sections referred to are not indexed, the provisions of the Companies Act, particularly sections relating to winding up and secured creditors, intersect with this constitutional mechanism where a company is in financial distress and subject to multiple proceedings. The interplay arises because the company is a secured creditor debtor unit operating as a public industrial undertaking under a special relief undertaking statute, and the suits by secured creditors intersect with ongoing proceedings for winding up and rehabilitation, necessitating a unified judicial oversight.
(B) The key legal principles are that when concurrent proceedings involving the financial rehabilitation of a company and enforcement of secured securities are pending in different High Courts, transfer to a single forum is warranted to avoid conflicting orders and to ensure cohesive judicial management; that the interest of preserving the unit of industrial employment and securing creditor recovery must be balanced; and that the primary remedy for secured creditors lies in the appropriate forum where the companys overall financial and industrial status can be comprehensively adjudicated.
Facts of the case:
The company has its registered office in Gujarat and employs nearly 2,200 workers in sheet-glass production. It is in financial straits with several winding up petitions filed in the Gujarat High Court and has been declared a Relief Undertaking under the Bombay Relief Undertaking (Special Provisions) Act, 1958, operating under a Managing Committee. The suits by secured creditors were instituted in the Bombay High Court after the withdrawal of financial institution representatives from the Managing Committee, while the company seeks transfer of these suits to Gujarat High Court to consolidate them with ongoing winding up and rehabilitation proceedings.
Findings of Court:
The court is satisfied that genuine efforts are being made to rehabilitate the companys finances. It finds that the future of the company and its 2,200 workmen is at stake, and that reconstruction is only possible if one court handles all suits and proceedings against the company to avoid conflicting orders.
Issues:
Whether suits by secured creditors pending in the Bombay High Court should be transferred to the Gujarat High Court despite their being outside winding up proceedings, and whether this is necessary for the cohesive adjudication of the companys rehabilitation.
Ratio Decidendi:
In the peculiar circumstances where a company faces financial collapse, has ongoing winding up and rehabilitation proceedings, and poses significant employment concerns, the unity of judicial process under Article 139A requires transfer of all related suits to the forum already handling the companys statutory proceedings to ensure a comprehensive and non-conflicting resolution.
Result:
The petition for transfer is allowed and the suits are ordered to be transferred to the Gujarat High Court.
(A) The constitutional provision for transfer of cases under Article 139A is engaged when matters pending before a High Court involve questions of such complexity or public importance that they require adjudication by a different High Court. Although the specific acts and sections referred to are not indexed, the provisions of the Companies Act, particularly sections relating to winding up and secured creditors, intersect with this constitutional mechanism where a company is in financial distress and subject to multiple proceedings. The interplay arises because the company is a secured creditor debtor unit operating as a public industrial undertaking under a special relief undertaking statute, and the suits by secured creditors intersect with ongoing proceedings for winding up and rehabilitation, necessitating a unified judicial oversight.
(B) The key legal principles are that when concurrent proceedings involving the financial rehabilitation of a company and enforcement of secured securities are pending in different High Courts, transfer to a single forum is warranted to avoid conflicting orders and to ensure cohesive judicial management; that the interest of preserving the unit of industrial employment and securing creditor recovery must be balanced; and that the primary remedy for secured creditors lies in the appropriate forum where the companys overall financial and industrial status can be comprehensively adjudicated.
Facts of the case:
The company has its registered office in Gujarat and employs nearly 2,200 workers in sheet-glass production. It is in financial straits with several winding up petitions filed in the Gujarat High Court and has been declared a Relief Undertaking under the Bombay Relief Undertaking (Special Provisions) Act, 1958, operating under a Managing Committee. The suits by secured creditors were instituted in the Bombay High Court after the withdrawal of financial institution representatives from the Managing Committee, while the company seeks transfer of these suits to Gujarat High Court to consolidate them with ongoing winding up and rehabilitation proceedings.
Findings of Court:
The court is satisfied that genuine efforts are being made to rehabilitate the companys finances. It finds that the future of the company and its 2,200 workmen is at stake, and that reconstruction is only possible if one court handles all suits and proceedings against the company to avoid conflicting orders.
Issues:
Whether suits by secured creditors pending in the Bombay High Court should be transferred to the Gujarat High Court despite their being outside winding up proceedings, and whether this is necessary for the cohesive adjudication of the companys rehabilitation.
Ratio Decidendi:
In the peculiar circumstances where a company faces financial collapse, has ongoing winding up and rehabilitation proceedings, and poses significant employment concerns, the unity of judicial process under Article 139A requires transfer of all related suits to the forum already handling the companys statutory proceedings to ensure a comprehensive and non-conflicting resolution.
Result:
The petition for transfer is allowed and the suits are ordered to be transferred to the Gujarat High Court.
Judgement
CHINNAPPA REDDY, J. :- In this application for transfer under Art. 139A of the Constitution the petitioner seeks a transfer of Suit No. 2995 of 1986, Suit No. 3218 of 1986 and Suit No. 2220 of 1986 pending in the High Court of Bombay to the Gujarat High Court at Ahmedabad. The three suits are actions filed by secured creditors of the petitioner company to enforce their securities and to recover the amounts due to them. The company has its registered office in the State of Gujarat and employs nearly 2,200 workers in its factories. The company is engaged in the production of sheet-glass. It appears that the company is in financial straits. Several petitions to wind up the company appear to have been filed in the Gujarat High Court. Meanwhile the Government of Gujarat has declared the petitioner company as a Relief Undertaking under the Bombay Relief Undertaking (Special Provisions) Act, 1958. It appears that the company is now working under the supervision of a Managing Committee which until a short while ago consisted of two representatives of the Financial Institutions namely, the Industrial Credit and Investment Corporation of India Limited and the Industrial Development Bank of India and two representatives of the Government of Gujarat. The representatives of the Financial Institutions have now withdrawn from the Managing Committee and thereafter the Financial Institutions he Industrial India Bank appear to have instituted the suits to enforce their securities. The petitioner company wants the suits filed in the Bombay High Court to be transferred to the Gujarat High Court so that the same Court may deal with the suits as well as the winding up proceedings and any further proceeding that may be taken for the purpose of rehabilitating the company. In the petition, the company has set out various steps which are being taken to pay off the creditors. The application for transfer is opposed strenuously by the Financial Institutions on the ground that secured creditors are outside the winding up proceedings and, therefore, it is unnecessary to transfer the suits to the Gujarat High Court. It is also stated that the proper procedure for the petitioner is to move the Bombay High Court for staying the suits under S. 442 of the companies Act and that the petitioner has in fact filed such an application in the Bombay High Court. We have heard elaborate arguments from both sides. We are satisfied that genuine efforts are now being made to salvage the finances and fortunes of the company. It is not the future of the company alone that is at stake: it is also the future of the 2200 workmen employed by the company that is at stake. Any attempt to reconstruct the company will only be possible if one Court deals with all the suits against the company as well as the proceedings under the Companies Act. It is true that secured creditors are outside the winding up proceedings but when the question is one of rehabilitating the company, it is desirable that the company Court should have a full and complete picture of the state of affairs of the company and there should be no conflicting orders from different Courts in different suits. It is in that view that in the particular circumstances of this case, we think it is best that the suits now pending in the High Court of Bombay should be transferred to the Gujarat High Court where the proceedings under the Companies Act are pending. It is so ordered.
Petition allowed.