2022 (1) TMI 1077 - HC - Law of Competition

Court Rules Lay-Off Unjust; Full Compensation for Workers Ordered, Settlement Deemed Unfair and Non-Binding.

M/s Lml Limited Versus State Of U.P. And 2 Others

The Industrial Tribunal's decision was upheld by the Court, declaring the lay-off on 15.04.2007 unjustified and illegal. The Tribunal awarded full wages, ... Claim of the workmen - Validity of award made by the Industrial Tribunal - Seeking restraint on respondents from proceedings against the petitioner-company pursuant to the award - company under Liquidation - rapid erosion of the Company's net wealth took place - settlement of workmen dues - HELD THAT:- It is not on record that what all orders were passed by the Industrial Tribunal after the order of the moratorium passed by the NCLT till the order of liquidation passed on 23.3.2018. However, the fact remains that the award of the Industrial Tribunal was made well after the order of liquidation dated 23.3.2018. Sub-section (5) of Section 33 of the Code prohibits the institution of any suit or other legal proceeding by or against the corporate debtor (in the present case, the petitioner-company) when a liquidation order has been passed subject to the proviso that the suit or legal proceeding may be instituted by the liquidator on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. This provision is also subject to the provisions of Section 52 of the Code that provides for the role of a secured creditor in liquidation proceedings. In view of the liquidation order passed by the NCLT on 23.3.2018, the order of moratorium passed under Section 14 ceased to have effect. Accordingly, further proceedings in the pending adjudicating case before the Industrial Tribunal was not barred after the order of liquidation passed by the NCLT - Under Section 238 of the Code, the provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Therefore, the distribution of the proceeds from the sale of liquidation assets are to be distributed in the order of priority as provided under Section 53 of the Code after determination of the claims by the Liquidator. In view of the manner of distribution of the assets of the company in liquidation as provided under Section 53 of the Code, the “workmen's dues” of the company in liquidation shall be made strictly in accordance with the priority, to the extent, and, in the manner provided in Section 53 of the Code - no negative evidence could have been led by the workmen in this regard. It is pertinent to note that in the testimony of the witness on behalf of the workmen, it was stated that all the workmen affected by lay-off used to visit the Head Office of the Establishment for recording their attendance and they are still doing so. Therefore, under the circumstances of the present case, this piece of evidence would suffice to demonstrate that the workmen were not gainfully employed elsewhere. It is pertinent to mention here that in paragraph no.19 of the writ petition itself it is reflected that around 2016 claims of workmen / employees were received, but on perusal of the books of accounts and record, the Liquidator admitted claims of 6337 workmen/ employees. Therefore the details of all the workmen of the petitioner-Company are with the Liquidator - the lay-off having been held to be unjustified and illegal by the Industrial Tribunal, what follows is that all the workmen who were not employed after lifting of the lock-out with effect from 15.04.2007 and were laid off, would be entitled to full wages, allowances and consequential benefits as directed by the Industrial Tribunal. Any amounts received by them towards lay-off compensation shall be adjusted. However, the workmen would only be entitled to receive / recover their dues in accordance with the provisions of Section 53 of the Code. Petition disposed off. Issues Involved:1. Validity of the lay-off declared on 15.04.2007.2. Representation of the workmen before the Industrial Tribunal.3. Consideration of the settlement dated 13.04.2007.4. Award of back wages, allowances, and consequential benefits to the workmen.5. Impact of the Insolvency and Bankruptcy Code, 2016 on the proceedings and award.Issue-wise Detailed Analysis:1. Validity of the Lay-off Declared on 15.04.2007:The Industrial Tribunal found the lay-off declared by the petitioner-company on 15.04.2007 to be unjustified and illegal. The Tribunal noted that the lay-off was not in accordance with Section 2(n) of the U.P. Industrial Disputes Act, 1947, as the Company failed to provide documentary or oral evidence demonstrating the legality and rationale of the lay-off. The Tribunal observed that the lay-off continued for ten years without proper compensation, and new appointments were made without giving priority to laid-off workers. The Tribunal concluded that the lay-off was based on the crisis of working capital, which does not justify the lay-off under the provisions of Section 2(n).2. Representation of the Workmen Before the Industrial Tribunal:The petitioner-company challenged the representation of the workmen by the respondent-Union before the Industrial Tribunal, citing the cancellation of the Union's registration. However, the Court found that the interim order of the Supreme Court stayed the cancellation, allowing the respondent-Union to represent the workmen. The Court also noted that even unregistered unions could raise industrial disputes. The Tribunal's acceptance of the respondent-Union's representation was upheld.3. Consideration of the Settlement Dated 13.04.2007:The settlement dated 13.04.2007, which included the lay-off terms, was scrutinized by the Industrial Tribunal. The Tribunal found that the settlement was not binding on all workmen, as it left the majority without work and only provided partial lay-off compensation. The Tribunal observed that the settlement allowed the employer to lay off workers indefinitely, which was contrary to the Standing Orders and the U.P. Act. The Tribunal concluded that the settlement was not fair or reasonable and did not justify the lay-off.4. Award of Back Wages, Allowances, and Consequential Benefits:The Industrial Tribunal awarded full wages, allowances, and consequential benefits to the laid-off workmen from 15.04.2007. The Tribunal held that the workmen were entitled to these benefits as the lay-off was unjustified and illegal. The Court noted that the petitioner-company, being under liquidation, could not claim an 'impossible burden' to avoid paying back wages. The Liquidator was directed to assess the claims and distribute the proceeds from the sale of liquidation assets in accordance with the Insolvency and Bankruptcy Code, 2016.5. Impact of the Insolvency and Bankruptcy Code, 2016 on the Proceedings and Award:The Court considered the provisions of the Insolvency and Bankruptcy Code, 2016, which took precedence over other laws. The moratorium under Section 14 ceased with the liquidation order dated 23.03.2018, allowing the Industrial Tribunal to proceed with the matter. The distribution of liquidation assets was to be done as per Section 53 of the Code, prioritizing workmen's dues for the 24 months preceding the liquidation commencement date. The Liquidator was to ensure compliance with the Code while disbursing the claims of the workmen.Conclusion:The Court upheld the Industrial Tribunal's award, finding no perversity or arbitrariness in its decision. The lay-off was declared unjustified and illegal, and the workmen were entitled to full wages, allowances, and benefits, subject to the provisions of the Insolvency and Bankruptcy Code, 2016. The Liquidator was tasked with assessing and distributing the claims as per the Code.