1983 (11) TMI 334 - HC - Indian Laws

Summary

Issues Involved:
1. Liability of directors for employer's contributions under the Employee's State Insurance Act, 1948.
2. Validity of notices issued by the Collector of Bombay for recovery of contributions as arrears of land revenue.
3. Definition and scope of "principal employer" under Section 2(17) of the Employee's State Insurance Act.
4. Jurisdiction of the Employees' Insurance Court under Section 75 of the Employee's State Insurance Act.
5. Interpretation of "occupier" under the Factories Act, 1948.

Detailed Analysis:

Issue 1: Liability of Directors for Employer's Contributions
The main question in the appeals was whether directors of a company can be held personally liable for the employer's contributions under the Employee's State Insurance Act, 1948. The court held that directors cannot be automatically considered as "principal employers" merely by virtue of their position as directors. The liability to pay contributions is fastened on the "principal employer," which can be the owner or occupier of the factory, but not necessarily the directors.

Issue 2: Validity of Notices Issued by the Collector of Bombay
The notices issued by the Collector of Bombay under Section 5 of the Revenue Recovery Act, 1890, read with Section 267 of the Maharashtra Land Revenue Code, 1966, were challenged. The court found that these notices were invalid as they were issued on the incorrect assumption that directors are automatically liable as principal employers. The court quashed these notices.

Issue 3: Definition and Scope of "Principal Employer"
The court examined the definition of "principal employer" under Section 2(17) of the Employee's State Insurance Act. It concluded that the term "principal employer" refers to the owner or occupier of the factory, and does not automatically include directors. The court emphasized that the principal employer can either be the owner or the occupier, but not both simultaneously.

Issue 4: Jurisdiction of the Employees' Insurance Court
The court acknowledged that the question of whether a person is a principal employer falls within the jurisdiction of the Employees' Insurance Court under Section 75 of the Act. However, given the immediate threat of enforcing personal liability against the directors, the court decided to intervene under Article 226 of the Constitution of India.

Issue 5: Interpretation of "Occupier" under the Factories Act
The court analyzed the definition of "occupier" under Section 2(n) of the Factories Act, 1948, which refers to the person who has ultimate control over the affairs of the factory. The court clarified that a director cannot be assumed to have ultimate control over the affairs of the factory merely by virtue of being a director. The court also referred to Section 100 of the Factories Act, which allows for the nomination of a specific director as the occupier, but such nomination must be explicit.

Conclusion:
The court allowed all three appeals, set aside the orders of the learned Single Judge, and quashed the notices issued to the directors for recovery of the amounts due on account of the employer's contributions. The court emphasized that directors cannot be held personally liable as principal employers unless explicitly designated as such. The court also rejected the oral application for leave to appeal to the Supreme Court.