Separate Corporate Personality Of Erstwhile Corporations Not A Ground To Deny Unpaid Dues For Decades: Supreme Court Directs Bihar, Jharkhand To Pay Daily-Wagers ₹1 Lakh Each
The matter is an aftermath of the reorganisation of Bihar under the Bihar Reorganisation Act, 2000, which raised questions on dues owed to employees of five inter-State corporations.
Justice Vikram Nath, Justice Sandeep Mehta, Supreme Court
The Supreme Court has held that the separate juristic personality of erstwhile State-owned corporations cannot be allowed to defeat the lawful dues of their employees, which remained unpaid for decades. The Court accepted that the corporations were distinct entities whose liabilities do not automatically fall on the State. It added that Bihar and Jharkhand, as welfare States under whose domain the corporations functioned, must ensure that employees' entitlements are not rendered illusory.
Applying this, the Court directed both States to pay a one-time sum of Rs 1,00,000 to each daily-wage workman over and above the amounts already disbursed. It also directed simple interest at 12% per annum on delayed EPF dues and 6% per annum on delayed salary and other dues, from the date they fell due until actual payment.
A Bench of Justice Vikram Nath and Justice Sandeep Mehta observed, “…The States of Bihar and Jharkhand, as welfare States, under whose exclusive domain the Corporations existed and functioned, are equally required to ensure that the legitimate rights and entitlements of their employees/workmen are not rendered illusory by the subsequent failure or cessation of functioning of State-owned instrumentalities. In the peculiar facts and circumstances of the present case, the separate corporate personality of the erstwhile Corporations cannot be permitted to deprive the employees/workmen of their lawful dues which have remained unpaid for decades”.
Senior Advocate Priya Hingorani appeared for the petitioners and Senior Advocates Ranjit Kumar, Arunabh Chowdhury appeared for the respondents.
The proceedings arise from the reorganisation of Bihar under the Bihar Reorganisation Act, 2000, which raised questions on dues owed to employees of five inter-State corporations. Of 2,274 verified employees, 2,074 have been paid, while about 200 cases remain pending because claimants are untraceable or lack documents. Daily-wagers' dues were computed at a flat Rs 42.50 per day from 1992.
By order dated May 29, 2026, the Court accepted the final report of the Committee headed by Justice Dinesh Maheshwari (Retd.) and left three issues open: identification of remaining claimants, daily-wagers' entitlements, and interest on delayed payments. The States filed compliance affidavits in August 2026.
On the flat daily rate, the Court held that it could not be a fair measure of entitlement over decades, since it assumed the value of labour remained static. To avoid further delay, it granted a lump sum instead of remitting the matter. On EPF dues, it held that Section 7-Q interest arises by operation of law and cannot be defeated because the liability was later discharged. On other dues, it said interest compensates for deprivation of money and must not become a punitive levy on the exchequer, and it set the rate at 6% against the Committee's recommended 7.5%.
“…Where a monetary entitlement has crystallized and payment thereof is delayed beyond the time when it became due and payable, the person entitled thereto is, for the intervening period, deprived of the use and benefit of the amount to which he is lawfully entitled. Interest, in such circumstances, serves as recompense for such deprivation and seeks to compensate, to the extent capable of monetary assessment, for the loss occasioned by the delay”, the Bench noted.
“…Prolonged withholding of such amounts deprives the employee/workman of the use of salary/wages which had become payable to him and, particularly where the delay extends over several years, results in a corresponding financial prejudice. The fact that the underlying liability arose from the affairs of defunct Corporations cannot by itself efface the consequence of the prolonged deprivation of lawful entitlements suffered by the employees/workmen. The question of interest must, therefore, be considered not merely from the standpoint of the identity/status of the entity in default, but also having regard to the extraordinary duration of the deprivation and the circumstances in which the employees/workmen have ultimately been required to seek enforcement of their lawful dues…”, the Bench further noted.
The Court closed the identification exercise but preserved the claims of untraced workmen, who may approach the Nodal Officer within 12 months. The States must publish employee-wise particulars within four weeks and pay interest along with principal within three months. Each State's liability follows the May 29 mechanism. The Court clarified that the reliefs rest on the peculiar facts and set no general principle.
Cause Title: Bihar State Ardh Sarkari Arajpati Karamchari Maha Sangh & Ors. v. State of Bihar & Ors. (Neutral Citation: 2026 INSC 1061)
Appearances:
Petitioners: Priya Hingorani, Senior Advocate.
Respondent: Ranjit Kumar, Arunabh Chowdhury, Senior Advocates.