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TMI Blog1983 (11) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the original petitioners, the appellants in these appeals, challenging 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. Appeal No. 311 of 1979 arises out of the petition which was filed by the seven directors of Digvijay Spinning and Weaving Company Limited, which is a Company registered under the Indian Companies Act, 1913. All the petitioners were served with two notices of demand for the sums of ₹ 4,10,985.51 and ₹ 3,56,041.75 being the employer's special contributions under the Employee's State Insurance Act, 1948 (hereinafter referred to as the Act ) for the quarters ending on 30-6-1968 and 30-9-1968 and 31-12-1968 to 31-3-1970 respectively with interest at 6% per annum. It is not in dispute that originally the Company was taken over by the Union of India under section 18A of the Industries Development and Regulation Act, 1951, with effect from 9th July 1969 and the Maharashtra State Textile Corporation was appointed as the Authorised Controller of the said Company. Later, on the promulgation of the Sick Textile Undertakings (Nationalisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over by the Union of India and was put under the Authorised Controller with effect from 29th November 1965. The Collector of Bombay issued a notice of demand under section 267 of the Maharashtra Land Revenue Code styling the original petitioner as director-partner and the demand was to the tune of ₹ 3,69,890.52 being the unpaid amount of employer's special contribution upto the end of four quarters of 1965. When this notice was served on the original petitioner on 27th September 1975 he informed the Regional Director that he was merely a technical director to advise the Mill and was not a partner as alleged. He denied that he was liable under the Act. He made a grievance that no show-cause notice was ever issued to him nor was any hearing given. He denied that he was at any time the occupier or employer or managing agent of the Mill. He stated that he had no controlling interest except the qualifying shares in the said Company. The proceedings before the Collector finally came to be challenged in Miscellaneous Petition No. 1214 of 1975. The learned Single Judge, following the view which he had already taken mentioned earlier in this judgment, dismissed the petition holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 1965. The position that the petitioner had ceased to be a director from 8th November 1965 not having been disputed, the learned Judge held that after 8th November 1965 the petitioner had no control of the Company of which he was a director and, therefore, it would not be proper to make him responsible for the said contributions accruing after 8th November 1965, but he held that the petitioner would be liable for the amount of special contribution and interest due till 8th November 1965. 6. Thus, the main question which arises in all these three appeals which are filed against the three judgments in the three petitions referred to above, is, whether by virtue of the fact that a person is a director of the Company, he becomes a principal employer as contemplated by section 2(17) of the Act and, therefore, whether he can be made personally liable for the employer's special contribution which remained unpaid by the Company during the period when he was a director of the Company. A similar question having been raised in Writ Petition No. 2350 of 1983, Mr. Setalvad, who appeared for the petitioners in that petition, was allowed to intervene and he was also heard. 7. For a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration before us is concerned, the relevant part of the definition reads as follows : (17) 'principal employer' means - (i) in a factory, the owner or occupier of the factory 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, the person so named; The definition of principal employer refers to the occupier of the factory and under section 2 (15) of the Act, it is expressly provided that the occupier of the factory shall have the same meaning assigned to it in the Factories Act, 1948. It is, therefore, necessary to refer to the definition of the term occupier in the Factories Act which is to be found in section 2 (n) of that Act and which, so far as it is material for our purpose, reads as follows: '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; We are really concerned only with the first part of the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner of a factory, notwithstanding the fact that the occupier of the factory is also the principal employer as defined in section 2(17) of the Act, the directors of the Company can never be occupiers individually, because, according to the learned counsel, no individual director exercised ultimate control over the affairs of the factory. In any case, it is contended that except where an individual director is specifically notified as an occupier for the purposes of the Factories Act, in all the other cases it will be a question of fact as to who was in ultimate control of the affairs of the factory and, therefore, the notice of recovery of employer's contribution cannot be issued to the directors merely on the footing that the petitioners were the directors on their respective Companies. It is also pointed out that it could not have been in the contemplation of the Parliament that any person who is an occupier or who exercised control would be personally liable for the dues which were required to be deposited by the Company, because in a given case a person who is an occupier may not have anything to do with the financial affairs of the Company and as the argument was put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to pay. It is contended that there is nothing in the Act which shows that the directors of the company were to be personally liable for the amount of the employer's contribution due from the company itself. In aid of this argument, a further reference was made to the provisions of section 100 of the Factories Act. We have already referred to the definition of the term occupier . Section 100 is a special provision which lays down as to who will be an occupier in certain cases. Under sub-section (1) of section 100 of the Factories Act, it is expressly provided that where the occupier of a factory is a firm or other association of individuals, anyone of the individual partners or members thereof may be prosecuted and punished for any offence for which the occupier of the factory is punishable. Sub-section (2) provides as follows : (2) Where the occupier of a factory is a company, any one of the directors thereof, may be prosecuted and punished under this Chapter for any offence for which the occupier of the factory is punishable : Provided that the company may give notice to the Inspector that it has nominated a director, who is resident within India to be the occu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition of the expression principal employer , then the principal employer contemplated by section 2(17) of the Act must be a human agency. The contention appears to be that a company cannot be an employer, and when it was pointed out that the word person as defined in the General Clauses Act includes any company or an association of a body of individuals whether incorporated or not, the argument was that such a meaning is repugnant to the context and would defeat the object of the Act itself. 12. Mr. Chogle, who appeared for the Collector of Bombay also supported the argument of Mr. Tulzapurkar that the word or in the definition of the expression principal employer must be read as and and every director must be treated as an employer and consequently a principal employer. Mr. Chogle has referred us to the Employees' State Insurance (General) Regulations, 1950 and it is pointed out that regulation 10-B, which required the employer in respect of a factory or an establishment to have it registered, had to declare in Form 01 in item 8 dealing with Principal employer the name of the Manager declared as such for the purposes of the Factories Act as well as the nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of individuals is also recognised in section 100 of the Factories Act. Sub-section (1) of section 100 begins with the words where the occupier of a factory is a firm or other association of individuals . Similarly, sub-section (2) begins with the words where the occupier of a factory is a company . Section 2(n) of the Factories Act defines occupier to mean the person who has ultimate control over the affairs of the factory. If we read this definition along with the provisions of section 100, it is obvious that the Legislature has clearly contemplated that the person referred to in the definition of occupier cannot only be a natural person as argued by Mr. Tulzapurkar, but the person contemplated by the definition will include a body of individuals or a firm consisting of partners or an incorporated company. The definition of occupier in the Act expressly refers to the meaning assigned to it in the Factories Act, 1948 . Therefore, the word occupier for the purposes of the Act must have the same meaning as assigned to it in the Factories Act. It would be perfectly permissible to read section 2(n) and section 100 of the Factories Act to understand the concept of occupier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany will not lie with any particular director at all. The directors act collectively and they function collectively as a Board of Directors. We may refer to a passage from Gower's Principles of Modern Company Law, Fourth Edition, page 152, where the learned author has observed : Where powers are conferred on the directors under clauses such as those considered above, they are conferred upon the directors collectively as a board. Prima facie, therefore, they can be exercised only at a board meeting of which due notice has been given and at which a quorum is present. (Emphasis supplied.) Mr. Tulzapurkar has referred us to a passage, from Pennington's Company Law, Fourth edition, at page 523, which in our view, says nothing different from the passage we have quoted above. The passage relied upon by Mr. Tulzapurkar is at page 523, which reads as follows : The board of directors and meetings of members of a company can between them exercise all of the company's powers. Subject to the provisions of the Companies Act, 1948, which require certain powers to be exercised by the members in general meetings, the division of powers between the board and the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60. We are unable to find in that decision anything which could support Mr. Tulzapurkar's contention that a director ipso facto must be treated as an occupier. That was a case under the Factories Act, 1937, and the question was whether a receiver under a debenture can be said to be an occupier. On the terms of the debenture it was found that the appellant's appointment as receiver and manager was to manage and carry on the business of the company, to take possession of, get in and collect the property and assets , and it was found that such an appointment was very different from that of a director. What was argued in that case was that even though the receiver and manager was appointed as debenture holder, the Company continued to exist and continued to be the occupier of the premises, the only difference being that by the appointment of the appellant as manager, he took the place of a director in the conduct of the business of the Company. The argument put before the Court was that just as a director would not be subject to conviction as being the occupier of the premises, so the receiver and manager could not be made liable in that capacity. What was, therefore, argued w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The company was engaged in the manufacture of embroidery textiles and the factory employed about 300 workmen. Inder Singh, the fourth son, was the occupier of the factory. The company owed ₹ 73,879 on account of contribution under the Act and since the amount was not paid, proceedings against the Chairman and his three other sons were started for recovering the amount as arrears of land revenue. The petitioners contended before the High Court that they were not the principal employer and they were, therefore, not personally liable to pay the amount and that Inder Singh, who was a director, was appointed as manager and he was the occupier of the factory and he alone was able to pay that amount. This contention was accepted by the learned single Judge and the State of Punjab was restrained from recovering the amount from the petitioners. The Employees' State Insurance Corporation then filed an appeal under the Letters Patent. The Division Bench while affirming the judgment of the learned Single Judge held that the owner of the factory was the company and Inder Singh, who had the ultimate control over the affairs of the company being its occupier, was the principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support that view, because it was contended by the Public Prosecutor that a Director qua Director is not the owner or occupier within the meaning of section 2(17) of the Act, but the company is the owner or occupier . The Division Bench took the view, without going into the correctness of Chatterjee's case, that a director of a company can be brought within the meaning of the word occupier as mentioned in section 2 (17) of the Act, as according to section 2 (n) of the Factories Act occupier is a person who like a director has ultimate control over the affairs of the factory. The Division Bench took the view that since in that case no managing agent had been appointed and no manager had been named, occupier is wide enough to bring any director including the present petitioners-directors within the definition of section 2 (17) of the Act. The judgment does not show that the contention that a director as a member of the board of directors cannot be assumed to be in control of the factory and that the Board of Directors functioned collectively and the director functions as a member of the board of directors was neither canvassed nor considered. In the view which we have taken, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that the petitioners should be referred back to the Employees' Insurance Court for determination of the question of their personal liability. We do not, therefore, see any substance in the contention that the petitioners have come to a wrong forum and should have really gone to the Employees' Insurance Court. 21. In the view which we have taken, all the three appeals are allowed, the order of the learned Single Judge impugned in each of the three appeals is set aside and the notices issued to the petitioners for recovery of the amounts said to be due on account of the employer's contribution are liable to be quashed. 22. In the result, Appeal No. 311 of 1979 is allowed and the rule is made absolute in terms of prayers (a) and (b) of the petition. In Appeal No. 379 of 1979 the rule is made absolute in terms of prayers (a) and (b) of the petition and in Appeal No. 396 of 1979 the rule is made absolute in terms of prayers (a) and (ai) of the petition. In the circumstances of the case, there will be no order as to costs in all these appeals. 23. An oral application for leave to appeal to the Supreme Court has been made by Mr. Jayakar. The application is rej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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