LML Ltd. Vs. State of U.P. &Ors - However, as observed above, the workmen would only be entitled to receive / recover their dues in accordance with the provisions of Section 53 of the Code.

 HC Allahabad (25.01.2022) in LML Ltd. Vs. State of U.P. &Ors [WRIT - C No. - 10015 of 2021] held that;

• Under the facts and circumstances of the present case, the petitioner-company being under liquidation, the plea for  remission of the back wages for reason of ‘impossible burden on the employer’ cannot be acceded to.

• It is for the Liquidator to assess the claims of the workmen also taking into account the impugned award of the Industrial Tribunal. Thereafter the proceeds from the sale of the liquidated assets can be distributed in accordance with the Code.

• As such, 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.

• In view of clause (b) of sub-section(1) of Section 53 of the Code. Only workmen’s dues for a period of 24 months preceding the liquidation commencement date are required to be distributed to the workmen in this priority. 

• With regard to the other debts and dues pertaining to workmen, the sums would be required to be paid in the order of priority mentioned at clause (f) of sub-section (1) of Section 53 of the Code.

• However, as observed above, the workmen would only be entitled to receive / recover their dues in accordance with the provisions of Section 53 of the Code.

 

Excerpts of the order;

This writ petition has been filed by the Company under liquidation through the authorized signatory of the liquidator against the following respondent:

• “1. State of U.P. through State of U.P. through its Principal Secretary, Labout Department, Government of U.P. Secretariate, Bapu Bhawan, Lucknow

• 2. Presiding Officer, Industrial Tribunal(III), Kanpur, Uttar Pradesh

• 3. LML Mazdoor Ekta Sangathan F-679, Barra-8, Kanpur”

The prayer in the petition is for quashing/setting aside the award dated 19.2.2020 published on 12.3.2020 made by the Industrial Tribunal. Further relief has been sought for restraining the respondents from proceedings against the petitioner-company pursuant to the aforesaid award.

 

The facts appearing in the present petition is that the Company was engaged in the business of manufacturing of geared scooters and had an employee strength of more than 6,000 employees including staff and workers. Around the late 1990s in view of the significant change in the consumer behavior towards motorcycles as opposed to scooters, the Company suffered substantial losses. On inability to arrange fresh working capital, the Company was only able to achieved partial restructuring in the year 2005. However, in view of the rapid erosion of the Company’s net worth, a reference was filed before the Board for Industrial and Financial Restructuring1 under the provisions of the Sick Industrial Companies (Special Provisions) Act, 19852. In the proceeding of BIFR held on 8.5.2007, an operating agency was appointed to prepare a revival scheme if feasible.

 

The workmen of the petitioner-Company resorted to strikes and demonstrations with effect from 27.2.2006, which paralyzed its functioning and a lockout was declared with effect from 7.3.2006. In order to salvage the Company’s business, the management of the Company and its workmen represented by the registered union of the Company namely Lohia Machines (LML) Karmchari Sangh3, engaged in protracted tripartite discussions and arrived at settlement on 13.4.2007 before the Additional Labour Commissioner, Kanpur Region, Conciliation Officer and Additional Labour Commissioner (IR) U.P., Head Office Kanpur. It is stated that since the inception of the petitioner-Company, and at the time of the negotiations, the interests of the workmen were represented solely by LMLKS. In terms of the aforesaid settlement, it was decided that the workmen would withdraw the strike and the lockout would be lifted with effect from 15.4.2007; that the petitioner-Company will take steps to revive the establishment and only such number of workmen shall be taken on work and employment in phases as per requirement of work and production as far as on departmental seniority basis, and all other workmen, save and except those who were required to resume work and production, shall stand laid off. The settlement further provided that the laid off workmen would be entitled to receive lay off compensation in the manner specified.

 

Thereafter, the lockout was lifted with effect from 15.4.2007 and the settlement was implemented. However, a small splinter group of workmen describing themselves as LML Mazdoor Union which was neither a registered nor a recognized union filed a Writ Petition No. 25445 of 2007 seeking to dissolve the settlement, which petition was dismissed by this Court. Subsequently, by means of a reference order dated 21.5.2008, the State Government suo moto referred an industrial dispute for adjudication to the Industrial Tribunal (respondent no. 2) on the following terms:

• “Whether the lay-off done by the employers in the industry from 15.04.2007 is correct and / or legal? If not, then what benefits / relief are the workman of the industry affected by lay-off are entitled to and what other details.” (English translation provided)

 

A corporate insolvency resolution process of the petitioner-company, which is a corporate debtor, was initiated pursuant to an order dated 18.5.2017 passed by the NCLT admitting the company petition bearing CP No. (IB)-55/ALD./2017 filed under Section 10 of the Insolvency and Bankruptcy Code, 2016. The NCLT issued consequential directions while passing an order of moratorium under Section 14 of the Code. Since, the resolution plan submitted by one Rimjhim Ispaat Limited was rejected by the Committee of Creditors in the meeting held on 21.1.2018, the NCLT, by means of its order dated 23.3.2018 ordered liquidation of the petitioner-company in the manner laid down in Chapter III of the Code and passed consequential directions. By the order dated 9.4.2018, the NCLT appointed a Liquidator. Pursuant to the order dated 23.3.2018 passed by the NCLT, the petitioner-company made a public announcement dated 16.4.2018. Around 2016 claims of workmen/employees were received. However, on perusal of the books of accounts and record, the Liquidator in accordance with the provisions of Regulation 19(4) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 admitted claims of 6337 workmen/ employees. The petitioner-company started disbursing funds of the employees/workmen whose claims were admitted and till the date of filing of the petition, the Liquidator had disbursed funds amounting to Rs. 37,03,28,557/- to 2946 workmen/employees of the Corporate Debtor/petitioner-company. However, by means of the impugned award dated 19.2.2020, the Industrial Tribunal answered the reference in favour of the workmen and held that the lay off of workmen on 15.4.2007 was illegal and for the period of lay off from 15.4.2007, the workmen are entitled to entire wages, allowances and benefits. It was further held that from 15.4.2007 till the closure of production of the unit of the factory or till the date of appointment of the Liquidator, the workmen who have received lay off compensation, the same would be adjusted and the payable amount would be disbursed within 30 days of the award by the employer/Liquidator.

 

It is contended that since the registration of the respondent-Union, was canceled by the order of the Court, therefore, under the provisions of Section 6(I) of the U.P. Act, none of its officers were entitled to represent the workmen before the Industrial Tribunal. It is contended that the validity of the settlement was upheld in Special Appeal before this Court, which order has become final and the lay off compensation contemplated in the settlement is strictly in accordance with the provisions of the U.P. Act. The contention is that after the repeal of the SICA, steps were taken by the Company before the NCLT under the provisions of the Code in which an order of moratorium was passed under the provisions of Section 14 of the Code. Given the order of the NCLT, the Labour Court ought not to have proceeded with the matter. It is further contended that once the order of liquidation was passed on 23.3.2018 and the Liquidator was appointed by NCLT by the order dated 9.4.2018, no award could have been made by the Industrial Tribunal for grant of full back wages and other dues in view of the provisions of Section 53 of the Code. It is contended that there was no material before the Industrial Tribunal to demonstrate want of gainful employment of the workmen after lay-off. Therefore, there was no occasion to grant back wages to the workmen. He has contended that the Tribunal has vaguely referred to new appointments being made without giving any specific details as to which new appointments were made and as such no adverse inference can be drawn against the petitioner-Company. Claims of 6337 workmen / employees of the petitioner-company had been admitted by the Liquidator and funds amounting to Rs.37,03,28,557/- had already been disbursed to the workmen/employees. It is contended that pursuant to the award of the Industrial Tribunal, the respondent-Union has called upon the Liquidator to compute the amount payable to the workers seeking implementation of the award. It is stated that the respondent-Union has not even submitted a list of workers, whose interest it claims to represent, and though, by a letter dated 05.11.2020, has claimed a sum of Rs.216.91 crores to be payable to 1338 workers, yet, it has sought payment of wages for the entire work-force by a letter dated 31.08.2020 that has been enclosed as Annexure-16 to the writ petition. No finding has been recorded in the award regarding the number of the workmen of the respondent-Union. Though the learned counsel for the petitioner-company has submitted a compilation of judgements and several judgements are mentioned in the pleadings, however, in support of his contentions, he has relied upon the following judgments:- 

• Parry & Company Ltd. Vs. P.C. Lal, Judge of the Second Industrial Tribunal; 

• B.Srinivasa Reddy vs. Karnataka Urban Water Supply & Drainage Board Employees’ Association & Ors.; 

• Tata Engineering and Locomotive Company Ltd. v. Their Workmen; 

• Surendra Kumar Verma vs. Central Government Tribunal-cum-Labour Court, New Delhi & Ors.; and 

• National Engineering Industries Ltd. vs. State of Rajasthan and Ors..

 

Representation of the workmen before the Industrial Tribunal:

In view of the facts and circumstances of the present case, the case of B. Srinivasa Reddy, is distinguishable. On the other hand, in the judgement of the Supreme Court in Newspapers Ltd. (supra) it was observed as follows:-

• “4. Then it was urged that the association which sponsored the case of Respondents 3 to 5 was an unregistered body and that made the reference invalid. Both the courts have held, and rightly, that it is not necessary that a registered body should sponsor a workman’s case to make it an industrial dispute. Once it is shown that a body of workmen, either acting through their union or otherwise had sponsored a workman’s case it becomes an industrial dispute.”

Under the circumstances, the challenge to the representation by the respondent-Union in seeking the reference or in appearing before the Industrial Tribunal cannot be sustained.

 

Consideration of the settlement by the Industrial Tribunal:

In view of the facts and circumstances mentioned above, the finding of the Industrial Tribunal with regard to the lay-off done on 15.04.2007 by the petitioner-company being completely unjustified and illegal, is correct and deserves no interference. There is no such perversity or arbitrariness in the impugned award of the Industrial Tribunal, with regard to this aspect of the matter, that would merit interference.

 

Award of back wages, allowances and consequential benefits:

Annexure No.2 to the writ petition is a summary record of proceeding of the hearing held on 08.05.2007 before the bench of the BIFR which reflects that the BIFR was satisfied that the petitioner-company had become a sick industrial company as on 31.08.2006 and had declared it to be so. The BIFR then appointed IDBI as the operating agency with directions to prepare a revival scheme for the petitioner-company, if feasible. The recital of the memorandum of settlement dated 13.04.2007, also reflects that the petitioner-Company was in precarious financial condition. It, therefore, appears that various unsuccessful efforts were made by the petitioner-company for revival of the Unit. Though the respondent-Union had successfully staked its claim before the Industrial Tribunal regarding the invalidity of the lay-off made pursuant to the settlement dated 13.04.2007, however, the recitals made in the settlement aforesaid with regard to the financial condition of the petitioner-company, as well as the fact that the company was declared sick by the BIFR, have not been disputed by the respondent-Union.

 

In the case of Surendra Kumar Verma (supra), which has been relied upon by the learned counsel for the petitioner-company, the Supreme Court held as follows:

• “6. We do not propose to refer to the cases arising under Sections 33 and 33-A of the Industrial Disputes Act or to cases arising out of references under Sections 10 and 10-A of the Industrial Disputes Act. Nor do we propose to engage ourselves in the unfruitful task of answering the question whether the termination of the services of a workman in violation of the provisions of Section 25-F is void ab initio or merely invalid and inoperative, even if it is possible to discover some razor’s edge distinction between the Latin ‘void ab initio’ and the Anglo-Saxon ‘invalid and inoperative’. Semantic luxuries are misplaced in the interpretation of ‘bread and butter’ statutes. Welfare statutes must, of necessity receive a broad interpretation. Where legislation is designed to give relief against certain kinds of mischief, the court is not to make inroads by making etymological excursions. ‘Void ab initio’, ‘invalid and inoperative’ or call it what you will, the workmen and the employer are primarily concerned with the consequence of striking down the order of termination of the services of the workmen. Plain common sense dictates that the removal of an order terminating the services of workmen must ordinarily lead to the reinstatement of the services of the workmen. It is as if the order has never been, and so it must ordinarily lead to back wages too. But there may be exceptional circumstances which make it impossible or wholly inequitable vis-à-vis the employer and workmen to direct reinstatement with full back wages. For instance, the industry might have closed down or might be in severe financial doldrums; the workmen concerned might have secured better or other employment elsewhere and so on. In such situations, there is a vestige of discretion left in the court to make appropriate consequential orders. The court may deny the relief of reinstatement where reinstatement is impossible because the industry has closed down. The court may deny the relief of award of full back wages where that would place an impossible burden on the employer. In such and other exceptional cases the court may mould the relief, but, ordinarily the relief to be awarded must be reinstatement with full back wages. That relief must be awarded where no special impediment in the way of awarding the relief is clearly shown. True, occasional hardship may be caused to an employer but we must remember that, more often than not, comparatively far greater hardship is certain to be caused to the workmen if the relief is denied than to the employer if the relief is granted.”

 

In the present case, the petitioner-company is under liquidation by the order of the NCLT as the Resolution Plan was rejected by the Committee of Creditors. The assets of the petitioner-company are being liquidated. It is not that the petitioner-company is continuing with its business or production, and that in that eventuality it would place an impossible burden on the employer if it is saddled with the liability of payment of back wages, etc. Under the facts and circumstances of the present case, the petitioner-company being under liquidation, the plea for  remission of the back wages for reason of ‘impossible burden on the employer’ cannot be acceded to. It is for the Liquidator to assess the claims of the workmen also taking into account the impugned award of the Industrial Tribunal. Thereafter the proceeds from the sale of the liquidated assets can be distributed in accordance with the Code. Therefore, the judgement of Surendra Kumar Verma (supra) is distinguishable.

 

At this stage, it is appropriate to consider certain facts and the provisions of the Code and the effect they would have on the impugned award made by the Industrial Tribunal. . . . .

 

On record as Annexure No. 14 to the writ petition is an affidavit dated 6.12.2019 given by the Liquidator before the Industrial Tribunal in which it is reflected that he was appointed Liquidator by the order of the NCLT dated 9.4.2018 and an undertaking was given by the Liquidator that if any monetary liability arises on the petitioner-company after the final disposal of the matter, the Liquidator undertook to safeguard the interest of the workmen in accordance with Section 53 of the Code.

 

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. Sub-section (7) of Section 33 of the Code provides that an order of liquidation under the Section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

 

The insolvency resolution process period has been defined in sub-section (14) of Section 5 of the Code, which reads as follows:

• “(14) “insolvency resolution process period” means the period of one hundred and eighty days beginning from the insolvency commencement date and ending on one hundred and eightieth day;”

 

As such, 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. The priority of distribution of the proceeds from the sale of the liquidation assets pertaining to workmen’s dues for the period of 24 months preceding the liquidation commencement date rank equally with the debts owed to a secured creditor where the secured creditor has relinquished security, in view of clause (b) of sub-section(1) of Section 53 of the Code. Only workmen’s dues for a period of 24 months preceding the liquidation commencement date are required to be distributed to the workmen in this priority. With regard to the other debts and dues pertaining to workmen, the sums would be required to be paid in the order of priority mentioned at clause (f) of sub-section (1) of Section 53 of the Code. In terms of clause (ii) of sub-section (3) of Section 53, the “workmen’s dues” would have the same meaning as assigned to it in Section 326 of the Companies Act, 2013 which reads as follows: . . . 

 

Thus, 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.

 

As regards the direction of the Industrial Tribunal for payment of back wages, it is contended that there was no material before the Industrial Tribunal to demonstrate want of gainful employment of the workmen after lay-off and therefore, there was no occasion to grant back wages to the workmen. However, in this respect, in the testimony of the witness on behalf of the petitioner-Company, no question was put to him whether the workmen were gainfully employed elsewhere. Even otherwise, 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.

 

With regard to the submission that the list of workers has not been furnished by the respondent-Union, in my opinion, given the facts of the present case and the findings of the Tribunal, that alleged omission would not come in the way of the workmen’s entitlement. 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, as observed above, the workmen would only be entitled to receive / recover their dues in accordance with the provisions of Section 53 of the Code.

 

Subject to the aforesaid observations, this writ petition is disposed of.

 

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