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B.I.F.R. Versus KMA Limited and Mrs. Triveni A. Kulkarni Versus Official Liquidator, High Court, Bombay and Ors.

2016 (2) TMI 817 - BOMBAY HIGH COURT

Right of dissenting workmen - Adjudication of claims of workmen and secured creditors of the company (In liquidation) by Official Liquidator - Whether the dissenting workmen are bound by the consent terms or whether they are entitled to be paid in accordance with Sections 529 and 529A of the Companies Act, 1956? - Held that:- Only such of the dissenting workmen of the Company who became members of the Workers' co-operative in terms of the scheme sanctioned by BIFR and actually worked with the Co .....

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not actually availed of such leave, he will be entitled to wages in lieu of the unavailed leave. Sub-section (3) does not provide for wages in lieu of leave generally, but only in the contingencies referred to therein. So far as accumulation of unavailed leave is concerned, Subsection (5) enables a maximum accumulation of leave of thirty days by carrying forward earned leave. The leave that can, thus, be encashed under Section 79 of the Factories Act is only the earned or accumulated leave durin .....

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ption to claim bonus in the event of availability of surplus funds so as to satisfy nonpriority debts of the Company (in liquidation).

On gratuity, all parties including the Official Liquidator agree that gratuity would be payable. The consent terms provide for such gratuity. So does the adjudication made by the Official Liquidator. The dissenting workmen would accordingly have to be paid gratuity in accordance with law.

Gratuity, however, in the present case has become due .....

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claim for interest on gratuity can be considered, but not otherwise

The Official Liquidator is directed to adjudicate the claims of the Applicants in the Company Applications herein on the basis of this order and after taking into account the documentary evidence available on record and verifying the respective claims. The Official Liquidator shall enlist the assistance of any advocate and / or chartered accountant on his panel for the purpose of such adjudication. The costs of such .....

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pany (in liquidation). - COMPANY APPLICATION NO. 593 OF 2011 IN COMPANY PETITION NO. 778 OF 2005, COMPANY APPLICATION NO. 620 OF 2011 - Dated:- 6-1-2016 - S.C. GUPTE, J. For The Appellant : Mr.N.M. Ganguli, Mr.S.C. Naidu with Mr.S.B. Rao i/b. Gauri S. Rao For The Respondent : Ms.Meena Doshi, Mr.S. Ramakantha, Official Liquidator with Ms.Yogini Chauhan, Asstt.Official Liquidator. ORDER : Company Application No.593 of 2011, filed by an individual Applicant, who was a workman of the company (In Liq .....

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hing of an adjudication made by Official Liquidator in respect of 11 workmen set out in a resubmitted report, being OLR No.158 of 2010, of the Official Liquidator and re-adjudication of the claims on the basis of an order and judgment passed by the Industrial Court in Complaint (ULP) No.144 of 2005 dated 2 July 2005. 2. The facts of the case may be briefly set out as follows: (i) In or about 1991, KMA Ltd. (in liquidation) (hereinafter referred as the company ) was referred to BIFR in a suo motu .....

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es of workmen due from the year 1991 and upto the date of restarting of the production through the workers' cooperative was to be converted under the scheme to equity and the balance 50% was to be waived. (ii) Workers' cooperative continued to run the company under the scheme and paid wages to its workmen till December 1998. Wages for the month of January 1999 onwards remained unpaid. The company was thereafter not able to pay the wages. (iii) By an order dated 6 September 2000, BIFR rec .....

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was passed in that writ petition for sale of movable and immovable assets, including lands, buildings, and plant and machinery of the factories at Mumbai and Bangalore through public auction. These were to be auctioned by ASC constituted along the lines of the order of AAIFR, with Bank of Baroda, which was a lead bank representing the consortium of lenders, and also the workers' co-operative as its constituents, and the sale proceeds were to be retained in an interest bearing no lien accoun .....

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men and secured creditors. The company proceeded to have the claims of workmen adjudicated before the Industrial Court and the claims of banks and financial institutions before the Debt Recovery Tribunal ( DRT ). On 2 July 2005, by a judgment and order, the Industrial Court, Mumbai, crystalised the claims of workmen. Similarly, by an order dated 17 August 2005, the DRT adjudicated the claims of banks and financial institutions. (vi) On 30 September 2005, this Court appointed a provisional liquid .....

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regarding the claims of workmen as well as secured creditors. Consent terms specifying the amounts payable to both workmen and secured creditors including the consortium of banks were arrived at. At general body meetings of the union, resolutions accepting the culmination of negotiations and approving draft consent terms to be filed in terms thereof, were approved. Workmen signed affidavits accepting the amounts set out in the consent terms towards full and final settlement of their dues and aut .....

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ugust 2008, the company court passed an order on the Official Liquidator's report directing issuance of public advertisements inviting claims against the company from workmen as well as secured creditors. On 24 September 2008, the Official Liquidator submitted a report regarding claims received in pursuance of such public advertisements, including claims of the registered union on behalf of 1162 workmen as well as dissenting workmen and claims of the secured creditors including banks and fin .....

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e sale proceeds in accordance with the mandate of the consent terms as also in compliance with Section 529A of the Companies Act, 1956. The Official Liquidator took a stand before the company court that the consent terms were in accordance with Section 529A of the Companies Act. On 13 March 2009, after taking into account submissions made by various stakeholders, including the registered the trade union, the Official Liquidator, the secured creditors as also the dissenting workmen of Bangalore a .....

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t in accordance with the consent terms. Even this payment was allowed subsequently by an order passed by this Court. From August 2009 onwards, various claims were filed by dissenting workmen from Mumbai and Bangalore units. Several meetings were held before the Official Liquidator for adjudication of these claims. On 5 May 2010, the Official Liquidator presented a report, seeking extension of time for adjudication as also directions to the parties to provide copies of claims and make submissions .....

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r about October / November 2011, the present company applications were respectively filed by the individual dissenting workman - Ms. Triveni Kulkarni and the rival union of workmen for adjudication of their claims, as noted above. By an order dated 2 February 2012, these applications were partly allowed by the Company Court inter alia directing the Official Liquidator to adjudicate the claims of dissenting workmen on the basis of the order of the Industrial Court and also the records of providen .....

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ssed in Appeal (Lodging) No.602 of 2012 filed by the registered trade union, set aside the order of the learned Company Judge and restored Company Application Nos.593 of 2011 and 620 of 2011 to file, with directions to the Company Judge to decide the applications afresh on merits after taking into consideration the objections raised by the registered trade union and also after giving an opportunity of hearing to the registered trade union as well as secured creditors. That is how the company app .....

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nsent terms between the registered union and the secured creditors filed in the writ petitions and approved by the Company Court. Eight Workmen led by the Applicant in Company Application No.593 of 2011, who are represented by Mr.Ganguli and sixty three workmen through the rival union represented by Mr.Naidu are the only dissenting workmen out of these 1162 workmen. Their case is that they are not bound by the consent terms and must be paid in accordance with the adjudication originally made by .....

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of the registered Union, opposes the applications. She submits that the dissenting workmen cannot oppose the consent terms. Many of them have given affidavits accepting the consent terms. She submits that even otherwise in the facts of the case, the consent terms need to be adhered to. She opposes the basis on which Mr.Ganguly and Mr.Naidu calculate their entitlements under Section 529A. Based on these rival submissions, the following questions broadly arise for the consideration of this Court : .....

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resented by the Union which signed the consent terms. The sixty three workmen whom the rival union, KMA workers and Staff Union, Bangalore, claims to represent say that they were not consulted when the consent terms were arrived at; that they never authorised the union to enter into any consent terms; and that they have throughout objected to the consent terms. Ditto for the Applicant in Company Application No. 593 of 2011. Ms.Doshi, for the registered union, submitted that many of these workmen .....

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A of the Companies Act, 1956. That is how the Company Court had sanctioned the consent terms, noticing that the funds set apart were adequate to meet the claims of dissenting workmen upon adjudication thereof by the Liquidator. The issue of their entitlement was clearly kept open. 6. Before we take up the individual items forming part of their claims, we may dispose of one particular contention of these workmen. It is submitted that the dues of the workmen should be decided in accordance with th .....

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ing, the Industrial Court further held that the complainant union would be entitled to an order of wages, privilege leave encashment, L.T.A. with interest as claimed together with gratuity with 10 per cent interest and bonus with 6 per cent interest plus interest claimed on the provident fund amount of employees' contributions. The Industrial Court also directed that the workmen, who were in employment, were entitled to monthly wages till subsistence of the contract of employment. This order .....

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n an annexure prepared by the registered union and forming part of the consent terms. With these terms being put in place, the dues provided for by the order of Industrial Court necessarily get varied. The Division Bench whilst disposing of the petitions in terms of the consent terms was conscious of the fact that the Company Court was seized of liquidation proceedings in respect of the company and accordingly, directed the parties to seek concurrence of the Company Court to the consent terms. T .....

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terms, the order of Industrial Court dated 2 July 2005 clearly ceases to hold the field. In fact, when the matter was before the Appeal Court from the order of the Single Judge which had originally disposed of the Company Applications herein, the Appeal Court set aside the order of the Single Judge insofar as it directed the Official Liquidator to re-adjudicate claims of dissenting workmen on the basis of the order of Industrial Court dated 2 July 2005. The Appeal Court clearly held that since t .....

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quidator is not bound by the order of 2 July 2005 in the matter of adjudication of such dues. 7. With this, we may now deal with the merits of the dues demanded by the dissenting workmen. It must be clarified, though, at the outset that this order determines the issues in principle. Based on this determination, evidence will have to be placed by the dissenting workmen before the Official Liquidator, who shall then adjudicate individual dues in the light of this order. 8. The first question is of .....

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nd Bangalore was passed by this Court in Writ Petition No.1512 of 2002 on 20 December 2012.) On the other hand, the dissenting workmen root for '24 October 2008' as the relevant date, contending that the contract of employment between a company and its workmen subsists till the date of the winding up order and that is the date upto which the wages ought to be computed. (The Company Court ordered the company to be wound up on 24 October 2008.) 9. On the relevant date upto which workmen .....

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s in the case of notice of discharge under Section 445(3). A learned Single Judge of this Court in Vishwanath Namdeo Patil vs. Official Liquidator of Swadeshi Mills [2013] 181 Comp Cas 133 (Bom) has held that the only provision concerning discharge of workmen in case of winding up is contained in Section 445(3) of the Companies Act, on the plain reading of which a winding up order is a deemed notice of discharge to all employees of the company in liquidation except when business of the company i .....

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a vital bearing on the employment of workmen of the Company. Firstly, there was a lock-out declared in the Company in 1991. Following this lock-out, a suo motu reference came to be registered before BIFR in respect of the company under the Sick Industrial Companies Act ( SICA ). Secondly, in 1993, units of the Company at Mumbai and Bangalore were restarted under orders of BIFR through a workers' co-operative. There were specific provisions of the scheme sanctioned by BIFR about employment of .....

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he AAIFR order, on 20 December 2002, a consent order was passed for sale of all assets of the company through an Assets Sale Committee constituted on the lines of the order earlier passed by AAIFR for sale of assets. 10. In these circumstances, it is only those workers, who became members of the workers' co-operative by fulfilling the terms of the scheme such as conversion into equity of 50 per cent wages due from the year 1991 and waiver of balance 50 per cent and payment of amounts of S .....

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guarantors and employees. The Company in the present case offered to provide employment to those workmen who agreed to join the Workers' cooperative on the terms of the sanctioned scheme. Those who did not so join must be treated as having refused to offer themselves for service and accordingly, ceased to be workmen. They cannot now demand wages after 20 September 1991, i.e. the date of closure of the factory. Even the Principal Labour Court, Bangalore has, on an application of the rival un .....

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8 are entitled to be paid wages upto the date of the winding up order. Others are not entitled to any wages with effect from 20 September 1991. 12. We may now take up other items such as (i) notice pay, (ii) leave wages, (iii) bonus and (iv) gratuity and (v) interest. 13. The dissenting workmen claim notice pay of three months on the basis of Section 25-N of the Industrial Disputes Act. The submission is that under Section 25-O of that Act, as applicable in Maharashtra, every workman of an under .....

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eemed to have come into force from 27.10.1981. The Parliament, however, has thereafter substituted Section 25-O by Act No.46 of 1982. The substitution has come into effect on 21.8.1984. The State law on a subject forming part of the concurrent list to the extent of its repugnency with a central law on the same subject does not hold good and it is the law made by the Parliament, which shall prevail over the same. The constitutional scheme in this behalf is explained by the Supreme Court in severa .....

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oviso empowers the Union legislature to repeal or amend a repugnant State law even though it has become valid by virtue of the President's assent. Parliament may repeal or amend a repugnant State law, either directly, or by itself enacting a law repugnant to the State law with respect to the 'same matter'. In that case, the State law would become void as soon as the subsequent law of Parliament creating repugnancy is made even though such subsequent law does not expressly repeal a St .....

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shtra General Kamgar Union2009 II CLR 536, the amended provisions of Section 25-O (introduced by the Central Act, i.e. Act No.46 of 1982) are a complete and self-contained code. If it is so, that means it covers the whole field on the subject, namely, closure of an industrial undertaking, and any provision in the State law on the subject, which is at variance with it, is necessarily repugnant to it. In that view of the matter, there is no question of the workmen getting any notice pay under Sect .....

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law for the time being in force as if the undertaking had not been closed down. That brings us to the question - whether leave wages or PL encashments are due in the present case under any law for the time being in force. Mr.Naidu and Mr.Ganguli rely upon Section 79 of the Factories Act for claiming such wages or encashments. Section 79 of the Factories Act deals with annual leave with wages. Sub-section (1) of Section 79 provides that every worker who has worked for 240 days or more in a facto .....

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that provision deals with a case where the worker is discharged or dismissed or quits etc. from the employment during the calender year. These eventualities lead to two consequences : One, the worker not meeting the criterion of eligibility for annual leave, namely, work of 240 days or more in a calender year, and two, the worker not being able to take the leave accumulated during the part of the year that he actually worked. Sub-section (3) deals with both these consequences. It provides that .....

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ed leave. The leave that can, thus, be encashed under Section 79 of the Factories Act is only the earned or accumulated leave during the calender year upto a maximum of thirty days under conditions of Sub-section (3). The rate of such wages has to be as per Section 80 of the Factories Act. 15. As held by this Court in the case of Swadeshi Mills (supra), bonus is not included in the category of wages under Sections 529 and 529A of the Companies Act and cannot be accorded any priority. The dissent .....

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accordance with law. 17. That leaves the question of interest payable on these dues. Mr.Ganguli submits that interest would be payable on wages under Rules 156 and 157 of the Companies (Court) Rules upto the date of winding up order and subsequent interest would be payable under Rule 179. On delayed payment of gratuity, he relies on the decision of H. Gangahanume Gowda vs. Karnataka Agro Industries Corporation Ltd. (2003) 3 SCC 40 and submits that such interest would be due and payable. Under Ru .....

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ployment and interest thereon not being reserved or contracted for, interest is provable from the respective due dates of such wages at the rate of four per cent per annum upto the date of the winding up order. As far as gratuity is concerned, the Supreme Court in H.G. Gowda's case (supra) did hold that there is a clear mandate of Section 7 of the payment of Gratuity Act for payment of gratuity within time and to pay interest on the delayed payment of gratuity at the stipulated rate. Such gr .....

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he Companies Act. If and when there is a surplus, a claim for interest on gratuity can be considered, but not otherwise. The same reasoning would apply to other items such as notice pay and leave wages. 18. Before we conclude, it must be clarified that since the majority of workmen of the Company (in liquidation) have taken their dues in accordance with the consent terms taken on record in the writ petitions referred to above and accepted by the Company Court, an option needs to be given to the .....

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