2017 (2) TMI 1527 - HC - Indian Laws

Court rules Bihar State not liable for salaries of employees in various entities; directs Rs. 10 crore disbursement.

The court dismissed the Letters Patent Appeals, affirming that the State of Bihar is not liable to pay the salaries and allowances of employees of Boards, ... Separate juristic entity - priority of wages as secured debts - writ jurisdiction in respect of State instrumentalities - interim directions under Article 142 - human rights/humanitarian intervention - policy decision and budgetary allocation - remand for disbursement mechanismSeparate juristic entity - priority of wages as secured debts - policy decision and budgetary allocation - Liability of the State of Bihar, as sole shareholder, to pay salaries and allowances of employees of Boards, Corporations and Companies incorporated under the Companies Act when those entities are financially unable to pay. - HELD THAT: - The Court held that companies, even if wholly owned by the State, are distinct juristic entities and employees remain employees of those companies; wages enjoy priority as secured debts under the Companies Act but that statutory scheme does not convert the State into the employer or make it liable to meet the companies' wage liabilities. Treating such companies as part of the State would defeat the purpose of establishing separate corporate entities. Questions of whether and how much the State should allocate funds for salaries fall within executive policy and budgetary decision-making and cannot be judicially imposed as a general obligation. The consistent precedents cited by the Court establish that interim humanitarian directions do not create a universal legal obligation on the State to pay wages of separate corporate entities. [Paras 19, 20, 21, 24, 25]The State of Bihar is not generally liable to pay salaries and allowances of employees of Boards, Corporations and Companies which are separate juristic entities; such liability cannot be judicially fastened as a rule and remains a matter of executive policy.Interim directions under Article 142 - human rights/humanitarian intervention - writ jurisdiction in respect of State instrumentalities - Legal effect of the Supreme Court's interim observations and directions in Kapila Hingorani (I) and (II) and whether they constitute a conclusive precedent imposing State liability. - HELD THAT: - The Court observed that the Supreme Court's orders in Kapila Hingorani (I) and (II) were interim measures issued under extraordinary powers to meet an acute humanitarian problem (starvation deaths and suicides) and did not finally or conclusively determine that the State is liable to pay wages of employees of public sector undertakings. The Supreme Court itself left the ultimate legal issues to be decided by the High Courts. Consequently, those interim observations lack value as precedent for imposing a general legal obligation on the State to discharge corporate wage liabilities. [Paras 26, 27, 28, 29, 30]The interim observations and directions in Kapila Hingorani (I) and (II) are humanitarian interim measures and do not constitute conclusive precedent imposing a general liability on the State to pay salaries of corporate entities' employees; the legal question was left open for High Court determination.Human rights/humanitarian intervention - interim directions under Article 142 - Whether the observations in Kapila Hingorani (I) and (II) and the decision in Harihar Yadav were directed primarily to address humanitarian problems rather than to create substantive rights against the State. - HELD THAT: - The Court found that the Supreme Court's interventions in the cited cases were directed to alleviate extreme humanitarian distress of affected employees and were not intended to decide finally the question of State liability. Harihar Yadav likewise addressed allocation between successor States in the specific context of bifurcation and was directed to redress a grave human problem arising from that context. [Paras 29, 30]The observations in Kapila Hingorani (I) and (II) and the directions in Harihar Yadav were primarily to address humane problems and do not amount to definitive legal adjudications fixing State liability.Remand for disbursement mechanism - human rights/humanitarian intervention - Validity of the Single Bench's direction to the State to deposit Rs. 10 crores for emergent assistance and the mechanism for disbursement of those funds. - HELD THAT: - The Court declined to interfere with the Single Bench's order directing deposit of a sum to meet emergent humanitarian needs but criticised the absence of a clear mechanism for adjudicating individual claims. To remedy this, the Court directed that a one member Committee (Hon'ble Mr. Justice Udai Sinha) be constituted to examine claims and disburse the deposited amount in accordance with law and with a procedure to be devised by the Committee. This effectively preserved the humanitarian relief while remanding the implementation and claim examination mechanism to the designated authority. [Paras 31, 32]The direction to deposit funds for emergent assistance is not set aside; implementation and adjudication of individual claims are remitted to a one member Committee to disburse the amount in accordance with law and a procedure to be devised by the Committee.Final Conclusion: Letters Patent Appeals dismissed. The Court held that State is not generally liable to pay salaries of employees of separate corporate entities merely because it is sole shareholder; the Supreme Court's Kapila Hingorani interim orders were humanitarian measures and not final precedents imposing State liability; the Single Bench's direction to deposit funds for emergent relief is maintained, but the procedure for disbursement is remitted to a one member Committee constituted by the Court. Issues Involved:1. Liability of the State of Bihar to pay salary and allowances to employees of Boards, Corporations, and Companies.2. Finality of interim orders in Kapila Hingorani (I) and Kapila Hingorani (II).3. Addressing humane problems in judgments.4. Financial burden on the State of Bihar due to policy decisions.Detailed Analysis:Issue 1: Liability of the State of Bihar to Pay Salary and AllowancesThe court examined whether the State of Bihar, as the sole shareholder of certain Boards, Corporations, and Companies, is responsible for paying the salaries and allowances of their employees. The court highlighted that these entities are separate juristic persons governed by their statutes. Employees' wages are secured debts under Section 529A of the Companies Act, 1956, and the State's liability does not extend to paying these wages. The court emphasized that the distinction between the State and these entities must be maintained, and the employees cannot claim to be State employees. The court referenced several precedents, including State of Himachal Pradesh v. Rajesh Chander Sood and Steel Authority of India Ltd. v. National Union Waterfront Workers, which support the notion that the State is not liable for the financial obligations of these separate entities.Issue 2: Finality of Interim Orders in Kapila Hingorani (I) and Kapila Hingorani (II)The court noted that the observations and directions in Kapila Hingorani (I) and Kapila Hingorani (II) were interim measures to address immediate humane problems and do not serve as precedents. The Supreme Court's directions were based on the extraordinary circumstances of human rights violations due to non-payment of salaries, and these directions were not intended to establish a legal obligation for the State to pay salaries in all situations. The court cited Barak Upatyaka D.U. Karmachari Sanstha to emphasize that these interim directions were not final conclusions.Issue 3: Addressing Humane Problems in JudgmentsThe court recognized that the Supreme Court's intervention in Kapila Hingorani (I) and Kapila Hingorani (II) was to address humane problems arising from financial stringency faced by employees. The court noted that the Supreme Court left the question of the State's liability open, focusing instead on immediate relief for the affected employees. This approach was also evident in Harihar Yadav's case, where the issue was addressed as a humane problem rather than establishing a legal precedent.Issue 4: Financial Burden on the State of Bihar Due to Policy DecisionsThe court discussed the implications of imposing financial burdens on the State due to the financial difficulties of Boards, Corporations, and Companies. The court referenced A.K. Bindal v. Union of India and State of Himachal Pradesh v. Rajesh Chander Sood, which highlight that budgetary allocations and financial support are policy decisions. The court concluded that the State cannot be required to bear the financial burden of these entities, as it would undermine the purpose of establishing separate companies for focused growth and flexibility in decision-making.Conclusion:The court dismissed the Letters Patent Appeals, affirming that the State of Bihar is not liable to pay the salaries and allowances of employees of Boards, Corporations, and Companies. The court directed that the Rs. 10 crores allocated by the State to address financial emergencies be disbursed by a committee constituted by Hon'ble Mr. Justice Udai Sinha.