HONOURABLE MR v. INDIAN PETROCHEMICAL CORPORATION LIMITED

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) (f) 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; 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 with Section 25FF of the Industrial Disputes Act,

1947. Neither of these legislations provide for consultation with the workers for the purpose of deciding on merger or amalgamation. Meetings only of the members of the company and creditors have been provided. No statutory provision or legal principle has been brought to our notice which makes it a condition of a valid scheme that in the course of formulating the Scheme of amalgamation, the workers should have been consulted or failure on the part of the management to consult the workers before formulating the Scheme of merger would invalidate the Scheme. Strictly speaking, there is no requirement of holding any separate meeting or discussion by the transferor company with workmen / workmen's unions.

14.2 Strong reliance is of course placed on behalf of the OJA/240/2007 15 JUDGMENT appellant -workmen on the provisions of Article 43A of the Constitution and Sections 3A and 3B of the Industrial Disputes Act,

1947. Article 43A provides that the State shall take steps, by suitable legislation or in any other way, to secure the participation of workers in the management of undertakings, establishments or other organizations engaged in any industry. Pursuant to the above Directive Principle of State Policy, Sections 3A and 3B were inserted in the Industrial Disputes Act, 1947 by Gujarat Act 21 of 1972 w.e.f. 20.1.1973. Section 3A provides that in relation to an industry for which the appropriate Government is the State Government, if the State Government is of the opinion that it is desirable in public interest to take action under this section, it may, in the case of all or any class of industrial establishments having 500 or more workmen, by general or special order, require the employer to constitute a Joint Management Council comprising representatives of employers and workmen engaged in the establishment with a provision for election of representatives of the workmen whose number shall not be less than the number of representatives of the employer. Section 3B lays down functions of the Council to promote cordial relations between the employer and employees, to build up understanding and trust between them, to promote measures which lead to substantial increase in productivity, to secure better administration of welfare measures and adequate safety measures and to train the employees in understanding the responsibilities of management of the undertaking and in sharing such responsibilities to the extent considered feasible, and to do such other prescribed things. Sub- section (2) of Section 3B further provides that the Council shall be consulted by the employer on all matters relating to the management.

14.3 Our attention is, however, not invited to any general or special order issued by the State Government under Section 3A or OJA/240/2007 16 JUDGMENT by the Central Government under Section 3 of the Industrial Disputes Act, which authorizes appropriate Government to require the employer to constitute a Works Committee consisting of representatives of employers and workmen engaged in the establishment. If no such Joint Management Council or Works Committee was constituted for all these decades since the incorporation of IPCL, it is difficult to appreciate as to how the management of IPCL (the transferor Company) would allow thousands of workmen to participate in the decision making process. It was submitted on behalf of the respondent- Company that when 14000 workmen are represented by different unions and out of them 9000 employees never objected to the scheme of amalgamation as such or to the clauses regarding service conditions in the scheme of amalgamation, it cannot be said that interests and rights of IPCL employees after their transfer to RIL did not receive a fair consideration or protection. It is, therefore, not possible to accept the alternative submission either.

15. Having regard to the decided cases also, it is not possible to accept the contention of the appellant – Unions. In Gujarat Nylons Ltd. Vs. Gujarat State Fertilizer Company, 1992(1) GLH 637, a similar contention was raised and this Court speaking through Hon'ble Mr Justice C.K.Thakkar (as His Lordship then was) recorded the following submissions made by the learned counsel appearing on behalf of Union of employees and dealt with the same :- “1. Mr Zaveri contended that before an action of the proposed amalgamation a meeting of the workers of the transferor Company must be held and they have right to object against the proposed amalgamation. Since the meeting is not held, all actions taken by the company can be said to be illegal and contrary to law and they are required to be quashed. OJA/240/2007 17 JUDGMENT

2. Mr Zaveri further contended that the Union has locus standi when the proceeding of amalgamation are pending in this Court and the Union can object against the granting of sanction of amalgamation by the court. ...... ..... ..... I have heard Mr K.S. Zaveri, the learned counsel 27. appearing for the employees of the transferor Company at length. However, I do not find any substance in any of the contentions raised by him. In my opinion, conjoint reading of Sections 391 and 394 of the Act make it amply clear that the workmen of the Transferor company have no legal or statutory right of holding meeting and to express their opinion on the question of amalgamation. There is no statutory provision to that effect. No judgment has been shown to me wherein such a view has been taken by the court that a meeting of the workmen is a condition precedent in the proceeding of amalgamation of scheme under Section 394 of the Act.” After referring to the judgment of the Apex Court in National Textile Workers' Union Vs. Ramkrishnan, AIR 1983 SC 75, relied upon by the learned counsel for the Union of employees of the transferor Company, this Court observed as under :- “30. In my opinion, however, the said judgment is not helpful to Mr. Zaveri since it cannot apply to the facts of the case on hand. As stated by me earlier, the statute does not empower or authorise the employees to object amalgamation. it also does not provide that workmen must be a party to the amalgamation proceedings. It is on the basis of the extended principles of natural justice that in certain circumstances, courts have interpreted certain provisions granting locus to a class of persons who are likely to be adversely affected thereby. Again, in my view, Mr. Raval appears to be right when he submits that at the most from the observations made in Mr. P.R. Ramkrishnan's case (supra), it can be said that even the workmen of the Transferor company have locus to express their view in this Court when the proceedings under Sections 391 and 394 are pending. He has submitted that in the instant case, that has been done. They have appeared through their Counsel and they are heard by this Court and the transferee Company had not taken any objection against the locus standi of the employees of the transferor Company. It is, however, not necessary that a meeting of the workers is a condition precedent before a scheme of amalgamation is submitted and that if such a meeting is not held, the petition of amalgamation is not maintainable at law. Mr. Raval also appears to be right in submitting that when this Court has in fact heard the objections raised on behalf of the workmen of the transferor OJA/240/2007 18 JUDGMENT Company, the principles of natural justice have been complied with.” In the facts of this case also, the learned Company Judge has heard the appellant unions through their counsel before sanctioning the same.

16. In Management, Mettur Beardsell Ltd. Vs. Workmen of O R D E R

50. In view of the above discussion, while substantially dismissing the appeal and confirming the order of the learned Company Judge granting sanction to the scheme of amalgamation of Indian Petrochemicals Corporation Ltd. (IPCL) with Reliance Industries Ltd. (RIL), in view of our conclusion as recorded in para 37 hereinabove, we direct that the persons who were in employment with Indian Petrochemicals Corporation Ltd. as on the date of the judgment of the learned Company Judge i.e. 16.8.2007 shall be given an option within one month from today informing them that those employees who do not wish to continue with Reliance Industries Ltd. shall be entitled to exercise within two months from today, the option not to continue with Reliance Industries Ltd. and upon exercise of such option they shall be entitled to receive compensation under the provisions of Section 25FF of the Industrial Disputes Act, 1947 i.e. the workmen who had been in continuous service for not less than one year as on

16.8.2007 with IPCL shall be entitled to compensation for services rendered to IPCL for the period upto 16.8.2007, in accordance with the provisions of Section 25F of Industrial Disputes Act, 1947. It shall also be mentioned in the notice that those who continue with Reliance Industries Ltd. will not be entitled to such compensation. In view of pendency of these proceedings for almost one year and also in view of the fact that the period of notice to be given under this order for fresh option shall also be for at least one month, there will be no need to give any notice or wages in lieu of one month's notice as contemplated by Section 25F of the Industrial Disputes Act, 1947. OJA/240/2007 51 JUDGMENT The notice as per this order shall be given by communicating the same to all the associations of employees/unions of workmen of erstwhile IPCL and by putting up the notice on the notice boards within the premises of all the units of erstwhile IPCL. We also direct that the statement made by Mr KS Nanavati as recorded in para 36 hereinabove shall be treated as added to sub-clause (a) in clause 8 (8.1) of the Scheme as sanctioned by the learned Company Judge.

51. Subject to the directions contained and clarification made in the preceding para, the appeal is dismissed. Sd/- (M.S. SHAH, J.) Sd/- (K.A. PUJ, J.) zgs/-