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On 9th of December, 1986 a settlement was arrived at between the appellants and the employees union relating to service conditions of the workmen for the period 1.1.86 to 30.6.88. The settlement inter alia provided that VDA (variable dearness allowance) shall be paid at Rs. 2/- per point of rise per month beyond AICPI 450 and the wages of the employees were linked with the VDA. The employees union issued a notice of its intention to terminate the settlement with a view to submit a fresh charter of demands on 1.7.88. A fresh charter of demands was submitted by the employees union demanding an increase in the salary etc. on 17.7.88 but it was mentioned therein that the service conditions in force would continue to remain unchanged unless specifically agreed to otherwise. The employees union did not seek any change in the charter of demands in so far as the rate of VDA was concerned. No fresh settlement appears to have been arrived at between the parties but the appellants relying upon the notice of termination and the new charter of demands, unilaterlly freezed VDA with effect from 4.8.88. Negotiations between the employees union and the appellant, did not, however, produce any fresh settlement. The employees union (respondent No. 3) issued a demand notice to the employer on 21.1.91 demanding VDA with effect from 1.7.88. It was claimed that the unilateral freezing of the VDA was illegal and that the obligations in the settlement dated 9.12.1986 were in force and binding on the parties. The employees union, it appears apart from filling an application before the authorities under the payment of Wages Act alleging illegal deduction from wages, also approached the State Government for issuance of the recovery certificate for the arrears of VDA. The Labour Commissioner, on behalf of the State Government, issued a notice to the appellants on the application filed by the employees union with regard to the payment of VDA on 14.5.91. The appellants were required by the Labour Commissioner to reply to the claims of the respondent union. The appellants were required by the Labour Commissioner to reply to the claims of the respondent union. The appellants took the stand in their reply that the settlement of 1986 stood terminated and referred to the letter of the employees union dated 1.7.88 conveying their intention to terminate the settlement and the fresh charter of demands. The appellants further resisted the claim of the union inter-alia by taking the plea that there was an oral agreement arrived at between the parties to freeze the VDA at June, 1988 point and therefore the claim of the employees union was untenable. The appellants, however, produced no evidence in support of its plea of oral agreement. The Labour Commissioner found that no oral agreement had been proved and that obligation of the employer to pay the VDA under the 1986 continued to be in force and with a view to ensure implementation of the settlement, a notice of demand was issued to the appellants by the Labour Commissioner for payment to the VDA to the workmen for the period 1.7.88 to 28.2.91. An order for payment of Rs. 2,14,990.30 P. towards the VDA for the period 1.3.91 to 30.9.91 was also issued. Coercive process for recovery of Rs. 5,29,720/- as arrears of VDA between 1.7.88 and 28.2.91 was initiated.

The appellant filed writ petitions No. 37 and 38 of 1994 in the High Court of Bombay challenging the notices dated 13.9.91 and 27.12.91 and certain other notices and proceedings taken by the Labour Commissioner in connection with the claim of the workmen regarding payment of VDA. The main Plea raised by the appellants in the writ petitions was that the settlement dated 9.12.86 was time bound till 30th June, 1988 and since it was sought to be terminated by the Union through their notice dated 1.7.88, the employees union could not maintain any application 33C (1) of the Act. Besides, an oral agreement between the parties which had varied the terms of the settlement particularly to freeze the VDA after the expiry of the time bound settlement dated 9.12.86 was also pleaded and it was canvassed that the employees union could take recourse to seeking a reference under Section 10(1) of the Act or to file an application Sec.(2) of the Act ut not to the provisions of Section 33C (1) of the Act. It was asserted that a settlement arrived at under the provisions of the Industrial Disputes Act ceased to be a settlement as defined under the Act, on its termination and turns itself into a mere contract between the parties and, therefore, on termination of such settlement, the rights recognised by the settlement cannot be enforced in the manner prescribed under Section 33C(1) of the Act but only as contractual obligations. The learned Single Judge rejected the plea that there had been an oral agreement between the parties which had in turn varied the terms of the settlement of 1986 were subsisting between the parties inspite of the time bound settlement and as such no fault could be found with the exercise of jurisdiction by the Labour Commissioner under Section 33C (1) of the Act. The Learned Single Judge also rejected the argument that in the facts and circumstances of the case, the employees union could only prefer a claim either under Section 33C (2) of the Act or seek a reference under Section 10(1) of the Act for recovery of the arrears of VDA. It was held that the application filed by the employees union under Section 33C(1) was maintainable and the obligations flowing from the settlement regarding payment of VDA could be enforced under the provisions of Section 33C (1) of the Act and that those obligations flowing from the 1986 settlement were not contractual in nature. The writ petitions were accordingly dismissed on 18.7.1994. The Letter Patent Appeals also failed since the Division Bench also found that there had been no oral agreement varying the terms of the 1986 settlement and that with the expiry of the period of time bound settlement, the obligations under the settlement did not cease and went on to opine that with the expiry of the period of settlement, only a stage was set for fresh negotiations to take place and till the settlement of 1986 was superseded by a fresh settlement, the obligations flowing from the settlement of 1986 were binding on the parties and were enforceable under Section 33C (1) of the Act.

The learned Single Judge also examined the effect of the letter of the employees union dated 1.7.88 and held that the terms and conditions of the settlement of 1986 were subsisting and the right of the workmen to receive VDA was not effected in any manner. Dealing with the submission of the appellants, that the silence of the workmen to claim VDA till 1991, was indicative of the fact that the parties had agreed to the freezing of the VDA with effect from 4.8.88. the learned Single Judge observed:

That the rate of VDA had been agreed to and provided for in the 1986 settlement is not in dispute. It is also not in dispute that the claim petition filed by the employees union under section 33C (1) of the Act was for the recovery of the VDA at the rate agreed to between the parties as per the terms of the 1986 settlement for the period for which the same had ben withheld by the employer. Thus, both the rate of VDA and the period for which it was payable were not in dispute could the employees union, therefore, not maintain an application under Section 33C (1) of the Act for the recovery of the VDA arrears?