TaxTMI 
TaxTMI 
2005 (9) TMI 305
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....f the Directors or the assets acquired from income of the company by the Directors. The persona1 property of the Directors, however, could not be proceeded against if it acquired from the sources other than the income of the company. The Letters Patent Appeals filed against the judgments of the learned Single Judge were dismissed. It is to be noted that learned Single Judge had held that writ petitions were not maintainable as the writ petitioners had an alternative remedy under section 17 of the Act. However, the Letters Patent Court considered the case on merits and as noted above came to the conclusion about liability of the Directors. 2. While the Directors who were writ petitioners had questioned correctness of the judgments rendered by the Division Bench, the functionaries under the Act have questioned correctness of that part of the High Court's judgment which restricted recovery from the assets acquired out of the company's income. 3. Background facts on which the dispute arises are as under: In June 1991, the Company made an application to the State Government under section 25-O of the Industrial Disputes Act, 1947 (in short the 'ID Act') as substituted by the Ind....
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....lication was vague since details of the workmen whose wages were allegedly not paid had not been given as required under the law. It was also stated that notice, could not be issued to the Directors as only the Company and the Factory Manager were responsible for payment of wages under the Act. Pendency of the proceedings under the BIFR was also referred to. However, the authorities under the Act rejected the contention and held that the Directors were also personally liable to pay. Such directions were questioned before the High Court and as noted above, impugned judgments were passed. 4. In support of the appeals, filed by the erstwhile Directors, learned counsel submitted that the High Court has failed to maintain the distinction between the liability of the company and its Directors. The provisions of the Act and the amendments brought in by the Madhya Pradesh Act of 1964 have not been kept in view. The High Court erroneously proceeded on the basis as if the Directors were occupiers to hold that the decision of this Court in J.K. Industries Ltd. v. Chief Inspector of Factories & Boilers [1996] 6 SCC 665 applied to the facts of the case. In that case the provisions were entir....
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....cial Gazette; (iia) "mine" has the meaning assigned to it in clause (j) of sub-section (1) of section 2 of the Mines Act, 1952 (35 of 1952); (iii) "plantation" has the meaning assigned to it in clause (f) of section 2 of the Plantations Labour Act, 1951 (69 of 1951); (iv) "prescribed" means prescribed by rules made under this Act; (v) "railway administration" has the meaning assigned to it in clause (6) of section 3 of the Indian Railways Act, 1890 (9 of 1890); and (vi) "wages" means all remuneration (whether by way of salary, allowance or otherwise) expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in, respect of his employment or of work done in such employment, and includes- (a) any remuneration payable under any award or settlement between the parties or order of a court; (b) any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period; (c ) any additional remuneration payable under the terms of employment (whether called a bonus or by any other name); (d) any sum which by reas....
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....ous claims.- (1) The State Government may, by notification in the Official Gazette, appoint a presiding officer of any Labour Court or Industrial Tribunal, constituted under the Industrial Disputes Act, 1947 (14 of 1947) or under any corresponding law relating to the investigation and settlement of industrial disputes in force in the State or any Commissioner for Workmen's Compensation or other officer with experience as a judge of a Civi1 Court or as a stipendiary Magistrate to be the authority to hear and decide for any specified area all claims arising out of deductions from the wages, or delay in payment of the wages, of persons employed or paid in that area, including all matters incidental to such claims: Provided that where the State Government considers it necessary so to do, it may appoint more than one authority for any specified area and may, by general or special order, provide for the distribution or allocation of work to be performed by them under this Act. (2) Where contrary to the provisions of this Act any deduction has been made from the wages of an employed person, or any payment of wages has been delayed, such person himself, or any legal practitioner or a....
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....eding fifty rupees be paid to the employer or other person responsible for the payment of wages by the person presenting the application; or (b) that in any case in which compensation is directed to be paid under sub-section (3), the applicant ought not to have been compelled to seek redress under this section, the authority may direct that a penalty not exceeding fifty rupees be paid to the State Government by the employer or other person responsible for the payment of wages. (4A) Where there is any dispute as to the person or persons being the legal representative or representatives of the employer or of the employed person, the decision of the authority on such dispute shall be final. (4B) Any inquiry under this section shall be deemed to be a judicial proceeding within the meaning of sections 193, 219 and 228 of the Indian Penal Code (45 of 1860). (5) Any amount directed to be paid under this section may be recovered- (a ) if the authority is a Magistrate, by the authority as if it were a fine imposed by him as Magistrate, and (b) if the authority is not a Magistrate, by any Magistrate to whom the authority makes application in this behalf, as if it were a fin....
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.... appointed'; (iii) In sub-section (2),- (a ) after the words 'to Act on his behalf', the words, figures and brackets 'or a representative union recognized as such under the Madhya Pradesh Industrial Relations Act, 1960 (27 of 1960)', shall be inserted; (b) after the words, brackets and figure 'sub-section (3)', the words 'and in case of death of the employed person, it shall be lawful for his legal representative to make an application for such direction' shall be inserted; (iv) In sub-section (3),- (a ) after the words 'employed person', the words 'or his legal representatives, as the case may be', shall be inserted; (b) for the words 'ten rupees in the latter', the words 'twenty-five rupees in the latter case and the authority may direct the payment of such compensation in cases, where the amount deducted or the delayed wages are paid by the employer, to the employed person or his legal representative before the disposal of the application' shall be substituted; (c ) in the proviso, after the words 'employed person' occurring twice, the words "or his legal representative" shall be inserted, and- (v) for sub-section (4), the following sub-sections shall be ....
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....ts own, it is those who in fact control and determine the management of the company, who are held vicariously liable for commission of statutory offences. The directors of the company are, therefore, rightly called upon to answer the charge, being the directing mind of the company. Dealing with the question of vicarious liability of the directors for offences committed by a company, the following observations of Lord Diplock in Tesco Supermarkets Ltd. v. Nattrass (1972 AC 153) are useful : 'In my view, therefore, the question : what natural persons are to be treated in law as being the company for the purpose of acts done in the course of its business, including the taking of precautions and the exercise of due diligence to avoid the commission of a criminal offence, is to be found by identifying those natural persons who by the memorandum and articles of association or as a result of action taken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of the powers of the company. This test is in conformity with the classic statement of Viscount Haldane, Lord Chancellor, in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum....
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....sion, it was held that only one of its Directors and none of its employees or officers can be nominated as occupier of the factory by such company. There is no such provision in the Act like section 2(n) of the Factories Act. The quoted portion of the Act as amended only can apply to the fact situation of the present case. Though, it was contended by learned counsel for the State and the Labour Unions that section 3 as amended by the M.P. Amendment Act brought in the concept of occupier, the contention has only to be noted to be rejected. Section 3 of the Act and the amended section 3 by M.P. Amendment Act do not even by implication bring in the concept of occupier which formed the foundation in J.K. Industries Ltd.'s case (supra). 8. The principles of legislation by incorporation or by reference have been dealt with by this court in many cases. 9. A distinction has been made between a mere reference or citation of one of the statutes into another and incorporation. A statute may instead of referring to a particular previous statute or to any specific provision therein refer to the law on the subject generally. In such cases a reference is construed to mean that the law is as....
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....elf by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act as if they had been actually written in it with the pen, or printed on it." (See Wood's Estate. Re-exp Works and Buildings Commrs. [1886] 31 Ch D 607." 13. It may be added that clear intention of the incorporating Act cannot be defeated by such provision of the earlier Act which have not been incorporated. In the interpretation of an incorporated provision, the Court is sometimes required to formulate variations of details in the context of the incorporating statute. (See Mariyappa v. State of Karnataka [1998] 3 SCC 276). The merit of legislation by incorporation is brevity which is sometimes counterbalanced by difficulties and obscurities which it is likely to create. 14. In Minister of Housing and Local Govt. v. Hartnell [1965] 1 All ER 490 (HL). It was observed that there is a regrettable modern tendency to overdo legislation by reference and to attempt brevity at the expense of lucidity. 15. The amendment to the Factories Act, 1948 (in short 'Factories Act') does not apply to the M.P. Act. If there is mere reference to a pr....
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....ere, clause (i) applied and in that view, of the matter, clause (iii) could have no application. 17. Though the position is slightly different in the Factories Act in view of the amendment as noted in J.K. Industries Ltd.'s case (supra), the view regarding the personal liability of the Directors is clearly applicable. 18. It is trite law that liability of a person is dependent upon the statutory prescriptions governing such liability. Sections 5 and 291 of the Companies Act, 1956 (in short 'Companies Act') are to be noted in this regard. Section5 refers to officer who is in default. Section 291 on the other hand relates to general powers of the Board of Directors. In order to attract the liability under the Act, it has to be seen as to on whom the Act fixes the liability. Section 3 speaks of the responsibility for payment of wages. It speaks of the "employer" which expression is defined in Section 2(ia). Section 15 refers to the claims arising out of deductions from wages or delaying payment of wages and penalty for malicious or vexatious claims. Statutorily no liability has been fixed on the Directors. 19. Under section 3 of the Act as amended by the M.P. Amendment, the l....
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....e creditors of the members have no right to the assets of the corporation. This position has been well established ever since the decision in the case of Salomon v. Salomon & Co. (1897) A.C. 22, H.L. was pronounced in 1897; and indeed, it has always been the well-recognised principle of common law. However, in the course of time, the doctrine that the corporation or a company has a legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the complexity of economic factors, judicial decisions have sometimes recognised exceptions to the rule about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more. 22. The doctrine of lifting of the....
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...., the veil of corporation is lifted by judicial decision and the shareholders are held to be "persons who actually work for corporation". 24. According to J.K. Industries case (supra) only a Director can be nominated as occupier and not simply an officer or employee. This Court observed this to be the result of the 1987 amendment of the Factories Act. The discretion of inspector of factories as to occupier can be exercised only where no director is identified or nominated as an occupier. The decision of this Court to the effect that only a director of the Company can be appointed as an occupier of the factory, has been, on the facts of the particular case distinguished by this Court in Indian Oil Corpn. Ltd. v. Chief Inspector of Factories AIR 1998 SC 2456. This Court held that in the case of the appellant-corporation it will have to be held that the ultimate control over the affairs of all the factories of the Corporation is really of the Central Government and, therefore, all the factories of the Corporation should be regarded as factories owned and controlled by the Central Government. As there is a special provision governing factories owned and controlled by the Central Gov....