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PETITIONER: INDERJIT C. PAREKH & ORS.

       Vs.

RESPONDENT: V. K. BHATT & ANR.

DATE OF JUDGMENT08/01/1974

BENCH: CHANDRACHUD, Y.V. BENCH: CHANDRACHUD, Y.V. BEG, M. HAMEEDULLAH

CITATION:  1974 AIR 1183            1974 SCR  (3)  50  1974 SCC  (4) 313

ACT: Bombay Relief Undertakings (Special Provisions) Act 1958--S. 4  (1)  (a) (iv)--Whether personal  liability  of  directors falls within the scope of section.

HEADNOTE: The  appellants,  five  of whom were directors  and  one  an officer  of a company, were prosecuted under  the  Employees Provident Funds Act, 1952 on the ground that they had failed to  pay the contribution to the Provident Fund  and  thereby committed an offence punishable under paragraph 76(a) of the Employees   Provident   Fund  Scheme,   1952.    Later,   an investigation was made into the affairs of the company under s.  15. of the Industries (Development and Regulation)  Act, 1951  and an order was issued authorising the Gujarat  State Textile  Corporation  to  take over the  management  of  the company.   By a notification the State  Government  declared the company to be a "relief undertaking" under s. 4 (1)  (a) (iv) of the Bombay Relief Undertakings (Special  Provisions) Act,  1958  and  directed  that  "all  rights,   privileges, obligations  and liabilities accrued or incurred before  the undertaking was declared a relief undertaking and any remedy for  the enforcement thereto shall be suspended and all  the proceedings  relevant  thereto  pending  before  any  court, tribunal, officer or authority shall be stayed" with  effect from a certain date.  An application filed by the appellants for  stay  of the prosecution in view  of  the  notification issued by the Government was rejected by the lower court  on the  view  that .the operation of s. 4 of the 1958  Act  was restricted to the statutes mentioned in the Schedule to that Act and that clause (iv) of s. 4 (1) (a) did not contemplate stay  of  criminal proceedings.  On appeal  the  High  Court summarily rejected the revision application.  The appellants came in appeal to this Court by special leave. On the question whether the prosecution pending against  the appellants under paragraph 76 (a) of the Employees Provident Funds  Scheme 1952 is liable to be stayed by virtue  of  the notification issued by the State Government. Dismissing the appeal, HELD : The personal liability of the directors and  officers does  not fall within the scope of s. 4 (1) (a) (iv) of  the Act.  The responsibility to pay the contribution to the Fund

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was  of the appellants and if they had defaulted  in  paying the amount they were liable to be prosecuted under paragraph 76 (a) of the Scheme.  The phrase "all proceedings  relative thereto"  patently  means all proceedings relating  to  "any right,   privilege,  obligation  or  liability  accrued   or incurred  before  the  undertaking  was  declared  a  relief undertaking".  Sub-clause (iv) concerns itself with the pre- existing obligations and liabilities of the undertaking  and not  of its directors. managers or other officers.   Neither the language of the statute nor its object would justify the extension  of  the immunity so as to  cover  the  individual obligations  and  liabilities  of the  directors  and  other officers  of  the undertaking.  If they  had  incurred  such obligation  or liabilities as distinct from the  obligations or  liabilities  of the undertaking they were liable  to  be proceeded against for their personal acts of commission  and commission.   The remedy in that behalf cannot be  suspended nor can a proceeding already commenced against them in their individual capacity be stayed.[52E; 53E] The  occasion  for  declaring  an  industry  as  a   "relief undertaking"  would arise out of causes connected  with  the defaults  on the part of its directors and  other  officers. To  declare  a moratorium on legal actions  against  persons whose  activities  have  necessitated  the  issuance  of   a notification  in the interest of unemployment relief  is  to give such persons the benefit of their own wrong.  Section 4 (1)  (a)  (iv)  advisedly  limits the  power  of  the  State Government to direct suspension of all remedies and stay  of proceedings  involving  the obligations and  liabilities  in relation  to  a relief undertaking and which  were  incurred before  the undertaking was declared a  relief  undertaking. [53F] 51

JUDGMENT: CRIMINAL APPELLATE JURISDICTION: Criminal Appeal, No. 57  of 1973. Appeal  by special leave from the judgment and  order  dated the 9th February 1973 of the Gujarat High Court at Ahmedabad in Criminal Revision Application No. 86 of 1973. Y.   S. Chitaley and S. K. Dholakia, for the appellants. G.   Das, S. N. Anand and M. N. Shroff, for the respondent. The Judgment of the Court was delivered by CHANDRACHUD,  J.-Appellants  1,  2,  4,  5  and  6  are  the directors of Rajnagar Spinning and Weaving Manufacturing Co. Ltd.,  Ahmedabad, and appellant No. 3 is an officer  of  the said  company.   On March 19, 1969 a  complaint  was  lodged against  them by respondent 1, an Inspector appointed  under the  Employees’  Provident  Funds Act, 1952  that  they  bad failed  to  pay  a  sum  of  Rs.  1,39,419  .50  being   the contribution  to the Provident Fund for the months of  June, July and August. 1968 and that thereby they had  contravened the   provisions  of  Paragraph  38(1)  of  the   Employees’ Provident  Funds  Scheme.  1952,  an  act  punishable  under Paragraph 76(a) of the Scheme. An  investigation was made into the affairs of  the  company under   section  15  of  the  Industries  (Development   and Regulation)  Act,  1951  and on  being  satisfied  that  the company was managed in a manner highly detrimental to public interest,  the  Government of India issued  an  order  dated January  7,  1972  authorising  the  Gujarat  State  Textile Corporation to take over the management of the company.   On May  69  1972 the Gujarat Government issued  a  notification

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declaring  the  company to be a "relief  undertaking"  under section  4(1)(a)(iv)  of  the  Bombay  Relief   Undertakings (Special  Provisions) Act, 1958 (’the Act’),  and  directing that  "all rights, privileges, obligations  and  liabilities accrued  or incurred before the undertaking was  declared  a relief  undertaking  and  any  remedy  for  the  enforcement thereof shall be suspended and all the proceedings  relative thereto  pending  before  any Court,  tribunal,  officer  or authority   shall  be  stayed  with  effect  from  6th   May 1972........ The  appellants filed one application after  another  asking the  court  which  was  seized of the  matter  to  stay  the prosecution  in  view  of the  notification  issued  by  the Government  of  Gujarat.   Two  of  such  applications  were rejected by the learned City Magistrate, III Court,  Ahmeda- bad.   Appellants acquiesced in one of the  orders,  carried the  other in revision to the High Court but  withdrew  that proceeding.  on  October  27, 1972  they  made  yet  another application  for the same relief which also was rejected  by the  learned  Magistrate.  He took the view, as in  the  two earlier applications, that the operation of section 4 of the Act is restricted to the statutes mentioned in the  Schedule to  that  Act and that clause (iv) of section 4(1)  did  not contemplate stay of criminal proceedings.  The High Court of Gujarat rejected summarily the revision application filed by the   appellants  against  the  judgment  of   the   learned Magistrate.   This  appeal  by  special  leave  is  directed against the judgment of the High Court. 52 We  are  concerned in this appeal with the  narrow  question whether the prosecution pending against the appellants under Paragraph  76(a) of the Employees’ Provident  Funds  Scheme, 1952  is liable to be stayed by virtue of  the  notification issued  by the Government of Gujarat on May 6,  1972.   That notification  was issued in exercise of the power  conferred by section 4(1)(a)(iv) of the Act, which reads thus :               "4.   (1)  Notwithstanding  any  law,   usage,               custom,  contract, instrument, decree,  order,               award, submission, settlement, standing  order               or  other  provision  whatsoever,  the   State               Government   may,  by  notification   in   the               official Gazette, direct that-               (a)   in  relation to any  relief  undertaking               and  in  respect of the period for  which  the               relief  undertaking  continues as  such  under               sub-section (2) of section 3-               (iv)  any  right,  privilege,  obligation   or               liability  accrued  or  incurred  before   the               undertaking was declared a relief  undertaking               and  any  remedy for the  enforcement  thereof               shall   be  suspended  and   all   proceedings               relative  thereto  pending before  any  court,               tribunal,   officer  or  authority  shall   be               stayed;" all   proceedings  relative  thereto"  patently  means   all proceedings relating to "any right, privilege, obligation or liability  accrued  or incurred before the  undertaking  was declared a relief undertaking".  The obligation or liability which  sub-clause  (iv)  speaks  of  is  an  obligation   or liability incurred by the undertaking before it was declared a  relief  undertaking.   In  other  words  sub-clause  (iv) concerns  itself  with  the  pre-existing  obligations   and liabilities  of  the undertaking and not  of  its  directors managers or other officers, The  obligation  or  liability  of  these  persons  is   not

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comprehended  within the words of’ sub-clause (iv).   Clause (a)  of  section  4(1) shows that the  power  of  the  State Government   is  itself  restricted  to  giving   directions referred  to in sub-clause (iv), "in relation to any  relief undertaking".  Obligations and liabilities of the  directors or other officers of the undertaking are not in a true sense obligations  and  liabilities  in  relation  to  the  relief undertaking.   In  plain and simple language they  ark,  the obligations  and  liabilities of  such  persons  themselves. Their  obligations and liabilities have to be viewed from  a different angle than the, obligations and liabilities of the company itself which only acts impersonally. The object of section 4(1)(a)(iv) is to declare, so to  say, a  moratorium on actions against the undertaking during  the currency  of the. notification declaring it to be  a  relief undertaking.   By  sub-clause  (iv),  any  remedy  for   the enforcement of an obligation or liability against the relief undertaking  is suspended and proceedings which are  already commenced  are  to  be stayed during the  operation  of  the notification.   Under  section  4(b),  on  the  notification ceasing  to  have force, such  obligations  and  liabilities revive and become enforceable and the proceedings which  are stayed can be continued.  These provisions are 53 aimed   at   resurrecting  and   rehabilitating   industrial undertakings brought by inefficiency or mismanagement to the brink  of  dissolution, posing thereby the grave  threat  of unemployment  of industrial workers.   ’Relief  undertaking’ means  under  section  2(2)  an  industrial  undertaking  in respect of which a declaration under section 3 is in  force. By section 3, power is conferred on the State Government  to declare  an industrial undertaking as a relief  undertaking, "as a measure of preventing unemployment or of  unemployment relief".  ’Relief undertakings, so long as they continue  as such, are given immunity from legal actions so as to  render their  working smooth and effective.  Such undertakings  can be run more effectively as a measure of unemployment relief, if  the  conduct  of their affairs is  unhampered  by  legal proceedings or the threat of such proceedings.  That is  the genesis and justification of section 4(1)(a)(iv) of the Act. Thus  neither  the language of the statute  nor  its  object would  justify the extension of the immunity so as to  cover the  individual obligations and liabilities of the  director and  other  officers  of  the  undertaking.   If  they  have incurred  such obligations or liabilities, as distinct  from the obligations or liabilities of the undertaking, they  are liable  to be proceeded against for their personal  acts  of commission  and omission.  The remedy in that behalf  cannot be suspended nor can a proceeding already commenced  against them  in  their individual capacity be stayed.   Indeed,  it would be strange if any such thing was within the contempla- tion  of  law.   Normally, the  occasion  for  declaring  an industry  as a relief undertaking would arise out of  causes connected  with  defaults on the part of its  directors  and other  officers.  To declare a moratorium on  legal  actions against  persons  whose  activities  have  necessitated  the issuance  of a notification in the interest of  unemployment relief  is to give to such persons the benefit of their  own wrong.   Section 4(i)(a)(iv) therefore advisedly limits  the power  of  the  State Government  to  direct  suspension  of remedies  and stay of proceedings involving the  obligations and  liabilities  in relation to a  relief  undertaking  and which  were incurred before the undertaking was  declared  a relief undertaking. Paragraph  38(1) of the Employees’ Provident  Funds  Scheme,

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1952  imposes  an obligation on ’The employer’  to  pay  the Provident  Fund contribution to the Fund within 15  days  of the  close  of  every month.  The  Scheme  does  not  define ’Employer’   but   Paragraph  2(m)  says  that   words   and expressions  which are not defined by the Scheme shall  have the  meaning  assigned to them in the  Employees’  Provident Funds  Act.   Section  2(e)(ii)  of  that  Act  defines   an ’Employer’,  to the extent material, as the person  who,  or the authority which, has the ultimate control 54 over  the  affairs of an establishment and  where  the  said affairs  are  entrusted to a manager, managing  director  Or managing agent, such manager, managing director or  managing agent.  Thus the responsibility to pay the contributions  to the Fund was of the appellants and if they have defaulted in paying  the amount, they are liable to be  prosecuted  under Paragraph 76(a) of the Scheme which says that if any  person fails  to  pay any contribution which he is  liable  to  pay under  the Scheme, he shall be punishable with  six  months’ imprisonment  or with fine which may extend to one  thousand rupees  or  with both.  Such a personal liability  does  not fall within the scope of section 4(1)(a)(iv) of the Act. We  therefore  dismiss  the  appeal  and  direct  that   the prosecution shall proceed expeditiously. P.B.R.                      Appeal dismissed. 55