M.R. Babu Rao vs Sri Jaya Investments (P) Ltd. (In Liquidation)

Upendralal Waghray, J.

These applications are filed u/s 460 of the Companies Act by the person, who has been employed in the office of the official liquidator since October, 1968, challenging the validity of the order dated 31.5.1989 passed by the official liquidator terminating his services and for other ancillary reliefs. The official liquidator has in his report dated 28.7.1989, opposed the applications on several grounds. The petitioner has thereafter filed a reply affidavit sworn to one 3.8.1989. I have heard Mr. J. Prabhakar, the counsel for the petitioner, and Mr. Leo Raj, Advocate for the official liquidator.

That the petitioner has been employed and working in the office of the official liquidator since October, 1968, continuously is not disputed. After obtaining sanction of this court from time to time, the petitioner has been continuing. The last such order was made by this court on 24.2.1989 in C.A. No. 45/89 filed by the official liquidator in C.P. No. 5/81. In C.P.No. 5/81, the company, Jaya Investments (P) Ltd., was directed to be wound up. The order passed by this court in the said application reads as follows :

"...... ordered that the official liquidator, High Court of A.P., be and hereby is permitted to continue the services of the following Assistants, for a further period of one year, i.e., from 1.3.1989 to 28.2.1990 or for such period as may be necessary on existing terms and conditions :

Sri C. Vinayaka Rao

Sri M.R. Babu

Miss N. Indira,

and it is further ordered that the salaries shall be met from the funds available to the credit of the several companies in liquidation on the file of this office in such proportion as may be found reasonable and convenient and it is further ordered that the costs of this application shall come out of the funds of the company (as when taxed by this office)."

The impugned order passed by the official liquidator dated 31.5.1989 reads as follows :

"OFFICE ORDER

Sri M.R. Babu Rao, company paid assistant of this office is hereby terminated from his service with immediate effect. He stands relieved from his duties from the close of the office hours of 31.5.1989."

The petitioner filed a civil suit, viz., O.S. No. 2111/89 on the file of the IX Assistant Judge, City Civil Court, Hyderabad. He also filed I.A. No. 339/89 for interlocutory relief, which has been dismissed on 23.6.1989 and the copy of the order has been filed by the petitioner. One of the reasons given by the civil court is that the petitioner ought to have approached the High Court which had passed the order in C.A. No. 45/89. Immediately after dismissal of the said application, these applications have been filed.

The petitioner has challenged the impugned action as without jurisdiction, arbitrary and illegal. It is also pointed out that the official liquidator has obtained the orders of this court on 3.2.1989 in C.A. No. 17/89, also filed C.P. No. 5/89, for employing three other assistants in his office for the first time. It is pointed out that there is no reduction of work and the persons employed recently are continuing and his termination of service without assigning any reasons is arbitrary, illegal and without authority as it is done without sanction of court and that too before the expiry of the term fixed in the earlier order. Several allegations, some of which are of a personal nature, are also made against the official liquidator.

The official liquidator in his counter affidavit has stated that the order was passed in the exigencies of the administration and the official liquidator had jurisdiction to pass such an order. According to him, these applications are not maintainable and the petitioner cannot seek reinstatement and has to seek remedy elsewhere. He has denied the various other allegations made by the petitioner.

The points that arise for consideration are -

(a) Whether the petitions are maintainable ?

(b) Whether the impugned order is invalid on any of grounds pleaded by the petitioner ?

(c) To what relief is the petitioner entitled ?

Point (a)

According to section 460(2) of the Companies Act, the property of a company which is being wound up, is in the custody of the court, i.e., it does not vest in the official liquidator as in insolvency proceedings under the Insolvency Act. Again, section 457 deals with the powers of the liquidator. Sub-section (1) of this section specifies certain actions to be taken by the official liquidator with the sanction of the court, while sub-section (2) specifies certain actions which may be done by the liquidator without the need of prior sanction of the court. However, sub-section (3) makes it clear that the exercise of any action of the liquidator in winding up by the court and the powers conferred by that section shall be subject to the control of the court. Section 460 dealing with the exercise and control of the liquidator''s powers contemplates in sub-section (5) that the liquidator shall use his own discretion in the administration of the assets and the distribution thereof among the creditors subject to the provisions of the Act. This again is made subject to superintendence and control of the court by sub-section (6). The scheme of the Act, therefore, does not visualise any action by the liquidator, which is beyond the control and supervision of the court. In fact, rule 308 dealing with employment of additional or special staff, requires the liquidator to apply to the court for sanction which may be given on terms considered appropriate by the court. Even the apportionment of the salaries of the staff, is subject to the directions of the judge as is evident from rule 309. Again, rule 338 providing of (for) costs and expenses payable from the assets in winding up by the court, contemplates payment of the costs of any person properly employed by the official liquidator. The use of the word ''properly'' indicates that it should have been done in accordance with the provisions of the Act an rules. There is no provision in the Act which empowers the official liquidator to appoint any staff on his own. In fact, the official liquidator in this case is an employee of the Central Government and the staff and the establishment in his office subject to the rules governing the Central Government employees. However, in case of the need for any special or additional staff, the official liquidator is to seek the sanction of the court for such employment. In this case, it is not in dispute that the petitioner has been continuously in employment since 1964, i.e., even long before the present official liquidator has taken over. Any action of the official liquidator, which affects the rights of a person like a creditor, debtor, shareholder, director or even an employee appointed after obtaining the sanction of the court, is subject to the examination by this court regarding its validity. The counsel for the official liquidator has, however, relied upon a decision in Sailendra Nath Sinha and Another Vs. Jasoda Dulal Adhikari and Another, , particularly, paras 10 to 13 in support of his contention. The controversy in that case was about the validity of the prosecution launched by the official liquidator without a direction of the court. It was held by the Supreme Court that such a prosecution could not be considered to be illegal. In para 15 of the same judgment, it is clarified that it was not an expression of opinion effecting the control by the judge of the proceedings in winding up or over the liquidator. The ratio of the said decision, therefore, does not help the official liquidator. Reliance is next placed on the decisions in Sitaram Kashiram Konda Vs. Pigment Cakes and Chemicals Mfg. Co., and The Premier Automobiles Ltd. Vs. Kamlekar Shantaram Wadke of Bombay and Others, , in support of the contention that this court cannot order of grant of relief to the petitioner. It is further contended that the petitioner must approach other appropriate forum for any relief against alleged illegal termination. It is also pointed out that the petitioner had already approached the civil court. It is stated across the bar that the petitioner had already withdrawn the civil suit after realising that he could not get relief in that forum. The controversy in this case is about the validity of the action of the official liquidator. This is not a proceeding for grant of reinstatement in service. The petitioner was employed after the sanction of the court and the validity of the action of the liquidator terminating such employment has to be examined by this court in view of the several provisions pointed out above. It is not a case of a normal master and servant. Reliance was also placed on behalf of the official liquidator on a decision in Shankarlal Aggarwal and Others Vs. Shankarlal Poddar and Others, in support of the contention that the order of termination was only an administrative order and, therefore, not liable to be revised by this court. In this case, the impugned order affects the rights of the petitioner to continue in employment at least till the end of the term and it involves a lis between the petitioner and official liquidator. It cannot be treated as a mere administrative action. It is also doubtful whether any administrative action of the liquidator which affects the rights of any person, can be immune from the control or scrutiny by this court. Official liquidator is only a statutory authority subject to the provisions of the Act and the control of the court as pointed above. The contention that the petitions are not maintainable is, therefore, rejected.

Point (b)

Apart from the authority of the liquidator to terminate the services without the sanction of the court, the petitioner has also contended that others appointed recently after him, are being continued and the impugned order does not specify any reasons. There are several other allegations made, which I do not consider it necessary to go into, as the case can be disposed of without any such reference. The impugned order does not give any reasons. It is to be mentioned here that the official liquidator has submitted a lengthy administrative note of 7 pages dated 8.6.1989 after passing the impugned order. As the said note was styled as administrative note, and was neither in the shape of a report nor in the shape of an application seeking orders or directions or for being posted in court or chambers, I had made an endorsement ''seen'' on that date and the note is kept in a sealed cover. The contents of the said note do not support the case of the official liquidator that this was a case of termination simplicitor. Even assuming that the official liquidator could take action on his own, in the circumstances, it could not be done without giving an opportunity to the affected employee, i.e., the petitioner. The services of the petitioner had been terminated, while retaining the person appointed recently and without any indication that the workload has been reduced. The petitioner has been employed since 1964 and I have no hesitation to hold that the impugned order is illegal.

Point (c)

As a result, the impugned order is set aside and the petitioner will be treated as an employee ignoring the said order. The petitioner shall be entitled to the consequential benefit of salary uptodate.

As a result, C.A. No. 139/89 is allowed. No costs. In view of the orders in C.A. No. 139/89, no further orders are necessary in C.A. Nos. 140 and 141 of 1989.