Kulbir Singh vs Union of India and others

C.P. Sen, J.

The petitioner is seeking a declaration that provisions of Hind Cycles Limited and Sen-Raleigh Limited (Nationalisation) Act, 1980 (hereinafter referred to as Act No. 70/1980) are ultra vires of the Constitution and is also seeking a writ in the nature of mandamus directing the respondents to clear off forthwith the dues of the petitioner as awarded by the arbitrator amounting to Rs. 1,39,57,561/-.

The petitioner claims to be an Indian national having his business at Tehran (Iran) for the last several years and has been permanently residing there. However, in connection with his business he is required to travel abroad and often comes to India. Respondent No. 4 M/s Hind Cycles Ltd. was carrying on business of manufacturing bicycles, auto-engines and bicycle parts having its factories at Worli in Bombay and at Ghaziabad in U.P. As there was mismanagement and difficult financial position, the Central Government by virtue of the powers conferred u/s 18A of the Industries (Development and Regulation) Act, 1951, handed over management of the two undertakings to the Board of Management initially for a period of 5 years which was extended from time to time up to 1-1-1980. The petitioner entered into an agreement with the Board of Management on 28-11-1975 whereby the petitioner was given sole selling agency rights for cycle and cycle parts manufactured in the two factories of the respondent No. 4 throughout the terriotry of India. Commission fixed was 5% on all sales whether direct, indirect or secret sales and the agreement was valid for 3 years. However, the agreement was terminated by the Board of Management on 23-11-1976 by invoking clause 10 of the agreement. Again on 27-11-1976 by invoking clause 2 of the agreement it was terminated on the ground of breaches committed by the petitioner. After exchange of notices, the petitioner filed civil suit No. 1085-A/77 u/s 20 of the Arbitration Act against Union of India, respondent No. 1 and Hind Cycles Ltd., respondent No. 4, for referring the dispute to the named arbitrator M/s Indian Chamber of Commerce, Bombay. The suit was allowed and the matter was referred to the named arbitrator on 4-5-1979. Thereafter Hind Cycles Limited and Sen-Raleigh Limited (Nationalisation) Ordinance, 1980 was promulgated on 25-10-1980 which was subsequently made Act No. 70/1980. By notification dated 28-10-1980 the Central Government transferred the ownership and management of the two factories to the Government company National Bicycles Corporation of India Ltd.-respondent No. 2 u/s 6 of the Act. The petitioner filed a claim of Rupees 20 lacs (approximately) on the account of agency commission for 3 years starting from 16-11-1975 as an agent of Hind Cycles Ltd. in Tehran to 28-8-1981. The petitioner was classified under category IV(b) of the IIIrd Schedule initially which was later on reclassified under Category III(b). Since the named arbitrator was not traceable, the petitioner filed a fresh petition u/s 5/11 of the Arbitration Act which was registered as CMP No. 24/81. The Delhi High Court by order dated 12-11-1984 referred the dispute to Shri V.D. Mishra, Ex-Chief Justice of Himachal Pradesh High Court as the sole arbitrator. He gave an award on 30-8-1985 only against Hind Cycles Ltd., respondent No. 4 and not against Union of India. The petitioner then filed an application u/s 14 of the Arbitraion Act for filing of the award and for drawing up a decree in terms of the award. The Delhi High Court passed a decree in terms of the award on 7-10-1986. It is said that the matter is pending in tire Delhi High Court about the liability of Union of India to satisfy the award.

According to the petitioner, although the Commissioner of Payments-respondent No. 3 has received an amount of Rupees 241.47 lacs for disbursement to the creditors of Hind Cycles Ltd., the petitioner has not been paid any amount in spite of claim being preferred by him because of the stay granted by this Court in M.P. No. 750/80 (1988 MPLJ 266) and M.P. No. 95/81 staying all disbursements, hence the petitioner has filed this petition. According to the petitioner, Sections 5,7,18,19,20(1) 21(1) and 23(1) read with Third Schedule of Act No. 70/80 are bad, illegal, unconstitutional and ultra vires of Articles 14, 19(1)(g)300A and 301 of the Constitution by fixing priority of claims and mode and manner of their payment and abatement. The provisions are unjust, unreasonable, arbitrary, discriminatory, unconstitutional and void. There is ho nexus between the object of the Act and the basis of differentia and the classification. There is no intelligible differentia to distinguish the claims between post take-over management period and pre take-over management period and the various categories under Third Schedule. Favoured treatment given to the post take-over management period is without any justification. The vesting of liabilities of the Central Government u/s 5(2) of the Act in the Government Company, National Bicycles Corporation respondent No. 2 is arbitrary and uncalled for. The dues of the petitioner as sole selling agent in Iran and the amounts due to him is covered u/s 5(2) of the Act. In any case, his dues as sole selling agent should have been accorded a much higher priority comparable to category I and above category II in the Third Schedule. The petitioner had worked in the company, invested huge amounts, devoted all time and energy and, therefore, deserves high priority compared to the employees mentioned in category-I. The respondent No. 3 has made disbursements to other creditors to the tune of Rupees 46 lacs and another 25 lacs towards wages of workmen while nothing has been paid to this petitioner.

The respondent No. 1 in its return submitted that after the agreement of the petitioner was terminated on 17-11-1976 and revised terms of agreement were sent, the petitioner never accepted the revised terms. The petitioner was only entitled to 5% commission but the agreement nowhere provided overriding commission in the event of manufacturing of certain special brands on behalf of particular customer and exporting the same to Iran. Hind Cycles Ltd. was already exporting bicycles to Iran prior to the agreement with the petitioner. There was default on the part of the petitioner in buying and selling other makes arid models of cycles which he was debarred under clause 10 of the agreement. The arbitrator has rightly found Union of India not liable for the dues of the petitioner and the matter is pending in the Delhi High Court. The petitioner having already approached the Delhi High Court and the Commissioner of Payments, this petition is not maintainable. The petition is highly belated. The provisions of the Act are saved under Article 31Cof the Constitution, neither they are invalid, discriminatory, unconstitutional nor there is violation of Articles 14, 19(1)(g),21,300A and 301 of the Constitution. The petitioner has also got a remedy of filing appeal against the order that may be passed by Commissioner of Payments. The respondent No. 2 also took the similar stand in the return. This respondent not being a party to the arbitration proceedings and no award being passed against it, it is not liable for payment of the dues of the petitioner. The petitioner''s claim is not covered u/s 5(2) of the Act and, as such, this respondent cannot be made liable for the same. The petitioner''s claim, if any, has to be enforced against Hind Cycles Ltd. -respondent No. 4. The liability of this respondent is only to the extent of the material supplied during the post take-over management period. The petitioner is not covered under this provision. In his return, the respondent No. 3 submitted that the petitioner''s claim for Rupees twenty lacs was registered and classified under category IV (b) which was later on re-classified under category III (b) of the Third Schedule and the same is being processed and it has no comments to make regarding other allegations. The petitioner''s claim can only be satisfied if there are sufficient funds left after satisfying the claims of the persons who are in the higher categories I and II.

Regarding constitutional validity of Act No. 70/80, this question has been answered in M.Ps. Nos. 750/80 and 95/81 which are also disposed of today (since reported in Pilani Investment and Industries Corporation Ltd. and Another Vs. Union of India (UOI) and Others, holding that the provisions of the Act No. 70 of 1980 are intra vires of the Constitution and are protected under Article 31C of the Constitution. The Act has been enacted in pursuance of the directive principles contained in Article 39(b) of the Constitution and mere is a clear nexus between the object to be achieved through the various provisions contained in the Act. It has been enacted for continued manufacture, production and distribution of bicycles and their components and accessories so as to subserve the interest of the general public and in order to meet the needs of the economy of the country. The Act has been enacted to provide for acquisition of the undertakings with a view to securing the proper management of such undertakings so as to subserve the interests of the general public and which are essential to the needs of the economy. The management was taken over as the undertakings were incurring heavy losses and were mismanaged. Funds were required for modernisation and studies made revealed that the companies were not fit for reconstruction as the capital base had been eroded many times over and the companies could be restarted with unencumbered assets only after total elimination of the external liabilities through a process of nationalisation. The provisions of the Act do not offend Article 21 nor they are in contravention of Article 300A or 301. Priority has to be given regarding payment of wages to workers, to supply of materials and the financial help extended by the Government and the financial institutions after the management was taken over, otherwise the factories would have been closed down. Therefore, there is intelligible differentia about the priority of claims fixed under Third Schedule. In any case, that is protected under Article 31C of the Constitution.

The Supreme Court in The State of Karnataka and Another Vs. Shri Ranganatha Reddy and Another, , held that nationalisation itself is a distributive process for the good of the community within the meaning of Article 39(b) In Sanjeev Coke Manufacturing Company Vs. Bharat Coking Coal Limited and Another, , held that nationalisation of coal mines in whole or in part is a law for implementation of Article 39(b). The Supreme Court in State of Tamil Nadu and Others Vs. L. Abu Kavur Bai and Others, , held that the fact that there is a declaration in the Act regarding the purpose mentioned in Article 39(b) and (c) may generally be evidence of the nexus between the law and the objects of Article 39(b) and (c). There is no particular magical tinsel or ritualistic formula in the term ''nexus'' which may be closed in a strait jacket. Even a nationalisation scheme meant for the purpose of distribution or preventing concentration of wealth, as in the instant case, would be sufficient nexus to attract the operation of Article 39(b) and (c). The Supreme Court in Minerva Mills Ltd. and Others Vs. Union of India (UOI) and Others, , held that Sick Textile Undertakings (Nationalisation) Act, 1974, has been enacted with a view to reorganising and rehabilitating the sick textile undertakings so as to subserve the interests of the general public by the augmentation of the production and distribution, at fair prices, of different varieties of cloth and yarn, and for matters connected therewith or incidental thereto which gives effect to the policy of the State towards securing the ownership and control of the material resources of the community and comes under the protective umbrella of Article 31C and, therefore, cannot be challenged on the ground of violation of the provisions of Articles 14 and 19 of the Constitution. It may be mentioned that in the aforesaid decision, Section 21 of Sick Textile Undertakings Act has been upheld which provision is akin to Section 19 of the present Act giving priority to post take-over management period over pre take-over management period. A Division Bench of this Court in M/s Kalyanmal Mills Ltd. vs. The Union of India and others, M.P. No. 64 of 1975 decided on 5-2-1981, held Section 21 to be valid and that the impugned Act is protected under Article 31C being enacted to secure the policy of the State as stated in Article 39(b) of the Constitution.

Under Act. No. 70 of 1980 on the appointed day i.e. 15-10-1980 the undertakings of Hind Cycles Ltd., and the right, title and interest therein vested in the Central Government. u/s 4, the effect of vesting is that they are free from all encumbrances including any attachment, injunction or decree of any Court. u/s 5, every liability other man the liability specified in sub-section (2), prior to the appointed day shall be liability of the concerned company and shall be enforceable against it and not against the Central Government or the Government Company, Under sub-section (2) only the materials supplied to either of the two companies after the management was taken over shall, on and from the appointed day, be the liability of the Central Government or the Government company. The petitioner wants to bring his claim within this subjection without specifying or elaborating how his claim comes under this sub-section. Obviously, the petitioner did not supply any material but according to the learned counsel the material includes intangible things and supply of services, supply of order and supply of goodwill is supply of material. The petitioner due to his untiring efforts, huge investments and the goodwill enjoyed by him in Iran, he could procure large orders for the undertakings and, therefore, the Central Government and the Government company are both liable for payment of his dues. According to us, the words, materials supplied in this section mean tangible things supplied which were required in connection with trading or manufacturing of bicycles, its parts, and accessories and, therefore, cannot be stretched to include services rendered by obtaining orders for supply of bicycles by using his own goodwill. u/s 6, on the vesting of the undertakings in the Government company all rights and liabilities of the Central Government had become the rights and liabilities of the Government company.

Under Section 7 the Central Government has to pay to each of the companies in cash an amount equal to the amount specified in fat Schedule, besides u/s 8 further amount has to be paid as specified in End Schedule. Both amounts shall carry interest at the rate of 4% from the appointed day. u/s 15 the Commissioner of Payments has been appointed, for disbursing the amount so paid by the Central Government. In view of Section 17, the Central Government or the Government company is entitled to receive up to the specified date, to the exclusion of all others, any money due to the undertakings realised after the appointed date notwithstanding that the realisation pertains to a period prior to the appointed date. Claims have to be preferred to the Commissioner of Payments u/s 18 within 30 days from the specified date i.e. 1-8-1981. Section 19 gives priority of claims. Admittedly the petitioner has preferred the claim before the Commissioner and it is under process under Section, 20. The Commissioner has placed the petitioner''s claim in category III(b) of the Third Schedule. If the petitioner is dissatisfied about categorisation, he has a right of appeal Chums made u/s 18 shall have priorities in accordance with Third Schedule i.e. Category I shall have precedence over all other categories and category II shall have precedence over Category in and so on. On the admission or rejection of claim u/s 21, the aggrieved claimant can prefer an appeal under sub-section (7) to the principal civil court of original jurisdiction within the local limits of whose jurisdiction the registered office of the concerned company is situated. After admitting the claim, the amount has to be disbursed by the Commissioner. If out of the moneys received by the Commissioner and after disbursement, there is a balance left the same shall be handed over to the company i.e. Hind Cycles Ltd. The petitioner in his petition wanted his claim to be placed in category I or in any case above category II, that is, his claim for commission as the sole agent of Hind Cycles Ltd. should be equated with the wages of the employees in category I but there was ingenuity in the course of arguments of the learned counsel for the petitioner who made out a new case by saying that the petitioner''s appointment as sole selling agent in Iran was nothing but a contract of employment and, therefore, commission payable to him is nothing but wages. Reliance has been placed on a decision of the Supreme Court in Gestetner Duplicators Pvt. Ltd. Vs. Commissioner of Income Tax, West Bengal, , that conceptually there is no difference between salary and wages both being a recompense for work done or services rendered. We are afraid such an extended definition cannot be given to the commission received by a selling agent. The words used in category I of the Third Schedule are ''wages, salaries and other dues payable to the employees of the companies''. Strictly speaking, the petitioner was not to receive any wages as an employee of the company. The Supreme Court in Jugalkishore vs. Raw Cotton Company, AIR 1955 SC 376, has held that the cardinal rule of construction of statutes is to read the statute literally, that is, by giving to the words used by the legislature their ordinary, natural and grammatical meaning. If, however, such a reading leads to absurdity and the words are susceptible of another meaning the Court may adopt the same. But if no such alternative construction is possible, the Court must adopt the ordinary rule of literal interpretation. If the petitioner is aggrieved by the order of the Commissioner fixing his claim in category III(b), he has a remedy of preferring an appeal. Otherwise also, this is not the petitioner''s case pleaded in the petition, his plea being that his dues of commission as an agent should have been included in category I.

Notwithstanding what has been stated earlier, in this petition no ralief can be granted against the Union of India or National Bicycles Corporation respondent No. 2 inasmuch as the award has only been passed against (find Cycles Ltd-respondent No. 4 and not against Union of India and the matter is now being agitated in Delhi High Court. The petitioner should pursue his remedy there. National Bicycles Corporation was not a party to the arbitration proceedings. In OMP No. 24/81 filed by the petitioner for substitution of another arbitrator, National Bicycles Ltd.-respondent No. 2 made an application for intervention and it was joined as respondent No. 3 though the petitioner objected that the present respondent No. 2 had no locus standi to intervene as no claim has been preferred by the petitioner against the Corporation. The Delhi High Court held that Hind Cycles Ltd., as a company, is not nationalised but only its two undertakings manufacturing bicycles and accessories. Section 5(1) recognises survival of such company after nationalisation and the rights of the claimants and the liability of the company created prior to nationalisation. It is Hind Cycles Ltd. who is the appropriate party regarding claim of the petitioner. The petitioner if not able to realise his dues from the Commissioner of Payments, then his right is to recover the same from respondent No. 4, and from no other person. Therefore, the position as it stands is that the petitioner has to first get his dues satisifed from the amounts which are at the disposal of the Commissioner of Payments for disbursement but he has to disburse the amount as per priorities laid down u/s 19 read with Third Schedule. The petitioner is in category III (b). So after disbursing the amounts due under categories I and II, if there is a balance, then out of that amount disbursement can be made to the persons coming in category III. If no balance is left after satisfying categories I and II or if the entire dues are not satisfied by the Commissioner, then the petitioner''s remedy lies under-Section 5(1) to lay his claim against the company i.e. Hind Cycles Ltd.-respondent No. 4 under the general law.

With the result, the petition fails and it is dismissed. There shall be no order as to costs. The outstanding security amount be refunded to the petitioner.