Case: Kirloskar Pneumatic Company Limited Vs. V.A. More & Others

M.L. PENDSE, J.The short question which falls for determination in this petition filed under Article 226 of the Constitution of India is whether only a Director of the Company can be nominated as an `occupier contemplated under section 2(n) of the Factories Act, 1948. Only few facts are required to be stated to appreciate the controversy raised in the petition.2.The petitioner is a Public Limited Company incorporated under provisions of the Companies Act, and the Company runs a factory at Hadapsar in Pune District. The factory is duly licenced under provisions of the Factories Act, 1948. Section 2(n) of the Factories Act prior to its amendment on December 1, 1987 read 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 be the occupier of the factory."Section 100 of the Factories Act prior to its amendment read as follows :"100(1) Where the occupier of a factory is a firm or other association of individuals, any one of the individual partners or members thereof may be prosecuted and punished under this Chapter for any offence for which the occupier of the factory is punishable :Provided that the firm or association may give notice to the Inspector that it has nominated one of its members, residing within India to be the occupier of the factory for the purposes of this Chapter, and such individual shall, so long as he is so resident, be deemed to be the occupier of the factory for the purposes of this Chapter, until further notice cancelling his nomination is received by the Inspector or until he ceases to be a partner or member of the firm or association.(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 notice to the Inspector that it has nominated a director, who is resident within India to be the occupier of the factory for the purposes of this Chapter, and such director shall, so long as he is so resident, be deemed to be the occupier of the factory for the purposes of this Chapter, until further notice cancelling his nomination is received by the Inspector or until he ceases to be a director :Provided further that in the case of a factory belonging to the Central Government or any State Government or any local authority the person of persons appointed to manage the affairs of the factory shall be deemed to be the occupier of that factory for the purposes of this Chapter.(3) Where the owner of any premises or building referred to in section 93 is not an individual, the provisions of this section shall apply to such owner as they apply to occupiers of factories who are not individuals."Chapter X of the Factories Act deals with the subject of `Penalties and Procedure, and section 92, inter alia, provides that in respect of any factory if there is any contravention of any of the provisions of the Act or of any Rules made thereunder or of any order in writing given thereunder, then it is the occupier and the manager of the factory, who shall each be guilty of an offence and punishable with imprisonment.3.By Resolution dated February 23, 1974 the Board of Directors of the petitioner Company appointed K.K. Khanna, Vice President (Technical & Commercial) as the `occupier of the Hadapsar factory. Khanna thereupon filed requisite Form No. 3 prescribed under the Rules framed under the Factories Act before the Inspector of Factories, Poona. The Inspector of Factories accepted the nomination of Shri Khanna as the `occupier. By Act No. XX of 1987 some of the provisions of the Factories Act were amended. The expression `occupier defined under section 2(n) after amendment reads as follows :"occupier of a factory means the person who has ultimate control over the affairs of the factory;Provided that -(i) in the case of a firm or other association of individuals, any one of the individual partners or members thereof shall be deemed to be the occupier;(ii) in the case of a company, any one of the directors shall be deemed to be the occupier."By the amending Act section 100 of the Factories Act was deleted.The Company by Resolution dated August 20, 1988 renominated Shri K.K. Khanna as the occupier of the Hadapsar and Saswad factories and entrusted Khanna with the ultimate control over the affairs of the factories at Hadapsar and Saswad. In accordance with the resolution, application for renewal of licence along with Form No. 3 was lodged before the Inspector of Factories. Form No. 3, inter alia, sets out that Shri K.K. Khanna is the occupier. By letter dated November 4, 1988, a copy of which is annexed as Exhibit `D to the petition, Inspector of Factories, Poona intimated to the Company that Form No. 3 for the year 1989 is accepted as it is not signed by director. The Company was called upon to send fresh form only signed by the director. The claim of the Inspector of Factories was that only director can be an occupier after the amendment of the provisions of the Factories Act. The denial of the Inspector to registrar Shri Khanna as the occupier has given rise to filing of the present petition.4.Shri Rele, learned Counsel appearing on behalf of the petitioners, submitted that the view taken by the Inspector of Factories that only a director can be an occupier is clearly erroneous. It was contended that the amendment of provisions of the Factories Act did not make any departure from the position which was existing prior to the date of the amendment. Shri Rele submitted that prior to the amendment it was settled law that the occupier need not necessarily be a director of the company. The learned Counsel further submitted that Division Bench of this Court held that the amendment merely creates a legal fiction whereby any one of the director of the company is deemed as an occupier, but the legal fiction can come into play only in cases where the company has not nominated an occupier and such nominated person need not necessarily be a director and it is suffice if such person has the ultimate control over the affairs of the factory. Miss Ankalesaria, learned Government Pleader, on the other hand urged that though prior to the amendment it is true that the occupier need not necessarily be a director of the company, after the enactment of Act No. XX of 1987 the Legislature desired that only a director can be nominated as an occupier. The learned Government Pleader urged that taking into consideration the serious repercussions which affects the workmen as well as the persons in the vicinity of the factory because of the failure of the person in-charge of the factory to carry out the provisions of the Act and the Rules, the Parliament felt it wise to make the directors liable for the violation of provisions and for prosecution and punishment as contemplated under section 92 of the Factories Act. In view of the rival submissions the question which falls for determination is whether the settled position of law that an occupier need not necessarily be a director of the company stands altered after the amendment carried out in the year 1987.5.The question as to whether only director can be an occupier as contemplated under section 2(n) and section 100 of the Factories Act came up for consideration before the Supreme Court in the decision reported in A.I.R. S.C. 1351, (John Donald Mackenzie and another v. The Chief Inspector of Factories, Bihar, Ranchi and others). The Chief Inspector of Factories, Ranchi called upon Bata Shoe Companys factory at Digha to renew the factorys licence and referred to Rule 7 of the Bihar Factories Rules, 1950. The Company made an application for renewal of the licence and the application was signed by John Donald Mackenzie. The application was returned by the Chief Inspector claiming that Mackenzie appears to be only a Manager and the application is required to be signed by the occupier. The Chief Inspector referred to the provisions of section 100 of the Factories Act, and inquired whether Mackenzie was one of the directors of the company. The Chief Inspector felt that if Mackenzie was not a director, then a fresh application signed by the director is required to be submitted. The Company thereupon moved the High Court at Patna for quashing the direction, but the petition was unsuccessful and that gave rise to an appeal before the Supreme Court. The Supreme Court after setting out the definition of `occupier under section 2(n) of the Factories Act, observed :"Undoubtedly the expression `occupier is not to be equated with `owner. But is must be borne in mind that the ultimate control over the factory must necessarily be with an owner unless the owner has completely transferred that control to another person. Whether that was done in the present case would be a question of fact. It was for the petitioners who contended that petitioner No. 1 was the manager of the factory and had the ultimate control thereof, to lay before the Chief Inspector of Factories the necessary material for showing that the company had in some manner transferred the entire control over the factory to petitioner No. 1."The decision of the Supreme Court clearly lays down that the occupier of the factory need not necessarily be a director but can only be a person who has the ultimate control over the affairs of the factory. The Inspector of Factories is required to determine whether whether the person, who has been nominated by the company has the ultimate control over the affairs of the factory.6.The learned Government Pleader did not dispute that in view of the decision of the Supreme Court and catena of other decisions prior to the amendment, it was not incumbent on the company to nominate only a director as occupier under section 2(n) of the Factories Act. It was claimed that the amendments were carried out in the Factories Act and these amendments were the result of the decision of the Supreme Court in the case reported in A.I.R. 1987 S.C. 982, (M.C. Mehta and another v. Union of India and others). In the Shriram Food, case the Supreme Court examined the issue as to what safety devices should be adopted by the factories for ensuring proper maintenance and enforcing liability in cases of death or injury on account of escape of chlorine gas. The Supreme Court observed that though the Chairman and the managing Directors of the company are not concerned with day to day functioning of the units, the Chairman and the Managing Director would be personally liable to pay compensation in case death or injury occurs on account of escape of gas from the factories. The Supreme Court observed that making the Chairman and Managing Director liable would ensure proper and adequate maintenance of safety devices and instruments and operation of the caustic chlorine plant in the manner which would considerably reduce, if not eliminate, risk or hazard to the workmen and the people living in the vicinity. The Government Pleader referred to the amended Chapter IV of the Factories Act to urge that the parliament has provided for constitution of Site Appraisal Committees, compulsory disclosure of information by the occupier, appointment of Inquiry Committees, emergency standards and right of workers to be warned about imminent danger. The Government Pleader claimed that all these responsibilities and liabilities created under the amended provisions of the Act cannot be left to a lowly paid employee or to some executive officer in the factory and the responsibility must be shouldered by the directors of the company, who exercise the ultimate control over the work of the company. The submission cannot be accepted to for more than one reason. In the first instance the plain reading of the amended provisions of section 2(n) of the Factories Act makes it clear that the Parliament never desired to wipe out the effect of the impact of decisions delivered prior to the amendment holding that the occupier need not necessarily be a director of the company. The amendment deleted the provisions of section 100 of the Factories Act, which inter alia, provided that where the occupier of the factory is a company, then any one of the directors thereof may be prosecuted and punished for any offence for which the occupier of the factory is punishable. The Legislature did not delete the entire provisions of section 2(n) but retained the portion which provided that occupier of a factory means the person who has ultimate control over the affairs of the factory. The Legislature then carved out exception by adding proviso to the substantive provisions of the definition. The proviso, inter alia, prescribes that in case of a company any one of the directors shall be deemed to be the occupier. The expression "shall be deemed to be the occupier" clearly indicates that the legal fiction is created and such legal fiction can come into play only in cases where the substantive provision is not attracted. In other words the legal fiction will make any one of the directors responsible as the occupier provided the Company has not nominated an occupier under section 2(n) of the Factories Act. Secondly, the contention of the learned Counsel that the decision of the Supreme Court in Shriram Foods case gave rise to the amendment is not borne out by the amending Act. Neither the preamble to the amending Act nor the Statement of Objects gives any clue to the claim that the amendment was carried out with an idea that all the directors of the company should be made responsible for prosecution under section 92 of the Factories Act. The contention of the Government Pleader that responsibilities which are foisted by the amending provisions are of extreme seriousness and such responsibilities can be carried out only by person in-charge of the company and, therefore, the directors can only be an occupier cannot be acceded to. The submission confuses the responsibility of a company and responsibility of a factory. The directors of the company are responsible for carrying out the management and business of the company, but the company may have several factories situated at various places. It is impossible to expect the directors to be in-charge of day to day management of every factory. The ultimate control over the affairs of the factory cannot be equated with the ultimate control over the affairs of the company. The directors of the company are required to take policy decisions as to the manner in which the business of the company is to be conducted, while the affairs of the factory relate to only the manner in which the factory is to be run. The prosecution contemplated against the occupier of the factory under section 92 of the Factories Act is in respect of breaches or violations of provisions of the Act or Rules under the Factories Act and in respect of breaches of those breaches it is only the person who has ultimate control over the affairs of the factory who would be responsible. It is impossible to accede to the submission that all the directors of the Company irrespective of the fact whether they have ultimate control over the affairs of the factory should be made responsible for prosecution under section 92 of the Act. In our judgment, the amended provisions of the Factories Act do not make any departure from the settled position prior to the amendment that the occupier need not necessarily be a director of the company. The only requirement is that the person to be nominated as occupier must have the ultimate control over the affairs of the factory and that aspect will have to be determined by Inspector of Factories with reference to the facts and circumstances of each case.7.The reliance by Shri Rele on the decision dated December 18, 1991 of Division Bench of this Court in Writ Petition No. 4061 of 1991 is appropriate. While examining the identical question the Division Bench observed :"We are concerned in the present case, with an applicant who is a Company. Sub-Clause (ii) is therefore, the relevant provision. The statute mandates a fiction to be created in a situation where a company is the applicant. One of the Directors, is deemed to be the occupier. Actually, it may be otherwise."The Division Bench thereupon held that it is futile to claim that only a director can be an occupier after amendment of provisions of the Factories Act. We are in respectful agreement with the view taken by the Division Bench. A reference was also made to the decision of Single Judge of Karnataka High Court in Writ Petitions Nos. 22903 to 22905 of 1989 delivered on June 15, 1990. The learned Single Judge held that the proviso to section 2(n) prescribing that in the case of a company any one of the directors shall be deemed to be the occupier comes into play only in cases where an occupier, who is a person with ultimate control of the affairs of the factory is not nominated by the company. We are in agreement with the view taken by the learned Single Judge.8.The Government Pleader placed strong reliance upon the decision of the Supreme Court reported in 1961 Labour Law Journal 146, (Chief Inspector of Mines and another v. Lala karam Chand Thapar and others). The Supreme Court was examining the liability of the directors under provisions of the Mines Act, 1952. The expression "occupier" was not defined under the Mines Act. In the case before the Supreme Court as a result of tragic accident in a colliery in Manbhum District in the State of Bihar, the directors of the company who were working as managing agents were prosecuted. One of the question which arose before the Supreme Court was about interpretation of words "any one of the directors" in section 76 of the Mines Act. It was claimed on behalf of the directors that the expression "any one" in the section cannot be equated with "every one" and all the directors cannot be prosecuted. The Supreme Court did observe that taking into consideration the background in which the legislature has used the words "any one of the directors" the said words are capable of meaning , all the directors. The reliance was placed on this decision by the Government Pleader to contend that even if proviso prescribes that in the case of a company any one of the directors shall be deemed to be the occupier, it should be held that all the directors are the occupiers and are liable to prosecution. It is not necessary to examine this aspect in the present case as the contingency to hold any one of the directors as occupier has not arisen. The only question which requires determination is whether any person other than the director of the company can be an occupier under section 2(n) of the Factories Act and to that question our answer is in the affirmative. In our judgment, the Inspector of Factories was clearly in error in claiming that after amendment of section 2(n) of the Factories Act no one except a director of the company can be an occupier. Any person who has the ultimate control over the affairs of the factory is entitled to be treated as an occupier and such person need not necessarily be a director. The Inspector of Factories was therefore not justified in addressing letter dated November 4, 1988 calling upon the company to send fresh Form No. 3. The Inspector of Factories therefore shall not insist that only a director can be an occupier under section 2(n) of the Factories Act and whenever a company files application in Form No. 3 then the Inspector will examine whether the person nominated is one who has the ultimate control over the affairs of the factory and if so found will register him as the occupier.

Decision reasoning: 1[ds]6.The learned Government Pleader did not dispute that in view of the decision of the Supreme Court and catena of other decisions prior to the amendment, it was not incumbent on the company to nominate only a director as occupier under section 2(n) of the Factories Act. It was claimed that the amendments were carried out in the Factories Act and these amendments were the result of the decision of the Supreme Court in the case reported in A.I.R. 1987 S.C. 982, (M.C. Mehta and another v. Union of India and others). In the Shriram Food, case the Supreme Court examined the issue as to what safety devices should be adopted by the factories for ensuring proper maintenance and enforcing liability in cases of death or injury on account of escape of chlorine gas. The Supreme Court observed that though the Chairman and the managing Directors of the company are not concerned with day to day functioning of the units, the Chairman and the Managing Director would be personally liable to pay compensation in case death or injury occurs on account of escape of gas from the factories. The Supreme Court observed that making the Chairman and Managing Director liable would ensure proper and adequate maintenance of safety devices and instruments and operation of the caustic chlorine plant in the manner which would considerably reduce, if not eliminate, risk or hazard to the workmen and the people living in the vicinity. The Government Pleader referred to the amended Chapter IV of the Factories Act to urge that the parliament has provided for constitution of Site Appraisal Committees, compulsory disclosure of information by the occupier, appointment of Inquiry Committees, emergency standards and right of workers to be warned about imminent danger. The Government Pleader claimed that all these responsibilities and liabilities created under the amended provisions of the Act cannot be left to a lowly paid employee or to some executive officer in the factory and the responsibility must be shouldered by the directors of the company, who exercise the ultimate control over the work of the company. The submission cannot be accepted to for more than one reason. In the first instance the plain reading of the amended provisions of section 2(n) of the Factories Act makes it clear that the Parliament never desired to wipe out the effect of the impact of decisions delivered prior to the amendment holding that the occupier need not necessarily be a director of the company. The amendment deleted the provisions of section 100 of the Factories Act, which inter alia, provided that where the occupier of the factory is a company, then any one of the directors thereof may be prosecuted and punished for any offence for which the occupier of the factory is punishable. The Legislature did not delete the entire provisions of section 2(n) but retained the portion which provided that occupier of a factory means the person who has ultimate control over the affairs of the factory. The Legislature then carved out exception by adding proviso to the substantive provisions of the definition. The proviso, inter alia, prescribes that in case of a company any one of the directors shall be deemed to be the occupier. The expression "shall be deemed to be the occupier" clearly indicates that the legal fiction is created and such legal fiction can come into play only in cases where the substantive provision is not attracted. In other words the legal fiction will make any one of the directors responsible as the occupier provided the Company has not nominated an occupier under section 2(n) of the Factories Act. Secondly, the contention of the learned Counsel that the decision of the Supreme Court in Shriram Foods case gave rise to the amendment is not borne out by the amending Act. Neither the preamble to the amending Act nor the Statement of Objects gives any clue to the claim that the amendment was carried out with an idea that all the directors of the company should be made responsible for prosecution under section 92 of the Factories Act. The contention of the Government Pleader that responsibilities which are foisted by the amending provisions are of extreme seriousness and such responsibilities can be carried out only by personof the company and, therefore, the directors can only be an occupier cannot be acceded to. The submission confuses the responsibility of a company and responsibility of a factory. The directors of the company are responsible for carrying out the management and business of the company, but the company may have several factories situated at various places. It is impossible to expect the directors to beof day to day management of every factory. The ultimate control over the affairs of the factory cannot be equated with the ultimate control over the affairs of the company. The directors of the company are required to take policy decisions as to the manner in which the business of the company is to be conducted, while the affairs of the factory relate to only the manner in which the factory is to be run. The prosecution contemplated against the occupier of the factory under section 92 of the Factories Act is in respect of breaches or violations of provisions of the Act or Rules under the Factories Act and in respect of breaches of those breaches it is only the person who has ultimate control over the affairs of the factory who would be responsible. It is impossible to accede to the submission that all the directors of the Company irrespective of the fact whether they have ultimate control over the affairs of the factory should be made responsible for prosecution under section 92 of the Act. In our judgment, the amended provisions of the Factories Act do not make any departure from the settled position prior to the amendment that the occupier need not necessarily be a director of the company. The only requirement is that the person to be nominated as occupier must have the ultimate control over the affairs of the factory and that aspect will have to be determined by Inspector of Factories with reference to the facts and circumstances of each case.7.The reliance by Shri Rele on the decision dated December 18, 1991 of Division Bench of this Court in Writ Petition No. 4061 of 1991 is appropriate. While examining the identical question the Division Bench observed :"We are concerned in the present case, with an applicant who is a Company.(ii) is therefore, the relevant provision. The statute mandates a fiction to be created in a situation where a company is the applicant. One of the Directors, is deemed to be the occupier. Actually, it may be otherwise."The Division Bench thereupon held that it is futile to claim that only a director can be an occupier after amendment of provisions of the Factories Act. We are in respectful agreement with the view taken by the Division Bench. A reference was also made to the decision of Single Judge of Karnataka High Court in Writ Petitions Nos. 22903 to 22905 of 1989 delivered on June 15, 1990. The learned Single Judge held that the proviso to section 2(n) prescribing that in the case of a company any one of the directors shall be deemed to be the occupier comes into play only in cases where an occupier, who is a person with ultimate control of the affairs of the factory is not nominated by the company. We are in agreement with the view taken by the learned Single Judge.8.The Government Pleader placed strong reliance upon the decision of the Supreme Court reported in 1961 Labour Law Journal 146, (Chief Inspector of Mines and another v. Lala karam Chand Thapar and others). The Supreme Court was examining the liability of the directors under provisions of the Mines Act, 1952. The expression "occupier" was not defined under the Mines Act. In the case before the Supreme Court as a result of tragic accident in a colliery in Manbhum District in the State of Bihar, the directors of the company who were working as managing agents were prosecuted. One of the question which arose before the Supreme Court was about interpretation of words "any one of the directors" in section 76 of the Mines Act. It was claimed on behalf of the directors that the expression "any one" in the section cannot be equated with "every one" and all the directors cannot be prosecuted. The Supreme Court did observe that taking into consideration the background in which the legislature has used the words "any one of the directors" the said words are capable of meaning , all the directors. The reliance was placed on this decision by the Government Pleader to contend that even if proviso prescribes that in the case of a company any one of the directors shall be deemed to be the occupier, it should be held that all the directors are the occupiers and are liable to prosecution. It is not necessary to examine this aspect in the present case as the contingency to hold any one of the directors as occupier has not arisen. The only question which requires determination is whether any person other than the director of the company can be an occupier under section 2(n) of the Factories Act and to that question our answer is in the affirmative. In our judgment, the Inspector of Factories was clearly in error in claiming that after amendment of section 2(n) of the Factories Act no one except a director of the company can be an occupier. Any person who has the ultimate control over the affairs of the factory is entitled to be treated as an occupier and such person need not necessarily be a director. The Inspector of Factories was therefore not justified in addressing letter dated November 4, 1988 calling upon the company to send fresh Form No. 3. The Inspector of Factories therefore shall not insist that only a director can be an occupier under section 2(n) of the Factories Act and whenever a company files application in Form No. 3 then the Inspector will examine whether the person nominated is one who has the ultimate control over the affairs of the factory and if so found will register him as the occupier.