The Hindu : National : Directors not liable for payment of wages: Court

Online edition of India's National Newspaper
Wednesday, Sep 28, 2005

National

National

Directors not liable for payment of wages: Court

Legal Correspondent

NEW DELHI: The Supreme Court has held that the directors of a company are not personally liable for the payment of wages to workmen under the Payment of Wages Act in the event of closure of the company.

A Bench, comprising Justice Arijit Pasayat and Justice H.K. Sema, said that under the Factories Act it was obligatory on the part of the employer to notify a particular director as an `occupier' to make him liable for payment of wages. But it was not so under the Payment of Wages Act.

The Bench said a clear distinction should be maintained between the liability of the company and its directors as notice seeking payment of wages could be issued only to the company and its factory manager and not to individual directors.

In this case, an industrial tribunal in Madhya Pradesh dealing with payment of wages to workmen in a cotton mill following its closure held that the directors of the mill were personally liable. The Madhya Pradesh High Court upheld this view and appeals were filed in the apex court against this order.

"Circumspect approach"

Referring to the stand of the workmen that the corporate veil should be lifted to know who was behind the management of the company, the apex court Bench said that at present the judicial approach in cracking open the corporate shell was somewhat cautious and circumspect. "It is only when the legislative provision justifies the adoption of such a course that the veil has been lifted," the Bench said.

The Bench noted that where fraud was to be prevented, the corporate veil was lifted by judicial decision and shareholders were held to be "persons who actually work for the corporation."

The Bench said it could not be held that the directors had personal liability in the payment of wages of workmen and the decision of the High Court could not be sustained.

Printer friendly page
Send this article to Friends by E-Mail

National