Kerala High Court
Savani Transport Pvt. Ltd. vs Savani Transport Employees ... on 25 January, 1994
Equivalent citations: (1994)IILLJ269KER
JUDGMENT P.A. Mohammed, J.
1. The challenge in this writ petition is against Ext. P1 award passed by the second respondent, Industrial Tribunal, Alleppey in I.D. No. 36 of 1982. The petitioner is a transporting company called 'Savani Transport Private Limited'. In the year 1978 the first respondent Trade Union raised a charter of demands. When conciliation proceedings in respect of those demands were pending, in November 1979 employees of six branches went on strike. Those branches are at Ernakulam, Cochin, Willingdon Island, Trichur, Calicut and Palghat. There were in all eleven employees in the above branches. According to the petitioner the workers withheld the documents relating to day-to-day business transactions. They were not effecting delivery of articles received from other branches. No accounts were maintained. This state of affairs prevalent in the branches led to a huge loss. Claims of damages were raised by the customers. In that situation the Management decided to effect the closure of the branches. Therefore notice dated August 5, (May 8?) 1980 was issued to all the employees in so far as the closure of six branches. The branches were closed with effect from May 12, 1980. This being an industrial dispute, the Government referred the issue to the Industrial Tribunal as per Ext. P2 order of reference under Section 10(1)(d) of the Industrial Disputes Act, 1947 (for short 'the Act'). Ext. P3 is the written statement filed by the petitioner before the Tribunal. So also a claim statement (Ext. P4) was filed by the Union. The main contention advanced in Ext. P4 by the Union is to the effect that the whole establishment is one single unit. On the other hand the management contended as per Ext. P3 that the branches are independent units and there is no violation of the provisions of the Act in closing down the branches.
2. The first respondent union examined five employees of the closed-down branches as WWI to WW5 and marked Exts. D1 to D9 documents. The management examined the Regional Manager, B.G.S. Rao, as MW-1 and eleven documents were marked in evidence as Exts. M1 to M11. After considering the oral and documentary evidence the Tribunal passed an award finding that the branches are not 'independent and self- existing' units. It is further observed that the management failed to comply with the provisions contained in Sections 25 FFA and 25G. Finally, the Tribunal directed the petitioner to re-instate the employees of the closed-down branches in identical posts held by them before termination. In so far as backwages are concerned, the matter is left open to be agitated in appropriate proceedings.
3. The issue referred for adjudication is this:
"Closure of the branches of M/s. Savani Transport Pvt. Ltd. situated at (1) Ernakulam (2) Cochin (3) Willingdon Island (4) Trichur (5) Palghat and (6) Calicut and relief to employees in these branches".
Before embarking upon the enquiry as to legality or otherwise of Ext. PI award, it would be highly essential to comprehend the ambit and scope of the issue referred for adjudication. M/s. Savani Transport Pvt. Ltd is an establishment having a net-work of three hundred branches throughout the country. The management decided to close down six branches in Kerala mainly for the reason of indiscipline/misconduct on the part of the employees with effect from May 12, 1980. The Tribunal in its Ext P1 award did not rule out the misconduct alleged by the Management; but expresses its view that the better course could have been to initiate disciplinary action against the employees. What is meant by 'closure' in Industrial law need not be re-stated except to point out the meaning of the word, i.e. "the permanent closing down of a place of employment or part thereof' contained in Section 2(cc) of the Act Closure of branches and relief to employees is different from 'relief to employees consequent to closure'. Latter takes in relief alone whereas the former both closure and relief which sufficiently falls within the subject of reference.
4. The above distinction necessarily persuades this court to delineate the outlines of 'closure' which can be subjected to review by this court in this proceeding. The Industrial Disputes Act is essentially an enactment for the investigation and settlement of industrial disputes between the employer and the employee. The right of the employer to close down his business or industry would, therefore, in the normal course, be outside the purview of the Act. Closure by itself involves no dispute; it is the volition of the employer. Even then, can he claim it as his absolute right? He cannot, because what is guaranteed under Article 19(1) (g) of the Constitution is the fundamental right which is totally subject to the regulatory control of the State, that is to say, the State can impose reasonable conditions in the interest of general public.
5. The constitutional validity of Section 25 FFF came up for decision by the Supreme Court in Hatisingh Mfg. Co. Ltd. and Anr. v. Union of India and Ors. (1960-II-LLJ-1 at p.7) where in it is held:
"By Article 19(1)(g) of the Constitution freedom to carry on any trade or business is guaranteed to every citizen but this freedom is not absolute. In the interest of general public, the law may impose restriction on the freedom of the citizens to start, carry on or close down their undertakings."
The Court further held (at p. 7):
"Payment of compensation and payment of wages for the period of notice are not therefore conditions precedent to closure."
This decision later came up for consideration before the Supreme Court in Excel Wear and Ors. v. Union of India and Ors. (1978-II-LLJ-527). There the Court held at page 542:
"The properties are the undertaking and the business assets invested therein. The owner cannot be asked to part with them or destroy them by not permitting him to close down the undertaking. In a given case for his mismanagement of the undertaking resulting in bad relationship with the labour or incurring recurring losses the undertaking may be taken over by the State. That will be affecting the property right with which we are not concerned in this case. It will also be consistent with the object of making India a Socialist State. But not to permit the employer to close down is essentially an interference with his fundamental right to carry on the business."
6. It was contended by Mr. Ramachandran, learned counsel for the employees, that what is contemplated under Section 25 FFF is the total closure of the undertaking and not partial. In this case it was pointed out, there is closure of only six branches out of 300 branches of the undertaking. It cannot be said positively that the provision contained in Section 25 FFF does not authorise partial closure. The definition of the word 'closure' also contemplates even partial closure of a business establishment or undertaking. In Management of Hindustan Steel Ltd. v. The Workmen and Ors. (1973-II-LLJ-250) the Supreme Court held that the word 'undertaking' used in Section 25 FFF appears to have been used in its ordinary sense connoting thereby any working enterprise, project or business undertaking. It is not intended to cover the entire industry or business of the employer. In Isha Steel Treatment Bombay v. Association of Engineering Works Bombay and Ors. (1987-I-LLJ-427) the Supreme Court observed that it is not necessary that in order to effect the closure of business the management should close down all the branches of its business. It can therefore be said that even the closure or stoppage of a part of the business or activities of the employer would seem in law to be covered by the said provision.
7. What are the reasons for the closure or stoppage of the business in six branches of the establishment in this case? In Ext. P3 written statement the management alleged:
"The Savani Transport Employees Association, Ernakulam (hereinafter referred to as the Union) on behalf of the employees of the above branches submitted a charter of demands dated October 18, 1978. Arising out of the same there was non-co-operation on the part of the employees leading to considerable financial loss to the company and loss of business. It became well-nigh impossible to run these branches. The employees went to the extent of withholding the documents regarding the booking, despatch and delivery of the goods by clients. They were also not accounting for the goods booked and the amounts of freight collected. Further they were not sending accounts of freight collected and expenses if any incurred by them, from December 1979. Hence for administrative and business reasons and for reasons beyond the control of the Management it was decided to close down these branches effective from May 12, 1980 and the employees of these branches were informed accordingly by registered letters dated May 8, 1980."
The Tribunal in Ext. P1 award brings forth the above circumstances and observes:
"If these facts are the reasons for closure, those are clearly misconducts on the part of the workmen under the management."
The word 'misconduct' is not capable of precise definition. But its reflection receives its connotation from the context, delinquency in its performance and its effect on the discipline and the nature of the duty. It is so observed by the Supreme Court in State of Punjab v. Ram Singh (1993-I-LLJ-218). In a given set of facts indiscipline in the official duties may lead to misconduct, but that does not mean indiscipline is always a misconduct, because-
"Its ambit has to be construed with reference to the subject matter and the context wherein the term occurs, regard being had to the scope of the statute and the public purpose it seeks to serve." (p.220).
In any view of the matter the aforesaid allegations indisputably constitute gross indiscipline on the part of the employees. However, the Tribunal did not attempt to say, the aforesaid allegations do not exist in this case. The employees have not produced any evidence to disprove the aforesaid allegations leading to indiscipline. In this situation I am compelled to hold that the aforesaid circumstances established by the employer constituting 'indiscipline' would show that the 'matter had gone out of hand' and there was 'unavoidable impediment'. This is exactly what is contemplated in proviso to Sub-section (i) of Section 25 FFF where the closure compensation is provided when an undertaking is closed down on account of 'unavoidable circumstances beyond the control of the employer'.
8. When indiscipline on the part of the employees is found to be the predominant reason for closure of the branches, it cannot under any circumstances be characterised as mala fide. On the other hand, the closure can only be bona fide and real. The Industrial Tribunal has no power to enquire into the motive of closure in order to find out whether the closure is justified or not when indiscipline is established. The Tribunal can only consider the question of bona fides and nothing more. If it goes into the motives behind closure it would tantamount to overstepping its powers under the law. In Indian Hume Pipe Company Ltd. v. Their Workmen (1969-I-LLJ-242) the Supreme Court held that it is not for the Industrial Tribunal to enquire into the motive for closure to find out whether the closure is justified or not. In Parry & Company Ltd., v. V.P.C. Lal (1970-II-LLJ-429) the Supreme Court further held that if a bona fide scheme for re-organisation in arranging the business results in surplusage of employees no employer is expected to carry on the burden of such economic dead weight and retrenchment has to be accepted as inevitable.
9. The conclusion of the Industrial Tribunal to set aside termination orders of the workmen and consequent direction for their re-instatement in service with all benefits of backwages in the background of the legal position discussed herein before cannot be said to be justified in the absence of the finding that the closure of the branches was not bona fide. The tribunal should have decided whether the reasons for closure pleaded by the management are bona fide before coming to such conclusion. It can be said to be a pre-requisite. If indiscipline of the workmen ultimately resulted in the closure of the branches it cannot be said that closure is not bona fide. Therefore the conclusion of the tribunal "management has resorted to wrong method of closing of branches instead of taking disciplinary action against the erring employees under them" definitely goes beyond the periphery of the provisions contained in the Act and against the spirit of the judicial precedents disclosed herein before. This, it appears to me, is one of the patent illegalities committed by the tribunal while passing Ext.P1 award.
10. According to the Tribunal, the branches of the petitioner company are not independent units and therefore all the branches have to be treated as part of one unit. This is what is found in Ext. P1 award. It is further said, once all the branches all over India are treated as one unit, the closure of some of the branches, even on valid grounds, would be possible only in accordance with Section 25 FFA of the Act. The provisions contained in Section 25 FFA will be attracted only in a case where more than fifty employees are employed. So also the provisions of Section 25 G will be attracted only when all the branches are treated as one unit, in which case the principle of 'last come, first go' will apply. Therefore the provisions of Section 25 FFA and Section 25 G will apply only when it is established that the six branches closed down by the management are not independent units but are dependent units of the main establishment.
11. The Industrial Tribunal in Ext. P1 award has mainly relied on the following circumstances for arriving at a conclusion that the closed down branches are not independent and self-existing units:
(1) That the business in the name of petitioner company having a net work of 300 branches, is centrally organised through various divisional and regional offices and the branches in Kerala are under the control of the Coimbatore Regional Office.
(2) That the carriers (lorries for transport of goods from one place to another) are arranged by the Regional Office.
(3) That the employees are permitted to draw their salary from collections received at the branch office.
(4) That the employees of the branches are transferable from one branch to another.
(5) That the amounts collected as freight by the branches has to be deposited in the Bank on the very next day and Bank receipts have to be sent to the Regional Officer.
(6) That the booking at one branch may either be on payment of freight at the booking point or on freight to pay at the delivery point.
The learned counsel for the employees contends that the aforesaid circumstances would sufficiently establish that there is 'functional integrality' in the working process of the branches and head office or regional office as the case may be. On the other hand the learned counsel for the petitioner contends, if the question is examined by applying the different tests laid down by the Supreme Court in this regard it is impossible to conclude that there is 'functional integrality' and the closed-down branches in Kerala are not independent and self-existing units. The counsel further argues, the tribunal has totally mis-applied the law governing the question while arriving at the aforesaid conclusion. The conflicting arguments advanced on behalf of the employer as well as the employees compel me to have a closer study of the tests in order to determine the question whether the closed-down branches are independent or dependent units of the management-company.
12. Under Section 25 FFF of the Act, the workmen shall be entitled to notice and compensation when an undertaking is closed down. The definition in Clause 2 (ka) does not make any difference between 'industrial establishment' and 'undertaking'. It only means an 'establishment' or 'undertaking' in which any Industry is carried on. The term 'industrial establishment' or 'undertaking' has not been specifically defined in the Act and hence the term 'undertaking' in Section 25 FFF is to be understood in its ordinary meaning. The question, therefore, is whether the six branches which are closed down by the management are considered to be 'undertaking' or 'establishment', independent by itself. That means, it is necessary to examine whether these six branches have independent status and style in their functioning. The Supreme Court in Pratap Press Etc. v. Their Workmen (1960-I-LLJ-497), following its earlier decision in Associated Cement Company v. Their workmen (1960-I-LLJ-1), has laid down certain tests which might be useful in deciding whether two units form part of the same establishment. Unity of ownership, unity of management and control, unity of finance and of labour, unity of employment and unity of functional integrality' were the tests applied by the court. Of all these tests, the most important is said to be that of 'functional integrality' and the question of unity of finance and employment and of labour. Unity of ownership exists ex hypothesei. Where two units belong to a proprietor, there is almost always likelihood also of unity of management. In all such cases therefore, the court has to consider with care how far there is 'functional integrality' meaning thereby such functional interdependence that one unit cannot exist conveniently and reasonably without the other and on the further question whether in matters of finance and employment, the employer has actually kept the two units distinct or integrated. The Supreme Court in the decision in Management of Pakshiraja Studios v. The Workers (1961-II-LLJ-380) has restated the above test of 'functional integrality' and 'the question of unity of finance and employment and of labour'. The above tests have been accepted and applied by the Supreme Court in various decisions. See South India Mill Owners' Association and Ors. v. Coimbatore District Textile Workers Union (1962-I-LLJ-223), Western India Match Co. Ltd. v. Their workmen (1963-II-LLJ-459) and Workmen of the Straw Board Manufacturing Co. Ltd. v. Straw Board Manufacturing Co. Ltd. (1974-I-LLJ-499) and the Management of Wengor & Co. v. Their workmen (1963 Suppl. 2 S.C.R. 803).
13. In Associated Cement Companies Ltd. v. Their Workmen (supra) the Supreme Court, while considering as to what constitutes 'functional integrality' observed (at p 8):
"It is perhaps impossible to lay down any one test as an absolute and invariable test for all cases. The real purpose of these tests is to find out the true relation between the parts, branches, units etc. If in their true relation they constitute one integrated whole, we say that the establishment is one; if on the contrary they do not constitute one integrated whole, each unit is then a separate unit. How the relation between the units will be judged must depend on the facts proved, having regard to the scheme and object of the statute........"
The different tests that can be applied in a given case have been stated hereinbefore. But the difficulty of applying these tests arises because of the complexities of the modern industrial organization and skill and intelligence employed in the modern managerial technique. The existence of about 300 branches all over India on a centralised scheme will not by itself create any inter-dependence unless it is brought out that they are functioning as an integrated whole. The only commercial activity carried on by persons employed in a branch is canvassing for goods and booking them for transport to stations in different parts of India and issue to the customers lorry receipts for them and deliver the goods dispatched to the branch to the consignees on production of lorry receipts. The case of the employer is that the commercial/industrial activity carried on in a branch does not depend on the commercial/industrial activity carried on in any other branch of the company. In other words, one branch is not functioning as a department, section or part of another branch; it is a unit by itself in its functioning and existence. It is pointed out that MW1 has deposed: "Each branch is independent for the purpose of organising, opening, functioning and closing" Booking the goods for transport to different stations and receiving the goods for delivery to the respective consignees do not make branches functionally integrated. Suppose one branch did not book goods for one week it will not have any effect in the day-to-day function of other branches. So much so the goods received from other branches are not delivered to the consignees within a week, the functions of other branches will not be affected. At best, other branches will not book parcels to consignees within the area of the branch failing to deliver the booked goods. In order to have 'functional integrality' the failure to book parcels by one branch should result in total stoppage of the functions of all other branches. There is no possibility of such a contingency being occurred in the present case. The maximum that could be visualised is the closure of the branch failing to book the parcels and delivering goods received to the consignees. It will not create any major impact on the functioning of the other branches which will continue to function as before notwithstanding the closure of one branch. Now look at the facts involved in the decision of the Supreme Court relied on by the employees in S.G. Chemicals and Dyes Trading Employees Union v. S.G. Chemicals and Dyes Trading Ltd. and Anr. (1986-I-LLJ-490), where by applying the test of functional integrality a division of factory was found to be neither separate nor independent but were integrated whole unlike the present case. The pharmaceutical division of the company was at Worli, the laboratory and dyes division was at Trombay and the marketing and sales division was at Churchgate. In 1984 the company which was managing the said three divisions of business was sold out. As the buyers proposed to handle the future sales of the company through their own distribution channels they found that the services of the staff working at the Churchgate office were no longer required. Therefore the management closed down the office at Churchgate. The question was whether there was 'functional integrality' between the office at Churchgate and the factory at Trombay. The Supreme Court held that from the evidence on record Trombay factory could never have functioned independently without the Churchgate division being there. It further said "A factory cannot produce or process goods unless raw materials required for that purpose are purchased. Equally there cannot be a factory manufacturing or processing goods unless the goods so manufactured or processed are marketable and sold. The one without the other is a practical impossibility" (p. 492). In this factual background the Supreme Court further said that the Trombay factory could not have conveniently existed and functioned without the Churchgate division and complete 'functional integrality' could be seen between the Trombay factory and Churchgate division of the company.
14. The above discussion would indicate that functional integrality between the establishment and its branches paramountly lies in the industrial/commercial function for which the establishment is organised. In the Workmen of the Straw Board Manufacturing Company Ltd. v. Straw Board Manufacturing Company Ltd. (supra) the Supreme Court held that the unity of ownership, supervision and control that existed in respect of two mills in that case and the fact that the conditions of the services of the workmen of the two mills were substantially identical were not by themselves sufficient in the eye of law to hold that there was functional integrality between the mills. It held that it was a clear case of closure of an independent unit and not of a part of establishment. In Isha Steel Treatment's case (supra) the Supreme Court observed: "It is not the case of the workmen in the present case that 11 unit could not continue to function after the closure of the 1 unit. As already mentioned, the 11 unit is continuing to function as usual even now notwithstanding the stoppage of the activities at the 1 unit." (p. 431). The above factual situation in that case has a striking similarity with the facts of the present case where it could be seen that the functioning of the other branches continues as before notwithstanding the closure of one branch. The tribunal has, itappears, failed to consider this aspect which has a material bearing in deciding the whole issue regarding 'functional integrality'. The Supreme Court in Straw Board Manufacturing Company's case (supra) observed thus : (at p 507):
"The most important aspect in this particular case relating to closure, in our opinion, is whether one unit has such componential relation that closing of one must lead to the closing of the other or the one cannot reasonably exist without the other. Functional integrality will assume an added significance in a case of closure of a branch or unit."
The case of the company is that the closure of six branches in question did not lead to the closure of other branches at all. All the branches, except the closed-down branches, are still functioning and the closure of the six branches did not create any adverse effect on the remaining branches. Even the closure of six branches has not affected the working of other branches in the State of Kerala, namely, Quilon and Tri-vandrum. When the determination of functional integrality manifestly rests on the industrial or commercial function of the establishment and its different branches, matters relating to the pay-mentof salary to the employees, the service conditions of the employees including their transferability, collection of freight and its deposit in the Bank etc. prevailing in a branch do not have much striking balance in determining the question whether a particular branch is an independent and self existing unit The closure of one or more branches must necessarily result in the total closure of all other branches in which case it can be said there is 'functional integrality'. Though this is an aspect which deserves to be decided primarily the tribunal has totally failed to consider it, in spite of its settled position.
15. According to the employer, there is no unity of employment or of conditions of service with regard to the persons employed in the various branches of the petitioner company. Persons employed in each branch are locally recruited. There is no common salary scale for the employees and they are paid consolidated monthly salaries on ad hoc basis depending upon the turnover and profit of each branch. It is the further case of the employer that various branches do not constitute one integrated whole so as to make all the branches as an industrial establishment. Each branch is registered separately as a 'commercial establishment' under the Shops and Commercial Establishment Act in force in the State. In this connection the petitioner company has examined its Regional Manager at Bangalore (MW1) to prove the business activities carried on in a branch of the company. First respondent examined an employee in charge of the closed-down Ernakulam branch of the company as WW-1. He admitted in his deposition that the functioning of the Ernakulam branch was not dependent on the working and functioning of the other branches of the petitioner company. Ext. P8 copy of deposition produced in this case would sufficiently prove the above statement of WW-1. Therefore the evidence available in the case would indicate that each branch of the petitioner company is a separate and independent commercial unit. However, I am compelled to observe that the Industrial Tribunal while dealing with this question has ignored the aforesaid oral evidence. In that situation, it can only be said, the conclusion of the Tribunal in this regard is vitiated.
16. In view of what is discussed above, I have no hesitation to hold that Ext. P1 award passed by the second respondent Industrial Tribunal is invalid in view of the infirmities discussed in paragraphs 9, 14 and 15 above. I am strongly convinced that Ext. P1 award is liable to be set aside for the patent illegalities discussed herein above. While doing so, I am not unaware of the orders of reinstatement passed by the Industrial Tribunal while passing Ext. P1 award. But that will not deter me at all in taking the decision when I am convinced that Ext. P1 award suffers serious illegalities and the interestof justice warrants such a course of action. I am prima facie satisfied at this stage that the closure of six branches of the petitioner company was the result of the gross indiscipline exhibited by, the employees. Indiscipline is never a substitute for 'collective bargaining' recognised in industrial and labour relations. The submission of charter of demands by the employees can of course be justified in recognition of collective bargaining. But adoption of indiscipline by employees even as a means to an end cannot be allowed under any circumstances. In this case it is visibly apparent that indiscipline among the employees finally resulted in the total destruction or closure of the branches which carried on commercial activity. It is evident from the record that the closure compensation had been accepted by all the employees except one. Learned counsel for the petitioner reiterates that out of the seven workmen, only five were contesting before the Tribunal and all of them are now employed. Ext. P1 award itself indicates that all the employees are now gainfully employed elsewhere. In view of these circumstances it cannot be said this court is not justified in setting aside Ext. PI award in the present proceedings under Article 226 of the Constitution in paramount consideration of questions of law and justice involved in the case.
17. In the result Ext. P1 is set aside. Accordingly I direct the second respondent Tribunal to arrive at a fresh conclusion scanning the entire evidence already on record with due application of mind applying the well-set legal precepts discussed herein-before particularly on matters made mention of in paragraphs 9, 14 and 15 above. It is made clear that both parties will be given reasonable opportunity of being heard before finally disposing of the matter afresh as above. With the above direction the Original Petition is disposed of. No order as to costs.