HIRE PURCHASE COMPANY LTD., and ANOTHER Respondent- Appallents and P. A. C.

003-NLR-NLR-V-79-2-HIRE-PURCHASE-COMPANY-LTD.-and-ANOTHER-Respondent-Appallents-and-P.-A.-C.-.pdf


BirejEurchasC Company Ltd. v. Fernando
15
1978Present: Ismail, J. and Tittawella, J.
HIRE PURCHASE COMPANY LTD. and ANOTHERRespondent-Appellantsand .
P.A. C. N. FERNANDO, Applicant-Respondent
S. C. 46/76—L. T. 2/8128/75with S. C. 44/76, S. C. 45/76 andS. C. 47/76
Labour Tribunal—Application against company after order for windingup—Liquidator also made a respondent to such application—Companies Ordinance, sections 165, 171 and 219—Does section171 prevent Tribunal from making award after winding up order—Existence of company as legal entity during' winding up proceed-ings—Liquidator a proper party as representing the comp anyduring winding up—Jurisdiction of Tribunal to make award insuch circumstances.
Interpretation of Statutes—Rule that words of Statute understood inthe sense they bore when it was passed—Application of such rule.
Held : (1) That the prohibition against continuance of legal pro-ceedings contained in section 171 of the Companies Ordinance hasno application to proceedings before a LabourJTribunal which couldmake an award even after' an order for the winding up of acompany has been made by the District Court.
(2) That the fact that a company was in liquidation did notdeprive a Labour Tribunal of jurisdiction to make an award! inproceedings before dt. The company which is the employer does notcease to exist as a legal entity during the winding up proceedingsand the liquidator is appointed for the purpose of administeringthe property of the company during the winding up. Although theliquidator was not an employer, he is properly a party inasmuchas he represents the company in all matters during the winding up,and particularly if it comes to the question of enforcement of anaward’ made by a Labour Tribunal.
Per Tittawella, J. : —
“ At the time the Companies Ordinance came to be enacted LabourTribunals were not in existence and it would be correct to state thatthe proceedings before the Tribunal could not have been contem-plated in the words “ action or proceeding ” in section 171 of theCompanies Ordinance. Adopting the rule of interpretation that “ thewords of a statute will generally be understood in the sense whichthey bore when it was passed” (Maxwell, eleventh edition, page58) and which was followed by Basnayake, C. J. in the case ofDaniel Appuhamy v. Ilangaratne, 66 New -Law Reports 97 at 103,it is not difficult to reach the conclusion that the “ action or pro-ceeding ” in section 171 of the Companies Ordinance does not applyto industrial disputes which are resolved by a Labour Tribunal. ”
Cases referred to :
Arnolda v. Gopalan, 64 N.L.R. 155 ; 64 CX.W. 49.’•
Daniel Appuhamy v. Ilangai atne, 66 N.L.R. 97 ; 66 C.L.W. 17.
United Engineering Workers Union v. Devanayagam, 69 N.L.R. 289.
John & Others v. Coir Yarn & Textiles Ltd., A.I.R. 1947 Kerala 60.
Mell Mendis Ltd. v. D. P. Simon & Others, S.C. 204/73—S.C.
Minutes of 15.7:75.
T ITT AAV KLJjA, J.—Hire Purchase Com puny iMh v. Jernundo
j^PPEAL from an order of a Labour Tribunal.
E. Gunaralne, for the appellants.
Joseph, for the respondent.
G. P. S. de Sil'Dci, Deputy Solicitor-General, with A. J.Mecgama, State Counsel, as amicus curiae in S. C. 46/76.
Cur. adv. vult.
March 1, 1973. Tittawella, J.
This appeal was before us for argument along with S.C. 44/76,S.C. 45/76 and S.C. 47/76. They were all matters of a similarnature and it was agreed at the outset that the order madgj inone will also be the order in the others. The facts set downbelow are particularly in relation to S.C. 46/76.
The Hire Purchase Company Ltd. was a company incorporatedunder the Companies Ordinance (Cap. 145). On the 5th May,1975, the District Court of Colombo had made an order undersection 1C5 of the Companfes Ordinance for winding up the saidcompany. One A. M. de Costa of Carter de Costa & Companywas appointed the liquidator in the winding up proceedings.
P. A. C. N. Fernando was in the employment of this companyfrom the 15th December, 1959 to the 28th February, 1975, whenhis services were terminated due to financial losses incurred bythe company. On the 17th June, 1975, he made an application tothe Labour Tribunal for a gratuity and other terminal benefitsin respect of the fifteen years of service. The Hire PurchaseCompany Ltd. and- A. M. de Costa the liquidator were namedthe 1st and 2nd respondents respectively to this application. Bothrespondents filed answers and at the inquiry before the Tribunalon the 11th November, 1975, raised two objections, viz. :
(a) The liquidator was not an employer under theIndustrial Disputes Act;
(l>) The applicant has no right to institute proceedingsunder the Industrial Disputes Act against thecompany in liquidation.
The President of the Labour Tribunal over-ruled both objec-tions and after agreement had been reached regarding certainparticulars relating to the details of the service records of theapplicant proceeded to order the payment of a gratuity to the
TITTAWGLLAt -J .—Hire Purchase Company JAc!.. v. Fernando
17
applicant and determined that the date of payment should befixed by the District Judge in the liquidation proceedings. Thecompany and the liquidator (hereinafter referred to as theappellants) have appealed against this order of the Tribunalmade in favour of the applicant (hereinafter referred to as therespondent). The following matters have been taken up in thepetition of appeal and at the hearing of the appeal :—
the Labour Tribunal has no jurisdiction to. make an
order against the 1st appellant, a company inliquidation ;
it has no jurisdiction to make an order against the first
appellant, an insolvent company ;
it has no jurisdiction to make an order against the
second appellant who was not the employer of therespondent to this appeal ;
section 171 of the Companies Ordinance precludes the
institution or the continuation of any proceeding oraction against a company where a winding up orderhas been without the leave of the Court.
As is well known a company comes into existence as a legalpersonality on its incorporation and ceases to exist as such on itsdissolution. Winding up or liquidation is the process wherebythe management of the company’s affairs is taken out of itsdirectors’ hands. A liquidator is appointed to administer . theproperty of the company. He must apply the assets to the pay-ment of the creditors in their proper order. The point to beremembered is that throughout this process of winding up thecompany does not cease to exist as a legal entity {vide theproviso to section 219 of the Companies Ordinance).
On this view -of the matter the first appellant was the respon-dent’s employer at all relevant times ‘and the question of lackof jurisdiction of the Labour Tribunal does not arise. Referencehas been made by the learned counsel for the appellants to thecase of Arnolda v. Gopalan, 64 N. L. R. 153. It washeld there that a Labour Tribunal has no jurisdiction to orderthe widow or the legal representative of a deceased employer topay back wages, gratuity, etc., to a workman who made an appli-cation after the death of the employer. This case has no bearingon the facts and circumstances of the present appeal. The un-reported case of Messrs. Mell Mendis Ltd. v. D. P. Simon- andothers (S-.C. 204/73—S. C. Minutes of 15.7.76), makes referenceto the situation that has arisen in the present instance. Accord-ingly the jurisdiction question raised by the learned counsel
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TITTAWELLA, J.—Hire Purchase Company Ltd. v. Fernando
for the appellants must necessarily fail. Regarding the secondappellant, that is the liquidator, he was clearly not the respon-dent’s employer but has ^een made a party for the reason thathe now represents the company in all matters and so becomes anecessary party particularly when it comes to the question ofthe enforcement of any award made by a Labour Tribunal.
The other matter that remains for determination is whethersection 171 of the Companies Ordinance stands in the way of aPresident of a Labour Tribunal making an award once an orderfor the winding up has been made. It must be noted that theorder for the winding up of the company was made on 11thNovember, 1974, the services of the respondent were terminatedon the 23th February, 1975, the application to the Tribunal wasmade on the 14th August, 1975 and the award in favour of therespondent was made on the 11th February, 1976.
Section 171 of the Companies Ordinance enacted in 1938 readsthus :
Where a winding up order has been made or a provisionalliquidator has been appointed no action or proceeding shallbe proceeded with or commenced against the companyexcept by leave of the Court and subject to such terms asthe Court may impose.
Section 231 of the English Companies Act is in identical terms.The corresponding section in the Companies Act (1913) of Indiareads as follows :
When a winding up order has been made or a provisionalliquidator has been appointed no suit or other legal proceed-ing shall be proceeded with, or commenced against thecompany except by leave of the Court and subject to suchterms as the Court may impose.
The Companies Act (1956) of India which replaced the 1913Act makes a significant departure in that the appointment ofthe provisional liquidator does not affect the continuance of apending proceeding and leave of the winding up court is requiredonly for commencing a new proceeding. This however has nobearing on the present problem.
o
The Industrial Disputes Act, No. 43 of 1950, came into operationin 1951 and Labour Tribunals were established by an amendingAct No. 62 of 1957. The preamble to the original Act reads asfollows:—
An Act to provide for the prevention, investigation andsettlement of industrial disputes and for matters connectedtherewith or incidental thereto.
TITTAWELLA, j.—Hire Purchase Company Ltd., v. Fernando
19
The question for determination is whether what takes place ata Labour Tribunal is an “ action or proceeding ” within themeaning of section 171 of the Companies Ordinance. At the timethe Companies Ordinance came to be enacted Labour Tribunalswere not in existence and it would be correct to state that theproceedings before the Tribunal could not have been contemp-lated in the words “ action or proceeding ” in section 171 of theCompanies Ordinance. Adopting the- rule of interpretation that“ the words of a statute will generally be understood in the sensewhich they bore when it was passed ” (Maxwell, Eleventh Edit-ion. page 58) and which was followed by Basnayake, C. J. inthe case of Daniel Appuhamy v. Ilangaratne, 65 N. L. R.97 at 103, it is net difficult to reach Jthe conclusion thatthe “ action or proceeding ” in section 171 of the CompaniesOrdinance does not apply to industrial disputes which areresolved by a Labour Tribunal.
The matter could also be looked at by a consideration of thescope of section 171 of the Companies Ordinance which as statedearlier is in identical terms with section 231 of the EnglishCompanies Act.
The purpose of the statutory provisions is to ensure thatall claims against the company which can be determinedby the cheap, summary procedure available in a winding upare not made the subject of expensive litigation. (Parrington—Company Law, 3rd Edition, p. 686).
The matters that are agitated before a Labour Tribunal maynot normally come within the ambit of the Court dealing withthe winding up of a company. The Privy Council in the case ofUnited Engineering Workers Union v. Devanayagam, 69 N. L. R.289, had the following observations to make regarding LabourTribunals at pages 302 and 303 : —
Labour Tribunals were established to provide for theprevention, investigation and settlement of industrial dis-putes. The Act making provisions for them did not say thatthey were to perform the functions of a court in givingeffect to the legal rights of workmen in connection with
their employmentFar from being established
in substitution for or as an alternative to the ordinary courtsLabour Tribunals were created as part of the machineryfor preventing industrial disputes.
TITTANVKLLA, «T.—IFire Purchase. Cruupnay Lt*1. r. P'crn*n»*Io
It. is thus clear that even on this view the very character ofa Labour Tribunal appears to take proceedings before it out ofthe prohibition contained in section 171 of the CompaniesOrdinance.
The case of B. V. John and others i Coir Yarn Textiles Ltd.
I. R. (47) Kerala 1960 was one that had to consider the sect-ion in the Indian Companies Act corresponding to section 171of the Companies Ordinance in relation to the Industrial DisputesAct (1947) of India. An Industrial Tribunal had made an awardin favour of some employees in August 1957. Their services hadbeen terminated bv the employer and the reference to.' the Tribu-nal had been in June 1956. In July 1957 however a winding uporder had been made in respect of the employer company anda provisional liquidator appointed. It was sought to be arguedthat under section 446 (1) of the Indian Companies Act 1956once a winding up order is made the continuance of a pendingproceeding can only be by leave of Court and this not havingbeen obtained all the proceedings including the award would bevoid for want of the required leave. The .Court whilst over-rulingthis objection and holding that the award and the proceedingsleading up to it were valid had the following observations tomake—
The Industrial Disputes Act is conceived in the publicinterests. Its object is to ensure fair terms to workmenand to secure industrial peace so that the economy may notsuffer. Although an adjudication under the Act might havethe result of giving individual workmen personal rightsagainst the property of the owner of the undertaking beit an individual or a, company, its purpose is not reallythat but to settle the industrial disputes. Obviously thepurpose is something before which the personal interestsof the creditors or members of the company concerned mustyield.
The Companies Act can have no application to proceedingspursuant to a reference under the Industrial Disputes Act.To come within the scope of this section the proceeding mustbe in the nature of an action against the property of thecompany. To put it somewhat differently the proceedingsmust be for the enforcement of something in the nature ofa personal right against the assets of the company and notone in vindication of public interest.
if there are interests that transcend the inter-ests of the creditors and the members of the company it isnot reasonable that these interests should be subjected to the
Sinnadurai v. Kangasabai
21
control of the winding up court a control which it is toexercise for the benefit of the creditors and the members.
These observations made regarding the Industrial DisputesAct of India and the Companies Act of India are, mutatis mutan-dis of equal relevance when examining the provisions of section171 of our Companies Ordinance in relation to the IndustrialDisputes Act of this country.
For the reasons set out I hold that section 171 of the CompaniesOrdinance has no application to proceedings before a LabourTribunal. In the result this appeal has to be dismissed withcosts. The same order is made with respect to the other connected
appeals S.C. 44/76, S.C. 45/76 and S.C. 47/76.
0 *
We .are greatly obliged to learned counsel-on both sides andalso to the learned Deputy Solicitor-General who appeared asamicus curiae.
Ismail, J.—I agree.
Appeal dismissed.
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