1998 (7) TMI 493 - SC - Companies Law

Who is to be deemed occupier of a factory of a Government company incorporated under the Indian Companies Act? Held that - Appeal allowed. As the factories run by the appellant-Corporation are effectively and really owned and controlled by the Central Government they fall within the purview of clause (iii) and not clause (ii) of the first proviso to section 2(n). Thus the High Court was wrong in taking a contrary view. Thus direct respondents Nos. 1 and 2 to accept the persons appointed by the Central Government to manage the affairs of the factories at Namkum as the occupiers of those factories for the purposes of section 2(n) of the Factories Act

Summary

Issues Involved:
1. Determination of the "occupier" of a factory owned by a Government company under the Factories Act, 1948.
2. Applicability of clause (ii) versus clause (iii) of the first proviso to section 2(n) of the Factories Act, 1948.

Detailed Analysis:

1. Determination of the "occupier" of a factory owned by a Government company under the Factories Act, 1948:

The central issue in these appeals was to determine who should be deemed the "occupier" of a factory owned by a Government company under the Factories Act, 1948. The appellant, a Government company incorporated under the Indian Companies Act, 1956, faced a dispute with the Inspector of Factories regarding the recognition of the depot manager as the occupier of its factory. The Inspector contended that only a director of the company could be deemed the occupier, as per clause (ii) of the first proviso to section 2(n) of the Factories Act, 1948. However, the appellant argued that its factory should fall under clause (iii) of the same proviso, which allows the Government to appoint a person to manage the affairs of the factory as the occupier.

2. Applicability of clause (ii) versus clause (iii) of the first proviso to section 2(n) of the Factories Act, 1948:

The High Court, relying on the decision in J.K. Industries Limited v. Chief Inspector of Factories and Boilers, held that in the case of a company, only one of the directors could be deemed the occupier of the factory. The appellant did not contest this point before the Supreme Court. The High Court further held that clause (ii) of the proviso to section 2(n) applied to the appellant's storage depots, as they were owned by the company and not directly by the Central Government, and the depot manager was appointed by the company, not the Government.

The appellant's counsel argued that despite being a Government company, the ultimate control over the affairs of the factory rested with the Central Government, making clause (iii) applicable. The Supreme Court examined the definition of "occupier" under section 2(n) and the legislative intent behind the amendments made in 1987. The Court noted that the ultimate control over the affairs of the factory is the key factor in determining the occupier. It emphasized that the Central Government had pervasive control over the appellant's operations, including the appointment of its chairman and directors, and the management of its affairs.

The Court referred to its previous decisions in Som Prakash Rekhi v. Union of India and Mahabir Auto Stores v. Indian Oil Corporation, which established that Government companies, despite having a separate legal entity, are effectively controlled by the Government. The Court concluded that the ultimate control over the appellant's factories lay with the Central Government, making clause (iii) of the first proviso to section 2(n) applicable. Thus, the person appointed by the Central Government to manage the affairs of the factory should be deemed the occupier.

Judgment:

The Supreme Court allowed the appeals, set aside the High Court's judgment, and directed the respondents to accept the persons appointed by the Central Government to manage the affairs of the factories at Namkum as the occupiers for the purposes of section 2(n) of the Factories Act. The parties were directed to bear their own costs.