On 12 December 2023, the High Court of Madras (“HC”) in Subrata Monindranath Maity v The State, Represented by Deputy Director, Industrial Safety and Health-II (“Subrata Maity”) has held that a resolution professional (“RP”) appointed under the Insolvency and Bankruptcy Code, 2016 (“Code”/ “IBC”) is an ‘occupier’ of a factory under the Factories Act, 1948 (“Factories Act”).
The case arises out of petitions filed by the RP of M/s Bhatia Coke Energy Limited (“CD”) for quashing criminal proceedings initiated against him for offences punishable under the Factories Act, in respect of certain deficiencies/ violations found during inspection of the factory premises.
What the HC held in Subrata Maity
The HC declined to quash the complaint proceedings against the RP, while holding as follows:–
The RP could not claim the benefit of protection under Section 233 of the IBC (immunity for actions taken in good faith) - the failure or omission to provide safety measures in the factory cannot be stretched to inaction.
As per Section 25 of the IBC, upon appointment, the RP takes control of the property and business of the CD and the management of the affairs of the CD vests in him.
The powers of the Board of Directors of the CD stand suspended and are to be exercised by the RP. Thus, for all purposes, the RP is the occupier of the factory, and he cannot abdicate his duties of providing necessary safety measures in the factory as mandated under the Factories Act.
Under Section 17 of the IBC, the RP is vested with absolute control of the CD. This being so, for any violation or omission in the factory premises, the RP, in his capacity as ‘occupier’, is responsible for the proceedings initiated under the Factories Act.
Such proceedings will not be covered under Section 14 (moratorium) or Section 233 (protection of action taken in good faith) under the Code.
It appears from the judgment in Subrata Maity that the RP in this case had got himself nominated as the occupier. Having said that, the findings of the HC suggest that given the nature of powers and duties of RP under the Code which vests him with the absolute management and control of the CD during the CIRP period, an RP shall be deemed to be an ‘occupier’ for the purposes of the Factories Act.
With due respect, in our view, the ruling loses sight of the fact that the RP is appointed for a temporary period, with the primary duty to conduct the resolution process of the CD. Further, the RP is appointed to a company that is already in distress and where it is likely that compliances are not being done regularly. The RP is completely new to the company, who is taking control for the first time and, in many cases, in a hostile environment where he may not even have sufficient information and support from management. This being so, putting the entire burden and accountability on the RP to ensure that there are no violations or non-compliances under the Factories Act may prove to be onerous and counterproductive.
While the RP is vested with the management and control of the CD during the CIRP period, Section 19 of the IBC mandates the personnel of the CD to provide all assistance and cooperation required by the RP in managing the affairs of the company. As per Section 2(n) of the Factories Act, ‘occupier’ of the factory means “the person who has the ultimate control over the affairs of the company, provided that…(ii) in the case of a company, any one of the director’s shall be deemed to the occupier….”. Thus, the Factories Act provides for the appointment of a director as the ‘occupier’ of a factory, in the case of a company. Notably, under the scheme of the IBC, it is only the powers of the Board of Directors of the CD that stand suspended; the directors must continue to discharge their obligations and duties under applicable laws.
It is also to be noted that under Section 7A of the Factories Act, an occupier of a factory has multiple duties that require the occupier’s presence at the factory premises. Given the multi-faceted role of an RP and the varied nature of his duties under the IBC, it may not be possible for the RP to be physically present at the factory premises at all times, to ensure that the compliances as per the Factories Act are being carried out. Hence, it is only reasonable that a person who is actively engaged in the day-to-day affairs of the factory and can supervise the operations at the factory site should be appointed as ‘occupier’ for purposes of the Factories Act.
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