9911796707
TMI Blog1993 (12) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956, should be the date of the winding up order and not the date of sale ; and (iii) the workmen are entitled to claim interest from the date of the winding up order till the date of realisation of security. He (the learned single judge) has set aside the order of the official liquidator determining the closure compensation and the payment of interest on the admitted amount. To have a grip on the controversy between the parties we may notice some of the relevant facts at the outset. The company known as Pilot Pen Co. (India) P. Ltd. has gone into liquidation and has been ordered to be wound up on October 27, 1978, in C.P. No. 11 of 1978. Consequent on the passage of the winding up order, the official liquidator has entered upon his duties and taken control and possession of the administration and properties of the company. The liquidator took up the claim of the workmen in which, however, he himself posed a question whether the undertaking of the company in liquidation was closed down on account of unavoidable circumstances beyond the control of the employer, and found that the undertaking of the company in liquidation was closed down with effect from October 27, 1978, conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under clause (b) of section 25F shall not exceed his average pay for three months. Explanation.--An undertaking which is closed down by reason merely of-- (i)financial difficulties (including financial losses) ; or (ii)accumulation of undisposed of stocks ; or (iii)the expiry of the period of the lease or licence granted to it; or (iv)in a case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which such operations are carried on ; shall not be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section". Besides section 25FFF of the Act a provision has been introduced in section 25-O of the Act, which was amended by Act 46 of 1982 and came into force with effect from August 21, 1984, which reads as follows : "25-O. Procedure for closing down an undertaking.--(1) An employer who intends to close down an undertaking of an industrial establishment to which this Chapter applies shall, in the prescribed manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be illegal from the date of closure and the workmen shall be entitled to all the benefits under any law for the time being in force as if the undertaking had not been closed down. (7) Notwithstanding anything contained in the foregoing provisions of this section, the appropriate Government may, if it is satisfied that owing to such exceptional circumstances as accident in the under taking or death of the employer or the like it is necessary so to do, by order, direct that the provisions of sub-section (1) shall not apply in relation to such undertaking for such period as may be specified in the order. (8) Where an undertaking is permitted to be closed down under sub-section (2) or where permission for closure is deemed to be granted under sub-section (3), every workman who is employed in that undertaking immediately before the date of application for permission under this section, shall be entitled to receive compensation which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months". An examination of the language employed in section 25FFF of the Act would reveal that any closure of an indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and to see whether, on the facts of the instant case, it is reasonable to say that the company was closed down on account of unavoidable circumstances beyond the control of the employer. If the answer to this is "yea" the appeal must subsist. If the answer is "nay" the appeal must fail. A learned single judge of the Kerala High Court in B.V. John v. Coir Yarn and Textiles Ltd. [1960] 30 Comp Cas 162 ; AIR 1960 Ker 247, decided a case of a workman who claimed compensation under section 25F( b) of the Act free of the limitation imposed by the proviso to section 25FFF(1) of the Act. The workmen in the case before him were those whose services were terminated before the official liquidator took charge of the winding-up proceedings and before the closure was effected as a consequence of the winding-up order. In his opinion (at page 165 of 30 Comp Cas) : "The closing down of an undertaking need not be, and rarely is, all on a sudden and a matter of an instant ; it can be, and often is, in stages and spread over some time". He noticed in the judgment the fact that the company had suffered heavy losses and the general trade outlook was so gloomy that it had little chance of survival a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading to the winding up of the company, as one falling under the limitation of three months' compensation. Section 25FFF of the Act has been tested on the touchstone of article 14 of the Constitution of India in the case of Hathising Mfg. Co. Ltd. v. Union of India [1960-61] 18 FJR 181 ; AIR 1960 SC 923. Although not strictly speaking about the extent and reach of this section, the Supreme Court has indicated the plain intendment of this provision which we have already quoted. This, by reference, brings in section 25F of the Act which provides as follows : "No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until (a)the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workmen has been paid in lieu of such notice, wages for the period of the notice ; (b)the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay (for every completed year of continuous service) or any part thereof in excess of six months ; and (c)notice in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent until the conditions prescribed by that section are fulfilled is imposed ; by section 25FFF(1) of the Act, termination of employment on closure of the undertaking without payment of compensation and without either serving notice or paying wages in lieu of notice, is not prohibited. Payment of compensation and payment of wages for the period of notice are not, therefore, conditions precedent to closure. After pointing out the above, it is clearly spelt out that as a consequence of closure of the undertaking the entitlement of the workmen to compensation as provided under section 25F of the Act is not to be confused with the obligation of the employer to give notice of termination of service in case the management decided to retrench the workmen. The Supreme Court has said that the impugned section providing for payment of compensation is evidently related to the object sought to be achieved by Parliament, i.e, securing social justice. The right to receive compensation arises because the workman is exposed to undeserved wants and the reasons for closure may have no direct bearing thereon. Payment of compensation which is directed to be made at the rate of 15 days' wages for ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closure on account of circumstances beyond the control of the employer. By this Explanation, employers who had to close down their industrial undertakings merely because of financial difficulties including financial losses or accumulation of undisposed of stocks are excluded from the benefit of the proviso to section 25FFF(1). The proviso restricts the liability of employers who are compelled to close down their undertakings on account of unavoidable circumstances beyond their control, but in the view of Parliament, in that category are not to be included employers compelled to close down their undertakings merely because of financial difficulties or accumulation of undisposed of stocks. Closure of an undertaking attributable merely to financial difficulties or accumulation of undisposed of stocks is, by the Explanation, excluded from the benefit of restricted liability ; but coupled with other circumstances, financial difficulties or accumulation of undisposed of stocks may justify the view that the closure is due to unavoidable circumstances beyond the control of the employer, and attract the application of the proviso notwithstanding the Explanation" . What is thus decipherabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the closure is due to unavoidable circumstances beyond the control of the employer, the compensation of the employer, the compensation to be paid to the workmen shall not exceed his average pay for three months". He in short thus held : "If the closure is held as a consequence of the winding up and the employees are removed for that reason, they are not entitled to the benefit under clause (1) of section 25FFF which are governed by the proviso thereto". A Division Bench of the Kerala High Court, however, has observed in the case of Palai Central Bank Employees' Union v. Official Liquidator [1965] 35 Comp Cas 279 ; [19651 2 Comp LJ 110 that a closure as a consequence of a notice under section 445(3) of the Companies Act is one for unavoidable circumstances. It seems, however, that there was no serious exercise to see whether in such a case the antecedent facts leading to the closure should be examined or not or it is an absolute rule that closure as a consequence of the winding up is always one falling under the limitations of the proviso to section 25FFF(1) of the Act. In that judgment, it is observed (at page 280): "The second objection is that the learned judge should not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove if lesser compensation is to be paid to the workman that the undertaking was closed down on account of unavoidable circumstances beyond the control of the employer. In cases in which the employer fails to rely upon the contents of the proviso to sub-section (1) and to prove the above facts, the workman and/or employee would always be entitled to compensation as mentioned in sub-section (1). The Explanation to the proviso must be read in the light of the above correct construction of the provisions in sub-section (1). The Explanation only refers to two particular contingencies in which the Legislature decided that a finding would have to be made that the closure was not due to unavoidable circumstance beyond the control of the employer. In other words, the Legislature laid down that closure merely by reason of financial difficulties or accumulation of undisposed of stocks could not be held to be closure on account of unavoidable circumstances beyond the control of the employer. The liquidator has come to the conclusion that in all cases the closure due to winding up orders made by the court would be on account of unavoidable circumstances beyond the control of the employers. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince then undergone frequent modifications. By Act 43 of 1953, a new Chapter V-A was incorporated containing provisions for compensation for lay-off and retrenchment. It also provided a definition of "retrenchment" in section 2(oo). In Hariprasad v. A.O. Divelkar [1956] 11 FJR 317 ; AIR 1957 SC 121, the Supreme Court held that retrenchment as defined in section 2(oo) and the word "retrenchment" in section 25F of the Act meant discharge of surplus labour or staff by the employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action and did not include termination of services of all workmen on a bona fide closure of an undertaking or on a change of ownership of the management thereof. This decision was followed first by an Ordinance and then by Act 18 of 1957, incorporating in the Act the present sections 25FF and 25FFF. Both these sections use the words "as if the workman had been retrenched". The intention of the Legislature is, therefore, clear that it did not wish to place transfer and closure on the same footing as retrenchment under section 25F. This is apparent also from the fact that it left the definition of retrenchment in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eant by saying that the undertaking is closed down on account of unavoidable circumstances. In a negative fashion, the Legislature said that if an undertaking is closed down by reason merely of financial difficulties or accumulation of undisposed of stocks or the expiry of the period of the lease or licence granted to it or in a case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which such operations are carried on, they shall not be deemed to be instances under which it could be said that an undertaking has been closed down on account of unavoidable circumstances beyond the control of the employer. In our view, the Explanation which provides for such contingencies under which the employer cannot escape his obligation to pay the full compensation as provided in clause (b) of section 25F is purely illustrative and not exhaustive. That this is so illustrative is seen from a decision of the Supreme Court in Kalinga Tubes Ltd, v. Their Workmen [1968] 34 FJR 393 ; [1969] 1 Lab LJ 557 ; [1969] IC 90. That was a case where the undertaking was closed on account of violence deployed by the workmen in that they gheraoed the management. Obvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, then avoidance of such a duty on the part of the businessman cannot be an equation of an unavoidable circumstance. But, in the instant case, it is the admitted case of the parties that Burmah Shell which was supplying the raw material, namely, petrol, refused to supply any more such raw material and but for such supply, it is conceded that there could not have been any business worth the name which the employer could have conducted. Therefore, any effort, reasonable or otherwise, which the employer could have possibly taken in order to resume such supplies of raw material, namely, petrol, from Burmah Shell could not have borne fruit at all. In fact there is no altercation that the employer did not take any such effort. In such circumstances, we are of the opinion that the closure was not a result of any overt or covert act on the part of the employer, but it was due to circumstances beyond his control. We are also satisfied, as Ismail J. has expressed, that the closure was bona fide by itself because the employer could not do anything from his side nor could he exert himself to restore his commercial activity in a manner known to the mercantile world. In this sense, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receives benefits in respect of other matters under this Act. (2) For the removal of doubts, it is hereby declared that nothing contained in this Chapter shall be deemed to affect the provisions of any other law for the time being in force in any State in so far as that law provides for the settlement of industrial disputes, but the rights and liabilities of employers and workmen in so far as they relate to lay-off and retrenchment shall be determined in accordance with the provisions of this Chapter". Winding up proceedings are taken up on the grounds that are spelt out under section 433 of the Companies Act. The grounds stated are : "(a)if the company has, by special resolution, resolved that the company may be wound up by the court ; (b)if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting ; (c)if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year ; (d)if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two; (e)if the company is unable to pay its debts ; (f)if the court is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to infer on such facts that the company/employer itself created conditions for winding up and as a consequence of the winding up, or the closure of the company. The closure of a company as a consequence of the winding up if accepted as an unavoidable circumstance beyond the control of the employer for the purpose of giving effect to the rule in section 25FFF of the Act, which has been introduced for granting compensation to the employees who are terminated as a consequence of the closure of the undertaking in such a situation should not be accepted as an unavoidable circumstance. We cannot ignore the fact that the petitions for winding-up in most cases are based upon the failure of the employer/owners/ management of the company to discharge their debts in due course of business and almost in all cases of this kind as observed in Shree Madhav Mills' case [1967-68] 32 FJR 315 ; AIR 1967 Bom 219, by a learned single judge that such failures necessarily result in winding up orders. We are in agreement with what is said in Shree Madhav Mills judgment, the winding up orders in such cases must be considered as a result of financial difficulties of the companies and/or inability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is completed, there is no closure in the eye of law. Before the Amendment Act, 45 of 1982, which introduced section 25-O of the Act in the Chapter of special welfare provisions for the workmen, section 25FF of the Act alone took care of the interests of the workmen which were affected by the closure of their undertaking by their employer. The reason by the unavoidable circumstances beyond the control of the employer has got the effect of limiting the compensation payable to the employee to the average pay for three months, but it does not exclude altogether the application of section 25F of the Act which says : "(a)the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid, in lieu of such notice, wages for the period of the notice ; (b)the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay (for every completed year of continuous service) or any part thereof in excess of six months ; and (c)notice in the prescribed manner is served on the appropriate Government (or such authority as may be specified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor ; (b)if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part ; or (c)if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company. (2)The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm". This provision in the Companies Act gives strength to the view that there may be circumstances leading to the winding up of the company which are created by the employer only to invite action by a creditor or any other person to wind it up and if such are the circumstances leading to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give notice to all the creditors. It is in such a proceeding that they have come to face with the objection to the claim of compensation in accordance with sub-section (1) of section 25FFF of the Act, that is to say in accordance with section 25F(b) of the Act, and it is contended on behalf of the employer that they shall receive compensation only under the proviso to sub-section (1) of section 25FFF of the Act. The two circumstances which led to the stoppage of work in the undertaking as stated in the proceeding are (1) financial difficulties and (2) accumulation of undisposed of stocks, which are not such unavoidable circumstances which are beyond the control of the employer. In the circumstances as above, when the employer stopped the work and thus closed the undertaking before the notice under section 445(3) of the Companies Act, it is unreasonable, in our opinion, for the employer to contend that the workmen should be paid less and only in accordance with the proviso to sub-section (1) of section 25FFF of the Act. We have heard learned counsel for the appellants also to find out whether the company under liquidation has got much assets or not which shall fully cover the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd which is overdue at the date of the winding-up order, or the resolution, as the case may be, the creditor may prove for interest at a rate not exceeding four per cent, per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment". This rule has put a ceiling on the rate of interest not exceeding 4 per cent, per annum from the date the sum or debt becomes payable by virtue of a written instrument and if payable otherwise, then from the time when the demand in writing has been made. Subsequently, interest, however, is again limited to the sum not exceeding 4 per cent. per annum. The interest thus granted by the learned single judge in the instant case is contrary to the law and instead of 12 per cent. as allowed by the learned single judge, it has to be limited to 4 per cent. from the date of the notice of payment up to the date of winding-up order until paid for the reasons of the aforesaid rule. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
