Kerala Financial Corporation Vs. State [Kerala High Court, 29-07-2016]



W.P(C). No.37320 of 2007 (B)

Dated this the 29 th day of July, 2016








Whether the takeover of an industrial unit, under Section 29 of the State Financial Corporations Act, would make the Financial Corporation, which took over the industrial unit, a successor-in-interest under Section 18(3)(c) of the Industrial Disputes Act, 1947, so as to urge satisfaction of an award passed by the Industrial Court, in favour of a workman; is the question raised herein.

2.I have heard the learned Counsel for the petitioner Corporation and the learned Counsel appearing for respondents 3 to 5, two of whom are the workmen themselves and the last, the wife of a deceased workman. Reliance has been placed on a number of decisions viz:

Central Inland Water Transport Corporation Vs. The Workman AIR 1974 SC 1604

Data Systems Limited Vs.Presiding Officer, 1993 I LLJ 73 PSI

Bihar State Financial Corporation Vs. Jute Mill Mazdoor Sabha, 1995 LAB.I.C. 801

Assistant General Manager, Karnataka State Financial Corporation Vs. General Secretary, (2013) 10 SCC 638

3.Before looking at the law on the subject, the facts in its chronological order has to be noticed. The workmen were all suspended on 11.03.1994, pursuant to a charge-sheet issued. An enquiry also was conducted; presumably, based on the findings in which, the workmen were terminated from service on 18.10.1994. The takeover of the Unit by the respondent Corporation was on 16.11.1995 as is evident from Exhibit P4 mahazar. An ID was raised, pursuant to the reference made by the appropriate Government as ID 20/96. Exhibit P9 award was passed on 31.03.1997; which was an ex parte award, in which the employer the 6 th respondent alone was a party. The workmen filed an application under section 33C(2) of the ID Act on 18.02.1998 (Exhibit P5), in which the respondent Corporation was also made a party, along with the original employer. The sale of the properties and the plant and machinery were effected by the Corporation on 19.02.2002 to a third party. The order under section 33C(2) was passed on 08.05.2007 (Exhibit P7).

4.The workmen contend that the Corporation having taken over the industry, has an obligation under section 18(3)(c) of the ID act to satisfy the award; since it has to be deemed to be a successor-in-interest. The learned Standing Counsel for the Corporation, would however contend that the takeover was only for realisation of the debt due to the Corporation, by sale of the Unit and the Corporation had never intended to, nor had actually carried on the business of the establishment, which alone could have deemed the Corporation to be a successor-in-interest.

5.CIWTC Ltd:(supra) was a case in which the Hon’ble Supreme Court dilated upon the scope of a proceeding under section 33C(2). Such a proceeding was held to be in the nature of an execution proceeding, in which the Court was only called upon to compute, in terms of money, any benefit due to a workman; which benefit arises from an existing right available to the workman. Drawing an analogy to a properly instituted suit, in which the questions would be (i) the plaintiff’s right to relief, (ii) the corresponding liability of the defendant, if any and (iii) the extent of the defendant’s liability, it was held that the two former questions would have to be necessarily adjudicated in the suit itself while the last may be a question, often left to be determined in execution. The working out of the liability as decreed in the suit, would be a determination leftover for the execution court; which is precisely the powers conferred under section 33C(2), was the declaration made. The right to relief and the liability of the opposite party; in an industrial adjudication, respectively of the workmen and the management, cannot be agitated under or adjudicated upon, in a proceeding under section 33C(2). It was also held that any matter incidental to such computation, like the identity of a workman, with respect to a specific category, could very well be considered under Section 33C(2). 6. Asst. General Manager KSFC (supra) was a challenge made from an order of the High Court directing the Labour Commissioner to proceed against a Company for realisation of the dues to workmen, as computed in an application under Section 33C of the ID Act and under the Payment of Gratuity Act and restraining the Financial Corporation from apportioning the sale proceeds in satisfaction of the loan amounts, before satisfying the claim of the workmen. The reliance placed by the Corporation under Section 46B of the SFC Act, was negatived, finding that the provision was in addition to and not in derogation of any other laws, for the time being applicable to the industrial establishment. The order of the High Court was not interfered with since the workmen had their claims adjudicated in the year 2005, recovery of which could not be proceeded against the assets of the Company only for reason of the delay caused in effecting such recovery by the Labour Commissioner.

7.The Asst. General Manager KSFC(supra) would have no application in the present case, since the takeover itself was long prior to the award. The computation under section 33C(2) was completed only in 08.05.2007, long after the sale which took place on 19.02.2002. Though not stated in so many words, it is evident that the Supreme Court noticed that there is no statutory charge created on the assets of the Company or establishment; with respect to the dues of workmen unless in the case of winding up; when it is created under Section 529 of the Companies Act.

8.The Corporation has also relied on two decisions of other High Courts, which though not binding has a persuasive effect on this Court.PSI Data Systems Ltd.(supra) decided by a learned Single Judge of the High Court of Karnataka was concerned with an application for impleading; of the purchaser of the establishment, which was resisted on the ground that the purchase was only of the land and building and not of the plant and machinery or other assets and liabilities. The impleadment was allowed for reason of the sale deed having not been produced and review sought, producing the sale deed was also rejected. The High Court found that under Section 18 of the ID Act the liability on a subsequent purchaser would arise only if they are found to be a successor-ininterest and not otherwise. The Tribunal having not entered a finding on this aspect the matter was remitted back for consideration.

9.InBSFC(supra) a Division Bench of the Patna High Court dealt with somewhat similar facts; being a lockout in the year 1982, the takeover by the Corporation in 1983, under Section 29, a lease to an Industrial Development Corporation in 1984 and the eventual closure in the year 1987. On a consideration of Section 29 of the SFC Act, it was found that the continuity of service had been broken by virtue of the lock out itself and the Financial Corporation cannot be considered to be a successor-in-interest of the original management. The appellant Corporation having come in, by way of a statutory provision, in a different enactment with an altogether different purpose; ie. of realisation of loans advanced; it was found that the provisions of Section 25FF of the ID Act cannot apply.


Anakapalle Co-operative Agricultural and Industrial Society Ltd v.Workmen, AIR 1963 SC 1489

was a case in which a Constitution Bench of the Supreme Court considered the scope and effect of Section 25FF of the ID Act. A sugar manufacturing company due to consistent losses sold the establishment to a cooperative society of local cane growers, which society employed some of the earlier workers and the claim for absorption raised, under the ID Act, was by those who were denied of such reemployment. One of the contentions raised by the new management was that they cannot be deemed to be a successor-in-interest of the earlier management. The test to decide it, was succinctly laid down by the Hon’ble Supreme Court in the following manner:

“The question as to whether a purchaser of an industrial concern can be held to be a successor-in-interest of the vendor will have to be decided on a consideration of several relevant facts. Did the purchaser purchase the whole of the business? Was the business purchased a going concern at the time of the sale transaction? Is the business purchased carried on at the same place as before? Is the business carried on without a substantial break in time? Is the business purchased carried in at the same or similar to the business in the hands of the vendor? If there has been a break in the continuity of the business, what is the nature of the break and what were the reasons responsible for it? What is the length of the break? Has goodwill been purchased? Is the purchase only of some parts and the purchaser having purchased the said parts purchased some other new parts and started a business of his own which is not the same as the old business but is similar to it? These and all other relevant factors have to be borne in mind in deciding the question as to whether the purchaser can be said to be a successor-in-interest of the vendor for the purpose of industrial adjudication. It is hardly necessary to emphasise in this connection that though all the facts to which we have referred by way of illustration are relevant, it would be unreasonable to exaggerate the importance of any one of these facts or to adopt the inflexible dale that the presence or absence of any one of in them is decisive of the matter one way or the other. If industrial adjudication were to insist that a purchaser must purchase the whole of the property of the vendor concern before he can he regarded as a successor-in-interest, it is quite likely that just an insignificant portion of he property may not be the subject-matter of the conveyance and it may be urged that the exclusion of the said fraction precludes industrial adjudication from treating the purchaser as a successor-in-interest. Such a plea, however, cannot be entertained for the simple reason that in deciding this question, industrial adjudication will look at the substance of the matter and not be guided solely by the form of the transfer. What we have said about the entirety of the property belonging to the vendor concern, will apply also to the goodwill which is an intangible asset of any industrial concern. If goodwill along with the rest of the tangible property has been sold, that would strongly support the plea that the purchaser is a successor-in- interest; but it does not follow that if goodwill has not been sold, that alone will necessarily show that the transferee is not a successor-in-interest. The decision of the question must ultimately depend upon the evaluation of all relevant factors and it cannot be reached by treating any one of them as of overriding or conclusive significance.”

11.The evaluation of the relevant factors, which forms the subject matter of the transfer, being the test applicable as laid down by the Hon’ble Supreme Court, does not commend the instant transfer to be treated as one coming under Section 18(3)(c) of the ID Act. The mahazar produced at Exhibit P4 indicates that a working concern was taken over by the Corporation, with the assistance of the police and was locked down, with security personnel posted by the Corporation to guard the premises. Hence as on the date of takeover there was a closure effected by the Financial Corporation, in 1995, for reason of the defaulted dues in the loan account.

12.The termination which was the cause of action for the industrial dispute was prior to the takeover, in the year 1994 but the award was passed only after the takeover, in the year 1997. The takeover was not intimated to the Labour Court nor was the Corporation made a party in the dispute. The award was passed ex-parte. The application under Section 33C(2) was filed after about one year from the award, ie: in 1998. The unit was sold in the year 2002, the workmen took no steps to secure their interest in the assets of the Company. The order passed in the application filed under Section 33C(2) was long after, in the year 2007. On facts it cannot be said that the transfer was of a going concern and there was continuity of the business of the establishment. As was noticed by the Division Bench of the Patna High Court, the takeover effected was for realisation of dues and it was never intended to continue the establishment as a going concern.

13.It is also to be noticed that the Labour Court in the application under Section 33C(2), computed the back wages up to 28.10.1997 with respect to the two workmen and as to the deceased workman, till the date of death, ie: 06.10.1996. The date 28.10.1997 was the date of publication of the award, but however the unit was closed down long before on 16.11.1995 itself by the takeover effected by the Corporation. The establishment was also not functioning from the date of takeover and hence there is an anomaly in the date adopted by the Labour Court, being the date of publication of the award. However since this Court is setting aside the order itself, as against the petitioner herein, it may not be necessary to probe further on that aspect; especially since the original employer has not challenged it.

14.This Court has already found that the Corporation, which took over a going concern, for purposes of realisation of dues, on the strength of a statutory provision and closed the establishment cannot be said to have accepted a transfer of the business or undertaking; in the sense in which there can be deemed to be a transfer to a successor-ininterest, as contemplated by Section 18(3)(c). On the above reasoning the question raised in the writ petition, has to be answered in favour of the Corporation, the petitioner herein. The writ petition is allowed setting aside the order impugned as against the petitioner Corporation. This would not preclude the workmen/respondents from proceeding against the original employer itself for recovery. Ordered accordingly. The parties shall suffer their respective costs.

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