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New Horizon Sugar Mills Limited v. Ariyur Sugar Mills Staff Welfare Union And Others
Factual and Procedural Background
The secured creditor, Indian Bank, invoked its powers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) to seize and auction the assets of New Horizon Sugar Mills (“New Horizon”). EID Parry India Ltd. (“EID Parry”) emerged as the auction-purchaser.
Several writ petitions were filed before the Madras High Court challenging the SARFAESI proceedings. A learned Single Judge, by order dated 12-07-2005, dismissed those petitions but held that the workmen of New Horizon were entitled to compensation under Section 25-FF of the Industrial Disputes Act, 1947 (“ID Act”) against both New Horizon and EID Parry. EID Parry appealed in WA No. 1788 of 2005.
In a separate interim order dated 07-12-2005, another Single Judge appointed a retired High Court Judge to compute the workers’ dues and directed Indian Bank to earmark Rs. 6 crores from the sale proceeds in a no-lien account. New Horizon challenged this direction in WA No. 1209 of 2006.
On 27-03-2007, a Division Bench dismissed both writ appeals, upheld the earmarking of Rs. 6 crores, but reassigned quantification to the Commissioner of Labour, Puducherry. New Horizon and EID Parry then approached the Supreme Court by way of Special Leave Appeals. The Supreme Court’s present decision is confined to the liability for Section 25-FF compensation.
Legal Issues Presented
- Whether, upon transfer of ownership of an industrial undertaking through a SARFAESI auction, the liability to pay compensation under Section 25-FF of the Industrial Disputes Act, 1947, rests on the transferor employer (New Horizon) or on the transferee-purchaser (EID Parry).
Arguments of the Parties
Appellant: New Horizon Sugar Mills
- During the hearing, learned senior counsel conceded that, in view of the language of Section 25-FF and authoritative Supreme Court precedent beginning with Anakapalle Coop. Agricultural and Industrial Society Ltd. v. Workmen, the liability to compensate workers lies on the transferor employer, i.e., New Horizon.
The opinion does not detail separate arguments advanced by EID Parry, Indian Bank, or the employees’ unions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Anakapalle Coop. Agricultural and Industrial Society Ltd. v. Workmen, AIR 1963 SC 1489; (1962) 2 LLJ 621 | Under Section 25-FF, liability to pay compensation upon transfer of an undertaking remains with the transferor employer unless expressly assumed by the transferee. | Relied upon (and accepted by concession) to hold that New Horizon, not EID Parry, is liable for the workers’ compensation. |
Court's Reasoning and Analysis
The Court noted the express wording of Section 25-FF of the ID Act and the consistent judicial interpretation beginning with Anakapalle. Based on these authorities—and the frank concession by New Horizon’s counsel—the Court held that the statutory liability to compensate the workmen whose employment is deemed terminated upon transfer lies on the transferor employer, New Horizon.
Because Indian Bank is in possession of the sale proceeds, the Court directed that workers’ dues be satisfied from those proceeds. Recognising the administrative complexity of verifying individual claims, the Court found it “convenient and appropriate” that New Horizon participate in the verification process before the Commissioner of Labour, Puducherry.
Specific operational directions were issued: Indian Bank must transfer Rs. 6 crores to a no-lien account under the Commissioner’s control; the Commissioner must complete verification, quantification and disbursement within three months; any surplus shall revert to New Horizon, while any shortfall may be met upon further application to the High Court. The Rs. 2 crores earlier deposited by EID Parry pursuant to an interim order is to be refunded.
Holding and Implications
Holding: The appeal of New Horizon is dismissed and the appeal of EID Parry is allowed. New Horizon is solely liable to pay compensation under Section 25-FF; EID Parry bears no such liability. Directions are issued for the Commissioner of Labour to quantify and disburse workers’ dues from the Rs. 6 crores held by Indian Bank.
Implications: The decision reaffirms the established principle that Section 25-FF liability remains with the transferor employer unless otherwise provided. Practically, it secures prompt payment to workmen while protecting the auction purchaser from unforeseen statutory liabilities. No new legal precedent is set beyond the application of settled law to the facts of the case.
Order
1. Leave granted. Heard the learned counsel.
2. The assets of New Horizon Sugar Mills (for short “New Horizon”) were seized and sold by an auction under the provisions of the Sarfaesi Act, 2002 by Indian Bank, a secured creditor. EID Parry India Ltd. (for short “EID Parry”) was the auction-purchaser.
3. While dismissing a batch of writ petitions arising from/challenging the proceedings initiated by Indian Bank under the Sarfaesi Act, a learned Single Judge of the Madras High Court, by order dated 12-7-2005 directed that the workmen of New Horizon will be entitled to the benefits under Section 25-FF of the Industrial Disputes Act, 1947 as against the employer New Horizon and EID Parry. Aggrieved by the said order, EID Parry filed WA No. 1788 of 2005.
4. By interim order dated 7-12-2005 passed in writ petitions filed by the two employees' unions of New Horizon, another learned Single Judge appointed a retired Judge of the High Court as the special authority to compute the claims of the workmen (instead of the Commissioner of Labour, Puducherry) and submit a report to the Court. He also directed Indian Bank which had the sale proceeds in respect of sale of the assets of New Horizon to deposit initially a sum of Rs. 6,00,00,000 (Rupees six crores) for being disbursed to the workmen. The said amount was ordered to be placed in a no-lien account in Pondicherry Main Branch of the said Bank. Feeling aggrieved by the said order New Horizon filed WA No. 1209 of 2006.
5. The said two writ appeals along with other writ petitions and writ appeals were disposed of by a Division Bench of the Madras High Court by the impugned judgment dated 27-3-2007. The said judgment deals with several aspects. We are concerned in this appeal, with only one aspect of the said judgment, that is, the workers' dues.
6. By the said judgment, WA No. 1788 of 2005 filed by EID Parry and WA No. 1209 of 2006 filed by New Horizon were dismissed. The order of the learned Single Judge dated 7-12-2005 directing quantification of the amount due to the employees and further direction for earmarking rupees six crores for meeting the employees' dues was upheld. The Division Bench, however, directed that the quantification should be done by the Commissioner of Labour, Puducherry (instead of by the retired Judge appointed by the learned Single Judge). Feeling aggrieved by the dismissal of WA No. 1209 of 2006, and WA No. 1788 of 2005, New Horizon and EID Parry have filed these appeals by special leave. The common issue involved in these two appeals is who should be made liable to pay the compensation under Section 25-FF of the Industrial Disputes Act, 1947 to the employees of New Horizon whose services were deemed to have been terminated.
7. After the matter was argued for some time, Mr S. Ganesh, learned Senior Counsel appearing for New Horizon fairly conceded that having regard to the wording of Section 25-FF of the said Act and the settled legal position under several decisions of this Court starting from Anakapalle Coop. Agricultural and Industrial Society Ltd. v. Workmen AIR 1963 SC 1489, (1962) 2 LLJ 621 the liability to pay its workmen would be on New Horizon. Therefore, it follows that the amount due to the workers will have to be paid from out of the sale proceeds which are lying with Indian Bank. The purchaser EID Parry, who has already paid the sale price, will have no liability.
8. However, having regard to the fact that the quantification of the workmen's dues would involve verification of records/claims, it will be convenient and appropriate, if the management of New Horizon is associated with the process of verification, quantification and payment to its workmen. Therefore, the Commissioner of Labour will hear New Horizon in regard to each claim before passing appropriate orders in favour of the workmen.
9. Indian Bank will now transfer the sum of rupees six crores as directed by the High Court, from the sale proceeds, without prejudice to its contentions to a no-lien account in its Pondicherry Main Branch which shall be operated by the Commissioner, who shall endeavour to complete the exercise of verification, quantification and payment of the employees' dues within three months. The balance, if any, remaining in the no-lien account after such settlement of workers' dues, shall be paid to New Horizon without prejudice to the contentions of the Bank. If the amount of Rs. 6 crores is found to be insufficient by the Commissioner, the Commissioner may apply to the Madras High Court for release of further funds from the amount in deposit with it. The sum of Rs. 2 crores (or such other sum) that was deposited by EID Parry with the Commissioner of Labour, Pondicherry in pursuance of our interim order dated 19-3-2009 shall be refunded to EID Parry.
10. With the above directions, the appeal of New Horizon is dismissed and the appeal of EID Parry is allowed. The intervention applications of some workmen are dismissed as not calling for any orders. As a consequence, the interim direction dated 19-3-2009 directing EID Parry not to prevent the workmen from attending to their duties in the factory premises is vacated, without prejudice to the rights of the workers in accordance with law.
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