Kerala High Court
The Kerala State Cashew Development vs The Labour Court on 14 May, 1992
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE
WEDNESDAY, THE 22ND DAYOF JUNE 2016/1ST ASHADHA, 1938
WP(C).No. 5427 of 2005 (U)
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PETITIONER(S) :
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THE KERALA STATE CASHEW DEVELOPMENT
CORPORATION, CASHEW HOUSE, P.B.NO.13, KOLLAM,
REP. BY ITS MANAGING DIRECTOR.
BY SRI.U.K.RAMAKRISHNAN (SENIOR ADVOCATE)
ADVS. SRI.P.V.LOHITHAKSHAN
SMT.P.VIJAYAMMA
SMT.UMA GOPINATH
SRI.DEVIDAS.U.K
SRI.SANDEEP.E.
SRI.V.KRISHNA MENON
RESPONDENT(S) :
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1. THE LABOUR COURT,
KOLLAM.
2. SRI. LAKSHMIKANTHAN ACHARI,
BALANVILA PUTHEN VEEDU, NEERAVIL,
PERINAD P.O., KOLLAM DISTRICT.
3. SRI. HARIDASAN NAIR,
CHIRAYIL VEEDU, MYLAKKAD P.O., KOTTIYAM.
4. SRI. S.IBRAHIMKUTTY,
KALLUVILA VEEDU, THATTARKONAM, KARICODE P.O.,
KOLLAM-5.
R1 BY GOVERNMENT PLEADER SRI. BOBBY JOHN
R2 TO R4 BY ADV. SRI.LEO GEORGE
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD
ON 08-06-2016, THE COURT ON 22-06-2016 DELIVERED THE
FOLLOWING:
Msd.
WP(C).No. 5427 of 2005 (U)
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APPENDIX
PETITIONER(S)' EXHIBITS :
EXHIBIT P1: TRUE COPY OF THE RESOLUTION DATED 14.05.1992 TAKEN BY
THE BOARD OF DIRECTORS OF THE PETITIONER.
EXHIBIT P2: TRUE COPY OF THE ORDER ISSUED BY THE PETITIONER
DATED 14.05.1992.
EXHIBIT P3: TRUE COPY OF THE AWARD DATED 07.08.2004 PASSED BY
THE FIRST RESPONDENT IN I.D.NO. 129 OF 1993.
EXHIBIT P4: STATEMENT SHOWING THE RELEASE OF THE PAYMENT.
RESPONDENT(S)' EXHIBITS :
EXHIBIT R2(A): TRUE COPY OF THE STATEMENT INDICATING THE DETAILS
OF CALCULATIONS IN RESPECT OF SECOND
RESPONDENT.
EXHIBIT R2(B): TRUE COPY OF THE STATEMENT INDICATING THE DETAILS
OF CALCULATIONS IN RESPECT OF THIRD RESPONDENT.
EXHIBIT R2(C): TRUE COPY OF THE STATEMENT INDICATING THE DETAILS
OF CALCULATIONS IN RESPECT OF FOURTH RESPONDENT.
EXHIBIT R2(D): TRUE COPY OF THE STATEMENT OF ACCOUNTS FOR
THE PERIOD FROM 05.06.1992 TO 31.12.2004.
EXHIBIT R2(E): TRUE COPY OF THE ORDER OF APPOINTMENT
DATED 05.06.1976 ISSUED BY THE MANAGEMENT TO ONE
SHRI. R.APPUKKUTTAN ACHARI.
//TRUE COPY//
P.S.TOJUDGE.
Msd.
"C.R."
A.M. SHAFFIQUE, J.
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W.P. (C) No. 5427 of 2005
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Dated this, the 22nd day of June, 2016
J U D G M E N T
This writ petition is filed challenging the award passed in ID No.129/1993. The management has preferred this writ petition inter alia contending that there is illegality and irregularity on the part of the Labour Court in passing the award.
2. The short facts involved in the writ petition would disclose that respondents 2 to 4 raised a claim that the closure of business and denial of employment were illegal. It is contended that they were working with the management for a period of 17 years being selected through Employment Exchange in 1976. The management decided to close the workshop unit where the workers were engaged. However, the procedure contemplated under Section 25-O of the Industrial Disputes Act, 1947 (hereinafter referred to as the 'ID Act') was not complied with nor compensation paid. It is contended that the closure of the unit was illegal. The matter was taken up before conciliation. Though the management offered to provide alternate employment in W.P(C) No.5427/05 -:2:- some of the factories belonging to them, the workers did not accept the said offer. It is also contended that when one of them accepted the alternate job, he was denied employment. Subsequently, the management by letter dated 30/3/1993 informed that their services had been terminated. It is contended that the whole process by which they were denied employment was illegal. The Government referred the dispute for adjudication before the Labour Court. The management contended that they started a workshop at Kottiyam for repair and maintenance of vehicles owned by them. The workmen were employed on daily wages and they were never permanent employees. Since the workshop could not be profitably run and huge loss was incurred, management decided to close the workshop and it was discontinued from 5/6/1992. All the workers who were engaged in the workshop accepted the alternate employment offered to them and such persons were redeployed taking into account their qualification and experience. The workmen who had raised the dispute claimed clerical job and they were not willing to accept the alternate job offered by the management. Consequently, they W.P(C) No.5427/05 -:3:- were terminated. Hence, it was contended that they have no right to claim reinstatement and the claim for monetary benefits was baseless.
3. The Labour Court examined two witnesses on behalf of the workers and the Personnel Manager was examined as a witness on behalf of the Management. Both sides relied upon various documents. The Labour Court having considered the matter came to the following findings:
1) That the three workers were in continuous service of the management in the automobile unit from 1976 to 1992.
2) The automobile unit was closed from 14/5/1992 onwards.
3) No retrenchment compensation was given to the workers on their termination in 1992 in terms of Section 25F of the ID Act
4) The offer for alternate employment was made after one year, on 30/3/1993, when the matter was taken up before the District Labour Officer.
5) The offer for alternate employment was belated and W.P(C) No.5427/05 -:4:- conditional as there was no guarantee or permanency of employment.
4. On these findings, the reference is answered and it was held that the denial of employment to the three workers were illegal and they were entitled to reinstatement and the management was directed to provide a permanent employment suitably, taking into consideration their qualifications and skill. They were also found entitled to backwages and other attendant benefits from 5/6/1992.
5. It is contended by the management that the findings are absolutely erroneous. When the fact of closure of the workshop was admitted and the workmen were employed as daily wages, there was no reason for direction to provide alternate employment and that too permanently. Further, respondents 3 and 4 had refused the alternate employment offered by the petitioner and though the 2nd respondent accepted the offer, he did not come for attending the job and therefore, there cannot be any claim for employment. They also denied the fact that there is non compliance of Section 25 F of the ID Act.
W.P(C) No.5427/05 -:5:-
6. Further, it is contended that the management is under severe loss and has no funds to pay backwages as ordered. It is contended that when alternate employment was offered and it is not accepted, and one of them who had accepted did not come to attend work, the direction to pay backwages from 5/6/1992 was absolutely baseless. That apart, the Labour Court has exceeded the jurisdiction vested in it, by answering the matters which was beyond the scope of reference.
7. On the other hand, learned counsel for respondents supported the Award of the Labour Court inter alia contending that it is a clear case of non compliance of Section 25F and therefore, the respondents 2 to 4 are entitled for the full backwages. It is further contended that the 2nd respondent attained age of superannuation on 31/12/2010, the 3rd respondent on 31/12/2006 and the 4th respondent on 30/12/2005.
8. Learned counsel for respondents 2 to 4 has also filed a statement showing the amounts due to them from 5/6/1992 till the date of retirement. According to the statement, the amount due to the 2nd respondent is `23,64,316/-, 3rd respondent W.P(C) No.5427/05 -:6:- `22,46,352/- and 4th respondent `21,68,203/-. An application is also filed before the Labour Court under Section 33C of the ID Act claiming `7,86,392.22 ps. each for the respondents.
9. The issue to be decided in the present case is whether there was any justification on the part of the Labour Court to have directed reinstatement with backwages when admittedly the unit is closed.
10. It is not in dispute that the workshop was considered as a unit of the company. The workshop was part of the management company for repairing the vehicles belonging to the company. The said workshop had to be closed since it was not viable. The evidence in the case disclosed that the workmen were employed on daily wages basis though for considerably a long period of 17 years. They were given all other statutory benefits. Therefore, their claim as workmen cannot be denied. However, the unit had to be closed with effect from 5/6/1992. There is also material to indicate that respondents 2 to 4 were offered alternate employment depending upon their qualifications. The Labour Court did not consider the offer of alternate employment W.P(C) No.5427/05 -:7:- as a genuine attempt on the part of the management.
11. While adjudicating on the referred issue, namely whether the denial of employment was illegal or not, two aspects are to be considered. One is whether closure of the workshop of the management company amounts to closure of business which requires payment of retrenchment compensation in terms of Section 25F and two, whether the workmen ought to have accepted the employment offered to them in the management company.
12. "Industrial establishment or undertaking" is defined under Section 2(ka) as under:
"(ka) "Industrial establishment or undertaking"
means an establishment or undertaking in which any industry is carried on:
Provided that where several activities are carried on in an establishment or undertaking and only one or some of such activities is or are an industry or industries, then-
(a) if any unit of such establishment or undertaking carrying on any activity, being an industry, is severable from the other unit or units of such establishment or undertaking, such unit shall be deemed to be a separate industrial W.P(C) No.5427/05 -:8:- establishment or undertaking,
(b) if the predominant activity or each of the predominant activities carried on in such establishment or undertaking or any unit thereof is an industry and the other activity or each of the other activities carried on in such establishment or undertaking or unit thereof is not severable from and is, for the purpose of carrying on, or aiding the carrying on of, such predominant activity or activities, the entire establishment or undertaking or, as the case may be, unit thereof shall be deemed to be an industrial establishment or undertaking."
Sub clause (a) indicates that if the activity carried on by the establishment and undertaking is severable from the other unit or units of such establishment or undertaking, such unit shall be deemed to be a separate industrial establishment or undertaking. However, sub clause (b) states that if the predominant activity or activities in such establishment or undertaking or any unit thereof is an industry and the other activity or each of the other activities carried on in such establishment or undertaking or unit is not severable from and is for the purpose of carrying on, or aiding the carrying on of, such predominant activity or activities, the entire W.P(C) No.5427/05 -:9:- establishment or undertaking shall, as the case may be, along with the unit, be deemed to be an industrial establishment or undertaking.
13. The materials available in the case and as admitted indicate that the automobile workshop was started by the management company for maintenance of their vehicles at Kottiyam. The management company's predominant activity is cashew processing and they have 34 cashew processing units under them. The workshop was started for the purpose of repairing their own vehicles which is an activity for aiding and carrying on their predominant activity of cashew processing unit.
"Closure" is defined under Section 2(cc) meaning a permanent closing down of a place of employment or part thereof.
14. The consequence of closure of an establishment requires to be considered. Section 25FFA is a pre-requirement for closure of business which reads as under;
"25FFA Sixty days' notice to be given of intention to close down any undertaking - (1) An employer who intends to close down an undertaking shall serve, at least sixty days before the date on which the W.P(C) No.5427/05 -:10:- intended closure is to become effective, a notice, in the prescribed manner, on the appropriate Government stating clearly the reasons for the intended closure of the undertaking."
Section 25 FFF deals with compensation to workmen in case of closing down of undertakings which indicates that where an undertaking is closed down, for any reason whatsoever, every workmen 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 provision of Section 25F, as if the workmen had been retrenched. Section 25FFF(1) reads as under;
"25FFF.Compensation to workmen in case of closing down of undertakings -
(1) 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 25F, as if the workman had been retrenched:
Provided that where the undertaking is closed W.P(C) No.5427/05 -:11:- down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under clause (b) of section 25F shall not exceed his average pay for three months.
Explanation- An undertaking which is closed downby reason merely of-
(i) financial difficulties (including financial losses); or
(ii) accumulation of undisposed stocks; or
(iii) the expiry of the period of the lease or licence granted to it; or
(iv) in case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which such operations are carried on, shall not be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section."
Section 25F reads as under;
"25F. Conditions precedent to retrenchment of workmen - No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until-
(a) the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, W.P(C) No.5427/05 -:12:- or the workman has been paid in lieu of such notice, wages for the period of the notice;
(b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and
(c) notice in the prescribed manner is served on the appropriate Government or such authority as may be specified by the appropriate Government by notification in the Official Gazette."
15. Going by the provisions under the statute, at best, the workmen can claim compensation worked out in terms of Section 25F (a) and (b). When it is an admitted fact that the unit had been closed and it is a fact which is not in dispute, the question of reinstatement does not arise at all. What remains is the compensation to be paid in terms of Section 25F. There is a vital difference between the procedures for the payment of compensation in a case of retrenchment and that of closure. Under Section 25F of the Act, the workmen employed in an undertaking cannot be retrenched until the payment is made as mandated therein. But payment of compensation and wages for the period of notice are not conditions precedent to closure. No W.P(C) No.5427/05 -:13:- doubt, the payment of compensation is to be made in accordance with the provisions of Section 25FFF of the Act, but the payment may be made after the closure. The closure does not become bad because the payment mentioned in Section 25FFF has not been made before the closure. The position of law has been eloborated in a long line of judgments, some of which are as follows:
(i) In Hathisingh Manufacturing Co.Ltd. v. Union of India [(1960) 3 SCR 528], Constitution Bench held that payment of compensation under Section 25FFF is not a condition precedent, as in the case of Section 25F. The condition of Section 25F cannot be read into Section 25FFF. It is held as under:
"27. For reasons already set out, payment of compensation and wages in lieu of notice under the impugned section are not made conditions precedent to effective termination of employment. The section only creates a right in the employees: it does not enjoin the employers to do anything before closure. Section 31(2) of the Act which imposes penal liability for contravention of the provisions of the Act can therefore have no application to failure to make payment of compensation and wages for the period of notice under Section 25-FFF (1). The amending Act was, it W.P(C) No.5427/05 -:14:- is true, passed in June 1957, and liability to pay compensation arises in respect of all undertakings closed on or after November 28, 1956. But, if liability to pay compensation is not a condition precedent to closure, by failing to discharge the liability to pay compensation and wages in lieu of notice, the employer does not contravene Section 25-FFF(1). A statute may prohibit or command an act and in either case, disobedience thereof will amount to contravention of the statute. If the statute fixes criminal liability for contravention of the prohibition or the command which is made applicable to transactions which have taken place before the date of its enactment the protection of Article 20(1) may be attracted. But Section 25-FFF (1) imposes neither a prohibition nor a command.
Under Section 25-F, there is a distinct prohibition against an employer against retrenching employees without fulfilling certain conditions. Similar prohibitions are found in Sections 22 and 23 of the Act. If this prohibition is infringed, evidently, criminal liability may arise. But there being no prohibition against closure of business without payment of compensation, Section 31(2) does not apply. By Section 33(c) liability to pay compensation may be enforced by coercive process, but that again does not amount to infringement of Article 20(1) of the Constitution. Undoubtedly for failure to discharge liability to pay W.P(C) No.5427/05 -:15:- compensation, a person may be imprisoned, under the statute providing for recovery of the amount e.g., the Bombay Land Revenue Code, but failure to discharge a civil liability is not, unless the statute expressly so provides, an offence. The protection of Article 20(1) avails only against punishment for an act which is treated as an offence, which when done was not an offence."
(ii) In Tea Districts Labour Association, Calcutta v. Ex-employees of Tea District L.A. (AIR 1960 SC 815), the Tribunal held that the closure must be treated as nonest and that the agencies must be held to be continuing and must continue to function despite their factual closure. Supreme Court considered the question whether, even assuming that the closure is not shown to be bona fide, does it necessarily follow that the closure is a fiction and it is unreal that the agencies can be treated to be in existence in the eye of the law. It was held that;
"With respect we do not read the observations as laying down an unqualified and categorical proposition of law that wherever a closure is mala fide it must be deemed to be unreal and non- existent." xxxxx But in the present case the facts are not in dispute. There has been a closure and the agencies have been closed and their business has W.P(C) No.5427/05 -:16:- been wound up. If it is found that the closure was not bona fide the consequences would be the liability of the employer to pay the higher compensation under Section 25-FFF of the Industrial Disputes Act, 1947. But it is difficult to see how when the two agencies have in fact been closed the finding about mala fides can justify the conclusion that the said two agencies should be deemed to continue and how the award can make an order on that basis."
(iii) In Guru Jabseshwar University v. Dharam Pal [(2007) 2 SCC 265], Apex Court held that closure compensation is to be paid in terms of Section 25F(b).
(iv) In Hondaram Ramchandra v. Yeshwant Mahadev Kadam, [(2007) 14 SCC 277], the Supreme Court held that if the undertaking of the appellant had been closed down, the workmen were entitled to compensation only in terms of Section 25FFF of the Industrial Disputes Act, 1947 and not the relief of reinstatement with back wages. The question of passing an award directing reinstatement with full back wages, in the aforementioned fact situation, did not and could not arise.
(v) In District Red Cross Society v. Babita Arora W.P(C) No.5427/05 -:17:- [2007 (4) KLT 279 (SC)] Supreme Court held as under:
"The position in law is, therefore, well settled that if the entire establishment of the employer is not closed down but only a unit or undertaking is closed down which has no functional integrity with other units or undertaking, the provisions of S.25FFF of the Act will get attracted and the workmen are only entitled to compensation as provided in S.25FFF of the Act which has to be calculated in accordance with S.25F of the Act. The Tribunal and also the High Court clearly erred in holding that as other units of the appellant Red Cross Society like Drug De-
Addiction-cum-Rehabilitation Centre, Family
Planning Centre and Viklang Kendra were
functioning, the termination of services of the respondent would amount to retrenchment. The Maternity Hospital was functioning as a distinct entity. It was not receiving any grant from the Government and was being run entirely on charitable basis from donations received from public. Due to financial stringency, the Maternity Hospital had to be closed down. The other three units, viz., Drug De-Addiction-cum-Rehabilitation Centre, Family Planning Centre and Viklang Kendra are receiving grants from government and are functioning as separate entities and the mere fact that they have not been closed down, cannot lead to the inference that the termination of services of the respondent was by way of retrenchment which was W.P(C) No.5427/05 -:18:- illegal on account of non-compliance of the provisions of S.25F of the Act.
10. In view of the findings recorded above, the respondent would be entitled to compensation only in accordance with S.25FFF of the Act and the award for reinstatement in service with back wages passed by the Tribunal which was affirmed by the High Court cannot be sustained and must be set aside."
16. The Labour Court apparently has not considered this question. Labour Court proceeded on the basis that the workmen were terminated in the pretext of closing down the unit, and hence there is denial of employment. The fact of closure cannot be disputed especially in the light of Ext.P1 resolution and Ext.P2 office order. Even assuming in a case where closure is illegal and without notice, when the fact remains that the unit had been closed though not in accordance with the statutory provisions, the entitlement of the workmen is only for retrenchment compensation. That apart, management has also offered alternate employment as evident from Ext.P1 decision.
17. Labour Court did not come to any finding as to whether there was justification on the part of the employer to close the W.P(C) No.5427/05 -:19:- unit. In fact, the legality of the closure was not considered. Labour Court proceeded on the basis that since Section 25F is not complied, it amounts to denial of employment. Therefore, what remains to be considered was whether the termination of the workmen without payment of retrenchment compensation was justified or not.
18. Learned counsel for the respondents however placed reliance on the following judgments;
(i) Rattan Singh v. Union of India [(1997) 11 SCC 396] wherein the Apex Court held that protection under Section 25F cannot be denied to a person who was employed on a daily wages basis.
(ii) Another judgment relied upon is Hindustan Tin Works v. Employees of M/s Hindustan Tin Works Pvt. Ltd [(1979) 2 SCC 80] wherein Supreme Court was considering the question of backwages in a case of invalid retrenchment. Reference is made to paragraph 11, which, being relevant, reads as under;
"11. In the very nature of things there cannot be a W.P(C) No.5427/05 -:20:- strait-jacket formula for awarding relief of back wages. All relevant considerations will enter the verdict. More or less, it would be a motion addressed to the discretion of the Tribunal. Full back wages would be the normal rule and the party objecting to it must establish the circumstances necessitating departure. At that stage the Tribunal will exercise its discretion keeping in view all the relevant circumstances. But the discretion must be exercised in a judicial and judicious manner. The reason for exercising discretion must be cogent and convincing and must appear on the face of the record. When it is said that something is to be done within the discretion of the authority, that something is to be done according to the Rules of reason and justice, according to law and not humour. It is not to be arbitrary, vague and fanciful but legal and regular (see Susannah Sharp v. Wakefield)."
(iii) Another judgment relied upon is Bhuvnesh Kumar Dwivedi v. Hindalco Industries Ltd. [(2014) 11 SCC 85]. In this case, Apex Court made an analysis of the case law with reference to a case of illegal termination and the necessity to order reinstatement with backwages in paragraphs 21, 38, 40, 41 and 42 and held at paragraph 42 as under;
W.P(C) No.5427/05 -:21:-
"42. We therefore conclude and hold that the Labour Court was correct on legal and factual principles in reinstating the appellant along with full back wages after setting aside the order of termination. The High Court, on the other hand, has erred by exceeding its jurisdiction under Article 227 of the Constitution of India in holding that the appellant has in fact, resigned by not joining his duty as a Badli worker and also awarding that retrenchment compensation to the tune of Rs 1,00,000 will do justice to the appellant without assigning reasons which is wholly unsustainable in law."
19. There cannot be any dispute regarding the proposition laid down by the Apex Court in the aforesaid judgments. But, each case has to be decided on its own facts. In this case, we are concerned with closure of an undertaking, wherein the principle of law laid down by the Apex Court is different from a case of illegal termination from service or illegal retrenchment. In a case of closure of the undertaking, payment of compensation under Section 25F is not a condition precedent. Of course, in a case of wrongful termination, reinstatement with continuation of service and backwages is the normal rule. But such a situation does not W.P(C) No.5427/05 -:22:- arise when there is closure of a unit. Therefore the Award of the Labour Court is liable to be set aside. It is held that there is no denial of employment. The right available to the workmen was only to claim compensation, in terms of Section 25F of the ID Act. Though the parties should be directed to approach the Labour Court for necessary reliefs, taking into account the long lapse of time, it would be appropriate to direct the management to pay the due compensation to the workmen within a time frame.
Accordingly, this writ petition is disposed of as under;
(i) Ext.P3 award is set aside.
(ii) That the management shall pay respondents 2 to 4 the compensation in terms of Section 25F of the ID Act, within a period of 2 months from the date of receipt of a copy of this judgment, failing which, it shall be open for respondents 2 to 4 to take appropriate proceedings to recover the amount.
Sd/-
A.M. SHAFFIQUE, JUDGE Rp //True Copy// P.S to Judge