Bombay High Court
Mansinh L. Bhakta vs The State Of Maharashtra And Ors. on 26 October, 1990
Equivalent citations: [1991(63)FLR740], (1995)IIILLJ867BOM
JUDGMENT M.L. Dudhat, J.
1. The petitioners in Writ Petition Nos. 19 of 1985, 20 of 1985, 21 of 1985,22 of 1985 and 228 of 1985 have filed these writ petitions against the impugned notices dated 28th November, 1984 issued by respondent nos. 1 to 3 on the instructions of and at the behest of respondent no. 4. In the said notices, the petitioners were called upon to pay an aggregate sum of Rs. 9,48,805.50 ps. as a due payable by a Company "The Elphinstone Spinning and Weaving Mills Co. Limited" as employer's contribution to the Employees State Insurance Fund, being the Directors of the said Company at the relevant time. By the said notices, the petitioners were also threatened that failure on the part of the petitioners to pay the aforesaid amount mentioned in the said notices, the said amount shall be recovered from the petitioners' personal assets as arrears of land revenue. Since all these demands are common demands and made against the present petitioners being the Directors of the Company, all these matters are heard together and are being disposed of by the common judgment. The few facts which are material from the point of view of deciding these writ petitions are as under.
2. The petitioners were the Directors of the Elphinstone Spinning and Weaving Mills Co. Ltd. registered under the Companies Act of, 1956. It appears that prior to 1981, the said company was in financial difficulties due to the position in the Textile Industry for various reasons such as recession in the market, increase in prices of raw materials and the said position further deteriorated because of the strike which commenced from 18th January, 1982 and is not called off even today. Thereafter the management of the said Textile Mill run by the Company was taken over by the National Textile Corporation (South Ma-harashtra) Limited, the respondent no. 5 herein in this petition by the Textile Undertaking (Taking Over of Management) Act, 1983. Incidently, I may mention that the Ordinance and the said Act was challenged in the Writ Petition No. 2401 of 1983 by the Elphinstone Spinning and Weaving Mills Co. Ltd., before the High Court of Bombay and the High Court by its decision dated 13th June, 1984 struck down the said Ordinance and the Act. Against the said decision, special leave petition was filed by the Union of India and the respondent no. 5 before the Supreme Court and the same is still pending. On 28th November, 1984, the petitioners received notices from Tahsilaar, respondent no.3 demanding amount of Rs. 9,48,805.50 ps. as Employer's Contribution to the Employees' State Insurance Fund. It was also stated in the said notices that the failure on the part of the petitioners, to pay the said amount within 20 days the said amount was to be recovered from the petitioners' personal assets as arrears towards land revenue. All the petitioners filed the present writ petitions against the said orders of recovery, which are at Ex.B. to F, before this High Court. After the receipt of the aforesaid notices, the petitioner in Writ Petition No. 19 replied the same on 18th December, 1984, the petitioner in Writ Petition No. 20 of 1985, Writ Petition No. 21 of 1985 and Writ Petition No. 22 of 1985 replied on 27th December, 1984 while the petitioner in Writ Petition No. 228 of 1985 replied on 7th January, 1985. Though the said reply was given on the various dates, the stand taken by the petitioners more or less was that in view of the decision in Suresh Tulsidas v. Collector of Bombay and Ors. reported in 1984 Mah. L.J. 117, the respondents are not entitled to recover the said amount from the petitioners personally as the Directors of the Company. The petitioners therefore, requested the respondent No. 4 to withdraw or cancel the aforesaid recovery notices. I may further point out that in para 7 of the said reply, the petitioner in Writ Petition No. 19 of 1985 had also sought personal hearing in the matter. Since there was no response from the respondent No. 4 to the aforesaid reply given by the petitioners, the petitioners have filed the present writ petitions.
3. According to the petitioners, the arrears of the Employees' State Insurance Fund dues, if any, cannot be recovered from the Directors of the Company personally. Similarly, the arrears of the Employer's Contribution to the Employees' State Insurance Fund are required to be deposited under the said Act due from the Public Limited Company which owns and runs the factory cannot be recovered from the personal properties of the Directors of the Company. To support their aforesaid contentions, the petitioners have relied upon the Division Bench judgment of the High Court of Bombay in Suresh Tulsidas v. Collector of Bombay reported in 1984 Mah. L.J.I 17. The petitioners have further contended that in spite of pointed reference to the decision given by the Bombay High Court, the respondents have not taken any cognizance by replying their letters and therefore, the petitioners had no other alternative but to file the present writ petitions. On the other hand, it was strenuously contended on behalf of the respondent No. 4 that the petitioners can ventilate their grievance before the machinery provided under the E.S.I. Act, 1948, instead of filing the present writ petitions. It was further contended on behalf of the respondents that the respondent No. 4 wants to Know as to who was the principal employer or the occupier of the said Company at the relevant time. According to the respondent No. 4 all these matters can be decided by the machinery provided under the E.S.I. Act, 1948, if the matter is remanded back to proper forum.
4. According to me, the only question which is to be decided in the present writ petition is as to whether the respondent No. 4 is entitled to recover ESI dues of the Company from the personal properties of the present petitioners being the Directors of the said Company. If the respondents are entitled to recover the said amount under any of the provisions of the Act, then only the request on behalf of the respondent No. 4 of remanding the matter to the appropriate authority under the ESI Act, 1948 can be considered. Otherwise, according to me, no purpose is going to serve, if once it is held that the respondent No, 4 is not entitled to recover the ESI dues towards the Company from the Directors of the Company personally. Therefore, I proceed to decide this point first before deciding the point taken by the respondent No. 4 about remanding the matter to the appropriate authority.
5. Mr. R.A. Dada, the learned Counsel appearing on behalf of the petitioners, strenuously urged that this point which is in issue in the present writ petitions is already decided by the Division Bench of this High Court in Suresh Tulsidar v. Collector of Bombay reported in 1984 Mah. L.J. 117. In the said case, the petitioners were served with two notices of demand for the sums of Rs. 4,10,985.51 and Rs. 3,56,041.75 being the employer's special contribution under the Employees' State Insurance Act, 1948 (hereinafter referred to as "the Act"). The said matter first decided by the Single Judge of this High Court, against the petitioners. In appeal filed by the petitioners before the Division Bench, the Division Bench set aside the decision of the Trial Court and held that the Directors of a Public Company are not liable individually to pay the contributions as the obligation is cast on the Company who is the principal employer. While deciding the aforesaid appeal, the Division Bench has gone through the various provisions of the Act of 1948, the Factories Act, 1948 and also the Companies Act, 1956. The Division Bench came to the conclusion that principal employer in case of a Company is a Company and not the Directors. When the Public Limited Company registered under the Companies Act, 1956 owns and runs the factory, the Company is the principal employer. By virtue of the fact that the person is Director of the Company, he does not become the principal employer as contemplated under Section 2(17) of the Act and therefore, he cannot be made personally liable for the dues under the Act. Further then the definition of principal employer refers to the owners or the occupier of the factory, it is obvious that the principal employer can either be owner or occupier depending upon the facts of each case. The words used the "owner or occupier" in Section 2(17) of the Act, according to Their Lordships must be read disjunctively. It is, therefore, clear that where the owner of occupier of a factory is a Company, the Directors of a Company cannot automatically be called occupier merely by virtue of being Directors of the Company which owns or runs the factory within the meaning of Section 2(b) of the Factories Act. In the said decision, it was further held that as per the provisions of the Companies Act, So far as the affairs of the Company are concerned, the ultimate control of the Company will not lie with any particular director at all. The Directors act collectively and they function collectively as a Board of Directors. Individual director cannot have control over the factory belonging to the Company According to the said decision, where a director is specifically notified to the authorities as an occupier for the purpose of the Factories Act, such a director will become an occupier not on account of the fact that he is director, but because he has been nominated as an occupier for the purpose of the Factories Act. The aforesaid decision of the Division Bench has clearly laid down the proposition that arrears under the ESI Act, due from the Company cannot be recovered from the Directors personally.
6. It is pertinent to note that while replying the impugned notices of recovery, the petitioners nave made a pointed reference to the aforesaid decision and relying on the said decision, the petitioners requested to the respondent No. 4 to withdraw the said recovery notices. There is nothing in the said impugned notices as to how the respondent No. 4 came to the conclusion that the dues from the Company towards the ESI were payable from the Directors of the Company personally.
7. I have heard both the sides. But I could not find single provision either in ESI Act of 1948 or Companies Act, 1956 fixing the personal liability of any director in respect of the dues from the Company. From the facts contained in writ petitions, it is clear that the Company owns and runs the factory and therefore, as per the ratio decided by the Division Bench of this High Court, the Company is the principal employer and therefore as per the principle laid down, the only proceedings which could have been taken by the respondent No. 4 for the recovery of the said amount due from the Company towards employer's contribution ought to have been taken against the Company alone and not the Directors of the Company personally. It appears that in the present case, the respondent No. 4 through respondent No. 3 started recovery proceedings of the amount due under the ESI Act, only on the basis that the petitioners in all these writ petitions were the Directors of the Company at the relevant period. In the light of the observations and the decision of the Divisional Bench, such a recovery is liable to be quashed as the same is without jurisdiction and without authority.
8. Mr. Mehta, the learned Counsel, appearing on behalf of the respondent No. 4 has argued that it is true that in view of the abovementioned Division Bench decision of this High Court, the Directors are not personally liable for the payment of arrears due to the Company under the ESI Act, but according to him, in the present case there is sufficient material on record that the present matter may be remanded towards the appropriate authority under the ESI Act of 1948. In order to support his contention, Mr. Mehta relied on contents of paras 6, 8 and 9 of the reply filed on behalf of the respondent No. 4 dated 15th January, 1985. In the said portion of the reply, it is stated on behalf of the respondent No. 4 that the Company had nominated Mr. G.N. Mathur, Technical Director, as the occupier of the factory under the Factories Act, 1948. However, it is further contended that Mr. Mathur had no financial powers as he is the employee of the Company, subordinate to the Managing Director of the Company, Ashok Kumar Jalan, the petitioner in Writ Petition No. 20 of 1985. According to the respondent No. 4, the said Shri Ashok Kumar Jalan who is overall incharge of the affairs of the Company, having the financial and administrative control and therefore, the said Shri Jalan, the Managing Director of the Company at the relevant time is the employer, the principal employer within the meaning of Section 2(17) read with Section 214-A of the ESI Act. I have already stated in the earlier portion of my judgment that except issuing the recovery notices for an amount due from the Company which are at Exs. B to F to the petition, there is nothing on record as to how the respondent No. 4 came to the conclusion about the amount due from the Company and as to how the amount due from the Company can be recovered from anyone or all of these petitioners personally. From the contents of para 6 and para 9 of the reply, according, to me in the light of the Division Bench, judgment of this High Court, the respondent No, 4 has no authority to recover the amount due from the Company towards the ESI arrears. The reason being, it is an admitted position that one Mr. G.N. Mathur, Technical Director, was nominated as an occupier of the Factory, under the Factories Act, 1948. Not only that, against the said Mr. Mathur, the respondent No. 4 had started proceedings and in the said proceeding, the said Mr. G.N. Mathur filed an application under Section 75 of the ESI Act, 1948 and the Authority under the said Act by a decision dated 24.3.1986, allowed the said application declaring that the said Mr. Mathur is not liable to pay the amount of Rs. 9,48,805.50ps or any other amount to the respondent No. 4. Against the said decision, the respondent No. 4 filed a writ petition being Writ Petition No. 1933 of 1985. The said writ petition, I am told, was admitted and is pending in the High Court. At this stage I wish to make it clear as to whether the said Mr. Mathur is liable to pay the amount as demanded from him is a matter sub-judice in that writ petition and therefore, I do not wish to express my opinion in that behalf. However, from the observations of the Division Bench of this High Court as mentioned earlier, I am allowing the writ petitions filed by the present petitioners.
9. Mr. Mehta, the learned Counsel, appearing on behalf of the respondent No. 4, has also strenuously contended that, the petitioner in Writ Petition No. 19 of 1984, being the Managing Director, was at the helm of the affairs and therefore, comes within the definition of principal employer and this being so, at least in respect of the said petitioner, the matter may be remanded for further enquiry. According to me, there is no substance in the said argument. I have already mentioned the observations made by the Division Bench of this High Court, wherein it has been decided that when the Company is the owner of the Factory and running the factory, it is the Company, who is the principal employer and whether the Directors are occupiers or not is wholly irrelevant. The only proceedings which could have been started for the recovery of the amount due on account of the employer's contribution could be against the Company alone and not against the Directors and no question as the Directors were occupiers can arise in these cases. In view of this clear ratio as laid down by the Division Bench, I do not understand as to what purpose is going to be served by remanding the matter to. the authorities established under the ESI Act of 1948. According to me, these observations by itself are sufficient to reject the request as made by Mr. Mehta, the learned Counsel appearing on behalf of the respondent No. 4. Apart from the aforesaid legal position, there is one more hurdle, before the respondent No. 4, independent of the aforesaid observations. It is admitted position that Mr. Mathur was nominated as the occupier under the provisions of Factories Act, 1948. Section 100 of the Factories Act, 1948 deals with the determination of the occupier in certain cases, which is as under:-
Section 100(1):- Where the occupier of a factory is a firm or other association of individuals, any one of the individual partners or members thereof may be prosecuted and punished under this Chapter for any offence for which the occupier of the factory is punishable:
Provided that the firm or association may give notice to the Inspector that it has nominated one of its members, residing within India to be the occupier of the factory for the purposes of this Chapter, and such individual shall, so long as he is so resident, be deemed to be the occupier of the factory for the purposes of this Chapter, until further notice cancelling his nomination is received by the Inspector or until he ceases to be a partner or member of the firm or association.
(2) Where the occupier of a factory is a Company, any one of the directors thereof may be prosecuted and punished under the 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 (case within India) to be the occupier of the factory for the purposes of this Chapter, and (such director) shall so long as he is so resident, be deemed to be the occupier of the factory for the purposes of this chapter until further notice cancelling his nomination is received by the Inspector or until he (ceases to be a director):
Provided further that in the case of a factory belonging to the Central Government or any State Government or any local authority the person or persons appointed to manage the affairs of the factory shall be deemed to be the occupier of that factory for the purposes of this Chapter.
(3) Where the owner of any premises or building referred to in Section 93 is not an individual, the provisions of this section shall apply to such owner as they apply to occupiers of factories who are not individuals.
10. After going through the aforesaid Section 100, more particularly, Clause (2) of Section 100 of the Factories Act, it is clear that when the Company has nominated a particular Director as occupier, then only the said Director nominated by the Company becomes the occupier under the said provisions and nobody else. Since in the present case, Mr. Mathur, Technical Director, was nominated as occupier under the provisions of the Factories Act, the authorities, under the Factories Act are not entitled to treat any other person, except Mr. Mathur as the occupier of the factory of the Company. This is very clear from Section 100(2) of the Factories Act, 1948. Same view is expressed by the Division Bench of the Allahabad High Court in S. Gupta v. State reported in F.J.R. (49)1976 p. 420.
"Under Sub-section (2) of Section 100 of the Factories Act, 1948, where the occupier of a factory is a Company, any one of the directors may be prosecuted and punished for an offence and it precludes prosecution of more than one director. If a director has been nominated as the occupier, the choice of the prosecution disappears and only the nominated director can be proceeded against. But, if the Company has not made such nomination, the prosecution has a choice to proceed against any one of the Directors of the Company. Under Section 92 of the Act, the occupier and manager of the factory shall each be guilty, in the case of a Company, one of the directors becomes the occupier and in that capacity he is liable to be prosecuted along with the manager of the Factory".
From this, it is clear that since the Technical Director, Mr. Mathur was nominated as an occupier, the choice of the authorities under the Factories Act, 1948 disappears and only the nominated Director can be proceeded against. Since Section 2(17) of the ESI Act, 1948 adopts the definition of an occupier mutatis mutandis the observations made in respect of the aforesaid section in the Factories Act, 1948, more particularly, Section 100(2) are also applicable mutatis mutandis to the ESI Act, 1948. This being the position, according to me on this count also, the respondent No. 4, is not entitled to start any recovery proceedings against any one of the petitioners, in view of the nomination of the Technical Director Mr. Mathur under the provisions of the Factories Act. However, I am making it clear that, I am not expressing my opinion on the issue directly or indirectly as to whether the respondent No. 4 is entitled to recover the ESI dues from Mr. Mathur nominated by the Company.
11. From the point of view of the definition of Director and Managing Director, as given in Companies Act also, merely because one of the petitioners is a Managing Director cannot be a principal employer as contemplated by Section 2(17) of the ESI Act, 1948. Under the pro- visions of Companies Act, 1956, the Director is defined under Section 2, Sub-section(13) and Managing Director under Sub-section (26), which is as under:-
Section 2(13): "Director" includes any person occupying the position of director, by whatever name called:
Section 2(26): "Managing Director" means a director who, by virtue of an agreement with the Company or of a resolution passed by the Company in general meeting or by its Board of Directors or by virtue of its -memorandum or articled of association is entrusted with (substantial powers of management) which would not otherwise be exercisable by him, and includes a director occupying the position of a Managing Director, by whatever name called:"
Provided that the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the Company to any document or to draw and endorse any cheque on the account of the Company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management:
Provided further that a Managing Director of a Company shall exercise his powers subject to the superintendence, control and direction of its Board of Directors.
12. After going through the aforesaid definitions, more particularly the second proviso to Section 2, Sub-section (26), it is clear that the Managing Director cannot be the principal employer under Section 2(17)read with Section 2(n) of the Factories Act, 1948. As per Section 2(n) of the Factories Act, 1948, '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; while the definition of the Managing Director, under Section 2(26) of the Companies Act, specially second proviso puts embargo on the power of the Managing Director is made subject to the superintendence, control an direction of the Board of Directors. In view of this definition of Managing Director as given under the Companies Act, even if the petitioner in Writ Petition No. 20 of 1985 is a Managing Director, he cannot be an occupier in view of the definition under Section 2(n) of the Factories Act, 1948.
13. From the aforesaid discussion, the legal position appears to be is that, even the petitioner in Writ Petition No. 20 of 1985 was a Managing Director at the relevant time of the Company, still on both counts, namely, as Mr. Mathur, Technical Director was nominated as occupier under the Factories Act under the relevant period and also on the count of the definition of the Managing Director under the Companies Act, more particularly under proviso to Section 2(26) of the Companies Act, 1956 cannot be the occupier or principal employer. Therefore, the contention made by the respondent No. 4 in affidavit in reply, more particularly in para 6 and 9, contending therein that the Managing Director, Mr. Ashok Kumar Jalan, is a principal employer, because of the fact that he was Managing Director at the relevant time has no substance and is therefore rejected.
14. At the outset, Mr. Mehta, the learned Counsel appearing on behalf of the respondent No. 4, had taken objection about the maintainability of these writ petitions. I deliberately deferred the discussion on the preliminary objections because the said objections can be disposed of on the basis of conclusions arrived at on merits and facts as well as on law. Now, that I have concluded my decision on facts and law. I will deal with the preliminary objection taken by Mr. Mehta. According to Mr. Mehta, the petitioners ought not to have approached the High Court under Articles 226 of the Constitution of India. According to him, the petitioners could have ventilated their grievance before the machinery provided under the ESI Act, 1948. I have already pointed out that the respondent No. 4 issued the impugned notices for the recovery which are annexed at Exs. B to F to the respective petitions. This pre-postulates that the respondent No. 4 before giving these notices came to the conclusion about the amount due from the Company and also came to the conclusion that the said recovery can be made from the Directors of the Company, who were acting as the Directors of the Company at the relevant time. The only basis for issuance of such recovery notices of the amount due from the Company from the Directors personally was that at the relevant time, the petitioners were the Directors of the Company. I have already pointed out that, much earlier, say back in the year 1985, that the Division Bench of this High Court came to the conclusion that for the dues, due from the Company towards ESI Scheme, directors are not personally liable. In view of the said decision, the respondent No. 4 legally was not entitled to demand the recovery under the ESI Scheme due to the Company from the Directors personally. In spite of the clear position, if the notices are given by the respondent No. 4 for recovery, that only means such demand is beyond the scope of the statute or the power given under ESI Act, 1948, and therefore, such demand is void and illegal. Further it is also pertinent to note that each of the petitioners has made a pointed reference to the aforesaid decision in reply to the said demand notice. Surprisingly, it appears from the record that the said reply and the said reference made to the Division Bench is not considered at all, by the respondent No. 4. Since the said demand is beyond the scope of the statute on the aforesaid ground as mentioned earlier, according to me, the petitioners were entitled to approach the High Court under Article 226 of the Constitution of India for getting appropriate relief. If the demand is without jurisdiction and illegal, I do not understand as to how the petitioners can approach the machinery established under the ESI Act, 1948. In view of this legal and factual position, according to me, there is no substance in the preliminary objection taken by the respondent No. 4.
15. Mr. R.A. Dada, appearing on behalf of the petitioners, also pointed out that, once the writ petition is admitted on merits, even if, alternative remedy is available, the petition cannot be rejected on the ground that the statutory remedy was not availed of. To support this proposition, Mr. Dada relied on Hirday Narain v. Income Tax Officer, . The Supreme Court observed in the present case:
"Constitution of India, Article 226- Alternative remedy -Petitioner filing writ petition instead of availing of statutory remedy-High Court entertaining petition and giving hearing on merits-Petition cannot thereafter be rejected on ground that statutory remedy was not availed of.
16. In view of this aforesaid position, according to me, there is no substance in the preliminary objection taken on behalf of the respondent No. 4 that the present writ petition is not maintainable as alternative remedy is provided under the ESI Act, 1948.
17. In view of this, I have taken the view that all the writ petitions are allowed and the notices issued by respondent No. 3 which arc at Exs. B to F are liable to be quashed.
18. In the result, the writ petitions are allowed and the rule is made absolute in terms of prayer Clause (a) and (b). No order as to costs.
Petitions allowed.