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2015 (10) TMI 1771 - MADHYA PRADESH HIGH COURT

2015 (10) TMI 1771 - MADHYA PRADESH HIGH COURT - TMI - Winding up Petition of unpaid dues of salary - Asset Management Business - Whether unpaid wages/salary of workman/employee can be covered within the meaning of debts under Section 433(e) of the Companies Act, 1956 and view taken in the matter of Pawan Kumar Khullar Vs. Kaushal Leather Board Limited in this regard is correct? – Petitioner contends that Respondent paid no heed to discharge its debts payable towards outstanding salary and emolu .....

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5 (3) TMI 383 - HIGH COURT OF MADHYA PRADESH] as it is not possible to countenance that unpaid salary is not a debt – Section 529A does not state that the amount receivable by employees, who may not be workmen as such, is not a debt or that they are excluded from the term “creditors” – Employee can locus to file Company Petition in respect of unpaid wages and emoluments, same as creditor of Company and opinion of High Court in case of Pawan Kumar Khullar (supra), is overturned – Decided in favou .....

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s: Whether unpaid wages/salary of workman/employee can be covered within the meaning of debts under Section 433(e) of the Companies Act, 1956 and the view taken by learned Single Judge in the matter of Pawan Kumar Khullar Vs. Kaushal Leather Board Limited, reported in AIR 1996 MP 85 in this regard is correct? 2. Briefly stated, the Company Petition for winding up of Respondent-Company is filed on the assertion that the respondent-Company had engaged the petitioner to manage the Asset Management .....

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appointment and was receiving regular monthly salary till 31.03.2009. However, after 31.03.2009 as the respondent-Company failed and neglected to pay monthly salary to the petitioner in spite of several requests made by the petitioner to the respondent-Company in that behalf until 14.09.2009, which resulted in penury condition for the petitioner. The petitioner, therefore, resigned from service on 14.09.2009 by sending a resignation letter to the respondent- Company and also demanded his rightfu .....

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er, in spite of repeated oral as well as written reminders, the respondent-Company paid no heed to discharge its debts payable to the petitioner towards outstanding salary and emoluments for the services rendered by him. The petitioner, however, was informed by the respondent- Company that the fund flow situation of the Company was yet to improve. Thus, being unconvinced with the excuse given by the respondent-Company, which was avoiding to discharge its 4 Company Petition No.10/2015 obligation .....

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the respondent-Company also volunteered to amicably settle the matter with the petitioner. The petitioner vide letter dated 26.12.2009 responded by stating that he had shown enough patience for more than 6 months with a hope of settlement of his dues and for that had even given up his II year guaranteed bonus of S$ 131,250. Nevertheless, the petitioner informed that he was willing to discuss about amicable settlement, without prejudice to his rights and contentions. The respondent-Company, howe .....

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rated that he was entitled to receive the sum of S$ 747,961.67 after foregoing II year guaranteed bonus of S$ 131,250. Finally, as the petitioner did not receive any favourable response from the respondent-Company nor his outstanding dues were settled, was forced to file Company Petition under Sections 433 and 434 of the Companies Act, 1956 (for brevity Act ), on 27.01.2010. 5. Besides the Company Petition filed by the petitioner, two more Company Petitions have been filed against the respondent .....

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s salary, wages and emoluments being remuneration, does not become debt within the meaning of Section 433(e) of the Act. The workman or employee of the Company cannot pursue claim in that behalf as Creditor that too by filing a Company Petition under Sections 433 and 434 of the Act. To buttress this submission, reliance was placed on the decision of the Single Judge of our High Court in the case of Pawan Kumar Khullar Vs. Kaushal Leather Board Limited AIR 1996 MP 85. 7. The learned Company Judge .....

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el (1985) 3 SCC 398. Reference is also made to the decision of the Andhra Pradesh High Court in the case of Capt. B.S. Demogray Vs. VIF Airways Ltd. (1998) 93 Company Cases 291 (AP), M. Suryanarayana Vs. Stiles India Ltd. (2003) 116 Company Cases 448 (AP); and of Delhi High Court in the case of Argha Sen & Another Vs. Interra Information Technologies (India) Pvt. Ltd. (2006) 133 Company Cases 49 (Delhi), to disagree with the opinion of the Coordinate Bench in the case of Pawan Kumar Khullar .....

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it is possible to suggest that the claim of such debt by the serving or former employee of the Company is anything short of claim by a Creditor. Further, even though the petitioner has ceased to be in the employment of the respondent-Company, the tag of employee or worker of that Company cannot be attached to him. If so understood, the opinion of the Coordinate Bench of this Court in Pawan Kumar Khullar (supra) will not come in his way in pursuing the claim under Sections 433 and 434 of the Act .....

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tain the colour of wages, salary and emoluments payable to an employee whilst he was in service of the respondent-Company. Being remuneration payable to an employee, it cannot be considered as a debt within the meaning of Section 433(e) of the Act, nor the status of the petitioner can be treated as Creditor ascribable to Section 439 read with Section 434(1)(a) of the Act. To buttress this submission, reliance has been placed on the dictum of the Supreme Court in National Textile Workers Union an .....

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n is conferred by the statute can make an application for winding up a company and no such right having been conferred on workers, they cannot prefer a winding up petition against the company. According to the respondent-Company, after this dictum, it is no more res integra that employees of the Company are not included within the meaning of the term Creditor mentioned in Section 439 of the Act. Thus, the learned Company Judge, following that principle, should have rejected the Company Petition .....

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provision in the Act giving overriding preferential status to the payment of workman s dues, by necessary implication, it must follow that workers are excluded from pursuing remedy under Sections 433 and 434 of the Act, as also former workman/employee of the Company, for winding up of the Company. It was argued that any other interpretation would result in individual disgruntled workman/employee resorting to remedy under the Companies Act for winding up of the company. Further, that remedy woul .....

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tead of pursuing other remedies prescribed by law argument of the petitioner that being former employee of the respondent-Company, the legal position expounded by the Supreme Court will have no application to his claim, is also untenable. Reliance has been placed on the decision of Supreme Court in the case of IBA Health (India) Private Limited v. Info-Drive Systems SDN. BHD (2010) 10 SCC 553, in particular paragraph 34, which has cautioned the Company Courts to keep in mind Public Policy Consid .....

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expressed any opinion about the merits of that claim, which will have to be considered by the Company Judge after the reference is answered. 11. Indisputably, the petitioner was appointed by the respondent-Company vide employment letter dated 18.04.2008 to manage its Asset Management Business in Singapore. The petitioner submitted resignation vide letter dated 14.09.2009 for the stated reasons. According to the petitioner, he has not been paid his monthly salary and other emoluments as per the .....

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money due from one person to another. It would not only mean the obligation of the debtor to pay, but also the right of the Creditor to receive and enforce payment. Further, no distinction can be made between remuneration due to be recovered and the sum which is to be recovered as price of goods purchased on credit. The Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. (supra) after considering several decisions on the point from paragraph 23 onwards, summarized the position .....

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b) of Sub-section (1) thereof, mentions of any Creditor or Creditors, including any contingent or prospective creditor or creditors. The ground on which relief of winding up of Company can be pursued by the Creditor is ascribable to Section 433(e) of the Act. It envisages - where the company is unable to pay its debts. Where the company is unable to pay its debts, by a deeming provision inserted in the form of Section 434, it is envisaged that if the company fails to respond to the demand made b .....

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s receivable from the respondent-Company where he was employed during the relevant period. 15. The expression Creditor is intrinsically linked to the expression debt / debts . Wherever it is a case of debts , the person, who is entitled to receive the amount, as belonging to him, is necessarily a creditor. No provision of any statute much less of the Companies Act has been brought to our notice, which expressly or impliedly excludes the dues to be received by the employee - be it, in service or .....

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e Company Judge observed that there is difference between debt and salary. Further, the salary is the remuneration paid to a person or employee in lieu of services rendered by him/her whereas debt is not remuneration. Debt is something which is borrowed by a person on settled terms and conditions and settled rate of interest and can be re-settled between the parties. 17. With utmost respect, we disagree with this opinion. It is not possible to countenance that unpaid salary is not a debt, in vie .....

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amount or dues. In the Earl Jowitt s Dictionary of English Law, it is noted that debt is a sum of money due from one person to another. A debt exists when a certain sum of money is owing from one person to another. Debt denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment. Referring to the case of DPP v. Turner, (1973)3 ALL ER 124, it is noted that debt normally has one or other of two meanings. It can mean an obligation to pay m .....

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ompany, was an employee of that Company and had resigned from the post of Trainee/Captain before institution of the petition. In that case, resignation was not accepted by the Company till the filing of the petition. In that sense, it was a case similar to the facts of Pawan Kumar Khullar, as the petitioner was in employment of the Company or worker of the Company. In the present case, however, it is admitted that the petitioner has already tendered resignation and there is nothing to indicate t .....

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f money which is now payable or will become payable in future by reason of present obligation debitum in praesenti, solvendum in futuro. A debt involves an obligation incurred by the debtor and the liability to pay a sum of money in present or future. The liability must, however, be to pay a sum of money, i.e., to pay an amount which is determined or determinable in the light of factors existing on the date when the nature of the liability is to be ascertained. The claim of short delivery of mat .....

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nd a sum which is to be recovered because a person has to pay for the price goods which has been purchased by him on credit. With respect I am unable to agree with the view taken by the learned single judge of the Madhya Pradesh High Court in the case of Pawan Kumar Khullar v. Kaushal Leather Board Limited [1996] 87 Comp Cas 130 : AIR 1996 MP 85. I, therefore, hold that an unpaid salary is also a debt. 19. This decision has been approved by the Division Bench of the Andhra High Court in the case .....

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he Division Bench proceeded to observe thus: 17. Before dealing with this specific question, the larger question raised by the learned counsel for the respondent-company that under no circumstance salary due to an employee or officer of the company could be a 'debt' in the context of Section 433(e) of the Act has to be considered for it goes to the root of the matter. This contention, in our considered opinion, is required to be noticed only to be rejected. It is trite that an employee o .....

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time under the contract or the relevant regulations governing terms and conditions of service, undoubtedly the employee can bring a legal action to enforce his/her right to recover the salary due to him or her against the company. The definition of the word "debt", as understood in the well-known treatises as well as English and Indian courts, to put it pithily, means a sum of money which is presently payable. In other words, there must be debitum in presenti. There are no good reason .....

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ph 4 of the above judgment as correct position in law. A learned single Judge of this Court, Krishna Saran Shrivastva, J., in Capt. B.S. Demogray v. VIF Airways Ltd, [1998] 94 Comp Cas 291 : [1998] 1 An.WR 743, had occasion to consider the question whether the unpaid salary of an employee from the company could be a "debt". The learned judge, after referring to the judgment of the Madhya Pradesh High Court in Pawan Kumar Khullar's case [1996] 87 Comp Cas 130 : AIR 1996 MP 85, has h .....

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in the matter of clearing the outstanding debts of the company. Section 530(1)(b) reads: Section 630. Preferential payment:- (1) In a winding up, subject to the provisions of Section 529A, there shall be paid in priority to all other debts-(a) …. (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 .....

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the concept "debt" in the context of Section 433(e) of the Act. Therefore, we hold that in a given case, 10 * …… Already reproduced in paragraph 18 above. even arrears of salary due to an employee of the company which is sought to be wound up can be a "debt" within the meaning of that term under Section 433(e) of the Act and it cannot be said as a general rule, that under no circumstance, arrears of salary or salary due to an employee of the Company can be a &q .....

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they cannot prefer a winding up petition against a Company, has been examined. The background in which these observations have been made by the Supreme Court has been pithily analyzed by the Company Judge of the Delhi High Court, from pages 59 to 62; and concluded that the said observations are in the context of the argument raised on behalf of the Company in the said proceeding about the locus of the workers to intervene. In other words, the Court was dealing with the said argument of the Compa .....

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entertain the prayer for winding up at the instance of the employee concerned, which is within the discretion of Company Court and can be done in larger interests of the public. But, to say that the worker has no locus to maintain petition for winding up of a company in respect of his claim for unpaid salary/wages is untenable. The latter cannot be countenanced, in the light of the express provision in Section 439 read with Sections 433 and 434 of the Act. Taking any other view, would be re-writ .....

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for the period when they were working with the respondent-Company, could be maintained by them as Creditors. 24. The decision of the Supreme Court in IBA Health (India) Private Limited (supra) pressed into service by the respondent, in our view, deals with completely different proposition. Further, we fail to understand as to how observations made in paragraph 34 of the said decision can support the argument of respondent-Company - that Company Petition by a former employee of the Company for re .....

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raging avoidable litigation to be filed by the disgruntled employees and Trade Unions, does not commend to us. The provision, such as, Section 439 read with Sections 433 and 434, providing for remedy to class of persons, cannot be interpreted on such apprehensions. 26. As aforesaid, none of the provisions in the Companies Act persuade us to take the view that the claim of worker or employee regarding his unpaid salary, wages or emoluments cannot be treated as debt or dues payable by the Company. .....

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ecial preference in payment of workmen s dues has been specified in the Act, does not mean that the workmen are excluded from the term creditors or that the amount of unpaid salary, wages or emoluments of the workmen is not a debt payable by the Company, as such. 27. Counsel for the respondent-Company invited our attention to Sub-section (5) of Section 530 of the Act including the distinction made between workman and the employee of the Company. The fact that no specific reference is made to the .....

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sible to exclude one amongst those, considering the sweep of Sections 433 and 434 and in Section 439 of the Act. 28. Reverting to the question referred for being considered by us, we may improvise the same as to whether the unpaid wages/salary of a former workman/employee, as in the present case, can be the foundation for resorting to remedy of winding up of Company under Sections 433(e) and 434 of the Act. We agree with the opinion of the Division Bench of the Andhra Pradesh High Court in M. Su .....

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