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TMI Blog1996 (9) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... or prosecution and punishment in case of any breach or contravention of the provisions of the Act or for offences committed under the Act. Proviso (ii) to section 2(n) of the Act is intra vires the substantive provision of section 2(n) of the Act.Proviso (ii) to section 2(n) is constitutionally valid and is not ultra vires articles 14, 19(1)(g) and 21 of the Constitution of India. The law laid down by the High Courts of Bombay, Orissa, Karnataka, Calcutta, Gauhati and Madras is not the correct law and the contrary view expressed by the High Courts of Allahabad, Madhya Pradesh, Rajasthan and Patna is the correct enunciation of law in regard to the ambit and scope of proviso (ii) to section 2(n) of the Act. - CIVIL APPEALS NOS. 4014 AND 4015 OF 1993 WITH WRIT PETITIONS (CIVIL) NOS. 657 AND 1129 OF 1991 134 OF 1993 AND NOS. 165 AND 187 OF 1996 AND CIVIL APPEALS NOS. 1238 OF 1993, 244 TO 246, 4499 TO 4501 7090 AND 12552 OF 1996 - - - Dated:- 25-9-1996 - DR. A.S. ANAND AND K.T. THOMAS, JJ. Ashok H. Desai, R.K. Jain, R.F. Nariman, V.A. Mohta, Raj Birbal, P.P. Malhotra, S.S. Javali, K.N. Shukla, H.L. Agrawal, Raju Ramachandran, K.K. Lahiri, Ejaz Maqbool, Braj K. Mishra, Ravi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended section 2( n ) of the Act. It would, therefore, be appropriate to first notice the provisions of section 2( n ), as it stood prior to the amendment and as it stands today. Section 2 ( n ) , as it stood prior to the amendment of 1987: "2. ( n ) 'occupier' of a factory means the person who has ultimate control over the affairs of the factory, and where the said affairs are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory". Section 2( n ) , as it is after the amendment of 1987: "2. ( n ) 'occupier' of a factory means the person who has ultimate control over the affairs of the factory: Provided that: ( i )in the case of a firm or other association of individuals, any one of the individual partners or members thereof shall be deemed to be the occupier; ( ii )in the case of a company, any one of the directors shall be deemed to be the occupier; ( iii )in the case of a factory owned or controlled by the Central Government or any State Government, or any local authority, the person or persons appointed to manage the affairs of the factory by the Central Government, the State Government or the local authority, as the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation and scope of proviso ( ii ) to section 2( n ) of the Act. That conflict also needs to be resolved. The High Court of Karnataka in W.S. Industries (India) Ltd. v. Inspector of Factories [1990] 77 FJR 139; [1991] II LLJ 480 opined that it is not necessary that the occupier must be necessarily the owner or the director of the company and if by a resolution some other person is nominated to be the occupier who is declared to be in the ultimate control of the affairs of the factory then that person or officer would be treated as the occupier for the purposes of the Act. The court said (at page 145 of 77 FJR): "But the main clause provides that occupier shall be one who has ultimate control of the affairs of the company. This clause read with the operative provisions of the Act makes it clear that the occupier of a factory could be a person nominated by the board or by the firm notwithstanding the fact that such a partner or director could also be liable and the liability in respect of the operative provisions in respect of such director or partner will have to be established". (emphasis is ours) However, the constitutional validity of section 2( n ) was not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e touch-stone and not the ultimate control of the company. A director may live at a distance. But the ultimate control of the factory may be left to his manager as in such a case it is the manager who will be deemed to be occupier of factory and advisedly such a person can be nominated as the occupier. Because of certain difficulties, an occupier only would be dependable, as an occupier of a factory assumes control and responsibility and the Legislature enunciated that the occupier should be the person who would be the person responsible to ensure that the provisions of the Act are complied with. The proviso to section 2( n ) is only added to carve out an exception to the rules that a person who has ultimate control over the affairs of the factory is an occupier. The Legislature wanted to have a say that in the case of a company, being the owner of the factory, a director would be deemed to be an occupier...." The Madras High Court in Ion Exchange (India) Ltd. v. Deputy Chief Inspector of Factories [1996] 88 FJR 445; [1995] LLR 756 and the Calcutta High Court in Greaves Ltd. v. State of West Bengal [1996] 87 Comp. Cas. 914; 89 FJR 713; [1996] LLR 638, have also, followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ringent provisions relating to the obligations of the occupiers or managers with a view to protect workers and to secure to them employment in conditions conducive to their health and safety indicate the broad purpose of the Act. The Act and the rules made thereunder impose numerous restrictions upon the occupier or manager of the factory to ensure to workers adequate safeguards for their health and physical well being and to secure to them safe and healthy conditions at the place of work. The 1948 Act was amended by Act No. 94 of 1976 with a view to remove some lacunae relating to the definition of "workers" and for improvement of the provisions in regard to safety of workers and appointment of safety officers and to provide for an enquiry in every case of a fatal accident. Some difficulties experienced in the administration of the 1948 Act even after the 1976 amendment, specially those relating to hours of employment, safety conditions and development of appropriate work culture conducive to safety and health of workers particularly in case of factories which deal with hazardous materials and the escape routes, which the employers had found to shift their responsibilities on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adequate and proper safety measures in the factory as well as in cases where the breach was found to have been committed with their consent or connivance, or due to lack of diligence on their part. After a tragedy occurred in Delhi by the leakage of chlorine gas, this court noticed the "escape route" which had been carved out by the directors of the company, which owns or runs the factory, and voiced its concern and opined that if there was negligence in looking after the safety requirements, in a hazardous industry, in particular, even the chairman and the managing director besides the board of directors must be held responsible and liable (even when they are not the actual offenders) as that alone could ensure reduction of, if not altogether eliminations of, risk and hazard to workmen. In M.C. Mehta (II) v. Union of India [1986] 2 SCC 325, it was observed (at page 330): "So far as the undertaking to be obtained from the chairman and managing director of Shriram is concerned it was pointed out by Shriram that Delhi Cloth Mills Ltd. which is the owner of Shriram has several units manufacturing different products and each of these units is headed and managed by competent and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... welfare and other aspects of workers in factories. The Act is enforced by the State Governments through their Factory Inspectorates. The Act also empowers the State Governments to frame rules, so that the local conditions prevailing in the State are appropriately reflected in the enforcement. The Act was last amended in 1976 for strengthening the provisions relating to safety and health at work, extending the scope of the definition of "workers", providing for statutory health surveys, and requiring appointment of safety officers in large factories. (2)After the last amendment to the said Act, there has been substantial modernisation and innovation in the industrial field, several chemical industries have come up which deal with hazardous and toxic substances. This has brought in its train problems of industrial safety and occupational health hazards. It is, therefore, considered necessary that the Act may be appropriately amended, among other things, to provide specifically for the safeguards to be adopted against use and handling of hazardous substances by the occupiers of factories and the laying down of emergency standards and measures. The amendments would also include proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act by the Amending Act of 1987. Section 7(1) of the Act reads as under: "7. (1) The occupier shall, at least fifteen days before he begins to occupy or use any premises as a factory, send to the Chief Inspector a written notice containing ( a )the name and situation of the factory; ( b )the name and address of the occupier; ( bb )the name and address of the owner of the premises or building (including the precincts thereof) referred to in section 93; ( c )the address to which communication relating to the factory may be sent; ( d )the nature of the manufacturing process ( i )carried on in the factory during the last twelve months in the case of factories in existence on the date of commencement of this Act, and ( ii )to be carried on in the factory during the next twelve months in the case of all factories; ( e )the total rated horse power installed or to be installed in the factory, which shall not include the rated horse power of any separate stand-by plant; ( f )the name of the manager of the factory for the purposes of this Act; ( g )the number of workers likely to be employed in the factory; ( h )the average number of workers per day employed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation under section 7 of the Act after 1987 to nominate the occupier before the occupier occupies or begins to use the premises to run the factory and in the case of an existing factory seek the renewal of the licence to continue to operate the factory. It is only when this statutory requirement is fulfilled that the factory would be given the licence or its licence shall be renewed in the case of existing factories. The argument of learned counsel for the appellants/petitioners that the expression " person " in section 2( n ) implies only an individual does not bear scrutiny, when construed in the case of a company, a firm of partners or an association of persons. Where it is the company which owns or runs such a factory, it is the company which has the ultimate control over the affairs of the factory, and, therefore, it would be the company which would be the occupier of that factory. However, since a company is a legal abstraction, it can act only through its agents who in fact control and determine the management and are the centre of its personality. Such agents are generally called the directors being the "directing mind and will" of the company. The deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is the owner of the factory, always vests in the company, through its board of directors. The manager or any other employee, of whatever status, can be nominated by the board of directors of the owner company to have immediate or day to day or even supervisory control over the affairs of the factory. Even where the resolution of the board of directors says that an officer or employee, other than one of the directors, shall have the " ultimate " control over the affairs of the factory, it would only be a camouflage or an artful circumvention because the ultimate control cannot be transferred from that of the company, to one of its employees or officers, except where there is a complete transfer of the control of the affairs of the factory. Mechanical recitation of the words of section 2( n ), as a mantra, in a resolution nominating an employee or an officer as the occupier by stating that he shall have "ultimate control over the affairs of the factory", cannot be permitted to defeat the object of the amendment. The provisions of the Act have to be construed in a manner which would promote its object, prevent its subtle evasion and foil its artful circumvention to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Whether that was done in the present case would be a question of fact. It was for the petitioners to contend that petitioner No. 1 was the manager of the factory and had the ultimate control thereof to lay before the Chief Inspector of Factories the necessary material for showing that the company had in some manner transferred the entire control of the factory to petitioner No. 1 " . (emphasis supplied) And from these observations, those High Courts have concluded that the law laid down by this court in John Donald Mackenzie's case [1961-62] 20 FJR 466, is that the occupier of the factory need not necessarily be a director and that any person to whom control has been transferred and who has been given the entire control over the affairs of the factory by the company through a resolution can be the occupier, even if he is not a director. In our opinion, this is not a correct reading of that judgment, which even otherwise was concerned with the pre-amendment provisions. A brief reference to the facts of that case is, therefore, necessary at this stage. Mackenzie, who was petitioner No. 1 in the writ petition, had described himself as the manager and occupier of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as the occupier having "ultimate control over the affairs of the factory") but was not himself a director, to have a fresh application signed by the director submitted for renewal of the licence, would not have been sustained by this court. It is not fair or proper to read a sentence from the judgment of this court, divorced from the complete context in which it was given and to build up a case treating as if that sentence is the complete law on the subject. Judgments of this court are not to be read in that manner. Mr. Jain, learned senior advocate, drew our attention to an order of a three-judge Bench of this court in Special Leave Petition No. 4141 of 1979, dated March 14, 1980, to support his submission that the occupier of the factory owned by a company need not necessarily be one of the directors of the company. Their Lordships, while dismissing Special Leave Petition No. 4141 of 1979, filed by the State of Orissa against the judgment of that High Court, observed: "We are of the view that the judgment of the High Court of Orissa in the instant case and that of the Gujarat High Court in Jyoti Switchgears v. Chief Inspector of Factories [1977] 34 FLR 354 'that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not selecting a director, as an occupier for prosecution, punishment and penalty under the Act. The learned Attorney-General and learned counsel appearing for different States, on the other hand, submitted that proviso ( ii ) to section 2( n ) of the Act does not run counter to the substantive provision and that it is an exception to the main section and has been enacted with a view to advance the object of the Act and the intention of the Legislature and it does not travel beyond the scope of the main section. It is submitted that the proviso neither offends article 14 nor the main provision of section 2( n ) of the Act. Mr. Ashok Desai, the learned Attorney-General, further submitted that the second proviso to section 2( n ), by making any one of the directors to be a deemed occupier of the factory owned or run by a company, does not in any manner make the substantive part of the definition clause otiose and that the proviso and the main provision can be harmoniously construed. He submitted that in the case of a company, the main provision of section 2( n ) may be incapable of proper working without the aid of proviso ( ii ) to the said section because the company itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation of statutes that the text and the context of the entire Act must be looked into while interpreting any of the expressions used in a statute. The courts must look to the object which the statute seeks to achieve while interpreting any of the provisions of the Act. A purposive approach for interpreting the Act is necessary". (emphasis supplied) It is in the light of the above settled principles that we shall consider the true scope and intent of section 2( n ) with reference to proviso ( ii ) thereto within the scheme of the Act. Can section 2( n ) stand without proviso ( ii ) in the case of a company? What is the true function of proviso ( ii ) to section 2( n )? A proviso to a provision in a statute has several functions and while interpreting a provision of the statute, the court is required to carefully scrutinise and find out the real object of the proviso appended to that provision. It is not a proper rule of interpretation of a proviso that the enacting part or the main part of the section be construed first without reference to the proviso and if the same is found to be ambiguous only then recourse may be had to examine the proviso as has been canvassed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... punishment is bound to make the board of directors of the company, more vigilant and responsive to the need to carry out various obligations and duties under the Act, particularly in regard to the safety and welfare of the workers. Proviso ( ii ) was introduced by the Amending Act, couched in a mandatory form "any one of the directors shall be deemed to be the occupier" keeping in view the experience gained over the years as to how the directors of a company managed to escape their liability, for various breaches and defaults committed in the factory by putting up another employee as a shield and nominating him as the "occupier" who would willingly suffer penalty and punishment. The state of unemployment in the country being what it is, it is not difficult to "hire" the services of someone only for this "job". Proviso ( ii ) now makes it possible to reach out to a director of the company itself, who shall be prosecuted and punished for breach of the provisions of the Act, apart from prosecution and punishment of the manager and of the actual offender. The proviso, by making one of the directors of the company responsible for proper implementation of the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the licence or seeking renewal of the licence of the factory and, therefore, the option to "select" the director who would be the " occupier " vests in the board of directors and once they notify the name and particulars of that director, the Inspector of Factories is left with no discretion to "pick and choose" any other director for prosecution, etc., for the breaches committed in the factory or for contravention of the provisions of the Act. It is only when the company fails to perform its statutory obligation to notify the name of the director under section 7 of the Act, that the Inspector of Factories may "choose" any one of the directors as the deemed occupier and proceed against him. The area for mischief can, thus, be totally blocked by the company by notifying one of its directors as the occupier in discharge of its statutory obligations enumerated in section 7 of the Act. That apart, the reasonableness of the restriction depends upon the circumstances obtaining at a particular time and the urgency of the evil sought to be controlled. The possibility of the power being abused is no ground for declaring the provision unconstitutional. Proviso ( ii ) to section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man and Mr. Tripathi, appearing for the appellants, however, argued that since section 92 imposes a liability for imprisonment and/or fine, both on the occupier (the notified director) and the manager of the factory, jointly and severally, for the contravention of any of the provisions of the Act or any rule made thereunder or of any order in writing given thereunder, irrespective of the fact whether the occupier (the notified director) or manager, had any mens rea in respect of that contravention or that the contravention was not committed by him or was committed by any other person in the factory without his knowledge, consent or connivance, it is an unreasonable restriction. Learned counsel argued that in criminal law, the doctrine of vicarious liability is unknown and if a director is to be punished for some thing of which he is not actually guilty, it would violate his fundamental right as enshrined in article 21 of the Constitution. It was urged that on account of advancement in science and technology, most of the companies appoint professionally qualified men to run the factories and nominate such a person to be the "occupier" of the factory and make him responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the offences committed under the Act and the occupier is held vicariously liable along with the manager and the actual offender, as the case may be. Penalty follows actus reus , mens rea being irrelevant. As already noticed, where the company owns a factory it is the company which is the occupier, but, since the company is a legal abstraction without a real mind of its own, it is those who in fact control and determine the management of the company, who are held vicariously liable for commission of statutory offences. The directors of the company are, therefore, rightly called upon to answer the charge, being the directing mind of the company. Dealing with the question of vicarious liability of the directors for offences committed by a company, the following observations of Lord Diplock in Tesco Supermarkets Ltd. v. Nattrass [1972] AC 153 (HL) are useful (at page 199): "In my view, therefore, the question: what natural persons are to be treated in law as being the company for the purpose of acts done in the course of its business, including the taking of precautions and the exercise or due diligence to avoid the commission of a criminal offence, is to be found by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petent and professionally qualified persons who are responsible for the day to day management of its affairs and the chairman and managing director is not concerned with day to day functioning of the units and it would not therefore be fair and just to require the chairman and managing director to give an undertaking that in case of death or injury resulting on account of escape of chlorine gas, the chairman and managing director would be personally liable to pay compensation. We find it difficult to accept this contention urged on behalf of Shriram. We do not see any reason why the chairman and/or managing director should not be required to give an undertaking to be personally liable for payment of compensation in case of death or injury resulting on account of escape of chlorine gas ..." We, therefore, find no hesitation in rejecting the argument of learned counsel for the appellants. It deserves a notice that under the Act, the Legislature has itself taken care to dilute the rigour of section 92 by providing an exception to the strict liability rule by laying down a third party procedure in section 101 of the Act which reads: "101. Exemption of occupier or manager from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. W.H. Smith and Son [1913] 3 KB 154. While dealing with a somewhat similar provision in England, the learned judge said (at page 162): "...a prima facie liability is imposed upon the [occupier or manager] from which however he can extricate himself; but from which he must extricate himself, or otherwise he remains liable. The scheme of the Act is first to find the de facto employer; an information may be laid against the occupier .. . His way of escape is provided for by [this section]. He may set up a defence not unlike the defence of warranty which the seller of food may set up under the English Sale of Food and Drugs Act. He may shew that the offence was not committed by his fault. To do this he must bring the real offender before the court". Prof. Glanville Williams in his text book on Criminal Law (1978 edition), while dealing with exceptions to the strict liability rule opined that the principle of strict liability may be modified by the statute itself and further that the statutes, generally speaking, contain two main types of excuses ( i ) the third party procedure, and ( ii ) the no-negligence defence. Prof. Williams observes (at page 954): "As to the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both of them would be acquitted. However, if the offence is proved then the trial court shall record an order to that effect and the occupier or manager shall be afforded an opportunity to extricate himself from the liability provided he can give satisfactory proof of the facts required by section 101( a ) and ( b ). The onus of proof, at that stage, is shifted to the manager or the occupier. He is entitled to call evidence as well as to give evidence himself. The alleged actual offender would have a right to cross-examine the manager or the occupier as the case may be. He would also be entitled to call evidence. Even where the occupier establishes that the actual offender is the person named by him, he must still prove to the satisfaction of the court, that he had used due diligence to enforce the execution of the act and that the said other person committed the offence in question without his knowledge, consent or connivance. In State of Gujarat v. Kansara Manilal Bhikhalal [1964-65] 26 FJR 277; AIR 1964 SC 1893, 1897, while dealing with the provisions of section. 101 of the Act, this court opined (at page 283 of 26 FJR): "Where an occupier or a manager is charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary, at the time of trial and a period of three months has been prescribed by the Legislature within which the actual offender should ordinarily be brought before the court by the process of law. If that cannot be done, the trial against the occupier or the manager as the case may be, cannot be allowed to be protracted indefinitely and we find it difficult to see how any fault can be found with this provision. Thus, we are of the opinion that proviso ( ii ) to section 2( n ) when considered in relation to section 92 of the Act does not offend article 21 of the Constitution of India either. That section 92 is a perfectly valid piece of legislation in so far as it makes the occupier or manager of a factory guilty of an offence for contravention of any of the provisions of the Act or the rules made thereunder, even if the actual contravention may not have been committed by the occupier or the manager is not disputed or doubted before us and, therefore, we are unable to appreciate how the provision contained in proviso ( ii ) to section 2( n ) can render the said proviso read with section 92 invalid or unreasonable or how it offends article 19(1)( g ) of the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of any of the provisions of the Act or an offence is committed under the Act, the notified director, and in the absence of the notification, any one of the directors of the company, shall be prosecuted and shall be liable to be punished as the deemed occupier. "A law has to be adjudged for its constitutionality by the generality of cases it covers, not by the freaks and exceptions it martyrs". (See R.S. Joshi v. Ajit Mills, AIR 1977 SC 2279, 2284). The restriction imposed by proviso ( ii ), if at all it may be called a restriction, has a direct nexus with the object sought to be achieved and is, therefore, a reasonable restriction within the meaning of clause (6) of article 19. Proviso ( ii ) to section 2( n ) is thus, not ultra vires article 19(1)( g ) of the Constitution. Thus, from the above discussion, it follows that the directions given by the Chief Inspector of Factories to the writ petitioners and the appellants herein to the effect that only a director of the company could file an application for renewal of the factory licence (or for grant of a factory licence), as occupier of the factory and that no other employee could make such an application even i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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