Academic journal article Indian Journal of Industrial Relations

Corporate Restructuring: Who Cares for the Employees?

Academic journal article Indian Journal of Industrial Relations

Corporate Restructuring: Who Cares for the Employees?

Article excerpt

Introduction

"A corporation represents far more than its current stock price; it embodies obligation to employees, customers, suppliers and communities" (Samuel, 1985)

Mergers and amalgamations are seen as one of the modes of corporate restructuring. But it has some adverse impacts on the employees as it results in layoffs, retrenchments due to closing down of some of the industrial units of the company. Along with this is the problem of new work culture, adjustability to the new environment of work etc. Managers of mergers attempt, as do other managers, to organize and direct their enterprises in such a manner that, all things considered, the least unit cost of operation is attained (Stone, 1930). The larger a firm is in relation to the size of the community in which it operates, the greater disruption any such change is likely to have (Macey, 1989). A scheme of merger/amalgamation or takeover is a statutory right of the companies. Provisions of the Companies Act, 1956 in India take care of the interest of the class of creditors and shareholders and they may have to approve the scheme.

This paper examines the extent to which the existing legal regime protects the interest of the employees during transfer of an undertaking. First part of the paper studies merger laws in India and their impacts on the labor under the provisions of the Companies Act and the Banking Regulation Act, 1949. The second part of the paper studies the constitutional law protection afforded to the companies to restructure and thereby achieving an economic equilibrium. The third part studies the role of Indian labor legislations in protecting the interest of the employees during transfer of an undertaking with the help of the decided cases. The papers also analyses the guidelines issued by other countries and labor organizations in this regard. Finally the paper gives some suggestions for improving and protecting the labor force during corporate restructuring.

Basis of Industrial Jurisprudence

The preamble to the Constitution of India states that it is a socialistic state. The basis of socialist state is embodied under the Directive Principles of state policy commonly known as Part IV of the Constitution of India. Directive Principles are essentially not enforceable before any court of law. But they are fundamental in the governance of the country and must be applied by the state while making laws as per Article 37. Within this part Art. 39(b) and Art.39 (c) requires the state to ensure fair distribution of wealth and prevention of concentration of wealth in the hands of few. Art. 41 requires it to secure right to work for its people within its economic capacity. Just and human conditions of work and living wages for works also essential for the proper enjoyment of right to work. Finally, Art.43- A requires it to take steps to ensure the participation of workers in the management of industries. These articles form the substratum of the Industrial Jurisprudence in India (Malhotra, 2004).

Merger Laws & Labor Force

In India, company mergers are governed by the Companies Act, 1956 and bank mergers are governed by the Banking (Regulation) Act, 1949. S. 293 (1) (a) of the Companies Act confers powers on the board to sale, lease or otherwise disposal of the whole or substantially whole of the undertaking. The procedure of transfer would be considered as fair under s. 293 if the consent of the members of the company is obtained. It is to be noted here that the other stakeholder interests have not been protected during transfer of an undertaking. S. 391 of Companies Act, 1956 give the court the power to sanction a merger or reconstruction between the company and its members and company and its creditors. The court enjoys more power under this section because it not only sanctions a merger or reconstruction but also looks into the substantial compliance of statutory provision and also look into whether the scheme is bonafide exercise of majority power and that the scheme is reasonable. …

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