Bombay High Court
Vishwanath Namdeo Patil vs The Official Liquidator Of M/S ... on 28 October, 2013
Bench: N.M. Jamdar
CA487-12 in CP385-02.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPLICATION NO. 487 OF 2012
IN
COMPANY PETITION NO. 385 OF 2002
1. Vishwanath Namdeo Patil
51 Tatanagar V.N.Purav Marg
Sion Chunnabatti Mumbai- 22
2. Deepak Naralkar
111/73, Svadeshi Mill Chawl
V.N.Purav Marg Chunabhatti, Sion
Mumbai - 22.
3. Chandrabhadur Mall
108/21, Svadeshi Mill Chawl
V.N.Purav Marg Chunabhatti, Sion
Mumbai - 22
4. Vishwanath Jadhav
Uday Chawl Committee
Asalfa Village Jambhali Pada
Ghatkopar, Mumbai - 400084
5. Krishna Pophalkar
4/18, Svadeshi Mill Chawl
V.N.Purav Marg Chunabhatti, Sion
Mumbai - 22 .. Applicants
Versus
1. The Official Liquidator of M/s Swadeshi
Mills, Bank of India Building 5th floor
M.G.Rd Fort Bombay -32 .. Respondents
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And
Board for Industrial & Financial ..(Ori.petitioner)
Reconstruction, New Delhi Org.respondent)
2. Forbes & Company Limited
(earlier known as Forbes Gokak
Limited) a company, incorporated
under the Companies Act, 1956,
having its registered office at Forbes
Building, Charanjit Rai Marg, Fort,
Mumbai - 400001.
3. Grand View Estates Private Limited, a
company incorporated under the
Companies Act, 1956, having its
registered office at 70, Nagindas
Master Road, Fort, Mumbai -
400 023 and administrative office
at SP Centre, 41/44, Minoo Desai
Marg, Colaba, Mumbai - 400 005.
Ms Jane Cox a/w Mr.Rajmohan A.Amonkar a/w Manmohan A.
Amonkar, for applicant.
Mr.F.E.D'Vitre, Senior advocate a/w Mr.Cyrus Ardeshir a/w
Mr.Tapan Deshpande a/w Mr.Vikash Jha i/b A & M & S.A.Shroff
& Co., for respondent No.2.
Mr.Virag Tulzapurkar, Senior advocate a/w My Cyrus Ardeshir a/w
Mr.Tapan Deshpande a/w Mr.Vikash Jha i/b A & M & S.A.Shroff
& Co., for respondent No.3.
Mr.J.P.Sen, for Official Liquidator.
CORAM : N. M. JAMDAR, J.
Reserved for Judgment on : 17/07/2013
Judgment pronounced on : 28/10/2013
2/91
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CA487-12 in CP385-02.doc
JUDGMENT
A short but important question that arises in this matter is, up
to which date the dues of workmen are to be calculated when a
Company is wound up. Whether the Companies Act, 1956 provides
the date of passing the order of winding up as the only contingency
or whether the Act provides any other event prior to the date of
order of winding up.
2.
This Company application is taken out by workmen of M/s
Swadeshi Mills Co. Ltd. These workmen are five out of the 735
workmen who were employed in the Mill. They had filed proof of
debt before the Official Liquidator. They inter alia claimed that
they should be paid up to the date of the order of winding up. The
Official Liquidator has paid them till the date of the appointment
of Provisional Liquidator, taking that as the relevant date. Since
this view taken by the Official Liquidator affects large number of
workmen of the Mill under liquidation, and that the issue raises
question of law of general importance, the learned counsel for the
parties have advanced arguments at great length and have
submitted written submissions. Their assistance is appreciated.
3. M/s Swadeshi Mills Co. Ltd. was one of the leading Mills in
Mumbai. The Company, when it was in operation, had
approximately 2970 employees. The Company had substantial
immovable assets. The main asset being 48 acre land at Sion
CA487-12 in CP385-02.doc
Chunabhatti in Mumbai. In the year 1997, one M/s Rally Brothers
& Convey filed Company Petition No. 1068 of 1997 for winding
up of the Swadeshi Mills Co. Ltd. The Company made a reference
to the Board of Industrial and Financial Reconstruction (BIFR).
On 24 April 1998, the BIFR declared the Company as a sick
undertaking, under the provisions of Sick Industrial Companies
(Special Provisions) Act. The BIFR on 5 February 2001, recorded
a prima facie opinion that the Company was not likely to make it's
net worth match its cumulative losses within a reasonable time and
that the Company was not likely to be viable.
ig The BIFR
recommended that it was just and equitable and in public interest to
wind up the Company. Rashtriya Mill Mazdoor Sangh (RMMS)
being the workers Union filed an appeal before the Appellate
Authority of Industrial and Financial Reconstruction (AAIFR)
challenging the order of BIFR. The Appeal was dismissed by the
AAIFR. Upon the recommendation, Company petition was
registered as BIFR Case No. 15/1998 and it was admitted by this
Court on 13 February 2002. On that day, the Company Petition
filed by M/s Rally Brothers & Convey was also admitted. On the
same day i.e. 13 February 2002 the Official Liquidator was
appointed as a Provisional Liquidator.
4. Prior to the order dated 13 February 2002, the Government
of Maharashtra, by its communication dated 20 September 2001,
had constituted a High Power Committee for the payment of
workmen and other dues of the Company. The High Power
Committee consisted of the Chief Secretary (Labour), Deputy
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Secretary (Labour), Representative of the Company and workers
Union.
5. The Company thereafter filed a Company Application and
prayed that the High Power Committee appointed by the
government of Maharashtra be authorized to sell the assets of the
Company and deposit sale proceeds in this Court. It was also
prayed that directions be issued to call a meeting of the creditors
and workers of the Company to formulate a scheme for
distribution of the amount recovered after sale of the assets. The
application was disposed of by order dated 21 June 2002,
empowering the High Power Committee to dispose of assets and
realize the proceeds, except the assets which were subject matter of
an Appeal pending before the Appeal Bench. The High Power
Committee was directed to dispose of the assets and deposit the
sale proceeds with the Official Liquidator. In July 2002, the
Official Liquidator took possession of the assets of Company. The
High Power Committee, thereafter proceeded to dispose of the
plant and machinery of the Company, which were sold to one M/s
Bhavana Enterprises- the highest bidder for Rs.15,53,45,217/- .
6. The sale was confirmed on 17 September, 2003. The Official
Liquidator issued an advertisement inviting claims from the
workers and creditors. On 13 December 2003, the RMMS filed a
claim on behalf of the employees with the Official Liquidator.
Considering 30 September 2001 as the cut off date, 70% claim of
the workmen were adjudicated and an amount of Rs.11,19,05,200/-
CA487-12 in CP385-02.doc
was admitted and paid by the Official Liquidator.
7. The company petitions came up for hearing on 5 September
2005. The Court alluded to the above mentioned events and noted
that the business operations of the Company have ceased long
back, the BIFR has already recorded prima facie opinion that the
Company has become unviable, the plant and machinery is sold,
thus the Company needs to be wound up. Accordingly, the Court
ordered that the Company be wound up under the supervision of
the liquidator by virtue of section 450(4) of the Companies Act.
The date of winding up of the Company was thus 5 September
2005.
8. Before the Court proceeded to dispose of the petition, it
considered the position of the High Power Committee. The court
came to the conclusion that once an order of winding up of a
company is passed, it would follow that the Official Liquidator is
required to take over custody of the assets and deal with them in
accordance with law. The Court observed that there was no other
mechanism envisaged by the Companies Act and the Committee
constituted by the State Government cannot be allowed to proceed
independently. It was also observed that interim arrangement of
appointment of the Committee could not bind the court from
directing the sale of immovable assets of the company in
accordance with law and that the interim arrangement was
necessary considering that the immovable assets of the Company
were plant and machinery which had to be disposed of early,
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otherwise it would have been reduced to scrap value. A submission
was made on behalf of the State Government that the High Power
Committee be permitted to act as an agent of the Official
Liquidator. Relying on Section 457(2) (v) of the Companies
Act, which allows the liquidator to appoint an agent, in the facts
and circumstances of the case, the High Power Committee was
directed to complete the ministerial formalities and call for an
advertisement regarding the public auction. Accordingly, by order
dated 5 September 2005, the petitions were disposed of. It was
made clear that while taking actions, the High Power Committee
will specify that it was acting as an agent of the Official Liquidator.
The Official Liquidator was directed to submit a report regarding
sale of the property.
9. The petitions were thereafter placed on board on 25 August
2006 along with the Official Liquidator's Report dated 19 June
2006. The learned Company Judge considered the affidavit dated
6 July 2006 affirmed by the Deputy Secretary (Labour) to the
Government of Maharashtra. The Court noted that the High Power
Committee had completed its task. Accordingly the High Power
Committee was relieved of its duties and further action was
directed to be taken by the Official Liquidator. The Official
Liquidator was directed to appoint a valuer. Valuation was to be
done on 'as is where is and wherever there is basis'.
10. On 15 November 2010, Forbes & Company Limited and
Grand View Estates Private Limited-the respondent No.2 and 3,
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and RMMS entered into a Memorandum of Understanding. In the
recitals, it was mentioned that the Forbes Company is the major
share holder and secured creditor of Swadeshi Mills Company Ltd.
and Grand View Estates Private Limited was an unsecured
creditor of the Company. These two Companies referred
themselves as the Promoter group and as part of the Shapoorji
Pallonji Group. It was mentioned in the Memorandum that the
RMMS was representing majority of the workers/employees of the
Company. Facts leading to the winding of the Company were
enumerated. It was also mentioned that the Promoter group is in
process of filing an application in the Court seeking permanent stay
on the winding up in accordance with the provisions of the Act.
The agreement between the Promoter Group and RMMS recorded
that 30 September, 2001 should be taken as the relevant date. It
was noted that there were 2807 workers / employees who were on
the roll of the Company as on 30 September, 2001. List of the
workers as on 30 September 2001 was annexed at Schedule I.
The workers were to get payment as per formula set out in
Schedule II. It was agreed that the Promoter group, upon execution
of the memorandum of understanding would apply to the Court
under relevant provisions of the Companies Act. It was agreed
that the workmen would be paid on the basis of calculation as per
schedule II, a sum of Rs.30,000/-, upon giving authority and
consent letter. The balance payment was to be made upon the Court
passing an order of permanent stay. Thereafter the company
application seeking permanent stay was filed by respondent no.2
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and 3.The Company application filed by the respondent No.2 and 3
seeking permanent stay was rejected by order dated 14 October
2011. The Court directed the Official Liquidator to calculate the
dues of the workmen expeditiously.
11. The Official Liquidator on 8 November 2011 placed a report
before the Court for engaging services of Chartered Accountant
which was allowed on 17 November 2011 for examining the
claims. The Official Liquidator, thereafter, by letter dated 23
December, 2011 called upon respondent No.2 and 3, RMMS and
Swadeshi Mills Kamgar Sangharsha Samiti (SMKSS) to file their
say. In response to the letter dated 23 December 2011, the Forbes
Company Ltd. and Grand View Estates Pvt. Ltd., RMMS and
Swadeshi Mills Kamgar Sangharsha Samiti filed their written
submissions. SMKSS contended before the Official Liquidator
that the dues of the workers are required to be calculated up to the
date of winding up as per the provisions of Section 445(3) of the
Act. RMMS submitted that the claims of the workers may be
adjudicated in terms of the MOU dated 15 November, 2010.
Secured creditors stated that 13 September, 2001 should be
considered as the relevant date for adjudication of the claims. It
was also stated by them, without prejudice to their contentions, that
the Official Liquidator may consider 13 February, 2002 i.e. the
appointment of Provisional Liquidator as the relevant date for the
claims of the workers.
12. After considering the submissions, the Official Liquidator
CA487-12 in CP385-02.doc
prepared a note. As per this note the Official Liquidator adjudicated
approximately 643 claims of permanent workers, 6 technical staff,
148 Badli workers, 5 deceased workers, 1 head office staff. Other
claims are under the process of adjudication.
13. After examing the claims lodged by the present applicants,
the Official Liquidator issued notice of admission of proof to the
applicant on various dates. Notice of admission of proof stated that
part of the claim was allowed and part of the claim was rejected as
not proved. No reasons were given. On 25 April 2012, the
applicants, through their advocate called upon the Official
Liquidator to give reasons as to why the full amount was not
allowed,the basis of the adjudication, and what was the date up to
which the dues were calculated. It was stated by the Advocate that
she represented 735 employees of the Mill and 28 employees of the
head office of the Company.
14. The Official Liquidator, by letter dated 16 May 2012
communicated the reasons and basis of computation. The reasons
read as under:
"1. ..............
2. We need not go into the legality or otherwise of de-facto
closure, since we have admitted retrenchment
compensation for the full tenure of service from the date
of joining to the date of appointment of provisional
liquidation.
3. As regards relevant date for the purpose of determining
employees' dues, we have to state that Section 530(8)(C)
clearly provides that in case of a company ordered to be
CA487-12 in CP385-02.doc
wound up compulsorily, the date of appointment (or first
appointment) of a Provisional Liquidator is the relevant
date. If no such appointment was made, the date of
winding up order becomes the relevant date.
That this provision is not exclusive for the purpose of
section 530 alone is enunciated in the Ahmadabad High
Court decision in case of Jubilee Mills (Company
Application 360 of 1998 In Company Petition 139 of
1996).
4. As regards the claim for Provident Fund Contribution &
Interest thereon it is stated that this amount, if due the
same can only be claimed by Provident Fund
Authorities.
As regard claim for bonus it is stated that since the
company has stopped its operations w.e.f. Oct, 2000,
bonus for more than one year cannot be allowed.
5. As regards what components of salary will be included
for computing workmen U/s 529A & the basis of
computation, I have to detail the manner as follows :
Basis of Computation adopted by this office:
- Arrears of Salary is calculated from October 2000 to
13/2/2002 i.e. up to date of provisional winding up.
- Last salary drawn as per September 2000 or earlier pay
slip is considered for the computation of all workman's
dues.
- Recess Allowance and Conveyance Allowance will not
be considered since it can arise only when the unit is
operational.
- Other Allowances such as Lump sum allowance and
HRA are included in total emoluments.
- Amount paid earlier towards wages from October 2000
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to August 2001 is recovered. Similarly gratuity paid to
staff/workmen till 2001 will be recovered since now it
will be paid till 13/2/2002.
- Gratuity and Bonus is calculated with reference to last
drawn Basic and D.A. salary (excluding allowances).
- Retrenchment compensation, notice pay, leave salary,
arrears of salary is computed with reference to total
(last drawn) salary including HRA and Lump sum
allowance.
- Retrenchment compensation & Notice pay will not be
paid in case of termination prior to 13/2/2002.
- Badli workers will only be entitled to outstanding salary
prior to de facto closure, if proved. They will not be
entitled to retrenchment, notice pay, gratuity, etc."
15. This conclusion of the Official Liquidator is questioned in
the present proceedings. The applicants have taken out this present
Company application for the following reliefs:
"(a) For an order of this Hon'ble Court, setting aside the
adjudication by the Official Liquidator of the dues of the
workmen of the Company in Liquidation, as recorded in
the Notices of Admission of Proof, sent from various
dates from May 2012, to the extent that the Official
Liquidation did not allow the full claim of the workmen;
(b) For an order of this Hon'ble Court, directing the
Official Liquidator to pay to the workmen, including the
badli workmen, all wages and allowances and benefits
for the period October 2000 to 05/09/2005, which they
would have been entitled to had the undertaking not
been closed down, (including all increments on basis
wage and periodic enhancement of Variable Dearness
Allowance), House Rent Allowance, Educational
Allowance, and all other Allowances, and bonus @
8.33%, with interest commercial rate on all of the above
CA487-12 in CP385-02.doc
should there be surplus, minus the advance amounts
paid earlier by the Official Liquidator;
(c) For an order of this Hon'ble Court, directing the
Official Liquidator to pay to the workmen, including the
badli workmen, for the said period the Arrears of the
employer's Provident fund contribution, contribution for
the said period with statutory interest @ 12% as per the
Employees' Provident Fund & Miscellaneous Provisions
Act, 1952 Act, plus statutory interest @ 12% on the
employee's contribution for the same period.
(d) For an order of this Hon'ble Court, directing the
Official Liquidator to pay to the workmen, including the
badli workmen, gratuity with statutory interest as per
the Gratuity Act, 1972, and retrenchment / closure
compensation as per s.25F r/w.S 2 (rr) of the Industrial
Disputes Act, 1947, calculated not on the actual last
drawn wage but on the wage which they would have
been entitled to receive as on 05/09/2005, including all
enhancements such as annual increments and periodic
Variable D.A. Increases.
(e) For an order of this Hon'ble Court, pending the hearing
and final disposal of this Judges Summons, restraining
the Official Liquidator from dispersing any amounts
from the sale of the assets of the Company in
Liquidation, to any of the other non employee creditors,
including secured creditors, of the said Company in
liquidation;"
16. By way of amendment to the Judges Summons, Forbes &
Company Limited and Grand View Estates Private Limited have
been joined as Respondent Nos. 2 and 3. Affidavits in reply have
been filed by the Official Liquidator, and respondnat no. 2 and 3.
Compilation of documents are filed.
17. I have heard Ms Jane Cox, for the applicant; Mr.J.P.Sen, for
CA487-12 in CP385-02.doc
Official Liquidator, Mr.F.E.D'Vitre, Senior Advocate for
respondent No.2 and Mr.Virag Tulzapurkar, Senior advocate, for
respondent No.3. Learned counsel have submitted written
submissions as well.
18. First thing to be noticed and disapproved is the complete
lack of reasoning in the notice of admission of proof by the Official
Liquidator. The learned counsel for the applicants has rightly made
a grievance about it. All that the notice stated was that the claim
has been adjudicated for a specified sum and the balance has been
rejected as not proved. There are absolutely no reasons given in
the order as to why the part of claim was rejected.
19. This is not an isolated instance. Time and again this Court
has come across orders passed by the Official Liquidator rejecting
the claim of the applicant wholly or in part without any reasons.
The Companies (Court) Rules, 1959 lays down a specific
procedure for dealing with the debts and claims against the
company in liquidation. Under Rule 149, every creditor, to prove
his debt, has to file the claim along with an affidavit verifying the
debts, by delivering or sending it by post to the Liquidator. Rule
151 specifies the contents of statement of proof. This rule states
that an affidavit proving a debt shall contain a statement of account
showing particulars of debt and other particulars which will enable
the Official Liquidator to ascertain the veracity of the claim. Under
Rule 159 the Liquidator shall, with all convenient speed, examine
every proof of debt lodged with him and grounds of the debt. The
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Official liquidator is entitled to ask for production of the vouchers,
if any referred to in the affidavit of proof, or require further
evidence in support of the debt and can also call upon the creditors
if any further evidence if required. Under Rule 161, the Official
Liquidator is also entitled to administer oath and take affidavit.
20. After the claim is so examined, the Official liquidator is
required to communicate the acceptance or rejection of the proof to
the claimants under Rule 163, which reads as under:
"163 : Acceptance or rejection of proof to be
communicated. After such investigation as he may
think necessary, the Liquidator shall in writing admit
or reject the proof in whole or in part. Every decision
of the Liquidator accepting or rejecting a proof, either
wholly or in part, shall be communicated to the
Creditor concerned by post under certificate of posting
where the proof is admitted and by registered post for
acknowledgment where the proof is reject wholly or in
part, provided that it shall not be necessary to give
notice of the admission of a claim to a creditor who has
appeared before the Liquidator and the acceptance of
whose claim has been communicated to him or his
agent in writing at the time of acceptance. Where the
Liquidator rejects a proof, wholly or in part, he shall
state the grounds of the rejection to the creditor in
Form No. 69. Notice of admission of proof shall be in
Form No.70."
21. Thus whether the proof is rejected wholly or in part, the
Official Liquidator is under mandate to state reasons for partial
grant or rejection of the claim to to the creditor in as per form
no.69 of the Rules. Form No. 69 as appended to the Rules, reads as
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under:
[See Rule 163]
[Heading as in Form No.1 ]
Company Petition No...... of
Notice of rejection of proof of debt
To,
....................
....................
Take notice that as the Official Liquidator of the
above named company, I have this day rejected
your claim against the company (or to the extent
of Rs.............] on the following grounds:
ig ****
And take further notice that, subject to the power of
the Court to extend the time, no application to
reverse or vary my decision, in rejecting your
proof will be entertained after the expiration of 21
days from the date of service of this notice.
Dated this ..... day of.......
Official Liquidator"
The form specifically makes a provision for stating reasons
why the claim has been rejected or partly granted.
22. Thus, the conjoint reading of the above mentioned rules and
the forms makes it abundantly clear that the Official Liquidator is
under mandate to give reasons when the claim is rejected either
wholly or in part. Many times the claims are lodged by the
workmen of the company in liquidation ,as in the present case. It is
noticed that claims are rejected by the office of the liquidator
without stating reason, forcing the workmen to approach the court,
engage a services of a advocate and needlessly incur expenses just
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to get the claim readjudicated. When there is a legislative mandate
upon the Official Liquidator to give reasons,it must be scrupulously
followed.
23. Normally it would follow that since the Official Liquidator
has not given reasons, the order be set aside and the Official
Liquidator be directed to pass a fresh order giving reasons. The
learned counsel for the parties however agree that taking this
course of action in the present application however would be a
needless exercise as the applicants, after receiving the Notice of
Admission of proof, through their advocate made a detailed
representation on 25 April 2012 to indicate reasons as to why full
amounts were not allowed and to disclose basis of adjudication
including the date till the dues were calculated. The Official
Liquidator replied by a letter dated 16 May 2012 giving reasons
why the impugned decision was taken. The Official Liquidator
gave reasons for arriving at the date till the dues were calculated
and why the claim was not fully allowed by the Official Liquidator.
Considering that the Official Liquidator has already given reasons
by a letter dated 16 May 2012, upon so requested by the applicants,
no purpose will now be served by setting aside the impugned
orders and by directing the Official Liquidator to pass fresh orders
giving reasons. Especially since decision in this judges summons
will govern the the cases of other workmen. The learned counsel
for the parties have therefore proceeded to address the Court on
merits. The impugned adjudication done by the Official Liquidator
will have to be read along with the reasons given by the Official
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Liquidator on 16 May 2012.
24. The main contention of the learned counsel for the applicant
is that the Companies Act specifies only one date till the dues are to
be calculated i.e. the date of order of winding up as provided in
Section 445 (3) of the Companies Act and no other contingency is
provided under the Act. While it is the submission of the learned
counsel for the Official Liquidator and the learned counsel
appearing for the respondent Nos.2 & 3 that Section 445 is a
deeming fiction and date of winding up is only one of the
contingencies that is contemplated under the Companies Act and in
the facts of the present case, the date of appointment of Provisional
Liquidator with full powers has to be considered as the relevant
date. The date of winding up is 5 September 2005 and date of
appointment of Provisional Liquidator is 13 February 2002
Arguments are also advanced regarding the wages to be paid and
the claim of Badli workers.
25. From the rival contentions broadly three issues arise -
(a) Which is the relevant date up to which the dues of the
workmen need to be calculated.
(b) Which component of dues of the workmen need to be paid
on priority.
(c) Whether the badli worker can raise any claim, and to what
extent.
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The Relevant Date.
26. The learned counsel for the applicant Ms. Jane Cox has
made the following submissions:
(a) When the Mill was closed in September 2001 no
application made by the Company to the State Government for
permission to close or retrench the employees as per Section 25-O /
25-N of the Industrial Disputes Act 1947 and the
closure/retrenchment is illegal and in violation of the said
mandatory provisions of the Act. As per Section 25-O(6) and
Section 25-N(7) of the Industrial Disputes Act, 1947. Therefore the
employees are entitled to all of the wages and benefits under any
law for the time being in force as if there had been no
closure/retrenchment and be paid "Workman's dues" under section
529A with section 529(3). The deeming fiction under section
25(O) (6) must be carried to its logical conclusion.
(b) The Official Liquidator in reply to the advocates
notice has stated that the cut off date had been taken as that of the
appointment of the Provisional Liquidator only on the basis of
section 530(8)(b) of the Companies Act, 1956, and the Judgment of
the Hon'ble Gujarat High Court in the matter of Textile Labour
Association v/s. Official Liquidator, Ahmadabad (Jubilee
Mills)1. The section 530(8)(b) however, does not apply to
workmen.
1- (2000) 99 Com Cases 189
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(c) The wages and dues of workmen are to be calculated
till the order of winding up, and not on any date prior thereto, as
per Section 445(3) of the Companies Act, 1956, which expressly
provides that the winding up order shall be deemed to be the notice
of discharge to the employees, except where the business is
continued. Rule 154 of the Companies (Court) Rules, 1959
provides that the value of all debts and claims against the company
shall, as far as possible, be estimated according to the value thereof
on the date of the order of the winding up.
(d)
The reference in section 530(8)(c) of the Companies
Act, 1956, to the relevant date being the date of the appointment of
the Provisional Liquidator, if appointed, has no application to
workmen as section 530 (8)(bb) states that the expression
employee does not include a workman. The Legislature has treated
workmen and non-workmen employees in such an entirely
different manner in industrial law, and placed workmen are on an
entirely separate footing, as to make the two categories non-
comparable. Section 529(3) of the Companies Act, the dues which
the workmen are to get preference are much more than the dues
which can be claimed by non-workmen employees under section
530. Under section 530, apart from the other dues mentioned
therein, the employees only get preference in respect of wages or
salary due for a period not exceeding four months within the
twelve months next before the relevant date. However, under
section 529A, a workman gets overriding preference for all
workman's dues and section 529(3)(b)(i) does not limit the wages
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to any period, and further provides for any compensation payable
under the provisions of the Industrial Disputes Act, 1947.
(e) The services of a workmen cannot be discharged or
terminated by implication but by a method known to industrial/
labour law, or by any specific statutory provision. The only section
of the Companies Act, 1956 which provides for the discharge of an
employee, which includes a workman, is section 445(3), and that
too by a deeming fiction, as no actual order of discharge /
termination has been passed. In respect of workmen, the only two
provisions under the Companies Act, 1956, and Rules framed
thereunder are section 445(3) and Rule 154.
(f) There is a difference between provisional winding up
and final winding up. Though a Provisional Liquidator has wide
powers, Provisional Liquidator ensures the protection of assets
during the winding up process. Till the order of winding up the
Company continues to exists and the Directors remain the
Directors of the Company and can conduct business and all of their
powers do not cease on the appointment of a Provisional
Liquidator. After winding up the Company ceases to exist and the
directors stand discharged. The order appointing a Provisional
Liquidator can be recalled. However, an order of winding up
cannot be recalled but can only be stayed under section 466. At the
stage of the winding up order, the Court is in custodia legis with
regard to the property and it is for this reason that the word
winding up has been used in section 445(3) to signify the point
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when the master servant relationship comes to an end.
(g) Section 529A, was brought to protect the dues of the
workmen who had contributed in a major way to the capital of the
company and to place their dues pari passu with those of the
secured creditors. The Statement of Objects and Reasons of the
amending Act of 1985 makes the position clear. To hold that the
dues of the workmen should only be calculated up to the date of
appointment of the Provisional Liquidator, would be to render the
pari passu charge of the workmen illusory.
(h) In the facts and circumstances, the action was not
taken in provisional liquidation to effectively finally wind up the
company. The immovable assets of the Company, including its
main asset, the 48 acres of land at Sion-Chunabhatti till date, has
not been sold.
(i) The payment of 75% of the earned wages was made
against claims filed by the RMMS union, is without the knowledge
and consent of the workmen, and these claims were admittedly
only for the earned wages, and the RMMS have not only not filed
any claims for dues of the workers with the Official Liquidator
other than for these earned wages for the said period, but
categorically stated that they will not.
(j) Once the Order of winding up was passed the sale of
the assets and the distribution thereof must be strictly according to
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the mandate of the Companies Act, 1956. The mere fact that under
section 20(4) of SICA the BIFR is empowered to distribute the
proceeds of a sale of assets as per section 529A even before an
order of winding up has been made has no relevance in this matter
as admittedly no such sale or distribution took place. Thus, in the
facts and circumstances of this matter, action was not taken in
provisional liquidation to effectively finally wind up the company
and the main immoveable asset of the Company remains unsold,
and thus even on the facts of the case, no case has been made out
for the date of the appointment of the Provisional Liquidator to be
treated as the relevant date.
(k) If a workman who has been left with no source of
livelihood withdraws the amounts in his provident fund, then this
could not be construed as an admission that his services have come
to an end. Even otherwise, the office of the Asst. PF
Commissioner has stated that no form had been submitted stating
the reason and date of cessation and that most of the claims were
settled on the basis of the date of cessation as 1 August 2000,
because 1 August 2000 was the cessation of the provident fund
deposits by the Company.
(l) Reliance is placed on the decision of the Apex Court
in the case of Bank of Maharashtra Vs Pandurang Keshav
Gorwardkar & Ors.2. to contend that the decision of the Apex
Court supports the interpretation that the date of cessation is the
2 -Civil Appeal No.7045 / 7046 of 2005 decided on May 7, 2013
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date of winding up.
27. Mr.J.P.Sen, learned counsel appearing for the Official
Liquidator made the following submissions:
(a) The dues of workmen are not to be calculated till the
winding up order, but till the appointment of Provisional
Liquidator. The premise that Section 445(3) of the Act defines the
only circumstance in which a workman would stand discharged is
incorrect as the employment of a workman may come to an end for
any number of reasons including, e.g., superannuation, dismissal
from service, closure under Section 25-O, resignation and death.
This view also finds some support from the language of Section
530(8)(c) where the relevant date for computing the dues of
employees has been held to mean the date of appointment of a
Provisional Liquidator, or if no such appointment was made, the
date of the winding up order. While it is true that Section 530 does
not apply to workmen, it is indicative of legislative intention.
(b) Section 450(3) of the Act provides that unless the
Court restricts the powers of the Provisional Liquidator, he would
have all the powers that a Liquidator would have in the winding up
of the Company. Unless the powers of the Provisional Liquidator
are limited he would take custody of all the property, effects and
actionable claims of the company; displace the Board of Directors
and thereafter act on the company's behalf.
(c) In the facts of the present case, the services of the
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workmen came to an end on the appointment of the Provisional
Liquidator. From November 2000, the business of the Company
was at standstill. BIFR had recommended that the Company be
wound up. Even prior to the Provisional Liquidator, the Company
had virtually ceased to exist. The Provisional Liquidator was not
authorized to carry on business, the plant and machinery of the
Company was in fact sold by the High Power Committee. Thus
the services of the employees including the workmen must be
deemed to have come to an end on the appointment of the
Provisional Liquidator.
(d) Gujarat High Court in Jubilee Mills1 held that the
relevant date for computation of the workman's dues as well as the
dues of the secured creditors for the purpose of determining the
ratio of the respective dues under Sections 529, 529A of the
Companies Act is the date of first appointment of Provisional
Liquidator and if no such appointment is made the date of the
winding up. It is indeed settled law that wages would be payable
as provided under Section 25-O(6) for the period of illegal closure
of a Company but, such wages would, in the event of appointment
of a Provisional Liquidator, be payable only until such
appointment. Only such heads of claim as would fit the definition
of wages in Section 529(3)(b)(i) would be entitled to priority under
Section 529A. In the present case, the wages of the workmen have
been adjudicated on the basis that the closure was illegal and that
they continued in service until provisional liquidation.
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28. Mr.F.E.D'Vitre, Mr. Virag V. Tulzapurkar, learned senior
Advocate for the respondent No.2 and 3 made the following
submissions :
(a) The cessation of employment does not take place only
on the winding up order being passed. There are several other
instances/events pending the hearing of a petition for winding up a
company which would also result in the cessation of employer
/employee relationship such as superannuation, dismissal of an
employee from employment, contract of employment coming to an
end, the employee may himself or herself resign or termination by
the company of his services, or on closure as envisaged under
Section 25 of the Industrial Disputes Act. These are only some of
the illustrative examples and are by no means exhaustive. Thus, a
winding up order is not the only event that can bring about a
cessation of employment.
(b) In the facts of the present case, appointment of
Provisional Liquidator brought about cessation. The BIFR
recorded that the Company should be wound up. Once this
recommendation is forwarded to High Court, the passing of an
order of winding up is a formality. The BIFR itself is empowered
to order a sale of Company's property and to distribute the sale
proceeds in accordance with Section 529 A, even before a formal
winding up order is passed by the High Court. There is an
overriding non-obstante clause which gives primacy to orders
under SICA, or overriding all other laws.
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(c) The Official Liquidator was appointed as the
Provisional Liquidator of the Company with all powers under the
provisions of the Companies Act, 1956. The business of the
Company had come to a complete standstill in November, 2000.
On the appointment of the Provisional Liquidator with all powers,
the powers of the Directors to manage the Company also came to
an end. In these circumstances, there was legally no employer who
could, for example apply to the State Government for "closure"
under Section 25-O of the Industrial Dispute Act. The plant and
machinery of the Company also came to be sold by a High Power
Committee.
(d) Sub Section 3 of Section 445 states that the winding
up order shall be deemed to be notice of discharge". This section
does not say that the employment stands terminated on notice. Sub
Section 3 of Section 445 only refers to the event of winding up
being a deemed notice of discharge, and the deemed notice does
not bring about termination or cessation. The deemed notice would
operate only in the absence of any other actual event causing
cessation of employment. The deeming fiction in Section 445 (3)
does not require the Court to ignore to actual and factual state of
affairs regarding a company. Section 445 (3) provides an outer
limit beyond which employment cannot continue, but that does not
mean that employment cannot cease prior to that date.
(e) In the facts of the present case, at the instance of a
secured creditor, a Company Application was moved and the
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Division Bench of this Court by its order dated 24th April 2002,
stated that the union would supply the list of 12 watchmen to be
appointed as security guards till the sale of raw material and
unfinished goods. If the employer - employee relationship still
subsisted after 13th February, 2002 then there would be no question
of the Union making such a submission that they would supply the
security guards as the guards would still be in employment and
bound to render services.
(f) The office of the Provident Fund Commissioner, upon
a query by the respondent No.2, by its letter dated 18 January 2012,
inter alia, stated that most of the claims were settled on the basis of
the date of cessation being 1 August 2000. Thus the workmen
themselves had accepted the date of cessation as 1 August 2000
that is even prior to 13 February 2002.
(g) For the period 2002 to 2005, the Official Liquidator
acting as a Provisional Liquidator was not the employer. The
Company was the employer prior to 13 February 2002 and that
relationship of employer and employee came to an end on the
appointment of the Provisional Liquidator on 13 February 2002.
(h) In the facts of the present case, the Provisional
Liquidator was appointed with all the powers of the Official
Liquidator. Section 450(3) of the Companies Act, 1956, clearly
provides that where a Provisional Liquidator is appointed, the
Provisional Liquidator shall have the same powers as the Official
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Liquidator, unless his powers are limited or restricted by the order
appointing him. The contention of the Applicants that the
Provisional Liquidator was appointed only to protect the assets of
the company is erroneous in law and in correct.
(i) Section 529A was inserted in the Companies Act by an
amendment in the year 1985. If a workman was not excluded from
the definition of the word employee that would have resulted in
double benefit' to one class of employees i.e. workmen which
would have been the unintended result of not excluding workmen
from employees for the purposes of Section 530. As stated
aforesaid, Section 529A and 530(8)(bb) must be construed
harmoniously. The Gujarat High Court vide its order dated 6th
August, 2012 in Company Application No. 264 of 2008 in
Company Petition No. 7 of 2001 Gujarat Steel Tubes Employees
Union and 1. Vs. Official Liquidator of Gujarat Steel Tubes
Limited (In Liquidation) and 7 Ors. has followed another
judgment of the Hon'ble Gujarat High Court in Company
Application No. 174 of 2006 which has referred to the decision of
Jubilee Mills1 case Section 530 (8) (bb) was inserted only for this
purpose and nothing more.
29. Thus the question is what should be the relevant date.
According to the applicants it should be till 5 September 2005 i.e.
the date of winding up order. According to the Official Liquidator it
is 13 February 2002 i.e. the date on which the Provisional
Liquidator was appointed with full powers. The decision of the
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Official Liquidator, which is not challenged by the respondent
Nos.2 and 3, the date of 13 September 2001 agreed in the meeting
before the High Power Committee is not taken as a basis. Though
RMMS had agreed that the cut-off date would be 13 September
2001, the Official Liquidator has not gone by this date.
Respondent Nos.2 and 3 have not challenged the decision of the
Official Liquidator. Even in the argument this date is not seriously
pressed in service. Thus the controversy will have to be now
restricted to the appointment of Provisional Liquidator or the date
of winding up as the relevant date. Furthermore, it has been urged
by the learned counsel for the applicant that the RMMS had acted
without the knowledge and consent of the workmen and a
workmen being an individual creditor any claim made on behalf of
the workmen without thier consent cannot bind them. It was
further urged that the claim was made by the Union only for the
earned wages and not for any claim for the dues of the workers
other than earned wages for a period from October 2000 to
September 2001.
30. The High Power Committee (HPC) was set up by the State
of Maharashtra for disposal of the assets of the Company for timely
disposal of the machinery which otherwise would have diminished
in value. By order dated 5 September 2005, when the Company
was wound up the Court considered the status of the HPC. At that
time it was urged that the HPC be permitted to continue
independently for disposal of immovable assets. The Court did not
permit so that in law once order of winding up of Company is
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passed it would follow that the Official Liquidator is required to
take over the custody of the assets and deal with the same in
accordance with law. There is no other mechanism envisaged by
the Companies Act. The Court then permitted the HPC to continue
as an agent of the Official Liquidator and to take further steps.
Subsequently, the HPC was relieved of further dues and its agency
was revoked by order dated 25 August 2006, after placing on
record the appreciation for the work done by HPC. Thus, the dues
of the workmen will now be calculated and disbursed as per the
provisions of the Companies Act.
31. At this stage a broad overview of the Companies Act,1956 is
necessary. The Act was enacted to amend and consolidate the law
relating to Companies. Before this act was enacted Companies Act
1913 was in force. After the end of World War II, a need for
revision of the company law was felt. The government of India,
therefore, appointed a Committee of members from various fields
for a comprehensive review of the Indian Companies Act 1913.
The committee submitted its report on all aspects of company law.
The Committee made several recommendations. The main
recommendations which incorporated were regarding formation
and management of the Company, maintenance of minimum
standards of behavior, fullest possible disclosures, transparency in
accounts, equal representation for shareholders, provision for
investigation into the affairs of the Company. The object of the
Companies Act inter alia, was to bring transparency in the affairs of
the Companies, give representation to the shareholders and
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prescribe certain standards. Based on the recommendation of the
Committee, the Companies Act of 1956 was passed. Though the
Companies Act of 1956 was based on the English companies Act of
1948, certain modifications were incorporated for the Indian
conditions. The Companies Act does not per se deal with services,
service conditions and termination of employees of the Company,
especially that of workmen. The relationship of the Company as a
master, and the workmen as servants, continued to be governed by
relevant labour legislations.
32.
Though the Companies Act was essentially framed to
regulate the affairs of the company, the idea of a company as a
mere economic and financial entity established only with a view
to make profits, has under gone a sea change. A Company carrying
on a industry is considered a tool to bring about maximization of
social welfare and progress. The preamble to the Constitution of
India contains the words ''Sovereign Socialist Secular Democratic
Republic''. Pursuant to this objective several labour legislatures
have been enacted to confer and ensure the rights of the workmen.
On these principles the Apex Court in the majority decision in the
case of National Textile Workers' Union etc. v.
P.R.Ramakrishnan and others3 recognised the right of the
workmen to participate in the proceedings taken out for winding up
and oppose the winding up order. The Apex Court noted that those
who infuse capital have a limited financial risk and workers
contribute a major share in the product and the workers have a
3- AIR 1983 Supreme Court 75,
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special place in the fabric of the society. The Apex Court
considered the directive principles in the Constitution of India and
more particularly the one contained Article 43A. The Apex Court
after considering the social backdrop and after adverting various
decisions and directive principles held that the workers had a locus
standi in a winding-up petition. The Apex Court has emphasised
the need to protect the workmen and safeguard their rights. It is
this concern that must be kept in mind while proceeding further
with the analysis of the provisions and the arguments.
33.
In the scheme of the Companies Act 1956, Part I to Part VI
of the Act deals with Tribunals, management of Companies etc.
Part VII deals with winding up. Chapter I of Part VII specifies
modes of winding up and definitions of contributories. Chapter II
deals with winding up by tribunals. In Chapter III, Section 433
specifies the circumstances in which the Company may be wound
up, and Section 434 states the contingencies when the Company is
deemed to be unable to pay its debts. Section 439 lays down
provisions for applications for winding up. It states that an
application for winding up shall be by a petition and the class
entitled to present the petition has been specified in sub-section 1.
Section 441(2) states that the winding up of the Company shall
deem to commence at the time of presentation of the petition for
winding up. Section 443 lays down the powers of the tribunals
hearing the petitions for winding up. It lays down that the tribunal
may dismiss the petition or adjourn it or may make an order it
thinks fit in respect of the winding up.
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34. Sections 444 and 445 in Chapter III, Part VII state the effect
of the winding up order. These two sections being material for the
controversy at hand, they are reproduced below.
"444. Order for winding up to be communicated to
Official Liquidator and Registrar. Where the Court
makes an order for the winding up of a company, the
Court shall forthwith cause intimation thereof to be sent
to the 1[ Official Liquidator and the Registrar].
445. Copy of winding up order to be filed with Registrar.
(1) On the making of a winding up order, it shall be
the duty of the petitioner in the winding up proceedings
and of the company to file with the Registrar a certified
copy of the order, within 1[ thirty days] from the date of
the making of the order. If default is made in complying
with the foregoing provision, the petitioner, or as the
case may require, the company, and every officer of the
company who is in default, shall be punishable with fine
which may extend to one hundred rupees for each day
during which the default continues.
(1A) 2[ In computing the period of 1[ thirty days] from
the date of the making of a winding up order under sub-
section (1), the time requisite for obtaining a certified
copy of the order shall be excluded.]
(2) On the filing of a certified copy of the winding up
order, the Registrar shall make a minute thereof in his
books relating to the company, and shall notify in the
Official Gazette that such an order has been made.
(3) Such order shall be deemed to be notice of
discharge to the officers and employees of the company,
except when the business of the company is continued."
35. Section 445 lays down that when a tribunal makes an order
for winding up, within a period not exceeding two weeks from the
date of passing the order, an intimation thereof to be sent to the
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Official Liquidator. Section 445 directs that it shall be duty of the
petitioner to file certified copy of the winding up order with the
Registrar. Section 445 (3) states that order of winding up shall be
deemed to be notice of discharge to the officers and employees of
the Company except when the business is continued.
36. Thus, in the scheme of the Act, it is the first time in Section
445(3) a reference as regards the relationship of the Company and
its employees is made. It is in this section that the provision
affecting service conditions occurs, more particularly of reliving
the services.
Since it is the case of the Official Liquidator that
appointment of Provisional Liquidator with full powers is also an
event that can bring about the severance in the relationship
between the Company and its employees,next relevant sections are
S. 449 and S. 450 of the Act.
37. Section 450 (3) states that the Court may limit and restrict
powers of the Provisional Liquidator otherwise he shall have the
same powers as a liquidator. Powers of the liquidator have been
specified in Section 457 of the Act. Under Section 457 (1)(c), the
Official Liquidator has powers to sell the movable and immovable
property under Sub-section [1(ca)]. The Official Liquidator can
sell the undertaking of the Company. The perusal of Section 457
indicates that wide powers have been given to the Official
Liquidator as regards the disposal of the properties of the
Company.
38. Chapter 5 of Part VII deals with claims to the Official
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Liquidator and the ranking of the claims. Section 529, 529-A and
section 530 deal with dues of the workmen and the employees.
These sections deal with preferential payments and overriding
preferential payments. Section 529-A gives overriding preference
to workman's dues and the debts due to secured creditors to the
extent as such debt under clause (c) of the proviso to sub-section 1
of Section 529. These are some of the relevant provisions of the
Companies Act .
39. The Official Liquidator has relied upon the decision of the
learned Single Judge of Gujarat High Court in the case of Jubilee
Mills Ltd1. The learned counsel for the Official Liquidator and the
learned counsel for respondent Nos.2 and 3 have placed strong
reliance on this decision, more particularly the following
observation -
"Relevant date for computing Workman's Dues and
calculation of Interest-
The relevant date for computation of the workman's dues
as well as the dues of the secured creditors for the
purpose of determining the ratio of the respective dues
under Sections 529 and 529-A of the Companies Act is
the date of first appointment of Provisional Liquidator
and if no such appointment is made the date of winding
up order as contemplated in Section 530(8)(c)(i) of the
Act. Hence, in the first instance the Official Liquidator
shall compute the dues of the workmen as covered by the
claim for priority u/S 529 and 529-A of the Companies
Act and the dues of the secured creditors as on the
aforesaid relevant date".
The learned Single Judge, observed that in view of Section
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530(8)(c)(i) of the Act the relevant date will have to be considered
as the appointment of Provisional Liquidator. The learned Judge
held that for determination of the dues of secured creditors as well
as workman's dues for the purpose of determination of ratio and for
the purpose of priority payment, the relevant date would be date of
appointment of Provisional Liquidator and if there is no such
appointment the date of winding up.
40. It has to be however noted that Section 530 does not apply
to the workmen. Section 530(8)(bb) makes it clear that for the
purpose of Section 530 the word 'employee' will not include a
workmen. Section 530(8)(bb) is not considered in the Jubilee Mills
Ltd1 case. It has been sought to be urged by the learned counsel for
the creditors that though Section 530(8)(bb) excludes the workmen
from the definition of the word 'employee' for the purpose of
Section 530 the object of the legislature behind the same needs to
be considered. If the workmen would not have been excluded
under the provisions of Section 530(8)(bb) there would be
contradiction between Section 529 and Section 530 and therefore
Sub-section (bb) has been added. Reliance is placed on the
decision of the learned Single Judge of Gujarat High Court in
Company application No.264 of 2008 wherein the learned Judge
has followed Judgment of the Gujarat High Court in the case of
Jubilee Mills Ltd1. This submission has no merit. Through various
enactments the legislature treated the workmen on a different
footing than the other employees. The contribution and physical
toil of workmen is different than the other employees. This fact
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has been recognized by the legislature and emphasized through
several judicial decisions. Even under the Companies Act, Section
529-A has been enacted to give overriding preference to the
workmen treating them differently. Furthermore the learned
counsel for Official Liquidator submitted that, though the the
impugned decision is based on Section 530(8)(bb) relying on the
decision of Jubilee Mills Ltd1, he concedes that relevant date
cannot be fixed based on Section 530 and that the decision of
Jubilee Mills Ltd1 did not consider the Section 530(8)(bb). The
learned counsel for the Official Liquidator however submitted that
the Official Liquidator has calculated the dues of the workmen till
the date of appointment of Provisional Liquidator on the ground
that it brings an end to the services of the workmen. The learned
counsel for the Official Liquidator submitted that the appointment
of Provisional Liquidator is taken as a date of severance in
relationship not on the basis of Section 530 (8) (c) but on the
ground that by appointment of Provisional Liquidator with full
powers in the facts of the present case has brought an end to the
relationship between the Company and its workmen. Thus the
Section 530 and the decision of Jubilee Mills Ltd1 is not relevant
for this aspect, though the decision in Jubilee Mills Ltd1 is referred
to in other contexts.
41. The learned counsel for the applicants has relied upon
decision of the Single Judge of this Court in Company
Application (Lodging) No.224 of 1999 decided on 8 October
1999. The learned counsel for the applicants submitted that in this
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order the Court accepted the submission that the wages of the
workers will have to be calculated up to the date of winding up.
However in this order this proposition was not disputed by the
respondents therein and in view thereof the Court proceeded to
pass the order. In this order also there is no conscious finding on
the issue at hand.
42. The learned counsel have raised several intricate legal issues
and have expounded different facets. Before one gets into
intricacies, the issue needs to be examined at a basic and
fundamental level.
A Company, when it employs workmen,
become an employer and a contract of service is created. The
relationship between and employer and the workmen is not merely
governed by contract nor it is terminable at whim and fancies of
the employer and nor by whatever method the employer wishes.
Laws have been enacted providing several statutory safeguards for
the benefit of workmen. Even if there is a contract of service, the
employer has to follow certain methodology for terminating the
service contract. There are provisions for dismissal, termination
and retrenchment of the employees under relevant labour
legislations. Even in case of closure of an undertaking the
employer has to follow Section 25-O and 25-N of the Industrial
Disputes Act. In contrast the only reference made in the Companies
Act regarding cessation of the services of the employees is in
Section 445 (3). This section states that order of winding up shall
be deemed to be a notice of discharge of officers and employees.
The Companies Act does not contain any other express provision
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for discharge of the employees. On the plain reading of this
section unless the business of the Company is continued, the notice
shall be deemed to be discharge to the officers and employees of
the Company.
43. Next question arises whether the Companies Act
contemplates any other event by which the service of the workmen
are put an end to. As analyzed earlier the Companies Act is not an
enactment for governing the rights of employees vis-a-vis
employer i.e. Company, though provisions have been made for in
respect of workmen after the winding up. The learned counsel for
the respondent Nos.2 and 3 and the learned counsel for the Official
Liquidator cited instances of severance of service. They contended
that workmen may superannuate, may resign, may be
dismissed,may expire and these events can occur before the
winding up order and therefore it cannot be said that winding up is
the only contingency for severance of relationship. There is
however a fundamental flaw in this submission. All these
contingencies arise under the service contract and/or by operation
of provisions or steps taken under under labour legislations. The
cessation of employment by removal, superannuation, dismissal,
contract of employment coming to an end, resignation, termination,
closure, do not arise from provisions of the Companies Act but
under labour legislations and/or contract. The learned counsel for
the applicant also does not dispute the position that if there is
cessation of the relationship under the terms of the services
contract and/or by virtue of relevant provisions of labour
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legislations there is no question of resorting to Section 445(3).
Therefore, the instances given by the learned counsel for the
Official Liquidator and the learned counsel for the respondents do
not lead to a proposition that the provisions of Companies Act,
provides for cessation of services of workmen / employees prior to
the date of winding up. Labour laws read with terms of contract
may. The language of the Section 445(3) is plain and simple. It is
settled law of interpretation that there is no need for external aids
when the language of a statute is plain and simple, and
unambiguous.
44. The learned counsel for the respondent Nos.2 and 3
submitted that Section 445 (3) is merely a deeming provision. It is
submitted that a deeming fiction does not exclude the possibility of
an event actually occurring earlier. It was submitted that sub-
section 445(3) only refers to the order of winding up being deemed
discharge. The deemed discharge would operate only in absence of
any other actual event causing cessation of employment like the
Provisional Liquidator with full powers as in the present case. It is
submitted that Section 445(3) only provides an outer limit but does
not mean that employment cannot cease prior to that date. Reliance
is placed on the decision of the English Appeal Court in the case of
Carne & Anr. Vs. Debono4 . The relevant observations of the
Appeal Court as under -
"7. The purchaser submitted, in effect, that the
vendors were in breach of contract in that they failed to
4 -(1988) 1 WLR 1107
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send in good time a completion statement specifying the
right amount due. He also relied on special condition
12(h) which deems any notice given by other parties
under the agreement to have been served on the
expiration of 48 hours after it had been posted.
Applying that to the faxed completion statement he said
it had to be deemed not to have been received until two
days after the crucial date of 5 February.
I have no doubt that he is wrong on that latter ground.
Clause 12(h) is a deeming provision which does not
exclude the possibility of proving an earlier receipt. It is
not a statement that for all purposes the document shall
only be treated as having been received at a particular
time."
Reliance is also placed on the decision of the learned Single Judge
of this Court in MSN Satellite (Singapore) PTE Ltd.5 in which
the decision in the case of Carne and anr4 was followed.
45. In both these decisions an issue arose as regards service of
notice. The case before the Appeal Court was regarding a contract
for supply of goods. The purchaser had contended that vendors will
breach the contract, if they had failed to send goods in time for
completion, specifying the right amount due. The purchaser had
relied on a term of the contract which stated that any notice given
by the parties under the agreement is deemed to have been served
on expiration of 48 hours after it had been posted. It is in that
context that the Appeal bench held that the specific term of the
contract was a deeming provision which did not exclude the
possibility of proving an earlier receipt. The Appeal Court found
that in fact such notice was served and therefore there was no
5 Arbitration Petition No.284 of 2009 dated 23 March 2009
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question of employing a deeming provision. The learned Single
Judge in the case of MSM Satellite5 referred to this decision of the
Appeal Court. Again the case before the learned Single Judge was
of service of notice and interpretation of a clause in contract
regarding deemed service of notice. The question before the
learned Single Judge was whether factually the notice was served.
46. These decisions cited by the learned counsel for the
respondent Nos.2 and 3, will be of little assistance for
interpretation of the section 445 (3). In both these cases the
question was service of notice which the parties would exchange.
It is one thing to say that a deeming provision in a contract which
creates a fiction as regards existence of a factual position may not
apply if the factual position is stated to have occurred earlier, but it
is another thing to say that an event which is deemed to have
occurred by a virtue of provisions of law can occur earlier even
though there is no specific provision to that effect. Statutory power
cannot be created in this fashion. Existence of factual position and
existence of legal position are entirely different concepts.
47. Section 445(3) clarifies that unless the business of the
Company is continued, the order of winding up shall be deemed to
be a notice of discharge. It states that no separate notice for
discharge is necessary and order of winding up is good enough and
will be deemed to be a notice. The fiction that section 445(3)
creates is that 'order' of winding up will be treated as 'notice' of
discharge. What the Section says is that the order or winding up is
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cessation of service unless the business is continued. Thus the
workers are put to notice that unless business is continued their
services will be treated as coming to an end from the date of
winding up and no separate notice is necessary. It is in this context
the deeming fiction is to be read.
48. It is sought to be argued by the learned counsel for the
liquidator and the learned counsel for the respondent No.2 and 3
that when the Provisional Liquidator with full powers is appointed
then it would bring the service of the employees to an end. There is
no specific provision to this effect in the Companies Act. This is
also accepted by the learned counsel for the respondents,but what
they contend is that it will have to be construed that the
appointment of Provisional Liquidator with full powers by
implication brings the service to an end. Termination of services of
workmen by implication when the court never intended to do so,
on the face of it sounds abhorrent. The Provisional Liquidators are
most often appointed on a petition filed by creditors and at that
time the primary consideration in the mind of the Court is to
safeguard the property of the Company till final liquidation. The
workmen are not given notice of the application for appointment of
Provisional Liquidator. If such a concept of termination of
workmen by implication is to be read in the Companies Act it
would fly in the face of legislative policy reorganizing the special
place the workers have in the fabric of our society, the Preamble to
the Constitution of India and directive principles which the
legislature has sought to achieve. Again the dicta of the Apex
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Court in National Textile3 needs to be kept in mind.
49. In fact appointment of Provisional Liquidator does seem to
be contemplated as termintion by the Apex Court as in the
National Textile3 case. In this case both events were before the
Apex Court, the appointment of Provisional Liquidator and order
of winding up. Before the Company was wound up there was an
appointment of Provisional Liquidator. The Apex Court considered
the provisions of Section 445(3) and held that the workmen upon
winding up have a right to participate and oppose the order of
winding up. In National Textile3 also the Provisional Liquidator
was appointed but from the facts narrated therein and the
arguments advanced and conclusions reached it does not appear
that the Apex Court considered that the appointment of
Provisional Liquidator would terminate the services of the
workmen. The Apex Court concluded as under -
"11. We are therefore of the view that the workers are
entitled to appear at the hearing of the winding up
petition whether to support or to oppose it so long as no
winding up order is made by the court. The workers
have a locus to appear and be heard in the winding up
petition both before the winding up petition is admitted
and an order for advertisement is made as also after the
admission and advertisement of the winding up petition
until an order is made for winding up the company. If a
winding up order is made and the workers are
aggrieved by it, they would also be entitled to prefer an
appeal and contend in the appeal that no winding up
order should have been made by the Company Judge.
But when a winding up order is made and it has become
final, the workers ordinarily would not have any right to
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participate in any proceeding in the course of winding
up the company though there may be rare cases where
in a proceeding in the course of winding up, the interest
of the workers may be involved and in such a case it
may be possible to contend that the workers must be
heard before an order is made by the court. We think
that even when an application for appointment of a
Provisional Liquidator is made by the petitioner in a
winding up petition, the workers would have a right to
be heard if they so wish because the appointment of a
Provisional Liquidator may adversely affect the interest
of the workers. But we may make it clear that neither
the petitioner nor the court would be under any
obligation to give notice of such application to the
workers. It would be for the workers to apply for being
heard and if they do so, they would be entitled to appear
and be heard on the application for appointment of
Provisional Liquidator. The workers therefore in the
present case had a right to be heard before the
Provisional Liquidator was appointed by the Company
Judge but the circumstance that the workers were not so
heard would not have the effect of vitiating the order
appointing Provisional Liquidator, because on the view
taken by us, it would be open to the workers to apply to
the court for vacating that order and it would be for the
court after considering the material produced before it
and hearing the parties to decide whether that order
should be vacated or not."
50. The Apex Court thus made a distinction as regards the rights
of the workmen to appear and to be heard at the time of winding-up
of the Company and at the stage of application for appointment of
Provisional Liquidator. The Apex Court noticed the effect of
Section 445(3) at the time of winding-up of the Company and
stated that it is a basic and fundamental rule that if the services of
anyone are to be terminated then they must be heard. The position
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before the Apex Court was clear that it is the order of winding-up
that terminates the services of the workmen. As far as appointment
of Provisional Liquidator is concerned, the Apex Court held that
workmen need to be heard even at the time of appointment of the
Provisional Liquidator if they so wish because it might prejudice
them. The perusal of the decision does not indicate that the Apex
Court referred to the prejudice that would be caused to the
workmen as termination of their services. In fact, the argument
made on behalf of workers was that if any interim order is made it
will prejudice the workmen by freezing the resources of the
Company so as to make it difficult to the Company to pay wages to
the workmen or bring about stoppage in business of the Company
or diminution of their wages. It is this prejudice that Apex Court
stated that would be caused to the workmen on the appointment of
Provisional Liquidator. In paragraph No.11 reproduced above the
Apex Court made a clear distinction between rights of the
workmen to be heard at the time of winding-up and at the time of
appointment of Provisional Liquidator. At the time of appointment
of Provisional Liquidator the workers were given right to be heard
if they wished but it was made clear that it was not obligatory on
the petitioner nor the Court to give notice of such application to the
workmen. This distinction was based on different degrees of
prejudice the workmen would suffer. Had it been the case that
the services of the workmen were to stand terminated on the
appointment of Provisional Liquidator the Apex Court would not
have made a distinction between the winding-up order and the
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effect of appointment of Provisional Liquidator as the main basis of
giving a right to the workmen to be heard before winding up was
that if their services are to be terminated they must be heard.
51. Even otherwise, there is a difference between appointment of
Provisional Liquidator or provisional winding up and the final
winding up. The Provisional Liquidator is appointed to protect the
assets of the Company during the winding up process. Provisional
Liquidator is not appointed if there is no apprehension that the
assets will be mis-utilised. Till the order of winding up is passed
the Company continues as a legal entity and the directors continue .
The powers of the directors do not cease on the appointment of
Provisional Liquidator. Though the Companies Act restricts the
powers of the directors, it is open for the directors to pay all the
creditors or bring in further capital, with the permission of the
Court. Even if a petition is admitted on the recommendation of the
B.I.F.R this position does not change. After the final order of
winding up is passed and the Official Liquidator is appointed as
Official Liquidator, the situation goes through a complete change.
The directors and shareholders are then considered as
contributories. The proceedings for winding up then are
proceedings in rem. An order for winding up accrues in favour of
all the contributories and the creditors.
52. Thus, even though the powers of Provisional Liquidator,
unless curtailed, are the same as the Official Liquidator the
Company continues as a legal entity till the order of final winding
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up is passed. It is in this context the Section 445 (3) states that,
unless the business is continued the order of winding up puts an
end to the legal status of the Company and the orders will be notice
of discharge for all the workmen. Thereafter the distribution of
dues is done as per Section 529 (A) and Section 530 of the Act.
Thus, there is no question of equating provisional liquidation and
final liquidation as having the same effect for the purpose of
cessation of service. Question is not whether provisional
liquidation and final liquidation are the same, question is what is
the status of the Company, who is the employer. As stated earlier,
there is no specific provision in the Companies Act that
appointment of Provisional Liquidator brings about a cessation of
services. It is sought to be introduced by equating Provisional
Liquidator with full powers, with the Official Liquidator. There
may be little difference in their powers but their appointments are
at different stages and have different legal effects. It is therefore,
difficult to accept the proposition that appointment of Provisional
Liquidator with full powers brings about cessation of services of
the workmen
53. It has been sought to be contended by the respondent Nos.2
and 3 and the Official Liquidator that the facts of the present case
would show that for all practical purposes the services had come to
end upon appointment of the Provisional Liquidator. It is
contended that the operation of the Company had ceased sometime
in November 2000, BIFR had recommended winding up in
February 2001, plant and machinery was sold, the Provisional
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Liquidator was not allowed to carry on business, thus for all
practical purposes the relationship between the employer and
employee had come to an end. It was also contended that powers of
the Board of directors had also come to an end. It was also
contended that the Union had made a representation that they
would supply security guards and all parties had accepted the
position that the employment had ceased. It was also urged that the
Assistant Regional Provident Fund Commissioner Office had
clarified that most of the claims were settled on the basis of date of
cessation being 1 August 2000 and the workmen had accepted the
date of cessation as 1 August 2000 which is prior to 13 February
2002. It was urged that Official Liquidator acting as a Provisional
Liquidator was not the employer and the relationship had come to
an end on 13 February 2002.
54. It does not appear to be in dispute that the main asset of the
Company ie large track of land in the heart of Mumbai was not
sold by the Provisional Liquidator and was not sold even after the
order of final winding up and till date it is not sold.The applicants
state that the respondent Nos.2 and 3 who are styling themselves
as secured creditors are in fact, shareholders and are part of the
same Shapoorjee group of Companies which had owned the
Company under liquidation. The respondent Nos.2 and 3 had filed
an application for stay of the winding up proceedings which
application was rejected by the Company Court by order dated 14
October 2011. The main immovable asset of the Company under
liquidation is not sold. Thus, nothing remains now to be either sold
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or distributed is factually not correct. Furthermore once it is held
that the appointment of Provisional Liquidator does not bring about
cessation of services then there is no question of holding that for
practical purposes there was cessation of services. The cessation of
services must be brought about by methods known to law and not
by interpreting a factual position and drawing an inference about
cessation.
55. When the Mill of the Company under liquidation was closed
no application was made by Company to the State Government for
permission to close or retrench the employees as per Section 25-O
and 25-N of the Industrial Disputes Act. As per Section 25-O(6)
and 25-N(27) of the Industrial Disputes Act, if no application is
made to the State Government the employees are entitled to their
dues as if there has been no closure or retrenchment. In the case of
Jubilee Mills1, the learned Single Judge considered the provisions
of Section 25-O and the implication thereof as regards the claim of
the workmen. The learned Single Judge observed as under -
"11.4 Hence, the question is what was the purpose for
which the legislature enacted Section 25-O of the
Industrial Disputes Act and particularly sub-section (6)
thereof and whether Sections 529 and 529-A of the
Companies Act fall within the field covered by Section
25-O(6) of the Industrial Disputes Act. Under subsection
(2) of Section 25-O of the Industrial Disputes Act, the
Government may grant or refuse to grant the employer
permission to close down an undertaking of an
industrial establishment, after giving an opportunity of -
hearing to the employer, workmen and persons
interested in such closure, having regard to the
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genuineness and adequacy of the reasons stated by the
employer, the interests of the general public and all
other relevant factors. Absence of any such application
of the employer under sub-section (1) or refusal of such
permission by the Government under sub-section (2)
would clearly indicate an absence of genuine and
adequate reasons for closure and will also indicate the
interests of the general public in having the activities of
the undertaking continued. In other words, whatever
may be the reasons for closure, if they are not found by
an independent statutory authority to be genuine and
adequate, the employer is bound to continue all
activities of the undertaking and even if the employer
cannot in fact continue the activities of the undertaking,
the employer is bound to pay wages to the workmen and
to give the workmen all the benefits available to them
under any law in force. The legislature thus creates a
fiction that the actual closure of the undertaking has to
be ignored and the undertaking is to be treated as
continuing its activities. The logical conclusion would
be that the workmen continued to render services. The
logical consequence would be that the workmen would
be entitled to be paid wages which are given priority
under Section 529(3)(b)(i) of the Companies Act. Sub-
section (6) of Section 25-O of the Industrial Disputes
Act is a part of the legislative scheme for giving
protection to workmen who would otherwise be deprived
of wages in spite of absence of genuine and adequate
reasons for closure of the undertaking. The fiction is
created through the Industrial Disputes Act, 1947 which
has been specifically enacted to make provisions for
settlement of industrial disputes and for certain other
purposes for conferring considerable benefits to
workmen. It is also pertinent to note that even when an
undertaking is permitted to be closed down under sub-
section (2) or sub-section (3) of Section 25-O, its
workmen are entitled to receive retrenchment
compensation. This also indicates the legislative intent
that where the closure is without permission, there
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would be no question of retrenchment and the workmen
would continue to be entitled to be paid wages for the
entire period of illegal closure. The Court would also
like to take judicial notice of the fact, that most of the
companies are ordered to be wound up on the ground of
their inability to pay their debts. In almost all such cases
there is a period of actual closure without permission
under sub-sections (2) or (3) of Section 25-O of the
Industrial Disputes Act, when the workmen are ready
and willing to offer their services, but the employer has
no work to offer. Wages is what the employer is bound to
give the workmen when they offer their services. There
is nothing in the provisions of Section 25-O of the
Industrial Disputes Act or Section 529(3)(b)(i) of the
Companies Act which can indicate even the slightest
intention that Legislature did not intend the legal fiction
to be carried to its logical conclusion."
56. In the present case there is no permission taken under S.25-
O. The services therefore deemed to have been continued. It is
sought to be contended however that the judgment in the case of
Jubilee Mills is not a good law in view of the decision of the
Division bench of this Court in the case of Bombay Metropolitan
Transport Corporation Ltd. vs Employees of BMTC Ltd.
(CIDCO) and others 6. The facts in the matter before the Division
bench were that the Corporation sought an order of winding up on
the ground that it was unable to pay its debts. The petition was
dismissed by the learned Company Judge on the ground that the
permission to close down the undertaking Under Section 25-O of
the Industrial Disputes Act was refused and therefore there can be
no winding up. The learned Single Judge held that provisions of
6-1991 Company Cases Vol.71 page 473
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Industrial Disputes Act would prevail over the Companies Act and
the petition for winding up had been filed by the Corporation itself.
The Division bench allowed the appeal on the ground that there is
no conflict between the two statutes and they operate in distinct
and separate fields. The Division bench held that once the
Company is wound up, the winding up order is deemed to be a
notice of discharge to the officers and employees of the Company.
The services of employees therefore would come to an end by
operation of law and there would be no question of permission
under Section 25-O.
57. The decision in BMTC Ltd.6 in my opinion does not alter the
ratio of the decision in Jubilee Mills1 nor alters the position that
services of employees are treated as continued if no permission
under section 25-O is obtained. The decision of the division bench
holds that merely because permission Under Section 25-O of
Industrial Disputes Act has been refused does not mean that order
for winding up cannot be passed. This in no manner dilutes the
position of law that if no permission under Section 25-O is taken
the service of the employees continued till they are validly
terminated.
58. In the impugned decision the Official Liquidator has
considered the relevant date as appointment of Provisional
Liquidator. The Official Liquidator has accepted the position that
till the date of appointment of Provisional Liquidator at least the
applicants / workmen were deemed to be in service. If that be so
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there is no other event between closure and order of final winding
up, apart from the appointment of Provisional Liquidator. I have
held that appointment of Provisional Liquidator cannot be held to
be cessation of services. I do not find merit in the submission by
the learned counsel for the respondent Nos. 2 & 3 that since the
workmen accepted 1 August 2000 as a date while taking benefit of
the Provident Fund dues they cannot now contend that dues should
be calculated till date of appointment of final winding up. Firstly,
the Official Liquidator has not taken this ground in his
adjudication. The Official Liquidator has proceeded to calculate
the dues till 13 February 2002 i.e. till the date of appointment of
Provisional Liquidator. Secondly, the said submission ignores the
hard realities. It has been urged by the learned counsel for the
applicants that workmen were left with no source of livelihood to
support their families who had not paid wages since the year 2000,
and it was out of desperation that the Provident fund amounts were
withdrawn. The learned counsel for the applicants is right in
contending that thus this cannot be construed as an admission that
the service of the workmen had come to an end and lower the
cutoff date for computation of dues. I have thus come to a
conclusion that under the Companies Act there is no other
eventuality than Section 445(3) that is the date of winding up for
discharge of workmen. The eventuality may occur before the
winding up by specific acts on behalf of the employer under the
terms of contract read with relevant labour laws. The appointment
of liquidator has different legal impact than Official Liquidator and
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by implication the appointment of Provisional Liquidator cannot
amount to discharge of workmen. The Official Liquidator has
calculated the dues up to the date of appointment of Provisional
Liquidator and now will have to calculate the dues up to the date of
winding up.
59. The learned counsel for the applicants has relied upon
decision of the Apex Court in the case of Bank of Maharashtra Vs
Pandurang Keshav Gorwadkar2. In the said case the Company
was closed in 1992 and a reference to BIFR was made.
Proceedings before Debt Recovery Tribunal were filed. Workmen /
employees made an application for intervention. Thereafter the
Company was wound up and Official Liquidator was appointed.
The workmen filed a Writ Petition in the High Court. Certain
directions were issued for determination of the workers dues. The
Banks challenged the decision before the Apex Court and
contended that the workers dues can be adjudicated only in
appropriate courts such as Industrial Tribunal when the Company is
not in liquidation and DRT has no competence in this regard. It
was contended on behalf of the Banks that unless order of winding
up is made and the liquidator or Provisional Liquidator has been
appointed, it cannot be said that the Company is under winding up
and until Company is in winding up, workmen have no claim on
the assets of the Company. On behalf of the workmen, it was
argued that under Section 441 (2) the winding up of the Company
is deemed to commence at the presentation of the petition. It was
also argued though the Company is not in winding up it cannot be
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rendered an empty shell selling all assets and it is duty of the Debts
Recovery Tribunal to anticipate such situation. In the context of
these rival contentions the Apex Court considered the various
provisions of the Act and the earlier decisions of the Apex Court on
the issue. The Apex Court came to the conclusion that the
workmen of the Company upon winding up acquired the status of
secured creditors when the Company is in liquidation and a
statutory charge created in favour of the workmen in respect of
their dues over the security of every secured creditor pari passu
with the secured creditor to the relevant extent. The following
observations of the Apex Court are relevant for the issue at hand -
"64. Having regard to the scheme of law, it appears to
us that the relevant date for arriving at the ratio at
which the sale proceeds are to be distributed amongst
workmen and secured creditors of the company is the
date of the winding up order and not the date of sale".
The Apex Court has noted that as far as ratio at which sale
proceeds are to be distributed, the relevant date will be date of
winding up order. Thereafter the Apex Court has also referred to
the date of winding up interchangeably with Provisional
Liquidator. Thus though the decision does not finally conclude the
controversy at hand as the issue was not directly in question, the
observations quoted above support the interpretation placed by the
applicant.
60. To conclude, the relevant date for computing workman's
dues will be the date of winding up as per Section 445(3) and not
the appointment of Provisional Liquidator. The Official Liquidator
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will have to recalculate the dues of the workmen accordingly.
WAGES TO BE PAID
61. In this regard the learned counsel for the applicants has
submitted as follows -
(a) The workmen are entitled to dues from the date of de-
facto illegal closure till the date of the winding up order dated
5.9.2005, with all allowances and increments including
enhancement of dearness allowances etc. with interest at
commercial rate, plus
ig gratuity and retrenchment/closure
compensation calculated as on the date of winding up. The
workmen are entitled to all annual increments and periodic
increases in Dearness Allowance, annual bonus for entire period at
least at the statutory minimum rate of 8.33 %; and HRA, LTA, and
all other allowances which the workmen were receiving when the
Company was running.
(b) The Official Liquidator has erroneously adjudicated
the claim on the basis of the last drawn wage in September 2000
and although he has granted wages up to the date of appointment of
the Provisional Liquidator - 13/02/2002 - they have only been
calculated on the said last drawn wage of September 2000, as also
have the terminal dues including gratuity and retrenchment
compensation. The workmen are also claiming interest, as per
Rules 156 and 197 of the Company Court Rules 1959, as, even
after satisfying all of the concerned creditors, there will be a huge
surplus.
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(c) Sections 529 and 529A of the Companies Act are to
be interpreted keeping in view the intention of the Legislature. The
sub section 529 (3) (b) (i) defines workmen by referring to the
provisions of the Industrial Disputes Act 1947, and taking the
definition of workmen as given under that Act. It does not however
take the definition of wages from the Industrial Disputes Act, 1947.
Several definitions for wage under various Labour Laws show
wage means all sums of money capable of being computed in terms
of money if the terms of employment either expressed on implied
were fulfilled. The Parliament has chosen not to restrict the term
wage by any definition under Section 529 A.
(d) The term wage in section 529 of the Companies Act
will mean all amounts paid by the employer to the employee in
respect of this employment, that is all legitimate dues.
(e) Section 530 refers to all wages or salary of employees
and it therefore cannot take its meaning from the Industrial
Disputes Act 1947, which applies only to workmen and not to all
employees. The clauses of section 529 defining workmen's dues,
having been copied from Section 530, the term wage in sub section
3 of section 529 must be construed de hors the definition of wage
under the Industrial Disputes Act or any other Act.
(f) As per Section 25-O(6) of the Industrial Disputes Act
in the event of an illegal closure, the workmen shall be entitled to
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all the benefits under any law for the time being in force as if the
undertaking had not been closed down.
(g) Thus the phrase services rendered must be read in the
context of the deeming fiction under section 25-O(6) of the
Industrial Disputes Act to include wages for the entire period of the
illegal closure, without prejudice to the argument that the amounts
due are due under the latter part of Section 529(3)(b)(i) as
compensation payable under the Industrial Disputes Act, 1947.
Furthermore, the Official Liquidator has not imposed no such
condition and the respondent No.2 & 3 have not challenged the
adjudication of the Official Liquidator, therefore this issue does
not arise in this matter. There is also no such requirement under
the provisions of the Companies Act, 1956, including sections 529
& 529A and section 25-O(6) of the Industrial Disputes Act, 1947.
(h) The amount payable to the provident fund (PF)
authorities should be paid to the PF authorities immediately and
should not be subject to pari passu distribution under section 529 A
of the Companies Act, 1956, or the Provident fund Commissioner
may be permitted to place a claim before the Official Liquidator for
the same.
(i) Section 25-O (1) contemplates that an employer who
intends to close down an undertaking, would have to apply to the
appropriate Government for permission to close down at least 90
days before the intended date of closure. Where such closure
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permission has been granted or deemed to be granted, then the
workmen would be entitled to closure compensation as stipulated
in Section 25-O(8).
(j) If closure permission has not been granted, or not been
applied for, then under Section 25-O(6), the closure would be
deemed to be illegal .In the present case, no such permission had
been applied for or granted. That being so, there is no closure of
the Company.
(k)
The workers are entitled under Section 25-O (6) to all
benefits under any law for the time being in force including the
minimum Bonus of 8.33%, as Section 529(3)(b)(i) includes all
amounts payable as compensation under the provisions of the
Industrial Disputes Act, 1947 in the definition of "workmen's
dues", Bonus will also be included within this category.
(l) No restriction is placed by the Official Liquidator as
regards proof to be submitted by the workmen for gainfully
employed elsewhere, thus respondent No.2 and 3 cannot raise this
ground. Furthermore the concept applies in the cases of claims for
reinstatement with back wages and not in the cases of winding up.
62. Mr.J.P.Sen, the learned counsel appearing for the Official
Liquidator, submitted as under-
(a) As regards workman's dues this Court in Engineering
Workers, High Court, Bombay Association Vs. the Official
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Liquidator 7 has held that the expression wages in Section 529(3)
(b)(i) is liable to be construed with reference to the definition of
wages in Section 2(rr) of the ID Act. Furthermore legislature was
alive to the provisions of the ID Act while introducing Sections
529(3) and 529-A of the Companies Act. The expression wages in
Section 529(3)(b)(i) must be given the same meaning as it bears in
Section 2(rr) of the ID Act.
(b) The Gujarat High Court, in Jubilee Mills1 , has taken
the view that bonus is not entitled to priority under Section 529A
on the ground that a) workman's dues in Section 529(3)(b) are
liable to be construed with reference to the definition of "wages" in
Section 2(rr) of the ID Act and not Section 2(vi) of the Wages Act;
and b) that bonus would not be wages within the meaning of
Section 2(rr). This Court, in Engineering Workers Association7,
has also taken this view while holding that bonus would not be
workman's dues under Section 529(3)(b)(i) entitled to priority
under Section 529A.
(c) No claim has been made by the Provident Fund
Commissioner before the Official Liquidator on account of
provident fund dues, interest thereupon or damages. Therefore no
occasion arose for the Official Liquidator to adjudicate any sums
on this account. After his appointment as Provisional Liquidator,
the Official Liquidator, not being an employer, is not liable to make
any contribution towards provident fund under the provisions of
7-2006 (6) ALL MR 617
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the Employees Provident Fund Act.
63. Mr. Devitre and Mr.Tulzapurkar, learned senior Advocates
for the respondent No.2 and 3 submitted:
(a) Bonus is specifically excluded from the definition of
wages as defined under Section 2(rr) of ID Act, 1947. There is no
question of computing bonus for the purposes of determining the
workman's dues as defined under Section 529 of the Companies
Act, 1956.
(b)
Section 2(rr) of the ID Act, 1947 defines the term
wages specifically excludes any pension or provident fund as well
as gratuity payable to the workmen. In fact, Section 529 of the
Companies Act categorically provides that only the sums that are
due to any workmen from the aforesaid funds maintained by the
Company will rank pari passu with the dues of the secured
creditors and no other. Same argument will also squarely apply as
far as gratuity is concerned. As far as interest is concerned, if
provident fund and gratuity itself are not to be included for the
purpose of workmen dues as per Section 529 of the Companies
Act, 1956 of the Companies Act, there is no question of awarding
interest on the same. The rate of interest on wages can be only 4
percent, that too if there is any surplus. Furthermore the authority
under the EPF Act needs to approach the liquidator and the workers
are not entitled to directly claim the PF dues.
(c) If the worker was employed elsewhere then he
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necessarily was unavailable to render any service to the Company
in liquidation. The onus lies upon the workers to prove that they
were not gainfully employed during the relevant period. In the
event the same is not proved, the claims filed for the period during
which Company was closed or no actual service was rendered
deserves to be rejected.
(d) In section 529(3)(b), not only the definition of
workmen has been adopted by reference from the ID Act, 1947 but
also the compensation provided under the ID Act, 1947 has been
included for purposes of Section 529 (3)(b). Admittedly, the
compensations provided for the ID Act are calculated on the basis
of the definition of wages as provided in Section 2(rr) of the ID
Act, 1947. If the argument of the Applicant is accepted, it will
render the legislative intent to define workman's dues under
Section 529 meaningless and otiose. The contention of the
applicant that all compensation payable under the ID Act will
include entitlement under Section 25-O(6) of the ID Act, 1947,
cannot be accepted.
(e) It is only the compensations under the ID Act, 1947
which are included i.e. layoff, retrenchment or closure, depending
upon the facts of the case. Hence, this will not apply in present
case. The Section 25-O(6) entitles a workman in case of illegal
closure to take all the benefit under any law and not under the ID
Act, 1947. These amounts therefore are not compensation under
the ID Act, 1947 but under other laws. In any event, here there is
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no question of any illegal closure at all. The closure is under orders
of the Court.
(f) The legislature has given priority or pari passu charge
to only some of the components of workman's dues. In any event,
the applicability of Section 25-O is itself questionable in the facts
of the present case. There is no voluntary intention to close the
Company. In the present case there is only closure of one unit
whilst the other units continue to operate.
(g)
In the present case, the services of workmen have not
been terminated by the employer but in fact have come to an end
by virtue of the order dated 13th February 2002 appointing the
Provisional Liquidator. In view of the aforesaid there is no
retrenchment which takes place at all when a company is ordered
to be wound up. The retrenchment compensation cannot be
granted. or taken into consideration for the purposes of calculating
the workmen dues as contemplated under Section 529 of the
Companies Act. The applicants treat retrenchment and closure as
interchangeable concepts which admittedly under law they are not.
64. The Official Liquidator in the impugned adjudication has
held that -(a) claim for provident fun contribution and interest can
only be claimed by provident fund authorities, (b) bonus cannot be
granted for more than one year (c) recess allowance and
conveyance allowance cannot be granted, lump sum amount and
House rent allowances are included (d) Gratuity will be paid till 13
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February 2002, (e) Gratuity and Bonus is calculated with last
drawn basic retrenchment compensation, notice paid leave salary,
arrears of salary is computed with reference to total (last drawn
salary) including house rent allowance and lump sum allowances.
65. It is sought to be urged by the learned counsel for the
applicants that the wages, have not been defined under the
Companies Act, and must be given its natural meaning to include
all amounts payable by the employer to employee. On the other
hand, it is sought to be contended by the Official Liquidator and
State Government that the phrase wages occurring in Sub-clause
(1) of Sub-section(b) of Sub-section (b) of Section 529 must be
read have same meaning as wages as defined under the Industrial
Disputes Act. It is also sought to be contended by the learned
counsel for the applicants that in view section 25-O(6), the
workmen will be entitled to all benefits under any law for the
time-being in force as if the undertaking had not closed down.
66. The Official Liquidator has, in the impugned communication
stated that the claim for Provident Fund can be claimed only by the
Provident Fund authorities. The Official Liquidator has disallowed
the claim for bonus on priority. As far as the component of salary
which will be included for computing workman's dues Under
Section 529-A, it is stated that recess allowances and conveyance
allowances will not be included. The lump sum allowances and
House rent allowances are included. The arrears of salary and
gratuity will be paid till 13 February 2002. The retrenchment
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compensation notice paid leave salary, arrears of salary would be
commuted with notice of last drawn salary. The last drawn salary
will be as on September 2000.
67. The Official Liquidator has calculated the wages of the
workmen on the basis that they continue in service until
appointment of Provisional Liquidator. The Official Liquidator has
taken into account such heads of claim as would constitute wages
Under Section 529(3)(1)(i). The applicants have contended that
determining the workman's dues in Section 529(3)(b) or 'wages'
Under Section 529(3)(b)(I) the reference need not be restricted by
the definition of wages in Section 2(rr) of the Industrial Disputes
Act or Section 2(VI) of the Payment of Wages Act. It is the
contention of the applicants that any part of workers remuneration
that is capable of being quantified in terms of money, including
bonus would be wages for the purpose of Section 529(3)(b)(I) and
will be entitled to priority Under Section 529-A. It is sought to be
contended by the applicants that term wages has deliberately not
been defined so as to include all the amounts paid by the employer
to the employee in respect of the employment. The definition of
wages under various Labour Laws are sought to be pressed in
service to contend that wages mean all sums of money capable of
being computed in terms of employment. It is sought to be
contended that it is not necessary to be restricted by the definition
of wages under Industrial Disputes Act or Payment of Wages Act
and considering the background of the Act that the term wages
needs to be interpreted. It is sought to be contended that the phrase
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wages should be given usual ordinary and natural meaning.
68. On behalf of Official Liquidator it is stated that the Official
Liquidator has included only those emoluments under the term
wages which have been permissible and what is permissible is
qualified by learned Single Judge of this Court in the decision of
Engineering Workers Association7. Before the learned Single
Judge in the case of Engineering Workers Association7, the issue
arose as to the claim of statutory rate of interest under payment of
Gratuity Act, payment of Bonus and contribution of employer's
share to the provident fund authorities. In this context, the learned
Single Judge considered the provisions of Section 529 and Section
530 of the Act. The Court considered the phrase 'workman's dues'.
69. It has to be noted that Section 529-A of the Act gives priority
to the wages of the workmen. Though, it is the contention of the
applicant that in view of Section 25-O(6) the workmen will be
entitled to the payment of all dues till the date of winding up, the
priority can be claimed Under Section 529-A for what is specified
therein. The question is what are these workman's dues and wages.
Section 529(3)(a) defines workmen with reference to the Industrial
Disputes Act. Therefore, question whether while interpreting the
term wages, the reference to provisions of Industrial Disputes Act
can be made. In fact, this question is no longer res integra. The
learned Single Judge of this Court in the case of Engineering
Workers Association7, construed the dues contemplated Under
Section 529(3)(b) and Section 530(1)(b)(ii)(f). The learned Single
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Judge of the Gujarat High Court in the case of Jubilee Mills1 has
also held that the expression "wages" is liable to be construed with
reference to definition of "wages" in Section 2(r)(r) of the
Industrial Disputes Act. In Engineering Workers Association7 the
learned Single Judge observed as under :
"The definition of "workman's dues" in section
529(3)(b) is not an inclusive definition. All the items
which are required to be included in "workman's dues"
are specifically enumerated. The Legislature has
referred only to the provisions of the Industrial
Disputes Act in the relevant sub-clauses of section
529(3)(b) and has not made any reference to the
Payment of Wages Act. If the Legislature had intended
that the wages as defined by the Payment of Wages Act
were intended to be covered, the Legislature would not
have provided for separate sub clauses for accrued
holiday remuneration and gratuity as all these items
are already covered by the definition of "wages" in
section 2(vi)(b) and (d) under the Payment of Wages
Act. The very fact that the Legislature has made
separate provisions for these items indicates that the
Legislature was adopting the narrower definition of
"wages" under the Industrial Disputes Act and,
therefore, gratuity, pension and provident fund which
are specifically excluded from the definition of "wages"
under the Industrial Disputes Act, are separately
provided for in sections 529(3)(b) and 530 of the
Companies Act. Moreover, when the Legislature has
given the workman's dues (as defined in section 529(3)
(b)) along with the dues of the secured creditors
overriding priority even over the dues mentioned in
section 539(1) of the Act including dues payable to the
employees (i.e. other than workmen-see section 539(8)
(bb)), the Legislature must be treated to have
consciously accepted the narrower definition of the
term "wages" under the Industrial Disputes Act. "
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70. In Jubilee Mills1 the learned Single Judge observed as
under :
"1) For the purposes of priority under Sections 529
529-A and 530 of the Companies Act, 1956 (hereinafter
referred to as "the priority under the Act"), the
wages/salary payable to the workmen under Section
529(3)(b)(i) includes not only the unpaid wages/salary
for the period up to the date of closure, but also for the
period of illegal closure.
2) Ad-hoc interim relief as awarded by the Industrial
Court is a part of the wages/salary covered by the
expression workman's dues as defined by Section
529(3)(b)(i) of the Companies Act.
3) Retrenchment Compensation payable to the
workmen under any of the provisions of the Industrial
Disputes Act is covered by the expression "workman's
dues" as defined in Section 529(3)(b)(i) of the
Companies Act. For computing such compensation, the
period of illegal closure is to be included in the length
of service for which compensation is payable under the
Industrial Disputes Act.
4) The claim for accrued holiday remuneration
becoming payable to any workman on the termination
of his employment before, or by the effect, of the
winding up order as mentioned in clause (ii) of Section
529(3)(b) includes such claim for the period
immediately prior to the date of closure but it does not
include such claim for the period of closure, whether
closure is legal or illegal.
5) Compensation under Workman's Compensation Act,
1923 is admissible for the purpose of priority under
the Act as per the provisions of Section 529(3)(b)(iii).
6) The claim for gratuity under the Payment of
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Gratuity Act, 1972 is covered by the provisions of
Section 529(3)(b)(iv) of the Companies Act,
irrespective of the fact whether the Company had
established or maintained a gratuity fund and the
qualifying period for the purpose of computing
gratuity, pension and provident fund shall include the
period of illegal closure.
7) The claim for notice pay under the provisions of the
Industrial Disputes Act, 1947 or under any other law is
not admissible for the purposes of priority under the
Act.
8) The claim for bonus, whether under the Payment of
Bonus Act, 1965 or otherwise, is not admissible for the
purposes of priority under the Act.
c) Relevant date for computing Workman's Dues and
calculation of Interest
The relevant date for computation of the workman's
dues as well as the dues of the secured creditors for the
purpose, of determining the ratio of the respective dues
under Sections 529 and 529-A of the Companies Act is
the date of first appointment of Provisional Liquidator
land if no such appointment is made the date of winding
up order as contemplated in Section 530(8)(c)(i) of the
Act. Hence, in the first instance the Official Liquidator
shall compute the dues of the workmen as covered by
the claim for priority u/S 529 and 529-A of the
Companies Act and the dues of the secured creditors as
on the aforesaid relevant date."
71. The learned Single Judge in the case of Engineering
Workers Association7, emphasized the distinction between the
claims to be made against the Company when it is not in
liquidation and when the Company is wound up and is in charge of
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the liquidator. When the Company is wound up and the liquidator
is appointed, it is not expected to honour every commitment. The
claim can be made against the Official Liquidator but the
Companies Act does not oblige him to honour every claim in full
even if it is proved. The liquidator cannot be directed to make
payments to the creditors as if the Company is operational and
functional. When it comes to disbursement of amounts by the
Official Liquidator, the dues which are to be disbursed have been
specified. It is not that the workmen have no remedies for the dues
which are not covered by the definition of workman's dues. The
'workman's dues' will get priority and the other dues will have to
await adjudication and settlement. Therefore, some part of the
dues have been given priority over other creditors or contributories
because those claims should be expeditiously settled and other part
of the claim can award adjudication. So it is not that the entire
claim made by the workmen will have an overriding priority. The
learned Single Judge in the case of Engineering Workers
Association7 has observed that while balancing the priorities the
legislature has consciously accepted the narrower term 'wages'
under the Industrial Disputes Act. The approach of the Official
Liquidator to rely on the definition under Industrial Disputes Act is
in consonance with the decision of Engineering Workers
Association7 and cannot be faulted. Therefore, the contentions
advanced by the applicants that the phrase 'wages' having not been
defined under the Act must be given its widest meaning and will
include all the monies payable, cannot be accepted. As far as which
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component are to be included withing the ambit of priority charge
the decision of the Official Liquidator based on Engineering
Workers Association7 is correct.
72. As far as Bonus is concerned, the position is settled. The
learned Judge in Engineering Workers Association7 noted that the
legislative intent was to award monies due to services rendered and
remuneration earned as of right should be paid to the workmen so
that the workmen does not suffer adversely because of the winding
up. The learned Judge noted that in the case reported in 1952(22)
Company Cases 96 view was taken that bonus has not included
the category of wages under the Companies Act and the workers
are not entitled to payment of bonus on priority. In the case of
Jubilee Mills1 the learned Single Judge of the Gujarat High Court
also came to the conclusion that bonus does not fall in the ambit of
Section 529(3)(b) and therefore, it is not payable on that basis. The
learned Single Judge in the case of Engineering Workers
Association7 observed as under -
"25. There is no reference in these provisions to Bonus
admittedly. The reason for the same appears to be
obvious. The intention is to honour and meet the dues of
the workmen towards wages or salaries or such
compensation which is admissible to him for services
rendered to the company and payable under the
provisions of Industrial Disputes Act, 1947. Similarly,
whenever the Legislature thought that dues other than
wages or salary are payable as workmen's dues, it has
included them, such as, all accrued holiday
remuneration payable to any workman or in case of his
death to any person in his right, on the termination of
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his employment before or by the effect of winding up
order or resolution. Further, if the company is wound
up voluntarily, merely for the purpose of reconstruction
or amalgamation in another company or unless the
company at the commencement of winding up has under
a contract with the Insurers, as is mentioned in Section
14 of the Workmens Compensation Act, 1923, rights
capable of being transferred and vested in the
workmen, then, all amounts due in respect of any
compensation or liability for compensation under the
said Act in respect of death or disability of any
workmen, are also included in workmens dues. At the
same time, sums due to any workmen from a Provident
Fund, Pension Fund, Gratuity Fund and/or any other
fund for the welfare of the workers maintained by the
company, are also included. Thus, workmens dues
being ranked higher in priority have been defined with
a view to obviate payment of all sums due to them. Such
of the sums which as a part of the welfare measure and
consistent with the concept of a living wage have been
included. So also, compensation for injury in voluntary
winding up or under contract of insurance is also
included. Thus, the intention is to award monies due for
services rendered and remuneration earned as of right
so also death or disablement compensation or terminal
dues, should be paid so that the workmen does not
suffer adversely because of winding up. Some what
similar view has been taken in a case reported in
1952(22)-Company Cases-96. Here, the view taken is,
that Bonus is not included under the category of
"Wages" in Section 230 of the old Companies Act and
workers are not entitled to preferential payment of
bonus. The decision was in the field when the Act was
amended. The legislature in its wisdom has not included
'Bonus' even in the amended provision. This is
indicative of the intention of the Legislature."
In view of these clear decisions which have been followed by the
Official Liquidator, the decision of the Official Liquidator in
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respect of bonus cannot be faulted. The learned Single Judge has
relied upon the decision under the old Companies Act and has
noted that in the new Companies Act, in spite of the decision of the
division bench, legislature has not included bonus in the amended
provisions. I am in respectful agreement with this view and there
is no reason to take a different view in this regard.
73. The Official Liquidator has considered Gratuity with
reference to last drawn Basic and D.A. Salary, excluding
allowances. He has computed Retrenchment compensation, notice
pay, leave salary, arrears of salary is computed with reference to
total salary including HRA and Lump sum allowance. In view of
the findings recorded above that the wages of the applicants /
workmen continued till the period of winding up these amounts
will have to be recalculated till the date of winding up. Once this
basic principle is laid down, the actual calculations will have to be
done by the Official Liquidator again and they are left to be done
by the Official Liquidator.
74. The next claim is towards the Provident Fund. The prayer
made in the application to direct the Official Liquidator to pay the
arrears of employees provident fund contribution from October
2000 to 5 September 2005. The learned counsel for the applicants
submitted that the Apex Court in the decision of E.P.F
Commissioner Vs O.L. of Esskay Pharmaceuticals8 that the
amounts due to Employees Provident Fund authorities will have
first charge on the assets of the Company. There is no dispute on
8- 2011 III CLR 954
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this position in view of the clear dicta of the Apex Court in the case
of E.P.F Commissioner8. The Official Liquidator in its impugned
communication and in the affidavit in reply has not refused to pay
the dues as regards provident fund but has stated that the Provident
Fund Commissioner has not made its claim. The stand taken by
the Official Liquidator in this regard cannot be faulted with. The
view as regards Provident Fund cannot be claimed by the
applicants / workmen directly but the claim will have to be made
by the provident fund authorities. The Official Liquidator however
should move the provident fund authorities and assist the workmen
in recovery of their dues. The Official Liquidator cannot merely
take a stand that the provident fund dues will be paid as and when
an application is made by the provident fund Commissioner. Even
if the Commissioner has not moved an application the Official
Liquidator should move the provident fund authorities and ensure
that all the deposit is due and payable. If any orders are required
for that purpose the Official Liquidator will move the Court
expeditiously in any case not later than three weeks from today.
75. As far as the issue of retrenchment compensation and
gratuity is concerned, the same has been granted by the Official
Liquidator. However, in view of the findings given above they will
have to be reconsidered. The Official Liquidator will have to
calculate the dues under the heads admissible as noted above, on
the basis that services of the workmen continued till the date of
winding up and recalculate the dues and include those in the
ambit of priority charge in light of decision in Engineering
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Workers Association7. The learned counsel for the creditors have
raised contentions as regards payment of gratuity and retrenchment
compensation to be paid to the applicants the creditors have
determined in the application. The creditors have not challenged
the decision taken by the Official Liquidator as regards payment of
gratuity and retrenchment compensation. When there is no
challenge on these aspects by the creditors, I am not inclined to
deprive the workmen of what is already granted by the Official
Liquidator. This question of law in the present case does not arise
in view of the decision taken by the Official Liquidator in favour of
the applicants. The Official Liquidator has not raised the issue as
regards payment of both gratuity and retrenchment
compensation,the calculation basis however needs to be corrected.
76. As far as payment of interest on the amount due is
concerned, the Official Liquidator has rightly rejected the same at
this stage. The Official Liquidator has taken a stand in the reply
that in view of Rule 179 of the Companies (Court) Rules 1959, the
claim of interest would arise only if there is a surplus amount
available to the credit of the Company after payment of all the
admitted claims and that too at a particular rate. Rule 179 reads as
under :
"179. Payment of subsequent interest.- In the event of
there being a surplus after payment in full of all the
claims admitted to proof, creditors whose proofs have
been admitted shall be paid interest from the date of the
winding-up order or of the resolution as the case may
be, up to the date of declaration of the final dividend, at
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a rate not exceeding 4 per cent per annum, on the
admitted amount of the claim, after adjusting against
the said amount the dividends declared as on the date of
the declaration of each dividend.
Perusal of the above quoted rule clearly indicates that the interest
cannot be claimed by the applicant as a matter of priority but will
have to await the disbursement of the admitted claims. The view
taken by the Official Liquidator in this regard is correct. This
position is not seriously disputed by the applicants but it is stated
that assets of the Company are sufficient to pay the interest. But
that will not alter the legal position regarding the stage at which the
interest needs to be paid.
77. The next issue to be considered is whether the applicants /
workmen should be called upon to prove as to whether they were
gainfully employed elsewhere before admitting their claims. This
point has not been raised by the Official Liquidator. The Official
Liquidator in the impugned order, affidavit in reply as well as in
the Written submissions has not raised this ground. The respondent
Nos.2 and 3 creditors have raised this ground. The learned counsel
for respondent No.2 and 3 have relied upon the decision of the
Apex Court in the case of Kendriya Vidyalaya Sanghatan and
other Vs S.C.Sharma9 to contend that it is settled law that if a
worker is gainfully employed elsewhere during the relevant period
when he is not in service then he cannot be paid back wages. It is
contended that the onus lies upon workers to prove that they are
not gainfully employed elsewhere. Firstly, this ground is not taken
by the Official Liquidator. There is no challenge to the decision of
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the Official Liquidator by respondent No.2 and 3 to the decision of
the Official Liquidator. The Official Liquidator has not placed any
restriction on the workers that they will not be paid if they are
gainfully employed elsewhere. The respondent Nos.2 and 3 have
not challenged grant of wages for this period to the applicants
workers on the ground that they were gainfully employed
elsewhere. Therefore the learned counsel for the applicants is
right in contending that no such restriction can be placed on the
workmen in absence of any challenge.
78.
In any case no decision of any Court has been pressed into
service by the respondent Nos.2 and 3 where the Court has
employed the test of alternate gainful employment in case of
workers dues to be paid in winding up of the Companies. The
decision of the Apex Court in the case of Kendriya Vidyalaya
Sanghatan9 deals with the case of reinstatement with back wages.
The present case is completely different. In the case at hand by
virtue of provisions of Section 25-O(6) a legal fiction has been
created which fiction has been accepted by the Official Liquidator
till the appointment of Provisional Liquidator which is extended in
view of the findings above till the date of winding up. In such a
situation there is no question of 'reinstatement with back wages' of
the applicants. In the facts of the present case therefore and in
absence of any challenge to the decision of the Official Liquidator
the issue raised by the respondent Nos.2 and 3 creditors has no
merit.
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79. To conclude therefore, for the component of wages to be
given priority, the decision of the Official Liquidator based on the
decisions in Engineering Workers Association7 and Jubilee Mills1
is upheld. The Official Liquidator will however have to recalculate
the dues on the basis that the services of the workmen came to an
end on 5 September 2005.
STATUS OF BADLI WORKMEN
80. The learned counsel for the applicants submitted that as
regards the entitlement to retrenchment compensation of Badli
workers, is concerned, reading of section 25F r/w 25B of the
Industrial Disputes Act, 1947, shows that the criterion for
entitlement to retrenchment compensation is completion of
uninterupted service of one year. Uninterupted service does not
require that the worker should have worked on every day of that
one year. It only requires for him/her to have been on the rolls of
the company for one year. Standing Order 19 (b) of the Standing
Orders for Operatives for Cotton Textile Mills framed under the
provisions of the Bombay Industrial Relations Act, 1946, makes it
clear that a positive act of discharge is necessary. No such act of
discharge has been carried out. Badli workers are entitled to get
retrenchment compensation both under section 25B as it then stood
before being amended in 1964 and after the amendment. As
regards entitlement of Badli workers for gratuity, Section 4 r/w.
section 2-A of the Payment of Gratuity Act states that every person
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who has completed 5 years of service shall come within the
definition of employee and that where he/she has completed 240
days in a particular year he shall be eligible to be treated as in
service in that year. The 240 days can only apply to the 5th year of
service, that is, any workman who has completed 4 years of service
and has worked for 240 days in the 5th year would be eligible for
gratuity.
81. Learned counsel for the Official Liquidator submitted that as
regards Badli worker the Supreme Court in Prakash Cotton Mills
Pvt. Ltd. Vs. Rashtriya Mills Mazdoor Sangh10, while
considering the status of a badli worker, has laid down that a badli
worker would get work only in the absence, temporary or
otherwise, of regular employees and that they do not have any
guaranteed right of employment. Consequently, a badli workman
would not be entitled to any compensation for closure.
82. Learned senior Advocates for the respondent No.2 and 3
submitted that badli workman is not on the same footing as a
regular workman. A badli workman is not entitled to compensation
on closure nor is such a workman entitled as a matter of right to
employment. Section 25(c) of the Industrial Disputes Act, 1947,
excludes a badli workman or a casual workman from the benefit of
any compensation in the case of there being any layoff. Reliance is
placed on the decision of the Hon'ble Supreme Court in the case of
Prakash Cotton Mills10.
10 - AIR 1986 SC 1514
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83. In the application there is no assertion as to which of the
applicant is a Badli worker. The learned counsel for the applicants
states that applicant No.4 is a Badli worker. There are other Badli
workers in respect of Company under liquidation as well. The
Official Liquidator has denied dues or wages to the Badli workers
relying upon the decision of the Apex Court in case of Prakash
Cotton Mills10. According to the Official Liquidator Badli workers
are not be entitled to any compensation for closure. The applicants
contended that the decision in the case of Prakash Cotton Mills10
has not noticed the decision of the Supreme Court in the matter
between Digwadih Colliery and Their workmen11 which is a
decision of four Judges. The reliance is also sought to be placed on
the Section 25(B) of the Industrial Disputes Act, after the
amendment,section 40A of Bombay Industrial Relations Act, 1946
and Standing Order 4-C of Model Standing Orders which have
been made applicable to mill workers. Reliance is also placed on
the decision of the learned Single Judge of this Court in the case of
Gangaram Atmaram Vishwasrao Vs National Textile
Corporation12.
84. In this context Section 25-C, Section 25-B and Section 25-M
of the Industrial Disputes Act need to be noted.
25C. Right of workmen laid- off for compensation.-
Whenever a workman (other than a badli workman or a
casual workman) whose name is borne on the muster
11 - II LLJ SC page 118
12 - 1996 (1) BCR 465
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rolls of an industrial establishment and who has
completed not less than one year of continuous service
under an employer is laid- off, whether continuously or
intermittently, he shall be paid by the employer for all
days during which he is so laid- off, except for such
weekly holidays as may intervene, compensation which
shall be equal to fifty per cent. of the total of the basic
wages and dearness allowance that would have been
payable to him had he not been so laid- off: Provided
that if during any period of twelve months, a workman is
so laid- off for more than forty- five days, no such
compensation shall be payable in respect of any period
of the lay- off after the expiry of the first forty- five days,
if there is an agreement to that effect between the
workman and the employer: Provided further that it
shall be lawful for the employer in any case falling
within the foregoing proviso to retrench the workman in
accordance with the provisions contained in section 25F
at any time after the expiry of the first forty- five days of
the lay- off and when he does so, any compensation paid
to the workman for having been laid- off during the
preceding twelve months may be set off against the
compensation payable for retrenchment.
25B. Definition of continuous service.- For the
purposes of this Chapter,--
(1) a workman shall be said to be in continuous service
for a period if he is, for that period, in uninterrupted
service, including service which may be interrupted on
account of sickness or authorised leave or an accident
or a strike which is not illegal, or a lock- out or a
cessation of work which is not due to any fault on the
part of the workman;
(2) where a workman is not in continuous service within
the meaning of clause (1) for a period of one year or six
months, he shall be deemed to be in continuous service
under an employer--
(a) for a period of one year, if the workman, during a
period of twelve calendar months preceding the date
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with reference to which calculation is to be made, has
actually worked under the employer for not less than--
(i) one hundred and ninety days in the case of a
workman employed below ground in a mine; and
(ii) two hundred and forty days, in any other case;
(b) for a period of six months, if the workman, during a
period of six calendar months preceding the date with
reference to which calculation is to be made, has
actually worked under the employer for not less than--
(i) ninety- five days, in the case of a workman employed
below ground in a mine; and
(ii) one hundred and twenty days, in any other case.
Explanation.-- For the purposes of clause (2), the
number of days on which a workman has actually
worked under an employer shall include the days on
which--
(i) he has been laid- off under an agreement or as
permitted by standing orders made under the Industrial
Employment (Standing Orders) Act, 1946 (20 of 1946 ),
or under this Act or under any other law applicable to
the industrial establishment;
(ii) he has been on leave with full wages, earned in the
previous years;
(iii) he has been absent due to temporary disablement
caused by accident arising out of and in the course of
his employment; and
(iv) in the case of a female, she has been on maternity
leave; so, however, that the total period of such
maternity leave does not exceed twelve weeks.]
Explanation.--" Badli workman" means a workman who
is employed in an industrial establishment in the place
of another workman whose name is borne on the muster
rolls of the establishment, but shall cease to be regarded
as such for the purposes of this section, if he has
completed one year of continuous service in the
establishment.
25M. Prohibition of lay- off.-
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(1) No workman (other than a badli workman or a
casual workman) whose name is borne on the muster
rolls of an industrial establishment to which this
Chapter applies shall be laid- off by his employer
except 1[ with the prior permission of the appropriate
Government or such authority as may be specified by
that Government by notification in the Official Gazette
(hereinafter in this section referred to as the specified
authority), obtained on an application made in this
behalf, unless such lay- off is due to shortage of power
or to natural calamity, and in the case of a mine, such
lay- off is due also to fire, flood, excess of inflammable
gas or explosion].
(2) ....
(3) Where the workman (other than badli workmen or
casual workmen) of an industrial establishment, being
a mine, have been laid- off under sub- section (1) for
reasons of fire, flood or excess of inflammable gas or
explosion, the employer, in relation to such
establishment, shall, within a period of thirty days from
the date of commencement of such lay- off, apply, in the
prescribed manner, to the appropriate Government or
the specified authority for permission to continue the
lay- off.
(4) ....."
85. In the case of Prakash Cotton Mills10, the order of Industrial
Court directing the payment of compensation to the Badli workers
upon closure of the Mill of the appellant therein was under
challenge. The Industrial Court had partly allowed the claim and
had directed the appellant to pay closure compensation, even to the
Badli worker albeit, with certain conditions. In appeal before the
Apex Court, it was contended on behalf of the appellant employer
that the Mill was closed down as per the provisions of the Standing
Orders and it is not liable to pay any compensation especially to
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the Badli workers. The Apex Court found that the closure was not
in accordance with the provisions of Standing Order and went on
to consider whether the compensation to be paid to the Badli
workers. The Apex Court in paragraph No.15 and 16 as under -
"15. The next question that remains to be considered is
whether the Industrial Court is justified in directing
payment of compensation to some of the Badli workmen.
It is not in dispute that Badli workmen get work only in
the absence, temporary or otherwise, of regular
employees, and that they do not have any guaranteed
right of employment. Their names are not borne on the
muster rolls of the establishment concerned. Indeed, a
Badli workman has no right to claim employment in
place of any absentee employee. In any particular case,
if there be some jobs to be performed and the employee
concerned is absent, the Company may take in a Badli
workman for the purpose. Badli workmen are really
casual employees without any right to be employed. It
has been rightly submitted by the learned Counsel for the
appellant that the Badli employees could not be said to
have been deprived of any work to which they had no
right and, consequently, they are not entitled to any
compensation for the closure. Indeed, the Industrial
Court has itself observed that to allow the claim of Badli
workmen would be tantamount to penalising the
appellant. In spite of the said observation, the Industrial
Court directed payment of compensation to the Badli
workmen in place of certain categories of regular
employees. We fail to understand how the Industrial
Court can direct payment of compensation to the Badli
workmen when, admittedly, such Badli workmen, as
noticed already, have no right to be employed. It may be
that the Company may not have to pay closure
compensation to the three categories of employees, as
mentioned by the Industrial Court, but that does not
mean that the Company has to pay compensation to the
Badli workmen in place of these categories of employees.
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In this connection, we may refer to Section 25C of the
Industrial Disputes Act, 1947 which excludes a Badli
workman or a casual workman from the benefit of
compensation in the case of layoff.
16. In the circumstances, although we uphold the
order of the Industrial Court for payment of
compensation to the regular employees of the appellant at
the rate fixed by it, we are unable to subscribe to the view
that the compensation which would have been payable to
the three categories of employees, should be paid to the
Badli workmen. In other words, we hold that Badli
workmen have no right to claim compensation on account
of closure."
86.
Accordingly, the Apex Court set aside the order of Industrial
Court granting compensation to the Badli workers. Apex Court
made a distinction between entitlement of Badli workers and
regular workmen upon closure and held Badli workers will not be
entitled. The learned counsel for the applicants has sought to
distinguish this decision on the ground that in that case the Badli
workers were not on the Muster roll of the company. However that
is however not the only ground on which the decision of the Apex
Court rests. The Apex Court has categorically held that the Badli
worker has no right to claim employment in case of any absentee
employed. The Apex Court held that the Badli worker do not have
guaranteed right of employment. The Apex Court held that the
Badli worker could not be said to have been deprived of any work
to which they have no right and therefore, they are not entitled to
any compensation for the closure.
87. The learned counsel has relied upon the decision of the Apex
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Court in the case of Digwadih Colliery11. In this case the Apex
Court held that a Badli worker who has spent one year of
continuous service and who has worked for 240 days during the
period of 12 calendar months is entitled to the benefit of 25-F of
the Act. The learned Single Judge of this Court in the case of
Gangaram Atmaram12 considered the Model Standing Order 4-C
framed under Bombay Industrial Relations Act, 1946. The learned
Single Judge concluded that after Badli workmen who has
completed stipulated number of days of service is entitled to raise
claim as permanent workmen.
88. The learned counsel for the applicants submits that
therefore instead of rejecting the claim of badli workmen out right
an opportunity be given to the workmen to show that they have
completed stipulated number of days. Thus, even assuming one has
to proceed on the basis that the Badli workmen can claim rights as
a permanent worker after putting in number of stipulated days of
service, there is no factual foundation laid in the present
application nor there is any adjudication by the Official Liquidator.
The applicant has not specified in the application as to which
applicant is the Badli workmen and no data or documents are
placed on record to arrive at a conclusion as to whether the
concerned applicant has completed the stipulated number of days
of service. The Official Liquidator has also not considered the
legal position which is sought to be pressed into service by the
learned counsel for the applicants as regards claim of Badli
workers to be treated as permanent after completing stipulated
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number of days service. Legal issue as regards the entitlement of
the Badli workers will have to be thus decided in realm of pure
conjecture .Question of law can be not be considered unless factual
foundation laid to that effect.
89. The Official Liquidator has solely relied on the decision of
the Apex Court in the case of Prakash Cotton Mills10 and Section
25-C of the Industrial Disputes Act, and has refused to consider
any other aspect. The effect of decision of Apex Court in
Digwadih Colliery11 and the learned Single Judge Gangaram
Atamaram12 to the effect that upon completion of stipulated number
of days the Badli workers will cease to be treated as such and will
have to be treated as permanent, has not been considered. Though
no final view on this position is being expressed still it will not be
proper to take away from the Badli workers even the opportunity
to rely upon the provisions and the case law.
90. It will be thus open to the badli workmen to contend that
they have completed stipulated number of days and the official
liquidaor to consider the same. If upon this exercise being carried
out the Official Liquidator comes to a finding that a particular badli
workman has completed stipulated number of days, then only
question will arise as to whether he should be given the same
benefit as a regular employee. Today one does not know which
badli workmen has completed stipulated number of days. The
question of relying upon the decision in the case of Digwadih
Colliery11 and Gangaram Atamaram12 will arise only upon the
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factual determination. Thus though it is not necessary to decide
this question of law finally at this stage, the workmen cannot be
deprived of laying a factual foundation to agitate the question of
law. Thus the Official Liquidator will permit the badli workmen
to demonstrate that they have completed stipulated number of
days, consider the submissions of applicability of law and then
take a decision whether they would be entitled to be paid as
regular workmen.
91. Thus to summarize : The Companies Act does not provide
for any other eventuality for cessation of services of the workers,
for the purpose of calculating their dues, than the date of winding
up of the company, unless the business is continued. Workmen's
services may come to an end under the service contract read with
relevant labour laws before the date of winding up ,but for the
purpose of calculating their dues, the services of the workmen do
not get terminated upon the appointment of a Provisional
Liquidator, even if appointed with full powers. The dues payable
under section 529A will be with reference to the provisions of
Industrial Disputes Act as held in Engineering Workers
Association7 and Jubilee Mills1. The term 'wages' and 'workmens
dues' can not be given wide and sweeping meaning. The workers
cannot directly demand provident fund dues and the Official
Liquidator will move the Provident fund commissioner and only
thereupon other questions can be examined. There is no need to
incorporate a condition that the workmen must prove that they
were not gainfully employed before disbursing thier dues. The
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Badli workers can place factual position before the Official
Liquidator that they have completed the stipulated number of days
and they cannot be shut out at the threshold itself.
92. The Company application is accordingly disposed of by
directing the Official Liquidator to calculate the dues of the
applicants and similarly situated workmen by taking 5 September
2005 as the date of severance of the services and recalculate the
dues accordingly. The decision of the Official Liquidator to
consider 13 February 2002 as the relevant date is set aside. The
component of the dues will be as per the decisions of Engineering
Workers Association7 and Jubilee Mills1, however the Official
Liquidator will recalculate the dues by taking 5 September 2005 as
the date of severance of the services. The Official Liquidator will
move the Provident fund Commissioner expeditiously, in any case
not later than six weeks from today. If necessary he will file a
report for that purpose within three weeks. The Official Liquidator
will permit the Badli workers to place the factual position as
regards completion of stipulated number of days and thereafter
consider their submission based on legal provisions.
93. The Company application is disposed off as above. No
costs.
(N. M. JAMDAR, J. )
