Holding

The State of Orissa, not the appellant, is liable to pay the respondent's arrears of salary.

Summary

The respondent, a Chief Welfare Officer, was terminated on 15‑12‑1981, appealed and was reinstated by the State Government, but was not paid his arrears because the corporation was declared sick under the Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR sanctioned a scheme on 21‑12‑1990 under which the State of Orissa purchased the mill and later sold it to the appellant, Ballarpur Industries Ltd., with an MOU dated 20‑04‑1991. The appellant refused to pay the arrears, claiming the liability had been transferred to it. The High Court directed the appellant to pay the arrears from 15‑12‑1981 to 02‑08‑1989. On appeal, the Supreme Court examined the BIFR scheme, the correspondence and the MOU and held that the liability for arrears up to the date of the scheme (December 1990) remained with the State of Orissa, not the appellant. Consequently, the High Court order directing payment by the appellant was set aside, while the period of arrears fixed by the High Court was left unchanged.

Issues considered

Whether the liability to pay arrears of salary of the employee was transferred to the appellant under the BIFR scheme and the MOU.
Interpretation of the BIFR scheme and the MOU regarding the allocation of employee liabilities.
Whether the High Court was correct in directing the appellant to pay the arrears.

Legislation cited

Sick Industrial Companies (Special Provisions) Act, 1985

Subjects

service lawbackwagesarrears of salaryliabilityBIFR schemeMOUsick industrial companyemployee reinstatementState liabilitycorporate takeover

Judgment

A MIS BALLARPUR INDUSTRIES LTD.
v.
STATE OF ORISSA AND ORS.

NOVEMBER 28, 2000

B [S. RAJENDRA BABU AND S.N. VARIAVA, JJ.)

Service Law:

Backwages-Employee terminated and reinstated-Liability to pay
C arrears of salary-Whether by company which has taken over the sick State
mill or by State-Held, on facts, the State is liable to pay the arrears.

The services of employee-respondent, working as Chief Welfare Officer
with Respondent-Corporation, was terminated by an order dated 15.12.1981.
D The respondent appealed before the State Government as per the Rules. The
State Government set aside the order of termination and directed
reinstatement of the respondent. The Corporation insisted that the
reinstatement of the respondent could be done only prospectively from the
date of the appellate order and not retrospectively from the date of order of
termination. The respondent filed a Writ Petition before the High Court The
E High Court directed that the respondent should be allowed to continue in the
post of Chief Welfare Officer forthwith. The respondent joined the service
again on 26.7.1989. He was not paid his arrears of salary as the Corporation,
by then, had been declared sick under the provisions of the Sick Industrial
Companies (Special Provisions) Act, 1985. The arrears of salary could be
F paid only with the decision ofBIFR BIFR sanctioned a Scheme on 21.12.1990.
Under this Scheme, the mill, where the respondent was working, had been
purchased by the State and sold to the Appellant. When the respondent
approached the Appellant for arrears of salary, the Appellant refused payment
as the liability was not taken over by the Appellant. The respondent filed a
Writ Petition before the High Court for direction of payment of arrears of
G salary by the Appellant. During the pendency of this Writ Petition the
respondent retired on 13.4.1992. High Court directed the Appellant to pay
the dues to the respondent from 15.12.1981till2.8.1989. Hence this appeal.

The Appellant contended that the State is liable to pay the dues to the
H respondent as per the MOU entered into by the Appellant with the State. The
122
BALLARPUR INDUSTRIES LTD. v. STATE [VARlAVA,J.] 123
State, on the other hand, contended that as per the correspondences, MOU A
and the Scheme of BIFR, the Appellant has to pay all dues of the workers
upto December 1998, which includes the respondent also.

Disposing the appeal, the Court

HELD: 1.1 From the Scheme of BIFR and correspondences and the MOU B
between the State and the Appellant, the liability of the arrears of salary
payable to the respondent was not taken over by the Appellant even though
under the Scheme, the State of Orissa had taken over the liability to pay all
dues of the employees upto the date of the sanction of the Scheme. Thus dues
of employees upto December, 1990 were payable by the State of Orissa. This C
would include arrears of salary payable to the respondent. In this view of the
matter the High Court was wrong in directing the Appellants to pay this
amount. To that extent, the order of the High Court is required to be and is
set aside. [129-C]

1.2. It is clarified that the amounts due to the respondent are payable by D
the State of Orissa. It must be mentioned that there was a dispute as to
whether the respondent continued to discharge his duty after 2nd August,
1989. As this was a disputed question of fact, the High Court only directed
payment of arrears for the period from 15.12.1981till2.8.1989. There is no
reason to vary that portion of the judgment of the High Court. The arrears of
salary which will be payable by the State of Orissa to the respondent will only E
be for the period from 15.12.1981till2.8.1989. The same must be paid as
expeditiously as possible. [129-D-E)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9294 of 1995.

From the Judgment and Order dated 7.4.95 of the Orissa High Court in F
O.J.C. No. 2736 of 1992.

N. Sahni, Rajesh Malhotra and D.K. Malhotra for the Appellant.

V.A. Mohta, Sobhesh Roy, Advocate General Orissa, R.S. Jena, P.N.
Gupta and Pravir Choudhary for the Respondents. G
The Judgment of the Court was delivered by

S.N. VARIAV A, J. This Appeal is against a Judgment dated 7th April,
1995, by which the Appellant has been directed to pay arrears of salary of
the 4th Respondent for the period from 15.12.1981 to 2.8.1989. H
124 SUPREME COURT REPORTS (2000] SUPP. 5 S.C.R.

A Briefly stated the facts are as follows:

The 4th Respondent was working as a Chief Welfare Officer under the
3rd Respondent Corporation. His services were terminated by an order dated
15th December, 1981. The 4th Respondent preferred an appeal to the State
Government invoking its jurisdiction under the third Proviso to Rule 6(iv) of
B the Orissa Welfare Officers (Recruitment and conditions of Service) Rules,
1970. After hearing parties the State Government set aside the order of
termination and directed reinstatement of Respondent No. 4. The 3rd
Respondent Corporation then insisted that reinstatement could be given
effect to with effect from the date of the appellate order and not from the date
C of order of termination. The 4th Respondent then filed a writ petition in the
High Court of Orissa. The High Court directed that the 4th Respondent was
to be allowed to continue in the post of Chief Welfare Officer forthwith. The
4th Respondent, therefore, joined the service again on 26th July, 1989. The
4th Respondent was still not paid his arrears of salary as the 3rd Respondent
had been declared sick under the provisions of the Sick Industrial Companies
D (Special Provisions) Act, 1985. Therefore, the arrears could not be paid until
the BIFR took a decision in the matter.

The BIFR sanctioned a Scheme on 21st December, 1990. Under this
Scheme Mill No.3 i.e. the Mill where Respondent No. 4 was working, was
purchased by the State of Orissa. Respondent No. 3 then intimated the 4th
E Respondent that the State of Orissa, after the purchase of Mill No. 3, had sold
it to the Appellants. The 4th Respondent was informed that all liabilities
would now be met by the Appellants.

When the 4th Respondent approached the Appellants for payment of
his dues, the Appellants claimed that they had not taken over the liability to
F pay his dues and refused to pay the amount. The 4th Respondent, therefore,
filed a Writ Petition before the High Court at Orissa that the Appellant be
directed to pay his dues. During the pendency of this Writ Petition the 4th
Respondent attained the age ofsuperamiuation on 13th April, 1992. Therefore,
the only relief that was surviving was payment of arrears from the date of
G termination on 15th December, 1981 till superannuation on 13th April, 1992.
In the Writ Petition the State of Orissa contended that the Appellants having
taken over all liabilities in terms of an MOU dated 20th April, 1991 had to pay
the dues of the 4th Respond.en!. The High Court by the impugned judgment
has directed the Appellant to pay dues as set out herein above.

H The only question contended before us is that it is not the Appellants
BALLARPUR INDUSTRIES LTD. v. STATE [VARIAVA, J.) 125
but the State of Orissa which is liable to pay the dues of the 4th Respondent. A
On the other hand on behalf of the State of Orissa it has been contended that
the Appellants are liable to pay the amount.

In order to determine who is liable to pay the arrears of salaf1' of the
4th Respondent one has to look at the Scheme, which has been sanctioned B
by BIFR, and the correspondence and MOU between the Appellants and the
State of Orissa. Under the Scheme which has been sanctioned by BIFR on
21st December, 1990, it is provided as follows :

"Mill No. 3

Mill No. 3 would be sold to the Orissa Government. There are certain
c
liabilities, which relate to mill no. 3 such as Rs. 240 lakhs as working
capital advance and Rs. I 00 lakhs as interest on the working capital
advance, and certain State and Central Government dues. While all the
State and Central Government dues would be paid by the Orissa State
Government after the rehabilitation period and the interest on working D
capital advance is being written off as a part of the. revival of TPM,
the working capital advance of Rs. 240 lakhs and labour dues of
Rs. 160 lakhs would be paid by the Orissa State Government. An
amount of Rs. 6 crores would be the sale price of Mill No. 3 payable
within 30 days by the State Government to TPM for meeting the dues E
of labour being retrenched in respect of Mill No. 2.

Pending litigations relating to Mill No. 3 before different courts and
authorities will be taken over and pursued by the State Government
purchasing the Mill. The Orissa Government will also take over all
liabilities due to the State Government and the Central Excise duty F
payable in respect of Mill No. 3.

Corporate Offices/Branch and Sales Offices

(i) Employees of Corporate, Branch and Sales Offices who have been
on duty after 3 .11.85 will be paid their arrears dues upto the date of
sanction of the scheme; G

(ii) Those who have reached superannuation dates before the date of
sanction of the scheme, will get their normal retirement benefits for
which they are entitled to;

(iiI") About 90 employees of these offices other than those who have H
126 SUPREME COURT REPORTS f2000] SL:PP. 5 S.C.R.

A reached superannuation will stand retrenched with effect from the
date of sanction of the scheme. They will be entitled to due
compensation, and funds have been provided for this purpose."

Thus it is clear that under the Scheme it was the State of Orissa who was to
pay the arrears due to employees of the Corporate Branch and Sales Offices
B upto the date of sanction of the Scheme i.e. upto 21st December, 1990.

The correspondence between the Appellants and the State of Orissa
consists of letters dated 5th March, 1991, 13th March, 1991 and 16th March,
1991. Under the letters dated 5th March, 1991 and 13th March, 1991, the
C Appellants offer to purchase Mill No. 3 on the terms and conditions mentioned
in the letters. The State of Orissa by the letter dated 16th March, 1991 accepts
those terms and conditions. These terms and conditions are then incorporated
in an MOU, which is signed between the parties on 20th April, 1991. The
relevant clauses of the MOU are clauses (!), (2) and (3), which reads as
follows :
D
"I. That the State Government hereby agrees to transfer the assets of
TPM-3 situated at Choudwar, Distt. Cuttack, State of Orissa in favour
ofBILT for a total sum of Rs. 12,00,00,000 (Rupees twelve crores only)
alongwith all other/deferred liabilities as detailed in Clause 3 of this
MOU hereinafter, so as to discharge the liability of TPM-3, Bank's
E working capital dues, workers' dues as per the award of BIFR and the
pending dues of the State and Central Government.

(i) The BIL T shall pay Rs. 6,00,00,000 (Rupees six crores only)
within 7 (seven) days from the date of signing of this MOU as
advance towards and being the part payment of total sum agreed
F as above.

(ii) The BIL T shall·pay the balance amount of Rs. 6 Crores after it
receives the requisite permission under the MRTP Act for the
acquisition of the assets of the said TPM-3 from the concerned
•
Authority duly constituted under the said Act and the State
G Government hereby assures that it will provide its good offices
to BIL T and will endeavour so that BIL T's application to obtain
requisite approval under the MRTP Act for acquiring the assets
of TPM-3 is expeditiously granted.
2. That the award dated 21.12.1990 passed by the BIFR has
H provided that an amount of Rs. 1.6 Crores is to be paid to the
BALLARPUR INDUSTRIES LTD. v. STA TE (VA RIA YA, J.] 127
workman of TPM-3 for the period till January 31, 1989 and A
whereas in accordance with the letter No.7956/1-IX-HI-28/91 dated
the 21st March, 1991 issued by the State Government BIL T has
started the process of direct negotiations with the workman of
TPM-3 for a settlement in respect of their claims and wages for
the period after January 31, 1989, the parties hereto hereby B
declare that it is their intention and objective that a just and fair
settlement should be reached with the workmen thereby covering
all the issues pertaining to the terms of employment of workmen
for the period commencing on and from the !st February, 1989
till the date of revival of TPM-3. It is also agreed by the State
Government that it will issue appropriate directions to the Labour C
Deptt. To assist and extend full cooperation to BILT enabling
them to arrive at a peaceful and amicable settlement.

3. That the award of the BIFR being Annexure -I on pages 5 and
10 thereof has spelt out the amount of consideration payable for
the assets and to meet the liabilities ofTPM-3 and in accordance D
with which the parties hereto hereby mutually agree that the
liabilities of the TPM have to be discharged as under :-

Description Amount

(a) The sale price of TPM-3 Rs. 6 Crores E
(b) Working capital advance being payable to Rs. 2.40 Crores
the banks.

(c) Dues payale to the State Government and Rs. 7 Crores
the Central Government. This amount has
not been quantified but is estimated to be F
in the region of Rs. 7 Crores.

(d) Dues payable to the workmen for the period Rs. 1.60 Crores
upto 31.1.1989.

(e) Dues payable as a consequence of certain G
proceedings/litigations relating to TPM-3
pending before different Courts/Authorities.
This amount has Yet not been estimated.
(f) To reimburse the amount of Capital Gains
Tax if any arising as a result of sale ofTPM- H
128 SUPREME COURT REPORTS [2000) SUPP. 5 S.C.R.

A 3. In the absence of any adjudication order as
may be passed hereafter by the concerned
Income Tax Authority, the liability under this
head is not capable of being quantified/estimated
and as such is undertaken to be payable in toto
in principle.
B
However, the dues in respect of the claims and wages of the workmen
of TPM-3 for the period subsequent to 31.1.1989 will be determined
by direct negotiations with the workmen and such liability is
undertaken in principle to be paid by BIL T accordingly. Further, in
c accordance with the terms of the said award and the terms as contained
in the Letter of Acceptance No.7006/!-IX-III-28/91 dated 16.3.1991
issued by the State Government to BIL T, BIL T shall pay the balance
dues of the State Government, if any, free of interest to the State
Government and Central Excise dues to the Central Government free
of interest after the expiry of I 0 (ten) years from the date of
D commencement of production by BIL Tat the said TPM-3. Further, it
is made absolutely clear that the total consideration of Rs. 12 Crores
mentioned in Clause No. I above, is included in the break up shown·
in clause No. 3 above, which represents the total estimated liability of
BILT."
E
Clause I 0 is also relevant. It reads as follows;

"That the State Government hereby clarifies that save and except the
liabilities as are mentioned in the letter dated 5.3.91 (vide Annexure -
IV) and letter dated 13.3.1991 (vide Annexure - V) addressed by BIL T
p to the State Government, no other liability shall accrue to BIL T as a
consequence of its purchasing the said TPM-3."

Thus it is only the liabilities which are mentioned in the letters dated 5th
March, 1991and13th March, 1991 and the liabilities mentioned in clause (3),
which are to be borne by the Appellant. All other liabilities remain to be
G discharged by the St of Orissa. Liabilities mentioned in clause (3) of the
MOU are those agreed to be taken by the Appellants in the letters dated 5th
March, 1991 and 13th March, 1991. Reading of clauses (I) and (3) shows that
the liability to make payment to the 4th Respondent has not been passed on
to or taken over by the Appellants.

H It was sought to be suggested that under the letter dated 5th March,
BALLARPUR INDUSTRIES LTD. v. STATE (VARIAVA, J.) 129

1991, the Appellants were to pay all dues of the workers upto December 1998. A
It was submitted that the term "worker" would also include the 4th Respondent
though he was not a workman. We are unable to accept this submission. Even
in the letter of 5th March, 1991, it is clarified that the dues of the workmen
are to the extent of Rs. 1.60 Crores. This liability of Rs. 1.60 Crores is the same
as had been set out in the Scheme as being labour dues of Rs. 160 lakhs. This
liability is the same as that provided in clause 3(ii) of the MOU. It could not B
be disputed that Appellants have paid this sum of Rs. 1.60 Crores to the
Workmen. The claim of Respondent No. 4 is in addition to and over and
above the claim of the Workmen in the sum of Rs. 1.60 crores. The liability
of the arrears of salary payable to the 4th Respondent was not taken over
by the Appellants even though under the Scheme the State of Orissa had C
taken over the liability to pay all dues of the employees upto the date of the
sanction of the Scheme. Thus dues of employees upto December 1990 were
payable by the State of Orissa. This would include arrears of salary payable
to the 4th Respondent. In this view of the matter the High Court was wrong
in directing the Appellants to pay this amount. To that extent the order of the
High Court is required to be and is set aside. It is clarified that the amounts D
due to the 4th Respondent are payable by the State of Orissa.

At this stage it must be mentioned that there was a dispute as to
whether the 4th Respondent continued to discharge his duty after 2nd August,
1989. As this was a disputed question of fact the High Court only directed E
payment of arrears for the period from 15.12.1981 till 2.8.1989. We see no
reason to vary that portion of the judgment of the High Court. The arrears
of salary which will be payable by the State of Orissa to the 4th Respondent
will only be for the period from 15.12.1981 till 2.8.1989. The same must be paid
as expeditiously as possible.
F
The Appeal stands disposed of accordingly. There will be no order as
to costs.

B.S. Appeal disposed of.