This writ petition raises an important question of law as to whether or not education Cess, levied on a company; under the provisions of the Workers' Children (Education) Ordinance, 1972, can be recovered from its Chief Executive, as arrears of land revenue.
2. The facts of the case, in brief, are that for the period ending 31st March, 1980, a sum Rs. 2,92,261.79 as education cess, is outstanding against Messrs Rachna Mills Limited. As despite repeated demands and notices issued to the petitioner and other directors of the company, the levy was not paid, the respondent passed the impugned order dated 24th November, 1980 (Annex. `A') under Rule 7 of the Punjab Education Cess, Rules, 1975, requiring the petitioner to pay the aforesaid amount by 10th December, 1980. Failing which it would be recovered by his arrest, attachment and sale of movable and immovable properties. The reason, to single out the petitioner, from amongst the other directors and to proceed against him, was, that as per information received by the respondent from the Assistant Registrar Joint Stock Companies, he was the Chief Executive of the company.
3. Before proceeding further, it appears appropriate to refer, here, to the relevant sections of the Workers' Children (Education) Ordinance, 1972 and the Rules framed thereunder, and then to see that how far these provisions, can be enforced against the petitioner for recovering the cess due from the company. Section 2 (a) defines the 'Employer' as a person who in relation to an establishment :- "has ultimate control over the affairs of the establishment."
Section 3 is the charging section, which casts a liability, to pay the education cess, at particular rate, on every employer of an establishment, in which at any time, during a year, the number of the workers employed is twenty or more. Section 5 deals with the manner of levying the cess and provides :- "The cess described in section---3 shall be levied, so far as may be in the same manner, and under the same provisions of law, as the land revenue; provided that ........Under section 6 of the Provincial Government is empowered to make rules, for carrying out the purposes of this Ordinance. Rule 7 (i) in pursuance whereof the impugned order was passed and notice issued to the petitioner, is, reproduced below :- "(i) if any sum due on account of Cess is not paid within the period allowed for such payment, it will be recovered as arrears of land revenue."
4. The first question falling for decision would be as to whether the petitioner can be categorised as an employer within the meaning of section 2 (a) of the Ordinance. Normally the concept of employer and employee, postulates the existence of a service contract but in section 2 (a) a deviation has been made from this concept and a person having an ultimate control over the affairs of the establishment has been clothed with the status of an employer. According to the petitioner's learned counsel "ultimate control" means a final control which is not subject to any further control, supervision, jurisdiction of any one else. He went on to argue, that though the petitioner was the Chief Executive of the company yet the ultimate control of its affairs did not vest in him and thus he could not be treated as an employer. His contention was. That the company had a Managing Agency which stood terminated under paragraph 4 of the Companies (Managing Agency And Election of Directors) Order, 1972 (Presidential Order 2 of 1972) and a chief executive appointed thereunder. He then referred to clause (2) of paragraph 4, which is as under : - "(2) On the managing agent and directors of a Company ceasing to hold office in pursuance of clause (1).
(a) the remaining directors of the company shall appoint a person who is not the chief executive in whom shall vest the powers and functions in relation to the management and administration of the affairs of the company subject to general supervision and control of the directors to urge that since the Chief Executive, manages the company subject to the general supervision of the directors, one of the essential requirements of the definition clause namely exercise of ultimate control by the peti--tioner, being absent, he was not covered by it. To further highlight this point, the learned counsel also made reference to Commissioner of Income-- tax v. E. V. Miller (P L `D 1959 SC 219) and heavily on the following observations :- "Thus, the shareholders have ultimate control over the management of the company though they do not directly manage its affairs. It is true that the directors derive their authority from the law, but as their own appointment rests with the shareholders they are, in substance, the agents or delegates of the general body of the shareholders."
5. The expression Chief Executive has nowhere been used in Ordin--ance. It was in reply to a query, made by the respondent, from the Assistant Registrar Joint Stock Companies, that the latter by means of his letter dated 26th August, 1980, intimated to him the particulars of the directors and the petitioner was named therein as the Chief Executive of the company. It is well established that when a term is defined in an Act, while interpreting different sections thereof, the meaning alone should be given to it. It is unsafe to ignore the statutory definition and construe the words used in the definition clause of one Act in the light `t of another Act. Speaking broadly, the term "employer" as used in section 2 (a) signifies the person who is the Chief Administrator of the Organization and being at the apex of the different tires of the management, is conclusively responsible for controlling the same. But such conclusive and ultimate control would not have necessarily every incident, assigned to it, which may seemingly be annexed thereto by another cogent enactment.
6. Before me, it has not been denied that the petitioner was the Chief Executive of the company.
The argument of his learned counsel as observed above, however, was, that as Chief Executive, he did not have ultimate control over the affairs of the establishment and such control vested in the directors. It is significant to note that under clause 3 of paragraph 4 of the order, if a chief executive is not already a director of the company, he is deemed to be its director. The petitioner, thus, combined in himself the office of the Chief Executive as well as the constituent, which exercised general supervision and control over the exercise of powers by the former. In this view of the matter, even under paragraph 4 the petitioner, could be branded as an "employer": It is ale to be seen that the word "employer" has been used in the Ordinance in relation to an "establishment" which expression upon the language of section 2 (b) is employed, as against the company, in respect of the "in--dustrial unit" run by it.
7. In E. V. Miller's case the Income-tax Officer, included the dividend, in the taxable income of the assessee-shareholders, received by them from the agricultural income of the company. The question before the Supreme Court, was, whether such income in the hands of share--holders was exempt from tax under section 4 (3) (viii) of the Income-tax Act, 1922. The Supreme Court took the view, that the agricultural income in the hands of a company does not, cease to be agricultural income, when distributed to the shareholders, and while holding so made the generalised observations, which have been relied upon by the learned counsel for the petitioner. These observations, I may say, with respect, are qualified by the facts of the case and cannot be extended to comprehend the scope of the term "employer" as defined in the Ordinance. The view of the matter, I have taken, leaves me in no manner of doubt that the petitioner is fully covered by the definition clause.
8. It was next argued that the company being a corporate body, cannot be identified with its directors. Its liability to pay the cess is personal in nature, and unless a provision for vicarious liability, is provi--ded in the Ordinance itself, the recovery cannot be made from the petitioner, as arrears of land revenue and thus the order to recover the cess by attachment of his personal properties, arrest or other coercive means is utterly without lawful authority. In the submission of the learned counsel, the company is the owner of the factory building, machinery and other assets, far more excess in value, than its outstanding liability, and that the respondent, at the most could recover the amount in question, by attachment and sale of such property in the hands of the petitioner but he had no jurisdiction to proceed against him.
9. On the other hand, the learned Assistant Advocate-General. Argued that no doubt, in the first instance recovery has got to be made from the assets of the company, but if the same falls short of the liability, the balance can be recovered from the petitioner, as arrears of land revenue. He contended that section 3 creates a charge 'against the employer and casts an obligation on him to pay the amount of the cess to the Provincial Government. This, he, submitted fastened the petitioner with the liability to clear the amount and further referred to Rule 7 to justify coercive measures against the petitioner.
10. There is some merit in the submissions of the petitioner's counsel. It cannot be denied that the company, in law, is a separate juristic person, distinct from its shareholders and directors. The latter are not liable for its liabilities, except to the extent and in the manne provided under the Statute. In E. B. M. Company Limited v. Dominio Bank (AIR1937PC279) it has been laid down that :- "They believe it to be of supreme importance that the distinction should be clearly marked, observed and maintained between an incorporated company's legal entity and its actions, assets, rights and liabilities on the one hand, and the individual shareholders and their action" assets rights and liabilities on the other hands."
The position of the petitioner, was, that he carried on the business of the company and managed its affairs. The assets of the company in his hands were to be applied for certain defined objects. It is difficult to agree with the learned Assistant Advocate-General that section 3 creates a charge against the person of the petitioner rendering even his personal property liable to be appropriated for the recovery of the cess due from the company. In the absence of any express provision in the Ordinance to that effect, the liability of the company cannot be taken as that of the Chief Executive or the directors. As observed above, the assets of the company were entrusted to the petitioner for particular purposes. Bern of an office bearer he is an agent of the company. In law, a corporation is answerable not only for the acts of its agent, which they are lawfull authorised to do but even for their unlawful and negligent acts, which they perform about its business, so authorised.
11. Rule 7 is to be read alongwith section 5. The expression "so far as may be" used in section 5 is an enabling provision, and permits the imposition of the levy, in the same manner and under the same provisions, as the land revenue but having regard to the attending circumstances of the case. The authority conferred by rule 7, on the respondent to make the recovery as arrears of land revenue, thus cannot be stretched to empower him to attach and dispose of the personal property of the petitioner or for that matter to arrest and detain him. Thus, to passing the impugned order, the respondent acted illegally, of course, he can proceed against the property of the company in the hands of the petitioner and other directors, and to adopt other measures under the Companies Act, if and such property is not found sufficient to meet the liability.
12. I may here, dispose of another objection raised by the learned Assistant Advocate-General to the sustenance of the writ petition, on the plea that under rule 12 on other adequate remedy to file an appeal was available to the petitioner. I am unable to give any weight to this sub--mission. The impugned order has been found to be wholly without lawful authority. The petitioner can, therefore, legitimately approach this Court for removal of such an order through judicial review. It will not also be out of place, refer here to Ali Abbas v. Vishan Singh (PLD1967SC294) where in the Supreme Court maintained that in case of excess of jurisdiction ; "the affected party could not be penalised for not throwing themselves again on the mercy of the authorities who were responsible for such excess."
The objection as to the maintainability of the writ petition is rejected.
13. For the foregoing reasons this writ petition is accepted and the order Annexure 'A' declared to have been passed without lawful authority. The parties are left to bear their own costs.