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Petitioner: Messrs UNITED WOOLLEN MILLS Ltd. VS Respondent: WORKERS' UNION
Court Name: Labour Court Judge(s): Ali Ahmad Junejo Title: Messrs UNITED WOOLLEN MILLS Ltd. vs WORKERS' UNION Case No.: Application No.230 of 1986 Date of Judgment:1986-07-19 Reported As: 1987 PLC 810 Result: Petition accepted
Judgment ORDER This is an application filed by the applicant under section 11-A of West Pakistan Industrial & Commercial Employment (Standing Order) Ordinance 1968 for granting permission to applicant for closing down the United Woollen Mills Limited and also for terminating the services of the workmen on payment of Legal Dues. The facts relevant for the purpose of decision of the application are as under: - (i) The United Woollen Mills Limited are engaged in the manufacture of Woollen and Synthetic Yarn and also engaged in scouring and processing wool, etc. And presently employ about 300 workmen. (ii) That the respondent union is the trade union of the workmen employed in the applicant company and claims to be the CBA within the meaning and contemplation of section 22 of IRO, 1969. (i.e) That the paid up capital of the company is Rs.75,00,000/-. The accounting year of the company ends on 30th June each year. For the accounting year ending on 30th June, 1983 as against the aforesaid paid up capital, very nominal profit of Rs.1,27,423.27 was made by the company. This constitutes mere 1.69$ of the paid up capital. Even if this paid up capital amount is deposited by the company in the bank it would yield annual return of at-least 10 to 15 per cent by way of income. (iv) That for the accounting year ending on 30th June, 1984 the company on the basis of its paid up capital had return of 4.9% which is again below the income which is available if this amount of the paid up capital is deposited in the bank. (v) However, for the accounting year ending on 30th June, 1985 unaudited accounts reveal that there is net loss of Rs.19,01,057/-. This net loss represents almost 25% of the paid up capital of the
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company. For the period January, June, 1983 total sale of woollen yarn was to the tune of 5,02,742Kgs for corresponding period i.e. January, June, 1985. This represents a fall in the sale of woollen yarn by 42.9% during the period January, June 1985, as compared to the corresponding period January, June 1983. Similarly synthetic yarn sale in January, June, 1983 was 78,334 Kgs but this was reduced to 32,769 Kgs for the period January, 1985 as compared to the corresponding period January, June, 1983. (vi) There is huge accumulation of finished goods on 30th June, 1985 for want of sales for the reasons which would be detailed below. Total woollen yarn goods stock is 93199 Kgs valued at Rs.36,04,700/- approximately finished goods stock as on 30th June 1985 in relation to synthetic yarn was 9, 246 Kgs valued at Rs.6,74,958.00. (vii) Because due to the reduced sales and huge accumulation of stock as a consequence thereof, purchases of raw-wool which is the basic raw-material in the applicant company has also been reduced over past two years. During the first six months of the year 1984 the total purchase of raw- wool was 1,045,145 Kgs. This has been reduced to mere 2,00,000Kgs during the corresponding period from January to June, 1985. (viii) Pakistan Industrial Credit & Investment Corporation Ltd. (PICIC) in its report on Machine-made carpets in Pakistan is of the view that as against the estimated demand of 1.377 million sq. Metres of machine-made carpets for the year 1985-86 the existing capacity of the industry is 2.360 million sq metres or a surplus of 0.983 million sq metres PICIC in para-16 of its report on Machine-made carpet industry in Pakistan has made the following material observations which are reproduced as under: "Non-woven carpet is more of a floor covering than carpet but it is a close substitute of carpet and cheaper than woven carpet. Therefore, their consumption is rising in the country. On the basis of past growth rate of 5$ per annum the future demand is projected as follows:- YEAR (000 Sq. Metre) 1980-811,079 1981-821,132 1982-831,189 1983-841,249 1984-851,312 1985-861,377 As against the estimated demand of 1.377 million Sq. Metres by 1985-86, there is an existing capacity of 2.360 million sq. Metres or a surplus of 0.963 million sq. Metres". (ix) That perusal of the audited balance-sheet of the company will reveal that the financial position and over all financial resources of company apart from the facts mentioned herein above are not sound. According to sound accounting practice ratio of current assets and current liabilities should be 2:1. However in the instant case, liability is more than assets. The total liabilities are Rs.6,63,12,147 current liabilities is Rs.4,90,00,098/- as against this current assetsare Rs.4,80,72,298/-. Current liabilities exceed current assets by Rs.9,28,800 (x) That keeping in view the aforesaid factors, the company is no are, more in a position to meet its liabilities. There is hardly any sale for its finished products. There is huge blockage of the goods and raw material. The company is being pressed by their creditors to repay loans. Interest on exceeding liabilities is mounting (xi) In view of the aforesaid situation the company have decided that there is no other alternative but to apply for the closure of the establishment to save the company from total liquidation The applicant has therefore approached this court for necessary permission to close down its establishment situated at E/15, SITE, of and terminate services of all its employees on payment of
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their legal dues. The respondents filed the reply statement and according to respondents the application is not maintainable and the application has been filed mala fide in order to defeat the adjudication of the Industrial dispute pending before this court. The respondents denied the averments made by the applicant. According to respondents the applicant management served the notice of lockout upon the respondents on or about 29July, 1985 which having been found to be illegal and incompetent the present application has been filed in a mala fide manner in order to pressurize the respondent Union in respect to the Industrial dispute raised by it. The respondents union submitted that the true assessment of the financial position of the applicant company establishes completely contrary to the claim of the applicant company and the factual position emerging from summary of the facts and figures from the different balance sheets of the applicant company would reverse the picture of prosperity rather than of distress. The applicant company have given huge loans to the sister companies. That some of the sister companies are operating in the same business of the applicant and are doing good business. The respondents have totally denied the figures of losses and according to them the present application for closure of the establishment is filed mala fide and the same is liable to be dismissed. The applicant filed affidavit in evidence of Abdul Hameed who are cross-examined extensively by Mr. Ali Amjad the learned advocate for respondents. The applicant examined Sardar Farooq Khan, Chartered Accountant in the firm "Farooq Ali & Co who was cross---examined by Mr. Ali Amjad Advocate for respondents. The respondents examined Nabi Ahmed as a witness on behalf of the respondents and the said Nabi Ahmed was cross-examined by Mr. Mahmood Abdul Ghani appearing for applicants. I have heard Mr. M. A. Ghani the learned representative for the applicant and Mr. Ali Amjad the learned Advocate for respondents at length and perused the record and proceedings of the case. The applicant company approached this court for permission to close down the establishment. The burden to succeed is to satisfy this court that this is a fit case for grant of permission sought by the applicant company. The applicant company examined Abdul Hameed who deposed about the paid up capital and fall in production during the period of January, June 1985 as compared to previous years. In this connection he produced statement Annexure-B to his affidavit. He also produced detailed statement Annex-C to his affidavit showing finished goods stocks in the company as on 30th June, 1985 and gave complete details about reduced purchase of raw wool in 1984-85 and complete details about fall in value of sales during 1984-85 as compared to 1980-81. The witness filed Annex. Which is summary of comparative statement of sales and production during the year ending 30th June, 1981 onward up to 30th June, 1985 There is report of PICIC as Annex-F, which is to the effect that there is surplus in the existing capacity of the production in the country as compared to the market requirement. Abdul Hameed in his affidavit has stated that private business enterprises are operated on the principle of public confidence, which bank creditors have in the company. In this connection, he produced two letters from foreign bank who have demanded the repayment of outstanding loan amounts which are given in million of rupees. These two letters are Annexure-I and to his affidavit. He has also produced Annexure-I to his affidavit, which is a telex from PICIC demanding repayment of loans amount without further delay. Witness has also stated that according to sound accounting practice, ratio of current assets and current liabilities should be 2:1 but as against this in the applicant company current liabilities are more than the current assets. In the applicant company current liabilities exceed current assets by Rs.9,28,800/-. Abdul Hameed has also filedth
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supplementary affidavit in evidence in which he has produced audited accounts of the company for the year 1984-85 as Annex., with the request that these accounts should also be read as part of his affidavit in evidence. According to witness the company keeping in view the aforesaid factors are even not in a position to meet its liabilities. There is hardly sale for its finished products. There is huge blockage of finished goods and raw material. The company is being pressed by its creditors to repay its loans. Interest on their liabilities is mounting and therefore, the company decided to apply for the closure so as to save this company from total liquidation. Abdul Hameed in his affidavit in evidence has produced minutes of the Board of Directors meeting Annex-J appointing Mr. Saleem Anwar Khan as one of Directors in its resolution dated 15th August, 1985 and authorised Mr. Saleem Anwar Khan to apply to the Labour Court for the permission to close down the establishment. The witness has denied the allegation that application for the closure has been made with mala fide intention or for any consideration other than this mentioned by him. Abdul Hameed in his affidavit in evidence has denied the allegation that the company has advanced heavy loans to other sister concerns or directors have more interests in other sister concerns than the applicant factory. He has stated that company owes to M/s. Siddiqui & Sons against supply of raw wool payment of which is against this company. As regards the payment received from M/s. United Carpet Ltd. Against the sale of woollen yarn, it is stated that these are trading accounts and not loans or advances. Share in International Floor Covering, according to witness was purchased against loans of Rs.15 million obtained by the company from Industrial Development Bank of Pakistan, on the security of Standard Chartered Bank Limited. Witness also explained that woollen yarn is at present available in the market @ Rs.32.00 per kg. Whereas the manufacturing cost of yarn in the applicant company is Rs.42.00 per kg. Witness has also stated that 35000 kg of yarn is lying unsold and has been damaged by insects. The witness also produced certificate issued by PICIC in relation to outstanding loans as on 30th June, 1985 as AnnexP to his affidavit. Finally witness has explained that United Woollen Mills Ltd: are engaged in the manufacture of woollen and synthetic yarn whereas United Carpet Ltd. Manufactures machine made carpets and other companies do not do the same type of business as that of United Woollen Mills Ltd. The management also examined Sardar Farooq Ali, Chartered Accountant in the firm of "Faruq Ali & Co." This witness stated that he is senior partner of the firm and that they were Chartered Accountant and Auditors of United Woollen Mills Ltd. Since 1971. They were also Tax Consultants of the company. He produced Audited balance sheet of the company for the year ending June, 1983, June, 1984 & June, 1985 as Ex-AW/1, AW/2 & AW/3. He identified the signature of his partner on Ex- AW/1 and- A/3 whereas he claimed that he has signed Ex-AW/2. Witness stated that these accounts reflect correct financial position of the company. Witness explained that CBA had applied for the re-audit of the accounts of the company for the year 1979-80 onward, and that he has no knowledge of such audit. Witness was confronted with report Ex-AW/2 given by M/s.Riaz Ahmed & Co. For the year ending on 30th June, 1980. He explained that he formulated his comments and based- his comments upon which the company had addressed letter to the Provincial Government Ex-AW/4. Similarly Ex-A/2 was not correct assessment according to observation of this witness. According to this witness in this connection, he had prepared his comments Ex-A /4 and on the basis of his comments, the company addressed letter to the Secretary Labour, Government of Sind which is Ex-AW/5. As regards audited accounts for the year ending 30th June, 1983 the re-audit report of M/s. Sagheer Ahmed & Co. Is Ex-AW/6. Witness also explained that disputed year 1979-80 became assessment year 1980-81 under the Income Tax Act and in this connection he has produced Income Tax Assessment Order Ex-AW/7 to prove that the audit report of the company as prepared by him were accepted by Income Tax Authorities. The witness also
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produced Assessm ent Order for the year 1980-81 as Ex-AW/9 in which the Income Tax Department had relied upon the audited accounts of the company. That Sardar Faruq, Chartered Accountant also claimed in his evidence that as Tax Adviser, and Auditor of the company he was consulted for the conversion of the company from private limited company to public limited company. According to this witness since assets exceeds rupees three crorestherefor, the Monopoly Control Authority conducted investigation and had directed the company to be converted into public limited company. This order is Ex. AW/9. In pursuant thereof, legal formalities for permission were initiated and Karachi Stock Exchange Ltd. Was requested for the enlistment of the company. However, Karachi Stock Exchange Ltd. Refused to list United Woollen Mills Ltd. As public limited company and in this connection, he filed letter issued by Karachi Stock Exchange Limited as Ex-AW/10. Witness also explained that bonus shares are issued when the company has no sound liquidity position but still want to pay dividend. The company under such circumstances issue bonus shares instead of paying cash. Witness also claimed that he was Auditor and Tax consultant of United Carpets Ltd. And that the shares of United Carpets were sold by the woollen mills and is for this reason that amount of investment was not shown in the year 1980. Witness explained that United Woollen Mills Ltd. Have re-purchased the shares and therefore this amount was again shown in the balance sheet of the company for the year 1981. The Union examined one witness namely Nabi Ahmad. He has stated in his affidavit that the application filed by the management for the permission to close down the establishment was not bona fide and was meant as counterblast of the dispute raised by the union and that company wants to get rid of and terminate the services of the workmen and to replace them by contractor labour. He also stated that the management have raised industrial dispute and that in the re-audit of the accounts conducted for the year 1979-80 the Auditors have found discrepancies and that the audited accounts of the company a cannot be relied upon. Witness also claimed that the company has made considerable gross profits and in this connection produced Ex-R/3. Finally witness also produced Ex-R/4 to the effect that there is no abnormal stocks in the company. <p.m><p.m> <p.m>thJune, 1982 the company suffered financial losses according to the balance sheet. Witness also admits that the union have asked the Provincial Govt. For the re-audit of the accounts for the year ending on 30th June, 1982 but does not know if the auditors have certified that the company has suffered losses. He also admits that the union had not made out any effort to find out as to what is the report of M/s. Sandhu & Co. For the financial year in question. Nabi Ahmed also admits in his cross-examination that the union had applied for the re-audit of the accounts of the applicant company for the year 1982-83 and that the Provincial Govt. Had appointed M/s. Sagheer Ahmed & Co. Chartered Accountant to re-audit the accounts. The witness produced report of M/s. Sagheer Ahmed & Co. As Ex. l dates 25-6-1985, he also admits that the union had withdrawn the request for re-audit of the accounts for the year ending on 30th June, 1984 </p.m></p.m></p.m> That Nabi Ahmed, in his cross-examination has further admitted that he has not read the Article of Association and Memorandum of Association of company. He also admits that the settlement dated 17-2-1985 was not signed by him but claims that it was negotiated in, his presence. He also admits in his cross-examination that there is no mention in the balance sheet in which year the applicant company made any investment in United Jute Mills Ltd. Nabi Ahmed admits in his cross- examination that according to balance sheet, shares of United Carpets Ltd. And International Floor Covering were purchased by the applicant company. The witness shows his ignorance about the audited balance sheet of the company for the year 1984-85 on the ground that he has not seen the balance sheet and therefore, according to him he cannot say if any loan or advance by the company is given to his sister concern.
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Nabi Ahmed in his cross-examination admitted that due to mistake he mentioned in Annexure-R/3 an amount of Rs.54,47,823/--to be amount due to United Carpets Limited. Nabi Ahmed further admitted that in the balance sheet for the year 1981-82 at page 4 under the heading "INVESTMENT" total amount shown was Rs.5, 35, 88,254/-. It is not in the personal knowledge of this witness as to what is the total balance of yarn in the Godown of the company. According to this witness entire sale of the company is sent to its sister concern M/s. Siddique & Saeed Company from where sales goes to the market or to United Carpets Limited. According to Nabi Ahmed United Woollen Mills Ltd. Was converted into public limited company and is listed in the Karachi Stock Exchange Limited. He does not know if Karachi Stock Exchange refused to enlist the applicant company as public Limited company. The respondent did not examine any other witness of the union to substantiate the case of the respondents that there is no A loss or .Accumulation of stock and that the Management applied for permission for closure merely to victimise the workers. On the basis of this evidence brought on record Mr. Mahmood Abdul Ghani contended before me that applicant, company has established that it is running in losses and the Board of Directors have decided to request this court for the permission to close down the establishment. The learned counsel relied upon various Authorities in support of his case that this is a fit case where this court shall grant permission to the Management to close down the establishment. Mr. Ali Amjad Advocate for respondent on the other hand urged before me that the applicant company have given huge advances and loans to the sister companies and concerns in which Directors are interested and made huge investment therein. According to Mr. Ali Amjad those companies are purchasing the major shares of these companies out of the funds of the applicants. According to learned counsel the applicant have miserably failed to show that the applicant company is suffering continuous losses to entitle them to close down the establishment. The learned counsel relied upon the Indian Authority of Bombay High Court reported as 1985 (50) F.L.R. 401. According to him the losses incurred by the applicant company was not their reason for the proposed closure. There were admittedly no continuous losses for years and therefore this court is competent to refuse the permission sought by the applicant. I have carefully considered the contentions advanced before me. In order to appreciate the legal provisions, I would like to reproduce provisions of S.O. 11-A of West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance 1968, which reads as under:- 11-A. Closure of Establishment "Notwithstanding anything contained in Standing Order 11, no employer shall (terminate the employment of more than fifty per cent of the workman or) close down the whole of the establishment without prior permission of the Labour Court in this behalf, except in the event of fire, catastrophe, stoppage of power supply, epidemics or civil commotion." The law imposed the condition of the closure of the establishment) and made this conditional upon the necessary permission being granted Court. There is no criterion laid down under the law by the labour as to what are the conditions under which such permission can be I Labour Court. The established law which. I will discuss is this that the applicant company has to prove and convince the labour court about truth as well as the reasonableness of the grounds on which the closure is sought. The applicant company to establish the bona fides of approaching the <p.m><p.m><p.m> Labour Court </p.m></p.m></p.m> has also for the closure of the establishment. "It cannot be gainsaid that a company has a general right in law to close down its business. In interest of better relations between the industry and the workers the legislature has made laws
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relating to industrial employment and under the Standing Orders Ordinance 1968 has put the condition that no employer shall close down without prior permission of the <p.m><p.m><p.m><p.m> Labour Court </p.m></p.m></p.m></p.m> . The evidence on record however, about continued losses year by year, and despite change in Management cannot be overlooked as due to the same it was no longer feasible or profitable to continue to operate the mill; under the circumstances, it is hereby declared that the order dated 15th Sept. 1979 passed by the Presiding Officer Labour Court No.6 is contrary to law and of no legal effect and that the petitioner is entitled to close down its mill in accordance with law. The petition is allowed accordingly with no order regarding costs." That in case of Labour Union v. Rachna Textile Mills Ltd. Gujar Khan 1984 PLC 1136 in the matter pertaining to the closure of the mills, the Hon'ble Punjab Labour Appellate Tribunal was pleased to make the following material observations:---- "In the absence of any evidence of the motive, the stand taken by the respondent is to be accepted that on account of losses the electricity bills of some months were not paid resulting in disconnection of the electricity. Since the electricity was disconnected the mills was not in a position to run. The management, in these circumstances, therefore, was compelled to close it. The order of the learned <p.m><p.m><p.m><p.m> Lower Court </p.m></p.m></p.m></p.m> , therefore, appears to be correct." "The criticism advanced before us were mostly vague and unwarranted. The entries in the balance sheets must be presumed to be correct until the contrary is shown by positive evidence. Audited balance sheets should not be thrown away merely on speculation and surmises as incorrect and fictitious. This tribunal has repeatedly held that an audited balance-sheet should not be rightly discharged and that it should be presumed to be correct, unless the contrary is established by positive evidence. That in the case of South British Insurance Employees Union v. Sind Labour Court No.4 & others (1975 SCMR at page 51), their Lordships of Supreme Court of Pakistan were pleased to lay down the principle as under:- "It will be seen that the Standing Order does not stipulate that the application to the <p.m><p.m><p.m><p.m><p.m> Labour Court </p.m></p.m></p.m></p.m></p.m> for permission to close down should be the first step in the process. All that it prescribes is that no employer shall close down the whole of its establishment without prior permission of the <p.m><p.m><p.m><p.m><p.m> Labour Court </p.m></p.m></p.m></p.m></p.m> in this behalf. Thus the…
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