Duncan set for legal battle

Sambit Saha and Abhranila Das, TT, Calcutta, Jan. 30: Gouri Prasad Goenka-controlled Duncan Industries is planning to haul the Centre to court against the decision to take over half of its gardens in the Dooars in north Bengal.

Sources said Duncan would file a petition soon and the company believed it had enough grounds to challenge the central diktat.

The department of commerce at the Centre invoked Section 16E of the Tea Act, 1953, authorising the Tea Board of India to take over six gardens belonging to Duncan and one garden of Shantipara Tea Estate, owned by Goenka.

A perusal of some cases where the takeover provisions in the Tea Act were invoked in the past has thrown up at least three instances where the order was challenged in courts.

In a matter involving Pashok Tea Estate and Looksan Tea estate, a division bench of Calcutta High Court held in 1980 that before an order under Section 16E is passed, the Centre must satisfy itself through documents that the conditions laid down for passing such an order are met.

The bench quashed the order, holding that the Centre had considered matters that were not germane for the purpose of invoking the Act.

A reading of 16E(1) reveals the circumstances under which the Centre can invoke its powers to take over the tea garden without carrying out a full-fledged investigation.

"The persons in charge of such tea undertaking or tea unit have, by reckless investments or by creation of encumbrances on the assets of the tea undertaking or tea unit, or by diversion of funds, brought about a situation which is likely to affect the production of tea undertaking or tea unit, and that immediate action is necessary to prevent such a situation," the section reads.

The act also spells out another situation under which the Centre can resort to precipitate action. "It (the tea unit) has been closed for a period of not less than three months and such closure is prejudicial to the concerned tea undertaking and that the financial condition of the company owning the tea unit and the plant and the machinery of the unit are such that it is possible to restart the unit and such restarting is necessary in the interest of general public..."

The Centre, if challenged in court, has to conclusively establish that both the circumstances are prevalent in these seven gardens.

Duncan has so far maintained that all its gardens are "open" even as industry sources said they had hardly been in operation last year.

In a case involving Peermade and Lone Tea Estate, Kerala High Court had cautioned the Tea Board about invocation of 16E of the Tea Act.

In 2011, a single bench held that power under 16E has to be used sparingly since it confers a drastic power on the central government which has the effect of depriving a person of their private property.

Moreover, for the purpose of invoking the power under this section, the central government has to be satisfied that each of the conditions mentioned in the said section are in existence, the court had held.

Another twist to the Duncan case would be the fact that the company is under Board for Industrial and Financial Reconstruction (BIFR).

Section 22 of Sick Industrial Companies (Special Provisions) Act (Sica), 1985, offers sweeping protection, especially from creditors and winding-up petitions.

Sanjay Basu, partner of law firm Aquilaw, said it would be interesting to see whether the Tea Act will supersede Sica if the issue comes up for debate in the court.