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

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 (1 = appeal accepted, 0 = rejected): 1

Explanation:
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.