Karnataka High Court Upholds Revival Scheme for Shrishma Fine Chemicals, Dismissing Employees' Challenge After 30-Year Legal Battle - 2025-04-08

Karnataka High Court Affirms Revival Scheme for Shrishma Fine Chemicals, Ends 30-Year Employee Dispute

Bengaluru, Karnataka – March 25, 2025 – In a significant judgment delivered by the division bench of Justices Krishna S Dixit and C M Joshi , the Karnataka High Court has upheld a scheme of arrangement for the revival of Shrishma Fine Chemicals and Pharmaceuticals (Karnataka) Ltd., effectively dismissing a long-standing challenge from the company's employees union. The decision brings an end to legal proceedings that have spanned three decades, centered on the fate of the beleaguered pharmaceutical company.

Case Background: Decades of Distress and Revival Efforts

The case originates from Company Petition No. 55/1997, linked to Shrishma Fine Chemicals' financial troubles dating back to the 1990s. The company, once a manufacturer of salicylic acid and aspirin, faced losses and was eventually referred to the Board for Industrial and Financial Reconstruction (BIFR). Winding-up petitions were filed, and while initial winding-up orders were set aside, the company remained in a precarious state.

Respondent No. 6, SDV Iron Works, proposed a scheme of arrangement for the revival of Shrishma Fine Chemicals. This scheme was approved by the Company Court in an order dated June 23, 2015, which became the subject of the present appeal (OSA No.8/2016) filed by the Shrishma Fine Chemicals Employees Union. Several related company applications (CA Nos. 237/2023, 350/2023, and 46/2024) were also consolidated with the appeal, all essentially challenging the revival scheme's implementation and alleging violations.

Arguments from the Employees Union

Represented by Senior Counsel Sri. S.P. Shankar, the Employees Union argued that the 2015 order approving the revival scheme was erroneous as they were not adequately heard. They contended that the scheme was a "surreptitious mechanism" to profit from the company's immovable property without genuine intent to revive the pharmaceutical business. The union further argued that the scheme disregarded the rights of workmen as secured creditors under Sections 529 and 529A of the Companies Act, 1956. They questioned the lack of experience of Respondent No. 6 in the pharmaceutical industry.

Respondents' Counter-Arguments

Senior Counsel Sri. Vikram Huilgol, representing Respondents No. 2 (Shrishma Fine Chemicals) and No. 6 (SDV Iron Works), asserted that the appeal and applications were not maintainable and were a collusive attempt to obstruct the revival. He highlighted the employees' failure to pursue claims before competent authorities and their inconsistent stances throughout the prolonged litigation. Sri. Huilgol emphasized that Respondent No. 6 had invested significantly in the revival and that the scheme had been substantially implemented, with dues to creditors and employees largely cleared. He argued for a liberal interpretation of scheme implementation, stating that a rigid approach focused solely on the original business would defeat the purpose of corporate restructuring. He cited the broad objectives outlined in Shrishma Fine Chemicals' Memorandum of Association, which included property dealings.

Court's Rationale and Decision: Upholding Scheme Flexibility and Finality

The High Court bench acknowledged the broad scope of Section 392 of the Companies Act, 1956, emphasizing the court's role in ensuring scheme operation. However, it also recognized the practical challenges in long-term schemes and the need for flexibility. The court noted that the majority of stakeholders had not raised concerns, and that workmen and staff had received retrenchment compensation or settlement amounts.

The judgment highlighted the lengthy history of the case and the numerous opportunities given to the Employees Union to propose alternative revival schemes, none of which materialized. The court observed a "consistent attempt to thwart the revival" by the union and underscored the principle against approbating and reprobating.

Pivotal Excerpt from the Judgment:

> "…when majority stakeholders have not raised any issue regarding the implementation of the Scheme, and when admittedly both the workmen & staff of 2nd respondent have been paid either the retrenchment compensation or the One Time Settlement amount, it would be upsetting the proverbial apple cart in the event this Court interferes in the implementation, which we opine is presently underway…"

The bench also addressed the employees' claims regarding outstanding dues, pointing out their failure to pursue remedies under Section 33(C)(2) of the Industrial Disputes Act, 1947. Furthermore, the court clarified that upon scheme approval and transfer of possession by the Official Liquidator, the company's property ceased to be custodia legis .

Ultimately, the Karnataka High Court found no merit in the appeal and related applications, dismissing them and bringing closure to a protracted legal saga that began in 1997. The court acknowledged an ex gratia offer made by Respondent No. 2 to the workmen, even while expressing disappointment at the prolonged nature of the dispute and the obstructive tactics of the appellants. The decision paves the way for the continued implementation of the revival scheme for Shrishma Fine Chemicals, marking a potential turning point after decades of uncertainty.