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Suresh Tulsidas Kailachand and ors. Vs. Collector of Bombay and ors. - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtMumbai High Court
Decided On
Case NumberMisc. Petition 944
Judge
Reported in(1980)IILLJ81Bom
ActsEmployees ' State Insurance Act, 1948 - Sections 2(17); Indian Companies Act, 1913; Bombay Relief Undertaking (Special Provisions) Act, 1958 - Sections 3 and 4(1)
AppellantSuresh Tulsidas Kailachand and ors.
RespondentCollector of Bombay and ors.
Excerpt:
.....2 (17) of employees' state insurance act, 1948 - whether directors of public limited company are principal employers within meaning of section 2 (17) - held, directors of company are principal employers within meaning of section 2 (17) and are liable to contribute amounts of employees' and employer's contribution. - [couto; m.l. pendse, jj.] in the first instance the order passed under s. 132(5) is an order of a summary nature and does not conclude the rights of the petitioners, because while passing the assessment order, it is always open to the petitioners to point out that the assets recovered in the search were not undisclosed to point out that the assetsrecovered in the search were not undisclosed income. secondly, the order passed under s. 132(5) is appealable under the..........raises an interesting question as to whether the directors of a public limited company are principal employers within the meaning of s. 2(17) of the employees ' state insurance act, 1948 (hereinafter referred to as the 'act'). 2. the facts which have given rise to this petition are not in dispute and are briefly as follows : the petitioners were directors of digvijay spinning and weaving company ltd., a company registered under the indian companies act, 1913 (hereinafter referred to as the 'company'). the petitioners ceased to be directors from july 9, 1969 onwards. the company owned a textile mill and as required by the act, the company was required to contribute an amount of rs. 3,95,112.53 towards the employees' contribution for the quarter ending june 30, 1968 and september.....
Judgment:

1. This petition raises an interesting question as to whether the Directors of a Public Limited Company are principal employers within the meaning of S. 2(17) of the Employees ' State Insurance Act, 1948 (hereinafter referred to as the 'Act').

2. The facts which have given rise to this petition are not in dispute and are briefly as follows : The petitioners were Directors of Digvijay Spinning and Weaving Company Ltd., a company registered under the Indian Companies Act, 1913 (hereinafter referred to as the 'company'). The petitioners ceased to be directors from July 9, 1969 onwards. The company owned a textile mill and as required by the Act, the company was required to contribute an amount of Rs. 3,95,112.53 towards the employees' contribution for the quarter ending June 30, 1968 and September 30, 1968. The company was also required to make contribution towards employer's contribution of an amount of Rs. 3,33,403 for the quarter ending December 31, 1968 to March 31, 1970. The respondent No. 2 is the Regional Director of the Employees' State Insurance Corporation with whom the amount of contribution both of the employees 'and the employer's were required to be deposited. It is not in dispute that the company did deduct the employees' contribution from the wages payable to the employees but failed to deposit the same with respondent No. 2.

3. The State of Maharashtra issued a Notification dated July 9, 1969 under S. 3 and sub-clause (iv) of clause (a) of sub-s. (1) and S.4 of the Bombay Relief Undertaking (Special Provisions) Act, 1958. Under the said Notification, the Government of Maharashtra provided a guarantee for a period of one year commencing from July 9, 1969 and the Mill was to be conducted as a measure of unemployment relief act. The Notification further provided that during the period of one year any right, privilege, obligation or liability accrued or was to be incurred and any remedy for the enforcement thereof shall remain suspended. It also provided that all proceedings relating to such undertaking pending before any Court, Tribunal or authority shall be stayed. The Government of Maharashtra from time to time issued notifications extending the period fixed under the first Notification.

4. As the amount of contribution was not paid, the respondent No. 2 filed applications dated December 24, 1968 and November 11, 1970 under S. 5 of the Revenue Recovery Act, 1890 for the recovery of Employer's Special Contribution under S. 73D of the Act for claim of Rs. 4,10,183.51 and Rs. 3,56,039.75 against the petitioners. In pursuance of this application, the respondent No. 1 - the Collector of Bombay - issued notice of demand dated August 27, 1974 against the petitioners under S. 267 of the Maharashtra Land Revenue Code for recovery of the amounts mentioned in the applications and the petitioners were told that on their failure to pay the amounts within 20 days, their properties would be attached and sold by public auction. The petitioners have filed this petition under Art. 226 of the Constitution of India on October 16, 1974 to challenge the legality and validity of the applications filed by respondent No. 2 for recovery of the amounts and the demand notices issued by respondent No. 1 in pursuance thereof.

5. Mr. Joshi, the learned counsel appearing in support of the petition, has raised two contentions to challenge the validity of the action taken by respondent No. 2. The learned counsel submitted that in view of the provisions of the Bombay Relief Undertakings (Special Provisions) Act, 1958, all proceedings arising out of any right, privilege, obligation or contract stand suspended and, therefore, the action taken by respondent No. 2 against the petitioners who are Directors of the company is illegal. There is no merit in this submission. Under S. 4 of the Bombay Relief Undertakings (Special Provisions) Act, 1958, and the Notifications issued under the provisions of that Act, a moratorium on actions against the undertaking during the currency of the notification has been declared. In view of that notification, any remedy for the enforcement of an obligation or liability against the relief undertaking is suspended but the immunity cannot he extended to cover the individual obligations and liabilities of the directors of the undertaking. The liabilities or obligations of the Directors are independent of the undertaking and the notification in no manner suspends the obligation of the Directors. The reliance in this connection by Mr. Nain, the learned counsel appearing for respondent No. 2, on the decision of the Supreme Court in the case of Inderjit C. Parekh and others v. V. K. Bhatt and another, : 1974CriLJ906 , is appropriate. The Supreme Court pointed out that the personal liability of the Directors arising under the provisions of the Act is not suspended in view of the Notification issued under S. 4(1)(a)(iv) of the Bombay Relief Undertakings (Special Provisions) Act, 1958. In view of this decision, the submission of Mr. Joshi that the obligations or the liabilities of the Directors of the company also stand suspended, must be turned down.

6. The principal contention raised by the learned counsel appearing in support of the petition is that the Directors are not the principal employers as contemplated under S. 2(17) of the Act and, therefore, there is no personal obligation or liability to contribute the amounts required under the Act. To appreciate the submission of the learned counsel, it is necessary first to find out the Scheme of the Act. The Act No. 34 of 1948 was enacted on April 19, 1948 to provide for certain benefits to employee in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto. The Act is obviously a piece of beneficial legislation and while considering the submission of the learned counsel, this aspect will have to be kept in mind. The charging section is S. 40 under Chapter IV of the Act. Section 40 of the Act provides that the principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employees' contribution. The rate of contribution is specified in the First Schedule of the Act and S. 30 provides that such contribution shall be paid to the Corporation constituted under the Act. Section 2(17) of the Act defines 'principal employer' and it reads as follows :

'(17) 'principal employer' means -

(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948, the person so named;

(ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is, so appointed, the head of the Department;

(iii) in any other establishment, any person responsible for the supervision and control of the establishment.'

it is not in dispute that the case of the petitioners is covered only by S. 2(17)(i) of the Act and the respondents are claiming that the petitioners are the occupiers of the factory and, therefore, the principal employers and are liable to pay the contribution under S. 40 of the Act. Mr. Joshi submitted that the petitioners are not the occupiers of the factory but the occupier of the factory is a company itself. It is, therefore, necessary to find out whether the petitioners are the occupiers of the factory and, therefore, come within the ambit of expression 'principal employer '. The expression 'occupier' has been defined in S. 2(15) of the Act and it reads as follows :

'(15) 'occupier' of the factory shall have the meaning assigned to it in the Factories Act, 1948.'

In view of this definition, it is necessary to turn to the provisions of the Factories Act.

7. The Factories Act defines the expression 'occupier' under S. 2(n) and it reads as follows :

'(a) 'occupier' of a factory means the person who has ultimate control over the affairs of the factory, and where the said affairs are entrusted to a managing agent, such agent shall be deemed to he the occupier of the factory.'

It is the case of the respondents that the petitioners are the occupiers of the factory as they are the persons who have ultimate control over the affairs of the company. It is the submission of Mr. Nain that under the provisions of S. 291 of the Companies Act, it has been provided that the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do. This Section undoubtedly makes the petitioners-Directors as the persons having ultimate control over the affairs of the company. Mr. Joshi, on the other hand, submitted that the Directors have no ultimate control over the affairs of the company, but it is the general body of the Shareholders who have ultimate control. The proposition as stated by the learned counsel cannot be debated but equally it cannot be disputed that the Board of Directors has got the ultimate control over the day-to-day affairs of the company. The liability to contribute the amount under S. 40 of the Act is apart of day-to-day working of the company and it is not possible to hold that in respect of payment of amount of contribution, the Directors have no ultimate control over the affairs of the company. In my judgment, the petitioners-Directors did have the ultimate control over the affairs of the company and would clearly come within the expression 'occupiers' and consequently the 'principal employer' under S. 2(17) of the Act.

8. Mr. Joshi relied upon the provisions of S. 100 of the Factories Act. Section 100 forms part of Chapter X of the Factories Act which refers to penalties and procedure. Section 100 provides that when the occupier of the Factory is a company, any one of the Directors thereof may be prosecuted and punished under this Chapter for any offence for which the occupier of the factory is punishable. Relying upon the provisions of this Section, it was urged by Mr. Joshi that the Factories Act contemplates that the company itself can be an occupier and in case of a company, the Directors are not necessary occupiers. The learned counsel further submits that if a company can be an occupier, exclusively, then it would not be proper to treat the Directors as also occupiers of a company and make liable under S. 40 of the Act. The submission has no merit. In the first instance, the definition of 'occupier' in the Act specifically provides that the expression should be construed with reference to definition given under the Factories Act. That makes it clear that one can turn to the Factories Act only to find out the exact import of the expression 'occupier' and it is not permissible to travel to the other provisions of the Factories Act to decide whether a company can be an occupier excluding the Directors thereof. The reliance of Mr. Joshi in this connection on a penal provision is also not appropriate because what has been provided by S. 100 of the Act is a dimming fiction that even though the company is an occupier, its Directors can be made personally responsible for the penal liability. Reading provisions of this Section, it is not possible to conclude that in cases of companies the directors can never be the occupiers. The second facet of the matter is that it is possible that in cases of Factories there can be more than one occupier. It is well-known that the company functions through its directors and officers and even though the company can be termed as an occupier, still there is no prohibition to treat the directors as also occupiers in addition to the company. In my judgment. while construing the beneficial legislation as the Employees' State Insurance Act, it must be held that the Directors of the company are principal employers being the occupiers of the factory.

9. Certain decisions have been pointed out by Mr. Nain in support of his submission that the Directors of a company are the principal employers liable to pay the contribution amount under S. 40 of the Act. The first decision relied upon by Mr. Nain is in the case of B. M. Chatterjee v. The State of West Bengal and another, : AIR1970Cal290 . The learned single Judge of the Calcutta High Court while considering whether a Director of the company convicted under S. 85(a) read with S. 73A of the Act can be treated as a principal employer to sustain the conviction. Only a stray observation is made in paragraph 7 of the judgment after quoting the provisions of S. 2(17) of the Act that the accused as a director of the limited company is the owner. I Pail to appreciate how a director of the company can be termed as owner of the company. It is not possible to place any reliance on this decision. Mr. Nain then relied on an unreported decision of the Gujarat High Court in Criminal Appeal No. 189 of 1968, decided on September 17, 1970. This judgment does support the contention of the respondents that the directors of a company are the principal employers liable to pay the contribution under S. 40 of the Act. I am in respectful agreement with the view taken by the learned Judge of the Gujarat High Court.

10. Mr. Joshi placed reliance upon a decision of this Court in the case of Emperor v. Jamshedji Naserwanji Modi, reported in 33 Bombay Law Reporter 309. The learned Chief Justice Beaumont while considering whether a conviction of an owner of a factory under S. 41(a) of the Indian Factories Act can be treated as an occupier even though his Manager was admittedly in control of the factory, observed as follows :

'I do not propose to attempt to do what the Legislature refrained from doing, namely, give an exhaustive definition of the word 'occupier ' for the purposes of the Act, but I should say that 'occupier' in general means a person who occupies the factory either by himself or his agent. He may be an owner, he may be a lessee or even a mere licensee, but he must, I think, have the right to occupy the property and dictate how it is to be managed.'

Relying upon these observations, Mr. Joshi submitted that the Directors cannot be treated as occupiers. I fail to the submission but on the contrary, from the observations of the learned Chief Justice, it is crystal clear that the Directors of the company can well be brought within the expression 'occupiers' as it is Directors who dictate how a company has to be managed. In my judgment, the directors of the company are the principal employees within the expression of S. 2(17) of the Act and are liable to contribute the amounts of employees' and employer's contribution. In view if this finding, the action taken by respondent No. 2 in filing applications for recovery and by respondent No. 1 in issuing demand notice are perfectly valid.

11. There is one more objection of the petitioners which requires to be considered Mr. Joshi submits and it is not in dispute that the petitioners ceased to be the Directors from July 9, 1969 in view of the notification issued by the Government of India. The demand notice calls upon the petitioners to pay the contributions for employer's for a period ending with March 31, 1970. Mr. Joshi submits that as the petitioners ceased to be the Directors from July 9, 1969, they cannot be held responsible for contribution after expiry of quarter immediately next to July, 1969. The submission is sound and Mr. Main, the learned counsel appearing for the respondents, agreed that the demand notice will be re-served upon the petitioners in respect of the employer's contribution after calculating the correct amount. Save and except this relief, the petitioners are not entitled to any other relief in this petition as the respondents have agreed to issue a fresh demand notice in respect of the employers contribution after proper calculation.

12. In the result, the petition fails and the rule discharged with costs.


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