Facts of the Case

The Official Liquidator of M/s Testeels Ltd. (In Liquidation) filed a further report before the Gujarat High Court seeking modified relief concerning the monthly security bills of M/s Shubham Protection Force, the security agency engaged in connection with safeguarding the assets and properties of the company in liquidation.

The Official Liquidator sought permission for M/s Shubham Protection Force to raise its security bills on the basis of minimum wages plus applicable tax, namely CGST and SGST, at par with other empanelled security agencies.

The Court was informed that, by an earlier order dated 11 December 2019 passed in Official Liquidator’s Report No. 170 of 2019, the Official Liquidator had been permitted to make payment to M/s Shubham Protection Force towards safeguarding the assets and properties of the company in liquidation from funds available with the Official Liquidator in the common pool account.

Subsequently, the Official Liquidator received a letter dated 29 August 2022 from M/s Shubham Protection Force requesting permission to raise monthly security bills on the basis of minimum wages plus GST.

The matter was therefore placed before the High Court for appropriate permission and directions.

Issues Involved

The principal issues involved were:

  1. Whether M/s Shubham Protection Force could be permitted to raise monthly security bills based on minimum wages plus applicable CGST and SGST, at par with other empanelled security agencies.
  2. Whether the Official Liquidator was required to follow the minimum wage directions issued pursuant to the Gujarat High Court Division Bench order in Writ Petition (PIL) No. 244 of 2014.
  3. Whether, in discharge of duties under Section 457 of the Companies Act, 1956, the Official Liquidator could make payments necessary for safeguarding the assets and properties of the company in liquidation.
  4. Whether the High Court could exercise its inherent powers under Rule 9 of the Companies (Court) Rules, 1959 to issue appropriate directions in relation to such payments.
  5. Whether minimum wages prescribed by the Labour Commissioner from time to time were required to be paid to security guards deployed through security agencies for protection of liquidation assets.

Applicant / Official Liquidator’s Arguments

The learned advocate appearing for the Official Liquidator referred to the earlier order dated 11 December 2019 passed in Official Liquidator’s Report No. 170 of 2019.

Under that earlier order, the Official Liquidator had been permitted to make payment to M/s Shubham Protection Force for safeguarding the assets and properties of the company in liquidation from funds available in the common pool account.

It was further submitted that the Official Liquidator had received a letter dated 29 August 2022 from M/s Shubham Protection Force requesting permission to raise monthly security bills on the basis of minimum wages plus GST.

The Official Liquidator relied upon the order dated 21 August 2014 passed by the Division Bench of the Gujarat High Court in Writ Petition (PIL) No. 244 of 2014. According to the submissions recorded in the order, the Division Bench had directed the Government of Gujarat to provide minimum wages to its part-time and temporary workers at rates prescribed by the Government of India, Ministry of Labour and Employment, through its communication dated 4 March 2014.

It was also pointed out that, following the Division Bench order, the Chief Labour Commissioner had prescribed wage rates for employees employed in watch and ward services for the State of Gujarat.

Reference was further made to a Circular dated 9 April 2014 issued by the Deputy Chief Commissioner, Ahmedabad.

The Official Liquidator submitted that Section 457 of the Companies Act, 1956 imposed a duty upon the Official Liquidator to protect the properties of the company in liquidation.

Reliance was also placed upon Section 457(2A)(a) of the Companies Act, 1956 and Rule 9 of the Companies (Court) Rules, 1959.

It was argued that the High Court possessed inherent powers under Rule 9 to issue appropriate orders in such matters.

Accordingly, it was submitted that, in view of the directions issued by the Division Bench and the directions of the Chief Labour Commissioner, the Official Liquidator was required to make payment of minimum wages to security guards deployed by the concerned security agency and to pay watch and ward charges.

Respondent’s Arguments

The order does not record any substantive arguments advanced by a contesting respondent.

The cause title reflects the respondent as “NA”, and the appearance portion of the order does not record a substantive appearance or opposition on behalf of any respondent.

Accordingly, no independent respondent-side contention should be attributed beyond what is expressly contained in the judicial order.

Court Order / Findings

The Gujarat High Court considered the averments made in the Official Liquidator’s report and the submissions advanced on behalf of the Official Liquidator.

The Court noted that the Division Bench had issued directions to the concerned Government agencies, including the Labour Commissioner, concerning payment of minimum wages to temporary and part-time workers.

The Court further noted that, on the basis of those directions, the Chief Labour Commissioner had issued a circular directing the authorities to make payment of minimum wages in accordance with the directions contained in the circular.

On this basis, the High Court held that the Official Liquidator was required to follow such directions.

Accordingly, the Court granted the relief prayed for in the report.

The Official Liquidator was permitted to make payment of minimum wages, as prescribed by the Labour Commissioner from time to time, to security guards deployed by the security agencies.

The Official Liquidator Report was accordingly disposed of.

Important Clarification

The order requires careful reading on the distinction between the relief sought and the express operative direction recorded by the Court.

The modified prayer sought permission for M/s Shubham Protection Force to raise security bills on the basis of:

Minimum wages plus applicable tax, i.e., CGST and SGST, at par with other empanelled security agencies.

The High Court stated that the relief prayed for in the report was granted.

However, the express operative sentence specifically recorded that:

The Official Liquidator was permitted to make payment of minimum wages as prescribed by the Labour Commissioner from time to time to the security guards deployed by the security agencies.

Therefore, the order should not be overstated as laying down a broad or independent GST ratio on taxability, valuation, rate of tax, input tax credit, reverse charge mechanism, or classification of security services.

The CGST and SGST component appears in the modified relief sought by the Official Liquidator, while the Court’s reasoning primarily focuses on compliance with minimum wage directions and the obligation of the Official Liquidator to follow them.

Sections and Legal Provisions Involved

Section 457 of the Companies Act, 1956

The Official Liquidator relied upon Section 457 in support of the submission that it was the duty of the Official Liquidator to protect the properties of the company in liquidation.

The deployment of security personnel and payment of watch and ward charges were connected with safeguarding liquidation assets.

Section 457(2A)(a) of the Companies Act, 1956

The Official Liquidator specifically referred to Section 457(2A)(a) while seeking appropriate permission and directions from the Court in relation to the security arrangements and associated payments.

Rule 9 of the Companies (Court) Rules, 1959

Rule 9 was relied upon in support of the High Court’s inherent powers to issue appropriate orders in matters concerning the administration and protection of the assets of a company in liquidation.

Minimum Wage Directions

The order records reliance upon the Division Bench decision dated 21 August 2014 in Writ Petition (PIL) No. 244 of 2014 and subsequent wage-related directions and circulars.

CGST and SGST

The modified prayer sought permission for the security agency to raise bills on the basis of minimum wages plus applicable CGST and SGST.

The present order, however, should not be treated as an independent precedent deciding substantive GST liability or GST classification issues because no such detailed tax controversy was adjudicated in the reasoning recorded by the Court.

Link to Download the Order

https://mytaxexpert.co.in/uploads/1783492075_1506compressed.pdf

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