Bombay High Court
In Re: Shree Madhav Mills Ltd. vs Unknown on 1 October, 1963
JUDGMENT
1. This summons is an appeal against the decision of the (official) liquidator of Shree Madhav Mills, Ltd., dated 19 August, 1963, whereby the liquidator dismissed large parts of claims made by several ex-employees of the company. The ex-employees had claimed retrenchment compensation on the footing that the provisions in S. 25FFF of the Industrial Disputes Act, 1947, were applicable to the facts of their case. The relevant facts are as follows.
2. The company carried on business of textile mills. Gill & Co. (Private), Ltd., applied to this Court for a winding-up order against the company. Their case was that they had sold and delivered to the company 174 bales and another lot of 74 bales of cotton in September, 1958. In respect of the balance of the price due, the company had handed over to the sellers cheque for Rs. 32,414.45, but the same was dishonoured by non-payment. In spite of repeated reminders and attorneys' correspondence, the company failed to pay to the sellers the above amount of Rs. 32,414.45. Various particulars were mentioned in the petition to show that the company was in huge financial difficulties and unable to pay its debts. By the order dated 5 August, 1959, the company was ordered to be wound up.
3. Prior to the above order for winding up, by a notice dated 25 February, 1959, Haridas Mundhra, the chairman of the board of directors of the company, notified all the employees of the company that the company had "been incurring heavy losses over a period of about three years. Owing to the sustained losses and financial difficulties, the management is unable to continue to run the mills. Further, owing to the winding-up proceedings launched in the Bombay High Court by the Elgin Mills, Ltd. Kanpur, it has become impossible for the management to make any effort whatsoever of keeping the mills running." [The reference to the Elgin Mills, Ltd., ought to have been to Gill & Co. (Private), Ltd.] All the employees were notified that the mill "will not be working on and from 26 February, 1959 and the employees concerned will be treated as laid off. They are further informed that the management waive the condition that they have to report at the starting time of their respective shifts required under the provisions of the Industrial Disputes Act. The workers ... need not call at the mills until further notice."
4. After the above notice, the undertaking of the mills company was never worked. As a result of the winding-up order, provisions in S. 445 of the Companies Act, 1956, became applicable and in the result the winding-up order must be deemed to be notice of discharge to all the employees of the company. The obvious result of the order was that the undertaking became closed as from 5 August, 1959, and the services of the employees became terminated also as from that date. On behalf of the various employees of the company, certain statements of claims were filed before the liquidator. These are not summarized in the above order. It is sufficient to state that one group of the employees made claims through affidavit of claim filed by Y. V. Chavan, secretary of Mumbai Girani Kamgar Union, dated 24 January, 1961. The claims relate to "gratuity," "retrenchment compensation," "one month's notice pay," "wages in lieu of one month's pay," "bonus for the years 1957 and 1958," "compensation for staggering of holidays" and "unpaid wages." The total amount claimed by this group of employees comes to Rs. 6,23,729.66.
5. Another group of employees made claims through the secretary of Rashtriya Mill Mazdoor Sangh, but particulars have not been pointed out. From the affidavit of Vasant G. Maneck dated 21 September, 1963, it appears that the aggregate amounts claimed by all the ex-employees came to about Rs. 21,00,000.
6. The ex-employees' claim for retrenchment compensation is based on the provisions in Ss. 25FFF and 25F of the Industrial Disputes Act, the relevant parts whereof run as follows :
"25FFF. (1) Where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of Sub-section (2), be entitled to notice and compensation in accordance with the provisions of S. 25F, as if the workman had been retrenched :
Provided that where the undertaking is 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 S. 25F shall not exceed his average pay for three months. Explanation. - An undertaking which is closed down by reason merely of financial difficulties (including financial losses) or accumulation of indisposed of stocks shall not be deemed to have been closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section. (2) * * *"
7. Under S. 25F, a workman who has been in continuous service for not less than one year under an employer is not liable to be retrenched by that employer except upon service on him of notice of one month in writing indicating the reasons for retrenchment and the workman has been paid, at the time of retrenchment, compensation equivalent to 15 days' average pay for every completed year of service.
8. The case of the employee-claimants before the liquidator was and in this appeal is that there is nothing to show and no one has contended on the record that the undertaking of the mills company was closed down on account of unavoidable circumstances beyond the control of the company. In the result, under Sub-section (1) of S. 25FFF read with the provisions in S. 25F, all workmen who were employed in the service of the company continuously for not less than one year prior to the closure and retrenchment are entitled to payment of retrenchment compensation equivalent to 15 days' average pay for every completed year of service. By the order in appeal, the liquidator held that having regard to the provisions in S. 445(3) of the Compensation Act, the winding-up order must be deemed to be notice of discharge to the employees. According to him, the termination of services of the employees was statutory, and was not an act of the employer. He, therefore, held that the termination of services was for reasons beyond the control of the employer and the result of the supervening liquidation proceedings instituted at the instance of a creditor. He further held that as the services of the employees had not been terminated in the manner prescribed by S. 25F of the Industrial Disputes Act and were terminated as a result of the liquidation proceedings which were beyond the control of the employer, the compensation must be limited to three months' average pay under the above proviso to Sub-section (1) of S. 25FFF.
9. One more finding he made was that having regard to the provisions in S. 2(s) of the Industrial Disputes Act, the employees drawing wages exceeding Rs. 500 per month were not entitled to any retrenchment compensation whatever.
10. Both the above findings are challenged by the appellant in this appeal.
11. It is necessary to sate that whilst disposing complicated claims filed before him, the liquidator ought to refer to and mention all relevant facts in the orders that he passes. In the order in appeal, except the points of law which were raised, nothing by way of relevant facts is mentioned.
12. On behalf of the interveners, who represent certain creditors, Sri Joshi, and appearing for the liquidator, Sri Bhatt, have argued that the claimants are not entitled to compensation on the footing mentioned in S. 25F because the mills' undertaking was closed down on account of unavoidable circumstances beyond the control of the employer. Now, in this connexion, it must at once be stated that no one made such a contention before the liquidator. The contention has now been raised for the first time. I will deal with this question after disposing of the question of true construction of the provisions in S. 25FFF.
13. On a reading of the provisions in Sub-section (1) of S. 25FFF, it is clear beyond doubt that in all cases where an industrial undertaking is closed down, every workman who has been in continuous service for not less than one year immediately before such closure is entitled to notice and compensation in accordance with the provisions in S. 25F as if the workman had been retrenched. This right, however, is subject to the provisions in Sub-section (2) and the proviso to Sub-section (1) of S. 25FFF. Having regard to the clear provisions in Sub-section (1), it would be incumbent upon the employer to prove that circumstances mentioned in the proviso exit and for that reason the workman and/or the employee is not entitled to compensation as mentioned in the main part of Sub-section (1). It would be accordingly incumbent upon the employer to prove 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 circumstances beyond the control of the employer. In other words, the legislature laid down that closure merely by reason of financial difficulties or accumulation of indisposed of stocks could not be held to be closure on account of unavoidable circumstances beyond the control of the employer.
14. The liquidator has come to the conclusion that in all cases the closure due to winding-up orders made by Court would be on account of unavoidable circumstances beyond the control of the employers. In this connexion, he has relied upon the fact that the winding-up order results into statutory notice of termination of services of employees. This conclusion appears to me to be contrary to the intent and purpose of the provisions in S. 25FFF. In all matters for claims for compensation, the only important issue which arises for decision having regard to the provisions in S. 25FFF would be whether the undertakings were closed down on account of unavoidable circumstances beyond the control of the employers. The answer to that question would depend upon diverse circumstances. Petitions for winding up in most cases would be based upon the failure of the companies to discharge their debts in due course of business. In almost all cases, such failure would necessarily result into winding-up orders. The winding-up orders in such cases must be considered result of financial difficulties of the companies and/or inability of the companies to discharge all their debts in due course of business. In most cases, it would be impossible to make a finding that because the Court has intervened and passed winding-up orders, the closure of the undertakings is due to or on account of unavoidable circumstances beyond the control of the employers. On the contrary, in these circumstances, the appropriate finding would be that the financial difficulties were in fact result of the companies' usual trading activities and were not on account of unavoidable circumstances beyond the control of the companies. It is clear that divers different facts would have to be examined if the companies raise the question that their undertakings were closed down on account of "unavoidable circumstances beyond the control of the employer."
15. As such a question is now raised not only on behalf of the intervening creditors but also the liquidator in this case, investigations will have to be made to find out if the winding-up order was result of ordinary trading activities of the company or it was result of what is mentioned in the proviso to Sub-section (1) of S. 25FFF as "unavoidable circumstances beyond the control of the employer."
16. The fact that under S. 445(3) of the Companies Act employment of employees stands terminated as a result of winding-up order, cannot and does not justify the conclusion that the undertaking of the company was closed down on account of unavoidable circumstances beyond the control of the employer. In making his findings on the above basis, the liquidator has failed to consider circumstances and facts which ought to have been investigated before making the findings.
17. Section 2(s) of the Industrial Disputes Act defines "workman." The last part of the sub-section runs as follows :
"... but does not include any such person -
(i) ...; or
(ii) ...; or
(iii) ...; or
(iv) who, being employed in a supervisory capacity, draws wages exceeding five hundred rupees per mensem ..."
18. Having regard to the above definition of "workman," it is true that the claimants who were employed in supervisory capacity and drew wages exceeding Rs. 500 per mensem could not be "workmen" within the meaning of the provisions in S. 25FFF and could not be entitled to retrenchment compensation on the basis mentioned in that section. It is, however, necessary to make it clear that the claimants who draw wages exceeding Rs. 500 per mensem but have not been employed in a supervisory capacity would fall within the definition of "workmen" as contained in Sub-section (s) of S. 2 of the Act. Such claimants would be entitled to retrenchment compensation on the basis of the provisions in S. 25FFF.
19. It is rightly pointed out on behalf of the intervening creditors that none of the creditors had any notice of the large claims made on behalf of the employee-claimants. It was, therefore, impossible for these creditors to prove before the liquidator various facts which would go to show that the undertaking of the mills company was closed down on account of unavoidable circumstances beyond the control of the company. The liquidator also was not conscious about the facts which he was bound to investigate before coming to the conclusion that the undertaking of the mills company was closed down on account of unavoidable circumstances beyond the control of the company. It is, therefore, necessary that the claims of all the claimants appearing in this appeal should be remanded to the liquidator for further investigations. All objections that the intervening creditors and/or the company desire to raise against the claims filed by the claimants before the liquidator for showing that the undertaking of the mills company was closed down on account of unavoidable circumstances beyond the control of the employer will have to be brought in due course before the liquidator. The liquidator should, in this connexion, give appropriate directions so that the objections are filed within a very short period. The objections must contain all necessary particulars so that the claimants can put forward their case in connexion with such objections and can meet with the same.
20. The order in appeal is set aside. The matter is remanded to the liquidator for further investigations in the light of the above directions. The liquidator should expeditiously dispose of claims of all the claimants. The liquidator will pay costs of the applicant-appellant from out of the company's assets. The liquidator's costs will come out of the assets. The appellant's costs are fixed at Rs. 150.