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TMI Blog1983 (11) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... ho dismissed the three petitions filed by the original petitioners, the appellants in these appeals, challenging the notices issued by the Collector of Bombay under section 5 of the Revenue Recovery Act, 1890, read with section 267 of the Maharashtra Land Revenue Code, 1966. Appeal No. 311 of 1979 arises out of the petition which was filed by the seven directors of Digvijay Spinning and Weaving Company Limited, which is a Company registered under the Indian Companies Act, 1913. All the petitioners were served with two notices of demand for the sums of ₹ 4,10,985.51 and ₹ 3,56,041.75 being the employer's special contributions under the Employee's State Insurance Act, 1948 (hereinafter referred to as "the Act") for the quarters ending on 30-6-1968 and 30-9-1968 and 31-12-1968 to 31-3-1970 respectively with interest at 6% per annum. It is not in dispute that originally the Company was taken over by the Union of India under section 18A of the Industries Development and Regulation Act, 1951, with effect from 9th July 1969 and the Maharashtra State Textile Corporation was appointed as the Authorised Controller of the said Company. Later, on the promulgation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the then Labour Minister. This Mill was taken over by the Union of India and was put under the Authorised Controller with effect from 29th November 1965. The Collector of Bombay issued a notice of demand under section 267 of the Maharashtra Land Revenue Code styling the original petitioner as director-partner and the demand was to the tune of ₹ 3,69,890.52 being the unpaid amount of employer's special contribution upto the end of four quarters of 1965. When this notice was served on the original petitioner on 27th September 1975 he informed the Regional Director that he was merely a technical director to advise the Mill and was not a partner as alleged. He denied that he was liable under the Act. He made a grievance that no show-cause notice was ever issued to him nor was any hearing given. He denied that he was at any time the occupier or employer or managing agent of the Mill. He stated that he had no controlling interest except the qualifying shares in the said Company. The proceedings before the Collector finally came to be challenged in Miscellaneous Petition No. 1214 of 1975. The learned Single Judge, following the view which he had already taken mentioned ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r could not be liable for the period subsequent to 8th November 1965. The position that the petitioner had ceased to be a director from 8th November 1965 not having been disputed, the learned Judge held that after 8th November 1965 the petitioner had no control of the Company of which he was a director and, therefore, it would not be proper to make him responsible for the said contributions accruing after 8th November 1965, but he held that the petitioner would be liable for the amount of special contribution and interest due till 8th November 1965. 6. Thus, the main question which arises in all these three appeals which are filed against the three judgments in the three petitions referred to above, is, whether by virtue of the fact that a person is a director of the Company, he becomes a "principal employer" as contemplated by section 2(17) of the Act and, therefore, whether he can be made personally liable for the employer's special contribution which remained unpaid by the Company during the period when he was a director of the Company. A similar question having been raised in Writ Petition No. 2350 of 1983, Mr. Setalvad, who appeared for the petitioners in that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found in section 2(17) of the Act. So far as the question which falls for consideration before us is concerned, the relevant part of the definition reads as follows : (17) 'principal employer' means - (i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948, the person so named; The definition of "principal employer" refers to the "occupier of the factory" and under section 2 (15) of the Act, it is expressly provided that the occupier of the factory shall have the same meaning assigned to it in the Factories Act, 1948. It is, therefore, necessary to refer to the definition of the term "occupier" in the Factories Act which is to be found in section 2 (n) of that Act and which, so far as it is material for our purpose, reads as follows: '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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho are the owners and, therefore, the principal employers. The further argument is that where the Company is the owner of a factory, notwithstanding the fact that the occupier of the factory is also the principal employer as defined in section 2(17) of the Act, the directors of the Company can never be occupiers individually, because, according to the learned counsel, no individual director exercised ultimate control over the affairs of the factory. In any case, it is contended that except where an individual director is specifically notified as an occupier for the purposes of the Factories Act, in all the other cases it will be a question of fact as to who was in ultimate control of the affairs of the factory and, therefore, the notice of recovery of employer's contribution cannot be issued to the directors merely on the footing that the petitioners were the directors on their respective Companies. It is also pointed out that it could not have been in the contemplation of the Parliament that any person who is an occupier or who exercised control would be personally liable for the dues which were required to be deposited by the Company, because in a given case a person who is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability was intended to be created against a director in respect of dues which the company had failed to pay. It is contended that there is nothing in the Act which shows that the directors of the company were to be personally liable for the amount of the employer's contribution due from the company itself. In aid of this argument, a further reference was made to the provisions of section 100 of the Factories Act. We have already referred to the definition of the term "occupier". Section 100 is a special provision which lays down as to who will be an occupier in certain cases. Under sub-section (1) of section 100 of the Factories Act, it is expressly provided that where the occupier of a factory is a firm or other association of individuals, anyone of the individual partners or members thereof may be prosecuted and punished for any offence for which the occupier of the factory is punishable. Sub-section (2) provides as follows : (2) Where the occupier of a factory is a company, any one of the directors thereof, may be prosecuted and punished under this Chapter for any offence for which the occupier of the factory is punishable : Provided that the company may give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 100 of the Factories Act. The learned counsel alternatively contended that if the concept of all directors being the occupiers cannot be imported in the definition of the expression "principal employer", then the "principal employer" contemplated by section 2(17) of the Act must be a human agency. The contention appears to be that a company cannot be an employer, and when it was pointed out that the word "person" as defined in the General Clauses Act includes any company or an association of a body of individuals whether incorporated or not, the argument was that such a meaning is repugnant to the context and would defeat the object of the Act itself. 12. Mr. Chogle, who appeared for the Collector of Bombay also supported the argument of Mr. Tulzapurkar that the word "or" in the definition of the expression "principal employer" must be read as "and" and every director must be treated as an employer and consequently a principal employer. Mr. Chogle has referred us to the Employees' State Insurance (General) Regulations, 1950 and it is pointed out that regulation 10-B, which required the employer in respect of a facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astening the obligation to deduct and pay the employer's contribution as well as the employee's contribution. 14. The concept that a limited company could be an occupier of a factory is recognized in the Factories Act itself. Indeed, the concept that a partnership firm or a body of individuals is also recognised in section 100 of the Factories Act. Sub-section (1) of section 100 begins with the words "where the occupier of a factory is a firm or other association of individuals". Similarly, sub-section (2) begins with the words "where the occupier of a factory is a company". Section 2(n) of the Factories Act defines "occupier" to mean the person who has ultimate control over the affairs of the factory. If we read this definition along with the provisions of section 100, it is obvious that the Legislature has clearly contemplated that the person referred to in the definition of "occupier" cannot only be a natural person as argued by Mr. Tulzapurkar, but the person contemplated by the definition will include a body of individuals or a firm consisting of partners or an incorporated company. The definition of "occupier" in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors of the company which owns or runs the factory within the meaning of section 2 (n) of the Factories Act. 16. It may be pointed out that the definition of "occupier" in section 2 (n) of the Factories Act refers to the person "who has ultimate control over the affairs of the factory" and not "affairs of the company". But even under 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. We may refer to a passage from Gower's Principles of Modern Company Law, Fourth Edition, page 152, where the learned author has observed : Where powers are conferred on the directors under clauses such as those considered above, they are conferred upon the directors collectively as a board. Prima facie, therefore, they can be exercised only at a board meeting of which due notice has been given and at which a quorum is present. (Emphasis supplied.) Mr. Tulzapurkar has referred us to a passage, from Pennington's Company Law, Fourth edition, at page 523, which in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed under hand by debenture holders is the occupier of the company's factory. Substantially, the concept of occupier contemplated by the definition of "occupier" in section 2 (n) of the Factories Act is the same as set out in the above passage. The observation in the above passage that a receiver and manager appointed under hand by debentureholders is the occupier of the company's factory is made on the basis of a decision in Meigh v. Wickenden (1942) 2 KB 160. We are unable to find in that decision anything which could support Mr. Tulzapurkar's contention that a director ipso facto must be treated as an occupier. That was a case under the Factories Act, 1937, and the question was whether a receiver under a debenture can be said to be an occupier. On the terms of the debenture it was found that the appellant's appointment as receiver and manager was "to manage and carry on the business of the company, to take possession of, get in and collect the property and assets", and it was found that such an appointment was very different from that of a director. What was argued in that case was that even though the receiver and manager was appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act and will have to be decided on evidence, and it can never be assumed that a director of the company has ultimate control over the affairs of a factory owned by the company merely by virtue of being a director. 18. Miss Sorabjee has referred us to a decision of the Punjab and Haryana High Court in Employees' State Insurance Corporation, Chandigarh v. S. Gurdial Singh 45 FJR 308. In that case a factory was owned by a private limited company with the Chairman and his four sons as the directors of the company. The company was engaged in the manufacture of embroidery textiles and the factory employed about 300 workmen. Inder Singh, the fourth son, was the occupier of the factory. The company owed ₹ 73,879 on account of contribution under the Act and since the amount was not paid, proceedings against the Chairman and his three other sons were started for recovering the amount as arrears of land revenue. The petitioners contended before the High Court that they were not the principal employer and they were, therefore, not personally liable to pay the amount and that Inder Singh, who was a director, was appointed as manager and he was the occupier of the factory and he alone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 85 (a) and (g) of the Act read with section 4(i)(b) of the Employees' State Insurance (Amendment) Act, 1975, for failure to submit the necessary Contribution Cards of the directors' company. When the Magistrate took cognizance of the offence, the directors approached the High Court for quashing the proceedings. On behalf of the Corporation, reliance was placed on the decision in B.M. Chatterjee's case (supra). But, it has to be noted that even the Public Prosecutor does not seem to support that view, because it was contended by the Public Prosecutor that "a Director qua Director is not the owner or occupier within the meaning of section 2(17) of the Act, but the company is the owner or occupier". The Division Bench took the view, without going into the correctness of Chatterjee's case, that a director of a company can be brought within the meaning of the word "occupier" as mentioned in section 2 (17) of the Act, as according to section 2 (n) of the Factories Act occupier is a person who like a director has ultimate control over the affairs of the factory. The Division Bench took the view that since in that case no managing agent had been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers were required to approach this Court under Article 226 of the Constitution of India, because there was immediate-threat of enforcing personal liability against the directors. Existence of an alternative remedy is not an absolute bar to the proceedings under Article 226 of the Constitution of India. All these petitions were entertained by the learned Single Judge and they were dismissed. The appeals have been admitted and have been heard. The questions argued were of general importance and it would be futile now to hold that the petitioners should be referred back to the Employees' Insurance Court for determination of the question of their personal liability. We do not, therefore, see any substance in the contention that the petitioners have come to a wrong forum and should have really gone to the Employees' Insurance Court. 21. In the view which we have taken, all the three appeals are allowed, the order of the learned Single Judge impugned in each of the three appeals is set aside and the notices issued to the petitioners for recovery of the amounts said to be due on account of the employer's contribution are liable to be quashed. 22. In the result, Appeal No. 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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