IMPORTANT POINT
Under Section 446 of Companies Act powers of Company Judge qua company under liquidation may be wide but that does not empower Company Judge to pass order making a distinct and separate corporation liable for liabilities of company in liquidation.

Headnote:Companies Act, 1956—Section 446—Punjab National Fertilizer and Chemical Ltd. Company (PNFC) became sick and winding up order was passed on 27.7.2001—Company had stopped paying wages to its workers from September, 1999—Company was promoted by appellant a State owned company which held 46.13% shares—Workers’ Association filed application before Company Court seeking direction to PNFC and appellant to pay salaries to employees and relief prayed was based on note of the Chief Minister—Company Judge directed appellant to release funds for wages of workmen—Appeal before Division Bench was dismissed — Appeal — Question was whether liability with respect to money due from Company in liquidation towards its workers could be fastened on independent Corporation? No.
       Held : There is no dispute that under Section 446 the Company Court can pass orders in relation to the Company in liquidation. The real question in issue in the case was whether the liability with respect to money due from the Company in liquidation towards its workers could be fastened on an independent corporation. The Company Court has chosen to fasten liability on a third party, i.e., the PSIDC while seized of proceedings with respect to the Company in liquidation (the PNFC). Was it legally permissible ?(Para 7)
       Under Section 446 the powers of the Company Judge qua a Company under liquidation may be wide, but that does not empower the Company Judge to pass an order making a distinct and separate corporation, a third party, liable for the liabilities of the Company in liquidation. This aspect unfortunately has not been adverted to either by the learned Company Judge or by the Division Bench of the High Court.(Para 10)
       Here the issue is when there are two independently legal entities can an order be passed that one company will be liable for the dues of the other to a third party. Can a Company Court pass such a direction without consideration of the question of legal liability of the company sought to be made liable? As a result of the above discussion we hold that the PSIDC could not be made liable for the dues owned by the PNFC to its workers. The appeal is accordingly allowed. The orders of the Company Court as well as of the Division Bench of the High Court which are under challenge in this appeal are set aside. (Para 14)

JUDGMENT

Arun Kumar, J.—M/s. Punjab National Fertiliser and Chemical Limited (hereinafter referred to as ‘PNFC’) is a Company limited by shares and is registered as a company under the Companies Act, 1956. This company was promoted by the Punjab State Industrial Development Corporation Limited (hereinafter referred to as ‘PSIDC’) and the PSIDC held 46.13% shares in it. On recommendation of the BIFR (Board for Industrial & Financial Reconstruction) under the Sick Industrial Companies (Special Provisions) Act, 1985, the winding up order was passed qua the PNFC on 27th July, 2001.

2. In view of its financial difficulties the PNFC stopped paying the wages to its workers from September, 1999. The workers were therefore agitating for payment of their wages. It appears that they approached the Chief Minister of the State of Punjab in this behalf. On a proposal put forth by the concerned department, the Chief Minister on 25th August, 2001 made the following note :

“It is not a question of legality or statutory obligation. It is an issue involving of a large number of employees who has going without salary. Even legally they are entitled for their pay and emoluments till the actual date of winding up.

Considering that there is resource constraint within the PSIDC, the offer of Finance Department to permit PSIDC to raise resources by market borrowing with State guarantee should be pursued.

Exercise may be done in a time bound manner so that disbursement of 6 months salary as requested by the Food & Supplies Minister, is not delayed. After the disbursement the matter be reported.”

3. The workers’ association, that is respondent No.1 filed an application before the Company Judge in the High Court of Punjab and Haryana under Rule 9 of the Companies (Court) Rules, 1959 seeking a direction to PNFC (represented by Official Liquidator) and PSIDC to pay six months salaries to the employees.

4. In their application, the workers sought relief mainly on the basis of the said note of the Chief Minister terming it as an order of the Chief Minister. On the said application of the workers, the learned Company Judge passed an order on 16th May, 2002 directing PSIDC to release funds in terms of the order of Chief Minister dated 25th August, 2001 to the Official Liquidator within a period who was directed to disburse it to the workmen after examining the claim of each workman.

5. The PSIDC applied for review of the said order of the Company Judge on the ground that it was not in a sound financial position to make the payment. Secondly, the PSIDC denied its liability to pay on the ground that the workers who were to be paid were not the workers of the PSIDC. Lastly, it was represented that the interest of the workers was protected because the workers dues were the first charge on the sale proceeds of assets of the Company in view of Section 529 A of the Companies Act. The review application was dismissed vide order dated 7th June, 2002. Thereafter, the appellant filed an appeal against the order of the Company Judge dated 16th May, 2002 before a Division Bench of the High Court. The said appeal was dismissed vide order dated 4th July, 2002 which is subject-matter of the present appeal.

6. While disposing of the appeal, the High Court rightly observed that the question for consideration in the appeal was whether the Company Court has jurisdiction to direct the PSIDC to release funds in terms of the order passed by the Chief Minister on 25th August, 2001. However, the appeal was dismissed on the ground that the Company Court had jurisdiction to issue such a direction having regard to Section 446(2)(d) of the Companies Act without adverting to the question of liability of the PSIDC in law, for making such payment.

7. There is no dispute that under Section 446 the Company Court can pass orders in relation to the Company in liquidation. The real question in issue in the case was whether the liability with respect to money due from the Company in liquidation towards its

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2006 Supreme(SC) 316

IMPORTANT POINTUnder Section 446 of Companies Act powers of Company Judge qua company under liquidation may be wide but that does not empower Company Judge to pass order making a distinct and separate corporation liable for liabilities of company in liquidation.

Cases Referred (1)

IMPORTANT POINT
Under Section 446 of Companies Act powers of Company Judge qua company under liquidation may be wide but that does not empower Company Judge to pass order making a distinct and separate corporation liable for liabilities of company in liquidation.