Case Note & Summary
The petitioner, Chief Executive Officer of Sangli Urban Co-op Bank Ltd., challenged a decree of execution for Rs.37,51,800/- passed by the Authority under the Payment of Wages Act, 1936, confirmed by the District Court. The Bank had advanced a loan to respondent no.2, a Private Limited Company, against hypothecation of its factory machinery and goods. The factory closed down in January 1991, and the Bank attached the hypothecated assets. Respondent no.1, a trade union representing about 90 workmen, filed an application under Section 15(2) of the Act claiming unpaid wages from January 1991 onwards, impleading the Bank as respondent no.2. The Authority held the Bank liable for the wages, and the District Court upheld this. The Bank argued it was not the employer and not responsible for wages. The High Court dismissed the petition, holding that under Section 15(2), the Authority has jurisdiction to direct payment of wages from any person who has taken over the assets of the employer, and the Bank, having taken possession of the hypothecated assets, is liable to the extent of those assets. The court emphasized that wages are a preferential claim and the Bank cannot avoid liability by claiming it is not the employer.
Headnote
A) Payment of Wages Act, 1936 - Section 15(2) - Liability of Hypothecatee - Bank not being employer but having taken possession of hypothecated assets of closed factory - Held that the Authority under the Act has jurisdiction to direct payment of wages from the assets in possession of the bank, as the bank steps into the shoes of the employer to the extent of the assets. (Paras 1-3)
B) Payment of Wages Act, 1936 - Section 15(2) - Preferential Claim of Wages - Wages of workmen have priority over secured creditors - Held that the claim for wages is a preferential claim and the Authority can enforce it against the assets in the hands of any person who has taken over the assets of the employer. (Paras 2-3)
Issue of Consideration
Whether a bank which has advanced loan against hypothecation of factory machinery and goods can be held liable for payment of wages of workmen under Section 15(2) of the Payment of Wages Act, 1936, when the factory is closed and the bank has taken possession of the hypothecated assets.
Final Decision
The High Court dismissed the writ petition, upholding the decree of execution passed by the Authority under the Payment of Wages Act, 1936, as confirmed by the District Court.
Law Points
- Payment of Wages Act
- 1936
- Section 15(2)
- liability of hypothecatee
- wages as preferential claim
- employer's liability
- attachment of assets
Case Details
2005 LawText (BOM) (08) 206
WRIT PETITION NO. 5446 OF 1996
Ms.Seema Sarnaik for the petitioner, Mr.N.V. Walawalkar for the respondent no.5, Ms.S.S. Bhende, AGP for the respondent
Chief Executive Officer, Sangli Urban Co-op Bank Ltd.
Manager, Sarva Shramik Sangh & Anr.
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Nature of Litigation
Writ petition challenging the decree of execution under the Payment of Wages Act, 1936.
Remedy Sought
The petitioner Bank sought to quash the decree of execution for Rs.37,51,800/- passed by the Authority under the Payment of Wages Act and confirmed by the District Court.
Filing Reason
The Bank was held liable for payment of wages of workmen of a closed factory whose assets were hypothecated to the Bank.
Previous Decisions
The Authority under the Payment of Wages Act passed a decree of execution for Rs.37,51,800/- against the Bank, which was confirmed by the District Court (lower Appellate authority).
Issues
Whether the Bank, as a hypothecatee of the factory assets, can be held liable for wages of workmen under Section 15(2) of the Payment of Wages Act, 1936.
Submissions/Arguments
The petitioner Bank argued that it was not the employer of the workmen and not responsible for supervision and control of the factory, and therefore not liable for wages.
The respondent union argued that the Bank had taken possession of the hypothecated assets and thus stepped into the shoes of the employer, making it liable for wages.
Ratio Decidendi
Under Section 15(2) of the Payment of Wages Act, 1936, the Authority has jurisdiction to direct payment of wages from any person who has taken over the assets of the employer. A bank that has taken possession of hypothecated assets of a closed factory is liable to pay wages of the workmen to the extent of those assets, as wages are a preferential claim.
Judgment Excerpts
The petitioner Bank has suffered a decree of execution in the sum of Rs.37,51,800/- passed by the Authority under the Payment of Wages Act 1936 confirmed by the lower Appellate authority i.e. the District Court.
The respondent no.1 union therefore approached the Competent Authority and the Judge of the Labour Court by filing an application u/s.15(2) of the Act.
Procedural History
The respondent no.1 union filed an application under Section 15(2) of the Payment of Wages Act, 1936 before the Competent Authority/Labour Court. The Authority passed a decree of execution for Rs.37,51,800/- against the petitioner Bank. The Bank appealed to the District Court, which confirmed the decree. The Bank then filed the present writ petition before the High Court.
Acts & Sections
- Payment of Wages Act, 1936: 15(2)
- Trade Unions Act, 1926:
