Delhi High Court
Case BriefsHigh Courts

Delhi High Court: Manoj Kumar Ohri J. dismissed the petition as the employer-employee relationship was established by a witness before the court and strict rules of evidence are not applicable in such cases. 

  

The facts of the case are such that Respondent 1 (hereinafter, referred to as ‘the workman’) filed a claim application seeking compensation under the Employees’ Compensation Act, 1923 for injury suffered by him during the course of his employment with the firms namely, Sanjeev Hosiery and Maha Laxmi Hosiery. He was working as a Machine Man since January, 2003 till November, 2005 and his last drawn salary was Rs.8, 000/- per month when he met with an accident. It was claimed that the workman at the time of the incident was about 33 years of age and had suffered disability of about 60%. It was also stated that the services of the workman were terminated on the same day i.e., the date of the incident. The Commissioner, while passing the impugned order allowed the claim petition of the workman and awarded him compensation of Rs. 2, 87,136/- along with interest @ 12%. The instant appeal under Section 30 of the Employees’ Compensation Act, 1923 (hereinafter, referred to as the ‘Act’) was filed seeking setting aside of the order/judgment passed by the Commissioner, Employee Compensation, North District, Delhi. 

  

Counsel for appellants submitted that that the workman has failed to discharge the onus of proving the employer-employee relationship as the workman has claimed that no appointment letter, identity card, attendance card, etc. was ever given to him by the management in question. 

  

Counsel for respondents submitted that the procedure before the Employee Compensation Commissioner is summary in nature and thus rules of evidence are not to be strictly followed. 

  

Issue 1: Relationship of Employer and Employee 

The Court observed that inasmuch as the workman has claimed that no appointment letter, identity card, attendance card, etc. was ever given to him by the management in question. The statement of the workman to this effect is supported by that of co-workman, who was admittedly an employee of the firm(s) on the date of the accident and stated that such documents were not provided to employees by the management. It has also come on record by way of the Inspectors’ reports that the firm(s) in question was not registered. 

  

Issue 2: Reports not proven by scribe 

The Court relied on judgment Om Prakash Batish v. Ranjit, (2008) 12 SCC 212 and opined those proceedings before the Commissioner under the Workmen’s Compensation Act, the provisions of Code of Civil Procedure and Evidence Act are not applicable. The Commissioner can lay down his own procedures and for the purpose of arriving at the truth, rely upon such documents which are produced before it. 

  

The Court held “respondent 1/workman was able to establish his case before the Commissioner; the appeal is dismissed and directed the Commissioner to release the compensation amount in favor of the workman forthwith.” 

[Maha Laxmi Hosiery v. Govind Singh, FAO 548 of 2016, decided on June 6, 2022] 


Appearances: 

For petitioner- Mr Kaushal Yadav and Mr Manish Bansal 

For respondent- Mr Hari Kishan and Mr HS Kohli 


*Arunima Bose, Editorial Assistant has reported this brief.

 

Case BriefsHigh Courts

Allahabad High Court: The Division Bench of Manoj Kumar Gupta and Chandra Kumar Rai, JJ., in compliance of previous order of the Court perused the affidavit filed on behalf of the State in relation to laying down the Standard Operating Procedure (SOP) to be followed in cleaning sewers and septic tanks. 

Additional Advocate General appearing on behalf of the State submitted that strict instructions have been issued to all local bodies to ensure full compliance of the laid down SOP. Special emphasis was made to the provisions relating to  

(a) insurance of the life of workers engaged in hazardous cleaning;

(b) complaint redressal system and helpline number;

(c) making it imperative to constitute a Responsible Sanitation Authority (RSA) and Emergency Response Sanitation Unit (ERSU) in every urban area.

Another important decision in the meeting was taken for preparing a project repost jointly by Social Welfare Department and Labour Department prescribing revision of wages, compensation, insurance amounts and other facilities for the sanitation workers. 

Advocate on behalf of Respondent 6 submitted that  cleaning work of 202 drains in the city is being done with the help of mechanised machines. The affidavit also disclosed about the safety gears and uniform provided by the Nagar Nigam to the contractors engaged in cleaning of drains and making sure that the gear was used properly while carrying out the tasks. 

Amicus filed certain recent photographs where safai karmis were still seen working in the drains without any protective gear. 

The Court opined that a lot has been done on paper but the benefits have not trickled down to the beneficiaries. Only framing SOPs and guidelines without having any mechanism in place to ensure implementation is of no use. The Court requested the Chief Secretary and other respondents to ponder over the issue and take concrete measures for implementation so that some change is discernible in the working conditions of the sanitary workers. The Court believed that SOPs and other beneficial schemes framed by the Government will not serve its objectives unless the workers are educated of their rights and entitlements.  

The Court directed the respondents to prepare a brief one page pamphlet specifying the rights and entitlements of the workers and widely publicize it in the newspapers, on the notice board of the local body and other mediums of mass communication . 

On suggestion of the Court, a separate portal would be created, accessible to common citizen where they can upload photographs to highlight the plight of the sanitary workers, it was also stated that the complaints received on the portal would be addressed within 24 hours. Considering the onset of monsoon, the matter was urgently posted for hearing on 13-06-2022. 

[In Re Ensuring The Security of Life and Safety Of Health of The Workmen And Employees Engaged v. Chief Secretary, 2022 SCC OnLine All 405, decided on 07-06-2022] 


For Petitioner: Suo Motu PIL on the basis of the newspaper report, Vibhu Rai 

For Respondent: C.S.C., Satyavrat Sahai 


*Suchita Shukla, Editorial Assistant has reported this brief. 

 

Case BriefsHigh Courts

Delhi High Court: Prathiba M. Singh, J., while reiterating that there is no absolute bar on legal practitioners representing Management before Labour Courts, observed that:

Judicial decisions on the question of consent, including implied consent, have primarily turned on the facts of each case.

Instant petition challenged the order by which Counsel for the Petitioner-Management was not permitted to represent his client before the Industrial Tribunal.

Counsel for Petitioner-Management submitted that the impugned order was completely contrary to the prevailing law on the issue inasmuch as Advocates are permitted to represent the management, so long as there was no objection by the workman or the litigation expenses were paid.

Further, the Counsel submitted that the authorized representative of the Management was appearing at the time when pleadings were being exchanged and other procedural formalities were being completed. However, when the matter reached the stage of trial, the Management thought it fit to engage the services of an Advocate for tendering evidence and conducting cross-examination. Accordingly, Counsel Sabharwal had been engaged in the matter.

Adding to the above, Counsel submitted that it is the usual practice before Labour Courts that Advocates appear and represent the management as well as the workmen.

In the present case, Rajesh Khanna was an authorized representative for the Workmen and one such representative of the trade union, regularly appearing for workmen before the Labour Courts. He submits that the Management would be enormously prejudiced if the Workmen are permitted to be represented by an expert and the Management is not allowed to engage an Advocate.

Analysis, Law and Decision

Question for consideration is in respect of the representation of Advocates before the Labour Courts.

As per Section 36(4) of the Industrial Disputes Act, 1947, both parties i.e., the workmen and the management, are permitted to be represented by a legal practitioner with the consent of the other party and with the leave of the Court

From the judgement in Paradip Port Trust, Paradip v. Workmen, (1977) 2 SCC 339, it is clear that there is no absolute bar and if consent is given by the workmen, a lawyer can appear before the Labour Court.

Whether there was consent – implied or expressed, and whether leave ought to be granted by the Adjudicator concerned.

In the recent decision of the Supreme Court in Thyssen Krupp Industries India Private Limited v. Suresh Maruti Chougule [Civil Appeal No. 6586/2019], the clear conclusion would be that a legal practitioner can represent the management before the Labour Court, if the litigation expenses for the workman to engage the advocate are paid by the management.

“…as the matter reaches trial, it would be inapt to say that the management or the workmen would not be entitled to engage Advocates or legal practitioners to represent them, in accordance with law. If the Management wishes to be represented by a legal practitioner, the Court can consider the question of whether the workman has given consent or not, whether impliedly or otherwise. “

Court directed that the parties shall appear before the Labour Court on 20-09-2021.[A&B Fashions (P) Ltd. v. Ramesh Kumar, WP (C) 8929 of 2021, decided on 24-08-2021]


Advocates before the Court:

For the Petitioner: Vinay Sabharwal, Advocate

Mr Raj Birbal, Ms Raavi Birbal and Mr Gunjan Singh, Advocates assisting the Court

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: The Division Bench comprising of S. Manikumar, CJ and Shaji P. Chaly, J., heard the instant PIL regarding demand to give adequate and sufficient compensation to the workmen, who died on 13-04-014 inside the manhole of Kerala Water Authority sewerage pipeline. It was stated that when the employees were engaged in manhole of sewerage pipelines, adequate and necessary safeguards ought to taken by the Water Authority officials, so as to avoid any accident.

The petitioner relied on the order of Supreme Court in Delhi Jal Board v. National Campaign for Dignity and Rights of Sewerage and Allied Workers, (2011) 8 SCC 568, wherein the Court had issued guidelines, instructions and orders to be adhered, while workers are entering inside the manhole of sewerage pipeline for cleaning. According to the petitioner, the presence of at least an Assistant Engineer of the Kerala Water Authorities in the workplace was mandatory.

Engaging of workmen by the principal employer, Kerala Water Authority, without providing adequate and sufficient gears and tools like oxygen masks to the workers, resulted in the death of two poor workmen inside the manhole.

The Police and Fire and Rescue Service personnel, who had reached the spot, did not have the necessary required tools, to rescue the poor workmen.

Reliance was also placed by the petitioner on Safai Karamchari Andolan v. Union of India, (2014) 11 SCC 224, wherein the Supreme Court had laid down detailed directions for the upliftment of manhole workers.  The following directions were issued:

(i) The persons included in the final list of manual scavengers under Sections 11 and 12 of the 2013 Act, shall be rehabilitated as per the provisions of Part IV of the 2013 Act, in the following manner, namely:-

(a) such initial, one time, cash assistance;

(b) their children shall be entitled to scholarship

(c) allotment of a residential plot and financial assistance for house construction, or a ready-built house with financial assistance;

(d) at least one member of their family, shall be given  training in livelihood skill and shall be paid a monthly stipend during such period;

(e) at least one adult member of their family, shall be given, subsidy and concessional loan for taking up an alternative occupation on sustainable basis;

(f) shall be provided such other legal and programmatic assistance, as the Central Government or State Government may notify in this behalf.

(ii) If the practice of manual scavenging has to be brought to a close and also to prevent future generations from the inhuman practice of manual scavenging, rehabilitation of manual scavengers would need to include:-

(a) Sewer deathsentering sewer lines without safety gears should be made a crime even in emergency situations. For each such death, compensation of Rs. 10 lakhs should be given to the family of the deceased.

(b) Railways – should take time bound strategy to end manual scavenging on the tracks.

(c) Persons released from manual scavenging should not have to cross hurdles to receive what is their legitimate due under the law.

(d) Provide support for dignified livelihood to safai karamchari women in accordance with their choice of livelihood schemes.

(iii) Identify the families of all persons who have died in sewerage work since 1993 and award compensation of Rs.10 lakhs for each such death to the family members depending on them.

(iv) Rehabilitation must be based on the principles of justice and transformation.  

In the light of pronouncement of the Supreme Court in Safai Karamchari Andolan case the Bench ordered the state to pay compensation of Rs 10,00,000 each, to the family members of the persons, who died in sewerage work (manholes, septic tanks). Court, within a period of two months in addition to Rs 4,00,000 which had been already paid to the wives of the deceased.[Baisil Attippety v. Kerala Water Authority, WP(C) No. 11185 of 2014, decided on 18-03-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance before the Court by:

For the petitioner: Adv. K.P. Pradeep

For the respondents: Sr. Adv. P. Benjamin Paul, Sr. GP. V. Tek Chand and Sr. Adv. Millu Dandapani

Case BriefsHigh Courts

Bombay High Court: S.C. Gupte, J., addressed a group of petitions that challenged four sets of identical awards passed by Labour Courts under the Industrial Disputes Act, 1947.

What led to Industrial Disputes and Complaints of Unfair Labour Practice?

Workmen’s case was that though the work in the factory was of perennial nature, it was performed through temporaries from a pool of workers by a rotational system, seeing it that throughout the relevant period none could complete 240 days of continuous service and thus keeping them away from secure permanent jobs.

700 workmen approached the Industrial Court with complaints of unfair labour practice invoking items 5, 6 and 10 of Schedule IV of the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971.

A group of 300 workmen chose to initiate conciliation proceedings under the Industrial Disputes Act, 1947 upon failure of which, the State Government referred the matters to Labour Courts for adjudication.

Issues for Consideration:

Precise issues, which arise for the consideration of this Court are as follows:

(I) Whether the termination of services of temporary workmen in the present case could be termed as termination as a result of non-renewal of the contract of employment on its expiry or under a stipulation in that behalf contained in the contract and thus, amounting to an exception to the definition of ‘retrenchment’ contained in Clause (oo) of Section 2 of the ID Act? Or whether the rotational arrangement, such as the one in the present case, where there are continuous temporary engagements of the same workmen over long periods of time (adopted as a strategy to deny benefits of permanency to the concerned workmen), does not amount to an engagement on a fixed period contract so as to form an exception under sub-clause (bb) of Clause (oo) of Section 2 of the ID Act?

(II) Whether,

(a) Sundays and holidays during the period of service could be counted within 240 days as per the applicable Standing Orders so as to make up aggregate service of 240 days in a year within the meaning of the Standing Orders and

(b) such 240 days should be reckoned as forming part of the calendar year of 12 months immediately preceding the dates of termination?

(III) Should a Labour Court dealing with terminations of workmen in a reference under the ID Act refuse to consider their claim of permanency?

The two factual aspects here are as follows:

  • Whether for inquiry Court can simply focus on the last termination of each of these workmen and disregard their earlier engagements and terminations?
  • Rotational Pattern said to have been adopted for engagement of these workmen – whether such pattern exists, for if it does, the legal question as to whether the terminations, including the last, come within the definition of retrenchment under Section 2(oo) and not within the excepting clause, namely, clause (bb) thereof

Analysis, Law and Decision

Clause (bb) as referred above applies to two situations:

  • where the termination is a result of non-renewal of the contract of employment between the employer and the concerned workman upon its expiry; and
  • where such termination is the result of a contractual stipulation contained in the contract of employment.

In the present case, the company’s is with regard to the contract made for a specific period and its non-renewal upon expiry.

The respondent company employed a rotational scheme for more than 13 years.

A pool of temporaries is maintained and anywhere between four to eight thousand temporaries from out of this pool are employed in rotation, some of them on 8 to 14 times, each time for a duration not exceeding seven months.

The classical idea behind retrenchment has been surplusage. A fixed period contract, on the other hand, implies either that for some particular work or project or due to a spurt in the demand and the resultant need for increased activity, there is a special need for a certain employee or number of employees and accordingly, need for a contract of employment for the particular work or project, or for the particular fixed period.

Court notes in the present case to be perennial work, work which is no different from what is performed by the permanent workmen of the company, for which temporaries were engaged. The said engagement was found to be over 13 years.

Bench found that the employment of the workmen in the present case was neither for any particular work or project nor was brought to an end after a fixed period due to wanting of work upon expiry of the period of contract.

The engagements were brought to an end purportedly at the expiry of the stipulated period of contract only to see that they get an artificial break (during which others from the waiting list were employed) only to be re-employed and this went on – again and again.

High Court in view of the above discussion stated that the above pattern appeared to have been designed with a view to avoiding any legitimate claim of permanency of tenure on the part of workmen concerned. 

Deprivation of Status and Privileges of Permanent Employees

Clear recipe of an unfair labour practice, notorious in the industry, of employing ‘badlis’, casuals or temporaries and continuing them as such for years, with the object of depriving them of the status and privileges of permanent employees.

Nature of Engagement of Workmen

Whether on a fixed tenure contract or colourable engagement on a fixed term, the real engagement being on a long term basis by adopting a rotational pattern, so as to avoid any claim of permanency.

Bench in view of the evidence recorded, held that the conclusions of the Labour Court, simply rendered as tag-lines, that there was no rotational pattern, or that it could not be said that service of anyone temporary workman was terminated and in his place and category another was employed offended the Wednesbury Principles and could not stand the scrutiny under Articles 226 or 227 of the Constitution of India.

Whether the workmen were illegally retrenched; whether, by reason of their employment (i.e. the last employment) being for a fixed tenure, their retrenchment formed an exception to the main part of Section 2(oo) of the ID Act, by falling within clause (bb) thereof.

High Court expressed that it cannot be gainsaid that both parties, being fully aware of the terms of reference and its scope, made their cases in extenso on the aspects of past engagements of the concerned workman in a rotational pattern and artificial breaks given to them so as to avoid completion of 240 days of continuous service and these were very much part of the trial before the Labour Court. It was thus clearly within the remit of the reference court to decide the issue.

Adding to its observations Court held that neither on principle nor on authority, these workmen were liable to be made permanent under Standing Order 4C by reason of completion of 240 days of continuous service in twelve preceding calendar months within the meaning of Standing Order 4C, therefore, issue no. (II) was decided against the petitioners.

Issues (I) and (III) were decided in favour of the petitioners, in light of which the impugned labour court awards were to be quashed and set aside.

Further, the Bench added that considering that the terminations challenged took place in the year 1997/98, more than twenty long years back, it would not be in the interest of justice to remit the references to the Labour Courts for consideration of monetary relief in lieu of reinstatement.

Therefore, the Court proposed to consider monetary relief in lieu of the reinstatement based on the material produced before the Court.

Bench relied upon the case of  Bajaj Auto Ltd. v. Bhojane Gopinath D, (2004) 9 SCC 488 as a model for determining compensation.[Sunil Pralhad Khomane v. Bajaj Auto Ltd., 2021 SCC OnLine Bom 129, decided on 01-02-2021]

Case BriefsHigh Courts

Bombay High Court: A Division Bench of Ujjal Bhuyan and Riyaz I. Chagla, JJ., rejected the relief of payment of full wages to the petitioner employees union holding that there case is not covered by the March 29th Order of the Central Government directing all establishments to pay full wages to employees during the period of lockdown due to COVID-19.

Premier Union Employees had approached the Court seeking direction to the State of Maharashtra and Commissioner of labour to ensure that workers of Premier Limited are pid wages for the duration of the lockdown in terms of Ministry of Home Affairs order dated 29th March, 2020, order of Department of Industries, Energy and Labour, Government of Maharashtra dated 31.03.2020; and order dated 20.03.2020 passed by the Industrial Court, Maharashtra at Pune.

Appropriate proceedings to be initiated against Premier Limited under Disaster Management Act for failure to comply with government orders.

On the other hand, Premier Limited assails the legality and correctness of the Order passed by the Industrial Court.

Union has raised grievance of unfair labour practice against the company. Complaint pertaining to the said grievance was registered at the Industrial Court.

Company obtained No Objection Certificate (NOC) from the office of Commissioner of Labour for shifting its plant, NOC was conditional in as much as the company had to give an undertaking that it would make full payment of wages and dues to the workmen and ensure continuity of their employment.

However, the company defaulted and has not paid wages and dues to the workmen since May, 2019.

Thus, Union in view of the above filed a petition before the Court seeking a direction to the State and Commissioner of Labour for cancellation of the NOC, both the matters are pending with no orders passed thereon.

On 3rd March, 2020, company had issued a notice addressed to all the workmen and staff stating that the management had decided to suspend operations with immediate effect. In response to this notice, Union raised the grievance of unfair labour practice and filed a complaint.

Industrial Court directed the company to pay wages to the workmen w.e.f. 01.03.2020 on or before the tenth day of each month.

Despite the above order, no payment has been made to the workmen.

Ministry of Home Affairs order dated 29-03-2020:

“all the employers, be it in industry or in shops and commercial establishments, shall make payment of wages to their workers at their workplaces and on the due date without any deduction for the period their establishments are under closure during the lockdown.”

Government of Maharashtra in the Industries, Energy and Labour Department issued a government resolution dated 31.03.2020 declaring that all the workers / employees including contractual, temporary and daily wagers working in private establishments, shops (except essential services), factories etc., who had to remain indoors due to outbreak of COVID-19 and the lockdown, shall be deemed to be on duty and shall be paid full salary / wages and allowances.

On 2nd June, 2020, this Court had directed the company to comply with the Order of the Industrial Court, to which company filed a petition with regard to the legality and validity of the Industrial Court’s Order.

Company alleged that the union had adopted an obstructionist approach leading to the company losing many precious orders thereby causing substantial loss. This prevented payment of salary / wages to the employees and workers on regular basis post May, 2019.

Due to the stated circumstances, company had to suspend all its operations.

Analysis & Decision

A conjoint reading of the central government order and the Maharashtra government resolution would go to show that those have been issued to meet the situation arising out of the COVID-19 lockdown.

Question to be addressed is:

Could the central government order and the Maharashtra government resolution be invoked in a situation where the management and workmen are engaged in an industrial adjudication relating to non-payment of salary / wages and suspension of work much prior to closure of the establishments due to the lockdown?

Or where the related cause of action arose prior to the lockdown?

In Court’s opinion, the claim of the workmen to wages will not be covered by the central government order and the Maharashtra government resolution.

Adding the reasoning to its’ conclusion, bench stated that measures introduced by the above two would cover a situation where an employee / worker was in employment as on the day the lockdown was declared and had received salary / wages for the previous month i.e., the month immediately preceding the lockdown.

The said  measure was introduced to ensure maintenance of status quo with regard to payment of salary / wages and employment.

Industrial Court’s Order

Industrial Court noted that a prima facie case for interim relief was made out by the union. It was further observed that if the management was not directed to pay wages, members of the union would suffer hardship and inconvenience.

Since according to the Industrial Court, complainant had made out a strong prima facie case, interim direction was issued to the management to pay wages to the workmen from 01.03.2020 onwards till final disposal of the complaint.

In Courts opinion, the above view of Industrial Court was found to be contradictory and therefore, High Court held that, in the interest of justice it would be just and proper if a direction is issued to the management to pay 50% of the full monthly wages to the workmen with effect from 01-03-2020 till disposal of Complaint (ULP) No.32 of 2020.

Industrial Court is directed to complete the adjudication process within a period of six months.

In the above view, petitions were been disposed off. [Premier Employees Union v. State of Maharashtra, 2020 SCC OnLine Bom 794 , decided on 13-07-2020]

COVID 19Op EdsOP. ED.

The Finance Minister – in her speech announcing fiscal relief to mitigate the economic shockwaves resulting from the COVID-19 virus outbreak – declared that the minimum amount of default incurred by a company in order for it’s creditors to take recourse to the IBC, would be increased from Rs 1 lakh to Rs 1 crore. This has caused a stir in the industry circles, eliciting mixed reactions – with some lauding the move and others criticising it.

There is no question that a temporary respite was needed for the courts, tribunals and industry in these uncertain and unprecedented times. However, given that there were already hints of pre-COVID speculation regarding the Ministry’s plans to increase the default limit, this author fears that this increase may not be just a temporary fix and may indicate a much more permanent shift in policy.  This would be a travesty, as this 100-fold unqualified increase in the threshold requirement has effectively excluded one of the key stakeholders in the IBC from access to recourse – namely, the unpaid workman and employee. In a country where, according to 2011–12 figures from an  ILO Report[1], the average wage was about Rs 7410 per month (the average wage of casual workers being a mere Rs 4290 per month for a 30-day work month), the previous threshold limit of Rs 1 lakh was already an unrealistic and onerous condition for workmen to meet. Increasing the threshold to Rs 1 crore seems to have made it almost impossible for any employee to meet the conditions to seek recourse under the provisions of the IBC. This article seeks to focus on the right of employees and workmen to file applications under this code as operational creditors, and analyse whether there are any circumstances wherein the employees can still continue to seek recourse under the IBC.

  •  Legislative Intent – IBC as a settlement mechanism for employees

The position of the employee/workman was always central to the resolution framework within the IBC. It is for this reason that the legislature, in its wisdom, included employees and workmen within the class of operational creditors. Whenever a company finds itself in financial distress, it usually translates into employees and workmen not being paid their dues on time. This is because of the asymmetrical power relationship between the company and its employees. The employees have little to no bargaining power with respect to the company, and therefore failure to pay salaries has been oft considered an acceptable risk by companies, since an employee would seldom, if ever, pursue a legal battle against the might of the company.

The asymmetrical nature of this relationship was one of the key concerns for the Bankruptcy Law Reforms Committee (BLRC) Report, 2015[2]. The BLRC in its recommendations with regard to the IBC, laid considerable focus on the empowerment of workmen and employees, in order to enable them to settle their dues in a timely manner. The Report, in its introduction to the Insolvency Resolution Process, categorically stated that

“…any creditor, whether financial or operational, should be able to initiate the insolvency resolution process (IRP) under the proposed Code. It may be noted that operational creditors will include workmen and employees whose past payments are due.The Committee also recommends that a resolution plan must necessarily provide for certain protections for operational creditors. This will empower the workmen and employees to initiate insolvency proceedings, settle their dues fast and move on to some other job instead of waiting for their dues for years together as is the case under the existing regime.”                                                                                                                              

(emphasis supplied)

Furthermore, the Joint Committee on Insolvency and Bankruptcy Code further observed that workers “were the nerve centre of any company” and that in the event of any company becoming insolvent or bankrupt, the workmen would always be adversely affected. In view of this the Joint Committee Report explicitly stated, in respect of employees and workmen, that ‘priority has to be given to their outstanding dues’. Following this, the workmen and employees have been given priority in claims under the waterfall mechanism enshrined under Section 53 of the Code. Under the mechanism, the dues of the workmen for the preceding 24 months are placed second on the priority list, only after the cost of the Insolvency Resolution Process, and are pari passu with debts owed to secured creditors in the event the creditor has relinquished its security. The dues of employees, other than the workmen, for the preceding 12 months is ranked third above even the unsecured creditors.

The centrality of the workman within the Code is very interestingly illustrated in the noting of the Joint Committee, which decided that ‘Notwithstanding debts owed to secured creditors being pari passu with the workmen’s dues and wages and unpaid dues to workmen of an insolvent company’, the wages and unpaid dues ‘may be placed under Item 1 and debts owed to secured creditor at Item 2 under Clause 53(1)(b)’ in order to reflect the centrality of the workman within the scheme of the Act. Thus, while it was always clear that the IBC was primarily a legislation for the resolution of sick companies, it was also supposed to operate as a Code to protect the interest of workmen and employees against a mightier company.

  • How can an employee file an application under the IBC?

 An employee, being an operational creditor under Section 5(20) r/w Section 5(21), can deliver a demand notice in terms of Section 8 and call upon the corporate debtor to satisfy its debts ‘on the occurrence of a default’. If after 10 days of receipt of such demand notice the corporate debtor fails to satisfy the debt or fails to raise any notice of dispute, then the operational creditor is entitled to file an application for the initiation of Corporate Insolvency Resolution Process against such a corporate debtor, under Section 9 of the IBC.

This right to file an application is subject to Section 4 which provides, that the IBC insofar as it relates to a corporate person, ‘shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees,provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.’ (It is through the proviso contained in this section that the minimum amount of default has been specified by the Central Government to be Rs 1 crore  vide Notification dated 24.03.2020). Such an application for initiation of CIRP is made in terms of Rule 6(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. In terms of Rule 6(1) the operational creditor presents its application in the prescribed ‘Form 5’.

Crucially, the ‘Note’ to Form 5 asserts, ‘Where workmen/employees are operational creditors, the application may be made either in an individual capacity or in a joint capacity by one of them who is duly authorised for the purpose.’ Thus, a special category of operational creditors is created under the IBC regime for the purposes of filing an application before the Adjudicating Authority whereby employees/workmen are entitled to present a claim in their joint capacity.

  •  What does it mean to file a claim jointly?

The question of what it means to file an application in a joint capacity has been a contentious one. The dispute boils down to whether employees – who do not meet the threshold requirement of Rs 1 lakh/crore under Section 4 in an individual capacity – can satisfy the onerous requirement by combining and jointly bringing their claims.

In Suresh Narayan Singh v. Tayo Rolls Ltd.,[3] the NCLAT set aside the judgment of the NCLT which had held that no application could be presented under Section 9 in a joint/ representational capacity. The NCLAT opined that (SCC OnLine para 4)

‘4. …where workmen/employees are ‘operational creditors’, the application may be made either by an ‘operational creditor’ in an individual capacity or in a joint capacity by one of them who is duly authorised for such purpose.                                                                             

(emphasis supplied)

However, the NCLAT went further to hold that: (SCC OnLine para 7)

‘7. …Only if in an individual claim of ‘operational creditor’ the amount of debt is less than one lakh rupees, it can be rejected being not maintainable.                                  

(emphasis supplied)

Thus while upholding the principle of representational applications, the NCLAT opined that the claims of each individual workman/employee needed to meet Section 4 threshold requirement.

This understanding of the NCLAT was followed by Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Co. Ltd.[4] where, rejecting the right of a trade union to file on behalf of the workers, the NCLAT had further observed: (SCC OnLine para 23)

‘23. This apart, members of a trade union/workmen association, who are workman or employee of a ‘corporate debtor’, some amount may be due to such individual workman/employee from a ‘corporate debtor’ including salary, gratuity, provident fund etc., in view of services rendered by them, but in such cases, in respect of each workman there will be separate cause of action, separate claim and separate date of default of debt.’

(emphasis supplied)

The Supreme Court setting aside the judgment of the NCLAT in J.K Jute Mills Mazdoor Morcha v. J.K Jute Mills Co. Ltd.[5], affirmed the right of a union to file on behalf of workers/employees in a representational capacity, and further went on to observe: (SCC p. 340)

 “17. …Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all.

Thus, the Supreme Court rejected the view of the NCLAT and held that in terms of the Note in Form 5, there was no need for individual claim/cause of action/date of default to be separately set out.

While the Supreme Court did not explicitly address the observations in Tayo Rolls[6] (supra), it is this author’s submission that Tayo Rolls has been implicitly overruled by the Supreme Court when it held that a joint application need not require each individual workman to state its individual claim separately, and that the joint application under Form 5 was on behalf of all workmen.

  • Conclusion

The legislature is not inclined to waste words, and every word employed by the legislative authorities must be given its due import and significance.[7] The legislative intent behind the inclusion of employees and workmen as operational creditors, was always to enable these persons to utilise the provisions of the IBC to settle their dues.

Workmen, as have been referred to in Form 5, are permitted to file an application under Section 9 of the IBC. The definition of workmen in the IBC under Section 3(36) has the same meaning as that assigned to workmen under the Industrial Disputes Act, 1947. The Industrial Disputes Act in turn defines a workman under Section 2(s)(iv) to exclude a person who, employed in a supervisory capacity, draws a wage exceeding Rs. 10,000 per month. Given this definition, it is hard to imagine a workman’s individual wage ever being sufficient to meet the threshold under Section 4, unless the legislature envisioned workmen working without pay for at least 1000 months (or 10 months pre notification) before they could become eligible to file an application under the IBC! It is therefore evident that the provision permitting workmen to file a joint petition, intended for them to be permitted to combine their claims and present a consolidated default.

The author’s understanding of the implication of J.K Jute Mills become all the more relevant now, given the recent increase of the threshold requirement to Rs 1 crore. In this context, it is crucial to give an expansive interpretation to joint applications by employees and workmen, lest they be left without recourse and the provisions of the IBC rendered merely salutary. Employees and workmen are among the most vulnerable amidst the present pandemic and denying them access to justice would only exacerbate their precariousness. Given the dire strait companies find themselves in, they may no longer feel obliged to pay their workers on time if there are no legal repercussions for the same.

It is also the recommendation of this author that the threshold raise must be qualified, and potentially be limited to only financial creditors. Financial creditors such as banks are better equipped to deal with the impact of COVID-19 than small-scale operational creditors. Denying smaller operational creditors – especially workmen and employees – a remedy under the IBC would have reverberations for the entire supply chain and industry as well.

Therefore, while the COVID-19 outbreak undoubtedly requires immediate and radical action by the Government to ameliorate the tremendous economic impact of the crisis, it is incumbent upon us to keep in mind the impact on the most vulnerable. Daily wagers and employees are already beginning to feel the brunt of the economic crisis due to salary cuts and delays. In these times, it is crucial for the worker to have access to invoke every possible legal mechanism in their arsenal, to secure their wages. In our quest to tackle this grave crisis, we must ensure that the solutions we come up with do not deny access to justice for those that need it most.


 *Ramchandra Madan is an Advocate, based in New Delhi. He holds a Master in Laws from The London School of Economics & Political Science. He currently practices the law in the courts of Delhi. He can be reached at Ramchandramadan@gmail.com

[1] https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—sro-new_delhi/documents/publication/wcms_638305.pdf

[2] Report of the Bankruptcy Law Reforms Committee, Vol. I: Rationale and Design 

[3] 2018 SCC OnLine NCLAT 557 

[4] 2017 SCC OnLine NCLAT 257

[5] (2019) 11 SCC 332

[6] Suresh Narayan Singh v. Tayo Rolls Ltd., 2018 SCC OnLine NCLAT 557.

[7] Sonia Bhatia v. State of U.P., (1981) 2 SCC 585

Case BriefsSupreme Court

Supreme Court: Holding that the trade union represents its members who are workers, to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union, the bench of RF Nariman and Vineet Saran, JJ said,

“to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all.”

The Court was deciding the question whether a trade union could be said to be an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016.

The Court noticed that a trade union is certainly an entity established under a statute – namely, the Trade Unions Act, and would therefore fall within the definition of “person” under Sections 3(23) of the Code. This being so, it is clear that an “operational debt”, meaning a claim in respect of employment, could certainly be made by a person duly authorised to make such claim on behalf of a workman. Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognises the fact that claims may be made not only in an individual capacity, but also conjointly.

It was further noticed that a registered trade union recognised by Section 8 of the Trade Unions Act, makes it clear that it can sue and be sued as a body corporate under Section 13 of that Act. Equally, the general fund of the trade union, which inter alia is from collections from workmen who are its members, can certainly be spent on the conduct of disputes involving a member or members thereof or for the prosecution of a legal proceeding to which the trade union is a party, and which is undertaken for the purpose of protecting the rights arising out of the relation of its members with their employer, which would include wages and other sums due from the employer to workmen.

The Court, hence, said,

“Looked at from any angle, there is no doubt that a registered trade union which is formed for the purpose of regulating the relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members. We must never forget that procedure is the handmaid of justice and is meant to serve justice.”

[JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills, 2019 SCC OnLine SC 619, decided on 30.04.2019]

Case BriefsHigh Courts

Bombay High Court: A Division Bench comprising of A.S. Oka and M.S. Sonak, JJ. dismissed an appeal filed against the order of the Company Judge wherein he had directed the appellant- Bank to pay the dues of the workmen that shall be recovered by it as directed therein.

During the liquidation proceedings of one Zadona Electronics Ltd., the appellant and the Union representing the workmen of ZEL filed certain consent terms regarding the settlement of workmen dues. As per the terms, the Bank deposited over rs, 41 crores with the official liquidator to be distributed among over 800 workmen. Out of it, a sum of over Rs 50 lakhs was paid to 12 workmen whose claims were wrongly adjudicated as priority claims. On re-adjudication, the orders for recovery of such sum from the said 12 workmen was made and the recovery was in progress. However, as a result of such payment, there was a proportionate shortfall in the amounts to be disbursed to the remaining employers. The main issue before the Company Judge was whether the payment to remaining workmen should be deferred until the said recovery or whether the tank should make good the shortfall. The Judge decided for the latter. Aggrieved thereby, the Bank filed the instant appeal.

The High Court observed that as between the interests of the workmen and Bank, the Judge correctly exercised discretion in favour of the former. The court was satisfied that the order impugned was made in furtherance of Section 529-A of Companies Act, 1956. The object behind the provision was reiterated “since resources of companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product of their labour and effort. Therefore, the provision to accord a priority status to the workmen’s dues.” Furthermore, it was held that no prejudice would be caused to the Bank as it was entitled to receive the payment from the amount recovered from the said 12 workmen. In light of the above, the appeal was dismissed. [Kotak Mahindra Bank Ltd. v. Official Liquidator of Zadona Electronics Ltd.,2018 SCC OnLine Bom 4205, decided on 17-10-2018]

Case BriefsSupreme Court

Supreme Court: The Bench comprising of A.M. Sapre and S. Abdul Nazeer, JJ, partially allowed a civil appeal filed against the judgment of Jharkhand High Court whereby the dismissal order passed against 37 workmen was set aside and full back wages were granted to them.

The appellant was the Public Health and Engineering Department, whereas, the Workmen Union representing the said 37 workmen was the respondent. The short question that arose for consideration was whether the High Court and the Labour Court were justified in awarding full back wages to the said 37 workmen after setting aside their dismissal order holding it to be bad in law, being in contravention of Section 25-F of the Industrial Disputes Act, 1947 and, in consequence, directing reinstatement of such workmen in service of the appellant.

On considering the submissions, the Supreme Court was inclined to allow the appeal in part. It was opined that the Courts below completely failed to see that back wages could not be awarded by the Court to a workman as of right consequent upon setting aside of his dismissal order. In such cases, it is necessary for the workman to plead and prove that after his dismissal from service, he was not gainfully employed elsewhere and had no earning to maintain himself and his family. The factors that need to be kept in mind while deciding on grant of back wages were discussed by the Supreme Court in earlier decisions in M.P. SEB v. Jarina Bee, (2003) 6 SCC 141; Haryana Roadways v. Rudhan Singh, (2005) 5 SCC 591; Deepali Gundu Surwase v. Kranti Junior  Adhyapak Mahavidyalaya, (2013) 10 SCC 324; etc. The Court, in the instant case, held that neither the Labour Court nor the High Court kept in consideration the principles of law as discussed in the aforementioned decisions. Therefore, the Supreme Court did not concur with the direction of the Courts below awarding full back wages to the workmen, which in Supreme Court’s opinion, certainly caused prejudice to the appellant (employer). However, in the interest of justice, the Court awarded 50% of the total back wages to the said 37 workmen. The order impugned was accordingly modified. The appeal was disposed of in the terms above. [Management of Regional Chief Engineer, Public Health and Engineering Department v. Their Workmen, 2018 SCC OnLine SC 1587, decided on 20-09-2018]

 

Case BriefsSupreme Court

Supreme Court: In the revision petition filed against the order directing LIC to pay full back wages to it’s employees, the Court was of the opinion that though the aspect of financial hardship would not be a sufficient ground to warrant interference in a case, but keeping in view the fact that LIC is a statutory Corporation operating in the interest of the public at large, on the limited point of payment of full back wages to the temporary and badli workers who are entitled for regularisation, the matter could be revisited.

The Court noticed that the temporary and badli workers of LIC, who are entitled for regularisation as permanent workmen in terms of the impugned judgment and order dated 18.03.2015 passed by this Court, are held to be entitled to full back wages as well. However, keeping in mind the immense financial burden this would cause to LIC, the Court modified the relief only with regard to the back wages payable and therefore, we award 50% of the back wages with consequential benefits. It was directed that the back wages must be calculated on the basis of the gross salary of the workmen, applicable as on the date as per the periodical revisions of pay scale. The Court said that the periodic revisions of pay of basic salary, as submitted by LIC, along with other component figures comprising the gross salary including Dearness Allowance, House Rent Allowance etc. etc., as applicable, must be accounted for while computing the amount due to the workmen towards the back wages.

Considering the fact that the order has been passed in favour of workmen and the dispute is being litigated for nearly 25 years, the bench of V. Gopala Gowda and C. Nagappan, JJ directed LIC to comply pay the back wages within 8 weeks from the date of the order. [Tamil Nadu Terminated Full Time Temporary LIC Employees Association v. S.K. Roy, 2016 SCC OnLine SC 805, decided on 09.08.2016]