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In Re: Mahalaxmi Cotton Mills Ltd. (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtKolkata High Court
Decided On
Case NumberExtraordinary Suit No. 7 of 1955
Judge
Reported inAIR1960Cal199,[1960]30CompCas107(Cal),64CWN31,(1960)ILLJ468Cal
ActsEmployees' Provident Funds Act, 1952 - Sections 2, 6 and 11; ;Companies Act, 1913 - Sections 178, 178(2) and 230; ;Companies Act, 1956 - Sections 456, 456(2) and 530
AppellantIn Re: Mahalaxmi Cotton Mills Ltd. (In Liquidation)
Appellant AdvocateChatterjee, Adv. for Official liquidator
Respondent AdvocatePal, Adv. for one of the Respondents
Excerpt:
- .....mahaluxmi cotton mills ltd,, which went into liquidation on 10-1-1955. mr. p.k. pal was appointed official liquidator. a special order was made on 21-3-1955 appointing mr. pal as the official liquidator and specially empowering him to carry on the business of the mill and the factory with express direction upon him to sell the same as a 'going concern'. mr. pal was also appoint-ed a receiver in the suit brought by the united bank of india ltd., against the company and was also directed to work the mill in accordance with the orders passed in the winding up application. on 31-5-1958 the regional provident fund commissioner,, west bengal wrote to the liquidator asking for payment of current provident fund contribution as required by the employees' provident funds act, 1952 and the scheme.....
Judgment:
ORDER

P.B. Mukherji, J.

1. This is an application by the liquidator raisins the important point of his liability to pay the employer's contribution of the Provident Fund under the Employees' Provident Funds Act, 1953 and particularly under Rule 29 of the Employees' Provident Fund Scheme.

2. Rule 29 provides as follows :

''(i) The contributions payable by the employer under the scheme shall be at the rate of one anna in the rupee of the basic wages and the dearness allowance payable to each employee to whom the scheme applies.

(ii) The contribution payable by the employee under, the scheme shall be equal to the contribution payable by the employer in respect of such employee.'

3. It is contended on behalf of the liquidator that the liquidator is not liable under the Act to make this contribution.

4. The factory in this case is a Cotton Mill. It was being run by the company Mahaluxmi Cotton Mills Ltd,, which went into liquidation on 10-1-1955. Mr. P.K. Pal was appointed Official Liquidator. A special order was made on 21-3-1955 appointing Mr. Pal as the Official Liquidator and specially empowering him to carry on the business of the Mill and the factory with express direction upon him to sell the same as a 'going concern'. Mr. Pal was also appoint-ed a Receiver in the suit brought by the United Bank of India Ltd., against the company and was also directed to work the mill in accordance with the orders passed in the winding up application. On 31-5-1958 the Regional Provident Fund Commissioner,, West Bengal wrote to the liquidator asking for payment of current provident fund contribution as required by the Employees' Provident Funds Act, 1952 and the scheme framed thereunder.

5. On behalf of the official liquidator it is contended that the Employees' Provident Funds Act, .1952 does not apply to the official liquidator. The point is of considerable importance. It is a case of first impression. No decision in India has been shown to me which has decided this point. It will be necessary, therefore, to examine the Act and the Scheme thereunder and to carefully consider the arguments advanced on behalf of the official Liquidator.

6. Mr. Chatterji, learned counsel for the official liquidator bases his whole argument on the contention that the official liquidator does not answer the test of an 'employer' or 'occupier' as defined under the Employees Provident Funds Act, 1952. He develops his argument by saying that Section 6 of the statute provides that the contribution shall be made by the employer to the fund. Therefore, he argues that there must be an 'employer' within the meaning of the Act. Similarly, he draws my attention to Section 8 of the Act where the expression used is 'amount due from an employer'.

7. 'Employer' is defined by Section 2(e) of the Act to mean :

(i) The owner or occupier of the factory including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under Clause (f) of Sub-section (1) of Section 7 of the Factories Act, 1948 the person so named.

(ii), In relation to any other establishment, the person who or the authority which has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent.'

The occupier of a factory is defined by Section 2(k) of the Act to mean ;

'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 be an occupier of the factory.'

8. On the basis of the expression 'ultimate control' in Section 2 (e) and (k) of the Act, it is contended on behalf of the Official Liquidator that he is not in ultimate control. The ultimate control is said to be in this Court. He is said to be only an officer of the Court who works under the directions of the Court.

9. I am not persuaded by that argument. A Liquidator is a statutory custodian of the property and effects of the company directed by an order of the Court to be wound up under the Companies Act. Section 178 (1) of the Old Companies Act (corresponding to Section 456 of the Companies Act 1956) which governs this case expressly provides :

'The Official Liquidator shall take into his custody or under his control all the property, effect and actionable claims to which the company is or appears to be entitled.'

This provision means that the Official Liquidator is the statutory custodian although Sub-section (2), of Section 178 (corresponding to Section 456(2) of the Companies Act, 1956) provides that such property and effect 'shall be deemed to be in the custody of the Court,' That is only the notional custody. That notional custody in jurisprudence begins from the very date of the order of the winding up. But the actual custody or control under Section 178 (1) of the Old Companies Act (or Section 456(1) of the Companies Act 1956) is given to the Official Liquidator and he is directed to take into his custody or control the property and effects and the actionable claims of the company. The word 'control' is used in Section 178(1) of the Old Companies Act (or Section 456(1) of the Companies Act 1956). I . should, therefore, read the words 'ultimate control' used in the definition of 'employer' and 'occupier' in Sections 2(e) and 2(k) of the Employees' Provident Funds Act, 1952 to include the Liquidator who has) the ultimate control for all practical purposes over the affairs of the factory and not the Court as the legal custodian or supervisor of liquidation. No doubt, the Court exercises control over the Liquidator; but that is only a supervisory control, but the actual executive and the custodian remains the Liquidator. Besides many statutory duties and powers relating to practical management and control are conferred on the Official Liquidator by diverse sections of the Companies Act. There is an additional reason to hold that he has such control on the facts of this application because the liquidator is expressly and specially ordered to carry on the business of the factory to sell it as a 'going concern'.

10. It will be necessary to refer to the main principle and object of this Statute, the Employees Provident Funds Act, 1952. Its object is to provide for the institution of provident funds for employees in factories and other establishments. By Section 1(3) of the Act, it applies in the first instance to 'all factories engaged in any industry specified in Schedule I in which fifty or more persons are employed.' It is not contended that this Cotton Industry or Mill is not an industry within Schedule I. It is an industry within the 1st Schedule of the Act. The point that I wish to emphasise in this context is that the impact of this Act is on 'all factories engaged in any industry' so specified. In other words, if a factory is 'engaged' in any industry, the Act is intended to apply so long as that industry is a specified one. The impact of the Act is on the factory and not on the word employer. The word 'employer' in the Act only shows the machinery or the personality made responsible for the contribution, and should not be given a meaning which defeats the very basis of the operation or impact of the Act which remains a 'factory engaged in any industry' specified. Once such a factory is found engaged in a specified industry the operation of the Act should not be lightly defeated by any narrow interpretation of the word 'employer' used in the Act. In this case the Official Liquidator was especially asked and ordered to work this factory and to keep it 'engaged' in the industry, so that it could be sold as a going concern. If it is not engaged, it cannot be sold as a 'going concern'. Therefore, normally it attracts the conditions of this Act.

11. No doubt ordinarily in liquidation, the Official Liquidator will be asked to wind up a Company running a Mill or a factory and therefore to discharge the employees. In such an event, it will no longer be a factory 'engaged' in any industry within the meaning used in Section 1(3) of the Act and, therefore, such an Official Liquidator will not be required to pay contributions under this Statute. But this case is very different on the facts. The difference lies in the order of this Court asking the Liquidator to carry on this factory and to sell it as a going concern. In this context of fact, I should consider that the Liquidator is the employer who conducts the business and for that purpose has the ultimate control over the affairs of the factory, subject, no doubt, to the supervision of this Court.

12. To adopt any other construction would mean that even in such a case as this where the Court itself directly empowers and orders the Official Liquidator to keep a factory engaged in industry and to carry on the business, 'the Court will permit the creation of a class of persons freed from the ordinary statutory liabilities of that factory of making contribution to the Provident Fund. There will be no justification or reason for the Courts creating such a privileged class of persons. If the factory has to be run, then the statutory liabilities of running a factory must be taken by any person, whoever he may be, Liquidator or a Receiver, who runs such business.

13. On behalf of the Official Liquidator reference was also made to Section 11 of the Employees' Provident Funds Act to show that priority of payment of contributions over other debts is accorded only where the liability accrued before the Company was wound up. That is the priority of pre-liquidation contribution. It is, therefore said that the Statute makes no provision for post-liquidation contribution. Now Section 11 of the Employees' Provident Funds Act expressly refers to Section 230 of the Companies Act. Section 230 of the Companies Act deals with preferential payments. It sets out the payments of certain amounts in priority to all other debts. In that list in sub-clause (e) is mentioned 'all sums due to any employee from a Provident Fund, a Pension Fund, a Gratuity Fund or any other fund for the welfare of the employees maintained by the Company.' That, again, means that sums already due to an employee will have priority. This, again, does not deal with post-liquidation liabilities. Referenceto Section 11 of the Employees' Provident Funds Act and Section 230 of the Companies Act for preferential payments does not help the argument of the Official Liquidator that this contribution to the Provident Fund should not be made by him although he has been asked to continue the factory engaged in the industry and to keep it going and to self it as a going concern. These liabilities are not liabilities for preferential payments, but they are statutory and indispensable liabilities such as the many liabilities which a Liquidator has to undertake^ as for instance, as when he is to continue a lease to keep on paying the rent or where he is holding other properties, to see that rates and taxes in respect of them are paid.

14. Now what is going to be the result if the construction contended for by the Liquidator is adopted? Apart from creating a special class of persons who would be permitted to do business without the statutory liabilities enjoined in such business, there will be many other serious consequences. The Provident Fund will cease to exist, and in that event the workers may very well leave the factory. As a consequence, the business will be closed. That will mean that the Liquidator will not be able to sell the factory as a running concern which is the order of the Court.

15. I am, therefore, satisfied, both on the construction of the Employees' Provident Funds Act and its Scheme as well as on the special order made Sn this case directing the Liquidator to carry on the factory engaged in the industry and to sell it as a going concern, that the Liquidator is liable as an employer' and 'occupier' within the meaning of that Act to make the contributions required by the Statute and the Scheme framed thereunder.

16. I shall not be understood as holding that where the Liquidator is asked to wind up a factory and close it down, he would still be liable for contribution under this Act. In fact, I have already said that in such an event the Liquidator will not be liable under the Act for contribution because it will no longer be a factory 'engaged' in the specified industry. In fact, it will then be disengaged from the industry and closed down.

17. Reference was made by Mr. Pal learned counsel for the respondent, to the case of Alluminium Corporation of India Ltd, v. Regional Provident Fund Commissioner, : (1959)ILLJ249Cal . That case, however, does not concern the point now decided by me.

18. There will, therefore, he an order in terms of Clause (a) of the Summons, holding that the applicant, Official Liquidator, is liable to pay the employer's contribution to the Provident Fund under Regulation 29 of the Employees' Provident Funds Scheme and under the Employees' Provident Funds Act, 1952. Such liability, I think, should fairly begin from the date when the Official Liquidator, started running the Mill and it being a few days after the order, it will begin from 1-4-1955 for facility of calculation, leaving out the few odd days.

19. The Official Liquidator is given leave to pay the said amount of contribution from the funds of the Estate in his hands as prayed in Clause (b) of the Summons.

20. In Clause (c) of the Summons the Official Liquidator has asked for direction whether he is liable to' pay the employer's contribution to the fund in respect of employees who are not covered by the Act, and the obvious answer is that he is certainly not liable for the same.

21. The Official Liquidator will retain the costs of and incidental to this application to be taxed bythe Taxing Officer of this Court as between attorneyand client out of the funds of the Company in hishands. The respondent Regional Provident FundCommissioner would bear his own costs. Certified forCounsel.


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