'Receiver Appointed For Sale Of Assets Cannot Be Treated As Employer To Run Partnership Firm': Bombay High Court
The Bombay High Court has held that a Court Receiver appointed to sell the assets of a dissolved partnership firm cannot be treated as an “employer” under Section 25-O of the Industrial Disputes Act, 1947, for the purpose of running the business or making applications for closure. The Court observed that once the Receiver is appointed to sell assets, the business of the firm stands...
The Bombay High Court has held that a Court Receiver appointed to sell the assets of a dissolved partnership firm cannot be treated as an “employer” under Section 25-O of the Industrial Disputes Act, 1947, for the purpose of running the business or making applications for closure. The Court observed that once the Receiver is appointed to sell assets, the business of the firm stands closed, and directions to reopen the factory or pay wages to workers are legally unsustainable.
Justice Sandeep V. Marne was hearing a petition filed by the Court Receiver of the Bombay High Court challenging the Industrial Court's order dated 27 February 2007. The Industrial Court had directed payment of wages with interest to the workers from January 2002 and the reopening of the factory premises. The firm in question had been embroiled in a partner dispute, leading to the filing of a suit for dissolution and appointment of a Receiver in December 2000. Subsequently, the High Court directed the sale of the firm's assets, and the factory was locked in September 2001.
The Receiver argued that his appointment was only for selling the firm's assets, not for running the business, and that the business stood dissolved under Section 43 of the Partnership Act, making separate closure permission under Section 25-O unnecessary.
The High Court agreed with these submissions, observing that after the Receiver's appointment, the business of the partnership firm had come to an end. The Court noted that the scheme of Section 25-O requires an employer to apply for closure permission. Since the Receiver was appointed only for the sale of assets and did not appoint any agent to run the business, he could not be treated as an employer. It observed:
“… the scheme of section 25-O of the ID Act requires an 'employer' to make an application to the Appropriate Government seeking closure permission. After appointment of the Court Receiver in respect of the business of the Firm, it cannot be contended that the Receiver became the employer of the Firm.”
The Court held that it would be “absurd” to require a Receiver to apply for closure permission or pay wages in the absence of any ongoing business activity after September 2001. The Court observed that the Industrial Court grossly erred in directing payment of wages to the workers from January 2002.
The Court also noted that the Industrial Court's direction to reopen the factory was beyond the scope of the complaint, as such relief had not even been prayed for. It was remarked that the Industrial Court could not have granted something which was never prayed for by the workmen.
However, recognising that the permanent workmen had long-pending claims, the Court directed the Receiver to pay closure compensation to the workers. The Court also directed payment of gratuity to workers, if not already paid.
Accordingly, the Court set aside the Industrial Court's order.
Case Title: The Court Receiver, High Court Bombay v. Mumbai Labour Union & Ors. [Writ Petition No. 2310 of 2007]