Bhartiya Mazdoor Sangh UP & Anrv.State of UP & Ors

Legal Analysis: Bhartiya Mazdoor Sangh, U.P. & Anr. vs. State of U.P. & Ors

Citation: 2026 INSC 364
Court: Supreme Court of India
Bench: Justice Rajesh Bindal and Justice Vijay Bishnoi (Division Bench)
Judgment Author: Per curiam (jointly authored)
Date of Decision: April 13, 2026
Nature of Judgment: Writ Petition (Civil) under Article 32 of the Constitution of India seeking enforcement of workmen’s dues.

Synopsis of the Judgment

The writ petition was filed by labour unions seeking payment of wages and dues of workmen of Jaipur Udyog Ltd. (JUL), a company declared sick in 1987. A rehabilitation scheme submitted by Gannon Dunkerley & Co. Ltd. (GDCL) was sanctioned by BIFR in 1992 but failed. BIFR recommended winding up in 2000. Pending appeals abated upon repeal of SICA in 2016. Meanwhile, GDCL, which had been handed over management, sold assets of JUL and its subsidiary JAIL without legal authority or court permission. The Supreme Court held that GDCL had no locus after abatement of proceedings; its conduct was illegal. The Court directed payment of workmen’s dues as per Justice Aftab Alam’s report, set aside illegal sale of scrap, rejected revival schemes by investors, and appointed a Court Administrator to oversee verification, valuation, and disbursement.

1. Basic Information of the Judgment

Field Details Case Title Bhartiya Mazdoor Sangh, U.P. & Anr. vs. State of U.P. & Ors. Writ Petition (Civil) No. 392 of 2015 (with Contempt Petition Diary No. 61491/2025) Bench Justice Rajesh Bindal and Justice Vijay Bishnoi Date of Decision April 13, 2026 Citation 2026 INSC 364 Nature of Proceedings Public interest litigation / labour welfare writ petition

2. Legal Framework

Laws Involved:

• Sick Industrial Companies (Special Provisions) Act, 1985 (SICA): Sections 3(1)(o), 20(1) (winding up recommendation).

• Sick Industrial Companies (Special Provisions) Repeal Act, 2003: Section 4 as amended by IBC, 2016 – abatement of pending proceedings.

• Insolvency and Bankruptcy Code, 2016 (IBC): Section 252, Eighth Schedule – abatement and 180-day window to approach NCLT.

• Companies Act, 1956/2013: Share allotment, subsidiary relationship.

• Industrial Disputes Act, 1947: Section 10-B (arbitration), settlement of dues.

• Constitution of India: Article 142 (power to do complete justice), Article 32.

• Principles of Contract, Specific Relief Act, 1963: Section 31 (cancellation of documents).

Precedents Cited:

• Kanhaiyalal v. Dr. D.R. Banaji (1958) – Void transactions.

• NGEF Ltd. v. Chandra Developers (P) Ltd. (2005) – Transfer of assets by unauthorised person.

• Raheja Universal Ltd. v. NRC Ltd. (2012) – Rights of shareholders vs. company.

• Vodafone International Holdings BV v. Union of India (2012) – Separate legal entity of subsidiary.

• BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. (2021) – Subsidiary not automatically wound up with holding company.

• Ghanshyam Sarda v. Shiv Shankar Trading Co. (2022) – BIFR’s control over sick company.

• Sivanandan C.T. v. High Court of Kerala (2023) (Constitution Bench) – Doctrine of legitimate expectation cannot override illegality.

3. Relevant Facts

• JUL declared sick on 17.09.1987. BIFR appointed IRBI as operating agency.

• GDCL submitted rehabilitation scheme (SS-92), sanctioned by BIFR on 21.04.1992.

• Scheme failed; BIFR called for fresh proposals on 19.09.1994. AAIFR set aside this order on 11.11.1994 and handed over management of JUL to GDCL.

• Despite efforts, unit could not be revived. BIFR recommended winding up of JUL on 24.11.2000.

• GDCL/JUL filed Appeal No. 22/2001 before AAIFR. Meanwhile, Rajasthan High Court remanded matter in 2004.

• SLP filed by Cement Works Karamchari Sangh led to appointment of Justice N.N. Mathur (Retd.) as Arbitrator on 10.04.2007.

• On 24.03.2008, this Court restored the appeal before AAIFR subject to deposit of ₹10 crores by GDCL (deposited on 16.05.2008).

• SICA repealed w.e.f. 01.12.2016. All proceedings before BIFR/AAIFR abated. GDCL/JUL did not approach NCLT within 180 days.

• Meanwhile, GDCL sold Kanpur Jute Mill (₹51 crores) and two properties of JAIL (₹21 crores & ₹2.84 crores) without Court permission. Scrap of Sawai Madhopur unit was also sold.

• Workmen remained unpaid for decades. Writ petition filed in 2015 seeking payment.

• Justice Aftab Alam (Retd.) as Mediator submitted report on 31.01.2021 computing dues ≈ ₹115 crores + 5% interest from 31.12.2008.

• Investors (M/s Frost Realty LLP, M/s Dickey Asset Management) proposed revival schemes.

4. Issues

1. Whether GDCL had any legal authority to sell assets of JUL and JAIL after abatement of proceedings before AAIFR and repeal of SICA.

2. Whether the revival schemes submitted by investors can be accepted in the absence of valuation of assets and given the factual impossibility of reviving the cement unit.

3. What is the quantum of workmen’s dues and how should they be disbursed.

4. Whether the Supreme Court should exercise power under Article 142 to condone the illegalities committed by GDCL.

5. Ratio Decidendi

• Abatement of proceedings and revival of winding up recommendation: Upon repeal of SICA and abatement of Appeal No. 22/2001 before AAIFR (since GDCL/JUL did not approach NCLT within 180 days), the BIFR’s recommendation for winding up dated 24.11.2000 stood revived. Consequently, GDCL lost any locus to deal with assets of JUL or its subsidiary JAIL (Para 135, 166).

• GDCL’s conduct illegal and not condonable under Article 142: GDCL sold Kanpur Jute Mill, two properties of JAIL, and scrap without any legal authority or Court permission. These actions were not mere irregularities but deliberate illegalities. Article 142 cannot be invoked to condone such conduct (Para 166-167).

• Subsidiary’s assets not automatically part of holding company’s rehabilitation: While JAIL was a 99.99% subsidiary of JUL, it was never part of the rehabilitation scheme. However, GDCL clandestinely changed shareholding of JAIL by issuing fresh shares to its group companies, reducing JUL’s stake to 33.33%. This allotment is declared illegal (Para 112-116, 177).

• Revival of cement unit impossible: The mining area was declared forest land in 1984, lease expired in 1989. Technology obsolete. Unit closed since 1987. Any revival scheme is a factual impossibility. Hence, investors’ proposals rejected (Para 149-151, 155).

• Workmen’s dues to be paid as per Justice Aftab Alam’s report: Principal dues ≈ ₹115 crores plus simple interest @5% per annum from 31.12.2008, plus provident fund dues. GDCL’s claim of ₹98 crores not accepted (Para 178-183).

• Legitimate expectation cannot override illegality: GDCL argued it had legitimate expectation of ownership after clearing debts. Rejected – illegality cannot be legitimised by invoking legitimate expectation (Para 168-169, citing Sivanandan).

6. New Legal Principles Established / Reiterated

• Management transfer under BIFR scheme does not confer ownership or right to sell assets: A party entrusted with management of a sick company cannot alienate its assets without following prescribed procedure (sale committee) or Court approval, especially after winding up recommendation and abatement of proceedings.

• Abatement of proceedings under SICA revival clause does not automatically validate post-abatement actions: Even if a company had a pending appeal before AAIFR, its failure to approach NCLT within 180 days results in abatement; thereafter, the company (or its management) cannot deal with assets as if the rehabilitation scheme was still alive.

• Subsidiary’s assets cannot be siphoned off by altering shareholding without consideration of holding company’s sickness: The Court declared illegal the allotment of fresh shares in JAIL to GDCL’s group companies, which diluted JUL’s shareholding. Such actions are void.

• Article 142 cannot be used to cure deliberate illegalities: The power to do complete justice cannot be exercised to validate transactions that are fundamentally illegal and against the interests of workmen and creditors.

7. Court’s Analysis and Examination of Concepts

• Chronological analysis of failure: The Court meticulously traced the timeline from 1987 to 2026, highlighting GDCL’s consistent defaults, failure to implement the scheme, and eventual clandestine sale of assets.

• Conduct of GDCL condemned: The Court noted that GDCL sold Kanpur Jute Mill without following the sale committee mechanism, sold JAIL’s properties without permission, and changed shareholding pattern to gain control over JAIL’s assets – all while representing itself as the lawful manager.

• Forest notification and impossibility: The Court took judicial notice of the 1984 forest notification and the expiry of mining lease, concluding that no limestone mining is possible, making cement production impossible. Hence, any revival proposal was a facade.

• Workmen’s rights paramount: Despite GDCL’s claims of having cleared all other debts, the workmen’s dues remained unpaid for nearly four decades. The Court prioritized payment of wages, provident fund, and interest over any revival or investor interest.

• Rejection of investors’ schemes without valuation: The Court refused to accept any scheme unless a complete inventory and valuation of JUL and JAIL’s assets was first prepared. This ensures that the best possible realisation is achieved for the workmen.

8. Critical Analysis

Strengths: The judgment is a thorough exposé of how a corporate entity can exploit legal loopholes and delays to deprive workers of their legitimate dues. It reaffirms that the Supreme Court will not hesitate to intervene in such matters, even decades later. The rejection of Article 142 to condone illegalities sends a strong message. The appointment of a former Chief Justice as Administrator ensures effective oversight.

Potential concerns: The judgment sets aside the sale of scrap but does not set aside the sale of Kanpur Jute Mill or the two JAIL properties, leaving those buyers untouched – this may be seen as inconsistent. Also, the direction to reimburse GDCL for all amounts paid to creditors from the sale proceeds of JUL’s assets, plus 8% interest, could be criticised as rewarding the wrongdoer. However, the Court balanced this by noting that GDCL did clear significant debts, and the reimbursement is only after workmen are paid.

Practical impact: This judgment will be a landmark for labour unions seeking enforcement of dues against sick companies where promoters have acted illegally. It clarifies that management under BIFR does not equate to ownership. It also provides a template for winding up of old sick units where revival is impossible.

9. Final Outcome

Writ Petition disposed of with the following directions:

• Workmen’s dues (including interest @5% p.a. from 31.12.2008) and provident fund to be verified and paid within four months (by 31.08.2026).

• Inventory and valuation of all assets of JUL and JAIL to be prepared.

• Sale of scrap of Sawai Madhopur unit set aside; GDCL to refund amount with 8% interest.

• Sale of Kanpur Jute Mill and two JAIL properties not interfered with, but proceeds accounted.

• GDCL to be reimbursed for amounts paid to creditors from sale proceeds of JUL’s assets, with interest @8% p.a., after workmen’s dues are cleared.

• Applications by M/s Frost Realty LLP and M/s Dickey Asset Management rejected; ₹25 crores deposited by Frost Realty to be refunded.

• Justice Manindra Mohan Shrivastava (former Chief Justice of Madras High Court) appointed as Administrator.

• Company Petition No.21/2001 pending before Rajasthan High Court disposed of as infructuous.

• Contempt Petition disposed of.

10. Practical Application (Use in Court)

• By labour unions: To seek payment of dues from sick companies where promoters have sold assets without authority. Cite this judgment to argue that management under BIFR does not confer ownership, and illegal sales can be set aside or proceeds traced.

• By companies/promoters: To understand that mere management of a sick company does not give the right to alienate assets; any sale must follow prescribed procedures (sale committee) or Court approval, especially after winding up recommendation.

• By courts/tribunals: To apply the principle that abatement of proceedings under SICA revival provisions revives the winding up recommendation; thereafter, the company’s management cannot act as if the rehabilitation scheme is still operative.

11. Court Lines

“In our view, power under Article 142 of the Constitution of India cannot be invoked to condone the illegalities committed. In fact, after repeal of SICA with effect from 01.12.2016 and no proceedings having been initiated before NCLT in terms of provisions of IBC within the time permitted, the appeal filed by GDCL/JUL before the AAIFR stood abated. Thus, the recommendation made by the BIFR for winding up of JUL revived. As a result, GDCL had lost any locus to deal with the properties of JUL and JAIL.” (Para 166)

“Any allotment of new shares by GDCL to its group companies has to be declared illegal. Ordered accordingly.” (Para 177)

“The doctrine of substantive legitimate expectation can be successfully invoked… However, it is important to clarify that the doctrine of legitimate expectation cannot serve as an independent basis for judicial review… An illegality cannot be condoned. Legitimate expectation cannot override the illegalities committed by a party.” (Para 168-169)

“How can such offers be accepted when there is a long list of properties owned by JUL and its associate JAIL, and the current market value of those assets remains unquantified before this Court?” (Para 161)

12. Legal Strategy Insight

For workmen/labour unions: In cases where a sick company’s assets are being sold by the management without authority, immediately move the High Court or Supreme Court for a stay. Emphasise that the management has no ownership rights and that workmen’s dues are paramount. Use this judgment to argue that abatement of SICA proceedings revives winding up, and any post-abatement sale is voidable. Seek appointment of a Court Administrator to take over assets.

For promoters/managing entities: If you are managing a sick company under a BIFR/AAIFR scheme, strictly comply with the sale committee mechanism. Do not sell any asset without Court approval, especially after winding up recommendation. If SICA is repealed and you fail to approach NCLT within 180 days, you lose all authority – step back and let the official liquidator take over. Any clandestine sale will be declared illegal and you may be personally liable.