Full Text
HIGH COURT OF DELHI
Date of order: 12th September, 2023
33359/2017 PREM BEHL ..... Petitioner
Through: Mr. Sanjeev Anand, Sr. Advocate with Mr. Akshay Thakur, Advocate
Through: Mr. Naveen Nagarjuna, Advocate for R-4
CHANDRA DHARI SINGH, J (Oral)
ORDER
1. The instant writ petition under Article 226 of the Constitution of India has been filed on behalf of petitioner, now deceased represented through LRs (hereinafter for the sake of convenience referred to as “the petitioner”), seeking the following reliefs:- "(a) quash/set aside the impugned order dated 24th July, 2017 passed by the Authority under the Delhi Shops & Establishment Act, 1954 qua the petitioner. (b) award costs of the present petition to the petitioner and against the respondents.
(c) pass such other order or orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case."
2. The course of events which has led to the filing of the instant case is discussed hereunder for better appreciation of the dispute before this Court: a) The petitioner was co-opted as an independent Director of the Company, namely, M/s Sai Infosystems (India) Limited (hereinafter “the Company”), on 30th May 2009, wherein Sh. Sunil S. Kakkad is the Chairman and Managing Director. b) The petitioner resigned from the Board of Directors of the Company on 17th May 2013, and the said information was uploaded by the Company in Form No. DIR-12 on the website of the Registrar of Companies. c) On 2nd July 2013, the respondent no. 1 to 10 along with other individuals, made a complaint to the Authority under the Delhi Shops & Establishment Act, 1954, thereby, seeking action against the Company‟s management to release their salaries. d) Vide letter dated 3rd July 2013, the Authority concerned called upon Sunil S Kakkad, the Chairman and Managing Director of the Company, in pursuance of the aforesaid complaint, to appear on 9th July 2013. e) Thereafter, the complainant employees, in furtherance of suggestions of the Authority concerned, furnished the list of all the Directors of the Company, including the name of the petitioner, vide the communication dated 10th July 2013. On the said date, the Authority concerned issued a notice to the Chairman and Managing Director as well as to the other Directors, named by the complainant employees, including the petitioner. f) The petitioner replied to the notice dated 10th July 2013, on 29th July 2013, and by way of the said reply, he objected to the complaints on the ground that, first, he was the Independent Director of the Company, secondly, he was never involved in the day-to-day conducting of the business operations in any manner and lastly, he had already resigned from the Board of Directors. g) On 25th September 2013, the petitioner was served summons and consequently, he furnished his reply dated 29th September 2013. h) Subsequently, both the parties, the respondents no. 1 to 10 and the petitioner, filed their evidence by way of affidavit before the Authority concerned. The Authority heard the arguments of the parties on 3rd August 2016. i) Ultimately, on 24th July 2017, the Authority concerned passed the order holding that the Chairman and Managing Director, Additional Director, and others as well as the petitioner jointly and severally omitted in not paying salaries to the employees of the Company on time and were liable to deposit the salaries of the said employees and an additional lumpsum compensation @25% of the entitled relief granted to each of the employee/claimants in terms of Section 21(3) of the Delhi Shops and Establishment Act, 1994 within 30 days of passing of the said order, failing which the ordered amount shall be recovered as per the provisions of Section 21(5) of the Act. j) The petitioner, thus, has approached this Court assailing the order passed by the concerned Authority on 24th July 2017.
3. The learned counsel for the petitioner and respondent no. 4 are present and were heard at length. The pleadings of all the parties placed before this Court record the submissions on their behalf and are discussed hereafter.
4. Mr. Sanjeev Anand, the learned senior counsel appearing on behalf of the petitioner submitted that the observations and findings qua the petitioner in the impugned order passed by the concerned Authority are patently illegal and without jurisdiction.
5. It is submitted that no liability can be fastened upon the petitioner and no directions can be made against him because of his role as an Independent Director of the Company. Neither was the petitioner named in the complaints moved by the employees, nor was he responsible for the wages and salaries of the employees since he had no role in the day-to-day affairs of the Company.
6. It is submitted that the complaints were made under Section 21 of the Delhi Shops & Establishment Act, 1954 and as per the Scheme of the said Act, the liability for payment of wages is only of the employer of the establishment/commercial establishment, which, in the present case, is the Company. The Authority thus, had no jurisdiction and authority to proceed against the petitioner, hence, the entire proceedings against him are vitiated and the impugned order is null and void.
7. It is also submitted that the respondent no. 1 to 10, in their statements, accepted that the petitioner had no role in the day-to-day affairs of the Company. Therefore, the petitioner, not being an incharge of the daily affairs of the Company is not responsible or liable for any claims of wages or salaries which may be sought by the employees. It is also strongly urged that the respondents decided not to cross-examine the petitioner, thus have admitted the averments made by the petitioner in his affidavit,
8. It is further submitted that once the Company is impleaded and is also represented by the Managing Director, there is no requirement for impleading any other Director and as such the concerned Authority failed to appreciate this fact. Moreover, the Authority failed to consider that the principles of law to this effect stands settled in so far as the Directors of a Company cannot be made personally liable for the debts of the Company. Reliance has been placed upon the judgments stated below: a. P.C. Aggarwala vs. Payment of Wages Inspector, M.P., (2005) 8 SCC 104. b. Indian Overseas Bank vs. R. M. Marketing and Services Pvt. Ltd., 2001 SCC OnLine Del 536. c. V.K. Uppal vs. Akshay International Pvt. Ltd., 2010 SCC OnLine Del 538. d. Tristar Consultants vs. Vcustomer Services India Pvt. Ltd., 2007 SCC OnLine Del 359. e. Space Enterprises vs. Srivivasa Enterprises Ltd., 1998 SCC OnLine Del 243.
9. In view of the above, it is prayed that the impugned order be set aside qua the petitioner since he has no role in distributing the salaries or paying the arrears and debts of the Company in his capacity as a Director.
10. The learned counsel for respondent no. 4 appeared and vehemently objected the submissions made on behalf of the petitioners submitting to the effect that there is no error or illegality in the order impugned by the petitioner.
11. The learned counsel for respondent no. 4, Mr. Naveen Nagarjuna, submitted that the concerned Authority rightly appreciated that the petitioner was not merely a non-executive Director but also represented himself as the Head of the North Region of the Company. He was also well-aware of the fact of non-payment of salaries to the respondents. Moreover, the website of the Company reflected the name of the petitioner as a Director after filing of the complaint.
12. It is submitted that the petitioner failed to submit any documents that delineated his role or responsibilities in the Company, including his employment and appointment terms. He has also failed to produce copies of the Memorandum and Articles of Association of the Company to support his contention that he was never involved or responsible qua the day to day affairs of the Company for the conduct of its business.
13. It is also submitted that although no statutory liability has been fixed on the directors under the Delhi Shops & Establishments Act, 1954, it is a well settled principle of law that the courts are empowered to pierce the corporate veil and affix personal liability on the directors for the actions of the company in cases where the corporate personality is found to be opposed to justice, convenience and interest of the revenue or workman or against the public interest. The present case is one fit for the application of the said doctrine and there is thus, no infirmity in impugned order.
14. To give force to his arguments, the learned counsel for respondent NO. 4 placed reliance upon the judgments passed in State of U.P. and Ors. vs. Renusagar Power Co. and Ors., AIR 1988 SC 173, and Kapila Hingorani vs. State of Bihar, (2003) 6 SCC 1. It is also submitted that the judgments relied upon on behalf of the petitioner are not applicable to the facts of the instant case.
15. The learned counsel for respondent no. 4 hence, submitted that the instant petition, being devoid of merit, is liable to be dismissed.
16. Despite service of notice and the matter being pending for over 5 years, none appear for the remaining respondents, i.e. respondent no. 1 to 3 and 5 to 10. However, the counter affidavits on behalf of the remaining respondents are on record which bring forth inter alia the following objections: a. There is no error or illegality in the impugned order since it has been passed after consideration of the entirety of the matter. b. Relying upon the doctrine of preponderance of probabilities, it is contended that the instant petition is liable to be dismissed for the want of maintainability. c. The petitioner was aware of the fact that the salaries of the complainant employees were not paid to them. The Company and its Board are responsible for the consequences of the actions taken by the officers of the Company and the law does not make a distinction between directors who are incharge of the day to day affairs of the Company and those who are non-executive directors. d. The petition is liable to be dismissed as the petitioner has failed to demonstrate that he was not liable to make the payment of the arrears of the salaries as claimed by the respondents.
17. Heard the learned counsel for the parties and perused the record.
18. The concerned Authority, i.e., the Authority under the Delhi Shops and Establishment Act, 1954 was approached by certain employees of M/s Sai Infosystems (India) Limited, seeking arrears of their salaries, which as per their claim, had not been paid to them for more than six months. On the said complaint, while taking cognizance the Authority had asked the complainants to furnish a list of the Directors of the Company, which was supplied by the complainants and which included the name of the petitioner herein. Upon the conclusion of the proceedings, the Authority passed the impugned order holding the respondents therein jointly and severally made the omission by not paying the petitioners and accordingly, directed them to pay the amount so ordered in favour of the petitioners within a period of 30 days from the date of the order. The relevant portion of the order is reproduced hereunder:
19. The Authority concerned, while giving its finding, that the petitioner is liable to suffer the rigours of the directions that followed, noted that there is no distinction between the directors who are incharge of the day-to-day affairs of the company and non-executive members attending only the board meetings once in three months. The observation came from the Authority since the ground had been raised by the petitioner herein that since he was an Independent Director and was not responsible for the day- to-day affairs of the Company, he could not be held liable to make the payment of salary of the aggrieved employees in any manner whatsoever in his individual capacity. The said ground has also been invoked by the petitioner before this Court. To this effect, the learned Authority also noted that the petitioner relied upon Form No. 32, however, he did not produce it before the Authority concerned.
20. Before this Court, the petitioner has furnished Form 32, appended as Annexure P-3 to the petition, which relates to the status of Directors. A bare perusal of the document shows that Form 32 Chairman and Managing Director categorically states that the petitioner was designated „Additional Director‟ in „Independent‟ category. Further, the petitioner has placed on record Form No. DIR-12, which is used to record the appointment or resignation of Directors in a company. The said form, appended as Annexure P-7 to the petition, notes that the same was filed for cessation, of the term of the petitioner as Director and also bears the digital signatures of Sh. Sunil Kakkar, i.e., the Chairman and Manging Director.
21. It is a settled law that this Court in its writ jurisdiction cannot conduct a trial and test the veracity of a document or other material. However, upon a bare perusal of the aforesaid documents it is apparent that the forms which show the nature of appointment of the petitioner and records the fact of his cessation bears the digital signature of the Chairman and Managing Director. Moreover, the respondents in their counter affidavit have also not challenged the authenticity of the documents so placed on record by the petitioner. Therefore, there is no reason to not consider the undisputed documents pertaining to the nature of the appointment of the petitioner.
22. The second question which is before this Court is to look into the findings of the Authority to the extent where it has been noted that there is no distinction between the independent and non-executive directors or those who are responsible for day-to-day affairs and those who do not have an active role in the company.
23. The Hon‟ble Supreme Court, on the issue whether directors may be held personally liable for the offences alleged against the company, has observed as under in the judgment passed in Shiv Kumar Jatia vs. State (NCT of Delhi), (2019) 17 SCC 193:
24. The position regarding the role of the directors and companies in criminal law is that a director of a company can be made accused and be proceeded against, only when firstly, the statute which has been invoked provides for it, secondly, the complainant makes specific allegations against such person/director, and thirdly, if there is sufficient evidence to show the involvement and criminal intent on the part of the director.
25. The criminal jurisprudence having stricter implications in terms of punitive action makes way for provisions to limit the liability which may be imposed upon the directors of the company and hence, it can be undoubtedly stated that to show that a director is personally liable for any offence committed by the company, strict evidence is required, which begins at the first instance with the complaint bearing the name of the director so impleaded or sought to be impleaded in the proceedings against the company.
26. The principle by extension applies to the civil jurisprudence as well. The Courts of this Country have time and again held that a director can be made liable for the acts or omissions on the part of the company only when the complainant is able to show that there has been fraud, breach of duty or obligation or negligence on the part of the director himself. Moreover, the liability may be imposed upon the persons concerned and the directors who, firstly, have the knowledge of the act or omission so committed, and secondly, are responsible to carry out the business affairs of the company.
27. The Bombay High Court to this effect while referring to the provisions of the Companies Act in Satvinder Jeet Singh Sodhi vs. State of Maharashtra, 2022 SCC OnLine Bom 2298, observed as under: