Sitresh Tulsidas Kalachand And Others v. Collector Of Bombay And Others

Chandurkar, A.C.J:— A question of some importance arises in all these three appeals. The question is whether the arrears of employer's contribution required to be deposited under the Employees' State Insurance Act, 1948, due from a public limited company registered under the Indian Companies Act which owns and runs a factory can be recovered from the personal property of the directors of the company.

2. All these three appeals arise out of identical orders made by learned single Judge who dismissed the three petitions filed by the original petitioners, the appellants in these appeals, challenging the notices issued by the Collector of Bombay under S. 5 of the Revenue Recovery Act, 1890, read with S. 267 of the Maharashtra Land Revenue Code, 1966. Appeal No. 311 of 1979, arises out of the petition which was filed by the seven directors of Digvijay Spinning and Weaving Company, Ltd., which is a company registered under the Indian Companies Act, 1913. All the petitioners were served with two notices of demand for the sums of Rs. 4,10,985 51 and Rs. 3,56,041.75 being the employer's special contributions under the Employees' State Insurance Act, 1948 (hereinafter referred to as the Act), for the quarters ending on 30 June and 30 September and 31 December, 1968 to 31 March, 1970, respectively, with interest at 6 per cent per annum. It is not in dispute that originally the company was taken over by the Union of India under S. 18A of the Industries Development and Regulation Act, 1951, with effect from 9 July, 1969, and the Maharashtra State Textile Corporation was appointed as the Authorised Controller of the said company. Later, on the promulgation of the Sick Textile Undertakings (Notionalisation) Ordinance, 1974, on 21 September, 1974, the right, title and interest of company in question vested in the Union of India. Therefore, when the two notices, dated 27 August, 1974, were issued to the petitioners, they sent a reply to the Collector of Bombay stating that the claim should be referred to the Commissioner appointed under the above Ordinance and that they were not liable to pay any amount and consequently, the amounts claimed could not be recovered as arrears of land revenue. The Collector not having stayed his hands, the petitioners-directors filed Miscellaneous Petition No. 944 of 1974.

3. The learned single Judge, who decided the petition, held that the company functioned through its directors and officers and even though the company can be termed as an “occupier,” still there was no prohibition to treat the directors as occupiers of the company and construing the beneficial legislation as the Act, according to the learned Judge, it must be held that the directors of the company are the principal employers within the meaning of S. 2(17) of the Act. Consequent to this finding, the learned single Judge held that the application for recovery of the amounts made to the Collector by the Regional Director of the Employees' State Insurance Corporation and the consequent notices issued by the Collector of Bombay were not invalid. One of the contentions raised before the learned Judge was that the petitioners had ceased to be directors from 9 July, 1969. and they could not, therefore, be held responsible for contribution after the expiry of the quarter immediately following July, 1969. This was accepted by the learned Judge and a statement was made on behalf of the respondents that fresh demand notices would be served upon the petitioners.

4. Appeal No. 379 of 1979, arises out of Miscellaneous Petition No. 1214 of 1975, in which the original petitioner claimed that he was only an additional director appointed on 13 September, 1960, and he resigned from that post on 2 October, 1965. The company of which the original petitioner was an additional director was India United Mills Company, Ltd., which consisted of six units situated in Bombay. According to the original petitioner he had joined as an additional director in pursuance of an invitation by the Board of Directors on the verbal consent of the then Labour Minister. This mill was taken over by the Union of India and was put under the Authorised Controller with effect from 29 November, 1955. The Collector of Bombay issued a notice of demand under S. 267 of the Maharashtra Land Revenue Code styling the original petitioner as director-partner and demand was to the tune of Rs. 3, 69,890.52 being the unpaid amount of employer's special contribution upto the end of four quarters of 1965. When this notice was served on the original petitioner on 27 September, 1975, he informed the Regional Director that he was merely a technical director to advise the mill and was not a partner as alleged. He denied that he was liable under the Act. He made a grievance that no show-cause notice was ever issued to him nor was any hearing given. He denied that be was at any time the occupier or employer or managing agent of the mill. He stated that he had no controlling interest except the qualifying shares in the said company. The proceedings before the Collector finally came to be challenged in Miscellaneous Petition No. 1214 of 1975. The learned single Judge, following the view which he had already taken mentioned earlier in this judgment, dismissed the petition holding that the petitioner-director was a prinicipal employer. Dealing with the contention that no opportunity was given to the petitioner prior to the issue of the recovery notice, the learned Judge held that it was not contemplated that an inquiry should be made before the issuance of a demand notice, because according to the learned Judge if on the service of the demand notice a dispute is raised, the Act provided for a complete procedure. The reference was obviously to S. 75 of the Act. In fact, the learned Judge left it open to the petitioner to approach the Employees' Insurance Court under S. 75 of the Act where he could have his claim decided as well as the question whether after the appointment of the Authorised Controller, the liability of the former director came to an end. The learned Judge further took the view that the question as to whether the dues of the employer's special contribution could be recovered personally from the petitioner could also be adjudicated by the Insurance Court. The learned Judge thus declined to go into the questions raised before him.

5. Appeal No. 396 of 1979, arises out of the judgment of the same learned Judge in Miscellaneous Petition No. 1 of 1975. The Collector of Bombay at the instance of the Employees' State Insurance Corporation issued a demand notice, dated 10 February, 1974, on the petitioner, who was a director of India United Mills, for a sum of Rs. 84,366 25 on account of the employer's Special contribution outstanding against the said mills. According to the petitioner, he had resigned as a director with effect from 8 November, 1965, and he claimed that he was never the owner or the occupier of the said Mills and could neither be held responsible nor liable to the amount claimed in the said notice. He also claimed that the employer's special contribution was for the quarter ending 31 December, 1965, which was the period during which the mills and the factory were being run by the Government. The learned single Judge, who heard the petition challenging the recovery proceedings, took the view following his earlier judgment in Miscellaneous Petition No. 944 of 1974, that the expression “principal employer” includes the directors of the company. It was argued before the learned Judge that in any event the petitioner could not be liable for the period subsequent to 8 November, 1965. The position that the petitioner had ceased to be a director from 8 November, 1965, not having been disputed, the learned Judge held that after 8 November, 1965, the petitioner had no control of the company of which he was a director and, therefore, it would not be proper to make him responsible for the said contributions accruing after 8 November, 1965, but he held that the petitioner would be liable for the amount of special contribution and interest due till 8 November, 1965.

6. Thus, the main question which arises in all these three appeals which are filed against the three judgments in the three petitions referred to above, is, whether by virtue of the fact that a person is a director of the company, he becomes a “principal employer” as contemplated by S. 2(17) of the Act and, therefore, whether he can be made personally liable for the employer's special contribution which remained unpaid by the company during the period when he was a director of the company. A similar question having been raised in Writ Petition No. 2350 of 1983, Sri Setalvad, who appeared for the petitioners in that petition, was allows J to intervene and he was also heard.

7. For a proper appreciation of the arguments raised before us, it is first necessary to refer to the relevant provisions of the Act. Chapter IV of the Act is headed “contributions” and S. 38 in that chapter provides that all employees in factories or establishments to which this Act applies shall be insured in the manner provided by the Act, of course subject to the provisions of the Act. Contributions contemplated by the Act are (1) employer's contribution 5 and (2) employees' contribution and both these have to be paid to the Employees' State Insurance Corporation. Section 39 of the Act provides:

“39. (1) The contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer's contribution) and contribution payable by the employee (hereinafter referred to as the employee's contribution) and shall be paid to the Corporation”.

Sub-section (2) refers to the rates at which these contributions have to be paid. Section 40 of the Act has a marginal heading “principal employer to pay contributions in the first instance”. Sub-sections (1) and (4) alone are relevant for our purposes and they read as follows;

“40. (1) The principal employer shall pay in respect of every employee, whether directly employed by him or by through an immediate employer, both the employer's contribution and the employee's contribution.

(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted”.

The scheme of S. 40 of the Act, therefore, is that the primary liability to pay the employer's contribution and the employee's contribution is fastened on the principal employer and the principal employer can deduct only the amount of the employee's contribution from the wages payable to the employee. Where the employer ‘deducts the amount of the contribution from the wages of the employee statutorily, the amount becomes entrusted to the prinicipal employer and he becomes the trustee of such amount. Section 40 of the Act uses the expression “principal employer” and the definition of that expression is to be found in S. 2(17) of the Act. So far as the question which falls for consideration before us is concerned, the relevant part of the definition reads as follows:

“(17) ‘principal employer’ means—

(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948, the persons so named”.

The definition of “principal employer” refers to the “occupier of the factory” and under S. 2(15) of the Act, it is expressly provided that the occupier of the factory shall have the same meaning assigned to it in the Factories Act, 1948. It is, therefore, necessary to refer to the definition of the term “occupier” in the Factories Act which is to be found in S. 2 (n) of that Act and which, so far as it is material for our purpose, reads as follows:

“‘occupier’ of a factory means the person who has ultimate control over the affairs of the factory, and where the said affairs are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory”.

We are really concerned only with the first part of the definition and it is obvious on a plain reading of that definition that for ascertaining whether a person is an occupies or not, it has to be ascertained whether he is in ultimate control of the factory.

8. Having noticed these statutory provisions, it is now necessary to refer to the arguments which are advanced before us on behalf of the appellants as well as on behalf of the intervenos. The argument is, firstly, S. 39 of the Act is really a charging provision which merely refers to the employer and not the principal employer and, therefore, since a director can by no stretch of imagination be called an employer, the proceedings against the directors in each of the three cases must be held to be wholly void and uncalled for. It is obvious that this argument is advanced with a view to see that even on the wide definition of “principal employer,” a director does not fall within the definition of “occupier”. It is, however, obvious that the real provision which fastens the liability to deposit the employer's contribution and the employee's contribution is not created by S. 39 but by S. 40 of the Act. Section 39 merely prescribes the two kinds of contributions, the rates of such contributions, the unit, or the period in respect of which the contributions will be payable and the day when such contributions shall fall due. It does not specify who shall pay these contributions. This is done by S. 40. So far as the liability to pay the contributions is concerned, it is obvious that the liability is fastened on the principal employer only by S. 40, because it is under Sub-sec. (1) of S. 40 of the Act that an obligation is cast on the principal employer that he shall pay in respect of every employee, whether directly employed by him or by through an immediate employer, both the employer's contribution and the employee's contribution.

9. The further argument of Sri Ramaswamy, Miss Sorabjee, Sri Parshuramapuria and Sri Rajiv Kumar, learned counsel for the petitioners in the several petitions as well as Sri Setalvad, learned counsel appearing on behalf of the intervenor, is that in the case of a factory it is owned by a company and the mills in all the three appeals are admittedly owned by public limited companies who are the owners and, therefore, the principal employers. The further argument is that where the company is the owner of a factory, notwithstanding the fact that the occupier of the factory is also the principal employer as defined in S. 2(17) of the Act, the directors of the company can never be occupiers individually, because, according to the learned counsel, no individual director exercised ultimate control over the affairs of the factory. In any case, it is contended that except where an individual director is specifically notified as an occupier for the purposes of the Factories Act, in all the other cases it will be a question of fact as to who was in ultimate control of the affairs of the factory and, therefore, the notice of recovery of employer's contribution cannot be issued to the directors merely on the footing that the petitioners were the directors on their respective companies. It is also pointed out that it could not have been in the contemplation of the Parliament that any person who is an occupier or who exercised control would be personally liable for the dues which were required to be deposited by the company, because in a given case a person who is an occupier may not have anything to do with the financial affairs of the company and as the argument was put, he cannot even have the authority to sign a cheque for his own salary. Alternatively, it was contended that personal liability could extend only to the assets of company in the hands of the directors, if any, and not to their private properties, and reliance was placed on the provisions of S. 159 as well as S. 179 of the Income-tax Act, 1961. Section 159(1) of the Incometax Act, which falls in Chapter XV, deals with liability in special cases and it provides that where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. This personal liability is restricted under Sub-sec. (4) of S. 159 to have the value of the assets of the estate of the deceased. Sub-section (4) reads as follows:

“(4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the assets so charged, disposed of, or parted with”.

Section 179 of the Incometax Act determines the personal liability of directors of a private company and it provides as follows:

“(1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company”.

This section, therefore, imposes a vicarious liability on the directors for the tax due from the company. Relying on these provisions it was contended that there must be clear words in the Act to show that personal liability was intended to be created against a director in respect of dues which the company had failed to pay. it is contended that there is nothing in the Act which shows that the directors of the company were to be personally liable for the amount of the employer's contribution due from the company itself. In aid of this argument, a further reference was made to the provisions of S. 100 of the Factories Act. We have already referred to the definition of the term “occupier”. Section 100 is a special provision which lays down as to who will be an occupier in certain cases. Under Sub-sec. (1) of S. 100 of the Factories Act, it is expressly provided that where the occupier of a factory is a firm or other association of individuals, any one of the individual partners or members thereof may be prosecuted and punished for any offence for which the occupier of the factory is punishable. Sub-section (2) provides as follows:

“(2) Where the occupier of a factory is a company, any one of the directors thereof, may be prosecuted and punished under this chapter for any offence for which the occupier of the factory is punishable:

Provided that the company may give notice to the Inspector that it has nominated a director, who is resident within India to be the occupier of the factory for the purposes of this chapter, and such director shall, so long as he is so resident be deemed to be the occupier of the factory for the purposes of this chapter, until further notice cancelling his nomination is received by the Inspector or until he ceases to be a director”.

10. Sri Setalvad has contended that the Parliament has made a special provision in so far as penalties under the Factories Act are concerned and the provisions of S. 100, According to the learned counsel, indicate that a company or a firm or other association of individuals can be an occupier, but for the purpose of facilitating taking penalty proceedings the Legislature has statutorily identified certain person who can be prosecuted. The argument is that there is no such express provision under the Act passing on the liability of the company to a director of the company personally by artificially making a director an occupier for the purposes of the Factories Act where the company is the owner of the factory.

11. Sri Tulzapurkar, learned counsel for the Employees' State Insurance Corporation, has contended that it must be assumed as a proposition of law that a director is a person who has an ultimate control of the factory and that a person by reason of being a director must necessarily by held to have ultimate control over the affairs of the company. The learned counsel has contended that when the definition of “principal employer” in S. 2(17) of the Act refers to “the owner or occupier” the word “or” must be read as “and” and according to the learned counsel the definition of “principal employes” contemplates more than one person being a principal employer. It is argued by Sri Tulzapurkar that just as S. 100(2) of the Factories Act provides that in case of a company any one of the directors may be prosecuted, such a meaning must also be read in the definition of “principal employer” contained in the Act and the argument is that reading Ss. 2 (n) and 100 of the Factories Act together, all directors should be treated as occupiers unless the company has nominated any particular director as occupier, as contemplated by the proviso to Sub-sec. (2) of S. 100 of the Factories Act. The learned counsel alternatively contended that if the concept of all directors being the occupiers cannot be imported in the definition of the expression. “principal employer,” then the “principal employer” contemplated by S. 2(17) of the Act must be a human agency. The contention appears to be that a company cannot be an employer, and when it was pointed out that the word “person” as defined in the General Clauses Act includes any company or an association of a body of individuals whether incorporated or not, the argument was that such a meaning is repugnant to the context and would defeat the object of the Act itself.

12. Sri Chogle, who appeared for the Collector of Bombay, also supported the argument of Sri Tulzapurkar that the word “or” in the definition of the expression “principal employer” must be read as “and” and every director must be treated as an employer and consequently a principal employer. Sri Chogle has referred us to the Employees' State Insurance (General) Regulations, 1950, and it is pointed out that regulation 10B, which required the employer in respect of a factory or an establishment to have it registered, had to declare in Form 01 in item (8) dealing with principal employer the name of the manager declared as such for the purposes of the Factories Act as well as the name and residential address of the owner or occupier and the name and residential address of each of the directors.

13. We have referred earlier to the obligation of the principal employer to pay the employer's and the employee's contributions and his right to deduct the employee's contribution from the wages payable to the employee. Though on the well-known principles of construction of statutes singular includes plural, it is difficult for us to appreciate how there can be two principal employers in respect of the same employee. It is not contemplated by any of the provisions of the Act that there can be two principal employers at the same time. Undoubtedly, there is a concept of “immediate employer” and the “principal employer” contemplated by the Act, but when the definition of “principal employer” refers to the owner or occupier of a factory, it is obvious that the principal employer can either be the owner or the occupier depending upon the facts of each case. It is not difficult to contemplate a case where the owner of a factory may be a person different from the one who is actually running the factory, for example, a factory in a running condition or merely the factory itself may be let out by the owner in which case, the owner will have nothing to do with the employment of the employees, because the person required to appoint the employees and the actual person who is running the factory will then be the person who will be the principal employer. The definition of “principal employer,” therefore, is obviously intended to provide for all contingencies and any possible contingency will be covered by designating the owner as the principal employer where the owner himself is running the factory or in the case where the owner himself is not running the factory, the person who runs the factory in whatever capacity, becomes the principal employer by virtue of being the occupier of the factory. The word “or” must, therefore, be read disjunctively and cannot be read as “and” because reading of the word “or” as “and” is bound to introduce an uncertainty in fastening the obligation to deduct and pay the employer's contribution as well as the employee's contribution.

14. The concept that a limited company could be an occupier of a factory is recognized in the Factories Act itself. Indeed, the concept that a partnership firm or a body of individuals is also recognised in S. 100 of the Factories Act. Sub-section (1) of S. 100 begins with the words “where the occupies of a factory is a firm or other association of individuals”. Similarly, Sub-sec. (2) begins with the words “where the occupier of a factory is a company”. Section 2(n) of the Factories Act defines “occupier” to mean the person who has ultimate control over the affairs of the factory. If we read this definition along with the provisions of S. 100, it is obvious that the Legislature has clearly contemplated that the parson referred to in the definition of “occupier” can not only be a natural person as argued by Sri Tulzapurkar, but the person contemplated by the definition will include a body of individuals or a firm consisting of partners or an incorporated company. The definition of “occupier” in the Act expressly refers to the meaning assigned to it in the Factories Act, 1948”. Therefore, the word “occupier” for the purposes of the Act must have the same meaning as assigned to it in the Factories Act. It would be perfectly permissible to read Ss. 2(n) and 100 of the Factories Act to understand the concept of “occupier” and the sense in which the Legislature has used that term when “occupier” as included in the definition of “principal employer”. The provisions of S. 100 of the Factories Act leave no room for doubt and make it clean that the Legislature has clearly contemplated that in the case of a factory a company can be the “occupier” and can be the person who has the ultimate control over the affairs of the factory. Not only that, the Legislature has clearly contemplated that a firm consisting of partners can be an occupier and that the firm could have ultimate control over the affairs of the factory, and even an association of individuals can be an occupier.

15. The provisions of Ss. 100(1) and 100(2) of the Factories Act and especially of S. 100(2) are clearly intended to enable individual partners or individual members of a body of individuals, association of individuals or directors of a company to be prosecuted or punished for an offence for which an occupier of a factory is punishable. The words “for any offence for which the occupier of the factory is punishable” occurring in Sub-secs. (1) and (2) of S. 100 clearly imply that a partner or a member of association of individuals or a director can be prosecuted for an offence for which an “Occupier” of the factory is punishable, which “occupier” in the respective cases, would be a partnership firm, an association of individuals or a company. But for these enabling provisions specially made in Sub-secs. (1) and (2) of S. 100 the “occupier” as defined, alone would have been punishable and not the different persons whose punishability is specifically provided for by the specific and independent provisions in Sub-secs. (1) and (2) of S. 10 of the Factories Act. It is, therefore, clear that where the owner or occupier of a factory is a company, the directors of a company cannot automatically be called “occupier” merely by virtue of being directors of the company which owns or runs the factory within the meaning of S. 2(n) of the Factories Act.

16. It may be pointed out that the definition of “occupier” in S. 2 (n) of the Factories Act refers to the person “who has ultimate control over the affairs of the factory” and not “affairs of the company”. But even under the Companies Act so far as the affairs of the company are concerned, the ultimate control of the company will not lie with any particular director at all. The directors act collectively and they function collectively as a board of directors. We may refer to a passage from Gower's Principles of Modern Company Law, 4th Edn., page 152, where the learned author has observed:

“Where powers are conferred on the directors under clauses such as those considered above, they are conferred upon the directors collectively as a board. Prima facie, therefore, they can be exercised only at a board meeting of which due notice has been given and at which a quorum is present”.

(Emphasis supplied.)

Sri Tulzapurkar has referred us to a passage from Pennington Company Law, 4th Edn., at page 523, which in our view, says nothing different from the passage we have quoted above. The passage relied upon by Sri Tulzapurkar is at page 523, which reads as follows:

“The board of directors and meetings of members of a company can between them exercise all of the company's powers. Subject to the provisions of the Companies Act, 1948, which require certain powers to be exercised by the members in general meetings, the division of powers between the board and the members is determined entirely by the articles of association, but the distribution can, of course, be varied from time to time by an alteration of the articles”.

The above passage does not refer to the powers of any individual director, but it refers to the division of powers between the members of the company and the board of directors, as such, and indeed, in the same chapter, the learned author has further pointed out at page 525 as follows:

“Directors can only exercise their powers collectively by passing resolutions at board meetings, unless the articles otherwise provide”.

The proposition that each individual director must be held to be in control of a factory belonging to a company is, therefore, wholly inconsistent with the general provisions of the Company Law where the directors function as a board or body and not as individuals. We may make it clear that we are not dealing with a case where a director is specifically notified to the authorities as an occupier for the purpose of the Factories Act. If that is done, such a director becomes an occupier not on account of the fact that he is a director but because he has been nominated as an occupier for the purpose of the Factories Act.

17. Sri Tulzapurkar has placed reliance on a passage in Halsbury's Laws of England, Vol. 20, at page 266, Para. 526, headed “General liability of occupier”. We do not see how this passage is of any assistance to the learned counsel. The position in England is that the Factories Act, 1961, does not define “occupier” and in that context it is observed in Para. 526 as follows:

“… The Act (Factories Act, 1961) does not define who is the occupier of a factory, but the person who runs the factory, who regulates and controls the work that is done there and who is responsible for the fulfilment of the provisions of the Act within it is the occupier; thus a receiver and manager appointed under hand by debenture holders is the occupier of the company's factory”.

Substantially, the concept of occupier contemplated by the definition of “occupier” in S. 2 (n) of the Factories Act is the same as set out in the above passage. The observation in the above passage that a receiver and manager appointed under hand by debenture-holders is the occupier of the company's factory is made on the basis of a decision in Meigh v. Wickenden, [(1942) 2 E.B 160]. We are unable to find in that decision anything which could support Sri Tulzapurkar's contention that a director ipso facto must be treated as an occupier. That was a case under the Factories Act, 1937, and the question was whether a receiver under a debenture can be said to be an occupier. On the terms of the debenture it was found that the appellant's appointment as receiver and manager was “to manage and carry on the business of the company, to take possession of, get in and collect the property and assets,” and it was found that such an appointment was very different from that of a director. What was argued in that case was that even though the receiver and manager was appointed as debenture-holder, the company continued to exist and continued to be the occupier of the premises, the only difference being that by the appointment of the appellant as manager, he took the place of a director in the conduct of the business of the company. The argument put before the Court was that just as a director would not be subject to conviction as being the occupier of the premises, so the receiver and manager could not be made liable in that capacity. What was, therefore, argued was that just as a director could not be convicted as an occupier, so also the appellant, who was a manager, could not have been convicted. This argument was rejected and the following observations are relevant:

“…. Notwithstanding the force of this argument, this case must, in my judgment, be decided by giving effect to the results which, I think, flaw from the provisions of condition (2) of the debenture, in pursuance of which the appellant was appointed receiver and manager. He was appointed ‘to manage and carry on the business of the company, to take possession of, get in and collect property and assets charged by the debenture. I must assume that he did what he was appointed to do, which was something very different from what a director had to do. He was not in the same position as the directors, for instance, in so far as his duty to take possession of the property of the company was concerned. He was complete master of the affairs of the company. Ha had absolute and complete power to manage the property of which he took possession, including the factory, with a possible view to its realisation, if necessary, in order to secure the debt owed to the debenture-holder. As between the appellant and the company, therefore; I think the appellant was the person in possession and it follows, in my judgment, that he was properly convicted as occupier”.

The observations quoted above also indicate that a director normally is not a person who has complete control over the affairs of a company or a factory. As already pointed out, the definition of “occupier” in S. 2(n) of the Factories Act does not refer to the “ultimate control over the affairs of the company”. What is necessary for a person to be styled or described as occupier is that he must have ultimate control over the affairs of the factory. This undoubtedly is a question of fact and will have to be decided on evidence, and it can never be assumed that a director of the company has ultimate control over the affairs of a factory owned by the company merely by virtue of being a director.

18. Miss Sorabjee has referred us to a decision of the Punjab and Haryana High Court in Employees' State Insurance Corporation, Chandigarh v. S. Gurdial Singh, [1974 — 1 L.L.N 372]. In that case, a factory was owned by a private limited company with the Chairman and his four sons as the directors of the company. The company was engaged in the manufacture of embroidery textiles and the factory employed about 300 workmen. Inder Singh, the fourth son, was the occupier of the factory. The company owed Rs. 73,879 on account of contribution under the Act and since the amount was not paid, proceedings against the Chairman and his three other sons were started for recovering the amount as arrears of land revenue. The petitioners contended before the High Court that they were not the principal employer and they were, therefore, not personally liable to pay the amount and that Inder Singh, who was a director, was appointed as manager and he was the occupier of the factory and he alone was able to pay that amount. This contention was accepted by the learned single Judge and the State of Punjab was restrained from recovering the amount from the petitioners. The Employees' State Insurance Corporation then filed an appeal under the Letters Patent. The Division Bench while affirming the judgment of the learned single Judge held that the owner of the factory was the company and Inder Singh, who had the ultimate control over the affairs of the company being its occupier, was the principal employer and was thus liable to pay the amount. It was found that there was no evidence to show that the affairs of the company had been entrusted to any of the petitioners and the liability being that of the company, the amount would be recovered from the assets of the factory which could be attached and sold and not from the petitioners. The decision, therefore, held, though not expressly, that the other directors of the company could not be called occupiers, a view which has our respectful concurrence. Sri Tulzapurkar has referred us to a decision of the Calcutta High Court in B.M Chatterjee v. State of West Bengal, [A.I.R 1970 Cal. 290]. According to the learned Judge a director of a limited company is an owner and, therefore, the principal employes within the meaning of S. 2(17) of the Act. A complaint under S. 86 of the Act was made against a director of the private limited company on the ground that the director was a principal employer and he bad failed to make the special contribution in terms of the provisions of S. 73A of the Act. The defence was that another director used to look after the management of the concern and that he was, therefore, not liable. The learned Judge disposed of this contention by observing:

“…On a plain meaning of the provisions of S. 2(17) of the Act, the petitioner, as a director, is liable to be penalised for contraventions of the Act in the same way as any other Director and the nature of his duty in the concern is quite immaterial”.

We do not find any reasoning in the judgment on which such a conclusion could be reached. If this decision is relied upon as laying down a ratio that the director in each case is an occupier, we are unable to follow this decision. The decision in Bidyut Sett v. Satyesh Bagchi, [82 C.W.N 666], is also a decision arising out of prosecution for offences under S. 85(a) and 85 (g) of the Act read with S. 4(i)(b) of the Employees' State Insurance (Amendment) Act, 1975, for failure to submit the necessary contribution cards of the directors' company. When the Magistrate took cognizance of the offence, the directors approached the High Court for quashing the proceedings. On behalf of the Corporation, reliance was placed on the decision in B.M Chatterjee case (vide supra). But, it has to be noted that even the Public Prosecutor does not seem to support that view, because it was contended by the Public Prosecutor that

“a director qua director is not the owner or occupier within the meaning of S. 2(17) of the Act, but the company is the owner or occupier”.

The Division Bench took the view, without going into the correctness of Chatterjee case (vide supra), that a director of a company can be brought within the meaning of the word “occupier” as mentioned in S. 2(17) of the Act, as according to S. 2 (n) of the Factories Act occupier is a person who like a director has ultimate control over the affairs of the factory. The Division Bench took the view that since in that case no managing agent had been appointed and no manager had been named, occupier is wide enough to bring any director including the present petitioners — directors within the definition of S. 2(17) of the Act. The judgment does not show that the contention that a director as a member of the board of directors cannot be assumed to be in control of the factory and that the board of directors functioned collectively and the director functions as a member of the board of directors was neither canvassed not considered. In the view which we have taken, we are unable to follow the ratio of this decision.

19. Having considered the arguments advanced, we are unable to agree with the learnei single Judge, when he held that the directors are occupiers by virtue of being directors. In the instant case, the notices which have been issued to the petitioners are merely on the footing that they ware directors of the companies. We have also pointed out that at one point of time there can be only one principal employer, and really speaking, if a company is a principal employer the question as to whether the directors are occupiers or not is wholly irrelevant. The only proceedings which could have been taken for the recovery of the amount due on account of the employer's contribution would be against the company alone and not against the directors personally and no question as to whether the directors were occupiers can arise in these cases. A further question, therefore, that one of the petitioners was only a part-time director is also not of much relevance. The other argument that the liability could be enforced only to the extent of the assets of the company in the hands of tae directors, if any, also need not be considered.

20. It is undoubtedly true that the question as to whether a person is a principal employer or not falls squarely within the jurisdiction of the Employees' Insurance Court under S. 75 of the Act. It is also argued by Sri Tulzapurkar and Sri Chogle that the petitioners should really have approached the Employees' Insurance Court to have their liability determined and this Court should not, therefore, interfere. It is obvious that though the question as to whether the directors were occupiers and, therefore, as principal employers could be liable for the arrears of contributions in question could have been decided by the Insurance Court, it appears that the petitioners were required to approach this Court under Art. 226 of the Constitution of India, because there was immediate threat of enforcing personal liability against the directors. Existence of an alternative remedy is not an absolute bar to the proceedings under Art. 226 of the Constitution of India. All these petitions were entertained by the learned single Judge and they were dismissed. The appeals have been admitted and have been heard. The questions argued were of general importance and it would be futile now to hold that the petitioners should be referred back to the Employees' Insurance Court for determination of the question of their personal liability. We do not, therefore, see any substance in the contention that the petitioners have coma to a wrong forum and should have really gone to the Employees' Insurance Court.

21. In the view which we have taken, all the three appeals are allowed, the order of the learned single Judge impugned in each of the three appeals is set aside and the notices issued to the petitioners for recovery of the amounts said to be due on account of the employer's contribution are liable to be quashed.

22. In the result, Appeal No. 311 of 1979 is allowed and the rule is made absolute in terms of prayers (a) and (b) of the petition. In Appeal No. 379 of 1079, the rule is made absolute in terms of prayers (a) and (b) of the petition and in Appeal No. 396 of 1979, the rule is made absolute in terms of prayers (a) and (ai) of the petition. In the circumstances of the case, there will be no order as to costs in all these appeals.

23. An oral application for leave to appeal to the Supreme Court has been made by Sri Jayakar. The application is rejected.