1998 (12) TMI 521 - HC - Companies Law

Issues Involved:

1. Liability of the official liquidator to make deductions and contributions under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
2. Applicability of the Employees' State Insurance Act, 1948 to the official liquidator.

Detailed Analysis:

1. Liability of the Official Liquidator under the Provident Funds Act:

The core issue was whether the official liquidator is liable to deduct the workers' share from their salary, contribute his share, and deposit the same with the Regional Provident Fund Commissioner under the Provident Funds Act. The establishment in question, Rohtas Industries Limited, was exempted from the Provident Funds Act under Section 17 due to an existing trust scheme. The company ceased operations in 1984, and a winding-up petition was filed. The Supreme Court initially entertained a writ petition to revive the industry, but later concluded that revival was not feasible, leading to the resumption of winding-up proceedings.

The official liquidator argued that the employees in question were retained merely to assist in the winding-up process and were not employees of a going concern. Therefore, the liquidator contended that the Provident Funds Act should not apply, citing Section 445(3) of the Companies Act, which deems the making of a winding-up order as notice of discharge to the employees unless the business continues. The official liquidator relied on the precedent set by Mahalaxmi Cotton Mills Ltd., In re [1960] 30 Comp Cas 107, which distinguished between a going concern and a concern being wound up.

The Regional Provident Fund Commissioner countered that the term "factory" had been replaced by "establishment" in the Provident Funds Act, broadening its scope to include more employees. The Commissioner argued that the official liquidator, who has ultimate control over the affairs of the company, should be considered an "employer" under Section 2(e) of the Act.

The court acknowledged that while employees retained to assist the liquidator continue to receive emoluments, they must qualify as "employees" under the Provident Funds Act, and the liquidator must be an "employer." The definition of "employee" in Section 2(f) includes those employed in any kind of work in connection with an establishment, while "employer" under Section 2(e) includes those with ultimate control over the establishment's affairs.

The court noted that the Provident Funds Act applies to establishments employing twenty or more persons, but the key question was whether the Act remained applicable after the company's operations ceased and a winding-up order was made. The Calcutta High Court in Mahalaxmi Cotton Mills Ltd. had held that an official liquidator is not liable for contributions under the Provident Funds Act if the business is not continued.

Given that Rohtas Industries Limited had not been operational since 1984 and the Supreme Court had directed the winding up of the company, the court concluded that the Provident Funds Act did not apply to the official liquidator, as the establishment was not engaged in any industrial activity specified in Schedule I nor specially notified under Section 1(3)(b) of the Act.

2. Applicability of the Employees' State Insurance Act:

No separate arguments were advanced regarding the Employees' State Insurance Act. The court applied its findings from the Provident Funds Act to the Employees' State Insurance Act, concluding that the official liquidator was not liable under this Act either.

Conclusion:

The court disposed of the official liquidator's report and connected affidavits, concluding that the official liquidator is not liable for contributions under the Provident Funds Act or the Employees' State Insurance Act due to the cessation of the company's operations and the winding-up process.

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