2015 (3) TMI 549 - HC - Companies Law

Company in liquidation - Application by secured creditors to get dues on pro rata basis - Whether Contractual labours will be covered in Workmen under the companies act & will have preferential claim in liquidation - Held that - The official liquidator has simply quoted the definition of the workmen assigned in Industrial Disputes Act and under the Companies Act and have suddenly jumped to the conclusion that those contract labourers are the workmen within the definition engrafted under Section 528 of the Companies Act. The official liquidator has no occasion to consider the agreement between the contractors and the principal employer nor have recorded any finding whether such an agreement is sham, unreal and mere camouflage to disassociate the linkage between the contract labourers and the principal employer. The ultimate conclusion deducible from the case of Steel Authority of India Ltd. 2001 (8) TMI 1334 - SUPREME COURT is that neither Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 nor any provision of the Act either expressly or necessary implication suggest the automatic absorption of contract labour on issuance of the notification by the appropriate government under Section 10(1) of the Act. Lifting the veil is required to be adopted in such case and a definite finding is to be arrived whether those contract labourers are in fact a workman under the establishment of principal employer who is having a submersive control over them. Even the Constitution Bench in case of Steel Authority of India have recognized three classes of the contract labourers. Since all the materials are not available before this Court and by an earlier order the official liquidator was directed to adjudicate the claim of the contract labourers whether they can be brought within the purview of workmen as defined under Section 528 of the Companies Act, this Court feels that the official liquidator should adjudicate afresh after inviting all the interest parties to produce the relevant contracts and thereafter shall arrive at the finding whether the contract is of such nature which after piercing the veil would suggest that there was a direct relationship of employer and an employee between the contract labourers and the principal employer. This Court, therefore, does not intend to pass letter of direction as sought by the official liquidator in terms of the report filed before this Court and also do not intend to pass any further direction for release of the payment as sought by the banks in their respective applications as well as the release of the amount to the contract labourers.- Directions issued to official liquidator to make an adjudication in the light of the observations made herein above.

Issues Involved:
1. Whether contract labourers can be considered workmen under Sections 529, 529A, and 530 of the Companies Act.
2. Legitimacy of the claims of contract labourers as secured creditors.
3. The official liquidator's role in adjudicating the claims of contract labourers.

Issue-wise Detailed Analysis:

1. Whether contract labourers can be considered workmen under Sections 529, 529A, and 530 of the Companies Act:

The primary issue revolves around whether contract labourers can be categorized as workmen under Sections 529, 529A, and 530 of the Companies Act. The banks, as secured creditors, argued that contract labourers do not qualify as workmen under these provisions. The contract labourers countered that their services were perennial and, following the abolition of contract labour by the Contract Labour (Regulation and Abolition) Act, 1970, they should be considered employees of the company in liquidation, thus qualifying as workmen with preferential claims.

Sections 529 and 529A of the Companies Act provide that workmen's dues rank pari passu with secured creditors. Section 530 details preferential payments, including wages, salaries, and other statutory benefits for employees. The definition of workmen for these sections is borrowed from the Industrial Disputes Act, 1947, which includes manual, skilled, technical, operational, clerical, or supervisory work for hire or reward but excludes managerial or administrative roles.

2. Legitimacy of the claims of contract labourers as secured creditors:

The contract labourers relied on the Supreme Court's judgment in Air India Statutory Corporation vs. United Labour Union, which held that the abolition of contract labour ensures the right to regularization of such workers as employees of the principal employer. However, this judgment was overruled by the Constitution Bench in Steel Authority of India Ltd. vs. National Union Water Front Workers, which clarified that neither Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, nor any other provision of the Act implies automatic absorption of contract labour upon issuance of a notification under Section 10(1). The Constitution Bench emphasized that the relationship between the principal employer and contract labourers should be determined based on the genuineness of the contract.

3. The official liquidator's role in adjudicating the claims of contract labourers:

The official liquidator had classified the contract labourers as workmen under Section 528 of the Companies Act without examining the agreements between the contractors and the principal employer. The court highlighted that the official liquidator must scrutinize whether the contracts were genuine or mere camouflages to evade compliance with beneficial legislations. The court directed the official liquidator to re-adjudicate the claims by inviting all interested parties to present relevant contracts and determine if there was a direct employer-employee relationship between the contract labourers and the principal employer.

The court refrained from issuing a letter of direction or ordering the release of payments to the banks or contract labourers until the official liquidator completed the adjudication process. The official liquidator was given six weeks to make a fresh adjudication based on the court's observations.

Conclusion:

The court concluded that the official liquidator must re-evaluate the claims of the contract labourers, considering the genuine nature of the contracts and the possibility of a direct employer-employee relationship. The applications were disposed of with no order as to costs, allowing parties to seek similar reliefs post-adjudication.

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