Company Law Case: Kirendra Bahadur Pradhan vs. Hetaunda Industrial Sector, NKP 2075 B.S, Vol.1, Pages 174
Case: Liquidation of Company, Certiorari
Plaintiff: Kirendra Bahadur Pradhanang
Defendant: Hetauda Textile Industries Ltd. and others, including Liquidator Daman Bahadur Bista
Decision No: 9940
This case is related to employment of an employee after a company enters liquidation and the effect of company dissolution on continuation of service.
Facts of the Case:
Petitioner was appointed in Hetauda Textile Industries Ltd. on 2059/03/18 BS. After the company was decided to be taken into liquidation on 2059/09/08 BS, he was appointed as an assistant to the liquidator and worked in that position until the end of Poush 2065. After the Government decided to cancel the liquidation and operate the company again, he was given responsibility as the head of the Kathmandu office on 2065/12/11 BS. Later, when the company was again decided to be taken into liquidation on 2066/07/18 BS, petitioner claimed that his service was continued. However, the liquidator terminated his service on 2067/02/24 BS without providing him an opportunity to submit an explanation. The petitioner challenged the termination through a writ petition. During the proceedings, the Government ultimately decided to dissolve Hetauda Textile Industries Ltd. on 2069/10/12 BS, and its assets were transferred to the Industrial Area Management after completion of the liquidation process.
Plaintiff’s Claim:
Petitioner claimed that his service was unlawfully terminated by the liquidator without giving him notice or an opportunity to submit an explanation. He argued that the termination violated the principles of natural justice and Section 127(5) of the Companies Act, 2063. He therefore requested the Court to quash the termination letter dated 2067/02/24 BS through an order of certiorari, reinstate him in service, and order payment of his salary and allowances from the date of termination until reinstatement.
Defendant’s Arguments:
Defendants argued that after the appointment of a liquidator, the company’s directors and officers are automatically relieved from their positions under Section 127(4) of the Companies Act, 2063, while under Section 127(5) the services of company employees automatically terminate, although the liquidator may retain or appoint employees necessary for liquidation. Petitioner had been retained only to assist in the liquidation process and was not a permanent employee. Therefore, after completion of the liquidation process, there was no legal obstacle to terminating his service. They further argued that since the company had already been dissolved, there was no basis for granting the relief sought by petitioner.
Legal Issues:
- Whether petitioner’s service could continue after Hetauda Textile Industries Ltd. was placed into liquidation?
- Whether the liquidator’s termination of petitioner’s service without providing an opportunity for explanation was unlawful?
- Whether petitioner could be reinstated after the company itself had been dissolved and its liquidation process completed?
Decision of Courts:
Supreme Court: The Supreme Court dismissed the writ petition. It held that under Section 127(5) of the Companies Act, 2063, the service of company employees automatically terminates once the liquidator begins operating and managing the company, although the liquidator may retain employees necessary for liquidation. Petitioner had continued only as an assistant to the liquidator for the purpose of liquidation. Since the Government subsequently dissolved the company and the liquidation process was completed, there was no legal basis for continuing petitioner’s employment. The Court also recognized that ordinarily, before taking an adverse decision against a person, providing notice and an opportunity to submit an explanation is consistent with natural justice. However, because the company had already been dissolved and no longer existed, petitioner could not legally continue in its service. Therefore, the requested writ and reinstatement had no practical or legal basis.
Established Principles:
- After a company enters liquidation, the service of its employees automatically terminates under Section 127(5) of the Companies Act, 2063, subject to the liquidator retaining necessary employees.
- An employee retained to assist the liquidator does not acquire a permanent right to continue in service after the liquidation work ends.
- Once a company is dissolved and its liquidation process is completed, an employee cannot claim continuation of service in a company that no longer exists.
- Although natural justice ordinarily requires notice and an opportunity to explain before an adverse decision, such a requirement cannot result in reinstatement where the company itself has already been legally dissolved.
