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TMI Blog2015 (3) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a point whether the contract labourers can be brought within the ambit of Section 529, 529A and 530 of the Companies Act. According to the banks who are arraigned as secured creditors denied the right of the contractual labours as a workman within the meaning of aforesaid provisions of the Companies Act and have further assailed the decision of the official liquidator in bringing those contract labourers within the definition of the workmen under the Companies Act. The contract labourers refute the stand of the bank by saying that their services were perennial in nature and after the abolition of the contract labourers by introduction of the Contract Labour (Regulation and Abolition) Act, 1970, they become the employee of the company (in liquidation) and, therefore, are to be treated as workmen having a preferential claim under the Companies Act. Section 529 of the Companies Act put the workmen in the category of the secured creditors and to have a pari passu charge with the other secured creditors. Section 529A of the said Act containing a non obstante clause gives primacy to workmen dues and debts of the secured creditors in priority to all other debts to be paid in full unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section. [Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay [his portion of] the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.] [(3) For the purposes of this section, Section 529-A and Section 530,- (a) "workmen", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947; (b) "workmen's dues", in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:- (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets are insufficient to meet them, in which case they shall abate in equal proportions.] 530. Preferential payments.-(1) In a winding up, [subject to the provisions of Section 529-A,] there shall be paid in priority to all other debts- (a) all revenues, taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8) and having become due and payable within the twelve months next before that date; (b) all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of any employee, in respect of services rendered to the company and due for a period not exceeding four months within the twelve months next before the relevant date [* * *], subject to the limit specified in sub-section (2); (c) all accrued holiday remuneration becoming payable to any employee, or in the case of his death to any other person in his right, on the termination of his employment before or by the effect of, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to any other person in his right on account of accrued holiday remuneration, out of money advance by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee or other person in his right, would have been entitled to priority in the winding up has been diminished by reason of the payment having been made. (5) The foregoing debts shall- (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) Subject to the retention of such sums as may be necessary for the costs and expenses of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the passing of the resolution for the voluntary winding up of the company. (9) This section shall not apply in the case of a winding up where the date referred to in sub-section (5) of Section 230 of the Indian Companies Act, 1913 (7 of 1913), occurred before the commencement of this Act, and in such a case, the provisions relating to preferential payments which would have applied if this Act had not been passed, shall be deemed to remain in full force. Section 2(s) of the Industrial Disputes Act, 1947 defines the workmen as under :- "2(s). "workman" means any person (including an apprentice) employee in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire ore reward, whether the terms of employment be expressed or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispte, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that disput, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person- &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the workmen imbibed within itself two eventualities, firstly, any person employed in or in connection with a work of an establishment to do any skilled, semi skilled or unskilled manual, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be expressed or implied, secondly, it excludes the managerial or administrative staff, an employee in supervisory capacity drawing wages exceeding Rs. 500/- per mensem or an outworker to whom any article or materials are given out or on behalf of the principal employer to be made up cleaned, washed, altered or mended, finished, repairs adopted or otherwise for sale in relation to the trade or business of the principal employer. Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, empowers the appropriate government to issue notification after consultation with the central board or a state board as the case may be, prohibiting by notification in the official gazette employment of the contract labour in any process operation or otherwise in any establishment. It is not debated by either of the parties before this Court that the Company in liquidation is not an establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem stands prohibited under Section 10(1), the embargo to continue as a contract labour is put and end to and direct relationship has been provided between the workmen and the principal employer. Thereby, the principal employer directly becomes responsible for taking the services of the workmen hitherto regulated through the contractor....................." It is pertinent to record that the judgment rendered in case of Air India Statutory Corporation (Supra), came up for consideration before the Constitution Bench in case of Steel Authority of India Ltd. & Ors. Vs- National Union Water Front Workers & Ors reported in AIR 2001 SC 3527 and is overruled with prospective effect. Before the Constitution Bench apart from the other points, one of the point was whether the contract labourer would be treated to have been automatically absorbed in the establishment of the principal employer on issuance of the notification under Section 10 (1) of the Contract Labour (Regulation and Abolition) Act, 1970. Taking a dissenting view from what was taken in the case of Air India Statutory Corporation (Supra), the Court held : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of the State in which that other establishment is situated, will be the appropriate Government. (2)(a) A notification under Section 10(1) of the CLRA Act prohibiting employment of contract labour in any process, operation or other work in any establishment has to be issued by the appropriate Government: (1) after consulting with the Central Advisory Board or the State Advisory Board, as the case may be, and (2) having regard to (i) conditions of work and benefits provided for the contract labour in the establishment in question, and (ii) other relevant factors including those mentioned in sub-section (2) of Section 10; (b) Inasmuch as the impugned notification issued by the Central Government on 9-12-1976 does not satisfy the aforesaid requirements of Section 10, it is quashed but we do so prospectively i.e. from the date of this judgment and subject to the clarification that on the basis of this judgment no order passed or no action taken giving effect to the said notification on or before the date of this judgment, shall be called in question in any tribunal or court including a High Court if it has otherwise attained finality and/or it has been implemented. (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular workmen, he shall give preference to the erstwhile contract labour, if otherwise found suitable and, if necessary, by relaxing the condition as to maximum age appropriately, taking into consideration the age of the workers at the time of their initial employment by the contractor and also relaxing the condition as to academic qualifications other than technical qualifications." In case of Nitin Kumar Nathalal Joshi & Ors -Vs- Oil and atural Gas Corporation Ltd & Ors reported in AIR 2002 SC 1444, the point arose whether the contract labourers who continued at such even after the notification issued by the appropriate government under Section 10(1) of the Contract Labour (Regulation and Abolition) Act, 1970 are entitled to take benefits of the decision rendered in the case of Air India Statutory Corporation (Supra), which suffered prospective overruling in Steel Authority of India (Supra). By negativing the aforesaid contention and extending the benefits, it is held : "8. In the present case, the appellants were no absorbed by the principal-employer. Therefore, it cannot be said that the decision in Steel Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een in an establishment the principal employer availed the services of a contractor the courts have held that the contract labour would indeed be the employees of the principal employer. The next issue that remains to be dealt with is: B. Whether on a contractor engaging contract labour in connection with the work entrusted to him by a principal employer, the relationship of master and servant between him (the principal employer) and the contract labour emerges." Though automatic absorption is not permissible in view of the said Constitution Bench decision (Steel Authority of India) but in the event it is found after lifting the veil that the principal employer was retaining the control over those contract labourers and the agreement between the principal employer and the contractor is a mere camouflage, such contract labourers are the employees of the principal employer after the issuance of notification under Section 10(1) and abolition of the labourers being employed through contractors. The official liquidator has simply quoted the definition of the workmen assigned in Industrial Disputes Act and under the Companies Act and have suddenly jumped to the conclusion that those co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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