|
Introduction
The
chief object of the industrial relations legislations in general
is industrial peace and economic justice. If a workman is
retrenched or his services are terminated on account of transfer
of undertaking, the question of survival of workman's family
immediately arises. The concept of compensatory justice requires
that such a workman should be given compensation in lieu of
termination of his services. This as well as re-employment is the
main point involved in this case.
In the present
case, the
Vizagapatnam Sugar and Refinery Ltd. was engaged in the
business of manufacture of sugar and was running at loss. It sold
its machineries and business to appellants. It was agreed as part
of the sale transaction that the vendor company should pay to its
employees the retrenchment compensation as calculated under
Section 25-F of the Industrial Disputes Act, 1947, and terminate
their services leaving the appellant full freedom to choose its
own employees.
The
retrenchment compensation was paid by the vendor company. The
society continued the same business in the same place without any
appreciable break and took in its employment a number of employees
of the vendor company. But 49 permanent employees and 103 seasonal
employees of the vendor company were not given re-employment by
the vendee appellant. The dispute arose with regard to the claim
for re-employment of the employees of the vendor company who were
not taken in service by the appellants. The workmen represented to
the State Govt. that their demand should be adjudicated upon by an
industrial tribunal. This dispute was referred by Governor of AP
to the industrial tribunal, Hyderabad for adjudication.
The main
points of controversy involved in this case were as follows: -
1) What is the scope and effect of Section 25-FF of the Act
2) Whether the vendee of a business is a successor-in-interest for
the purpose of meeting the claim of the employees who were in
employment under the vendor for re-employment on the same terms
and conditions and with continuity of service
3) Whether the workers union was competent to raise the present
industrial dispute
The tribunal
held that the appellant was a successor-in-interest of the company
and surprisingly gave directions to the society to give
re-employment to the concerned employees. The tribunal also held
that the sponsoring union was, in law, competent to raise the
present industrial dispute and so it rejected the appellants
contention about the invalidity of the reference.
Aggrieved from
the order of the tribunal, the appellant filed appeal before the
Supreme Court. The first question which fell for consideration of
the SC was whether the appellant is a successor-in-interest of the
vendor company. It was contended on behalf of the appellant that
they could not be held as a successor-in-interest of the vendor
company and in any event the concerned employees were not entitled
to claim re-employment but were only entitled to statutory
retrenchment compensation under Section 25-FF r/w Section 25-F of
the Act from the vendor company, which was paid to them.
The argument
of the Solicitor General was that though the work of the vendor
company was, in a sense, a going concern when it was purchased by
the appellant and that the appellant had not purchased the entire
undertaking including the goodwill and so it would be
inappropriate to describe the appellant as the
successor-in-interest of the vendor company. In support of his
arguments, the learned Solicitor General relied upon the ratio of
Ramji Lal
Nathu Lal and others v. Hima Bhai Mills Company Ltd. and others
and
Antony D'souza and others v. Sri Moti Chand Silk Mills.
The argument of the Solicitor General does not appear to be sound
because the business was continued by the vendee company without
any break, the place of business and the business itself was the
same. Moreover, the object of sale transaction was to enable the
local cane growers to carry on the business of the company.
It was
observed by SC that the vendor company sold the concern to the
appellant because it was faced with the problem of recurring
losses, and so the appellant, in purchasing the concern, was not
prepared to have both the advances and the outstanding included in
the sale transaction. The appellant society has been formed by the
local cane growers with the object of manufacturing sugar and so
the purchaser was not particularly interested in including the
goodwill of the company in the sale transaction. The exclusion of
4,000 bags of processed sugar shows that the purchaser wanted to
accommodate the vendor company in that matter. In my opinion, the
SC rightly held that the tribunal was right in law in coming to
the conclusion that the appellant is a successor-in-interest of
the vendor company.
It was also
contended that the concerned employees are not entitled for
re-employment against the appellant, thus the directions given by
the tribunal with reference to re-employment of the concerned
workmen should be set aside. In my humble submission, this
argument of Solicitor General is justified because the retrenched
workmen had already received compensation from the vendor company
in accordance with agreement of sale.
Be that as it
may, what was the nature of the vendees
liability to
the workmen of vendor company
It is important to emphasize that before Section 25-FF was
introduced in the Act in 1956, this question was considered by
industrial adjudication on general considerations of fair play and
social justice and sometimes the claim for re-employment was
allowed, or sometimes the claim for compensation was considered.
But no decision could be found which could support the argument
under which the employees were held entitled to compensation
against the vendor employer as well as re-employment at the hands
of vendee on the ground that it was a successor-in-interest of the
vendor.
It was in this
background that the legislature enacted Section 25-FF on 4th Sept.
1956. A plain reading of Section 25-FF shows that the section
proceeds on the assumption that if the ownership of an undertaking
is transferred, the cases of the employees affected by the
transfer would be treated as cases of retrenchment u/s 25-F. That
is the reason why old Section 25-FF begins with a non-obstante
clause and lays down that the change of ownership by itself will
not entitle the employees to compensation unless the three
conditions of the proviso are satisfied. Prima facie, if the three
conditions specified in the proviso were not satisfied,
retrenchment compensation would be payable to the employee in
accordance with Section 25-F. This was the scheme which the
legislature had in mind when it enacted Section 25-FF in the light
of the definition of the word retrenchment prescribed by Section 2
(oo) of the Act.
The validity
of this assumption that employees are entitled to compensation on
account of transfer of undertaking was, however, successfully
challenged in SC in
Hari Prasad
Shiv Shankar Shukla v. A.V. Divikar,
1957-I LLJ 243 (SC). In this case, SC decided the true scope and
effect of the concept of retrenchment as defined in Section 2 (oo).
SC held that ?retrenchment? means the discharge of surplus labour
or staff by the employer for any reason whatsoever, otherwise than
as a punishment inflicted by way of disciplinary action, and does
not include termination of services of all workmen on a bona fide
closure of industry or on change of ownership or management. It
also held that the definition of the word
retrenchment
may have included the termination of services caused by the
closure of the concerned or by its transfer, but both the cases
will not fall within the definition of word retrenchment. This
decision necessarily meant that the word retrenchment in Section
25-FF had to bear a corresponding interpretation as given u/s 2 (oo).
Similar view was taken in Barsi Light Railway Company Ltd. v. K.N.
Joglekar.
Analysis of
the ratios of above cases shows that the object of the legislature
in introducing Section 25-FF was to enable the employees of the
vendor concerned to claim retrenchment compensation unless the
three conditions of the proviso to the said section were
satisfied. The decision in
Hari Prasad's
case
was pronounced on 27th November, 1956 and it was held that the
appellants are not liable to pay any compensation u/s 25-F of the
Act to the erstwhile workmen. The ratio of this case could not be
carried out any longer.
This decision
led to the promulgation of an ordinance no.4 of 1957 w.e.f.
1-12-1956, within three days of pronouncement of judgment in Hari
Prasad's case. By this ordinance the original Section 25-FF, as it
was inserted on 4th Sept., 1956, was substantially altered. In due
course, this ordinance was replaced by Act No.18 of 1957 on 6th
June 1957. By this Amendment Act, Section 25-FF as it was enacted
by the ordinance has been introduced in the parent Act. It is to
be noticed that the Act came into force retrospectively w.e.f.
28th November, 1956, that is to say, from the next day of the
pronouncement of judgment by SC in
Hari Prasad's
case.
In my opinion,
because of insertion of new Section 25-FF, as substituted by Act
No.18 of 1957, the question in present appeal has now to be
determined not in the light of general principles of industrial
adjudication, but by reference to the specific provisions of
Section 25-FF itself. It was emphasized by the court that the
first part of Section 25-FF postulates that on a transfer of the
ownership or management of an undertaking, the employment of
workmen engaged by the said undertaking comes to an end, and it
provides for the payment of compensation to the said employees
because of the said termination of their services, provided they
satisfy the test of length of service of one year prescribed by
the section. This part of the section further provides the manner
and the extent to which the said compensation has to be paid.
Workmen shall be entitled to notice and compensation in accordance
with provisions of Section 25-F
as if
the workmen had been retrenched.
Formula:
Retrenchment Compensation = 15 days average pay X number of years
of continuous service.
A careful
reading of Section 25-FF clearly brings out the fact that the
termination of the services of the employees does not in law
amount to retrenchment and that is consistent with the ratio of
Hari Prasad's
case.
The
legislature, however, wanted to provide that though such
termination may not be retrenchment technically so called,
nevertheless the employees in question whose services are
terminated by the transfer of the undertaking should be entitled
to compensation, and hence, Section 25-FF provides that on such
termination compensation would be paid to them as if termination
was retrenchment. The words
as if
brings out the legal distinction between retrenchment defined u/s
2 (oo) and termination of services consequent upon transfer of
undertaking. Section 25-FF makes a reference to Section 25-F for
that limited purpose, and therefore, in all cases to which Section
25-FF applies, the only claim which the employees of the
transferred concerned can legitimately make is a claim for
compensation against their employers. No claim can be made against
the transferee of the said concern. The counsel for respondents
urged that the present case ought to be governed by the provisions
of Section 25-H of the Act since the case of termination of
service resulting from transfer of ownership or management of an
undertaking to which Section 25-FF applies is a case of
retrenchment properly so called. But I have serious objection to
this because Section 25-H can be made applicable in cases of real
retrenchment and the section does not apply to those cases where
Section 25-FF is applicable. This contention of the counsel for
respondents was rightly rejected by the SC.
In
Hati Singh
Manufacturing Co. & another v. Union of India & others
SC considered the effect of words
as if
occurring in Section 25-FF, and it has been held that by the use
of words
as if the
workmen had been retrenched
under the said section, the legislature has not sought to place
closure of an undertaking on the same footing as retrenchment u/s
25-F. Therefore, the plea that Section 25-H applies to the present
case was rightly rejected.
It was next
contended that the workmen are entitled to re-employment under
general principles of social justice and fair play. My problem
with this argument is that when Section 25-FF has been expressly
enacted, hence, it is difficult to see how any question of fair
play or social justice would justify the claim by the respondents
that they ought to be re-employed by the appellant.
According to
text of S.N. Misra and scheme of the Act in cases falling u/s
25-F, workmen may get retrenchment compensation and they may yet
be able to claim re-employment u/s 25-H and in that sense, some
workmen may get both retrenchment compensation and re-employment.
That is the effect of reading Sections 25-F and 25-H together. It
must be borne in mind that in case of retrenchment, the
undertaking continues and only some workmen are discharged as
surplus and it is the problem of re-employment of this small
number of discharged workmen that is tackled by Section 25-H.
Besides, u/s 25-H a discharged workman may not be entitled to
claim re-employment immediately after the retrenchment or soon
thereafter. It is only if the employer who discharged him as
surplus requires additional workmen in future, then the
opportunity of re-employment may occur on the basis of principle
of
first go first come.
However, as
per the facts of the present case, the position is entirely
different. As soon as the transfer is affected u/s 25-FF, all
employees are entitled to claim compensation, unless, of course,
the case of transfer falls under the proviso. In my opinion, if
the argument of counsel for respondents is accepted, the workmen
could have got double benefit of taking compensation from the
vendor and of taking re-employment from the vendee. Thus, it was
rightly held by the SC that this double benefit cannot be said to
be based upon any considerations of fair play or justice to both
the parties. Thus, it was held that it would not be fair that the
vendor should pay compensation to his employees on the ground that
the transfer brings about the termination of their services, and
the vendee should be asked to take them back on the ground that
the principles of social justice require him to do so. Similar is
the ratio of
Indian Hume Pipe Co. Ltd. v. Their Workmen & Another
which was followed in the present case.
Legal
Position before Anakapalla's case: -
Under the Act as originally enacted, there was no provision for
payment of compensation to the retrenched workmen and hence, the
authorities had to consider various factors in determining the
compensation in the absence of uniform rules. In 1953, a huge
stock had accumulated in textile industries. Textile mills were in
a mood to close one or more shifts. The closure resulted in
retrenchment or laying-off a large number of textile employees
causing great unrest in the whole of the textile industry. In
order to overcome the situation, the President of India
promulgated the Industrial Disputes (Amendment) Ordinance, 1953 to
take effect from 24th October, 1953. This ordinance made provision
for payment of retrenchment compensation. This ordinance was
repealed and replaced by the Industrial Disputes (Amendment) Act,
1953 on 23rd December, 1953. Section 25-A to 25-J were added by
this amending Act of 1953.
Legal
position after Anakapalla's case: -
In
Workmen of Subong Tea Estate v. Subong Tea Estate,
the SC in SLP held that retrenchment was not in consequence of
transfer, but was effected after the transfer was made. The
retrenchment was made by the transferee who in the meantime became
employer of the retrenched workmen by virtue of his assuming
control and management of the tea gardens. Therefore, Section
25-FF was not attracted.
Taking partial
ratio of
Anakapalla's
case
further, in
Board of
Directors of South Arcot Electricity Distribution Co. Ltd. v.
Elumalai,
the South Arcot Electricity undertaking was taken over by the
State. The conditions of service were less favourable to workmen
under the State Govt. as compared to the old employer before
transfer of undertaking. It was held by the SC that the proviso to
Section 25-FF cannot be invoked by the company for the purpose of
defeating the claim of the workmen u/s 25-FF from the vendor.
In Ambala
Cantonment Electricity Supply Corporation v. Workmen, it was held
that the compulsory purchase of the undertaking of the petitioner
company by the board without taking over the employees amounts to
transfer of ownership or management of undertaking from one
employer to another. The transfer contemplated by Section 25-FF is
of undertaking, and not of its employees. Therefore, the workmen
were entitled to retrenchment compensation as provided u/s 25-FF
of the Act.
In Workmen of
Karnataka Agro Proteins Ltd. v. Karnataka Agro Proteins Ltd. &
others,
it was held that in case of transfer of ownership or management of
an undertaking, the employees can only make a claim for
compensation against their employers. No claim can be made against
transferee concern. The court cannot give directions to transferee
company to absorb and continue in service the workmen. Recently,
in
Maruti Udyog Ltd. v. Ram Lal & others,
it was observed by the SC that the workmen were retrenched in
August 1977 and they did not challenge their retrenchment. The
company thereafter went into liquidation and was transferred to
the petitioner three years later. Hence, the petitioner cannot be
said to be the successor-in-interest of the company. It was also
held that u/s 25-H, a workman can claim re-employment after
retrenchment only from that employer who had retrenched him.
Maruti Udyog
Ltd. followed the ratio of
Akhil
Bharatiya Koyla Kamgar Union v. Employers in relation to
Management of Industry Collery of Bharat Coking Coal Ltd. &
Anothers,
wherein the workmen were retrenched u/s 25-F by the management on
9-6-1971 due to financial problems and later on the management was
taken over by the Central Govt., it was held that there has been
no retrenchment u/s 25-FF. The ratio of this case is clearly
distinguishable from
Anakapalla's
case.
In my opinion,
the ratio of
Hari Prasad's
case
and
Anakapalla's case
was followed and confirmed in
Maruti Udyog
Ltd. v. Ram Lal & others.
Further I am of the opinion that once Section 25-F has no
application in cases of transfer of an undertaking or closure
thereof as contemplated in Section 25-FF and 25-FFF, the logical
corollary would be that in such an event Section 25-H will have no
application. Hence, the terminated workmen on account of transfer
or closure have no right to claim re-employment from the vendee.
My opinion gets confirmed by the ratio of
Punjab Land
Development & Reclamation Corp. Ltd. v. Presiding Officer Labour
Court, Chandigarh,
and H.P.
Mineral & Industrial Development Corp. Employees Union v. State of
HP,
wherein it was held that in cases of transfer/closure of
undertaking it would be inconsistent to read into Section 25-F a
right given to workmen
deemed to be
retrenched
a right to claim re-employment u/s 25-H.
|
More
Articles:
The
author can be reached at: nidhi@legalserviceindia.com /
