Court’s Decision
The Bombay High Court quashed the Industrial Court’s order which had directed the Court Receiver to pay wages from January 2002 with interest and to reopen the factory for workers. The Court held that once a partnership at will is dissolved through notice under Section 43 of the Partnership Act, the business stands closed, and no separate closure permission under Section 25-O of the Industrial Disputes Act (ID Act) is required. The Court clarified: “The Court Receiver cannot be burdened with running the factory merely for payment of wages.”
Facts of the Case
- M/s Ahmed Oomarbhoy, a partnership firm manufacturing edible oil under the brand “Postman,” employed over 500 workers.
- Disputes arose among partners, leading to a dissolution suit (Suit No. 4913/2000). On 6 December 2000, the Bombay High Court appointed the Court Receiver over the firm’s assets.
- On 30 July 2001, the Court directed sale of the assets. By 3 September 2001, the Receiver took possession, and workers were prevented from entering the premises.
- The Union (representing 230 permanent workers) claimed unfair labour practices, asserting that closure required prior permission under Section 25-O ID Act and wages continued to be payable.
- The Industrial Court (27 February 2007) accepted the union’s complaint, directed full wages from January 2002 with 6% interest, and ordered reopening of the factory.
- The Court Receiver challenged this order in the present writ petition.
Issues
- Whether dissolution of a partnership firm at will amounts to closure by operation of law, dispensing with the requirement of Section 25-O ID Act.
- Whether the Court Receiver could be directed to run the factory and pay wages to workers pending dissolution proceedings.
Petitioner’s Arguments (Court Receiver & Partners)
- The Receiver was appointed only to sell assets, not to continue the business.
- Dissolution of partnership at will under Section 43 of the Partnership Act results in closure without the need for Section 25-O procedure.
- Cited Bombay Metropolitan Transport Corporation Ltd. v. Employees (1990 SCC OnLine Bom 237) and Ramchand Daulatram Chhabria v. Deputy Commissioner of Labour (2007 (1) Mh.L.J. 118), to argue that closure follows dissolution/winding-up automatically, ending workers’ services.
- Relied on a prior HC order (22 Dec 2006) in another case concerning contract workers of the same firm, where the Court held the firm’s business stood dissolved and closed.
Respondent’s Arguments (Union & Intervening Workers)
- Filing of a dissolution suit does not automatically dissolve the firm; till a decree is passed, the firm continues to exist (Banarsi Das v. Kanshi Ram, AIR 1963 SC 1165).
- Section 25-O ID Act mandates prior government permission for closure since over 100 workers were employed. Without this, closure is illegal and wages must continue.
- Workers were prevented from entering by the Receiver’s acts, amounting to unfair labour practice.
- No gratuity, retrenchment compensation, or benefits were paid; hence, the Industrial Court rightly intervened.
Analysis of the Law
- Section 43, Partnership Act, 1932: dissolution at will takes effect upon notice; decree is not always necessary if business has ceased.
- Section 25-O, ID Act, 1947: closure permission applies when an employer intends to close; but where business itself ceases due to dissolution, separate permission is unnecessary.
- The Court distinguished between voluntary closure (requiring Section 25-O permission) and closure by operation of law (dissolution/winding-up).
- The Court observed that directions in earlier appeals merely explored sale as a going concern but did not impose obligation to run business.
Precedent Analysis
- Bombay Metropolitan Transport Corporation v. Employees (1990): winding-up order amounts to discharge of employees; no Section 25-O compliance required.
- Ramchand Daulatram Chhabria (2007): dissolution terminates workers’ services; any resumption amounts to fresh appointment.
- Banarsi Das v. Kanshi Ram (AIR 1963 SC 1165): mere filing of dissolution suit does not dissolve firm; however, when notice under Section 43 is issued and assets ordered to be sold, closure follows.
Court’s Reasoning
- The partnership was “at will”; dissolution notice was served. By operation of Section 43, the firm stood dissolved.
- The High Court’s own orders (30 July 2001, 20 Dec 2001) contemplated sale of assets, not continuation of business.
- Workers were paid only till Dec 2001 as an interim measure; beyond that, no liability survived.
- “The Court Receiver was never appointed to run the business; his role was limited to sale of assets for distribution among partners.”
- Hence, the Industrial Court erred in holding that closure required Section 25-O compliance.
Conclusion
The Bombay High Court set aside the Industrial Court’s order, holding that:
- Dissolution of partnership at will resulted in closure by law, not requiring Section 25-O permission.
- The Court Receiver cannot be compelled to reopen or run the factory to pay wages.
- Workers’ claim for wages beyond Dec 2001 was unsustainable.
Implications
- The ruling reinforces that dissolution of partnerships at will under Section 43 leads to automatic closure, distinct from “closure” under ID Act.
- Court Receivers are not employers and cannot be burdened with business operations for wage payments.
- Workers’ remedy lies in statutory compensation (e.g., under Section 25-FFF ID Act) and not in seeking continuity of business.
Judgments Cited
- Bombay Metropolitan Transport Corporation v. Employees, 1990 SCC OnLine Bom 237.
- Ramchand Daulatram Chhabria v. Deputy Commissioner of Labour, 2007 (1) Mh.L.J. 118.
- Banarsi Das v. Kanshi Ram, AIR 1963 SC 1165.
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