Mr. R.S. Mudgal And Ors. vs Official Liquidator And Ors. on 17 May 2004

Delhi High Court
Mr. R.S. Mudgal And Ors. vs Official Liquidator And Ors. on 17 May, 2004
Equivalent citations: 2004(74)DRJ694, [2004(102)FLR664], 2005(1)SLJ312(DELHI)
Author: Pradeep Nandrajog
Bench: Pradeep Nandrajog
JUDGMENT

Pradeep Nandrajog, J.

1. The above petitions have a common factual backdrop and raise identical or related questions of law and are, therefore, being disposed of by a common judgment and order.

2. For record, it may be noted that though different prayers are made in the captioned petitions, counsel for the parties addressed arguments in support of the following reliefs:-

(a) Union of India be directed to grant alternative employment to the petitioners.
(b)The VSS scheme introduced by the Liquidator of Super Bazar (The Co-operative Store) be quashed and mandamus be issued to said respondent to frame a VSS scheme to bring it in conformity with the Office Memorandum dated 5.5.2000 issued by the Government of India, Ministry of Heavy Industries and Public Enterprises Department of Public Enterprises.
(c) Notice dated 15.1.2003 issued by the Liquidator under Section 25(F) of the Industrial Disputes Act, 1947 and the notice dated 30.4.2003 issued by the Liquidator under Section 25(N) of the Industrial Disputes Act, 1947 be quashed.
(d) Directions be issued for rehabilitation and revival of Super Bazar (The Co-operative Store).
(e) Liquidator be directed to proceed ahead with the liquidation of Super Bazar in accordance with law and not to place the properties of Super Bazar at the disposal of the Government of India.
3. It be noted that prayers as noted above were made in the alternative to each other.

4. Super Bazar, the Co-operative Store is a multi-state co-operative society governed by the Multi-State Co-operative Societies Act, 1984. It is not disputed that Government of India holds 73% of the shares of Super Bazar. Remaining shares are held by primary co-operative societies and individuals.

5. Sustaining heavy losses year after year, and in view of the various reports submitted, the Central Registrar, Multi-State Co-operative Societies, in exercise of power conferred under Section 77(2) of the Act passed an order dated 5.7.2002 ordering winding up of Super Bazar. A Liquidator was appointed with a direction to proceed with the liquidation of Super Bazar as per the provisions of the Act and the rules made there under.

6. Order dated 5.7.2002 records that no action plan to revive Super Bazar from any of the shareholders was submitted. It was noted that in view of the enquiry report and the financial affairs of Super Bazar, it was not possible to revive the same.

7. The said order was challenged. Writ petition, being W.P(C) No.85/2003 and connected writ petitions which were filed challenging the said order came to be dismissed vide judgment and order dated 19.12.2003.

8. The Liquidator took charge on 23.7.2002.

9.Legal position, not disputed by any of the counsel appearing for the parties being that with the winding up of Super Bazar, by operation of law, Super Bazar closed down. Employer-employee relationship between the employees of Super Bazar and Super Bazar snapped, the winding up order being deemed to be a notice of discharge of the officers and employees of Super Bazar.

10. On 17.9.2002, the Liquidator announced a Voluntary Separation Scheme (VSS). That was the stage when the first batch of writ petitions came to be filed. Prayer made in these writ petitions was that the respondents be restrained from dispensing with the services of the petitioners, they be paid their wages month to month and in the event of closure of Super Bazar, Government of India be directed to give them alternative employment under it or in some other department or undertaking of the government.

11. The Liquidator issued a notice on 15.1.2003 under Section 25(F) of the Industrial Disputes Act, 1947. Further petitions came to be filed challenging the said notice on various grounds. On 30.4.2003, the Liquidator, withdrawing the notice issued under Section 25F of the Industrial Disputes Act, 1947 issued a notice under Section 25(N) of the Industrial Disputes Act, 1947. Further petitions came to be filed questioning the validity of the said notice dated 30.4.2003. Alternative prayer made was that the VSS scheme be quashed and respondents be directed to bring a scheme as per government of India guidelines framed vide order dated 5.5.2000.

12. The aforesaid is the factual backdrop of the various writ petitions.

13. I need not deal with the challenge to the notice issued by the Liquidator under Section 25(F) 25(N) of the Industrial Disputes Act, 1947 inasmuch as Ms. Monica Arora, appearing for the Liquidator and Mr. B.L. Wali as also Mr. Jayant Nath, who appeared for the Liquidator made a statement at the Bar that the said notices were issued by way of abundant precaution. Legal position, being that with the winding up order being passed, services of the employees and officers being dispensed with, by operation of law there was no requirement to issue or serve the said notices and the same may be treated as in-operative in law.

14. I may note that the petitioners who have filed common written submissions as directed by me vide order dated 20.3.2004 have also taken an identical stand. In the written submissions filed, even the petitioners have stated:-

”3. In the event the employment of the petitioners comes to an end by operation of law as a result of the winding up of the Super Bazar, then the employees would have first priority over the assets of the Super Bazar and the Liquidator cannot return or disburse any of the assets of the society till the entire dues of the employees are settled out of such assets which are available with the society.”
15. Contentions raised as noted above be dealt with, Contention no.1 was that the UOI be directed to give alternative employment to the petitioners.

16. Counsel for the petitioners contended that it was a human problem affecting a large number of employees and it was the Constitutional and moral obligation of the Government of India to ensure that the petitioners were given alternative employment.

17. Except for raising the claim aforesaid and supporting it on the basis of the submission noted above, neither of the counsel could take the point any further.

18. Counsel for the respondents contended that on the liquidation of a juristic entity, employer-employee relationship gets snapped. Neither share holder has any obligation to the employee as the shareholder and the employee have no juristic relationship with each other. Counsel contended that just like where a post is abolished the incumbent must go, position of liquidation is identical.

19. It is no doubt true that a large number of employees are affected by the closure of Super Bazar but this always happens whenever a juristic entity goes into liquidation. These are hazards of life which one has to face. There is no escape from this hard reality of life. This Court cannot also loose sight of the fact that there is already over staffing under the Government and various public sector undertakings under the Government of India and voluntary separation schemes have been floated. If excess man power is being shed by these public sector undertakings, this Court cannot issue any direction to the Government to give alternative employment under it or in a public sector enterprise under it.

20. Second submission made by the petitioners was that the VSS scheme introduced by the Liquidator be quashed and mandamus be issued to the Union of India/Liquidator to introduce the VSS scheme as per the Government of India Office Memorandum dated 5.5.2000.

21. Counsel for the petitioners urge that government cannot discriminate. Discretionary and arbitrary action of the Government attracts Article 14 of the Constitution of India was the submission made. Placing reliance on the Office Memorandum dated 5.5.2000, counsel would urge this Court that the Government of India has introduced guidelines as per the said Office Memorandum pertaining to Voluntary Retirement Scheme. Counsel contended that there was no reason as to why the voluntary separation scheme introduced by the respondent be not brought in conformity with the guidelines aforesaid.

22. Per contra, counsel for the respondent would urge that the Office Memorandum dated 5.5.2000 pertains to public sector enterprises under the Ministry of Heavy Industries and Public Enterprises. Counsel elaborated that the guidelines as per the said Office Memorandum not only related to public sector enterprises but also related to rationalisation of surplus man power. Counsel contended that Super Bazar, was not under the administrative control of the Ministry of Heavy Industries and Public Enterprises. Further there can be no question of parity in matter of salary, wages or terminal benefits between the employees of Super Bazar and employees of industrial undertakings.

23. Office Memorandum dated 5.5.2000 reads as under:-

”The Government had announced a Voluntary Retirement Scheme (VRS) vide OM. No. 2(36)/86-BPE(WC) dated 5th October, 1988. Government have revised the scheme to make it more efficacious having regard to both, the interests of the employees and the need to enable Public Sector Enterprises (PSEs) to rationalise their surplus manpower.
2. Enterprises which are financially sound and can sustain a scheme of VRS on their own surplus resources may devise and implement variants of the existing VRS cited in para 1 above. However, in no case shall the compensation exceed 60 days salary for each completed year of service or the salary for the number of months service left, whichever is less. Salary for the purpose of VRS shall consist of basic pay and DA only and no other element.
3. Enterprises that make marginal profits or loss-making enterprises may adopt the revised scheme of VRS which is modeled on the Scheme that exists in the State of Gujarat. The details of the scheme are set out hereunder:-
The compensation will consist of salary of 35 days for every completed year of service and 25 days for the balance of service left until superannuation. The compensation will be subject to minimum of Rs.25,000/- or 250 days salary whichever is higher. However, this compensation shall not exceed the sum of the salary that the employee would draw at the prevailing level for the balance of the period left before superannuation.
ii. Salary for purpose of VRS will consist of basic pay and DA only.
iii. Arrears of wages due to revision etc. will not be included in computing the eligible amount.
iv. Payment of bonus should conform to the provisions in the Bonus Act. Casual leave may be encashed in proportionate measure up to the date of VRS.
4. A suitable variant of the arrangement in para 3 above may be developed by the Ministry of Textiles in respect of Textiles units subject to the conditions attached thereto.
5. For sick and unviable units, the VSS package of Department of Heavy Industry will be adopted. As a corollary, the VSS scheme may be modelled on Gujarat pattern and be made applicable as in para 3 above. However, employees would have to opt for VSS within 3 months from the date of offer failing which they would be eligible only for retrenchment. The details of VSS are as under:-
(i) An employee would be entitled to an ex-gratia payment equivalent to 45 days emoluments (pay + DA) for each completed year of service or the monthly emolument at the time of retirement multiplied by the balance months of service left before the norma date of retirement, whichever is less;
(ii) All those who have completed not less than 30 years of service, will be eligible for a maximum of 60 (sixty) months salary/ wages as compensation. This will be subject to the amount not exceeding the salary/ wage for the balance period of service left at the rate of monthly salary/ wage at the time of voluntary retirement).
6. The compensation under VRS/VSS will be in addition to terminal benefits.

7. Employees of industrial cooperative with Government equity participation and who are not members of the co-operative will also be covered under the VRS.

8. Budgetary support will be provided to the marginally profit or loss making enterprises and to the sick enterprises for implementing VRS only in case back credit is not available. The funds would normally be made available at the beginning of the financial year. However, before seeking budgetary support in cases of unviable/sick PSUs other sources of funding should be fully explored such as asset securitisation and bank loans against Government guarantee for funding VRS/VSS.

9. VRS will be applicable to permanent employees, badli workers, work charged established and temporary workers but not to casual workers. There will be no recruitment against vacancies arising due to VRS.

10 It will be the responsibility of the concerned administrative Ministry of assisting those opting for VRS in getting loans from banks for pursuing gainful self employment.

11. NRF in its present form will cease to exist. The funds required for retraining rehabilitation of employees availing of VRS will be placed with the Department of Public Enterprises under arrangements to be evolved.

12.In implementing the VRS scheme, managements shall ensure that it is extended primarily to such employees whose services may be dispensed without detriment to the company. Care will be exercised to ensure that highly skilled and qualified workers and staff are not given the option. As there shall be no recruitment against vacancies arising due to VRS it is important that the organisation is not denuded of talent. The management of the PSUs shall introduce the VRS with the approval of their Boards an the administrative Ministries.

13. The administrative Ministries/ Departments are requested to bring the details of the Voluntary Retirement Scheme and the Voluntary Separation Scheme to the notice of the Public Enterprises under their administrative control and to ensure that PSEs implement the schemes strictly in accordance with the provisions set out herein.

14. This O.M., supersedes O.M. No.2(36)/86-BPE(WC) dated 5th October, 1988 and subsequent circulars issued on the subject.”

24. No doubt at first look, the Office Memorandum shows that it governs and lays down scheme pertaining to voluntary separation for public sector enterprises and that too for rationalisation of surplus man power but a closer look would reveal that it would be attracted even to a case of closure. Para 5 would reveal that there is a reference to the fact that if VSS package is not accepted by employees, they would be eligible only for retrenchment compensation. This clearly shows that closure is envisaged by the Office Memorandum.

25. Clause 7 of the Memorandum aforesaid would show that it relates even to industrial co-operatives with government equity participation. One thing, however, stand out. The Office Memorandum relates to industrial undertakings.

26. Ignoring the fact that the Office Memorandum dated 5.5.2000 is restricted to industrial undertakings, could this Court, exercising power under Article 226 of the Constitution issue a mandamus as prayed for.

27. Whether all public sector enterprises under the Government of India are liable to give effect to government policies, irrespective of their financial status came up for consideration before the Supreme Court. We have two judgments at hand for guidance. In the decision reported as , A.K. Bindal And Anr. v. UOI and Ors., the Supreme Court held:

”The legal position of the government company is that its identity remains distinct from the Government. The government company is not identified with the Union but has been placed under a special system of control and conferred certain privileges by virtue of the provisions contained in Sections 619 and 620 of the Companies Act. Merely because the entire shareholding is owned by the Central Government will not make the incorporated company part of the Central Government. It is also equally well settled that the employees of the government company are not civil servants and so are not entitled to the protection afforded by Article 311 of the Constitution. Since employees of government companies are not government servants, they have absolutely no legal right to claim that the Government should pay their salary or that the additional expenditure incurred on account of revision of their pay scale should be met by the Government. Being employees of the companies it is the responsibility of the companies to pay them salary and if the company is sustaining losses continuously over a period and does not have the financial capacity to revise or enhance the pay scale, the petitioners cannot claim any legal right to ask for a direction to the Central Government to meet the additional expenditure which may be incurred on account of revision of pay scales. It appears that prior to issuance of the office memorandum dated 12-4-1993 the Government had been providing the necessary funds for the management of public sector enterprises which had been incurring losses. After the change in economic policy introduced in the early nineties, the Government took a decision that the public sector undertakings will have to generate their own resources to meet the additional expenditure incurred on account of increase in wages and that the Government will not provide any funds for the same. Such of the public sector enterprises (government companies) which had become sick and had been referred to BIFR, were obviously running on huge losses and did not have their own resources to meet the financial liability which would have been incurred by revision of pay scales. By the office memorandum dated 19-7-1995 the Government merely reiterated its earlier stand and issued a caution that till a decision was taken to revive the undertakings, no revision in pay scale should be allowed. Therefore, there is no infirmity, legal or constitutional, in the two office memorandums which have been challenged in the writ petitions.”
28. The second decision reported as , Officers and Supervisors of IDPL v. Chairman and M.D., IDPL and Ors, in the same context held:

”Since the employees of government companies are not government servants, they have absolutely no legal right to claim that the Government should pay their salary or that the additional expenditure incurred on account of revision of their pay scales should be met by the Government. Being employees of the companies, it is the responsibility of the companies to pay them salary and if the company is sustaining losses continuously over a period and does not have the financial capacity to revise or enhance the pay scale, the petitioners, cannot claim any legal right to ask for a direction to the Central Government to meet the additional expenditure which may be incurred on account of revision of pay scales.
The economic viability or the financial capacity of the employer is an important factor which cannot be ignored while fixing the wage structure and revision of pay scales of the employees. The respondent company had been suffering heavy losses for the lost many years. The units of the Company have already suspended their operations and as of date no unit is functioning. In such a situation the petitioners cannot legitimately claim that their pay scales should necessarily be revised and enhanced even through the organisation in which they are working are making continuous losses and are deeply in the red. The petitioners having applied for VRS, it is not open to them to contend that they are entitled to pay revision.”
29. I am conscious of the fact that the aforesaid two judgments were dealing with the issue of a demand for enhancement of pay scale. But the principles of law laid down therein, in my opinion apply. Claim of the petitioners before the Supreme Court was that Government of India had issued Office Memorandum prescribing wage revision for employees of public sector enterprises and some of them had adopted the same. Prayer made was that the respective respondent companies be directed to adopt the same pay scales. The Supreme Court held that employees of government companies, being not government servants, have no right to a legal claim that the government should pay or fund the additional expenditure to be incurred on account of revision of their pay scales. Principle of law laid down was that being employees of the companies, it was the responsibility of the company to pay them salary and if the company was incurring losses, employees could not lay a claim for enhancement of their wages.

30. It cannot be lost sight of that the entire monetary consideration to pay the compensation under the VSS scheme floated by the Liquidator of Super Bazar has been made available to him by the Government of India. This Court cannot direct the Government of India to make available any further funds to the Liquidator and offer a better VSS package to the petitioners.

31. For record it may noted that approximately 700 employees of Super Bazar have already availed the benefit under the VSS scheme which has been floated. The number of petitioners before me are 409.

32. Contention pertaining to revival of Super Bazar be dealt with. Counsel for the petitioners stated that Super Bazar was in a position to be revived. I may note that no revival scheme has been placed before this Court and, therefore, it is not possible for this Court to adjudicate on the said issue. Even otherwise, proceedings under Article 226 of the Constitution of India cannot be converted into liquidation proceedings. If the petitioners have a scheme for revival of Super Bazar, their remedy would be to present the 33 scheme for revival before the competent authority as per law. I need not deal with the issue any further.

33. The last contention that the Liquidator be directed to proceed ahead with the liquidation of Super Bazar as per law, as raised by the petitioners needs hardly any direction to be issued. Certainly, the Liquidator has to proceed for liquidation as per law. Elaborate provisions for liquidation are contained in the Multi-State Co-operative Societies Act, 1984 and the rules framed there under. If the petitioners have a grievance pertaining to any act of commission or commission of the liquidator in furtherance of the liquidation proceedings, remedy of the petitioners would be under the aforesaid act and the rules framed there under.

34. Taking on record that notices under Section 25(F) and Section 25(N) of the Industrial Disputes Act,1947 are not being implemented by the respondents as per the respondents and that liquidation proceedings shall continue as per law, the writ petitions are dismissed. However, there shall be no order as to costs.