Shareholders Cannot Be Impleaded As Party In Adjudication Of Disputes Between Employers & Workmen: Kerala High Court

The Kerala High Court has made it clear that the shareholder of a company cannot be made an independent party in a dispute between the company and its workmen.

The observation was made in connection with a dispute between Rubber Wood India Pvt Ltd and its workmen, whereby the Rubber Board, being a shareholder of the company, was arrayed as a party Respondent by the workmen.

The Court held that the company, established under Central legislation namely Rubber Act, 1947, is an instrumentality of the Central Government, and accordingly the dispute falls under Section 10(2A)(1)(d) of the Industrial Disputes Act, 1947. It added that since the Rubber Board was only a shareholder in the said company, it could not be impleaded as a party in adjudication of a dispute between the workmen and their employers in relation to management of the Company. 

"It is settled law that the Government is not denuded from running a company holding majority of the shareholder. But the shareholder independently cannot be made a party for adjudication of the lis", it was observed.

Justice Amit Rawal, while disposing the two writ petitions that were filed on common questions of fact and law, further observed that where an Interim Resolution Professional has been appointed, if proceedings before the Tribunal were not midway, the workmen could file their claims before the former who then, ought to adjudicate their claims strictly as per the Regulations. 

As per the factual matrix, when a dispute arose between the employers in relation to the management of Rubber Wood India Pvt Ltd, and their workmen, the same was referred for adjudication to the Central Government Industrial Tribunal - cum - Labour Court. It was this order issued by the Central Government that came to be contested in the instant writ petitions, on the ground of questioning the jurisdiction exercised by the Central Tribunal. 

As per the first writ petition that had been filed on behalf of the Rubber Board, it was averred by the Counsels for the Petitioner, Advocates Abraham Joseph Markos, V. Abraham Markos, Isaac Thomas, P.G. Chandappillai Abraham, Vipin Anto H.M., Alexander Joseph Markos, Sharad Joseph Kodanthara, and Zainab Zebaibrahim, that even in case of a Government Company, if it has been established under the provisions of the Companies Act, and if controlled and managed by the Central Government, the shareholder cannot be impleaded as a party in a dispute between the employer and employee as there was no relationship of employer and employee.

With respect to the same, it was found by the Court that the Rubber Board in this case was only a shareholder, and a shareholder could not be made a party for adjudication of the lis. Accordingly, the notice that had been issued was only against the Company and not the shareholder, according to the Court, and the question as to whether whether the share holder could be impleaded as a respondent in a claim preferred by workmen through union, was answered in the negative.

By virtue of the second writ petition, it was assailed by the Counsels for the petitioner, Advocates Mathews K. Uthuppachan, Terry V. James, and Sharan Shahier, that the Central Tribunal does not have the jurisdiction to entertain and try disputes referred by the appropriate Government, since Rubber Wood India Private Limited is a company established under the Companies Act and is not controlled and run or managed by the Central Government. It was contended that 'Appropriate Government' in respect of a State Public Sector Undertaking (PSU) would be the State, and hence it was only the Labour Court that would have the jurisdiction to adjudicate the matter, and the same ought to have been referred to it. However, with respect to the Rubber Wood Company, it was contended that no authority had been prescribed for the State or Central government, and the entire activities of the Company were carried out by itself. 

The Court, while dealing with the petitions, had to deal with the primary question as to whether Rubber Wood India Pvt Ltd, which had been established under the Companies Act, and 70% of whose shareholding was held by the Rubber Board established under the Rubber Act, 1947 which falls under the aegis of Ministry of Commerce and Industry, Government of India, could be said to be controlled and managed by the Central Government or not. On a perusal of the provisions of Section 2(a)(i) & (ii) and 2 (g) of the Industrial Disputes Act, 1947, and relying upon the ratios of various decisions such as Heavy Engineering Mazdoor Union v. State of Bihar & Ors, AIR India Statutory Corporation & Ors v. United Labour Union & Ors.,and Steel Authority of India Limited Vs. National Union Water front Workers and others; it was found by the Court that Rubberwood India Private Limited is an instrumentality of the Central Government, that has been established under the Rubber Act, 1947 (Central Act). The Court categorically laid down that Section 4 of the Memorandum of Association of the Company leads to the conclusion that it is indeed, an instrumentality of the Government. The Court further, found that the Rubber Board is vested with the authority to appoint the Director of the Company since it has more than 76% shareholders, who would then act as the Chairman.

In the words of the Court, 

"The expression "controlled" and "by" would also be having an importance for adjudication of the controversy in dispute as to whether the reference to the Central Tribunal is legal and justified by the Central appropriate Government or not".

Since in the instant case, Rubber Wood Company was determined to be an instrumentality of the Central Government, the Court could not find any ground to interfere with the impugned order issued by the Central Government referring the matter for adjudication to the Central Tribunal. Accordingly, the Court could not find any merit on the contention that it was the Labour Court that was the appropriate forum for adjudication. 

It may be noted that, by virtue of a proceeding initiated before the National Company Law Tribunal, Kochi Bench, under Section 10 of the Insolvency and Bankruptcy Code, 2016, an Interim Resolution Professional, Renehan Vamakesan, had been appointed vide an order dated 17.05.2022. It was in this regard, that the Court attempted to answer the next question as to whether, subsequent to the appointment of an Interim Resolution Professional, whether the reference to the Central Tribunal could be permitted to continue or in the alternative, whether the workmen represented by the Union were required to submit the claims before the said Interim Resolution Professional. The Court herein, proceeded to analyze Sections 10, 13, and 18 of the Insolvency and Bankruptcy Code, 2016, and also Regulation 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, as well as Regulation 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. 

It was observed by the Court that Regulation 9 provides a comprehensive mechanism whereby the workmen or employees could approach the Interim Resolution Professional. Further, in view of Section 60(5) of the IBC Code, as well, mechanism has been envisaged providing the right to challenge the decision of the Resolution Professional through an appeal before the NCLT, and subsequently, before the NCLAT under Section 61.

"In my view, it would be totally a farcical exercise for the workman to lose their claim before the Central Tribunal for adjudication of the dispute as the proceedings before the Central Tribunal due to the interdiction by this Court have not made any headway", it was observed. 

Accordingly, the Court directed the workmen respondents to file their respective claims before the Interim Resolution Professional in accordance with the Regulation 9, although the Court did concede that had the evidence or the proceedings before the Tribunal, the situation would have been addressed differently. The Interim Resolution Professional was accordingly, directed to adjudicate the claim of the workmen strictly as per the Regulations and afford an opportunity to the workmen to inspect the record and prove their case in support of the claim and adjudicate the same within a period prescribed under the Code. Accordingly, the second writ petition was disposed of. 

It was in this light that the two writ petitions were disposed by the Court. 

The respondents in the first petition filed by the Rubber Board, were represented by Advocates A.K. Haridas, G. Harikumar (Gopinathan Nair), and  Additional Solicitor Generals of India, P. Vijayakumar and Manu S. The respondents in the second petition filed by Rubber Wood India Pvt. Ltd. were represented by Advocates A.K. Haridas, V. Abraham Markos, Central Government Counsel B. Pramod, G. Harikumar (Gopinathan Nair), Abraham Joseph, P.G. Chandappillai Abraham, Vipin Anto H.M, Zainab Zebaibrahim, Sharad Joseph Kodanthara, Isaac Thomas, and Akhil Suresh. 

Case Title: Rubber Wood India Pvt Ltd & Ors v. Manojkumar P.S. & Ors. and Rubber Board v. Manojkumar P.S. & Ors. 

Citation: 2022 LiveLaw (Ker) 456

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