Case: State of U.P. &amp; Another Vs. Uptron Emp. Union CMD.I &amp; Others

2. A few facts which are relevant may be noticed at the threshold. M/s. UPTRON is a company incorporated under the companies Act, 1956 and is a subsidiary of U.P. Electronics Corporation, a company wholly owned and controlled by the State of Uttar Pradesh. UPTRON became a sick industry since its net worth became negative and, therefore, a Reference was made under Section 15 of The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "SICA"). The Reference was made on 22.1.1994 and M/s. UPTRON was declared a sick industry on 19.8.1994. The Industrial Finance Corporation of India (IFCI) was appointed the Operating Agency. It appears from the record that advertisements were issued in normal course inviting proposals for take over and/or revival of the sick unit. From the order of the BIFR dated 27.8.1997 it appears that advertisement was issued pursuant to its order dated 29.1.1997 but no viable acceptable offer was received. The Company had proposed a one time settlement whereby it offered to pay off 100% of the principal amount and only 25% of the interest due. However, for whatever reasons this proposal made no progress in the absence of a confirmation by the State Government. M/s. UPTRON India Ltd. stated that it had made a fresh proposal which had been submitted to the Government and that the Government was likely to consider it on 1.9.1997. In these circumstances, the BIFR considered the matter and passed certain directions by its order of 27.8.1997. It directed the Operating Agency to make an indepth study of the proposal submitted by M/s. UPTRON to the State Govt. of Uttar Pradesh and to make its suggestions. It was directed to submit its report within 10 weeks after holding a joint meeting with the concerned parties. It also directed the Managing Director of M/s. UPTRON to discuss the matter further with the concerned banks with a view to obtain their consent as to the minimum acceptable quantum of one time settlement and quantum of sacrifices in terms of waiver of interest. M/s. UPTRON was also directed to have discussions with the Chief Secretary of the Govt. of Uttar Pradesh in regard to the quantum of funds proposed to be inducted by the Govt. of Uttar Pradesh for revival/rehabilitation of M/s. UPTRON. The last direction made by the BIFR was in the nature of a direction to the Govt. of Uttar Pradesh to make arrangements for payment of salaries/wages of the workers till the proposed package of revival/rehabilitation of M/s. UPTRON was finalised by the BIFR. This last direction for payment of salaries/wages to the workers of M/s. UPTRON was challenged by the U.P. Electronics Corporation before the Appellate authority under SICA which was dismissed. Thereafter, the State of Uttar Pradesh filed a writ petition before the High Court of Delhi which was dismissed by order dated 9.9.1998. As noticed earlier, C.A. Nos.have been preferred against the aforesaid order the High Court of Delhi.3. From the order of the BIFR dated 28.8.1998 it would appear that there was a proposal submitted by the State of U.P. for the revival of M/s. UPTRON. The Operating Agency was directed to examine the proposal and hold a joint meeting and submit its report by 17.7.1998. It also appears that the Operating Agency prepared a background note to be considered in the joint meeting wherein it was estimated that a sum of Rs. 171.04 crores was required for the revival of the sick industrial unit. The fund was to be provided by the Govt. of Uttar Pradesh. The joint meeting considered the proposals of the Govt. of Uttar Pradesh in the light of the background note prepared by the Operation Agency and though no final decision was taken, the financial institutions and the banks took time to consider the matter particularly by reference to the working capital loans after receiving the concrete proposal from M/s. UPTRON. Ultimately, the State Bank of India on behalf of the consortium of banks did not respond and it appears that no further development took place. The Operating Agency also found the proposal received from the State Government to be sketchy and not providing any details relating to the assumptions underlying the projections.4. It appears from the said order that the special Secretary of the Govt. of Uttar Pradesh submitted before the BIFR that the revival package for the company has been discussed with the Chief Secretary and thereafter the Chief Minister. Although the same had been approved in principle by the Chief Minister, the matter had been sent to the Prime Ministers office who sought commitment from the State Government about its contribution. Some time was prayed for to enable the Government to take a decision in the matter and to convey its views. The order of the BIFR also notes the fact that the State Government had given a sum of Rs. 6.98 crores in addition to Rs. 2 crores for payment of salaries by way of loan carrying interest 22% per annum. The workers had received their wages for the period November, 1997 to May, 1998 but no payment had been made for the period subsequent thereto. The order of the BIFR thereafter directed the State Government to make on account payment to the workers towards their wages after May, 1998. This order of the BIFR is challenged before us in C.A. No. 6176/1999.5. In the same order the BIFR noted that the case had been before the Board since August, 1994 and no rehabilitation scheme could be finalised primarily on account of the State Government not being able to take a decision regarding infusion of funds for rehabilitation of the company. It, therefore, directed the Government of Uttar Pradesh to convey their decision positively within eight weeks to the Operating Agency and the BIFR whether it could induct Rs. 171.04 crores as envisaged in the scheme submitted by the Government of Uttar Pradesh for the revival of M/s. UPTRON. The Board also indicated that in case the State Government was not agreeable to provide the amount as aforesaid, the Bench may pass further appropriate orders which may include issue of show cause notice for winding up of the company without holding any further hearing. If the Govt. of Uttar Pradesh was willing to provide the necessary funds the directions would be made accordingly. Some other directions were made which we do not consider necessary to notice at this stage.6. While the position stood thus, the M/s. UPTRON Employees Unionrespondent No. 1 herein and two other associations of the workers and officers of M/s. UPTRON filed a writ petition before the High Court of Judicature at Allahabad, Lucknow Bench, Lucknow wherein it was stated that the Cabinet of Uttar Pradesh had taken a decision of closure of M/s. UPTRON on 1.12.1998 as appeared from the press reports. The press report showed that M/s. UPTRON had incurred a loss to the tune of Rs. 330 crores which was not the correct figure. Having regard to the fact that financial institutions were willing to waive a part of the liability, the loss if any was only Rs. 93 crores. Reliance was placed on a photocopy of news item published on 2.12.1998 in the Hindustan Times a local daily. In the writ petition it was prayed that a writ of mandamus be issued restraining the Govt. of U.P. from implementing the Cabinet decision of December 1, 1998. It was also prayed that a writ of mandamus be issued restraining the opposite parties from closing the Company without waiting for the decision of BIFR. It was also prayed that a suitable direction be issued to the opposite party to honour the order of BIFR dated 27.8.1997 for payment of salary to the employees of M/s. Uptron. It is not necessary to notice the other prayers in the writ petition. In this writ petition an interim order was passed by the High Court on 23.12.1998. From a perusal of the order of the High Court it appears that the Additional Advocate General for the State objected to the maintainability of the writ petition inasmuch as the matter was pending before the BIFR. He also informed the Court that the State Government had not passed any order regarding closure of M/s Uptron. This was controverted by the writ petitioners who asserted that such a decision had been taken by the Cabinet and in fact the Principal Secretary (Electronics) of the State of U.P. had passed an order on 9.12.1998 for the rehabilitation of the workers. The High Court noticed the submission urged on behalf of the State Government that it had not yet taken a final decision to close M/s. Uptron and the matter was being considered by the BIFR, and the State Government had been asked to indicate as to whether it was in a financial position to revive the unit. The High Court passed an interim order in view of the aforesaid circumstances directing the State Government to pay salary to the workers pursuant to the order passed by the BIFR till the State Government took a final decision in that regard. C.A. No./1999 have been preferred against the said interim order of the High Court of Judicature at Allahabad, Lucknow Bench, Lucknow.

Reasoning: It would, thus, appear that the order passed in the matter of Rohtas Industries (supra) was passed in the peculiar facts of the case and no principle had been laid down that in such a case it is the duty or obligation of the State Government or the Central Government to provide funds for payment of dues of workers. Reliance was also placed on the decision of this Court in the case of Kapila Hingorani vs. State of Bihar (2003) 6 SCC 1.  The order passed therein was passed in the peculiar facts and circumstances, where a large number of employees employed in a large number of government corporations and undertakings were not paid their dues for years together. Invoking the principles enshrined in Articles 21 and 23 of the Constitution, this Court directed the State of Bihar to deposit a sum of Rs. 50 crores before the High Court for disbursement of the salaries to the employees of the corporations. It also vested a discretion in the High Court to direct disbursement of some funds to the needy employees on adhoc basis so as to enable them to sustain themselves for the time being. There was also a clear direction that the rights of the workmen shall be considered in terms of Section 529A of the Companies Act. There are observations in the judgment of this Court to the effect that the Government companies / public sector undertakings being "State" would be constitutionally liable to respect life and liberty of all persons in terms of Article 21 of the Constitution. They, therefore, must do so in cases of their own employees. The Government of the State of Bihar for all intent and purport is the sole shareholder. Although in law, its liability towards the debtors of the company may be confined to the shares held by it, but having regard to the deep and pervasive control it exercises over the government companies in the matter of enforcement of human rights and/or rights of the citizen to life and liberty, the State has also an additional duty to see that the rights of the employees of such corporations are not infringed. Having said so, the Court in para 74 of the judgment said,"74. We, however, hasten to add that we do not intend to lay down a law, as at present advised, that the State is directly or vicariously liable to pay salaries / remunerations of the employees of the public sector undertakings or the government companies in all situation. We, as explained hereinbefore, only say that the State cannot escape its liability when a human rights problem of such magnitude involving the starvation deaths and/ or suicide by the employees has taken place by reason ofof salary to the employees of public sector undertakings for such a long time."17. It would, thus, appear that this Court did not lay down any principle of law of universal application and passed appropriate orders only in the compelling circumstances noticed by it. We are, therefore, satisfied that in respect of a sick industrial company, even if it be a subsidiary of a Government company, there is no legal obligation cast upon the State Government to pay the wages due to the workmen. The rights of workmen are governed by the relevant provisions of the Companies Act where their claim has been accorded priority.