THE ANALOGIES OF "RETRENCHMENT" "CLOSURE" AND LEGAL PERSPECTIVES: AN APEX JUDICIAL DICTUM

SOME REFLECTIONS IN INDUSTRIAL AND SERVICE JURISPRUDENCE :THE ANALOGY OF CLOSURE, RETRENCHMENT AND CLAIM FOR RETRENCHMENT COMPENSATION BY THE WORKERS OF A CLOSED UNDERTAKING AND LEGAL PERSPECTIVE : AN APEX JUDICIAL DICTUM. 

AJAYA KUMAR SAMANTARAY,DEPUTY DIRECTOR GENERAL,LABOUR WELFARE(HQRS), JAISALMER HOUSE, MINISTRY OF LABOUR AND EMPLOYMENT, NEW DELHI : 11 00 11 

PRELUDE :      In this case an appeal, by special leave, was directed against the judgment of the Hon’ble High Court of Himachal Pradesh dated 16th March 1992 dismissing the writ petition (CWP No. 980 of 1985) filed by the appellant-Union and allowing the writ petition (CWP No. 650 of 1995) filed by the Himachal Pradesh Wool Processors Ltd., Respondent 3 (hereinafter referred to as “the respondent-Company” for brevity. The petitioners in both the said writ petitions were assailing the award dated 7th July 1985, made by the Industrial Tribunal, Himachal Pradesh (hereinafter referred to as “the Tribunal”).

      In the contemporary times, such types of judgments do not come. Therefore, I thought, it would be in fairness and fitness of the things to pen an article on this judgment which would help the esteemed readers in their professional endeavour. The article would cover the salient features of Closure and Retrenchment.The Union had claimed retrenchment compensation and absorption of the workers in State Government or State run PSUs.Let us see as to how the case was dealt with. 

THE CASE-LAW :

H.P. MINERAL AND INDUSTRIAL DEVELOPMENT CORPORATION EMPLOYEES UNION vrs STATE OF H.P. AND OTHERS. AIR 1995 SC 167 = (1996) 7 SCC 139 DoJ : 6 DECEMBER 1994

FACTS OF THE CASE :

       The H.P. Wool Processors Ltd. was incorporated as a public limited company under the Companies Act, 1956 in 1974 and it started production sometime in January 1976. It was a subsidiary of the H.P. Mineral and Industrial Development Corporation and was wholly managed and controlled by the Government of Himachal Pradesh. It did not turn out to be a viable undertaking and it continued to suffer losses from year to year. The Board of Directors of the respondent-Company, therefore, in the meeting held on 6th August 1983, decided to close the undertaking. On the same date it was also decided that the State Government may be moved for waiving the notice of 60 days required to be given under Section 25-FFA of the Industrial Disputes Act, 1947 (hereinafter referred to as “the Act”). By order dated 9th August 1983 the State Government granted exemption from complying with the provisions of Section 25-FFA of the Act. Thereafter, on 10th August 1983, the respondent-Company issued an order for the closure of the undertaking with effect from 13th August 1983 and terminated the services of all the employees barring those necessary to maintain a minimum of administrative functions. The workmen were paid one month's pay in lieu of notice, closure compensation, gratuity, amount in lieu of leave due and earned wages due to them. 

INDUSTRIAL DISPUTE RAISED BY THE UNION :

      The appellant-Union, representing the workmen of the respondent-Company whose services were terminated, raised an industrial dispute which was referred for adjudication to the Tribunal by the Government of Himachal Pradesh. The Tribunal by its Award dated 7th July 1985 held that Section 25-N of the Act was attracted which required three months' notice to be given before retrenchment and since only one month's wages in lieu of notice were paid, the Tribunal directed that the workmen be paid wages for two months. 

WRIT PETITIONS TO THE HIGH COURT :

      Having felt aggrieved by the said Award writ petitions were filed in the High Court by the appellant-Union as well as by the respondent-Company. The High Court had observed that Section 25-O of the Act which provided for the procedure for closure of an undertaking had been struck down by this Court in its decision Excel Wear vrs. Union of India, AIR 1979 SC 25 : [1979] 1 SCR 1009 and the amended provisions of Section 25-O, which were introduced by Act 46 of 1982, came into force on 28th August 1984 and were not in operation on the day of the closure of the industry and that the provisions of Section 25-N of the Act had been held to be unconstitutional by the High Courts of Madras and Rajasthan in K.V. Rajendran v. Dy. Commr. of Labour,1980-II-LLJ-275 and J.K. Synthetics v. Union of India,1984 (48) FLR 125. The High Court had held that the workmen could not invoke the protection of either of these two provisions and that the only protection that was available to them was that contained in Sections 25-FFA and 25-FFF of the Act and that the said provisions had been complied with by the respondent-Company. On that view of the matter, the High Court felt that no relief could be granted to the workmen. The High Court, therefore, set aside the Award of the Tribunal insofar as it awarded two months' wages to the workmen and held that the workmen were not entitled to any relief.

SPECIAL LEAVE PETITION TO THE SUPREME COURT :

       Aggrieved by the judgment and order of the Hon’ble High Court, the Union moved the Hon’ble Supreme Court by filing a special leave petition which on grant of special leave, became Civil Appeal No. 366 OF 1993

      The counsel appearing for the appellant-Union, urged as follows :

(i) that the High Court was in error in not applying Section 25-N of the Act.

 [in support of his aforesaid submission he placed reliance on the decision of the Hon’ble Apex Court in Workmen vrs. Meenakshi Mills Ltd., AIR 1994 SC 2696 : [1992] 3 SCR 3 409 wherein the validity of the provisions of Section 25-N of the Act, as originally enacted, had been upheld and the decisions of the Madras and Rajasthan High Courts aforementioned reversed. ]

(ii) that since termination of services of the workmen constitutes retrenchment under Section 2(oo) of the Act the provisions of Section 25-N were applicable to the present case and the workmen could be retrenched only by giving three months' notice which was not given in this case.

APPRECIATION OF THE CONTENTIONS :

      On appreciating the contentions on behalf of the Union th Hon’ble Apex Court Court state that it is unable to accept this contention.It gave the reasons for such opinion which is as follows :

REASONS :

      The Hon’ble Apex Court gave two reasons for such opinion which are as follows :

1.  The Hon’ble Apex Court stated, it is no doubt true that in Section 2(oo) the expression ‘retrenchment’ is defined to mean the termination by the employer of the service of a workman for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action and categories referred to in clauses (a) to (c) have been expressly excluded from the ambit of the said definition. But as far back as in 1957 a Constitution Bench of the Hon’ble Apex Court in Hariprasad Shivshankar Shukla vrs. A.D. Divikar, AIR 1957 SC 121 : 1957 SCR 121 had laid down that ‘retrenchment’ under Section 2(oo) of the Act would not cover termination of services of all workmen as a result of the closure of the business. The said decision was considered by the Constitution Bench of the Apex Court in Punjab Land Development and Reclamation Corpn. Ltd. vrs. Presiding Officer, Labour Court, [1990] 3 SCR 111 wherein it has been observed: (SCR pp. 140-42, 143 and 152-53 : SCC pp. 709, 710 and 718-19, paras 52, 53 and 76)

“Mr V.A. Bobde submits, and we think rightly, that the sole reason for the decision in Hariprasad5 was that the Act postulated the existence and continuance of an industry and where the industry, i.e., the undertaking, itself was closed down or transferred, the very substratum disappeared and the Act could not regulate industrial employment in the absence of an industry. The true position in that case was that Sections 2(oo) and 25-F could not be invoked since the undertaking itself ceased to exist.

* * *

The judgments in Sundara Money7 and the subsequent decisions in the line could not be held to be per incuriam inasmuch as in Hindustan Steel8 and Santosh Gupta9 cases, the Division Benches of this Court had referred to Hariprasad case5 and rightly held that its ratio did not extend beyond a case of termination on the ground of closure and as such it would not be correct to say that the subsequent decisions ignored a binding precedent.

* * *

For the purpose of harmonious construction, it can be seen that the definitions contained in Section 2 are subject to there being anything repugnant in the subject or context. In view of this, it is clear that the extended meaning given to the term ‘retrenchment’ under clause (oo) of Section 2 is also subject to the context and the subject-matter. Section 25-F prescribed the conditions precedent to a valid retrenchment of workers as discussed earlier. Very briefly, the conditions prescribed are the giving of one month's notice indicating the reasons for retrenchment and payment of wages for the period of notice. Section 25-FF provides for compensation to workmen in case of transfer of undertakings. Very briefly, it provides that every workman who has been in continuous service for not less than one year in an undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of Section 25-F as if the workman had been retrenched. (emphasis supplied) Section 25-FFA provides that sixty days' notice must be given of intention to close down any undertaking and Section 25-FFF provides for compensation to workmen in case of closing down of undertakings. Very briefly stated Section 25-FFF which has been already discussed lays down that ‘where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of sub-section (2), be entitled to notice and compensation in accordance with the provisions of Section 25-F, as if the workman had been retrenched’.” (emphasis supplied)

Construction of Section 2 (oo) of ID ACT,1947 :

       The Hon’ble Court stated, from the aforementioned observations it is evident that the definition of ‘retrenchment’ as defined in Section 2(oo) of the Act has to be read in the context of Sections 25-FF and 25-FFF of the Act and if thus read ‘retrenchment’ under Section 2(oo) does not cover termination of service as a result of closure or transfer of an undertaking though such termination has been assimilated to retrenchment for certain purposes, namely, the compensation payable to the workmen whose services are terminated as a result of such closure. In that view of the matter Section 25-N which deals with retrenchment cannot apply to the present case where termination of the services of the workmen was brought about as a result of the closure of the undertaking.

2. There is one more reason why Section 25-N cannot be made applicable to the workmen in the present case. Sections 25-N and 25-O were inserted in the Act by Act No. 32 of 1976 whereby Chapter V-B was introduced in the Act. Section 25-N imposed restrictions in the matter of retrenchment of workmen employed in large undertakings while Section 25-O dealt with the procedure for closing down such undertakings. Section 25-O was held to be unconstitutional by the Hon’ble Apex Court in Excel Wear’s case (supra). The striking down of Section 25-O would not, ipso facto, result in enlargement of the ambit of Section 25-N so as to cover termination of services of workmen as a result of closure which was otherwise outside the ambit of Section 25-N. In view of the same, the Hon’ble Apex Court stated that it is unable to uphold the contention of Shri Sharma that Section 25-N was applicable in the present case and it was obligatory for the Management of the respondent-Company to give three months' notice as required by Section 25-N. Since Section 25-O was not available on account of the said provision having been struck down by this Court the only protection that was available to the workmen whose services were terminated as a result of closure was that contained in Sections 25-FFA and 25-FFF of the Act. It is not disputed that both these provisions have been complied with in the present case, stated the Hon’ble Supreme Court.

ON THE OPTION GIVEM BY THE WORKMEN :

       Another contention that had been urged by the counsel for the union was that before the closure of the undertaking the workmen were asked to give their option either for absorption by the State Government in some government departments/public sector undertakings or for having retrenchment benefits by the respondent-Company by order dated 19th July 1983 and that in response to the said order the workmen had given their option for absorption in government service or in the service of any other corporation. The submission was that in view of the fact that the workmen were required to exercise their option in this regard and the workmen having exercised their option for absorption it was obligatory on the part of the State Government to have absorbed the workmen in government service or in the service of some other public sector corporation. In this connection, it may be mentioned that the appellant-Union had earlier filed a writ petition (CWP No. 518 of 1984) in the High Court wherein question of absorption was raised but the said writ petition was dismissed in view of the dispute having been referred to the Tribunal for adjudication. The said order of the High Court in the writ petition had become final insofar as the absorption of the workmen is concerned. Moreover, no direction can be given to the State Government to absorb the workmen in government service or in other public sector corporation because in the order dated 19th July 1983 no specific assurance was given regarding absorption to the workmen. In the said order it was stated:

“The option will not be taken as granted and the final decision vests with the Management/State Government.”

The order passed by the Hon’ble Apex Court in G. Govinda Rajulu v. A.P. State Construction Corpn.10, AIR 1987 SC 1801 : 1988- I-LLJ-328 : 1989 (1) SCALE 1526 on which reliance was placed by the counsel for the union, cannot, therefore, assist the appellant-Union in the present case, stated the Hon’ble Apex Court.

 THE CONCLUSION:

     Finally the the Counsel for the Union also invited the attention to the order passed by the Apex Court on 26th July 1991 in Himachal Worsted Mills Staff Assn. v. State of H.P.( C A no.2957 of 1991) wherein it was directed that compensation at the rate of Rs 40,000 per person in full and final settlement of the claim for compensation should be paid to the workmen whose services were terminated on account of closure of the Himachal Worsted Mills Ltd. The said order made in the facts and circumstances of that case cannot be applied to the present case because in this case the Hon’ble Court found that the workmen had been paid compensation and the benefits in accordance with the provisions of the Act. 

THE VERDICT :

 The appeal filed by the Union was dismissed.

No order as to costs.