Echjay Industries Private Limited (Formerly Echjay Industries Limited a Company Incorporated Under the Provisions of the Companies Act, 1956) Vs. Echjay Forgings Private Limited a Company Incorporated Under the Provisions of the Companies Act, 1956 - Court Judgment

J.H. Bhatia, J.

1. Both these appeals seek to challenge the judgment and order passed by learned Single Judge of this Court in Company Application No. 332 of 1988 in Company Petition No. 271 of 1985. Both these appeals may be disposed off by this common judgment.

2. To state in brief, one Harilal Doshi had five sons Mansukhlal, Maganlal, Vinodchandra, Manharlal and Hasmukhlal. Echjay Industries Private Limited was commenced and controlled by this Doshi family. This company had its factory at Kanjurmarg, which may be referred to as 'Kanjur Division'. The said company also had another division known as Overseas Trade Division. They had also factory at Rajkot, which may be referred to as 'Rajkot division'. Several other business units were opened and controlled by the Doshi family. Harilal Doshi died on 22nd November, 1980 leaving behind his five sons. It appears that after the death of Harilal, there were disputes in the family essentially about control and management of the business. Therefore, a family arrangement was formulated and it was decided to spin off Kanjur Division from the Echjay Industries and to give control of Kanjur Division to Mansukhlal, who was eldest among the brothers. A new company known as Echjay Forgings Private Limited came into existence as a result of this arrangement. This newly formed company may be referred to as 'Forgings' and the original company may be referred to as the 'Industries' for the sake of convenience. A scheme was prepared to spin off Kanjur Division and the Company Petition No. 271 of 1985 and the Company Petition No. 272 of 1985 were filed for sanction of the scheme. The scheme was sanctioned by this Court by the order dated 3-9-1986. The shares, rights and liabilities of the parties were described in the said scheme and as a result, Forgings came into existence as a new company, which was totally controlled by Mansukhlal and after his death by his sons.

3. In 1973 services of 356 workmen of Kanjur Division were terminated and the workmen filed cases No. 125 of 1974 and No. 272 of 1974 before the Industrial Tribunal seeking reinstatement and backwages. In December, 1980, the company was advised that these two cases were likely to be decided against the company and, therefore, it should make provision to meet such liability. The Board of Directors of the Company by resolution dated 3rd July, 1981 resolved to create General Reserve No. II of Rs. 2.2 crores. By another resolution dated 20th July, 1982, additional reserve of Rs. 37 lakhs was created. By resolution dated 28-6-1983, the Board of Directors further transferred an amount of Rs. 68,54,732/- to General Reserve No. II, thus, making a total reserve in the balance-sheet of the company at Rs. 3,25,54,732/-. The Forgings filed Company Application No. 332 of1988 in the Company Petition No. 271 of1985, apparently for implementation of the scheme in the said application. Forgings claimed back General Reserve No. II to the tune of Rs. 3,25,54,732/- alleging that this reserve was specifically created for meeting liability towards the workmen, who were terminated from the Kanjur Division and that this fact was specifically stated in the meetings of the Board of Directors. It was contended that when the Kanjur Division was spun off from the Industries, this reserves should have been transferred to the Forgings but the Industries had failed to transfer the General Reserve No. II to the Forgings. It was contended that the Forgings had from its funds paid an amount of Rs. 23,47,000/- towards the claim of workmen and, therefore, Industries had no right to retain the General Reserve No. II. It was also contended by the Forgings that certain die-blocks and machines, which were transferred from Kanjur Division to Rajkot Division but they were never returned to Kanjur Division. Therefore, the Forgings claimed, by the said application, a direction to the Industries to transfer the amount of General Reserve No. II to the Forgings as well as to hand over die-blocks and machinery, which were transferred to Rajkot Division.

4. The Industries contested this claim denying that any die-blocks or machinery were taken away from the Kanjur Division to Rajkot Division. It is contended that when the scheme was formulated for spinning off the Kanjur Division from the Industry, valuation of fixed assets, machinery as well as the current assets was made. As per the valuation, Mansukhlal had taken over complete 69% shares, which were previously controlled by Doshi family and he also took over some other properties and business units. He surrendered his rights and shares in the Industries and other units of the Industries, which were taken over by the remaining four brothers. It is contended that General Reserve No. II were never assets or liabilities of the Forgings. It was general reserve in the Balance-Sheet of the main company and it was appropriated from the profits of that company. The whole of that company was never transferred to Mansukhlal and, therefore, transfer of General Reserve No. II was not provided as per the scheme. Forgings had no right over the same. It was contended that even though the amount of Rs. 23,47,000/- was paid to the workers from the Kanjur Division account, that amount was adjusted while evaluating the differential to be paid by Mansukhlal to his brothers. Amount of Rs. 8.68 lakhs which is net of tax was adjusted in the differential because the Forgings had taken tax benefit of remaining amount as income-tax rebate and, therefore, nothing more is required to be paid by the Industries to the Forgings. The claim of the Forgings towards the die-blocks and the machinery was also denied.

5. The matter was referred to Mr. S.E. Dastur, Senior Advocate by an order dated 11th September, 1992. He was required to record the evidence and hear the parties and to submit a report. Accordingly, he submitted a report on 2nd March, 1994 wherein, he opined that Forgings had failed to prove both of its claims.After hearing the parties, the learned Single Judge rejected the claim of Forgings in respect of General Reserve No. II to the tune of Rs. 3,25,54,732/- and also the claim towards the die-blocks and machinery However, the learned Single Judge came to the conclusion that the liability to pay compensation to the workmen, who were terminated in 1973, was of the Forgings and that amount was paid from the account of Kanjur Division after the scheme was formulated to spin off Kanjur Division from the Industries. The learned Single Judge found that as no provision was made for payment of this amount to the Forgings, the Industries were liable to pay that amount to the Forgings. The learned Single Judge also came to conclusion that the Industries had failed to prove that the said amount was actually adjusted by paying amount of Rs. 8.68 lakhs net of tax as Forgings had taken tax rebate to the extent of remaining amount. In the result, the learned Single Judge directed the Industries to pay the said amount of Rs. 23,47,000/- to Forgings while rejecting remaining claims of the Forgings. Being not satisfied with the rejection of the claim to the General Reserve No. II and the die-blocks and machinery, the Forgings preferred Appeal No. 662 of 2001. The Industries also preferred Appeal No. 532 of 2001 challenging the direction to pay an amount of Rs. 23.47 lakhs to the Forgings.

6. It is contended on behalf of Forgings that thelearned Single Judge has committed error in coming to conclusion that the General Reserve No. II was not expected to be transferred to the Forgings though this General Reserve was specifically created as a provision to meet the liability towards the workmen, who were terminated. It is contended that the General Reserve No. II was a charge over the accumulated profits to meet the liability of retrenched workmen of the then Kanjur Division undertaking but this fact was not specifically disclosed in the balance-sheet to avoid any complications though the then Managing Director had disclosed this fact in the report to the Board of Directors. It is contended that as whole of the undertaking of the Kanjur Division belonging to the Industries was transferred to the Forgings, Industries could not retain the said General Reserve No. II, which would become the property of Forgings on transfer. It is contended that when the liability of making payment to the workers was fulfilled by the Forgings, naturally it was also entitled to the General Reserve No. II, which was created as a provision to meet that liability. It is also contended that the learned Single Judge committed error in rejecting claim of the Forgings to die blocks and machinery, which were transferred from Kanjur Division to Rajkot Division.

7. On the other hand, it is contended by the Industries that the learned Single Judge committed error in holding that the Industries is liable to pay an amount of Rs. 23.47 lakhs to the Forgings on account of payment of the compensation to the workers, whose services were terminated. It is contended that Mr. Dastur had, after minutely going through the record, come to conclusion that the said amount of Rs. 23.47 lakhs was actually adjusted in the differential, which was required to be paid by Mansukhlal and after adjustment of tax benefit taken by the Forgings, amount of Rs. 8.68 lakhs net of tax was adjusted in the differential. It is contended that the learned Single Judge failed to consider the evidence and particularly the minutes of 6th August, 1984 and the minutes of 29th August, 1984 in this respect.

8. Heard the learned Counsel for the Parties. The learned Counsel have taken us through the impugned judgment of the learned Single Judge, report of Mr. Dastur as well as several other documents extensively. It will be convenient to deal with their arguments and contentions while dealing with the three different issues i.e., pertaining to the claim of the Forgings over the General Reserve No. II, the liability of the Industries to pay Rs. 23,47,000/- to the Forgings to compensate the payment made to the workers and the claim of the Forgings about the die-blocks and machinery.

9. At the outset, it may be noted that on 14th December, 1982, Mr. Bansi Mehta had prepared a blue print of the proposed spin off of the Kanjur Division from the Industries. As per that note, it was proposed that an inventory of all the property of Kanjur Division be prepared and this property should be given on lease to the proposed new company comprising of Kanjur Division, which would be subsidiary of the Industries, after working of the same for some years. It was also proposed that the scheme should be drawn under Section 391 of the Companies Act whereby leased assets would vest in newly formed subsidiary. However, on 27th May, 1983, a family agreement was entered into and that agreement was signed by all the concerned members of the family. A supplemental deed of family agreement was executed on 6th June, 1984. As per the said family settlement, Mansukhlal group was to take over individual control and management of Kanjurmarg factory (Kanjur Division), Echjay Electronics Private Limited and Kanjur Bleaching Private Limited excluding its plot. It was also provided that Mansukhlal group would transfer their interest in the remaining units belonging to the family. As there were five brothers, Mansukhlal group was entitled to 20% of the total value of the property and the interest belonging to Doshi Family. Admittedly, in the Industries, Doshi family had interest to the extent of 69.25% while outsiders had shares to the extent of 30.75%.There was provision for computation of differential to be paid to Mansukhlal group in case the property taken over by them would be more than their 20% shares and vice versa if the property, to be allotted to Mansukhlal group would be less than its 20% shares. Valuation of fixed assets of the Kanjur Division including flat of Echjay house, which was to be given to Mansukhlal group, was Rs. 86,01,141/- 69.25% of the same would be Rs. 59,56,290/-. Value of the remaining family property excluding Kanjur Division and the flat was Rs. 5,05,14,107/-. 69.25% of the same would be Rs. 3,49,81,019/-.

10. Before the scheme was sanctioned by this Court,the family had made a reference to H.P.Kumbhani & Co., Chartered Accountants to assess the value of Kanjur Division and to suggest the ratio of allotment of shares in the Forgings in consideration of the shares held in Industries. As per the annexure A in the report of H.P. Kumbhani and Co., valuation of the Kanjur Division was made thus:

'ECHJAY INDUSTRIES PVT. LTD. KANJUR DIVISION '(Rs. in lakhs)Fixed Assets (At W.D.V.) 86.01Current assets:Stock-in-trade 71.67Sundry Debtors 174.05Cash Bank Balance 7.68253.40Loans & Advances 14.41(Excluding Income-taxadvances) 267.81Less :- Current 118.62Liabilities 149.62Less : Secured 84.63Loans 64.99Total 151.00

Thus, total value of Kanjur Division, including fixed and current assets excluding liabilities, was found to be Rs. 151 lakhs. H.P. Kumbhani report suggests that for every10 shares held in the Industries, the shareholder would get8 shares of Rs. 100/- each in the Kanjur Division. Admittedly, total share capital of Industries was 1,92,00,000/- comprising of1,92,000 shares of Rs. 100/- each. In view of the proposal to allot shares in Forgings for every10 shares in the Industries, the total 1,53,600/- shares of Rs. 100/- each would be required to be issued in Forgings. Total value of such shares would be 1,53,60,000/-. Thus, allotment of 8 shares per 10 shares in the Industries was the nearest possible figure, taking into consideration the value of assets of Kanjur Division being Rs. 1,51,00,000/-. The report of H.P. Kumbhani and Co. shows that General Reserve No. II of Industries were not taken into consideration for the purpose of making valuation of the assets of Kanjur Division. It is also material to note that the Balance-Sheet prepared for Kanjur Division for the years ending 1983 and even in 1984 do not make any reference to General Reserve No. II amounting to Rs. 3,25,00,000. On the contrary, the Balance-Sheet of the Kanjur Division for the year ending with 31st December, 1983 shows reserve transferred from Profit and Loss Account of Rs. 8,14,725/- only. The balance-sheet as on 31st December, 1984 shows that Reserves and Surplus column contains opening balance of Rs. 8,14,725/- and additional appropriation was made during the year to the extent of Rs. 6,51,598/-. Thus, as on 31st December, 1984 the total reserves in the balance-sheet of Kanjur Division were Rs. 14,66,323/-. There is nothing on record to show that General Reserve No. II amounting to Rs. 3,25,00,000/- was ever shown in the balance-sheet of Kanjur Division.

11. It is the contention of Forgings that General Reserve No. II was specifically created to meet the liabilities of workers in view of two cases pending before the Industrial Court and as the said liability was met from the account of Forgings, the General Reserve No. II is liable to be transferred to the Forgings. It is material to note that while General Reserve No. II for an amount of Rs. 2,20,00,000/- was created by resolution passed by the Board of Directors on 3rd July, 1981, additional amount of Rs. 37,00,000/- was put in the said reserve on 20th July, 1982. Third addition of Rs. 68,54,732/- was made in the said reserve by a resolution dated 28-6-1983 taking the total of General Reserve No. II to the tune of Rs. 3,25,54,732/-. Admittedly, on 10th January, 1983, the settlement had taken place with the said workers and as per that settlement, total amount to be paid to the workers was Rs. 23,47,000/- and the payment of the said amount was actually made from 14th January, 1983 to August,1983.If the total liability towards the workers was finally settled at Rs. 23,47,000/- on 10-1-1983, there could be no reason or justification to make additional reserve of Rs. 68,54,732/- on28-6-1983 particularly when a huge amount of Rs. 2,57,00,000/- was already in General Reserve No. II. This clearly reveals that the General Reserve No. II was not created to meet liability towards the workmen.

12. The learned Single Judge dealt with the concept of the reserves by the companies in detail by referring to several books and authorities to come to conclusion that while the provisions are made against anticipated losses or liabilities, reserves are appropriations of the profits represented by the equivalent assets. The learned Single Judge observed thus:

9.5 This conceptual understanding lies at the very root of the issues which arise in the present case. The view which I have taken is in accord with basic principles of accounting. The following is an extract from Spicer and Pegler's treatise on Book-Keeping and Accounts (Seventeenth Edition, edited by W.W. Bigg and R.E.G. Perrins page 368):

(d) Treatment of Revenue Balances and Reserves(d) Treatment of Revenue Balances and Reserves(d) Treatment of Revenue Balances and Reserves

The accumulated revenue balances and reserves of the vendor company should not be brought into the purchasing company's books. Since they are not profits of the purchasing company, but are represented by assets which the company purchases and pays for. The purchasing company cannot distribute them as dividend.

9.6 The Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. Commissioner of Income Tax : [1981]132ITR559(SC) , has considered the concept of a reserve and a provision.

Mr. Justice V.D. Tulzapurkar delivering the Judgment of a Bench consisting of three Learned Judges of the Supreme Court, referred to the Judgment in Metal Box Co. of India Ltd. v. Workmen : (1969)ILLJ785SC , in which the Supreme Court had held that whereas provisions are made against anticipated losses, reserves are appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business. In Vazir Sultan's case the Supreme Court held that 'the broad distinction between the two is that whereas a provision is a charge against the profits to be taken into account against gross receipts in the profit and loss account, a reserve is an appropriation of profits, the asset or assets by which it is represented being retained to form part of the capital employed in the business. Industries was a party before the Supreme Court in the Judgment which is reported in : [1981]132ITR559(SC) .

Amount of Rs. 3.25 crores was shown as reserve in the Balance-Sheet of the Industry. The General Reserve No. II was created from the profits of the company as a whole, and not out of profits exclusively of the Kanjur Division. As the reserves are appropriations of profits to be placed alongwith the capital in the balance-sheet, it is not a provision for any anticipated liability. Therefore, this amount is also liable to payment of tax. Tax payable on the General Reserve No. II was borne and paid by the Industries. Admittedly, tax liability amounted to Rs. 2.06 crores. The question whether the Industries were liable to pay the tax on the accumulated reserves was taken to Income-tax Appellate Tribunal and after referring to the judgment of Supreme Court in Vazir Sultan, the Income-tax Appellate Tribunal by its judgment dated 25th November, 1987 rejected the claim of Industries that the tax was not payable. The Tribunal held that all the facts would indicate that the amount was infact appropriation out of the profits and it was never intended as provision for liability and was never utilised as such in subsequent years. The learned Single Judge rightly noted that Mr. Dastur Senior Advocate, had in his report noted that even by the test propounded in the case of Vazir Sultan, the excess of Rs. 3.25 crores over Rs. 23.47 lakhs would be a reserve and not a liability and therefore Forgings could not claim whole of the amount of General Reserves No. II.

13. The learned Single Judge referred to several other circumstances to come to conclusion that the claim of the Forgings on General Reserve is not well founded.He noted that in the Company Petitions filed by both the parties, scheme was sanctioned by the Court on 3rd September, 1986. After that on 22nd October, 1986, Forgings forwarded a debit note dated 15th October, 1986 with a covering letter to the Industries claiming amount of Rs. 38,04,580.82 paise being the amount paid by the Forgings to the workers with interest at the rate of 15% per annum. This debit note included amount of Rs. 23,47,000/- which was paid to the workers of the Kanjur Division from the accounts of the Kanjur Division. Balance amount of Rs. 14.57 lakhs was interest thereon at the rate of 15% per annum. In that letter or debit note, there is no reference to the claim on the entire amount of General Reserve being Rs. 3.25 crores.

14. Appeal No. 784 of1987 in Notice of Motion No. 713 of1987 in Suit No. 767 of 1987 was filed by Maganlal Doshi and others against Echjay Electronics Private Limited, a company which was allotted to Mansukhlal Group under the family arrangement. In that appeal, a consent order was passed on 14th October, 1987 by the Division Bench of this Court whereby the directors of the Forgings agreed to pay an amount of Rs. 45.58 lakhs under Clause 2 of Part I of the scheme to the Industries. This consent order was significant because if the Forgings were really entitled to claim amount of 3.25 crores under the General Reserve No. II, they would not have agreed to pay amount of Rs. 45.58 lakhs to the Industries.

15. The learned Single Judge noted that a letter dated 1st September, 1987 was addressed by M/s. Bachubhai Munim & Co. about computation of differential, which was payable by the Mansukhlal group. M/s. Bachubhai Munim & Co. were acting as advocates for Echjay Electronics Pvt. Ltd. in appeal No. 784 of 1987 referred above. As per that computation, total net worth of Doshi family together with business interest of the family was stated to be 607.63 lakhs. The share of Mansukhlal group at 20% of the aforesaid amount was assessed to be Rs. 121.53 lakhs. However, Mansukhlal group had received Kanjur Division having fixed assets of Rs. 86.01 lakhs. As he had received 69.25% share of Doshi family, he had actually received interest of the family worth Rs. 59.56 lakhs in the form of fixed assets of the Kanjur Division. He also received net current assets of Rs. 45 lakhs being the share of Doshi family in the company. He had also received certain other business concerns like Echjay Electronics Kanjurmarg, Kanjur Bleaching, Hema Suru Corporation, Investment Companies and personal wealth. The total valuation of assets received or retained by Mansukhlal Group worked out to Rs. 183.92 lakhs. In view of the fact that Mansukhlal Group was entitled to assets worth Rs. 121.53 lakhs, he was required to pay amount of Rs. 62.39 lakhs as differential to the remaining group. This calculation made by M/s. Bachubhai fully tallies with the calculation made by H.P.Kumbhani & Co. Chartered Accountants. The learned Single Judge noted that this statement of M/s. Bachubhai Munim & Co. was accepted as per the admitted Minutes of Meeting dated 29th August, 1984. Here also there was no reference to the claim over the amount of Rs. 3.25 crores being General Reserve No. II of the Industries.

16. Mr. Dastur as well as the learned Single Judge also noted that as per the vertical balance-sheet to be prepared as per Schedule VI under the Companies Act, the reserves are required to be shown alongwith the capital. The reserves are to tally with the equivalent assets to be shown in the assets column in the balance-sheet. The assets of Kanjur Division were found to be worth Rs. 1.51 crores without any mention of the reserves. If General Reserve of Rs. 3.25 crores would be transferred to the balance-sheet of Kanjur Division, the result would be that liability side of the balance-sheet would increase by Rs. 3.25 crores without any corresponding increase in the assets and in the result, net worth of Kanjur Division would be minus Rs. 1.74 crores instead of it being Rs. 1.51 crores. If that be so Mansukhalal Group would be entitled not only to retain that Kanjur Division but also to receive substantial amount and that too without surrendering their share in other properties of Doshi family. However, as pointed out earlier after making all the calculations, it was found that Mansukhlal was found liable to pay differential of 62.39 lakhs to other group.

17. The learned Single Judge has considered allthese aspects and several other aspects minutely before coming to conclusion that the Forgings have no right or claim over the General Reserve No. II of Rs. 3.25 crores shown in the balance-sheet of Industries. We find no valid reason to disagree with these findings.

18. Next important question is about liability to pay amount of Rs. 23.47 lakhs in respect of payments made to the workers, whose services were terminated in 1973. The learned Single Judge noted that both the parties have taken shifting stand in this respect. In paragraph 14.1, the learned Single Judge noted that Mr. Thakkar the learned Senior Counsel for the Forgings had submitted that liability to pay workmen was that of Forgings and not of the Industries and Mr. Dada, the learned Counsel for the Industries had submitted that the liability in respect of compensation paid to the workmen as the part of the industrial settlement had to be borne by the Industries and not by the Forgings. The learned Single Judge noted that admittedly payment was actually made from the accounts of the Forgings and Industries had failed to prove that the Forgings were compensated for this amount. The learned Single Judge noted that in view of the specific provisions in respect of pending legal proceedings and the liability in respect thereof in the sanctioned scheme, the liability to make payment of compensation to erstwhile workmen was assumed by Forgings and not by the Industries. However, as in the settlement, no provision was made for that amount and as the claim of Forgings over the General Reserve No. II is not acceptable, the Industries are liable to compensate Forgings in that respect. It may be noted that in his report, Mr. Dastur Senior Advocate had come to conclusion that as per the terms of the scheme as sanctioned by the Court, the Forgings had taken over the responsibility only in respect of workmen, who were in service immediately before 31st December, 1982 and also the workers, who were in service after that day and in view of the fact that workmen, about whom two cases were pending before the Industrial Court, were not in service on or immediately before 31st December, 1982, the Forgings had not taken responsibility of the same. Mr. Dastur came to conclusion that it was the responsibility of Industries to pay compensation to the workmen but as the payment was made from the account of the Kanjur Division, the Industries was liable to compensate Kanjur Division. Thus, in spite of divergent opinions about the liability to pay compensation to the workmen, Mr. Dastur as well as the learned Single Judge opined that as the amount was paid from the account of Kanjur Division, Industries are liable to compensate the Forgings. After dealing with the evidence at length, Mr. Dastur opined that the remaining Doshi group family had adjusted that amount in the differential, which was required to be paid by Mansukhlal group to them and thus, Mansukhlal group was compensated. However, the learned Single Judge came to conclusion that evidence in respect of this adjustment in the differential is not reliable and, therefore, the Industries are liable to pay amount of Rs. 23.47 lakhs to the Forgings.

19. To decide as to whether the Industries is liable to compensate the Forgings for the amount of 23.47 lakhs, infact it is not necessary to find out under the settlement and under the sanction scheme, who is to meet that liability because Mr. Dastur as well as the learned Single Judge though for different reasons, found that the Industries was to compensate the Forgings. However, in view of difference of opinion, we find it appropriate to scrutinise the record as to what was the settlement in this respect. Mr. Dastur as well as the learned Single Judge rightly observed that the parties have not taken consistent stand about taking over the responsibility of liability to pay compensation to the erstwhile workers of the Kanjur Division. Therefore, it will be useful to find out what was the sanction scheme in this respect. Clause 3(b)(i) and (ii) read as follows:

3(b)(i) All the employees of Kanjur Division in service on the date immediately preceding the effective date shall become the employees of Echjay Forgings Private Limited without interruption in service and or terms no less favourable to them than those applicable to them on the day immediately preceding the effective date.

3(b)(ii) The gratuity and all terminal liabilities upto the effective date and thereafter will be of Echjay Forgings Private Limited with respect to the said employees.

(emphasis supplied)

On careful perusal of the Sub-clause b(i), it becomes clear that the Forgings had taken over responsibility only in respect of the employees of Kanjur Division, who were in service on the day immediately preceding the effective date, which was 31st December, 1982. Not only this, the second part of this clause provided a protection to such employees of continuation of service without any interruption and the guarantee that terms of their service shall not be less favourable to them than the terms, which were applicable to them on the day immediately preceding the effective date. Sub-clause b(ii) provides that responsibility of payment of gratuity and all terminal liabilities upto the effective date and thereafter will be of Forgings with respect to the said employees. If these two Clauses are read together, the words 'the said employees used in Sub-clause b(ii) clearly refer to the employees covered under Clause b(i) and they were only those employees, who were in actual service on the day immediately preceding the effective date, i.e., 31st December, 1982. Taking into consideration the second part of Sub-clause b(i), there remains no doubt that this responsibility was only in respect of employees, who were in actual service because there could not be any protection of uninterrupted service and the guarantee against any terms of service less favourable than those which were applicable prior to the effective date in respect of the workers, who were not in the employment on the effective date. Such guarantee could be given only to the employees, who were in actual employment on that day. It is nobody's case that 356 employees, whose claims were pending in the industrial disputes, were in the employment on the effective day or immediately preceding the effective day. The learned Single Judge observed that the provisions of the scheme are sufficiently drawn and comprehensive to deal with the question of liability in respect of those workmen of Kanjur Division, who had been terminated prior to the effective day and who had approached the Industrial Tribunal for legal redressal. It is material to note that even though the effective date was 31st December, 1982, the scheme was sanctioned by the Court on 3-9-1986. The dispute with those workmen was already settled on 10th January, 1983 and the payment of their claims amounting to Rs. 23.47 lakhs was already paid by August, 1983. Therefore, when the scheme was sanctioned, there was no reason to cover those employees. If those employees would have been covered under the scheme, the valuation of Kanjur Division would have certainly taken note of that liability but admittedly there is no reference of that liability in the valuation made by H.P. Kumbhani & Co., Chartered Accountants in 1984. Taking into consideration the terms of the scheme, we have no doubt that the Forgings had not taken the responsibility of paying any compensation to the workmen, whose services were terminated in the year 1973 though they were the workers at Kanjur Division. Therefore, we find that it was responsibility of the Industries.

20. The question whether the responsibility of the liability towards those workmen was taken over by the Industries or by the Forgings, infact becomes immaterial because admittedly the payment of that liability was made from the account of the Forgings during the year 1983 and admittedly, no provision was made for that payment in the scheme nor it was provided for in the evaluation report of the Kanjur Division. Therefore, in either case after having made a payment of said Rs. 23.47 lakhs, the Forgings would be entitled to be compensated for that amount by the Industries.

21. In his report Mr. Dastur, Senior Advocate discussed the evidence at length to come to conclusion that amount of this liability was actually adjusted in the differential required to be paid by Mansukhlal Group to the remaining group. Taking into consideration the rights and shares of Mansukhlal Group in the whole property and the property actually received by the said group, Mansukhlal group was found liable to pay amount of Rs. 62.39 lakhs towards the differential as calculated by Bansi Mehta and the same was also the calculation made by M/s. Bachubhai Munim and Company, the attorneys of Echjay Electronics, which was taken over by Mansukhlal group. There is no dispute that a meeting had taken place on 29-8-1984 and the minutes of that meeting are not in dispute. As per the said minutes, Mansukhlal group was to pay total amount of Rs. 119.20 lakhs, which included payment of 67 lakhs towards the outsiders towards their share in the fixed assets and the current assets. As far as payment of differential to the group of remaining brothers, it shows that from the total amount of Rs. 62.39 lakhs, amount of Rs. 13.07 lakhs was agreed to be deducted and on two different counts, there was addition of 4.50 lakhs and 0.30 lakhs and thus, he was finally required to pay Rs. 54.20 lakhs to the remaining brothers. In the minutes dated 29-8-1984, there are no details about these three items, i.e., one about deduction and two about additions. Mr. Dastur in his report noted that Maganlal Doshi, who is one of the remaining four brothers, who had taken over the Industries, explained that a meeting had taken place on 6-8-1984 and in the minutes of that meeting, details of deductions of Rs. 13.07 lakhs are given. According to him, as the amount of Rs. 23.47 lakhs was paid to the workers, the Forgings could claim tax benefit at the rate of 63%, which was tax rate applicable during that period and the amount of Rs. 8.68 lakhs net of tax was deducted from the total amount of Rs. 62.39, being the differential payable by the Mansukhlal group. According to him, deductions of Rs. 13.07 lakhs included deduction of Rs. 8.68 lakhs being net of tax towards the payment of liability towards the workers. Mr. Dastur also noted that the copies of the said minutes and the company papers were produced by the experts namely, Manharlal Shah and Hiralal Ajmera. These two experts were named in the family arrangement as experts as they were highly respected businessmen. It is true that original minutes were not produced because according to them the minutes were with Bansi Mehta and admittedly, Bansi Mehta was not examined before Mr. Dastur and he was not called upon to produce the original. Taking into consideration the overall documentary and other evidence, Mr. Dastur opined that even though the minutes dated 6th August, 1984 were not signed and though originals were not produced before the Court still this fact could be believed and this explained as to how the amount of 23.47 lakhs was adjusted. Mr. Dastur also observed that even if the minutes dated6th August,1984 are not taken into consideration, still on the basis of other evidence, he would come to same conclusion.

22. The learned Single Judge noted following Clause from the disputed minutes of the meeting dated 6th August, 1984.

5. OLD WORKERS LIABILITY : Regarding this liabilities amounting to Rs. 23.43 lakhs it was agreed that it will be claimed as expenditure in the hands of Echjay Forgings and an amount of Rs. 8.68 lakhs which is net of tax will be paid by Echjay Industries Private Limited to Echjay Forgings and was agreed to be adjusted from the differential payable by Motabhai Group to Maganbhai Group.

However, the learned Single Judge held that evidence of Maganlal Doshi was not reliable, Bansi Mehta was not examined, original minutes of the meeting dated6th August, 1984 were not placed on record and, therefore, these minutes could not be taken into consideration. With these observations, the learned Single Judge came to conclusion that the Industries had failed to prove that the amount of Rs. 23.47 lakhs was adjusted against the differential.

23. After careful scrutiny of the record, which is discussed at length in the report of Mr. Dastur as well as in the impugned judgment of the learned Single Judge, we find it difficult to uphold the view taken by the learned Single Judge. Admittedly, there was deduction of 13.07 lakhs from the differential of Rs. 62.39 lakhs which was required to be paid by Mansukhlal Group to the remaining brothers. Maganlal Doshi explained what this deduction was but there is no acceptable or plausible explanation from Mansukhlal group about this deduction. Report of Mr. Dastur reveals that Mansukhlal group tried to contend that this differential was towards the depreciation of machinery. This could not be accepted for the reason that valuation of the fixed assets, machinery, etc. was already made by H.P. Kumbhani & Company, Chartered Accountants and after that valuation, differential of Rs. 62.39 lakhs was found payable by Mansukhlal group. At the cost of repetition, it may be again pointed out that there was no mention or provision about the liability of payment of Rs. 23.47 lakhs in the scheme sanctioned by the Court on 3-9-1986. Shortly after the scheme was sanctioned, Forgings sent a debit note of Rs. 38,04,580.82 on Industries. However, admittedly in connection with the dispute pertaining to Echjay Electronics Private Limited in Appeal No. 784 of 1987 in Notice of Motion No. 713 of 1987 in Suit No. 757 of1987, the Forgings was required to pay amount of Rs. 45,58,661/- lakhs as per the order dated 14th October, 1987. If any amount was still due for payment from Industries to Forgings, the Forgings would have certainly raised that question and they could not be directed to pay an amount of Rs. 45,58,661/- lakhs to the Industries. In the same matter M/s. Bachubhai Munim & Company attorneys for Mansukhlal group also found the differential payable by Mansukhlal group to the remaining brothers. If this amount of Rs. 23.47 lakhs would not have been already satisfied M/s. Bachubhai Munim & Company would have certainly taken note of that while finding out the differential to be paid by Mansukhlal group. However, Bachubhai Munim did not make any mention of Rs. 23.47 lakhs while calculating the differential payable by Mansukhlal group. This aspect also goes against the Forgings. Taking into consideration these aspects, we find that payment of Rs. 23.47 lakhs towards the liability of erstwhile workers was infact adjusted by deduction of Rs. 8.68 lakhs net of tax from the differentials and the remaining amount was settled as the Forgings got rebate in the income-tax for the payment of Rs. 23.47 lakhs towards the workers liability. Taking into consideration overall view of the facts and circumstances, we find ourselves unable to agree with the learned Single Judge on this count. In our opinion, this claim of the Forgings was already satisfied in the differential payable by them to the Industries as per the minutes of the meeting dated 29th August, 1984. Therefore, we find that the decree passed by the learned Single Judge in favour of the Forgings in that respect can not be sustained.

24. Lastly, there is dispute about die-blocks and machinery allegedly transferred from Kanjur Division to Rajkot Division. Mr. Dastur as well as the learned Single Judge found that there was no substance in this claim. The learned Judge also noted that this dispute was not seriously pressed on behalf of the Forgings. In the appeal also though this question has been raised, the learned Counsel for the Forgings did not give much emphasis on this question. After going through the report of Mr. Dastur and the judgment of the learned Single Judge on this count, we find no reason to take a different view.

25. In view of the evidence discussed above, we find that the Forgings had failed to prove its claim over the General Reserve No. II of Rs. 3.25 crores. It also failed to prove its claim about the die-blocks and machinery allegedly transferred from Kanjur Division to Rajkot Division. Taking into consideration the evidence, we find that the Industries have satisfactorily proved that even though the payment of Rs. 23.47 lakhs was made by the Forgings towards the liability of erstwhile workmen, the Forgings have been infact compensated by the Industries by deduction of Rs. 8.68 lakhs net of tax from the differential and, therefore, Forgings are not entitled to receive anything more. Therefore, Appeal No. 662 of 2001 filed by the Forgings is liable to be dismissed while the Appeal No. 532 of 2001 filed by the Industries deserves to be allowed.

26. In the result, Appeal No. 662 of 2001 stands dismissed. Appeal No. 532 of 2001 is hereby allowed and the impugned order passed by the learned Single Judge directing the Industries to pay an amount of Rs. 23.47 lakhs with interest stands set aside. Parties to bear their own costs.