Post titleFAILURE OF EMPLOYER TO PAY REMUNERATION TO EMPLOYEE-CAN THAT BE A GROUND FOR WINDING UP?

Failure of employer to pay remuneration to employee – Can that be a ground for winding up? [2016] 132 CLA (Mag.) 27 G P Sahi* In this article, the author examines the question as to whether failure of the employer to pay remuneration to the employee can be a ground for winding up. While concluding he states that the fact that no specific reference is made to the dues of employees in section 529A unlike workmen’s dues, to be paid as overriding preferential payments, does not mean that the amount receivable by the employees, who may not be workmen as such, is not a debt or that they are excluded from the term ‘creditors’ in any manner. An employee of the company has locus to file company petition in respect of his unpaid wages/salary and emoluments, as having been filed by a creditor of the company. Introduction Reward for employment may take the the form of pay, salary, or wage, including allowances, benefits (such as company car, medical plan, pension plan), bonuses, cash incentives, and monetary value of the noncash incentives. If remuneration in the form of wages, salary and emoluments is not paid to the worker/employee, does it become a ‘debt’ within the meaning of clause (e) of section 433 of the Companies Act, 1956 (‘the Act’)? Can an employee be treated as creditor ascribable to section 439 read with clause (a) of sub-section (1) of section 434 of the Act ? Can the workman or employee of a company pursue claim in that behalf as creditor by filing company petition under sections 433 and 434 ? If an employee ceases to be in employment of a company will it make a difference to the nature of claim or will he still retain the colour of wages, salary and emoluments payable to an employee whilst he was in service of the company ? One can find answer to these questions in the following propositions : Remuneration due is not a debt. The protagonists of the contention that workers or employees cannot file petition against the company in terms of clause (e) of section 433 read with section 434 base their opinion on the following contentions. Workers are not included in the list of specifically enumerated persons in section 439 and therefore have no right to prefer a petition for winding up of a company. Further, the right to apply for winding up of a company being a creature of statute, none other than those on whom the right to present a winding up petition is conferred by the statute can make an application for winding up a company. No such right has been conferred on workers. Accordingly, they cannot prefer a winding up petition against the company. Sections 529, 529A and section 530 of the Act contend that in view of express provision in the Act giving overriding preferential status to the payment of workman’s dues, by necessary implication, it must follow that workers are excluded from pursuing remedy under sections 433 and 434 of the Act, as also former workman/employee of the company, for winding up of the company. Dues towards salary, wages and emoluments being remuneration, does not become ‘debt’ within the meaning of clause (e) of section 433. There is difference between debt and salary. While the latter is remuneration paid to a person or employee in lieu of services rendered by him/her whereas debt is not remuneration. Debt is something which is borrowed by a person on settled terms and conditions and settled rate of interest and can be re-settled between the parties. Any other interpretation would result in disgruntled workman/employee resorting to remedy under the Act for winding up of the company. Further, that remedy would then be pursued not only by the individual workman/employee, but also by workmen trade unions. The workmen trade unions not only represent the cause of workmen/employees, but also former workmen/employees. This would encourage the trade unions to resort to remedy of winding up of the company, to espouse the cause of its members, instead of pursuing other remedies prescribed by law for resolving such disputes. To appreciate the contentions, it shall be profitable to visit the provisions of section 439 of the Companies Act, 1956. Provision of section 439 as to application for winding up Sub-section (1) of section 439 lists persons who shall be entitled to file an application for winding up against the company. These include the company itself, creditors, contributory, registrar and any person authorised by the central Government in this behalf. A mere reading of the above provision does not suggest that a worker or an employee can file a petition seeking winding up of a company. But do outstanding wages or salaries constitute a debt due and payable by the company. Clause (e) of sub-section (1) of section 433 states that a company may be wound up by the Tribunal, if the company is unable to pay its debts. Debt – Meaning While the term ‘debt’ has not been defined in the Act, going by the meaning of term ‘debts’ as understood in common parlance, it is a sum of money due from one person to another. It would not only mean the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment. The meaning of expression ‘debt’ as understood in common parlance is noted that debt means any pecuniary liability, whether payable presently or in future, or whether ascertained or to be ascertained. It means any liability which is claimed as due from any person. Indeed, it must be a legally payable amount or dues. In the Earl Jowitt’s Dictionary of English Law,1 it is noted that debt is a sum of money due from one person to another. A debt exists when a certain sum of money is owing from one person to another. Debt denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment. It is noted that debt normally has one or other of two meanings2 . It can mean an obligation to pay money or it can mean a sum of money owed. It is unnecessary to multiply the other illustrations, referred to in the said dictionary, except to mention that expression ‘debt’ has to be given widest amplitude to mean any liability which is claimed as due from any person. The Supreme Court after considering several decisions on the point in the case3 summarised the position which is as follows : “A debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable in praesenti or in futuro ; debitum in praesenti, solvendum in futuro. A debt involves an obligation incurred by the debtor and the liability to pay a sum of money in present or future. The liability must, however, be to pay a sum of money, i.e., to pay an amount which is determined or determinable in the light of factors existing on the date when the nature of the liability is to be ascertained.” The claim of short delivery of materials has been held to be debt4 . The unpaid salary of an employee is liable to be recovered from the employer, because the employer is obliged to a pay it to the employee for the services rendered by it. As noted above, a debt is a sum which is to be recovered from a person who is obliged to pay the same and, therefore, no line of demarcation can be drawn between a remuneration due to be recovered and a sum which is to be recovered because a person has to pay for the price goods which has been purchased by him on credit. Is employee a creditor ? But is a worker or employee, a creditor of the company in the event of non receipt of his wages/salary? The expression ‘creditor’ is intrinsically linked to the expression ‘debt’/ ‘debts’. Wherever it is a case of ‘debts’, the person, who is entitled to receive the amount, as belonging to him, is necessarily a creditor. The workman is a creditor of the company to the extent of his unpaid wages and salary. This view is reinforced from Chapter-V of the Act. For, section 529, defines the purport of expression “workmen’s dues”. Further, section 529A provides for overriding preferential payments in respect of workmen’s dues. There is preferential right to receive those dues guaranteed under section 530 over other dues. The fact that special preference in payment of workmen’s dues has been specified in the Act, does not mean that the workmen are excluded from the term ‘creditors’ or that the amount of unpaid salary, wages or emoluments of the workmen is not a debt payable by the company, as such.5 The Division Bench of the Andhra Pradesh High Court6 referred to the meaning of word ‘debt’ as given in Black’s Law Dictionary 5th edn., which, inter alia, mentions that there must be an existing obligation to pay sum of money now or in future. The Division Bench proceeded to observe, thus: 17.  Before dealing with this specific question, the larger question raised by the learned counsel for the respondent-company that under no circumstance salary due to an employee or officer of the company could be a ‘debt’ in the context of section 433(e) of the Act has to be considered for it goes to the root of the matter. This contention, in our considered opinion, is required to be noticed only to be rejected. It is trite that an employee or officer of the company, on completion of the wage period or salary period and after serving the company, acquires a right to claim wage/salary, as the case may be, and he assumes the character of a creditor and the company becomes a debtor. It cannot be gainsaid that an employee of the company, after serving a company for a wage period or salary period, say for a month, if he or she acquires a right to claim for payment of salary and if the company does not pay the salary within the stipulated time under the contract or the relevant regulations governing terms and conditions of service, undoubtedly the employee can bring a legal action to enforce his/her right to recover the salary due to him or her against the company. The definition of the word “debt”, as understood in the well-known treatises as well as English and Indian courts, to put it pithily, means a sum of money which is presently payable. In other words, there must be debitum in presenti. There are no good reasons to take out ‘salary due to an employee’ from the company from the meaning of the word “debt” in the context of section 433(e) of the Act’ The Delhi High Court7 held that company petition for winding up filed by them against the company in relation to unpaid salary/wages for the period when they were working with the respondent-company, could be maintained by them as creditors. In substance, the court noted that it is one thing to refuse to entertain the prayer for winding up at the instance of the employee concerned, which is within the discretion of company court and can be done in larger interests of the public. But, to say that the worker has no locus to maintain petition for winding up of a company in respect of his claim for unpaid salary/wages is untenable. The latter cannot be countenanced, in the light of the express provision in section 439 read with sections 433 and 434 of the Act. Taking any other view, would be re-writing the said provisions to mean that unpaid salary is not a debt within the meaning of clause (e) of section 433 and the employee, who owes unpaid salary from the company even after ceases to be employee of that company is not a creditor of the company, in relation to the claim of unpaid salary and wages. Conclusion The fact that no specific reference is made to the dues of employees in section 529A unlike workmen’s dues, to be paid as overriding preferential payments, does not mean that the amount receivable by the employees, who may not be workmen as such, is not a debt or that they are excluded from the term ‘creditors’ in any manner. The remedy provided under section 433 and 434 is to all the creditors, known by whatever description – be it, in respect of goods purchased from them or services rendered by them, as the case may be. It is not possible to exclude one amongst those, considering the sweep of sections 433 and 434 and in section 439. An employee of the company has locus to file company petition in respect of his unpaid wages/salary and emoluments, as having been filed by a creditor of the company. FOOTNOTES *Vice President(legal) & Company Secretary, CJ International Hotel Limited. P Ramanatha Aiyar’s Advanced Law Lexicon, 3rd edn., vol.2 at p. 1238 till 1243 DPP v. Turner [1973] 3 ALL ER 124, Kesoram Industries & Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 Kudremukh Iron Ore Co. Ltd. v. Kooky Roadways (P.) Ltd. [1990] 69 Comp Cas 178 (Kar.) Jonathan Allen v.Zoom Developers (P.) Ltd [2015] 129 CLA 199 (MP) M Suryanarayana v.Stiles India Ltd . [2004] 59 CLA 163 (AP) © All rights reserved with Jus Scriptum.

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