2017 (3) TMI 1190 - HC - Companies Law

Employee's Unpaid Salary Can Lead to Winding-Up Petition

Mr. Sanjay Sadanand Varrier Versus M/s. Power Horse India Pvt. Ltd.

The Bench concluded that an employee can maintain a winding-up petition as a creditor based on unpaid salary and wages under sections 439, 433(e), and 434 ... Winding up petition - Whether an employee can maintain a Petition for winding up of a Company under section 439 r/w sections 433(e) and 434(1)(a) of the Companies Act, 1956 as a creditor based on the claim of the recovery of his unpaid salary and wages? - Held that:- On a conjoint reading of the provisions of the Companies Act, 1956 and more particularly sections 434 and 439 as well as the provisions of the Trade Unions Act 1926, we are clearly of the view that looking to the mandate of sections 13 and 15 of the Trade Unions Act 1926, there is no doubt in our mind that a Petition for winding up would be maintainable at the instance of the Trade Union. This is for the simple reason that section 15(c) and (d) clearly mandates that the prosecution or defence of any proceeding to which the Trade Union or any member thereof is a party as well as the conduct of trade disputes on behalf of the Trade Union or any member thereof can be done by the Trade Union. This would clearly go to show that the Trade Union, for and on behalf of the its members can certainly prefer a winding up Petition as contemplated under section 439 of the said Act. This is for the simple reason that if the workmen have not been paid their wages and/or salary by the Company, they would certainly be a creditor or creditors as contemplated under section 439(1)(b) of the Companies Act, 1956. Section 15 clearly mandates that the Trade Union can take up this cause for and on behalf of its members. Hence, after complying with the provisions of section 434 of the Companies Act, 1956 the Trade Union would certainly be competent to present a winding up Petition. We may add here that this does not mean that in every instance when a Trade Union or a workman files a winding up Petition, the Company is ipso facto to be wound up. Whether or not there is any merit in the claim made by the workman and/or employee depends on the circumstances in each case. All that we are holding is that a Trade Union, though having a legitimate claim, cannot be shut out from approaching the appropriate forum for winding up the Company on the ground that its members have not been paid their wages and/or salaries. We therefore hold that an employee can maintain a Petition for winding up of a Company under section 439 r/w sections 433(e) and 434 of the Companies Act, 1956 as a creditor based on the claim of the recovery of his unpaid salary and wages. Further we hold that a winding up Petition at the instance of a Trade Union and for the dues that are payable to its members is maintainable as it clearly falls within section 439 of the Companies Act, 1956. The issue is answered accordingly. Let this Company Petition be now placed before the Company Judge to be decided on its own merits and in accordance with law. Issues Involved:1. Whether an employee can maintain a Petition for winding up of a Company under section 439 read with sections 433(e) and 434(1)(a) of the Companies Act, 1956 as a creditor based on the claim of the recovery of his unpaid salary and wagesRs.2. Whether a Trade Union can file a Petition for winding up of a Company to espouse the cause of a workman or workmen who are members of such a Trade UnionRs.Issue-wise Detailed Analysis:Issue 1: Employee's Right to File Winding Up PetitionThe primary question was whether an employee could file a winding-up petition under section 439 read with sections 433(e) and 434(1)(a) of the Companies Act, 1956, based on unpaid salary and wages. The Petitioner, an employee of the Respondent Company, claimed unpaid salary from October 2009 to March 2012 and sought winding up of the Company due to its inability to pay debts. The Respondent Company contended that the Petitioner, being an employee, could not be considered a creditor under the Companies Act, 1956, citing a previous judgment (Mumbai Labour Union vs M/s Indo French Time Industries Ltd., 2002).However, the Petitioner referred to the Full Bench decision of the Madhya Pradesh High Court in Jonathan Allen vs Zoom Developers Pvt. Ltd. and a Delhi High Court judgment (Argha Sen v/s Interra Information Technologies (India) (P) Ltd.), which distinguished the Mumbai Labour Union case. The learned Single Judge, unable to agree with the Mumbai Labour Union decision, referred the matter to a Larger Bench.Upon review, it was noted that the Mumbai Labour Union judgment had already been overruled by a Division Bench in Khandelwal Tube Mill Kamgar Sangh, Kanhan v/s Government of Maharashtra, which allowed workmen to file a winding-up petition as creditors. Consequently, the Bench concluded that an employee could maintain a winding-up petition under the relevant sections of the Companies Act, 1956, as a creditor based on unpaid salary and wages.Issue 2: Trade Union's Right to File Winding Up PetitionThe second issue was whether a Trade Union could file a winding-up petition on behalf of its members. The Bench examined the provisions of the Companies Act, 1956, and the Trade Unions Act, 1926. Section 434 of the Companies Act creates a deeming fiction that a company is unable to pay its debts if it neglects to pay a sum exceeding Rs. 1,00,000/- within three weeks of a demand notice. Section 439 specifies who can file a winding-up petition, including creditors.The Trade Unions Act, 1926, defines 'trade dispute' to include disputes related to employment terms and conditions, including unpaid wages. Section 13 of the Trade Unions Act grants registered Trade Unions the status of a body corporate with the ability to sue and be sued. Section 15 allows Trade Unions to spend funds on prosecuting or defending legal proceedings to secure or protect their rights or those of their members.The Bench concluded that a Trade Union could file a winding-up petition on behalf of its members under section 439 of the Companies Act, 1956. This is because unpaid wages make the workmen creditors, and section 15 of the Trade Unions Act permits the Trade Union to take up such causes.Conclusion:The Bench held that an employee could maintain a winding-up petition as a creditor based on unpaid salary and wages under sections 439, 433(e), and 434 of the Companies Act, 1956. Additionally, a Trade Union could file such a petition on behalf of its members, as it falls within the scope of section 439 of the Companies Act, 1956. The matter was directed to be placed before the Company Judge for a decision on its merits in accordance with the law.