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TMI Blog2005 (9) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... any which are stated to be under the control of Official Liquidator are disposed of early so that the employees can be paid whatever is legally payable to them. Similarly the other creditors can be paid and the liability can be discharged. - CIVIL APPEAL NOS. 8300 TO 8303 OF 2002 AND 692 OF 2005 - - - Dated:- 26-9-2005 - ARIJIT PASAYAT AND H. K. SEMA, JJ. Dushyant Dave, Ramesh Singh, Ms. Nina Gupta, Ms. Shiva Lakshmi, Ms. Neelam Singh, Ms. Meha Kiran, Ms. Bina Gupta, Ms. Vibha Datta Makhija, N.R. Choudhary, Somnath Mukherjee, Ramesh Singh, K. Bhirava Swamy and Sanjay Kapur for the Appearing Parties. JUDGMENT Arijit Pasayat, J. - All these appeals involve identical issues. By judgments rendered by Division Bench of the Madhya Pradesh High Court, impugned in the appeals held that Directors of Jiyajirao Cotton Mills. Ltd. (hereinafter referred to as the Company ) to be personally liable for the payment of wages to the workmen of the company under the Payment of Wages Act, 1936 (in short the Act ). However, the authorities under the Act could proceed against the assets of the company in the hands of the Directors or the assets acquired from income of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the Board of Industrial and Financial Reconstruction (in short the BIFR ) under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short the SICA ). Subsequently, application was filed by Mazdoor Congress demanding payment of wages for certain periods. In January 1993 BIFR declared the company to be a sick industrial company under section 3(1 )( o ) of SICA. Notices were issued by the functionaries under the Act calling upon the company through its Factory Manager to explain non- payment of wages for certain periods in violation of section 5 of the Act. For subsequent periods also, similar notices were issued. Copies of the notices were endorsed to the Directors of the Company. Subsequently, the Payment of Wages Inspector filed application under section 15 of the Act before the concerned Magistrate against the Factory Manager, Shri K.B. Kaul and eight others who were Directors of the Company including the present appellants praying for directions to them for payment of wages for various periods. The Factory Manager submitted his reply. In particular, it was submitted by him that the application was vague since details of the workmen whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y-ing passengers or goods or both by road for hire or reward; ( aa ) air transport service other than such service belonging to, or exclusively employed in the military, naval or air forces of the Union or the Civil Aviation Department of the Government of India; ( b ) Dock wharf or jetty; ( c ) inland vessel, mechanically propelled; ( d ) mine, quarry or oil-field; ( e ) plantation; ( f ) workshop or other establishment in which articles are produced, adapted or manufactured, with a view to their use, transport or sale; ( g ) establishment, in which any work relating to the construction, development or maintenance of buildings, roads, bridges or canals, or relating to operations connected with navigation, irrigation or to the supply of water, or relating to the generation, transmission and distribution of electricity or any other form of power is being carried on; ( h ) any other establishment or class of establishments which the Central Government or a State Government may, having regard to the nature thereof, the need for protection of persons employed therein and other relevant circumstances, specify, by notification in the Official Gazette; ( iia ) "mine" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y gratuity payable on the termination of employment in cases other than those specified in sub-clause ( d ). 3. Responsibility for payment of wages . Every employer shall be responsible for the payment to persons employed by him of all wages required to be paid under this Act: Provided that, in the case of persons employed (otherwise than by a contractor) : ( a ) in factories, if a person has been named as the manager of the factory under clause ( f ) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948); ( b ) in industrial or other establishments, if there is a person responsible to the employer for the supervision and control of the industrial or other establishments; ( c ) upon railways (otherwise than in factories), if the employer is the railway administration and the railway administration has nominated a person in this behalf for the local area concerned. The person so named, the person so responsible to the employer, or the person so nominated, as the case may be; (shall also be responsible) for such payment. 15. Claims arising out of deductions from wages or delay in payment of wages and penalty for malicious or vexatious claims . ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of the delayed wages, together with the payment of such compensation as the authority may think fit, not exceeding ten times the amount deducted in the former case and not exceeding twenty-five rupees in the latter, and even if the amount deducted or the delayed wages are paid before the disposal of the application, direct the payment of such compensation, as the authority may think fit, not exceeding twenty-five rupees : Provided that no direction for the payment of compensation shall be made in the case of delayed wages if the authority is satisfied that the delay was due to ( a ) a bona fide error or bona fide dispute as to the amount payable to the employed person, or ( b ) the occurrence of an emergency, or the existence of exceptional circumstances, such that the person responsible for the payment of the wages was unable, though exercising reasonable diligence, to make prompt payment, or ( c ) the failure of the employed person to apply for or accept payment. (4) If the authority hearing an application under this section is satisfied ( a ) that the application was either malicious or vexatious, the authority may direct that a penalty not exceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) upon railways (otherwise than in factories) if the employer is the railway administration and the railway administration has nominated a person in this behalf for the local area concerned , then the person so nominated; shall be responsible for such payment. In section 15 ( i ) in sub-section (1), for the words, any Commissioner for workmen s compensation or other officer with experience as a Judge of a Civil Court or as a stipendiary Magistrate to be the authority the words one or more persons to be the authority shall be substituted; ( ii ) after sub-section (1), the following sub-sections shall be inserted, namely: (1A) A person shall not be qualified for appointment as an authority under this Act unless, he is a Commissioner for workmen s compensation or any other officer with experience as a Judge of Civil Court or of a labour Court constituted under the Madhya Pradesh Industrial Relations Act, 1960 (No. 27 of 1960). (1B) Where more than one persons are appointed for any specified area as authorities under sub-section (1), the State Government may, by general or special order, make arrangements as it thinks fit for the distribution of work among the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of the employer from the liability to make such payment under this Act, and no further claim shall lie against the employer in respect thereof ." 6. In J.K. Industries Ltd. s case ( supra ), the controversy related to the effect of 1987 amendment. In paras 26, 44 and 62 it was observed as follows : "26. Thus, we find that after the 1987 amendment, the true import of the proviso ( ii ) to section 2( n ) would be that in the case of a company, which owns the factory, the company cannot nominate any one of its employees or officers, except a director of the company, as the occupier of the factory. In other words an occupier of the factory in the case of a company must necessarily be any one of its directors who shall be so notified for the purposes of the Factories Act. Such an occupier cannot be any other employee of the company of the factory. This interpretation of an occupier would apply to all provisions of the Act, wherever the expression occupier is used and not merely for the purposes of section 7 or 7A of the Act. ****** 44. As already noticed, where the company owns a factory it is the company which is the occupier, but since company is a legal abstraction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils to nominate one of its directors as the occupier of the factory, the Inspector of the factories shall be at liberty to proceed against any one of the directors of the company treating him as deemed occupier of the factory, for prosecution and punishment in case of any breach or contravention of the provisions of the Act or for offences committed under the Act; (3) Proviso ( ii ) to section 2( n ) of the Act is intra vires the substantive provision of section 2( n ) of the Act; (4) 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; (5) The law laid down by the High Courts of Bombay, Orissa, Karnataka, Calcutta, Guwahati 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 to section 2( n ) of the Act." 7. The judgment was rendered in the background of section 2( n ) proviso ( ii ) of the Factories Act, 1948 as amended in 1987. The question involved in the said case was who can be nominated as occupier by a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute. The rule that the repeal or amendment of an Act which is incorporated in a later Act has no effect on the later Act or on the provisions incorporated therein is subject to four exceptions. They are: ( i ) where the later Act and the earlier Act are supplemental to each other, ( ii ) where the two Acts are in pari materia , ( iii ) where the amendment of the earlier Act if not imported in the later Act would render it wholly unworkable, and ( iv ) where the amendment of the earlier Act either expressly or by necessary intendment also applies to the later Act. Even though only particular sections of the earlier Act are incorporated into the later statute, in construing the incorporated provisions it may be necessary and permissible to refer to other parts of the earlier statute which are not incorporated. This does not however mean that a provision in the nature of a proviso or exception in the earlier Act which is not brought in by incorporation can be read in a manner so as to limit the meaning of the provision incorporated. Reference to other provisions of the earlier statute is only permissible to call out meaning of the provision incorporated. 12. In the illuminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion reads thus : "2(17) Principal employer means : ( i ) in a factory, the owner or occupier and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948 (63 of 1948), the person so named; ( ii ) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the head of the Department; ( iii ) in any other establishment, any person responsible for the supervision and control of the establishment." 2. There is no dispute that clause ( ii ) does not apply. What is relevant to consider is whether the liability of Directors is covered under clause ( i ) and if it is, clause ( iii ) being residuary would not apply and in case it is not covered by clause ( i ), the matter would be regulated by clause ( iii ). Admittedly the company had a factory and it is not in dispute that the occupier of the factory had been duly named. It is also not in dispute that it had a manager too. In view of the clear terms in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the term "employer" is used. 10. Therefore, even if we read the definition of "principal employer" under the Employees State Insurance Act, 1948 in Explanation 2 to section 405 of the Indian Penal Code, the directors of the company, in the present case, would not be covered by the definition of "principal employer" when the company itself owns the factory and is also the employer of its employees at the head office." 21. In Tata Engineering and Locomotive Company Ltd. v. State of Bihar 1964 (6) SCR 885 the basic features of a Company, its corporate existence and its position vis-a-vis shareholders was highlighted as follows : "The true legal position in regard to the character of a corporation or a company which owes its incorporation to a statutory authority is not in doubt or dispute. The corporation in law is equal to a natural person and has a legal entity of its own. The entity of the corporation is entirely separate from that of its shareholders; it bears its own name and has a seal of its own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the veil woven by the Salomon case. Particularly is this so, says Gower, in the sphere of taxation and in the steps which have been taken towards the recognition of the enterprise entity rather than corporate entity. It is significant, however, that according to Gower the Courts only have construed statutes as "cracking open the corporate shell" when compelled to do so by the clear words of the statute - indeed they have gone out of their way to avoid this construction whenever possible. Thus, at present the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It is only when the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt "themselves able to ignore the corporate entity and to treat the individual shareholder as liable for its acts" the same course has been adopted. Summarizing his conclusions, Gower has classified seven cate-gories of cases where the veil of corporate body has been lifted. But it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of ..... 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