# [1974] 3 S.C.R. 50

- **Citation:** [1974] 3 S.C.R. 50
- **Court:** Supreme Court of India
- **Decided:** 1972-01-07
- **Case number:** Criminal Appeal No. 57 of 1973
- **Bench:** M. H. Beg, Y. V. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1974-3-s-c-r-50-6097
- **Pages:** 5

## Headnote

Bombay Relief Undutaklnir (Special Provis/om) Ad 1958-S. 4 (I) (•) (iv)-
Whether personal liability of directors falls within the scope of s~tlon.
The appellants, five of whom were directors and one an officer of a company,
were prosecuted under the Employees Provident Funds Act, 1952 on the grouod
that they had failed to pay the contribution to the Provident Fund and thereby
committed an offence punishable under paragraph 76(a) of the Employ..S Provident Fund Scheme, 1952. Later, an investigation was made into the affairs of the
company under s. I 5 of the lodustries (Devefopment aod Regulation) Act, 1951 aod
an order was issued authorisina the Gujarat State Textile Corporation to take over
the management of the company. By a notification the State Government declared the company to be a"'rclief undertaking" unde< s. 4 (I) (a) (iv) of the Bombay
Relief Undertaking.'! (Special Provisions) Act, 1958 and directed that "'all rights,
privileges, obligations and liabilities a<orued or in<umd before the undertaking ....
declared a relief undertaking aad any remedy for the enforcement thereto shall
be suspended and all the procutli'ngs relevant tMreto pending before any court,
tribunal. officer or authority shall be. stayed" with
effect from a certain date.
An application filed by the appellants for stay of the prosecution in view of the noti·
ti.cation issl.led by the Government was rejected by the lower court on the' view that
the operation of s. 4 of the 1958 Act was restricted to the statutes mentioned in the
Schedule to thkt Act and that clause (iv) of s. 4 (I} (a) did not contemplate stay of
criminal proceedings. On appeal the High Court summarily rejected the revision
application. The appellants came in appeal to this Cou~ by special leave.
On the question whether the proaecution pending against the appellants under
paragraph 76 (a) of the Employees Provident Funds Scheme 1952 is liable to be
stayed. by virtue of the notification issued by the State Government.
D~ing the, appeal,
A
B
c
D
E
HELD : The personal liability of the directors and officers does not fall within
the scope of s. 4 (1) (a) (iv) of the Act. The responsibility to pay the contnbution
to the Fund was of the appellants and if they had defaulted in paying the amount
they were liable to be prosecuted under paragraph 76 (a) of the Scheme. The phrase
"'all proceedings relative thereto" patently means all proceedings relating to "an)
f
right, privilege, obligation or liability accrued or incurred before the undertaking
was declared a relief undertaking". Sub-clause (iv) concerns itself with the pre·
existing obligations and liabilities of the .undertaking and not of its directors.
managers or other officers. Neither the language of the statute nor its object would
justify the extension of the immunity so as to cover the individual obligations and
liabilities of the directors and other officers of the undertaking. If they had in·
curred such obligation or liabilities as distinct from the obligations or liabilities of
the undertaking·they were liable to be proceeded against for their personal acts
of commission and ommission. The remedy in that behalf cannot be suspended
G
nor can a proceeding already commenced against them in their individual capacity
be stayed. [52E; 53EJ
The occasion for declaring an. industry as a "relief undertaking" would arise
out of causes connected with the defaults on the part of its directors and other officers.
To declare a moratorium on legal
actions against persons whose activities
. have nece3sitated the issuanc; of a notifi:ation in the interest of unemployment
relief is to give such persons the benefit of their own wrong. Section 4 (1) (a) (iv)
H
advisedly limits the pOwer of the State Government to direct suspension of all
rem,dies and stay of proceed.jogs involving the obligations and liabilities in relation
to a relief undertaking and which were incurred before the undertaking was declared a relief undertaking. [53FJ
A
B
c
D
E
F

## Text

50
INDERJIT C. PAREKH & ORS •
••
V. K. BHATI & ANR.
January, 8, 1974
[M. H. BEG AND Y. V. CHANDRACHUD, JJ.]
Bombay Relief Undutaklnir (Special Provis/om) Ad 1958-S. 4 (I) (•) (iv)-
Whether personal liability of directors falls within the scope of s~tlon.
The appellants, five of whom were directors and one an officer of a company,
were prosecuted under the Employees Provident Funds Act, 1952 on the grouod
that they had failed to pay the contribution to the Provident Fund and thereby
committed an offence punishable under paragraph 76(a) of the Employ..S Provident Fund Scheme, 1952. Later, an investigation was made into the affairs of the
company under s. I 5 of the lodustries (Devefopment aod Regulation) Act, 1951 aod
an order was issued authorisina the Gujarat State Textile Corporation to take over
the management of the company. By a notification the State Government declared the company to be a"'rclief undertaking" unde< s. 4 (I) (a) (iv) of the Bombay
Relief Undertaking.'! (Special Provisions) Act, 1958 and directed that "'all rights,
privileges, obligations and liabilities a<orued or in<umd before the undertaking ....
declared a relief undertaking aad any remedy for the enforcement thereto shall
be suspended and all the procutli'ngs relevant tMreto pending before any court,
tribunal. officer or authority shall be. stayed" with
effect from a certain date.
An application filed by the appellants for stay of the prosecution in view of the noti·
ti.cation issl.led by the Government was rejected by the lower court on the' view that
the operation of s. 4 of the 1958 Act was restricted to the statutes mentioned in the
Schedule to thkt Act and that clause (iv) of s. 4 (I} (a) did not contemplate stay of
criminal proceedings. On appeal the High Court summarily rejected the revision
application. The appellants came in appeal to this Cou~ by special leave.
On the question whether the proaecution pending against the appellants under
paragraph 76 (a) of the Employees Provident Funds Scheme 1952 is liable to be
stayed. by virtue of the notification issued by the State Government.
D~ing the, appeal,
A
B
c
D
E
HELD : The personal liability of the directors and officers does not fall within
the scope of s. 4 (1) (a) (iv) of the Act. The responsibility to pay the contnbution
to the Fund was of the appellants and if they had defaulted in paying the amount
they were liable to be prosecuted under paragraph 76 (a) of the Scheme. The phrase
"'all proceedings relative thereto" patently means all proceedings relating to "an)
f
right, privilege, obligation or liability accrued or incurred before the undertaking
was declared a relief undertaking". Sub-clause (iv) concerns itself with the pre·
existing obligations and liabilities of the .undertaking and not of its directors.
managers or other officers. Neither the language of the statute nor its object would
justify the extension of the immunity so as to cover the individual obligations and
liabilities of the directors and other officers of the undertaking. If they had in·
curred such obligation or liabilities as distinct from the obligations or liabilities of
the undertaking·they were liable to be proceeded against for their personal acts
of commission and ommission. The remedy in that behalf cannot be suspended
G
nor can a proceeding already commenced against them in their individual capacity
be stayed. [52E; 53EJ
The occasion for declaring an. industry as a "relief undertaking" would arise
out of causes connected with the defaults on the part of its directors and other officers.
To declare a moratorium on legal
actions against persons whose activities
. have nece3sitated the issuanc; of a notifi:ation in the interest of unemployment
relief is to give such persons the benefit of their own wrong. Section 4 (1) (a) (iv)
H
advisedly limits the pOwer of the State Government to direct suspension of all
rem,dies and stay of proceed.jogs involving the obligations and liabilities in relation
to a relief undertaking and which were incurred before the undertaking was declared a relief undertaking. [53FJ
A
B
c
D
E
F
G
H
I. c. PAREKH v. v. K. BHATT (Chandrachud, /.)
51
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 57
of 1973.
Appeal by special leave from the judgment and order dated the 9th
February 1973 of the Gujarat High Court at Ahmedabad in Criminal
Revision Application No. 86 of 1973.
Y. S. Chitaley and S. K. Dholakia, for the appellants.
G. Das, S. N. Anand and M. N. Shroff. for the respondent.
The Judgment of the Court was delivered by
CHANDRACHUD, J.-Appellants I, 2, 4, 5 and 6 are the directors of
Rajnagar Spinning and Weaving Manufacturing Co. Ltd., Ahmedabad,
and appellant No. 3 is an office< of the said company. On March 19,
1969 a complaint was lodged against them by respondent l, an Inspector appointed under the Employees' Provident Funds Act, 1952 that they
had failed to pay a sum of Rs. 1,39,419 ·50 being the contribution to
the Provident Fund for the months of June, July and August, 1968
and that thereby they had contravened the provisions of Paragraph
38(1) of the Employees' Provident Funds Scheme, 1952. an act punishable under Paragraph 76(a) of the Scheme.
An investigation was made into the affairs of the company under
section 15 of the Industries (Development and Regulation) Act, 1951
and on being satisfied that lobe company was managed in a manner
highly detrimental to public interest, the Government of India issued
an order dated January 7, 1972 authorising the Gujarat State Textile
Corporation to take over the management of the company. On May
6, 1972 the Gujarat Government issued a notification declaring the company to be a "relief undertaking"· under section 4(1XaXiv) of the
Bombay Relief Undertakings (Special Provisions) Act, 1958 ('the Act'),
and directing that "all rights, privileges, obligations and liabilities
accrued or incurred before the undertaking was declared a relief undertaking and any remedy for the enforcement thereof shall be suspended
and all the proceedings relative thereto pending before any Court,
tribunal, officer or authority shall be stayed with effect from 6th May
1972" ..••••
The appellants filed one application after another asking the court
which was seized of the matter to stay the prosecution in view of the
notification issued by the Government of Gujarat. Two of such applications were rejected by the learned City Magistrate, III Court, Ahmedabad. Appellants acquiesced in one of the orders, carried the other in
revision to the High Court but withdrew that proceeding. On October
27, 1972 they made yet another application for the same relief which also
was rejected by the learned.Magistrate. He took the view, as in the two
earlier applications, that the operation of section 4 of the Act is restricted to the statutes mentioned in the Schedule to that Act and that
clause (iv) of section 4(1) did not contemplate stay of criminal proceedings. The High Court of Gujarat rejected summarily the revision appli-
:ation filed by the appellants against the judgment of the learned
Magistrate. This appeal by special leave is directed against the judgment
of the High Court.
52
SUPREME COURT REPORTS
[197413 S.C.R.
We are concerned in this appeal with the narrow question whether
the prosecution pending against the appellants under Paragraph 76(a)
of the Employees' Provident Funds Scheme, 1952 is liable to be stayed
by virtue of the notification issued by the Government of Gujarat on
May 6, 1972. That notification was issued 1n exerdse of the power
conferred by section 4(l)(a)(iv) of the Act, which reads thus :
"4. (I) Notwithstanding any law, usage, custom, contract,
instrument, decree, order, award, submission, settlement,
standing order or other provision whatsoever, the State Government may, by notification in the official Gazette, direct that-
( a) in relation to any relief undertaking and in respect of the
period for which the relief undertaking continues as such under
sulrsection (2) of section 3-
•
•
*
•
•
(iv) any right, privilege, obligation or liability accrued or in·
curred before the undertaking was declared a relief under·
taking and any remedy for the enforcement thereof shall be
suspended and all proceedings relative thereto pending before any
court, tribunal, officer or authority shall be stayed;"
"all proceedings relative thereto" patently meam all proceedings
relating to "any right, privilege, obligation or liability accrued or incurr<d before the undertaking was declared a relief undertaking".
The obligation or liability which sub-clause (iv) speaks of is an obligation or liability incurred by the undertaking before it was declaretl a
relief undertaking. Jn other words sub-clause (iv) concerns itself with
the pre-existing obligations and liabilities 6f the undertaking and not
of its directors, managers or other officers.
The obligation or liability of these persons is not comprehended
within the words of sub-clause (iv). Clause (a) of section 4(1) shows
that the power of the State Government is itself restricted to giving directions referred tQ in sub-clause (iv). "in relation to any relief undertaking". Obligations and liabilities of the directors or other officers of
the undertaking are not in a true sense obligations and liabilities in
relation to the relief undertaking. In plain and simple language they are
the obligations and liabilities of such persons themselV<s. Their obligations and liabilities have to be viewed from a different angle than the
obligations and liabilities of the company itself which only acts
impersonally.
The object of section 4(I)(a)(iv) is to declare, so to say, a moratorium on actions against the undertaking during the currency of the
notification declaring it to be a relief undertaking. By sub-clause (iv),
any remedy for the enforcement of an obligation or liability against the
relief undertaking is suspended and proceedings which arc already
commenced are to be stayed during the operation of the notification.
Under section 4(b), on the notification ceasing ·to have force, such
obligations and liabilities revive and become enforceable and the
proceedings which are stayed can be continued. These provisions are
A
B
c
D
E
F
G
B
A
B
c
D
E
F
G
'· c. PAREKH v. v. K. BHATT (Chandrachud, J.)
53
aimed at resurrecting and rehabilitating industrial undertakings brought
by inefficiency or mis-management to the brink of dissolution, posing
thereby the grave threat of unemployment of industrial workers. 'Relief
undertaking' means under section 2(2) an industrial undertaking in
respect of which a declaration under section 3 is in force. By section 3,
power is conferred on the State Government to declare an industrial
undertaking as a relief undertaking, "as a measure of preventing
unemployment or of unemployment relief'. Relief undertakings, so
long a~ they continue as such, are given immunity from legal actions
s0 as to render their working smooth and effective. Such undertakings
can be run more effectively as a measure of unemployment relief, if the
conduct of their affairs is unhampered by legal proceedings or the threat
of such proceedings. That is the genesis and justification of section
4(l)(a)(iv) of the Act.
Thus neither the language of the statute nor its object would justify
the extension of the immunity so as to cover the individual obligations
and liabilities of the director and other officers of the undertaking.
If they have incurred such obligations o.r liabilities, as distinct from the
obligations or liabilities of the undertaking, they are liable to be
proceeded against for their personal acts of commission and omission.
The remedy in that behalf cannot be suspended nor can a proceeding
already commenced agajnst them in their individual capacity be stayed.
Indeed, it would be strange if any such thing was within the contemplation of law. Normally, the occasion for declaring an industry as a relief
undertaking would arise. out of causes connected with defaults on the
part of its directors and other officers. To declare a moratorium on
legal actions against persons whose activities have necessitated the
issuance of a notification in the interest of unemployment relief is to
give to such persons the benefit of their own wrong. Section 4(l)(a)(iv)
therefore advisedly limits the power of the State Government to direct
suspension of remedies and stay of proceedings involving the obligations and liabilities in relation to a relief undertaking and which were
incurred before the undertaking was declared a relief undertaking.
Paragraph 38(1) of the Employees' Provident Funds Scheme, 1952
imposes an obligation on 'The employer' to pay the Provident Fund
;
contribution to the Fund within 15 days of the close of every month.
The Scheme does not define 'Employer' but Paragraph 2(m) says that
words and expressions which are not defined by the Scheme shall have
H
the meaning assigned to them in the Employees' Provident Funds Act.
Section Z(e)(ii) of that Act defines an 'Employer', to the extent material,
as the person who, or the authority which, has the ultimate contro'.
54
SUPREMj! COURT REPORTS
[ 1974 l 3 s.C.L
over the affairs of an establishment and where the said affairs are
entrusted to a manager, managing director or rnaru1ging agent, suclt
manager, managing director or managing agent. Thus the responsibility
to pay the contributions to the Fund was of the appellants and if they
have defaulted in paying the amount, they are liable to be prosecuted
under Paragraph 76(a) of the Scheme which says that if any person fails
tl> pay any contribution which he is liable to pay under the Scheme, he
shall be punishable with six months' imprisonment or with fine which
may extend to one thousand rupees or with both. Such a personal liability does not fall within the scope of section 4(1)(a)(iv) of the Act.
B
We therefore dismiss the appeal and direct that the prosecution
shall proceed expeditiously.
C
P.B.R.
Appeal dismissed.
I