J.K. Iron And Steel Co. Ltd., Kanpur vs The Iron And Steel Mazdoor Union

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 22, 22-A and 301 of 1955

Decision Date: 23 December 1955

Coram: Vivian Bose, Aiyar, T.L. Venkatarama Aiyar, N. Chandrasekhara

In this matter the petitioner, J.K. Iron and Steel Co. Ltd., Kanpur, brought an appeal against the respondent, the Iron and Steel Mazdoor Union, Kanpur. The appeal was decided on 23 December 1955 by a bench of the Supreme Court of India consisting of Justice Vivian Bose, Justice T. L. Venkatarama Aiyar and Justice N. Chandrasekhara. The case was cited as 1956 AIR 231 and 1955 SCR (2) 1315. The dispute arose under the Industrial Disputes Act, 1947 (Act XIV of 1947), specifically invoking sections 7 and 11 which relate to the powers and jurisdiction of adjudicators. The Court examined the nature of adjudication under the Act, emphasizing that it does not confine an adjudicator to the narrow doctrines of master‑servant law. Rather, an award issued by an adjudicator may include provisions for settlement that ordinary courts, limited by strict legal rules, could not order. Consequently, the scope of an adjudicator’s authority under the Industrial Disputes Act is considerably broader than that of a conventional arbitrator. The Court further observed that industrial tribunals, although not strictly courts, are not bound by the same technical constraints and possess the jurisdiction to investigate matters of discharge and dismissal, and, where appropriate, to order reinstatement of a worker. Nonetheless, the Court warned that the wide powers of such tribunals are not unlimited; they must operate within the limits set by the statute that creates them and must perform quasi‑judicial functions subject to the overarching jurisdiction of the Supreme Court under Article 136 of the Constitution. The Court stressed that the Constitution endows the judiciary with the ultimate authority to restrain any exercise of arbitrary or absolute power, whether by the executive, subordinate tribunals, legislatures, or Parliament itself, thereby establishing a rule of law that is incompatible with benevolent despotism. While tribunals enjoy many of the trappings of courts, they are not permitted to exercise arbitrary discretion, and the courts must exercise caution, refraining from substituting their own judgment for that of the tribunals.

Turning to the procedural aspects, the Court noted that sections 7 and 11 of the Industrial Disputes Act, 1947, together with the Uttar Pradesh State Industrial Tribunal Standing Orders of 1951, require that tribunals, although not bound by all the technicalities of civil courts, should nevertheless follow the general pattern of civil procedure in taking written pleadings from the parties and in framing issues. The tribunals are not authorized to ignore the pleadings or to reach conclusions based solely on what they deem just and proper. By ignoring these procedural safeguards, the adjudicator and the Labour Appellate Tribunal in the present case had adopted an attitude of benevolent despotism, basing their conclusions on irrelevant considerations and neglecting the real questions and issues raised by the parties’ pleadings. The Supreme Court therefore remitted the case to the Labour Appellate Tribunal for a fresh hearing, directing that the tribunal conduct the rehearing in accordance with the proper procedural standards and consider only the matters properly raised in the pleadings. In support of its reasoning, the Court referred to several earlier decisions, including Western India Automobile Association v. Industrial Tribunal, Bombay; State of Madras v. C. P. Sarathy; Bharat Bank Ltd. v. Employees of Bharat Bank Ltd.; and Muir Mills Co. v. Suti Mills Mazdoor Union, Kanpur, which had articulated similar principles concerning the limits of tribunal authority and the necessity of adhering to the rule of law.

The Court observed that the industrial tribunals must follow the procedural discipline of taking the pleadings of the parties in writing and must frame the issues accordingly. The tribunals were not authorised to disregard those pleadings or to arrive at conclusions merely on the basis of what they thought to be just and proper. Consequently, the Supreme Court set aside the earlier determinations and remitted the matter to the Labour Appellate Tribunal for a fresh hearing of the appeals. The remittal was ordered because both the Adjudicator and the Labour Appellate Tribunal had, in the Court’s view, acted as benevolent despots: they had based their conclusions on considerations that were irrelevant, had ignored the real questions requiring decision, and had failed to address the issues that emerged from the parties’ pleadings. In reaching this conclusion the Court referred to several earlier decisions, namely Western India Automobile Association v. Industrial Tribunal, Bombay ([1949] F.C.R. 321, 345); State of Madras v. C. P. Sarathy ([1953] S.C.R. 334, 348); Bharat Bank Ltd. v. Employees of Bharat Bank Ltd. ([1950] S.C.R. 459, 497); and Muir Mills Co. v. Suti Mills Mazdoor Union, Kanpur ([1955] 1 S.C.R. 991, 1001). The judgment was rendered under the civil appellate jurisdiction for Civil Appeals Nos. 22, 22‑A and 301 of 1955, which had been filed by special leave against the judgment and order dated 4 July 1952 of the Labour Appellate Tribunal of India, Lucknow, in Appeals Nos. 391 and 392 of 1951. Those appeals arose from the award dated 1 November 1951 of the Adjudicator and Additional Regional Conciliation Officer, Kanpur, in Case No. 53 of 1951. Counsel for the appellants in all three appeals was G. S. Pathak, assisted by Rameshwar Nath and Rajinder Narain. Counsel for the respondent in Civil Appeals Nos. 22 and 22‑A and respondent No. 4 in Civil Appeal No. 301 was G. C. Mathur, while K. B. Asthana and C. P. Lal appeared for respondent No. 3 in Civil Appeal No. 301. The judgment was delivered on 23 December 1955 by Justice Bose.

The matters before the Court concerned a dispute between J.K. Iron and Steel Company Limited and the Iron and Steel Mazdoor Union, hereinafter referred to as the Company and the Mazdoor Union respectively. The Company operated its factory and associated works at Kanpur in the State of Uttar Pradesh. On 10 April 1948 the Ministry of Commerce, Government of India, issued an order directing the Company to shift its Jute Baling Hoops factory from Kanpur to Calcutta. Because suitable land could not be secured in Calcutta, the order could not be implemented until the financial year 1950‑51. Subsequently, on 19 March 1951 the Iron and Steel Controller instructed the Company to cease the rolling of jute baling hoops immediately, and the Company complied by halting production from that date. At the same time the Company faced a shortage of scrap iron, which forced it to reduce furnace operations from three shifts per day to a single shift. The Company asserted that these two circumstances—relocation of the rolling mill and shortage of scrap—compelled it to retrench a portion of its workforce. Accordingly, on 15 May 1951 the Company issued a notice to 128 workers stating that, due to the transfer of the rolling mill to Calcutta and the lack of scrap for the furnace department, the services of the persons listed in the attached schedule were being discontinued with effect from that day, and that wages and other dues would be paid in full settlement after two p.m. This notice formed the factual backdrop for the subsequent litigation before the labour tribunals and ultimately before this Court.

In this case the Company issued a notice dated 15‑May‑1951 to one hundred twenty‑eight of its workers stating that, “as per list attached are dispensed with from today. Their wages and other dues in full settlement will be paid after 2 P.m.” Twenty‑five of those workers accepted the offer of full settlement of wages and other dues, but the remaining one hundred three refused to accept the terms. The Mazdoor Union, representing the dissenting workers, filed an application on 16‑May‑1951 with the Regional Conciliation Officer at Kanpur, alleging that the retrenchment was illegal and seeking reinstatement of the workmen together with full payment of wages for the period during which they were out of work. That application was transmitted to the Government of Uttar Pradesh, and on 28‑June‑1951 the Governor of the State referred the dispute to the Regional Conciliation Officer under sections 3, 4 and 8 of the U.P. Industrial Disputes Act, 1947. The specific questions posed were whether the retrenchment listed in the annexure of J.K. Iron and Steel Co. Ltd., Kanpur, was unjustified, and if it was, what relief the workmen were entitled to. Both parties filed written statements on 14‑July‑1951, and the Company filed a rejoinder on 20‑July‑1951. The Adjudicator subsequently took oral and documentary evidence and delivered his award on 1‑November‑1951. Before the award was pronounced, the case of one workman, Kapil Deo Singh, was withdrawn, leaving the Adjudicator to consider the remaining one hundred two cases. The Mazdoor Union contended that the retrenchment was not conducted in good faith. The Adjudicator held that the retrenchment was indeed carried out in good faith and found no evidence of harassment or victimisation. Regarding the alleged shortage of scrap iron, the Adjudicator acknowledged that a shortage existed but concluded that it was temporary and unlikely to persist beyond eight or nine months. Referring to the company's Standing Orders, the Adjudicator observed that retrenchment could be employed only as a last resort. He stated that, under the circumstances, the workers should first have been offered employment in the new facility at Calcutta, and those who declined should have been placed on a rotational lay‑off rather than being permanently retrenched. Accordingly, the Adjudicator ordered that such measures be taken and formulated a graduated scale of compensation. In passing, the Adjudicator noted that the term “played off” appearing throughout the documents was a printer’s error; the correct industrial term, as defined in the Act and commonly understood, is “lay off,” meaning a period during which a workman is temporarily discharged.

In this case the Court explained that the term “lay off” meant the period during which a workman was temporarily discharged, and the judgment would use this correct expression. Both parties had appealed to the Labour Appellate Tribunal. The Tribunal found that there was a shortage of scrap iron and accepted the Adjudicator’s view that the shortage was only likely to be temporary. It then held, as a matter of law, that under the Standing Orders an employer could not retrench workmen or deprive them of their maintenance when the shortage of material was only temporary, regardless of how long the shortage lasted; the only permissible action in such a situation was to lay the workmen off. The Tribunal also affirmed the finding that the Hoop Mill was being transferred to Calcutta pursuant to Government orders, but it observed that the record did not identify which of the one‑hundred‑and‑five (the correct number should be one‑hundred‑and‑two) workers whose cases were being considered were “specifically engaged in the Hoop Mills and had become surplus by reason of the transfer to Calcutta.” The Company attacked this finding, arguing that the Tribunal had failed to view the Company’s operations as a whole and that because the various departments were inter‑dependent, the closure of one section together with a material shortage in another inevitably affected the entire undertaking; therefore the question of retrenchment could not be examined narrowly with reference to a single department but had to be considered in the overall context. The Court noted that this argument would be addressed later. Another Tribunal finding concerned the “transfer” issue, namely that a reduction in profits alone did not constitute a valid ground for retrenchment. The Tribunal held that retrenchment could occur only when the mill was wholly closed or when, for any other reason, the workmen became surplus. Consequently, the Tribunal concluded that the retrenchments were wholly unjustified, set them aside, deemed the affected workmen to be still in service, and directed their reinstatement. The Mazdoor Union’s appeal was partly allowed, while the Company’s appeal was dismissed. Following this outcome the Company took several steps: it filed a writ petition in the Allahabad High Court on 4 August 1952, which was dismissed on 9 April 1953; the Company then lodged Civil Appeal No. 301 of 1955 against that dismissal. In addition, the Company filed two separate appeals to this Court against the Labour Appellate Tribunal’s order, identified as Civil Appeal No. 22 of 1955 and Civil Appeal No. 22‑A of 1955. The present judgment addressed all three appeals. Counsel for the Mazdoor Union, Mr G C Mathur, raised a preliminary objection to the Company’s appeals, contending that the Company’s earlier petition had been dismissed on technical grounds and therefore could not bar the present appeals.

The Company had filed an appeal before this Court challenging the decision of the Labour Appellate Tribunal dated 26‑8‑1952, and that appeal was dismissed summarily on 10‑9‑1952. Counsel for the Company argued that the present appeals, namely Civil Appeal 22‑A of 1955 and Civil Appeal 301 of 1955, were barred. The first of these appeals, Civil Appeal 22‑A of 1955, was said to be an appeal against the very order that was already the subject of the present proceedings, while the second, Civil Appeal 301 of 1955, was said to be barred by the principle of res judicata because it raised the same points that had been raised in the petition for special leave that had been dismissed. The Court rejected this preliminary objection. The rejection was based on the observation that the earlier petition for appeal had not been dismissed on the merits but on two technical grounds. Although the order of dismissal was framed in general terms, the accompanying office note recorded two specific reasons: first, that no certified copy of the decision against which the appeal was filed had been produced, contrary to the requirement of Order 13, rule 4 of the Rules of the Supreme Court; and second, that the reliefs sought in the petition for special leave were identical to those sought in the writ petition before the High Court. These points formed the basis of the dismissal, reflecting the usual practice of not entertaining an appeal in this Court when a similar matter was pending before the High Court. Before addressing the substantive merits, the Court found it necessary to set out the grounds on which the High Court had proceeded. The learned Judges of the High Court had been dealing with a writ of certiorari and therefore naturally concentrated on questions of jurisdiction rather than on the merits of the case. They held that the Adjudicator was free to consider all matters relevant to the question of retrenchment and to determine whether it was “absolutely necessary” to retrench the workmen. In examining Standing Order 16(a), the High Court concluded that the Adjudicator possessed jurisdiction to interpret the scope and meaning of that Order, and that both the Adjudicator and the Labour Appellate Tribunal were competent to hold that the Company was not entitled to take what the learned Judges described as the “extreme step of retrenchment” so long as it was possible for the Company to “lay off” the workmen. This finding raised issues concerning the scope and authority of an adjudicator under the Industrial Disputes Act. The Court noted that this issue had already been settled by authority. In Western India Automobile Association v. Industrial Tribunal, Bombay, the Federal Court held that adjudication does not mean adjudication strictly according to the law of master and servant, and that an adjudicator’s award may contain provisions for settlement of a dispute that no Court bound by ordinary law could order. The Federal Court further held that Industrial Tribunals are not limited by those restrictions and that an adjudicator has jurisdiction to investigate disputes concerning discharge and dismissal and, where necessary, to order reinstatement. That decision was approved by this Court in State of Madras v. C. P. Sarathy, and it was reiterated that the scope of adjudication under the Industrial Disputes Act is considerably wider than that of an arbitrator making an award.

The Court observed that the authority of an industrial tribunal exceeds that of an arbitrator who merely makes an award, and therefore it would be unnecessary to repeat principles already established in earlier decisions. The Court therefore treated that point as settled law. Nevertheless, the Court emphasized that despite the broad scope of the tribunals’ powers, those powers are not without limits. The judgments cited—Western India Automobile Association v. Industrial Tribunal, Bombay, reported in [1949] F.C.R. 321, 345, and State of Madras v. C. P. Sarathy, reported in [1953] S.C.R. 334, 348—illustrate that tribunals, while empowered, are subject to statutory and constitutional constraints. In the case of Bharat Bank Ltd. v. Employees of Bharat Bank Ltd., reported in [1950] S.C.R. 459, 497, this Court, by a majority, held that although such tribunals are not courts in the strict technical sense, they are required to perform quasi‑judicial functions and consequently fall under the overriding jurisdiction of this Court under Article 136 of the Constitution. The Court stressed that the tribunals derive their authority from the statute that creates them and must operate within the limits set by that statute, adhering to its provisions. Those statutory provisions confer upon the tribunals many of the “trappings” of a court while denying them any arbitrary or absolute discretion. The Court further noted a deeper constitutional principle hinted at by Justice Mahajan, then writing on page 500, that “benevolent despotism is foreign to a democratic Constitution,” and described this observation as the essential point. When the Constitution of India transformed the nation into a sovereign, democratic republic, it did not merely grant superficial democratic forms but endowed the country with the substantive core of judicial authority to restrain any exercise of absolute or arbitrary power, whether by the executive, officials, lesser tribunals, legislatures, or even Parliament itself. This constitutional foundation established the rule of law, which imposes restraints alien to despotic authority. At the same time, the Court cautioned that it must not replace the tribunals’ own judgment and discretion with its own, for, as Justice Mahajan reiterated in Bharat Bank Ltd. v. Employees of Bharat Bank Ltd., the extraordinary powers under Article 136 are exceptional and may be invoked only when a grave miscarriage of justice has occurred or when the tribunal’s procedure flagrantly violates accepted legal standards. The Court then turned to the facts of the present matter, observing that section 7 of the Industrial Disputes Act directs tribunals to adjudicate industrial disputes “in accordance with the provisions of the Act,” while section 11 requires them to follow “such procedure as may be prescribed.” Accordingly, the procedural framework for the Uttar Pradesh tribunals is set out in the U.P. State Industrial Tribunal Standing Orders, 1951, which, in broad terms, mirrors the procedural pattern followed by civil courts.

In this case, after the Government made a reference, the Tribunal was required to obtain the written pleadings of the parties and to formulate the issues for determination. Subsequently the Tribunal proceeded to record evidence, listen to oral arguments, and finally to deliver its judgment in open court. The description shows that although the tribunals are not obliged to observe every technical requirement that applies to civil courts, they nevertheless must adhere to the same overall procedural framework. The purpose of requiring written pleadings and framed issues is to discover the true dispute between the parties, to limit the field of controversy, and to identify precisely where the positions diverge. The Tribunal is not permitted to deviate from the pleadings and to reach conclusions on a whim simply because it considers them just or proper. The specific dispute in the present matter concerned the retrenchment of one hundred and three workers and whether that retrenchment was unjustified. The broad characterization of the issue was too wide, so the pleadings were required to particularise the matters in dispute. The Company presented two reasons for the retrenchment: first, a shortage of scrap, and second, a stoppage of work in the Hoop Department arising from Government orders. The Company further explained that none of the retrenched workers belonged to the Hoop Department; it argued that because the various departments were interdependent, the reductions had to be taken department by department, and it detailed the reductions in the Scrap Department, the Cast Iron Foundry, the Punching and Pressing Department, the Watch and Ward Department, and the Clerical Department. In addition, the Company asserted that retrenchment is an inevitable aspect of industrial activity, that management’s discretion in such matters should not be interfered with, that determining the size of the workforce is the exclusive function of management, and that the employer alone is the proper judge of the economic efficiency of the business. The Mazdoor Union countered that the retrenchments were not carried out in good faith. It denied the existence of any scrap shortage while acknowledging the interdependence of the departments, using that fact to argue that the Company acted in bad faith. The Union emphasized that no workers were retrenched in the Hoop Department, which was directly affected, and that no retrenchments occurred in certain allied departments that, according to the Union, would have been the first to be affected had a genuine scrap shortage existed. This, the Union contended, demonstrated that the reasons offered by the Company were false. Specifically, the Union noted the absence of retrenchments in the Furnace Department, the Rolling Mill Department, the Workshop, the Painting and Bundling area, and the Works and Maintenance Department, which it believed would have been hardest hit if the Company’s explanation were true.

In this case, the Union argued that the Company had not retrenched workers in several key sections, specifically naming the Furnace Department, the Rolling Mill Department, the Workshop, the Painting and Bundling Department, and the Works and Maintenance Department. Regarding the Foundry Department and the Scrap Department, where retrenchments had actually taken place, the Union contended that even within those establishments there were sub‑sections that remained untouched, and that the absence of retrenchments in those sub‑sections disproved the Company’s claim of a genuine shortage of scrap. The Union did not respond to the Company’s statements that it possessed the right to retrench without bad faith, to determine the size of its workforce, and to judge the economy and efficiency of its business. In response, the Company filed a written rejoinder in which it explained in detail why no retrenchments occurred in the areas that the Union claimed should have been affected, and it again set out the reasons for retrenching workers in the departments that the Union identified as the hardest hit. That explanation again emphasized the interdependence of the various departments. Instead of framing the dispute by drawing up the issues required under Standing Order 22 of 1951 and pinpointing exactly where the parties disagreed, the Adjudicator proceeded immediately to record evidence and launched a rambling inquiry that included questions that had not been raised at all. On the sole point of real disagreement – the good‑faith of the management – the Adjudicator’s findings were in favour of the Company. The Adjudicator also accepted the Company’s claim that it had the right to determine the size of the labour force and to effect retrenchments where necessary, subject only to the condition that such actions be taken in good faith; the Union had not challenged those assertions in its written statement. The Adjudicator then remarked that it is an accepted principle that changes made by management form part of managerial discretion and cannot be interfered with unless they are tainted by victimisation or unfair labour practice. Nevertheless, despite affirming the principle and his findings on good faith, the Adjudicator nevertheless stated that the workmen’s right must be safeguarded to a certain extent. He did not explain what rights remain if the accepted principle holds and there is no victimisation or bad faith. If the principle is sound, the only rights available to the workmen appear to be complaints of bad faith, victimisation, and similar misconduct. Yet, feeling compelled to protect these undefined rights, the Adjudicator invoked Standing Order 16(a) and ignored Standing Orders 19 and 20. The “accepted principle” to which he referred is implicit in Standing Orders 19(a) and 20(a), which deal with termination of service by an industrial establishment.

Standing Order 19(a) prescribes that the employer must give a specified period of written notice before terminating a permanent workman, and it includes an important proviso stating that if a permanent workman believes he has been dismissed for reasons unrelated to his employment or that the reason communicated to him is not genuine, he may appeal to the Labour Commissioner, whose decision shall be binding on both parties. When the body of Standing Order 19(a) is read together with this proviso, and viewed in the context of the “accepted principle” discussed earlier, it becomes clear that the workman’s only right, after his services have been lawfully terminated following the required notice, is to challenge the termination on two specific grounds: first, that he was dismissed for reasons not connected with his employment, and second, that the reason given for his dismissal is not genuine. The Standing Orders contain no provision indicating that retrenchment must be regarded as a last‑resort measure, nor that an employer is obligated to continue laying off workmen even when doing so would be uneconomical for the business, and they certainly do not require the employer to lay off workmen in rotation thereby affecting other employees who would not be impacted by a legitimate retrenchment order. Such an interpretation would undermine the core of the “accepted principle.” Moreover, the ground on which the adjudicator based his decision was not a matter in dispute because it had never been raised in the pleadings of either party, and consequently it could not have been properly put in issue; the adjudicator should have framed the issues as required. As Mahajan, J. observed, adjudicators and tribunals cannot act as benevolent despots, and the adjudicator in this case, after correctly setting out the company’s rights, held the union to the only ground it had raised and then proceeded to grant an award on additional grounds that were not raised and that contradicted the very principles he had articulated, apparently because he felt compelled to safeguard the workmen to a limited extent. Both parties appealed to the Labour Appellate Tribunal. The Mazdoor Union’s second ground of appeal alleged that the adjudicator’s award was arbitrary, and ground 9 contended that the adjudicator had exceeded his jurisdiction by granting relief on a question that the Government had not referred. This objection is well founded, because the matter referred concerned the justification for retrenching certain specified workmen, while the award ordered the lay‑off of individuals whose cases had not even been considered; by directing a rotation of lay‑offs, the adjudicator’s order inevitably affected persons who had neither been retrenched nor had their cases been examined by the union.

The Court observed that the Mazdoor Union lodged a complaint in ground number eleven challenging the portion of the award that concerned the lay‑off, although the Union framed its objection on a different basis. It noted that the Company also filed an appeal against the Adjudicator’s order and that grounds numbered six, nine and twenty‑four of the Company’s appeal were directed specifically at the same part of the order dealing with the workmen’s lay‑off. Among the reasons advanced by the Company was the contention that the lay‑off would adversely affect persons who had not been retrenched. The Court further pointed out that the remaining grounds of appeal merely restated, in alternative language, the content of the Company’s written statement. It recorded that the Labour Appellate Tribunal, in its analysis, contrasted Standing Order 15(a) with Standing Order 16(a) but failed to consider Standing Orders 19(a) and 20, which were the only provisions truly applicable to the facts of this case. The Tribunal affirmed the Adjudicator’s finding that there was a shortage of scrap, yet it held that because the shortage lasted only six months retrenchment could not be justified. The Court held that this conclusion was incorrect because the Tribunal was mistaken about the length of the shortage. The Tribunal had been under the impression that the Adjudicator had concluded a six‑month shortage, whereas the Adjudicator actually observed that the shortage could extend to eight or nine months. The passage quoted by the Tribunal was not a finding of the Adjudicator but an argument advanced on behalf of the Company. The complete passage read: “Shri Mahalingam stated that Standing Order 16(a) which provides for a lay‑off of a maximum period of twelve days in a month contemplates a temporary shortage of very short duration. It could not apply to shortage of raw materials lasting for more than six months and hence the Company’s right to retrench is not affected by the aforesaid Standing Order.” The Tribunal had extracted only the underlined portion, omitted the remainder of the sentence, and treated that excerpt as part of the Adjudicator’s findings. Even assuming that the Tribunal might have reached the same result had it recognised the eight‑ or nine‑month shortage, the Court found that the Tribunal erred in conditioning the justification for retrenchment on the duration of the shortage or on the fact that retrenched workers would lose their jobs. The proper test, according to the Court, is the impact that a failure to retrench would have on the business. In certain circumstances, lay‑offs lasting six, eight or nine months could render the Company insolvent; consequently, if the Tribunal claimed authority to prevent retrenchment on grounds other than those enumerated in the proviso to Standing Order 19(a), it was obliged to examine the Company’s financial condition and to base its justification on that examination. The sole issue referred to the Tribunal was whether the retrenchment was justified, and the Court concluded that this question could not be answered without a consideration of good‑faith, which in turn depends largely on the Company’s finances and the adverse effect that retaining the workers would have on the business.

In this case the Court observed that the determination of whether the company should retain surplus workers depended on the company’s financial condition, on the harmful effect that keeping those workers would have on the business, and on whether such retention would create an uneconomic surplus that acted as a dead‑weight on the enterprise. The Court then noted that when the Appellate Tribunal turned its attention to the transfer of the Hoop Mill to Calcutta, it held that this transfer would provide a satisfactory ground for retrenching those employees who were employed specifically in the Hoop Mill, but not for the other workers. The Court criticized this approach as being impossibly narrow because it disregarded the overall operation of the business concern and ignored the repercussions that a transfer of this nature could have on other parts of the enterprise. It further explained that the Tribunal’s reasoning ignored the pleadings of the parties and, like the adjudicator, rested on an airy view of what it considered to be a good outcome for the workmen. The Court held that such a decision was not rendered “in accordance with the Act” and was therefore open to objection, just as the award of the adjudicator was.

The Court then referred to a decision of this Court reported in Muir Mills Co. v. Suti Mills Mazdoor Union, Kanpur, where Bhagwati, J., delivering the judgment of the Court, stated: “The considerations of social justice imported by the Labour Appellate Tribunal in arriving at the decision in favour of the respondent were not only irrelevant but untenable.” (1) [1955] 1 S.C.R. 991, 1001. Applying that precedent, the Court expressed the view that both the adjudicator and the Labour Appellate Tribunal had acted as benevolent despots, basing their conclusions on irrelevant considerations and ignoring the real questions and issues raised by the parties’ pleadings. The Court affirmed that it would not be appropriate to replace the judgment and discretion of the adjudicator and the Tribunal with its own. Consequently, because the real disputes between the parties were neither appreciated nor considered, the Court found it necessary to remit the matter to the Labour Appellate Tribunal for a proper decision after drawing up the issues that arose from the pleadings, considering those issues, and deciding the dispute accordingly. The Court also reserved the liberty to remit the case back to the adjudicator for a retrial or for the taking of further evidence if it thought that the failure to formulate issues and focus on the points in dispute had resulted in the exclusion of evidence that might otherwise have been presented.

Regarding an agreement that the parties said had been reached on 7‑9‑1953, the Court noted that the agreement was placed before it toward the end of the arguments but it was not examined because counsel for the Mazdoor Union asserted that the agreement did not cover the situation of the retrenched workers, whereas the company insisted that it did. The Court stated that it was not prepared to investigate that dispute at such a late stage. However, the Court made clear that the Labour Appellate Tribunal would be at liberty to consider the agreement or to disregard it as it deemed appropriate after hearing both sides on the matter.

The Tribunal will be free to either accept or reject the agreement after hearing arguments presented by both parties concerning its relevance. Consequently, the earlier award and the decision issued by the Labour Appellate Tribunal are annulled, and the matter is sent back to that Tribunal for a new consideration of the appeals that were originally filed. The Tribunal must now re‑examine the appeals and render a fresh judgment taking into account the observations made by this Court. In the meantime, an interim measure is required to provide a modest subsistence allowance to the workmen who have been affected while the further proceedings continue. Because the parties have not reached any agreement on the amount or method of such allowance, the responsibility to determine appropriate terms rests with the Labour Appellate Tribunal. If the case is later referred to the Adjudicator, that authority will likewise be empowered to make suitable orders regarding the interim allowance. No order regarding costs will be made, since neither side is considered responsible for the circumstances that have arisen. The interim allowance should be sufficient to meet basic living needs of the workmen until a final resolution is issued by the competent authority. The Tribunal is expected to issue its orders on the interim allowance without undue delay so that the workmen are not left without support.