1996 (9) TMI 503 - SC - Companies Law

Only company directors can be designated as factory occupiers under section 2(n), companies cannot nominate other employees

JK. Industries Ltd. Versus Chief Inspector of Factories & Boilers

The SC dismissed the appeal and held that only a director of a company can be notified as the occupier of a factory under proviso (ii) to section 2(n) of ... Whether in the case of a company which owns or runs the factory, it is 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? Held that:- Appeal dismissed. In the case of a company, which owns a factory, it is only one of the directors of the company who can be notified as the occupier of the factory for the purposes of the Act and the company cannot nominate any other employee to be the occupier of the factory. Where the company fails to nominate one of its directors as the occupier of the factory, the Inspector of Factories shall be at liberty to proceed against any one of the directors of the company, treating him as the deemed occupier of the factory, for prosecution and punishment in case of any breach or contravention of the provisions of the Act or for offences committed under the Act. Proviso (ii) to section 2(n) of the Act is intra vires the substantive provision of section 2(n) of the Act. Proviso (ii) to section 2(n) is constitutionally valid and is not ultra vires articles 14, 19(1)(g) and 21 of the Constitution of India. The law laid down by the High Courts of Bombay, Orissa, Karnataka, Calcutta, Gauhati and Madras is not the correct law and the contrary view expressed by the High Courts of Allahabad, Madhya Pradesh, Rajasthan and Patna is the correct enunciation of law in regard to the ambit and scope of proviso (ii) to section 2(n) of the Act. Issues Involved:1. Interpretation of 'occupier' under Section 2(n) of the Factories Act, 1948.2. Constitutional validity of proviso (ii) to Section 2(n) of the Factories Act, 1948.3. Divergence in High Court opinions on the interpretation of proviso (ii) to Section 2(n).4. Applicability of the principle of strict liability under Section 92 of the Factories Act.5. The role and obligations of directors in the context of factory management and compliance.Issue-wise Detailed Analysis:1. Interpretation of 'occupier' under Section 2(n) of the Factories Act, 1948:The primary question was whether only a director of a company can be notified as the occupier of a factory or if the company can nominate any other employee. The court examined the definition of 'occupier' before and after the 1987 amendment. Prior to the amendment, Section 2(n) defined 'occupier' as the person having ultimate control over the factory's affairs. Post-amendment, proviso (ii) to Section 2(n) specified that in the case of a company, any one of the directors shall be deemed to be the occupier. The court emphasized that the ultimate control over the factory lies with the company through its directors, and an employee cannot be considered to have ultimate control.2. Constitutional validity of proviso (ii) to Section 2(n) of the Factories Act, 1948:The petitioners challenged the constitutional validity of proviso (ii) to Section 2(n) as violative of Articles 14, 19(1)(g), and 21 of the Constitution. The court held that the proviso is not ultra vires the main provision of Section 2(n) and does not violate the Constitution. The proviso was introduced to ensure that directors, who have ultimate control over the company's affairs, are held responsible for compliance with the Act, thus preventing companies from evading liability by nominating lower-level employees as occupiers.3. Divergence in High Court opinions on the interpretation of proviso (ii) to Section 2(n):Various High Courts had differing opinions on whether a company could nominate an employee other than a director as the occupier. The Karnataka, Bombay, Orissa, Gauhati, Madras, and Calcutta High Courts opined that a company could nominate any person with ultimate control over the factory's affairs. In contrast, the Allahabad, Madhya Pradesh, Rajasthan, and Patna High Courts held that only a director could be nominated as the occupier. The Supreme Court resolved this conflict by affirming the latter view, emphasizing that the ultimate control must remain with the directors.4. Applicability of the principle of strict liability under Section 92 of the Factories Act:The court discussed the principle of strict liability under Section 92, which imposes penalties on the occupier and manager for contraventions of the Act, irrespective of mens rea. The court upheld the validity of this provision, stating that it is essential for ensuring compliance with the Act's safety and welfare measures. The court noted that the Act provides a safeguard under Section 101, allowing the occupier or manager to shift liability to the actual offender if they can prove due diligence and lack of knowledge, consent, or connivance in the offence.5. The role and obligations of directors in the context of factory management and compliance:The court emphasized that directors, being the directing mind and will of the company, must be responsible for ensuring compliance with the Act. The court rejected the argument that holding directors liable for contraventions without mens rea is unreasonable. The court highlighted that the Act's objective is to safeguard workers' interests and ensure that those in ultimate control are vigilant in maintaining safety and welfare standards in factories.Conclusion:The Supreme Court held that:1. Only a director of the company can be notified as the occupier of the factory.2. If the company fails to nominate a director, the Inspector of Factories can proceed against any director as the deemed occupier.3. Proviso (ii) to Section 2(n) is intra vires the main provision.4. Proviso (ii) is constitutionally valid and does not violate Articles 14, 19(1)(g), and 21.5. The views of the High Courts of Allahabad, Madhya Pradesh, Rajasthan, and Patna were correct, while the contrary views of other High Courts were not.All writ petitions and appeals were dismissed, with parties bearing their own costs.