Great Indian Motor Works Ltd. and Another vs Their Employees and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 447 of 1957

Decision Date: 6 May 1959

Coram: Bhuvneshwar P. Sinha, P. B. Gajendragadkar, K. N. Wanchoo

In this matter, the Supreme Court of India considered the case titled Great Indian Motor Works Ltd., and another versus Their Employees and Others, decided on 6 May 1959. The judgment was delivered by a bench consisting of Justice Bhuvneshwar P. Sinha, Justice P.B. Gajendragadkar and Justice K.N. Wanchoo. The petitioner was Great Indian Motor Works Ltd., together with another party, while the respondents were the former employees of the company and other persons. The citation for the decision is 1959 AIR 1186 and 1960 SCR (1) 13. The dispute arose under the Industrial Disputes (Appellate Tribunal) Act, 1950, specifically concerning an award made against a company that was in liquidation, and involved an appeal lodged by the managing director who was also the purchaser at auction of the company’s business. The issue before the Tribunal was whether an employer-employee relationship existed between the auction-purchaser and the employees who had been dismissed before the business was bought, and whether the auction-purchaser could be considered an aggrieved party capable of appealing the award. The Tribunal held that no such employer-employee relationship existed, that the reference to the auction-purchaser was therefore incompetent, and directed the liquidators to pay compensation to the dismissed employees. The High Court subsequently refused the liquidators permission to appeal the award. The auction-purchaser, acting both as managing director of the company before its liquidation and as the purchaser at auction, filed an appeal in the name of the company. The Appellate Tribunal dismissed the appeal as incompetent, invoking section 120 of the Industrial Disputes (Appellate Tribunal) Act, 1950 and section 457 of the Companies Act, 1956, on the ground that the appeal lacked the required sanction of the court. The Court held that a party who has been exonerated from the terms of a reference and against whom no award has been made cannot be considered an aggrieved party within the meaning of section 12 of the Industrial Disputes (Appellate Tribunal) Act, 1950, and therefore any appeal by that party is invalid. Moreover, only the official liquidator, who is placed in charge of the company’s affairs during winding up, is authorized by the court to institute suits, file appeals or commence other legal proceedings on behalf of the company. The Court further clarified that there is no inconsistency between section 457 of the Companies Act, 1956 and section 12 of the Industrial Disputes (Appellate Tribunal) Act, 1950; however, if any inconsistency should arise, the provisions of the 1950 Act would prevail. Consequently, the appeal purportedly filed on behalf of the company in liquidation through its managing director was wholly incompetent, and the second appellant, the auction purchaser, could not maintain an appeal.

The Court observed that the provision of the Companies Act of 1956 deals with a very limited situation and merely imposes a condition precedent to the institution of any suit, namely that the suit must be brought by the liquidator when a company is in the process of winding up. Section twelve of the Industrial Disputes (Appellate Tribunal) Act of 1950, by contrast, is the ordinary statutory rule that permits any party who is aggrieved by an award to file an appeal before the Appellate Tribunal, an appeal that would otherwise be unavailable. The Court held that section twelve neither expressly nor by necessary implication overrides, repeals or modifies the requirements of section 457 of the Companies Act, nor does it dispense with the requirement that the liquidator obtain the necessary sanction of the court before instituting any suit or proceeding in the name of, or on behalf of, a company that is being liquidated. Consequently, in the present matter the appeal that was purported to be filed on behalf of the company in liquidation through its managing director was wholly incompetent, and the second appellant, who was the purchaser at auction, could not be considered an aggrieved party for whose benefit section twelve of the Act could be invoked. The Court then turned to the formal aspects of the appeal. It noted that this was a civil appeal under special leave, numbered 447 of 1957, directed against the order dated 1 August 1956 of the Labour Appellate Tribunal of India, Calcutta, which had dismissed in limine the appeal against the award of the Third Industrial Tribunal dated 8 March 1956. Counsel for the appellants was D N Mukherjee and counsel for the respondent was Y Kumar. The judgment was delivered on 6 May 1959 by Justice Sinha. The Court set out that the first appellant was the Great Indian Motor Works Ltd., a company now in liquidation, represented by one of its managing directors, K D Nundy. The same K D Nundy, in his capacity as creditor of the company and/or as the purchaser at auction, was the second appellant. The first respondents were 142 employees of the company, collectively represented by the Bus Workers’ Union. The second and third respondents, C D Nundy and D L Dutt, were the Official Liquidators appointed by the High Court. The factual background disclosed that the company had been incorporated under the Indian Companies Act of 1913 in 1926 as a private limited company with its registered office in Calcutta. Its principal business was the operation of public transport on Route 14 in the city of Calcutta and also the dealing in and repair of motor vehicles. The authorized capital amounted to six lakh rupees divided into 600 shares of one thousand rupees each, of which only four lakh rupees had been subscribed and paid up. The registered shareholders were Kristo Das Nundy, the second appellant, who held 246 shares; Chandy Das Nundy, respondent No 2, who held 142 shares; and Kumar Kartick Charan Mullick, who held twelve shares, each share having a face value of one thousand rupees.

The company’s share capital comprised six hundred shares of one thousand rupees each, of which four hundred thousand rupees had been subscribed and paid up. The registered shareholders were Kristo Das Nundy, the second appellant, who held two hundred and forty-six shares; K. D. Nundy, identified as respondent No 2, who held one hundred and forty-two shares; and Kumar Kartick Charan Mullick, who held twelve shares, each share having a face value of one thousand rupees. Because of serious financial difficulties and disputes among the shareholders, respondent No 2 filed an application on the Original Side in the Calcutta High Court seeking compulsory winding up of the company. The court issued an order for winding up on 23 July 1951 and appointed the Official Receiver as the Official Liquidator of the company. An appeal against that order was filed but was dismissed on 5 December 1951, thereby confirming the winding-up order. Subsequently, by an order dated 11 December 1951, the Official Receiver was discharged from his duties and respondents 2 and 3 were appointed as joint official liquidators in his stead, with authority to sell the business as a going concern. In April 1953 the court settled the list of creditors, and the second appellant was recorded as a creditor for the largest amount, namely rupees 2,35,818. It is noteworthy that the former employees of the company were not included in the creditor list settled by the court. After several unsuccessful attempts to sell the company’s property by auction, the court on 4 May 1954 ordered that the business be sold free from all encumbrances, out-goings and liabilities to the highest bidder, subject to the court’s confirmation. The second appellant, with the court’s permission, placed a bid and was declared the highest bidder, purchasing the business for rupees 1,42,500 at the sale held on 12 June 1954. The Calcutta High Court confirmed this sale on 5 July 1954. On 23 July 1954 the joint official liquidators issued a notice terminating the services of all employees of the company with effect from 24 July 1954, retaining only one assistant and one clerk until the winding-up proceedings were completed. On 24 July 1954 the official liquidators handed possession of the company’s business to appellant No 2, the auction-purchaser, who thereafter has been carrying on the business as a sole proprietor. The termination of the services of the one hundred and forty-two employees gave rise to an industrial dispute raised by those employees, whose list was attached to the order of reference dated 26 August 1954. That order records that an industrial dispute exists between (1) Messrs Great Indian Motor Works Ltd., represented by Managing Directors C. D. Nundy and K. D. Nundy; (2) the Official Liquidators of the company, D. L. Dutta and C. D. Nundy; and (3) K. D. Nundy, the auction-purchaser of the company.

In the order of reference dated 26 August 1954, the dispute was described as existing among Messrs Great Indian Motor Works Ltd., the Official Liquidators of the Company and the auction-purchaser, together with the 142 employees whose names appeared on the annexed list. The employees were represented by the Bus Workers’ Union, whose address was 249 Bowbazar Street, Calcutta, and the dispute related to the matters set out in the accompanying schedule. The order observed that it was appropriate to refer the dispute to an Industrial Tribunal constituted under section 7 of the Industrial-Disputes Act, 1947 (XIV of 1947). Accordingly, exercising the authority granted by section 10 of the same Act, the Governor directed that the dispute be referred to the Third Industrial Tribunal, which had been constituted by Notification No. 592 Dis./D/12L-5/12 dated 23 February 1953. The Governor’s order further provided that the Tribunal could convene at such places and on such dates as it might deem suitable.

The schedule attached to the order framed three specific questions for determination: first, whether the notice dated 23 July 1954, issued by the Joint Official Liquidators and announcing the termination of service of the 142 employees effective 24 July 1954, was justified; second, whether the refusal of the auction-purchaser to retain the employment of those 142 workers was justified; and third, what relief the employees were entitled to by order of the Governor. Following the issuance of the order of reference, the employees filed an application before the High Court seeking directions that the Liquidators should pay their dues arising from the Company. By its order dated 8 September 1954, the High Court directed the Liquidators to settle, within one week, all arrears of salary owed to the workmen. The Court further ordered that, within one week of receipt of the proceeds from the auction-sale, the Liquidators should pay to weekly-paid workers one week’s wages in lieu of notice, to fortnightly-paid workers two weeks’ wages, and to monthly-paid workers one month’s wages. The Court also instructed the Directors to hold any remaining sale proceeds pending further orders.

The order of reference makes it clear that, in addition to the Official Liquidators, the second appellant – the auction-purchaser – was impleaded as a party to the reference in his capacity as purchaser of the Company’s business. In his written statement filed before the Third Industrial Tribunal of West Bengal, which had jurisdiction over the matter, the auction-purchaser set out the factual background of his acquisition and asserted that, as an auction-purchaser, he bore no liability for any compensation or other dues claimed by the workmen. He contended that he was under no obligation to reinstate the former employees, emphasizing that he had acquired the business free of any encumbrances and therefore could not be held responsible for the workmen’s claims. He further argued that his participation as a party to the proceedings was unnecessary and that he had been improperly dragged before the Tribunal. Nevertheless, he acknowledged that he had previously served as one of the Managing Directors of the Company, but maintained that his relinquishment of that role occurred automatically upon the liquidation order.

After hearing the submissions of all parties, the Tribunal delivered its award on 8 March 1955. In that award, the Tribunal granted, among other reliefs, compensation to the workmen under section 25(F)(b) of the Industrial Disputes Act, 1947. The Tribunal directed that the Company should pay the awarded compensation within two months from the date the award became enforceable, thereby providing a specific timeframe for compliance with its directions.

The Court observed that the award became enforceable with respect to those workmen who had been found entitled to compensation. It noted that the proceedings before the Industrial Tribunal had been initiated without obtaining the required sanction of the High Court in the liquidation proceedings. During the pendency of those proceedings, the High Court, by an order dated 20 December 1955, granted the workmen permission to continue their proceedings against the Official Liquidators of the Company. Accordingly, the Industrial Tribunal directed that, as far as the Liquidators were concerned, the compensation awarded to the workmen could be recovered only from the assets that were in the Liquidators’ possession in accordance with law. With regard to the auction-purchaser, the Tribunal issued further directions stating that the auction-purchaser had bought the various sections of the business operating under the name “The Great Indian Motor Works” free from any encumbrances and all outgoings and liabilities, as shown in exhibits D and E, and that this purchase was confirmed on 5 July 1954. After the sale was confirmed and before the auction-purchaser took possession, the Liquidators terminated the employment of all employees, except the accountant and one clerk, by a notice dated 23 July 1954, which was to take effect on 24 July 1954. The auction-purchaser obtained possession on 24 July 1954, at which time no employer-employee relationship existed. In these circumstances, the Tribunal held that the dispute with the auction-purchaser could not be characterised as an “industrial dispute” because there was no employer-employee relationship between the auction-purchaser and the former staff who had already been discharged. The Tribunal therefore agreed with the counsel for the auction-purchaser that any reference concerning the auction-purchaser was incompetent. Moreover, since the auction-purchaser had acquired the business free from encumbrances, outgoings and liabilities and had not undertaken to retain the former staff, his refusal to continue the employment of one hundred and forty-two employees could not be deemed unjustified. The Court clarified that a purchaser who acquires a business with all assets and liabilities as a going concern is bound to retain the existing employees, but this obligation does not arise where the purchase is made free of such liabilities. The award was accordingly made against the Liquidators only. Of the two Liquidators, only Debendra Lall Dutt filed an application to the High Court seeking directions for preferring an appeal, while the other Liquidator, Chandy Das Nundy, opposed the application for leave to appeal. On 30 April 1956, the High Court dismissed the application and refused leave to the Liquidators to appeal against the award. It was in this context that the appellants, namely Messrs. Great Indian Motor Works Ltd., represented by the Managing Director K.D. Nundy as the first appellant, proceeded with the subsequent proceedings.

In this case, K.D. Nundy, acting as creditor and/or contributory of Great Indian Motor Works Ltd., which was under liquidation, and also as the purchaser at auction, filed an appeal before the Labour Appellate Tribunal of India on 3 May 1956. He was designated appellant number two. The appeal named the one hundred and forty-two employees, represented through the Bus Workers’ Union, as the principal respondents. The Official Liquidators of the company, C.D. Nundy and D.L. Dutt, were listed as pro forma respondents. The workers filed a counter-appeal on 17 May 1956. In that proceeding they impleaded the company, represented by its managing directors C.D. Nundy and K.D. Nundy, as the first respondent; they also named the Official Liquidators D.L. Dutt and C.D. Nundy as second-party respondents; they named K.D. Nundy, the auction purchaser, as a third respondent; and they included the workers who were not represented by the Bus Workers’ Union as a fourth group of respondents. The Court did not reproduce the substantive grounds of either appeal because the present consideration turned on the preliminary question of whether the appeals were maintainable. The Labour Appellate Tribunal adjudicated both appeals by an order dated 1 August 1956. The Tribunal held that the appeal filed by the appellant was incompetent under section 179 of the Indian Companies Act, 1913, which had been re-enacted as section 457 of the Companies Act, 1956. The Tribunal’s finding of incompetence was based on the earlier order of the Calcutta High Court dated 30 April 1956, which had refused leave to the liquidators to prefer an appeal. It is significant that the appeal before the Tribunal was not brought by the liquidators but by K.D. Nundy in his capacity as managing director and also as creditor, contributory, or auction purchaser. The Tribunal did not examine whether that distinction affected the requirement for High Court sanction and simply concluded that the appeal was not maintainable because it lacked such authorization. Accordingly, the workers’ counter-appeal was also dismissed on the ground that the primary appeal had been struck down as unauthorized. The appellants subsequently sought special leave to appeal to this Court against the Tribunal’s order dismissing the appeal in limine. Their principal contention was that the Tribunal erred in holding the appeal to be unauthorised and therefore non-maintainable. The matter before us, therefore, is to determine whether the Tribunal correctly dismissed the appeal on the basis that the liquidators had not obtained the requisite sanction from the Calcutta High Court to challenge the award of the Industrial Tribunal, and whether the appellants possessed any locus standi to prefer such an appeal.

In this case, the Court observed that if the appellants possessed only a personal right to appeal, distinct from any right to appeal on behalf of the Company, then no further question would arise for determination. Conversely, the Court explained that should the order of the Appellate Tribunal be found erroneous, at least with respect to the appellants’ personal appeal, the matter would have to be remanded so that the Appellate Tribunal could rehear the appeal. The appellants contended that, in accordance with sections 12 and 3 of the Industrial Disputes (Appellate Tribunal) Act 48 of 1950—repealed by Act 36 of 1956 and the governing law for appeals before the Tribunal—their appeal was competent and therefore should have been heard on its merits. The Court set out the language of the two sections for interpretation. Section 3 provides that the provisions of the Act and the rules made thereunder shall have effect notwithstanding any inconsistency with any other law then in force or any instrument having effect by virtue of such law. Section 12 states that an appeal under the Act against any award or decision of an industrial tribunal may be presented to the Appellate Tribunal either by any party aggrieved by the award or decision, or by the appropriate Government or the Central Government where it is not the appropriate Government, irrespective of whether that Government is a party to the dispute. The Court then turned to the question of whether any provision of the Indian Companies Act, particularly section 179 of the Companies Act 1913 (re-enacted as section 457 of the Companies Act 1956), conflicted with the provisions of the Industrial Disputes (Appellate Tribunal) Act. The Court affirmed the principle that if any provision of the Companies Act were inconsistent with the Act, the latter would prevail. Consequently, the Court interpreted section 12, which specifically governs appeals, as permitting any aggrieved party to present an appeal to the Appellate Tribunal. The Court noted that this is a conventional statutory mechanism for an appeal that would otherwise not exist. The provision does not, either expressly or by necessary implication, repeal or modify the particular requirements of the Companies Act, nor does it remove the need for the Court’s sanction when a liquidator seeks to institute proceedings. Under the Companies Act, the affairs of a company in liquidation are placed under the control of the Official Liquidator, and section 457 authorises only the liquidator, with the Court’s approval, to commence any suit or other legal proceeding in the name and on behalf of the company.

The Court observed that there is no conflict between the provisions of the Industrial Disputes Act and the Companies Act, because the Companies Act merely imposes a condition precedent for a liquidator to file an appeal when a company is being wound up. This condition applies only to a very specific situation and does not affect the general right of any party to appeal an award. In the present case, the Court had refused to grant the liquidators the requisite sanction to lodge an appeal; consequently, no appeal could lawfully be filed on behalf of the company. Accordingly, the portion of the appeal that claimed to represent the company through its managing director was entirely incompetent.

However, the appeal was also lodged by Mr K D Nundy in his capacity as a creditor, contributory, and purchaser at auction of the company’s business. The Court explained that, for this part of the appeal, only a party to the reference who was aggrieved by the award could be permitted to appeal. Mr Nundy was not a party in the capacities of creditor or contributory; he had been impleaded solely as the auction-purchaser of the company's business. The Tribunal’s order made clear that no award had been made against him in that capacity, and therefore he could not be said to be an aggrieved party, having been released from the terms of the award.

The Tribunal justified its view on three grounds. First, it held that the auction-purchaser had acquired the business free of all encumbrances, out-goings and liabilities. Second, it noted that the liquidators had terminated the employment of the workmen before handing over possession of the business to the purchaser. Third, it observed that there was no employer-employee relationship between the auction-purchaser and the workmen whose services had been terminated. Based on these considerations, the Tribunal declared the reference to be incompetent insofar as the auction-purchaser was concerned. That declaration was made at the request of the auction-purchaser himself, and he succeeded in obtaining an order that the reference was incompetent with respect to his interest.

Given these facts, the Court concluded that the auction-purchaser was not an aggrieved party under the award of the Industrial Tribunal. Consequently, the provisions of section 12 of the Industrial Disputes Act did not apply to the appeal that the auction-purchaser purported to file. The Court found it puzzling that, after having secured an order in his favour, the auction-purchaser would later change his position and attempt to lodge an appeal that was, in view of the circumstances, untenable. In the Court’s opinion, the Labour Appellate Tribunal was therefore correct in dismissing the appeal filed by the company and by the auction-purchaser as incompetent.

The Court observed that the petitions filed by both the Company and the auction-purchaser were deemed incompetent for the purposes of the statutory provisions governing such appeals. Because the Court found the applications to be legally infirm, it concluded that it was not required to examine the substantive issues that were raised in the proceedings. Consequently, the Court expressly refrained from forming any opinion on the merits of the controversy that had been raised in the abortive appeal. In the absence of any determination on the substantive points, the dismissal of the appeal was made without prejudice to any rights that the appellants might have under the law. The order therefore states that the appeal is dismissed, but that the parties shall each bear their own costs of the proceedings. This direction regarding costs follows from the principle that where a court does not reach the merits of a dispute, it should not impose cost liabilities on either side. Accordingly, the Court entered an order dismissing the appeal and directing each party to bear its own expenses, noting expressly that no consideration was given to the merits of the controversy. The final order therefore records that the appeal is dismissed.