Preamble

Industrial closure has been a challenge to the trade union movement from the inception of industrial development in the country. Powerful legislative safeguards against closure and job losses were the result of trade union struggles. These included, most prominently, safeguards under Sections 25(m, n and o) of the Industrial Disputes Act (ID Act) in the early seventies; the legislation of the Sick Industrial Companies Act (SICA) and the creation of the Board for Industrial and Financial Reconstruction (BIFR) in the mid-eighties.

The Indian Companies Act also provided strong relief to stakeholders, under Sections 397 and 398, against oppression and mismanagement, and non-compliance with statutory provisions. Further, shareholder interests were also protected by large shareholdings in the large limited companies held by various public financial institutions and industrial development corporations.

There have been several instances of intervention by trade unions and public financial institutions in the prevention of closure and the revival of sick industries. To mention just two such cases, in 1976, in Kamani Engineering Corporation International, as a result of the union struggle against mismanagement, the management of the company was taken over by the IFCI, and the company was turned around; in 1988, the workers of Kamani Tubes were allowed to take over the company, made sick by mismanagement, under a BIFR scheme. In both cases, the Kamani Employees Union played a central role in the revival struggle.

The present situation, however, is very different from that of the seventies and the eighties. The commitment to a regime of public regulation, in the interest of all stakeholders, has been comprehensively replaced by a regime that gives primacy to the `market`. As a result, the SICA and the BIFR, and the institution of the Company Law Board have all been rendered largely ineffectual. Institutional shareholding in companies is mainly through their mutual funds arms, and for gains through speculation in the stock market. The companies do not use these holdings to influence Board decisions or to intervene in critical company affairs. The remedy to industrial sickness is seen in a fast-track, wind-up mechanism through Debt Recovery Tribunals (DRT), rather than the approach of industrial reconstruction that is followed by the BIFR. Primacy in these proceedings is given to the various financial stakeholders and not to other interests such as preventing job losses or safeguarding scarce resources.

In this context, we need to evaluate the efficacy of the Right to Information (RTI) Act, and its use in situations of industrial closure. We need to distinguish here between information and knowledge. What the RTI potentially can provide is information. It does not, however, give the seeker of information the industry knowledge to determine either what information to seek or how to use the information. The RTI also does not provide the information seeker the mechanism to ensure the veracity of the information obtained. This critical industry and company knowledge is what a strong regulatory regime sought to provide and which is not available today in most situations of industrial closure.

Use of RTI

We would have to distinguish here between two basic situations leading to industrial closure and job losses, namely, unviable operations and the financial restructuring of a company. Some possible use of the RTI to access information in these situations is detailed below.

Unviable Operations

A company could seek complete or partial closure of operations under section 25 of the ID Act. It could also be referred to the BIFR as a sick company. What should be the response of the union to such a situation?

The issue here is to determine the financial status of the company/factory. Under Section 25 of the ID Act, the company is mandated to provide financial information. In case it is referred to the BIFR, the proceedings give ample powers to allow the BIFR or its agency to access all information. However, there is the question of the veracity of this information. In particular, if the closure pertains to one factory, or a part of operations of a multi-operations company, the financial information provided is not authenticated and audited data, as presented in the Annual Reports of the company.

One important data pertaining to financial operations that requires authentic information is transfer pricing. Very often, data on transfer pricing are fudged to show adverse operations. Here, the RTI can be of use to understand the supply and marketing chain (which could even be on a global scale), the marketing channels used by the company, the product value adding and the price at various stages of the marketing chain. 

Inter-firm transfers and financial transactions are also very relevant. Very often, operations become unviable because promoters are siphoning company funds through inter-firm arrangements of the group firms.

Restructuring of the Company

There are various forms of restructuring that can affect the employment of workers in a company. These include primarily mergers and acquisitions, and de-mergers or separation of business.

There are essentially three aspects of these arrangements that are important. The first is the details of the restructuring plan. This is a document that is supposed to be made available to all stakeholders. The second is the financial arrangement that the scheme makes with the various financial stakeholders. The third is the valuation of the assets and the business activities of the involved companies. For the second and the third, the information that is required to be provided is often very scanty and insufficient for the purpose of any analysis.

Limits to RTI Usage

The use of the RTI is required only in situations in which information cannot be otherwise accessed. For example, company data on annual operations as given in the Annual Report are available with the respective Registrar of Companies (ROC). In many instances, the Annual Reports are not submitted to the ROC. In such situations, it might be necessary to use the RTI, to even access information that is supposed to be made available to the public. However, in many instances, even the use of RTI will not help. Sick companies default on many of their statutory provisions. Annual Reports are not submitted, sometimes for many years. In many cases before the BIFR, it has been forced to undertake the exercise through outside audit agencies of getting Annual Reports prepared for companies under investigation. This is an important task of regulation, which the RTI cannot fulfill.

The use of the RTI for different circumstances of information needs has not been tested. For instance, the valuation of assets and business activity is of central importance to any meaningful stakeholder intervention in cases of industrial closure. However, the practice of companies is to provide bare minimum details of valuation, with no substantiation of the actual valuation process. This is an extremely non-transparent exercise. Similarly, information on transfer pricing and marketing arrangements is extremely hard to get. It would require several challenges before the court of law to determine the extent under the RTI to which stakeholders and the public will be allowed to access such information that business would hold as covered under business secrecy clauses.

Finally, there is the real problem of multiple agencies involved with closure, and different geographical locations of arbitration that make it extremely difficult for most trade unions to even keep pace with the closure exercise. The instance of Deepak Cables in Bangalore is a case in point. The union had been fighting a case in Bangalore of the illegal lock-out and closure of the company under section 25, since the early nineties. Meanwhile, one of the secured creditors took the case to the DRT in Mumbai in 2000, and got an order for sale of the assets of the company. The union got to know of the whole scheme, only in 2006, after most of the company assets had been sold. It is presently engaged in trying to get the claims of dues of workers admitted by the DRT, and work out what best it can as a settlement of worker dues. In such circumstances, the RTI can only provide limited opportunities for workers to intervene effectively. The only safeguard is a strong and transparent regulatory framework.