Krishi Foundry Employees Union Vs. Krishi Engines Limited and ors. - Court Judgment

Excerpt:
company - statutory dues - section 529-a of companies act, 1956 - subsidiary company ordered to be wound up - petitioners (employees of subsidiary company) claimed statutory dues of wages from holding company - holding company had not guaranteed any payment of dues of subsidiary company - employees of subsidiary company cannot be treated as employees of holding company - held, section 529-a has no application to employees of subsidiary company as subsidiary and holding company are separate legal entities. - - as the subsidiary company has no other assets other than the industrial sheds/ plots obtained from apiic on hire purchase, claims of the workers of the company shall have to be satisfied out of the assets of the holding company. he would like this court to apply the principle of.....orderv.v.s. rao, adv.introduction1. m/s. krishi engines limited (hereinafter called, holding company) was ordered to be wound up by this court by judgment dated 16.10.2000 passed in c.p. no. 64 of 1997. the official liquidator attached to this court was appointed as provisional liquidator under section 452 of companies act, 1956 (for short, the act). the liquidation process of the holding company is at final stages. m/s. krishi foundry employees union (hereinafter called, the union) filed a claim petition with official liquidator along with workers of the holding company. the official liquidator after adjudication of their claim passed an order dated 15.4.1997 to the effect that the claim of the union cannot be included in the claim of the workmen of holding company in liquidation against.....

Judgment:
ORDER

V.V.S. Rao, Adv.

Introduction

1. M/s. Krishi Engines Limited (hereinafter called, holding company) was ordered to be wound up by this Court by judgment dated 16.10.2000 passed in C.P. No. 64 of 1997. The Official Liquidator attached to this Court was appointed as Provisional Liquidator under Section 452 of Companies Act, 1956 (for short, the Act). The liquidation process of the holding company is at final stages. M/s. Krishi Foundry Employees Union (hereinafter called, the Union) filed a claim petition with Official Liquidator along with workers of the holding company. The Official Liquidator after adjudication of their claim passed an order dated 15.4.1997 to the effect that the claim of the Union cannot be included in the claim of the workmen of holding company in liquidation against estate of the holding company. When the Official Liquidator adjudicated claim of the union the subsidiary company was not in liquidation. Be it also noted that the order of the Official Liquidator dated 15.4.1997 became final and it was not challenged before any authority much less this Court.

The Present Company Applications

2. M/s. Krishi Foundry Limited (hereinafter referred to as subsidiary) which was initially incorporated us Private Limited Company under the Act on 4.2.1961 later converted as Public Limited Company (hereinafter called, subsidiary company) in 1976 and became a subsidiary of the holding company in the same year. The subsidiary company had 69 employees on its rolls. Itwas catering to the requirements of its holding company by manufacturing mouldings and engine components. The subsidiary became sick and its management was taken over by A.P. Industrial Development Corporation (APIDC) by virtue of orders issued by the Government of Andhra Pradesh being G.O. Ms. No. 150, dated 18.2.1976 and G.O. Ms. No. 151 dated 4.4.1988. But, APIDC stopped operations of the subsidiary company along with operations of holding company without any lay off or lock out. The employees were discharged from their duties. APIDC did not pay wages of the workers since 1986. As per orders of this Court in W.A. Nos. 1 159, 1183 and 1371 of 1987 wages were paid for three months from October, 1986 to December, 1986. In those circumstances, the applicant union issued a statutory notice dated 5.4.1997 calling upon the subsidiary company to pay dues within three weeks from the date of receipt of notice and having received no response, the Union filed Company Petition No. 64 of 1997 under Sections 433(e) and (f), and 439 of the Act for winding up the subsidiary company. This Court ordered advertisement of the petition, but none appeared. As many as sixty two employees filed affidavits before the Company Court. This Court by order dated 16.10.2000 ordered winding up of Krishi Foundry Limited.

3. The petitioner Union claims that for all practical purposes, the business of the subsidiary company was treated as part of the holding company. Both the companies are one economic entity and the business transactions, property, bank, employees and management of both the companies are treated as one unit. They are different operating spheres of single business unit and entire financing was by the holding company. The workers and employees of subsidiary company and holding company were considered inter-transferable and they were transferred to subsidiary company toholding company and vice versa on regular basis. They contend that all the assets of the subsidiary company can be called upon to satisfy the liabilities of the holding company which is in liquidation and conversely, the assets of the holding company can be held responsible for the debts and liabilities of the subsidiary company,

4. It is their further case that the subsidiary company has no assets of its own except two factory sheds allotted by the A.P. Industrial Infrastructure Corporation Limited (APIIC) on hire purchase in 1977. The total claim of all the members of the Union is to the tune of Rs. l,94,06,312/-. They have already submitted a claim petition before the Official Liquidator in Company Petition No. 64 of 1997. The Official Liquidator has not decided the claim of the workers and it is likely to take sometime. As the subsidiary company has no other assets other than the industrial sheds/ plots obtained from APIIC on hire purchase, claims of the workers of the company shall have to be satisfied out of the assets of the holding company. On 17.9.2001 sale of open land belonging to holding company in favour of A.P. Housing Board was confirmed and an amount of Rs. 19.70 crores was realised. The total liabilities of the holding company are about Rs. 14.97 crores and therefore even after meeting all the liabilities there would be surplus amount of Rs. 4.73 crores. The workers of the subsidiary company are also entitled to be considered for satisfaction of their claims from out of the assets of the holding company inasmuch as liability of the subsidiary company has to be considered as liability of the holding company.

5. With the above factual background, the union filed these two applications. C.A. No. 319 of 2002 is filed under Rule 9 of the Companies (Court) Rules, 1959 praying this Court to hold that the workers of the Krishi Foundry Limited are entitled to claimwages against the available assets of the holding company and for a consequential direction to Official Liquidator to admit and quantify the claims of the workers of the company and pay them out of the assets of the holding company. C.A. No. 320 of 2002 is filed for ad interim order to direct the Official Liquidator to keep apart an amount of Rs. 1,94,06,312/- out of the assets of the holding company.

Respondents' case

6. The Official Liquidator has filed counter-affidavit opposing these two applications. It is stated that Krishi Engines Limited, the holding company, was ordered to be wound up on 16.11.1991 and the applicant union filed a claim along with workers of the holding company. The Official Liquidator by adjudication order dated 15.4.1997 held that as subsidiary company is not in liquidation and as both holding company and subsidiary company are distinct and separate entities in law, the union's claim cannot be included in the claim of the workmen of the holding company against estate of the holding company. The subsidiary company cannot be deemed to be wound up along with holding company notwithstanding the contributory factors that the management is the same, and there were internal transactions and transfer of employees from one to other. The allegation that the assets of the holding company in liquidation can be applied for discharge of liabilities of its subsidiary in liquidation is denied. As both of them have distinct corporate entities, the liabilities/obligations and assets are different and the holding and subsidiary relationship does not confer any obligation on the holding company in liquidation to discharge the liabilities of the subsidiary company which is also in liquidation. The assets of the holding company in liquidation have to be applied for discharge of its liabilities on pro rata basis to those creditors whose debts wereadmitted as against that company as on the date of the order for winding up. The assets of the company have to be applied first to the secured creditors on pari passu basis with the claim of the workmen of this company as on the date of the order for winding up and later on the surplus has to be applied for discharging other creditors, namely, preferential and unsecured creditors leaving further surplus to the benefit of the shareholders. The workmen of the subsidiary company submitted a claim for an amount of Rs. 1.84 crores and the same is pending adjudication before the Official Liquidator in C.P. No. 64 of 1997 for want of funds to the credit of the subsidiary company in liquidation. The subsidiary entered into hire purchase agreement with APIIC for two factory sheds bearing Nos. B.31 and B.32 at Sanathnagar and they were sold by APIIC without leave of the High Court. The application filed by the Official Liquidator being C.A. No. 525 of 2001 in C.P. No. 64 of 1997 seeking declaration under Section 537 of the Act that the sale effected by APIIC is void was dismissed by this Court on 28.1.2001. The assets and funds of the holding company cannot be applied for discharging liabilities of its subsidiary company.

7. Respondent Nos. 5 and 6, namely, Industrial Development Bank of India (IDBI), and Industrial Credit and Investment Corporation of India (ICICI) filed a common counter opposing both the applications. They plead that the holding company and subsidiary company are two separate entities, that the Board of Directors of each of the company is different and that the Board of Directors of one company does not control the affairs of the other company. The Union has to prefer the claim for realisation of the assets of the subsidiary company, but not the holding company. Even if subsidiary company has not declared lay off or lock out, the same is not relevant for the purpose of deciding the issue,especially when the business of the subsidiary company and the holding company were treated separately.

Subsmissions:

8. The learned Counsel for the applicant, Sri L. Venkateswara Rao submits that though the subsidiary company was incorporated, later the same was treated as part and parcel of the holding company and therefore employees and workmen of the subsidiary can be deemed to be workmen of the holding company. Secondly, he would urge that there are instances where the workmen of subsidiary company were transferred to holding company and vice versa. There was inter-changeability of employees. He would like this Court to apply the principle of lifting veil and hold that the workmen of the subsidiary company are workmen of the holding company as well. These contentions are strongly refilled by the learned Counsel for the Official Liquidator, Sri M. Anil Kumar and the learned Counsel for respondent Nos. 5 and 6 Sri V.S.Raju. They also contended that lifting of veil cannot be resorted to when the company is in liquidation.

Points for consideration

9. The submissions give rise to two questions. These are (1) the question of lifting the veil, and (2) the question of right of the workmen of the subsidiary company under Section 529A of the Act.

In Re Point No. 1:

The Doctrine of lifting the veil

10. The learned Counsel have relied on Spencer and Co. v. Commr. Wealth Tax, 69 Madras 359, Workmen, Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. Bhavnagar, : (1986)ILLJ142SC , State of U.P. v. Renusagar Power Co., (1988) 3 Comp. LJ 1 (SC), Union Carbide Corporation v. Union of India, (1991) 3 Comp LJ 213 (SC), Hackbridge-Hewittic and Easun Ltd. v. G.E.C. Distribution Transformers Ltd., (1992) 74 Comp. Cases 543 (Mad), A. Shanmugham v. Official Liquidator, (1992) 75 Comp. Cases 181, U.K.Mehra v. Union of India, (1994) 1 Comp LJ 263 (Del), New Horizons Ltd. v. Union of India, : (1995)1SCC478 , Inalsa Ltd. v. Union of India, (1996) 87 Comp. Cases 599 (Delhi) and Cement Corporation of India Ltd. v. B.B.V. Krishnam Raju, : (2000)ILLJ757AP .

11. The company incorporated under the Companies Act is entirely different from its shareholders. It has its own name, seal and assets. It is distinct juristic person inviolable personality. Whether it is a holding company or subsidiary company, this fundamental principle of company law does not get obliterated. It remains always same. Both the companies remain distinct and independent of each other though in the case of holding company and subsidiary company the former may to some extent be inter-dependent of the latter and vice versa. It is no doubt true that the doctrine of lifting the veil has been applied in the case of holding company and subsidiary company. The same, however, is not universal principle. To a limited extent, in certain situations, the holding company was held omnipotent in the affairs of the subsidiary.

12. When the holding company is liable for the debts of the subsidiary Palmers Company Law (Palmers Company Law 24th Edn., 1987), made the following statement in this regard:.The legal principle is clear: In principle, 'the separate legal existence of the constituent companies of the group has to be respected'..,..The rule in Salomon v. Salomon & Co. Ltd., thus prevails;....That is particularly so when the creditors of the holding company are different from those of the subsidiary, aswill normally be the case. However, the holding company is liable for a debt of the subsidiary if it has guaranteed that debt or if it can be established, as a matter of fact, that the subsidiary has acted in a particular transaction as an agent of the holding company or that there has been an abuse of the corporate form.

13. The legal position in India is no different. I may also refer to some of the decisions relied on by the Counsel. In Spencer and Co. v. Commr. Wealth Tax (supra) a Division Bench of Madras High Court held:

It is well settled that an incorporated company is a legal person and it cannot be equated to its shareholders. The position continues to be the same even if the number of the shareholders is reduced to one by accident or otherwise. The act of the company cannot, therefore, be regarded as that of any of the shareholder and vice versa. It is true that occasionally the corporate veil of a company is pierced through in order to find out the substance but that is only where it is permitted by a statute or in exceptional cases of fraud.

14. In Workmen, Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. Bhavnagar (supra) the Apex Court was dealing with a case arising under Payment of Bonus Act, 1965. Associated Rubber Industry Limited (Aril) had purchased shares of INARCO Limited and was getting annual dividend. The dividend paid by INARCO was also taken into Account for the purpose of calculating bonus payable to the workmen. In 1968 Associated Rubber transferred the shares of INARCO to Aril Holdings Limited, a subsidiary wholly owned by the Associated Rubber Industry Limited. The dividend income from the shares of INARCO received by Aril Holdings was not transferred to the Associated Rubber Industry Limited and, therefore, it did not find place in the Profit and Loss account of the Company. Therefore, (he available surplusfor the purpose of bonus to workmen was reduced and 4% bonus was paid instead of 16%, which they were earlier paid. The workmen raised industrial dispute claiming 16% bonus. The Industrial Tribunal as well as the High Court under Article 226 of the Constitution of India rejected the case of the workmen holding that the Associated Rubber Industry and Aril Holdings are two independent companies with separate existence and therefore profits made by Aril Holdings are not profits of Associated Rubber Industry. The Supreme Court as a question of fact found that Associated Rubber Company transferred its shares to INARCO Holdings which has no assets of its own except the shares transferred to it and with no business or income of its own, and that it was a mere smoke-screen adopted by the Associated Rubber Industry to deprive the workmen. It was observed that in a situation like that, it is the duty of the Court, where ingenuity is expended to avoid taxing and welfare legislations to get behind the smokescreen and discover the true state of affairs, and the Court is not to be satisfied with form, but should consider substance of a transaction. Dealing with the facts of the case presented, the Apex Court observed:.A new company is created wholly owned by the principal company, with no assets of its own except those transferred to it by the principal company, with no business or income of its own except receiving dividends from shares transferred to it by the principal company and serving no purpose whatsoever except to reduce the gross profits of the principal company. These facts speak for themselves. There cannot be direct evidence that the second company was formed as a device to reduce the gross profits of the Principal company for whatever purpose. An obvious purpose that is served and which stares one in the fact is to reduce the amount to be paid by way of bonus to workmen. It is such an obvious device that no further evidence, direct or circumstantial, is necessary. It was argued that in 1971, theAril Holdings Ltd. was wound up and amalgamated with the Associated Rubber Industry Ltd. and that this circumstance showed that the initial creation of Aril Holdings Ltd. was not a device of avoidance. But the learned Counsel for the company was unable to explain why in the first instance Aril Holdings Ltd. was created and why later it was wound up.

15. In LIC v. Escorts Ltd case (supra) it was held:

Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since, that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.

16. In State of U.P. v. Renusagar Power Co. (supra), the Supreme Court considered the scope of the Doctrine. The facts in the said case may be noticed. M/s. Hindustan Aluminium Corporation Limited (Hindalco), established an Alumina Factroy at Renukoot, in Mirzapur District, Uttar Pradesh. Another company M/s. Renusagar Power Company Limited (Renusagar), a wholly owned subsidiary of the Hindalco was incorporated in 1964. It commissioned generating unit in Renusagar in October, 1968. By the U.P. Electricity (Duty) Act, 1952, power companies producing electricity were required to pay duty. However, Hindalco was exempted from payment of the duty. Renusagar was supplying its electricity to Hindalco and therefore it was excisable to duty in respect of its supply to Hindalco. Therefore, after starting its AluminiumFactory in 1964, Hindalco sought sanction of the Government to supply electricity and subsequently it also sought exemption of duty on the energy supplied by Renusagar. The same was rejected by the Government of U.P. based on report of three-man committee. The rejection order was challenged before the High Court of Allahabad. In the meanwhile, the State Government granted exemption from payment of excise duty on the energy consumed by any person from its own source of generation. The High Court quashed the order of the State Government and directed to re-consider the application of Hindalco. Subsequently also, the Government disallowed the request for exemption. Again a writ petition was filed in Allahabad High Court which was allowed by quashing the order of the Government rejecting the application for exemption. The matter was carried in appeal to the Supreme Court. The Supreme Court considered the question whether Renusagar is 'own source of generation of electricity' for Hindalco and whether the order passed by the State Government is in accordance with the principles of natural justice. It was contended that the Court can disregard separate legal entity of the company only where the company or firm have legal obligations. The Apex Court referred to the decisions in Harold Holdsworth and Co. (Wakefield) Ltd. v. Caddies, (1955) 1 All ER 725, Scottish Co-operative Wholesale Society Ltd. v. Meyer, (1958) All ER 66, Charterbridge Corporation Ltd. v. Lloyds Bank Ltd. (1969) 2 All.ER 1185, Western Coalfields Ltd. v. Special Area Development Authority, : [1982]2SCR1 and Life Insurance Corporation of India v. Escorts Ltd., : 1986(8)ECC189 , and laid down as under:

It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of thesituation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, Indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminum. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was accepted by Hindalco to avoid complications in case of take over of the power station by the State or the Electricity Board. As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco, Renusagar is wholly-owned subsidiary of Hindalco and is completely controlled by Hindalco. Renusagar has at no point of time indicated any independent volition. Whenever felt necessary, the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern, and the generation in Renusagar as the own source of generation of Hindalco. In the impugned order, the profits of Renusagar have been treated as the profits of Hindalco.

17. In Hackbridge-Hewittic and Easun Ltd. v. G.E.C. Distribution Transofrmers Ltd. (supra) a Division Bench of Madras High Court considered the question of lifting the veil and it was observed:

Indeed, what has come to stay as an organic theory, under which the doctrine has departed from the orthodox approach extending the rule of piercing the veil to know the true character of a person, has in essence made it almost obligatory to make a closer examination as to whether the principal and subsidiary like principal and agent exist for each other or as one mind thus as organs of each other. It is often said that a corporation is an abstraction. It has no mind of its own any more than it has a body of its own. Its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really thedirecting mind and will of the corporation, the very ego and centre of the personality of the corporation. The orthodox approach that a company is a legal entity in itself and thus whether it is a subsidiary of another or not, is of no meaning or consequence for fixing the responsibility of the activities of one upon another.... Thus, on the principle aforementioned, the fact that the subsidiary company has a distinct legal personality does not suffice to dispose of the possibility that its behaviour might be imputed to the parent company. Such may be the case in particular when the subsidiary, although being a distinct legal personality, does not determine its behaviour on the market in autonomous manner but essentially carries out the instructions given to it by the parent company. When the subsidiary does not enjoy any real autonomy in the determination of its course of action on the market, it is possible to say that it has no personality of its own and that it has one and the same as the parent company.

18. In U.K. Mehra v. Union of India, (1994) 1 Comp LJ 263 (Del.), a Division Bench of Delhi High Court observed that where a subsidiary is wholly owned by the principal company which has a pervasive control over it and the former acts as the hand and voice of the latter, the subsidiary would be nothing but an instrumentality of the principal company, and wherever public interest demands, the Court must lift the corporate veil in the interest of justice. In New Horizons Ltd. v. Union of India (supra), the Supreme Court considered the doctrine of lifting the corporate veil in the context of award of contract by the State. It was held that if a joint venture is formed by two different companies with substantial capital participation the experience of one of them can be treated as experience of joint venture company for the purpose of pre-qualification responsiveness. Though the learned Counsel have cited various other decisions it is not necessary to proliferate the authorities. But, the conspectus of variousauthorities and various precedents may be noticed.

19. In company law, separate legal entity of incorporated body, has to be maintained for reasons more than one. Nonetheless, the lifting of corporate veil or piercing the corporate veil is permissible if public interest requires. This is also subject to considerations of permissibility as per the statute. If the company uses other concern; a firm, society or association, only to facilitate evasion of legal obligation like payment of direct or indirect taxes or denial of statutory benefits to workmen, the Court has to disregard the separate legal entity of the company. In such an event the question before the Court is one of company law, and the corporate personality of the company is of secondary importance. The important test is whether the method adopted for evasion of legal obligations would subvert public interest.

20. Applying these principles to the facts of the case on hand, it is no doubt true that undisputedly the subsidiary company was supplying its produce to the holding company. That, however, is not crucial. To start with, subsidiary was incorporated as private limited company and later converted as public limited company and made a subsidiary of the holding company. Board of Directors were different. It is not disputed that the employees of the subsidiary company were recruited by the subsidiary company and there was no employment policy in the holding company to take employees from subsidiary either by transfer or deputation from the holding company. The stray cases where some employees were sent to holding company is not crucial unless there was any common cadre of service in both holding company and subsidiary company. Nothing is pleaded or proved that holding company stood guarantee for any of the loans raised by subsidiary company. It is not denied that securedcreditors of the holding company and subsidiary company are different. Financial investments were different. Therefore, while deciding the question whether workmen and employees of the subsidiary company can be treated as such of holding company, it is not permissible to pierce the corporate veil of subsidiary company. Whether holding company has any legal obligation under industrial law or company law to safeguard the interests of the employees of the subsidiary company This question is next point for consideration in this case.

In Re Point No. 2 :

Section 529-A and Employer of Subsidary

21. Chapter-V of the Act contains provisions applicable to every mode of winding up. When a company is in winding up all debts and all claims against the company shall be admissible to proof against the company of the value of such debts or claims (See Section 528). All debts and 'all claims against the company' can only be admitted by the Official Liquidator. When a company is ordered to be wound up, the order is specific that the company whose winding up is sought under Section 433 of the Act, alone can be treated as 'company in liquidation' and not its subsidiaries. Therefore, all claims against holding company in liquidation can only be admitted.

22. Under Section 529A which was inserted by Companies (Amendment) Act, 1985 the dues of the workmen shall be given top priority to all other debts. Therefore, the dues of the workmen of the company in liquidation without any doubt are 'claims against the company' subject to proof and not all persons engaged by a holding company directly or indirectly can be 'treated as workmen. The terms 'workmen', 'workmen's dues' and 'workmen's portion' are explained by Sub-section (3) of Section 529 of the Act, which reads as under.

529(3). For the purpose of this Section, Section 529A and Section 530,--

(a) 'workmen', in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);

(b) 'workmen's dues', in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:--

(i) all wages or salary including wages payable for time or piece-work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947);

(ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order of resolution;

(iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in Section 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company;

(iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company;

(c) 'workmen's portion', in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of--

(i) the amount of workmen s dues; and

(ii) the amounts of debts due to the secured creditors

23. The definition of workmen as defined in Industrial Disputes Act, 1947, by reference is the definition of workman for the purpose of company law. As per Section 2(s) of Industrial Disputes Act the definition of workman is as follows:

2(s) 'Workman' means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purpose of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with or, as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to the dispute, but does not include any such person--

(i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or

(ii) who is employed in the police service or as an officer or other employee of a prison; or

(iii) who is employed mainly in a managerial or administrative capacity; or

(iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or byreason of the powers vested in him functions, mainly of a managerial nature.

24. A plain reading of Section 2(s) of the Industrial Disputes Act, would show that any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward under a contract of employment is a workman. It does not include any person of such person who can be called workman unless he is employed in industry/company. It is settled law that in order to bring a person within the definition of 'workman' it must inter alia be proved that he was employed in industry. If a person or employee employed in connection with operations incidental to the main industry, such person in given circumstances can also be called as workman. However, every remote purpose cannot be considered as incidental operation.

25. In J.K. Cotton Spinning and Weaving Mills Co., Ltd. v. LA. Tribunal of India, : [1964]3SCR724 , it was held that in dealing with the question of 'incidental relationship' with the main industrial operations, the totality of operations must be kept in view and not every incidental operation will be called an industrial activity. As already seen, the holding company and subsidiary company are two entities which are incorporated at different point of time under two different managements. It may be true that the mouldings and castings manufactured by subsidiary were supplied to holding company, but it cannot be said that the holding company was carrying on its business only with the aid of mouldings and castings supplied by subsidiary. It also cannot be inferred that the workmen of subsidiary were working in incidental operations of the holding company. It is settled principle that when there is subsisting contract of service under master, it is bar to serve any other master and therefore a workman cannot have two masters at a time.

26. The definition 'workman' presupposes the relationship of master and servant. By no stretch of imagination the person appointed in Krishi Foundry Limited can be said to be workman of Krishi Engines Limited though former may be subsidiary. In fact the definition of the company also does not permit such inference. The holding company is a separate company and has its subsidiary and for the purpose of company law both are separate legal entities and both have its own employment policy and workmen in one company cannot be treated as workmen of the other.

27. In Cement Corporation of India Ltd. v. B.B.V. Krishnam Raju (supra) a Division Bench of this Court, to which I was a party, considered the question whether employees of a company which is transferred to another company, can also be transferred to the transferee company After referring to Pyarechand Kesarimal Porwal Bidi Factory v. Onkar Laxman Thenge, 1973 (1) SLR 946, Jawaharlal Nehru University v. Dr. K.S.Jawalkar, 1989 (3) SLR 730 and Kundan Sugar Mills v. Ziauddin, : (1960)ILLJ266SC , this Court summed up the legal position as under.

(a) An employer has no inherent right to transfer his employee to another place where he chooses to start a business subsequent to the date of employment in the absence of express term of contract of service and such a power cannot be implied as a condition of service of employment.

(b) The transfer of a branch/unit/factory/place of business activity by one employer/ owner to another employer/owner would not automatically result in the transfer of employment of the employee from one to another.--

(c) The general principle that a subsisting contract of service under one master is a bar to serve any other master, leads to a conclusion that the services of an employee cannot be transferred withoutan express and explicit consent of the employee to serve the new master/ employer.

(d) Even where an employee works with another employer on being lent by the original employer to the hiring employer, for a particular work such arrangement does not result in the transfer of the contract of service between the employer and his employee but only amounts to transfer of benefit of service;

(e) In view of the principles 'a' to 'd' above, a contract of service is incapable of transfer unilaterally unless it is a result of valid and binding Tripartite agreement between the employer, employee and the third party in which event the original contract of service stands terminated by mutual consent and a new contract of service between the new employer and the employee comes into force; and

(f) When an employer unilaterally transfers the services of the employee to the new employer, even if the employee discharges services with the new employer, it shall not amount to acquiescence or waiver to act as a bar for the employee to question his transfer to the new employer.

28. Such being the right of the workmen employed by one industry and managed by one company, the workmen cannot be transferred without consent of the other company or industry. It is no doubt true that when the industry in which a workman is employed is closed down or transferred to a transferee company is given certain protection by law under Section 25FF of the Industrial Disputes Act, but when an industry becomes sick, the workman cannot be treated as workman or employees of the company which is a holding company. This needs a little elucidation as under.

29. A person who is a workman for the purpose of Section 2(s) of the industrial Disputes Act ceases to be a workman if heis not dismissed, discharged or retrenched employee. If a workman is dismissed, retrenched, discharged, he can still be a workman for the purpose of Industrial Disputes Act and for the purpose of claiming benefits under the said Act. In the event of closer of industry, the workmen would suffer retrenchment even if there is no specific order retrenching such workmen. A reading of provisions of Section 25FFF, Sub-section (8) of Section 25O and Section 25F of the Industrial Disputes Act would show that the relationship of 'master' and 'servant' between workman and employer in the event of industry being closed down ceases and the same would result in retrenchment. The retrenchment is not in the sense that there is voluntary act resulting in severance of relationship between master and servant, but deemed retrenchment. The deemed retrenchment can only result when the management satisfies certain legal requirements. If an industry is not covered by Chapter V-B, Section 25FFF casts an obligation on the management to issue notice to the workman who has been in continuous service for not less than one year in that undertaking immediately before such closer and also to pay compensation in accordance with the provisions of Section 25 of the Industrial Disputes Act. In the case of an industry covered by Chapter-V-B management of the establishment which is permitted to close down under Section 25O has to comply with the provisions of Sub-section (8) of Section 25O, in that, the undertaking has to pay compensation to every workman which shall be equivalent to fifteen days average pay for every completed year of continuous service or any part thereof in excess of six months. Indeed, in Imambhai v. R.P.F.Commr., Ahmedabad, 1982 (2) LLJ 1036, a Division Bench of Gujarat High Court held that where the industry is covered by provisions of Section 25FFF, the contract of service does not automatically stand rescinded merely because theundertaking stops its manufacturing activities and that the contract of service can only be terminated by a notice of termination by recourse to appropriate procedure for collective or individual retrenchment. Yet again, in D.S. Vasavada v. P.F. Commissioner, 1985 (1) LLJ 263, another Division Bench of Gujarat High Court dealing with a case arising under Section 25FFF of the Industrial Disputes Act observed as under:

Any person employed continues to be employed until the services are validly terminated by the employer or by mutual agreement the services come to be terminated or the employee resigns from such service. The cessation of work by an employer by closing his mill may not by itself terminate the services of the employees. An employer may close his mill for many reasons, such as non-availability of raw material, non-availability of requisite power, temporary financial difficulties or such other situations. Merely because he stops working the factory, it need not be that we services of the employees stand automatically terminated; they continue in service. The requirement of a valid closure which alone will put an end to the services of the employees are to be found within the provisions of the Industrial Disputes Act... It is one thing to say that a man has closed his business, another to say that he has retrenched his employees. He may close his business and may not choose to send away his employees as actually has been done in regard to some mills before us or he may not advert to it at all nor apply the mind to it, it is only when closure in accordance with the enactment is effect that there would be termination of service.

30. It is the case of the union that the subsidiary company became sick and management of affairs was taken over by APIDC by reason of orders issued by the Government in G.O. Ms. No. 150 dated 18.2.1976 and G.O. Ms. No. 151 dated 4.4.1988. The petitioner did not raise any objection when there is change ofmanagement. Further, when admittedly APIDC stopped all affairs of subsidiary company, they filed a writ petition and this Court passed orders directing to pay wages. By that time, the company petition filed against the holding company being C.P. No. 14 of 1987 was pending and the same was ordered to be wound up on 16.11.1991. The members of union continued with subsidiary company till it was ordered to be wound up. The union did not take any steps for their rights against the holding company, but only proceeded against subsidiary company and rightly so. This is also an indication that the members of the petitioner union never claimed themselves to be workmen of the holding company. Further, after this Court wound up subsidiary company on 9.11.1998 they also moved the Official Liquidator and filed a claim before the Official Liquidator in the liquidation proceedings of subsidiary company. After having realised that subsidiary company has no assets and what all assets it had, namely two sheds, were sold by APIIC they chose to file applications before the Official Liquidator staking their claim under Section 529-A of the Act. Section 529-A of the Act, as already held, has no application to the employees of the subsidiary company. It gives right to workmen of holding company to seek priority payment out of liquidation proceedings. By reading Sections 528, 529 and 529-A of the Act together, it is not possible to hold that the workmen of subsidiary company have any legal claims as against the realized assets of the company in liquidation,

31. In the result, for the above reasons,these applications are dismissed with no orderas to costs.