The New Phaltan Sugar Works Ltd. ... vs The State Of Maharashtra And Ors.
2004 Latest Caselaw 85 Bom

JUDGMENT

F.I. Rebello, J.

1. Rule. Respondents waive service. By consent heard forthwith.

2. All the petitioners have been described as citizens of India. The petitioner No. 1 is a Company registered under the Indian Companies Act, 1956. The petitioner Nos. 2 to 7 are its Directors. The Respondent No. 5 had moved the respondent No. 4 under the provisions of Section 49 of the Maharashtra Co-operative societies Act, 1960 (hereinafter referred to as the said Act). It was the case of respondent No. 5 that they had advanced moneys to the employees employed with Petitioner No. 1. Petitioner No. 1 was to deduct the instalments payable by the employees from the wages payable to such employees. The petitioner No. 1 in fact had deducted these amounts pursuant to the agreement entered into between the petitioners and respondent No. 5. However, the moneys so recovered from the wages of the employees was not forwarded or paid to the respondent No. 5. On the application moved by the respondent No. 5, notice was issued by the respondent No. 2 to the petitioners. The petitioner No. 1 was served on 25th September, 2003. The petitioner No. 2 was intimated on various dates between 23rd September, 2003 and 27th September, 2003. The petitioner No. 2 however, did not claim the postal packet containing the notice for appearance. The petitioner No. 7 was served on 22nd September, 2003. The petitioner Nos. 3 and 4 were served on 29th September, 2003. The petitioners 5 and 6 were served on 30th September, 2003. Appearance was put up on behalf of petitioner No. 1.

On hearing the parties present, respondent No. 2 passed an order on 1st October, 2003 after proceeding exparte against the parties who had not appeared and issued a certificate in the sum of Rs. 1,04,95,702/-.

3. The petitioner Nos. 2, 5, 6 and 7 preferred a Revision Application before the respondent No. 3. The petitioner No. 1 and some other petitioners in the Petition who were not revision petitioners were added as respondents in the said Revision Application. The 3rd respondent after considering the material and the documents on record recorded a finding that the applicants before it had never denied the claim of the respondent No. 5. The 3rd respondent also recorded a finding that the amount which was deducted from the wages of the employees of petitioner No. 1 have been misapplied by the acts of the Board of Directors of the petitioner No. 1 company. The 3rd respondent held that no purpose would be served in remanding the matter as it will only prolong the matter. Accordingly the 3rd Respondent dismissed the Revision Application. Against that order the present petition has been filed not only by the Revision Applicants before the 3rd respondents, but also by the Co-operative Society and also by the other Directors who were respondents in the Revision Application and who had not challenged the order of the 2nd respondent.

4. The main reliefs sought for in the petition by the petitioners read as under:-

"The respondents be directed to stay the recovery proceedings in pursuance of order dated 1st October, 2003 passed by respondent No. 1 Exhibit A to the petition, order dated 13th November, 2003 passed by the respondent No. 3 Exhibit "C" to the petition and attachment warrant issued by respondent No. 4 Exhibit B to the petition."

No other reliefs have been sought though at the time of hearing on behalf of the petitioners learned Counsel also drew our attention to the averments In paragraph 13 of the petition where relief by way of quashing the attachment proceedings has also been sought.

Learned Counsel contends that though formal prayer is not there it must be construed that the petitioners have also applied for quashing Exhibit B to the petition which is the order of attachment. The main challenge as formulated are that as the company is before B.I.F.R. proceedings in execution cannot be proceeded with. The petitioner Nos. 2 to 7 are not personally liable. Lastly it is contended that the petitioners were either not served or given reasonable opportunity by Respondent No. 2 before passing the order dated 1st October, 2003.

On behalf of the respondent No. 5 an affidavit has been filed opposing the grant of relief. It is pointed out that under Section 49 of the said Act it was open to the respondent No. 2 to pass an order not only against the petitioner No. 1 but also against the Directors they being the Employer. It is then pointed out that the contention raised on behalf of the petitioners that considering Section 22 of the Sick Industrial Companies (Special Provisions) Act 1985 the respondent No. 2 could not proceed with the proceedings is devoid of merit. There was no bar on respondent No. 2 proceeding with the proceedings even considering Section 22 and further also proceeding in execution as what is sought to be recovered are amounts which the petitioner No. 1 deducted from the wages of its employees and are, therefore, "wages", which the petitioner No. 1 was to pay to respondent No. 5. It is, therefore, contended that the provisions of Section 22 would not apply to the facts of the present case. It is also pointed out that no relief has been sought by the petitioners to challenge the orders passed by the 2nd and 3rd respondent in the present petition. Even before the 3rd respondent the petitioner No. 1 as also the petitioner Nos. 3 and 4 had not challenged the order passed by the 2nd respondent. It would, therefore, not be open to them for the first time to challenge the order in the Writ Petition, All the petitioners, it was contended, were served. There is also an admission on behalf of the Directors, more specifically petitioner Nos. 2 to 7 in a suit filed by them in the Civil Court, Phaltan being Civil Suit No. 339 of 2003 wherein in para.4 they have set out that amount due and payable as on the date of filing of the suit was suit was Rs. 1,07,25,702/-. The only contention was that they were not liable, and that the liability was of petitioner No. 1. On a preliminary issue being raised the suit came to be dismissed by order dated 8th December, 2003 whereby the Court held that it had no jurisdiction. The learned Judge while disposing off the matter in his order dated 8th December, 2003 has referred to the claim by the respondent No. 5 for the sum of Rs. 1,04,75,702/- and their admission that petitioner No. 1 had deducted a sum of Rs. 1,04,75,702/- from the salary of the employees and had not remitted the amount. It is, therefore, contended that those Directors who were plaintiffs in the suit cannot now contend that the said amount was not the amount due and payable. In so far as service is concerned, it is pointed out that all the petitioners were served. Once the petitioner No. 1 had not disputed the amounts the petitioners 2 to 7 cannot dispute the same and no useful purpose would be served by remanding the matter. It is, therefore, contended that the petitioner should be rejected.

5. Considering the above, the questions that have to be answered will be (1) whether the provisions of Section 22 of the S.I.C. (S.P.) Act, 1985 are applicable and in view of the same whether proceedings for recovery against the petitioners cannot be proceeded with; (2) whether petitioner Nos. 2 to 7 are not personally liable for the deductions made by petitioner No. 1 from the wages of the employees and not remitted to the respondent No. 5.(3) whether the petitioners had been able to show that there has been non-service and consequently the orders of the 2nd and 3rd respondents are liable to be quashed and set aside.

6. At the outset it may be pointed out that to consider Section 22 of the S.I.C. (S.P.) Act, Section 22 must be attracted. In the instant case the petitioner No. 1 is a company and the petitioner Nos. 2 to 7 are its Directors. The proceedings under Section 49 are not proceedings by way of a suit. At the highest the orders passed by the 2nd and 3rd respondents are sought to be executed and if Section 22 is applicable would fall under the expression "execution, distress or the like against any of the properties of the Industrial Company." The Section further provides that no suit for the recovery of money or for enforcement of any security against Industrial Company or of any guarantee in respect of any loans, advances granted to the industrial company shall lie or be proceeded with further except with the consent of the Board or as the case may be, the Appellate Authority. In so far as the petitioner No. 1 is concerned, as pointed out earlier, the proceedings under Section 49 not being a suit Section 22 would not be applicable. In so far as the petitioners 2 to 7 are concerned though they are directors the proceedings are not in respect of any guarantee which they had given to the petitioner No. 1 towards any loans or advances granted to the industrial company. The proceedings, therefore, against the petitioner Nos. 2 to 7 cannot be stayed by virtue of Section 22 of the Act but could be proceeded with unlike the earlier part of the Section which provides that no proceedings for winding up of the industrial company or for execution distress or the like against any of the properties of the Industrial Company. There is no similar provision in so far as guarantors are concerned by which the proceedings for execution cannot be proceeded with. Therefore, it is clear that even considering the terminology used in Section 22, proceedings against petitioners 2 to 7 at any rate cannot be stayed nor proceedings for recovery can be stayed.

The only question is whether in respect of the amounts sought to be recovered by the respondent No. 5 against petitioner No. 1 can be said to be proceedings in execution or for distress and can be proceeded with considering section 22 of the Act. We have earlier noted that what respondent No. 5 is claiming are the amounts collected by the Petitioner No. 1 and which were deducted from the wages of its employees to be remitted to respondent No. 5. This clearly was not in respect of any loans advanced by the respondent No. 5 to petitioner No. 1 nor is it any amount that has become due and payable arising from any contract or the like. It is true that there is a contract but that contract only provides that the petitioner No. 1 will deduct the amounts from the wages of its employees and considering Section 49 of the M.C.S. Act remit the same to respondent No. 5.

With that we now come to the issue as to whether the provisions of Section 22 would be attracted in the case of deduction of wages. In the case of Baburao P. Tawade and Ors. v. Hes Ltd. 1995 II CLR 81 a single Judge of this Court held that the Section would be inapplicable in so far as wages are concerned. In the case of Carona Limited, 2000 (4) Mh.L.J.37 considering the ambit of Section 22 it was observed as under:-

"What is involved herein are the wages of other legal dues of the workers. To my mind considering the various judgments including that of our High Court referred to by the Industrial Court it is impossible to conceive a situation where Parliament, fully knowing the true import of Article 21 of the Constitution would be deemed and presumed to have taken a view that the Wages and terminal benefits to which the workers are entitled to are not payable until permission is obtained from the Board. Wages and terminal benefits to which the workers are entitled, must constitute and deemed to be part of their right to life. They are the minimum required for their sustenance and of their families. If it is impossible in these situation to consider that for the purpose of rehabilitation of an industry workers must be denied their legitimate dues. Even in a case of winding up, Parliament realising the need to protect the workers has made them pari passu charge holders with secured creditors by introducing Section 529-A and amending Sections 529 and 530 of the Companies Act. In these circumstances workers cannot be put in a worse position than that of a company which is being wound up."

In this situation if the amount cannot be recovered from the company the consequences would be that though the petitioner No. 1 deducted the amount from the wages of its employees till such time the proceedings before B.I.F.R. were completed or B.I.F.R. permitted Respondent No. 5 to proceed, the moneys could not be recovered from Petitioner No. 1. In our opinion Section 22 would not be attracted in such cases as what is sought to be recovered are wages which were deducted from the employees and not remitted to respondent No. 5 in terms of the instructions of the workmen. Another single Judge of this Court in the matter of payment of gratuity in the case of Modistone Ltd. and Ors. v. Deputy Commissioner of Labour, Mumbai and Ors., 1999 II CLR 371 held that gratuity payable would not attract the provisions of Section 22 of the SIC (S.P.) Act. Similarly another learned Judge in the case of Ralliwolf Ltd. v. Regional Provident Fund Commissioner-I, 2001 (2) Mah. L.J. 169 took a view that the recovery of Provident Fund due to employees under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 does not fall within the scope of Section 22(1). In our view considering the judgments of this Court it is clear that in the matter of wages and terminal dues of the workmen the provisions of Section 22 will not be attracted. The learned Counsel for the petitioners, however, had placed re1iance in the case of Tata Davy Ltd. etc. v. State of Orissa and Ors., . In that case the Apex Court had taken the view that the arrears of sales tax cannot be recovered under the provisions of Section 22(1) by coercive process. In our opinion that judgment would be of no assistance to the petitioners. Recovery of arrears of sales tax was money recovered by the company on sale of goods. That cannot be equated with wages and terminal dues of workmen. There can be no difference or distinction between wages due and not paid and wages deducted and not remitted. In our view considering the consistent view of this Court that wages and terminal benefits are not be covered by Section 22 that argument will have to be rejected. If the provisions of Section 22 are not attracted the relief in terms of prayer Clause (b) as prayed for by the petitioners will have to be rejected. As earlier noted the bar of Section 22 would not operate as against the petitioner Nos. 2 to 7 as recovery sought is not in respect of guarantee given by the petitioner Nos. 2 to 7 for and on behalf of petitioner No. 1 for loans advanced. Similarly, in so far as petitioner No. 1 is concerned what is sought to be recovered may be by respondent No. 5 as their legal dues, are in fact wages of its employees which has been deducted from the wages by the petitioner No. 1 and as such the bar of Section 22 would not be attracted.

7. we may now consider whether in respect of such deductions made by the petitioner N.1, the petitioner Nos. 2 to 7 are also liable. Section 49 reads as under:-

"49. Deduction from salary to meet society's claims in certain cases:- (i) A member of a society may execute an agreement in favour of the society, providing that his employer shall be competent to deduct from the salary or wages payable to him by the employer, such total amount payable to the society and in such installments as may be specified in the agreement and to pay to the society the amounts so deducted in satisfaction of any, debt or other demand of the society against the member. A copy of such agreement duly attested by an officer of the society shall be forwarded by the society to the employer.

(2) On receipt of a copy of such agreement, the employer shall, if so required by the society by a requisition in writing, and so long as the total amount shown in the copy of the agreement as payable to the society has been deducted and paid to the society, make the deduction in accordance with the agreement and pay the amount so deducted to the society, as if it were a part of the wages payable by him as required under the Payment of Wages Act, 1936 on the day on which he makes payment.

(3) If after the receipt of a requisition made under the foregoing sub-section, the employer at any time fails to deduct the amount specified in the requisition from the salary or wages payable to the member concerned, or makes default in remitting the amount deducted to the society, the employer shall be personally liable for the payment of such amount or where the employer has made deductions but the amount so deducted is not remitted to the society, then such amount together with interest thereon at one and half times the rate of interest charged by the society to the member for the period commencing on the date on which the amount was due to be paid to the society and ending on the date of actually remitting it to the society; and such amount together with the interest thereon, if any, shall, on a certificate issued by the Registrar, be recoverable from him as an arrears of land revenue, and the amount and interest so due shall rank in priority in respect of such liability of the employer as wages in arrears.

(4) Nothing contained in this section shall apply to persons employed in any railways (within the meaning of the Constitution) and in mines and oil fields."

A reading of that Section would show that if the agreement as contemplated therein is entered into, the employer if such employer deducts the wages and fails to remit the amount, the employer shall be personally liable for payment of such amount. Section 49 came up for consideration before a learned Single Judge of this Court Kapadia J., (as His Lordship then was) in the matter of Madanlal Tantia and Ors. v. Collector of Bombay and Ors., 1992 II C.L.R. 736. In that case also the question that had arisen was whether Section 49(3) of the Co-operative Societies Act, 1960 under which the employer deducts certain agreed and stipulated amounts to be paid to the workers' society from their wages is applicable and if so whether the Directors of a company which has entered into an agreement contemplated by Section 49 of the said Act are personally liable under Section 49(3) of the said Act read with Section 267 of the Maharashtra Land Revenue Code, 1966. After considering the object of the Section 49(3) the learned Judge held that Section 49 proceeds on the basis that agreement is entered into by the employer with the workmen and the said employer deducts from the wages to be paid to the society the employer assumes fiduciary capacity. If this object of section is kept in mind, it is clear as to why Section 49(3) is made penal in nature by the Legislature, particularly in view of the fact that the employer who acts as a trustee on behalf of the employees is bound to remit the amounts from time to time which he has deducted from the salary of the workmen. The learned Judge further held that the employer under Section 49(3) who deducts certain amounts from the wages cannot contend that in view of the take over he should be exonerated from the consequences of not remitting moneys which belonged to the workmen. If the above principle is also kept in mind it is clear that Section & of the Act which refers to the expression 'employer' must be read in the widest possible term. The Legislature the learned Judge held has not used the word company in Section 49(1), but used the word 'employer' who deducts certain amounts from the wages of the employees to be paid over to the workers' society and it is for this very reason that in Section 49(2) there is a reference to the Payment of Wages Act, 1936 which clearly indicates that the amount deducted by the employer constitutes the wages under the Payment of Wages Act. The learned Judge further held that the ultimate control of the company which is the owner of the establishment of the factory vests in the Directors and in the absence of nomination the Directors could be held jointly and severally responsible for no payment of the dues of the workmen. From the judgment what emerges is (a) that the amount deducted and retained by the petitioner No. 1 was wages of it's employees (b) that not only the company, but the Directors who were in charge of the company would be jointly and severally liable for the due repayment of the said wages. Under these circumstances, it is clear that the Directors are also liable. We are in respectful agreement with the view taken by the learned single Judge.

8. We may now deal with the last contention raised on behalf of the petitioners that there was no proper service on them and consequently the order is liable to be set aside. The respondent No. 5 has on the other hand contended that the petitioners should not be allowed to raise the said contention for various reasons. Firstly, it is contended that in the petition itself the petitioners have not sought for any relief. Even what has been pointed out on behalf of the petitioners as a necessary averments in para.13 are considered they only make a reference to Exhibit B which are proceedings for attachment. In other words there is no challenge in so far as to the orders of 2nd and 3rd respondents are concerned. It is then pointed out that the Revision preferred against the orders of the 2nd respondent was only by petitioners 2, 5,6 and 7. The petitioner Nos. 1, 3 and 4 had not challenged the same. The order passed against them by the 2nd respondent has becomes final. It would not, therefore, be open to the said petitioners who had not challenged the order in Revision, for the first time to challenge the said order before this Court. On facts it is pointed out that the petitioner No. 1 was served on 25th September, 2003 and was represented. Similarly, the petitioner No. 2 was served as also petitioner No. 7. These petitioners chose not to remain present before the 2nd respondent. They cannot now make a grievance assuming that they are allowed to do so for the first time before this Court, even though such ground is not taken in the petition, to contend that they had no opportunity. They were duly served and chose not to remain present and consequently the proceedings against them have proceeded exparte. Apart from that it is pointed out that the case of petitioners 2 to 7 in the Civil Suit was not of denial that the amount was not due and payable but their contention was that the said amount was due and payable by the petitioner No. 1 and not by petitioner Nos. 2 to 7. It is, therefore, contended that the petitioner No. 1, who had not challenged the order before the Revisional Authority and considering the admission by its own directors cannot now contend that the amount is not due and payable. Apart from that it is pointed out that the petitioners 2 to 7 also would be estopped from contending that the said amount is not due and payable considering their own admission and the material on record as reflected in the order dated 17th September 2003 that the amount is due and payable. It is, therefore, pointed out that it will be futile exercise to remand the matter back to the respondent No. 2 for reconsideration.

Having heard Counsel on this aspect in our opinion what would emerge is that the petitioner Nos. 1, 2 and 7 were duly served and consequently they can have no grievance that they were not served. They did not avail of the opportunity. Petitioner No. 1 had also not challenged the order in revision. In so far as Respondent Nos. 2 and 7 are concerned, they also choose not to appear though served. In the suit filed by them there are averments that petitioner No. 1 had deducted the amounts and not remitted the amounts to respondent No. 5. The challenge by these petitioners that the order against them is liable to be set aside must be rejected.

That, however, cannot be said against the petitioners 3 to 6. From the dates narrated earlier it is clear that the respondent No. 2 proceeded without satisfying himself that the said petitioners were duly served. In fact the petitioners 5 and 6 were served on 30th September, 2003 that is after the date of hearing whereas the petitioners 3 and 4 were served on the same date of hearing. There is nothing in the record to indicate whether the respondent No. 2 had notice that the petitioners 3 and 4 were served. The order in so far as those petitioners are concerned, therefore, would be liable to be set aside.

Another argument which needs to be noted is, that considering the amount involved the matter against all the petitioners is liable to be set aside. As noted earlier the petitioner No. 1 never challenged the order passed by the respondent No. 2 before the 3rd respondent. Even before this Court the petitioner No. 1 has not disputed that the amount claimed is not due and payable. In paragraph 5 on the contrary the contention is that on account of various reasons the conditions of petitioner No. 1 was affected seriously. The other aspect of the matter is that the Directors who represent the petitioner No.1 i.e. the petitioner Nos. 2 to 7 in the suit filed by them and which is adverted to earlier being Suit No. 339 of 2003 have not denied that the said amount is not due and payable. Their only contention is that it is the petitioner No. 1 who is liable and not them. In these circumstances and considering this aspect of the matter in so far as the petitioner Nos. 1, 2 and 7 are concerned who have been duly served it will not be possible to interfere with the finding in so far as the amount due and payable is concerned. Even in respect of the petitioner Nos. 3, 4, 5 and 6 it will be open to the respondent No. 5 to contend before the Recovery Officer that they are bound by the admission made in the suit and that an order accordingly be passed in terms of the admission. It is, however, not necessary for this Court presently to hold that amounts to admission on the part of the said petitioners considering that the matter would be alive before the respondent No. 2.

9. The only other issue is of attachment. The order of attachment against the petitioner Nos. 1, 2 and 7 cannot be interfered with. In so far as the petitioner Nos. 3 to 6 are concerned considering the earlier-finding that they are liable along with the petitioner No. 1 and as the liability of the petitioner No. 1 has been established and as the contention of the petitioner Nos. 1, 2 7 is being rejected, it would be proper that the order of attachment continues also against the assets of petitioner Nos. 3 to 6 till such time the matter is decided by the Respondent No. 2 and for a further period thereafter which will be set out in the direction to be issued.

10. For all the aforesaid reasons we are of the view that the reliefs as sought by the petitioner Nos. 1, 2 and 7 will have to be rejected. In so far as the petitioner Nos. 3, 4, 5, and 6 the petition will have to be partly allowed. In the light of the above the following order:-

(a) Relief in terms of prayer Clause (b) is rejected. The provisions of S.I.C. (S.P.) Act will not apply.

(b) The orders passed by Respondent Nos. 2 and 3 in so far as petitioners 1, 2 and 7 are confirmed.

(c) The orders dated 1st October, 2003 and 13th November, 2003 in so far as the petitioner Nos. 3, 4, 5 and 6 are set aside. The matter is remanded to respondent No. 2 to hear the above petitioners afresh and pass appropriate orders according to law, at any rate within 30 days from 3rd February, 2004.

(d) The Petitioner Nos. 3, 4, 5 and 6 to appear before the 2nd respondent on 3rd February, 2004 at 11.00 a.m.

(e) The attachment warrant in so far as petitioner Nos. 3, 4, 5 and 6 will continue pending the hearing and final disposal of the proceedings before the respondent No. 2 and for a period of four weeks thereafter if the order be adverse to the Respondent No. 5.

(f) Rule made absolute accordingly. No order as to costs.

Authenticated copy of this order be given no the parties.