State Industrial Dev.Corporation Ltd Vs. P.N.F.C.Karamchari Sangh & Anr
 Insc 173 (4
Kumar & R.V. Raveendran Arun Kumar, J.
Punjab National Fertiliser and Chemical Limited (hereinafter referred to as
'PNFC') is a Company limited by shares and is registered as a company under the
Companies Act, 1956. This company was promoted by the Punjab State Industrial
Development Corporation Limited (hereinafter referred to as 'PSIDC') and the
PSIDC held 46.13% shares in it. On recommendation of the BIFR (Board for
Industrial & Financial Reconstruction) under the Sick Industrial Companies
(Special Provisions) Act, 1985, the winding up order was passed qua the PNFC on
27th July, 2001.
view of its financial difficulties the PNFC stopped paying the wages to its
workers from September, 1999. The workers were therefore agitating for payment
of their wages. It appears that they approached the Chief Minister of the State
of Punjab in this behalf. On a proposal put
forth by the concerned department, the Chief Minister on 25th August, 2001 made the following note :
is not a question of legality or statutory obligation. It is an issue involving
of a large number of employees who has going without salary. Even legally they
are entitled for their pay and emoluments till the actual date of winding up.
that there is resource constraint within the PSIDC, the offer of Finance
Department to permit PSIDC to raise resources by market borrowing with State
guarantee should be pursued.
may be done in a time bound manner so that disbursement of 6 months salary as
requested by the Food & Supplies Minister, is not delayed. After the
disbursement the matter be reported." The workers' association, that is
respondent No.1 filed an application before the Company Judge in the High Court
of Punjab and Haryana under Rule 9 of the Companies (Court) Rules, 1959 seeking
a direction to PNFC (represented by Official Liquidator) and PSIDC to pay six
months salaries to the employees.
their application, the workers sought relief mainly on the basis of the said
note of the Chief Minister terming it as an order of the Chief Minister. On the
said application of the workers, the learned Company Judge passed an order on 16th May, 2002 directing PSIDC to release funds in
terms of the order of Chief Minister dated 25th August, 2001 to the Official Liquidator within a
period who was directed to disburse it to the workmen after examining the claim
of each workman.
PSIDC applied for review of the said order of the Company Judge on the ground
that it was not in a sound financial position to make the payment. Secondly,
the PSIDC denied its liability to pay on the ground that the workers who were
to be paid were not the workers of the PSIDC. Lastly, it was represented that
the interest of the workers was protected because the workers dues were the
first charge on the sale proceeds of assets of the Company in view of Section
529 A of the Companies Act. The review application was dismissed vide order
dated 7th June, 2002. Thereafter, the appellant filed an
appeal against the order of the Company Judge dated 16th May, 2002 before a Division Bench of the High Court. The said appeal
was dismissed vide order dated 4th July, 2002
which is subject-matter of the present appeal.
disposing of the appeal, the High Court rightly observed that the question for
consideration in the appeal was whether the Company Court had jurisdiction to direct the PSIDC to release funds in
terms of the order passed by the Chief Minister on 25th August, 2001. However, the appeal was dismissed on the ground
that the Company Court had jurisdiction to issue such a direction having regard
to Section 446 (2) (d) of the Companies Act without adverting to the question
of liability of the PSIDC in law, for making such payment.
is no dispute that under Section 446 the Company Court can pass orders in relation to the Company in liquidation.
The real question in issue in the case was whether the liability with respect
to money due from the Company in liquidation towards its workers could be
fastened on an independent corporation. The Company Court has chosen to fasten liability on a third party, i.e., the
PSIDC while seized of proceedings with respect to the Company in liquidation
(the PNFC). Was it legally permissible? The learned counsel for the appellant
submitted that the PSIDC was formed in the year 1966 as one of the State
Financial Institutions for promoting and developing industries in the State of Punjab. In its role of promotion and
development of the industries in the State, the PSIDC promoted more than 100
companies. The object was to ensure industrial development in the State. The
PNFC was one of the several companies promoted by the PSIDC. As already
notified, the PNFC is a separate legal entity being a Company limited by shares
under the Companies Act. The PNFC is not a Government company while the PSIDC
is a wholly owned undertaking of the Government of Punjab. Even according to
respondents, PSIDC hel only 46.23% of equity, other public financial
institutions held 14.59% and public held the remaining 39.18% .
drawing our attention to the legal status of the two companies involved, the
learned counsel for the appellant drew our attention to the note of the Chief
Minister of Punjab. It is submitted with reference to
the said Note that it can neither be said to be an order of the State
Government nor can it has any binding force so far as the PSIDC is concerned.
The submission of the learned counsel for the appellant is that the note is in
the nature of a suggestion/request by the Chief Minister and the PSIDC has no
legal liability so far as the dues of the PNFC to its workers are concerned.
the companies were separate legal entities. Though PSIDC might have been involved
in promotion and thereafter in guiding the affairs of the PNFC, that is not
enough to fasten the liabilities of the PNFC to the PSIDC.
reply, the learned counsel appearing for the respondent - workers association,
submitted that as the affairs of PNFC are entirely managed and controlled by
the PSIDC, the corporate veil has to be lifted to show that PSIDC was
responsible for the acts of PNFC and liabilities of PNFC and it was therefore
liable for the dues of the workers. In their application under Rule 9 of the
Companies (Court) Rules the workers have pleaded that the PSIDC exercised
control over financial and administrative affairs of the PNFC. It is also
submitted that the fact that the PSIDC holds 46.13% shares in the PNFC shows
the financial interest of the PSIDC in the PNFC. The officers of the PSIDC are
also said to have been posted from time to time in the PNFC to manage its
affairs. The learned counsel relied on Section 446 of the Companies Act to
suggest that a Company Judge has wide powers with respect to a company in
liquidation. He invited reference to Sudarsan Chits (I) Ltd. vs. O. Sukumaran Pillai
and Ors. (1984) 4 SCC 657 in support of this contention. In our view this
judgment does not help the respondent. Under Section 446 the powers of the
Company Judge qua a Company under liquidation may be wide, but that does not
empower the Company Judge to pass an order making a distinct and separate
corporation, a third party, liable for the liabilities of the Company in
liquidation. This aspect unfortunately has not been adverted to either by the
learned Company Judge or by the Division Bench of the High Court.
was placed on the so called order of the Chief Minister permitting the PSIDC to
raise funds in order to meet the liability of the PNFC towards salary of its
workers for at least six months. We have carefully perused the note of the
Chief Minister dated 25th
said note cannot be said to be an order of the State Government and therefore
is not binding on the PSIDC. The orders of the State Government are issued in a
prescribed manner and the note dated 25th August, 2001 cannot be treated as one.
learned counsel for the respondent also brought to our notice Article 135 of
the Memorandum and Articles of Association of the PSIDC under which the State
Government can issue directives to the PSIDC.
135 is reproduced as under:
anything contained in any of the Articles, the Government may from time to
time; issue such directives as they may consider necessary in matters of broad
policy and in like manner may vary and annul any such directive. The company
shall give immediate effect to directives so issued.
on Article 135 is misplaced in the present case because the note of the Chief
Minister cannot be said to be a directive of the State Government nor it is in
relation to broad policy of the Company. Article 135 does not help the
contending that the veil has to be lifted, the learned counsel relied on
Calcutta Chromotype Ltd. vs. Collector of Central Excise, Calcutta AIR 1988 SC
1631. This was a case of alleged evasion of excise duty by a manufacturer
selling its manufactured products through a sole selling distributor, who sold
the goods in market at a higher price. The idea was to show a lesser price of
manufacture in order to save central excise duty. The manufacturing company as
well as the business of the sole selling agent though shown as independent,
were owned by the members of the same family. In such a case the focus is from
a different angle and the issue is different. In the present case there is no
evasion of any tax. Here the issue is when there are two independently legal
entities can an order be passed that one company will be liable for the dues of
the other to a third party. Can a Company Court pass such a direction without consideration of the question
of legal liability of the company sought to be made liable? As a result of the
above discussion we hold that the PSIDC could not be made liable for the dues
owed by the PNFC to its workers. The appeal is accordingly allowed. The orders
of the Company Court as well as of the Division Bench of
the High Court which are under challenge in this appeal are set aside. No
we have found as a matter of law that the PSIDC could not be made liable for
the dues owed by the PNFC to its workers, we notice that the then Chief
Minister had taken a sympathetic view in the matter while appending his note
dated 25th August, 2001. In view of the fact that the case relates to the dues
of the workers the State Government may sympathetically consider whether it can
provide some relief to the workers.