Directors not in dock over wages

Directors of a company cannot be personally prosecuted for non-payment of wages, the Supreme Court has said, overruling the Madhya Pradesh High Court's judgment in the Jiyajirao Cotton Mills Ltd case.

The High Court had held that the directors of the cotton mills would be personally liable for payment of wages to the workers of the company under the Payment of Wages Act.

It had further held that the authorities, under the Act, could proceed against the assets of the company in the hands of the directors or the assets acquired from the income of the company by the directors.

However, the personal property of the directors could not be proceeded against if it was acquired from sources other than the income of the company.

In this case, the company sought permission from the Madhya Pradesh government to close mills. Such permission, required under the Industrial Disputes Act, was rejected in 1991. Trade unions and the workers of the closed mills continued litigation in the labour court. In 1993, the Board for Industrial and Financial Reconstruction declared the company sick.

Meanwhile, the authorities used the Payment of Wages Act to issue notices to the company and its directors, asking them to explain why workers were not paid their wages. The inspector of wages filed cases against the factory manager and eight directors.

The directors replied that they were not personally responsible and that, only the factory manager was responsible. The authorities and the High Court both rejected this reply.

A Supreme Court Bench, headed by Justice Arijit Pasayat, stated yesterday that the liability was set by the Act and that Section 3 of the Act referred to employers. No liability was fixed on directors by the law.

Under the MP Act, the liability was on the employer as well as the manager of the factory, the apex court held. Unless the director was the manager or the employer, he would not be personally liable for the offence, the Supreme Court emphasised.