Case: Hanumanprasad Rameshwardas Bansal and Ors Vs. State of Maharashtra and Ors

M.S. Karnik, J. 1. The Petitioners challenge the notices dated 06th January, 2000 received by the Petitioners from the Tahasildar, Labour Dues Recovery, Mumbai demanding payment of Rs. 9,38,153/- towards dues of workers of Suvidha Warehousing Company (Private) Ltd., (hereinafter referred to as the Company) and threatening the attachment and sale of the personal property of the Petitioners for recovery of dues as arrears of land revenue. The Petitioners have also challenged the final order dated 06th November, 1999 under section 13 of Maharashtra Mathadi Hamal and Other Manual Workers (Regulation of Employment and Welfare) Act, 1969 (hereinafter referred to as the Mathadi Act) and the Recovery Certificate dated 30th December, 1999 issued by the Respondent No. 3-Kirana Bazar and Dukane Mandal i.e. Grocery Market & Shop Board (hereinafter referred to as the Board). 2. The Petitioners were at all material times the Directors of the Company. Under the provisions of the Mathadi Act and the scheme framed thereunder, both the employees and the employers are required to be registered with the Respondent No. 3 - Board. The Company was the registered employer with the Respondent No. 3-Board. For loading and unloading of goods, a toli of workers was assigned by the Respondent No. 3-Board to the Company and their dues are required to be deposited by the Company with the Respondent No. 3-Board. On failure to pay the dues, the Respondent No. 3-Board is empowered to issue Recovery Certificate and request the Collector to recover the dues of the employer as arrears of land revenue under section 267 of the Maharashtra Land Revenue Code. 3. The issue arising in the Writ Petition is whether the Petitioners who are the Directors of the Company are personally liable to pay the dues of the workers under the Mathadi Act. 4. On the issue whether the Directors of the Company can be made liable, learned Counsel for the Petitioners relied upon the following judgments: a) Suresh Tulsidas Kilachand &Ors. vs. Collector of Bombay &Ors., (1984) LAB. I.C. 1614, b) Kundan Singh vs. Moga Transport Co. (P.) Ltd. &Ors., (1987) 62 Comp. Cases 600 (Single Judge Bench of Punjab & Haryana High Court), c) Tikam Chand Jain vs. State Government of Haryana and Anr. (1987) 62 Comp. Cases 601, d) Employees State Insurance Corporation vs. S.K. Aggarwal &Ors., (1998) II LLJ. 794, e) Raghunath Bareja &Anr. vs. Punjab National Bank &Ors., (2007) 1 Comp L.J. 108 (SC), f) Vimalkumar Ravji Shah vs. Employees Provident Fund Organisation, Solapur &Ors.,(2009) II CLR 577, g) Tristar Consultants vs. V Customer Services India P. Ltd. and Anr. (2009) 149 Comp. Cases 714 (Delhi) 5. Learned Amicus Curiae on the other hand had relied upon the following judgments: a) R.B. Shah vs. V.R. Savarkar & Others, KHW Ltd. (1952) High Court, Bombay by Division Bench b) State of U.P. and Others vs. Renusagar Power Co. and Others, (1988) 4 SCC 59 c) J.K. Industries Ltd. and Others vs. Chief Inspector of Factories and Boilers and Others (1996) 6 SCC 665 d) ChandubhaiVirjibhaiGokani&Ors. Vs. State of Gujarat and Another (2009) 149 Comp Cas 720 (Guj) e) Bhuwalka Steel Industries Limited vs. Bombay Iron and Steel Labour Board and Another (2010) 2 SCC 273 , f) Pepsico India Holding Private Limited vs. Grocery Market and Shops Board and Another, (2016) 4 SCC 493 6. We have heard learned Counsel for the Petitioners, the learned AGP and learned Senior Counsel who was appointed as Amicus Curiae. Having heard the learned Counsel for the Petitioners and having perused the materials on record, we are of the view that the Petitioners cannot be made personally liable to pay the dues of the workers for the following reasons. 7. It is an admitted position that the Company was registered employer with the Respondent No. 3-Board and is liable to pay the dues of the workers under the Mathadi Act. 8. According to the Petitioners they were not in day-to-day management of the Company and prior to issuing the impugned notices, no notice of any meeting held by the Respondent No. 3-Board was served upon the Petitioners nor were the Petitioners served with the final order dated 06.11.1999 and/or recovery certificate dated 30.12.1999. The Petitioners came to know about the same only when the replies were filed by the Respondent No. 3-Board to the Petition. According to the Petitioners, rules of natural justice were violated and the Petitioners were not been heard before filing liability on them. 9. In the Affidavit-in-Reply filed by the Respondent No. 3-Board, it is stated that the impugned order dated 06th November, 1999 by the Respondent No. 3-Board was passed under section 13 of the Mathadi Act whereby the Petitioners were directed to make a payment of total sum Rs. 7,23,891.50 with interest @18% per annum failing which the amount will be recovered by the Collector as arrears of land revenue, which order is annexed to Exhibit-1 of the Affidavit-in-Reply. Pursuant thereto Recovery Certificate at Exhibit-2 to the Affidavit-in-Reply was issued by the Respondent No. 3-Board. It is pertinent to note that nothing is stated in the reply as to whether the Mathadi Board has issued any notice to the Petitioners for fixing liability. 10. It would be apposite to refer to section 13 of the Mathadi Act which empowers the Board to determine the moneys due from the employers and workers. Section 13 of the Mathadi Act reads thus:- 13. Determination of moneys due from employers and workers.- (1) The Board or such officer as may be specified by it in this behalf may, by order, determine any sum due from any employer or worker under this Act or any scheme made thereunder, and for this purpose may conduct such inquiry as the Board or such officer may think to be necessary. (2) The Board or such officer, conducting the inquiry under sub-section (1) shall, for the purposes of such inquiry, have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, (V of 1908) for trying a suit in respect of the following matters, namely:- (a) enforcing the attendance of any person or examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavit; (d) issuing commissions for the examinations of witnesses; and any such inquiry shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196 of the Indian Penal Code (XLV of 1860). (3) No order determining the sum due from any employer or worker shall be made under sub-section (1), unless the employer or worker, as the case may be, is given a reasonable opportunity of representing his case. (4) An order made under this section shall be final and shall not be questioned in any Court. (5) Any sum determined under this section may, if such sum is in arrears, be recovered as an arrear of land revenue. 11. Clause (3) of section 2 of the Mathadi Act defines employer as under:- (3) employer, in relation to any unprotected workers engaged by or through contractor, means the principal employer and in relation to any other unprotected worker, the person who has ultimate control over the affairs of the establishment, and includes any other person to whom the affairs of such establishment are entrusted, whether such person is called an agent, manager or is called by any other name prevailing in the scheduled employment. 12. Clause (7) of section 2 of the Mathadi Act defines principal employer to mean an employer who engages unprotected workers by or through a contractor in any scheduled employment. 13. Section 13 thus empowers the Board to determine any sum due from any employer under the Mathadi Act or any scheme made thereunder after conducting such inquiry as the Board or such officer may think to be necessary. Sub-section (3) of section 13 of the Mathadi Act provides that no order determining the sum due from any employer shall be made under sub-section (1), unless the employer is given a reasonable opportunity of representing his case. The Act therefore makes the employer liable for the dues under the Mathadi Act or the scheme. 14. As indicated earlier, the question that we are tasked to decide is, whether upon determination of the moneys due from the employer under Section 13 of the Mathadi Act, will it ipso facto make the Managing Director and the Directors of the Company personally liable to pay the dues of the Company. There is no provision under the Mathadi Act which makes Managing Director or the Directors personally liable to pay the dues which the Board is empowered to recover from the employer. It is not that under no circumstances the dues can be recovered from the Managing Director or the Directors, but the same has to be in consonance with the provisions of the Act. 15. Before we proceed to examine whether the Managing Director and Directors can be made personally liable for the dues of the said Company even before fixing the liability on them, we find it apposite to refer to some of the relevant decisions relied upon by the learned counsel for the parties. 16. In Suresh Tulsidas Kilachand &Ors. vs. Collector of Bombay &Ors. (Supra) relied upon by learned Counsel for the Petitioners, the Division Bench of this Court has laid down that no individual Director merely by being a Director can be said to be exercising ultimate control over the affairs of the Company and the same has to be established as a fact by evidence. This decision has been cited with approval by the Supreme Court in Employees State Insurance Corporation vs. S.K. Aggarwal &Ors. (supra). 17. In Employees State Insurance Corporation vs. S.K. Aggarwal &Ors. (supra) relied upon by the learned Counsel for the Petitioners, the Supreme Court has observed that Employees State Insurance Act does not define the term Employer. Even definition of Principal Employer under Employees State Insurance Act would not include Directors of Company when the Company owns the factory and is employer of its employees. The Supreme Court held that the term Employer in Explanation 2 of section 405 of the Indian Penal Code must be understood in ordinary parlance and the Company as employer and not its Directors either singly or collectively. In paragraph no. 7 the Supreme Court held that- 7. Under Section 40 the words owner and occupier have been used disjunctively. The Court also referred to Section 100 of the Factories Act and said that even under the Factories Act, 1948, the Legislature has clearly contemplated that in the case of a factory, a company can be the occupier. Therefore, when the owner of a factory is a company it is the company which is the principal employer and not its director. The Bombay High Court overruled the judgment of the single Judge of the Bombay High Court in so deciding. 18. In P.C. Agarwal vs. Payment of Wages Inspect, MP &Ors. (supra) the Supreme Court while dealing with the Factories Act has held as under: 18. It is trite law that liability of a person is dependent upon the statutory prescriptions governing such liability. Sections 5 and 291 of the Companies Act, 1956 (in short Companies Act) are to be noted in this regard. Section 5 refers to officer who is in default. Section 291 on the other hand relates to general powers of the Board of Directors. In order to attract the liability under the Act, it has to be seen as to on whom the Act fixes the liability. Section 3 speaks of the responsibility for payment of wages. It speaks of the employer which expression is defined in Section 2(ia). Section 15 refers to the claims arising out of deductions from wages or delaying payment of wages and penalty for malicious or vexatious claims. Statutorily no liability has been fixed on the Directors. 19. Under Section 3 of the Act as amended by the M.P. Amendment, the liability is cast on a person who has been named as Manager of the Factory and the employer jointly. Therefore, in order to find out whether the Director had a responsibility for making payment, two different things have to be established: (i) he was the employer or (ii) he was a person who has been named as Manager of the factory. In the instant case, there is no such allegation or evidence led. 19. In Raghunath Bareja &Anr. vs. Punjab National Bank &Ors., (supra) relied upon by learned Counsel for the Petitioners the Supreme Court in paragraph no. 30 held that it is well settled that when there is a conflict between law and equity, it is the law which has to prevail, in accordance with the Latin maxim dura lex sed lex, which means the law is hard, but it is the law. Equity can only supplement the law, but it cannot supplant or override it. 20. In Vimalkumar Ravji Shah vs. Employees Provident Fund Organisation, Solapur &Ors. (supra), relied upon by learned Counsel for the Petitioners, the Single Judge Bench of this Court relied upon the case of Employees State Insurance Corporation vs. S.K. Aggarwal &Ors. (supra) which held that in case where the owner of the factory is a company, it is the company which is the principal employer and not a Director. Learned Single Judge rejected the contention that even the occupier would also be liable personally to pay the arrears of Provident Fund contribution. Learned Single Judge held that personal property of a Managing Director cannot be attached and confiscated towards the arrears of Provident Fund contributions which is payable by owner of the establishment. 21. In case of R.B. Shah vs. V.R. Savarkar &Ors. (Supra) relied upon the by learned Amicus Curiae, it was an admitted position that the Company therein was a factory and that the Applicant therein was Manager of that factory. The Court referred to section 3 of the Payment of Wages Act which casts upon the employer responsibility for payment of wages. The Court noted that the employer is defined in that Section and in case of factory the employer is the person named as Manager of the factory. In the present case the Company is not running a factory and we are not dealing with the Payment of Wages Act, which specifically provided that the employer who is named as Manager and who was responsible for the payment of wages casts responsibility upon the employer and it was held that Manager and not the Company is made responsible for the payment of wages under the Payment of Wages Act. 22. In State of U.P. &Ors. vs. Renusagar Power Co. &Ors. (supra) relied upon by the Learned Amicus Curiae the issue was lifting or piercing the corporate veil in respect of company and its subsidiaries. In the present case there is no question of lifting corporate veil as there is no allegation of fraud or malfeasance in the first case. 23. In J.K. Industries Ltd. &Ors. vs. Chief Inspector of Factories and Boilers &Ors. (Supra) relied upon by the Learned Amicus Curiae, the Supreme Court was dealing with the Factories Act, 1948 under which an occupier is required to be nominated by the Director of the Company in his capacity as the occupier of the factory. The question was whether in case of Company which owns or runs the factory, is it only a Director of the Company who can be notified as the occupier of the factory within the meaning of proviso (ii) to section 2(n) of the Act or whether the Company can nominate any other employee to be the occupier by passing a resolution to the effect that the said employee shall have ultimate control over the affairs of the factory. The Supreme Court in the said case was thus dealing with the case of the Factories Act under which the occupier as defined under section 2(n) means a person who has ultimate control over the affairs of the factory and in case of company any one of the Director shall be deemed to be occupier. In the present case, we are not dealing with the factory. The Company does not run a factory and therefore the said case is distinguishable on facts. 24. The observations in paragraph no. 83 of Bhuwalka Steel Industries Limited vs. Bombay Iron and Steel Labour Board &Anr. (Supra) and the observations paragraph no. 19 of Pepsico India Holding Private Limited vs. Grocery Market & Shops Board &Ors. (Supra) relied upon by learned Amicus Curiae does not assist the case of the Respondents. Merely because the Mathadi Act is a beneficial piece of legislation would not mean that the Petitioners can be proceeded against in their individual capacity and against their individual properties. 25. It is well settled that a Company is a separate legal entity than that of its Directors as held in the case of Salomon vs. Salomon & Company (1897 AC 22 : (1895-99) All ER Rep. 33 (HL). In P.C. Agarwala vs. Payment of Wages Inspector, M.P. &Ors. (2005) 8 SCC 104 it was held by the Supreme Court in paragraph no. 18 that it is trite law that the liability of the person is dependent upon the statutory prescriptions governing such liability. It is further observed that in order to attract the liability under the Act, is has to be seen as to whom the Act fixes the liability. 26. It is required to be noted that in the present case there is no liability fixed upon any Director or Directors under the Mathadi Act to be liable for the dues of the registered employer which is admitted to be the Company. 27. In the final order dated 06th November, 1999 issued under section 13 of the Mathadi Act it is stated that the Company is a registered employer. However, there is nothing on record to show that prior to the passing of the final order dated 06th November, 1999 notices have been served upon the Petitioners calling upon them to show cause why they should not be made personally liable for the payment of dues of the said Company. Similarly in the said final order dated 06th November, 1999 there is no finding that the Petitioners as Directors of the Company would be personally liable in the event of non-recovery of the dues from the Company. There is no finding in the impugned order as to which of the Directors were in-charge of the day-to-day affairs of the Company. 28. In the circumstances, before proceeding against the Petitioners who are the Directors and casting any liability on them personally, it is incumbent upon the Respondent No. 3-Board and the Respondent No. 2-Collector to issue notice to the Petitioners that the dues of the Company would be recovered from them personally and their personal properties were liable to be proceeded in case of failure to pay the outstanding dues of the Company. In absence of such notice the Respondents could not have proceeded against the Petitioners in their individual capacity as Directors for the default of the Company. 29. The Rules and principles of natural justice would require that the Petitioners ought to have been noticed before proceeding against them. Thus, there is a clear violation of the principles of natural justice and thus on this ground alone the Writ Petition must succeed. 30. The Recovery Certificate dated 30th December, 1999 was issued by the Respondent No. 3-Board and forwarded to the Collector. In the subject caption it is specifically mentioned- Recovery of arrears for payment to registered workers of Rs. 9,30,150.00 from M/s. Suvidha Warehousing Co. P. Limited, Mulund, Mumbai. 31. In the said Recovery Certificate addressed to the Collector, the Secretary and Recovery Officer of Respondent No. 3-Board has requested the Collector to recover the amount as arrears of the land revenue and also enclosed the details under section 17(1) and 17(2) of the Maharashtra Land Revenue Rules, 1967. In the Form in Clause E, it is mentioned that the amount is to be recovered from the Company. It does not mention that the amount has to be recovered from the Petitioners who are the Directors. 32. Neither in the Company Act nor in the Mathadi Act any provision has been made to make the Director of the Company personally liable for the recovery of dues of the Company. Without putting the Petitioners to notice that the liability is being fixed upon them in their individual capacity, they cannot be proceeded against. 33. In the present case there is no averment or assertion by the Board in the pleadings that the Petitioners have played fraud or are guilty of malfeasance or misfeasance.

Decision reasoning: 1[ds]Having heard the learned Counsel for the Petitioners and having perused the materials on record, we are of the view that the Petitioners cannot be made personally liable to pay the dues of the workers for the following reasons.7. It is an admitted position that the Company was registered employer with the Respondent No. 3-Board and is liable to pay the dues of the workers under the Mathadi Act.There is no provision under the Mathadi Act which makes Managing Director or the Directors personally liable to pay the dues which the Board is empowered to recover from the employer. It is not that under no circumstances the dues can be recovered from the Managing Director or the Directors, but the same has to be in consonance with the provisions of the Act.16. In Suresh Tulsidas Kilachand &Ors. vs. Collector of Bombay &Ors. (Supra) relied upon by learned Counsel for the Petitioners, the Division Bench of this Court has laid down that no individual Director merely by being a Director can be said to be exercising ultimate control over the affairs of the Company and the same has to be established as a fact by evidence. This decision has been cited with approval by the Supreme Court in Employees State Insurance Corporation vs. S.K. Aggarwal &Ors. (supra).17. In Employees State Insurance Corporation vs. S.K. Aggarwal &Ors. (supra) relied upon by the learned Counsel for the Petitioners, the Supreme Court has observed that Employees State Insurance Act does not define the term Employer. Even definition of Principal Employer under Employees State Insurance Act would not include Directors of Company when the Company owns the factory and is employer of its employees. The Supreme Court held that the term Employer in Explanation 2 of section 405 of the Indian Penal Code must be understood in ordinary parlance and the Company as employer and not its Directors either singly or collectively. In paragraph no. 7 the Supreme Court held that-7. Under Section 40 the words owner and occupier have been used disjunctively. The Court also referred to Section 100 of the Factories Act and said that even under the Factories Act, 1948, the Legislature has clearly contemplated that in the case of a factory, a company can be the occupier. Therefore, when the owner of a factory is a company it is the company which is the principal employer and not its director. The Bombay High Court overruled the judgment of the single Judge of the Bombay High Court in so deciding.18. In P.C. Agarwal vs. Payment of Wages Inspect, MP &Ors. (supra) the Supreme Court while dealing with the Factories Act has held as under:18. It is trite law that liability of a person is dependent upon the statutory prescriptions governing such liability. Sections 5 and 291 of the Companies Act, 1956 (in short Companies Act) are to be noted in this regard. Section 5 refers to officer who is in default. Section 291 on the other hand relates to general powers of the Board of Directors. In order to attract the liability under the Act, it has to be seen as to on whom the Act fixes the liability. Section 3 speaks of the responsibility for payment of wages. It speaks of the employer which expression is defined in Section 2(ia). Section 15 refers to the claims arising out of deductions from wages or delaying payment of wages and penalty for malicious or vexatious claims. Statutorily no liability has been fixed on the Directors.21. In case of R.B. Shah vs. V.R. Savarkar &Ors. (Supra) relied upon the by learned Amicus Curiae, it was an admitted position that the Company therein was a factory and that the Applicant therein was Manager of that factory. The Court referred to section 3 of the Payment of Wages Act which casts upon the employer responsibility for payment of wages. The Court noted that the employer is defined in that Section and in case of factory the employer is the person named as Manager of the factory. In the present case the Company is not running a factory and we are not dealing with the Payment of Wages Act, which specifically provided that the employer who is named as Manager and who was responsible for the payment of wages casts responsibility upon the employer and it was held that Manager and not the Company is made responsible for the payment of wages under the Payment of Wages Act.22. In State of U.P. &Ors. vs. Renusagar Power Co. &Ors. (supra) relied upon by the Learned Amicus Curiae the issue was lifting or piercing the corporate veil in respect of company and its subsidiaries. In the present case there is no question of lifting corporate veil as there is no allegation of fraud or malfeasance in the first case.23. In J.K. Industries Ltd. &Ors. vs. Chief Inspector of Factories and Boilers &Ors. (Supra) relied upon by the Learned Amicus Curiae, the Supreme Court was dealing with the Factories Act, 1948 under which an occupier is required to be nominated by the Director of the Company in his capacity as the occupier of the factory. The question was whether in case of Company which owns or runs the factory, is it only a Director of the Company who can be notified as the occupier of the factory within the meaning of proviso (ii) to section 2(n) of the Act or whether the Company can nominate any other employee to be the occupier by passing a resolution to the effect that the said employee shall have ultimate control over the affairs of the factory. The Supreme Court in the said case was thus dealing with the case of the Factories Act under which the occupier as defined under section 2(n) means a person who has ultimate control over the affairs of the factory and in case of company any one of the Director shall be deemed to be occupier. In the present case, we are not dealing with the factory. The Company does not run a factory and therefore the said case is distinguishable on facts.24. The observations in paragraph no. 83 of Bhuwalka Steel Industries Limited vs. Bombay Iron and Steel Labour Board &Anr. (Supra) and the observations paragraph no. 19 of Pepsico India Holding Private Limited vs. Grocery Market & Shops Board &Ors. (Supra) relied upon by learned Amicus Curiae does not assist the case of the Respondents. Merely because the Mathadi Act is a beneficial piece of legislation would not mean that the Petitioners can be proceeded against in their individual capacity and against their individual properties.25. It is well settled that a Company is a separate legal entity than that of its Directors as held in the case of Salomon vs. Salomon & Company (1897 AC 22 : (1895-99) All ER Rep. 33 (HL). In P.C. Agarwala vs. Payment of Wages Inspector, M.P. &Ors. (2005) 8 SCC 104  it was held by the Supreme Court in paragraph no. 18 that it is trite law that the liability of the person is dependent upon the statutory prescriptions governing such liability. It is further observed that in order to attract the liability under the Act, is has to be seen as to whom the Act fixes the liability.26. It is required to be noted that in the present case there is no liability fixed upon any Director or Directors under the Mathadi Act to be liable for the dues of the registered employer which is admitted to be the Company.27. In the final order dated 06th November, 1999 issued under section 13 of the Mathadi Act it is stated that the Company is a registered employer. However, there is nothing on record to show that prior to the passing of the final order dated 06th November, 1999 notices have been served upon the Petitioners calling upon them to show cause why they should not be made personally liable for the payment of dues of the said Company. Similarly in the said final order dated 06th November, 1999 there is no finding that the Petitioners as Directors of the Company would be personally liable in the event of non-recovery of the dues from the Company. There is no finding in the impugned order as to which of the Directors were in-charge of the day-to-day affairs of the Company.28. In the circumstances, before proceeding against the Petitioners who are the Directors and casting any liability on them personally, it is incumbent upon the Respondent No. 3-Board and the Respondent No. 2-Collector to issue notice to the Petitioners that the dues of the Company would be recovered from them personally and their personal properties were liable to be proceeded in case of failure to pay the outstanding dues of the Company. In absence of such notice the Respondents could not have proceeded against the Petitioners in their individual capacity as Directors for the default of the Company.29. The Rules and principles of natural justice would require that the Petitioners ought to have been noticed before proceeding against them. Thus, there is a clear violation of the principles of natural justice and thus on this ground alone the Writ Petition must succeed.31. In the said Recovery Certificate addressed to the Collector, the Secretary and Recovery Officer of Respondent No. 3-Board has requested the Collector to recover the amount as arrears of the land revenue and also enclosed the details under section 17(1) and 17(2) of the Maharashtra Land Revenue Rules, 1967. In the Form in Clause E, it is mentioned that the amount is to be recovered from the Company. It does not mention that the amount has to be recovered from the Petitioners who are the Directors.32. Neither in the Company Act nor in the Mathadi Act any provision has been made to make the Director of the Company personally liable for the recovery of dues of the Company. Without putting the Petitioners to notice that the liability is being fixed upon them in their individual capacity, they cannot be proceeded against.33. In the present case there is no averment or assertion by the Board in the pleadings that the Petitioners have played fraud or are guilty of malfeasance or misfeasance.