Hariprasad Shivshankar Shukla vs A.D. Divikar (With Connected Appeal)
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeals Nos. 103 and 105 of 1956
Decision Date: 27 November 1956
Coram: S.K. Das, Natwarlal H. Bhagwati, P. Govinda Menon
In the matter titled Hariprasad Shivshankar Shukla versus A.D. Divikar, which also included a connected appeal, the Supreme Court of India delivered its judgment on the twenty-seventh day of November, 1956. The opinion was authored by Justice S.K. Das and was pronounced by a bench comprising Justice S.K. Das, Justice Natwarlal H. Bhagwati and Justice P. Govinda Menon. The petitioner in the case was Hariprasad Shivshankar Shukla and the respondent was A.D. Divikar. The decision is reported in the 1957 volume of the All India Reporter at page 121 and also appears in the 1957 Supreme Court Reports at page 121. The dispute concerned the interpretation of the term “retrenchment” as defined in section 2(oo) of the Industrial Disputes Act of 1947, as amended by Act XLIII of 1953, and its application under section 25F of the same enactment. The Court held that the words “retrenchment” and “retrenched” possess only their ordinary, commonly accepted meanings, namely the dismissal of surplus labour or staff by an employer for any reason other than a disciplinary penalty. The Court further clarified that such dismissal does not encompass the termination of service of all workmen when an industry is closed bona-fide or when there is a change of ownership or management. The judgment relied upon the earlier decision of Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union, reported in the 1956 Supreme Court Reports at page 872, and also referred to Burn & Co., Calcutta v. Their Employees, reported at page 781 of the same year. The Court observed that the provisions of the Act presuppose an existing and continuing industry; the sub-clauses (a), (b) and (c) of the definition exclude certain categories of termination but do not define the inclusions. Consequently, “retrenchment” does not acquire a special meaning that would cover dismissals arising from bona-fide closure, even though some labour appellate tribunals had previously awarded compensation in such circumstances as an equitable relief. The legislative purpose behind section 25F, the Court concluded, was to simplify and standardise compensation for ordinary retrenchment based on the length of service of the workman. The Court also considered earlier authorities such as Hyderabad Vegetable Oil Products Ltd. v. Their Workers (1950), Employees of Messrs. India Reconstruction Corporation (1953) and Kandan Textiles Ltd. v. Their Workers (1954). It noted that section 25FF, inserted by the amending Act of 1956, is not retrospective, does not apply to the present cases, and was intended to partially overturn certain judicial decisions concerning the effect of a change of ownership or management, rather than to provide a parliamentary exposition of the pre-existing law. The language of item 1 of the third and fourth schedules, incorporated into the Act by section 29 of the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, 1956, demonstrates a legislative distinction between retrenchment and closure, confirming that the former does not include the latter.
By reference to section 29 of the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, 1956, the Court observed that the legislature had intended to draw a clear line between the concepts of retrenchment and closure, and that the former did not encompass the latter. Consequently, when the statute is interpreted in this manner, section 25F is applicable only to an industry that continues to exist, rendering section 25FF essentially superfluous. The Court further held that no difficulty arises from this construction because the judicial decisions that prompted the enactment of section 25FF were themselves erroneous and therefore must be set aside. In construing a parliamentary enactment, the Court may consider the time and circumstances of its passage; however, the general principle that later legislation can aid the interpretation of earlier statutes does not apply where the later enactment was based on mistaken assumptions and on judicial decisions that rested on those same assumptions. The Court cited the authorities of Great Northern Railway v. United States of America, 315 U.S. 262 and Ormond Investment Co. Limited v. Betts [1928] A.C. 143 in support of this view. The Court then explained that, provided the other requirements of the definition clause are satisfied, a transfer of ownership or management of an industry and its closure are treated alike for the purposes of the definition clause, even though they differ in fact. Nevertheless, there can be no retrenchment within the meaning of that clause unless there is a discharge of surplus labour or staff by the employer in an industry that continues to operate, for any reason other than disciplinary punishment. Accordingly, in the present matters—one in which all employees were dismissed because the employer genuinely and honestly closed the industry, and the other in which dismissal followed a change of ownership—such dismissals did not amount to retrenchment as defined in section 2(oo) or section 25F of the Act. Therefore, the appellants were not obligated to pay compensation under clause (b) of section 25F.
The Court noted that the two civil appeals, numbered 103 and 105 of 1956, arose from certificates granted by the Bombay High Court and presented common questions of law, which justified hearing them together. The appeals were filed against judgments and orders dated 24 January 1955 in Special Civil Application No. 2546 of 1954. The parties included the appellants in Civil Appeal No. 103, who were represented by counsel, and the respondents, who were represented by the Attorney General for India, the Solicitor General for India, and other counsel. In Civil Appeal No. 105, the main appellant was the Barsi Light Railway Company Limited, located in Kurduwadi, State of Bombay, and the principal respondent was the President of the Barsi Light Railwaymen’s Union. Additional respondents included the General Manager of Central Railway, Bombay, and the Secretary of the Railway Board, New Delhi. The matter was argued before the Court on 27 November 1956, and the judgment was delivered by Justice S. K. Das. The Court set the stage for its analysis by indicating that the common legal issues would be addressed collectively for both appeals.
The Court indicated that the judgment would apply to both appeals. In Civil Appeal No 105 of 1956 the appellant was the Barsi Light Railway Company Limited, situated at Kurduwadi in the State of Bombay, and the company is thereafter referred to as the Railway Company. The principal respondent was the President of the Barsi Light Railwaymen’s Union, identified as respondent No 1. The General Manager of Central Railway, Bombay, and the Secretary of the Railway Board, New Delhi, were positioned as respondents Nos 4 and 5 respectively.
The relevant factual background began with an agreement dated 1 August 1895 between the Secretary of State for India in Council and the Railway Company. Under that agreement the Railway Company was authorised to construct, maintain and operate a light railway line connecting Barsi Town with Barsi Road Station, which at the time formed part of the Great Indian Peninsular Railway system. While the agreement contained many clauses, the Court noted that it is sufficient to record the clause permitting the Secretary of State, after providing written notice of not less than twelve calendar months, to purchase and assume the undertaking.
On 19 December 1952 the Director of the Railway Board, acting on behalf of the President of India, served a notice on the Railway Company. The notice declared that the Government intended to purchase the Railway Company’s undertaking and take it over effective 1 January 1954. The notice further explained that the original contract dated 1 August 1895, the supplementary contract of 26 August 1902, and all related supplemental agreements would terminate twelve calendar months after the month in which the notice was issued. It also specified that the purchase would include the entire railway system, all extensions, rolling stock, machinery, equipment, buildings, property, stores and fixtures, in accordance with clause 43 of the 1895 indenture and clause 63 of the 1902 indenture.
Subsequently, on 11 November 1953 the Railway Company issued a notice to its workmen. That notice informed the employees that, because the Government of India had decided to terminate the Company’s contract and assume the railway from 1 January 1954, the employment of all workmen would cease at the close of business on the afternoon of 31 December 1953. The notice further conveyed that the Government intended to employ those staff members who were willing to continue service under terms and conditions that would be communicated later.
The Railway Company informed its workmen that, after the Government of India terminated the contract and intended to take over the railway on 1 January 1954, it would consider employing those workers who were willing to serve under terms and conditions that would be announced later. On 15 December 1953 the Railway Board issued a communication setting out the terms and conditions under which the staff of the Railway Company would be transferred to Government employment. The communication was accompanied by three different forms: one form for clerical and similar categories, a second form for staff who required training or a refresher course, and a third form for workshop personnel and other tradesmen who needed trade-testing.
The substance of the new terms, as expressed in the letter and the three forms, provided that the service of the staff taken over by the Government would be treated as continuous only for certain specific purposes, such as contributions to the provident fund, entitlement to leave, issuance of passes and privilege tickets, and access to educational and medical facilities. However, the communication made clear that the Government Railway Rules applicable to other staff appointed on the same day would also apply to the former Railway Company staff, and that any service rendered under the Railway Company would not be counted for seniority purposes. According to the statements of respondents 4 and 5, when the actual takeover occurred on 1 January 1954, approximately 77 percent of the Railway Company’s staff were re-employed on the same pay scales, about 23 percent were re-employed on slightly lower pay scales—although the pay they actually received at the time of re-employment was not altered—and roughly 24 percent of the former employees declined to accept service under the Government.
Subsequently, respondent I filed sixty-one applications on behalf of the former workmen of the Railway Company under section 15 of the Payment of Wages Act, 1936, seeking retrenchment compensation pursuant to clause (b) of article 25F of the Industrial Disputes Act, 1947. These applications were presented to respondent 3, the Civil Judge (Junior Division) at Madha, who was the authority designated under the Payment of Wages Act. The applications were contested by the present appellants, and three principal issues were framed: (1) whether the authority under the Payment of Wages Act possessed jurisdiction to adjudicate the claim for retrenchment compensation; (2) whether the former workmen were entitled to claim compensation under clause (b) of article 25F of the Industrial Disputes Act; and (3) whether the workmen had been “retrenched” by their former employer, the present appellants, on 31 December 1953, within the meaning of the term “retrenchment” in the Act. The Civil Judge of Madha ruled against the workmen on the first issue but found in their favour on the second and third issues. By the parties’ consent, the findings on one of the applications (Miscellaneous Application No. 27 of 1954) were extended to govern the remaining applications, and consequently all of the applications were dismissed on the basis of the finding concerning jurisdiction.
Respondent No. I filed Civil Application No. 2546 of 1954 before the High Court of Bombay, seeking writs or appropriate directions under Articles 226 and 227 of the Constitution. The relief prayed for was the setting aside of the dismissal order issued by respondent No. 3, the Civil Judge of Madha, and a direction for that judge to determine the pending applications on their merits. During the hearing, the question of whether the authority created by the Payment of Wages Act, 1936, possessed jurisdiction to entertain the workmen’s claim was not argued. Counsel for the Railway Company correctly observed that even if jurisdiction were assumed, the dispute would not be resolved solely by a ruling on that point, because the Railway Company maintained that the workmen had not been “re-trenched” within the meaning of the Act and therefore were not entitled to compensation under clause (b) of section 25F. Consequently, both parties consented that the application should not be limited to the jurisdictional issue but should be decided on its merits, specifically on the validity of the workmen’s claim for compensation under clause (b) of section 25F arising from the termination of their services on 31 December 1953. The Railway Company’s counsel agreed to accept the High Court’s merit-based finding, reserving only the right to appeal to this Court. The High Court, comprising Chief Justice Chagla and Justice Dixit, delivered its judgment and order on 24 January 1955, holding that the workmen were indeed entitled to compensation under the said clause and that the Railway Company was liable to pay the awarded amount. Civil Appeal No. 105 of 1956 was consequently filed against that decision.
In the matter of Civil Appeal No. 103 of 1956, the factual background differed from the preceding case. The appellant was Shri Dinesh Mills Ltd., a woollen-mill enterprise situated in Baroda, while the principal respondent was the District Labour Officer and Inspector operating under the Payment of Wages Act, 1936, in the same locality. At the relevant period, the appellant employed approximately 450 workmen and 20 clerical staff, with operations organized in day and night shifts. Around 31 October 1953, the company displayed a notice indicating its intention to cease operations of the entire mill from 1 December 1953. This notice was withdrawn on 19 November 1953 and superseded by a new notice announcing the closure of the second shift effective 20 December 1953. A subsequent notice reiterated that the second shift would indeed close on that date and further disclosed that the first shift would be closed commencing 8 January 1954. An additional notice issued on the same day stipulated that the clerical staff would have their services terminated with effect from 19 January 1954. Although the closure steps were staggered, the overall process represented a single termination of employment for all 450 workmen and 20 clerks. The appellant contended that the shutdown was genuine and compelled by severe financial losses. On 27 April 1954, the District Labour Officer lodged an application before respondent No. 3, the authority under the Payment of Wages Act, 1936, seeking retrenchment compensation for the workmen under clause (b) of section 25F. The appellant contested the application, raising once more the issues of the authority’s jurisdiction and the maintainability of the claim under the specified clause.
On the same day that the notice of closure of the first shift was posted, the appellant also displayed a notice terminating the employment of all clerical staff, with the termination to take effect on 19 January 1954. It was not contested that, although the closure of the appellant’s woollen mill was carried out in stages, the entire process constituted a single closure operation, and consequently the employment of the entire workforce—comprising 450 workmen and 20 clerks—was brought to an end. The appellant asserted that the shutdown was genuine and unavoidable, attributing it to the heavy financial losses that the company had suffered. Subsequently, on 27 April 1954, the principal respondent filed an application before the designated authority—identified as respondent No. 3—pursuant to the Payment of Wages Act, 1936, seeking retrenchment compensation for the workmen of the appellant on the basis of clause (b) of section 25F of that Act. The appellant opposed the application, raising once again the questions of whether the authority under the Payment of Wages Act possessed jurisdiction to entertain such a claim and whether the claim under clause (b) of section 25F was maintainable. The authority, after considering the matter, ruled against the former workmen on all material points. In response, the respondent approached the High Court of Bombay for appropriate writs or directions. The learned judges of that Court, Bavdekar and Shah JJ., held that the authority under the Payment of Wages Act, 1936, lacked jurisdiction to adjudicate the claim for retrenchment compensation. On the merits, they felt compelled to follow the precedent set by the Bench consisting of Chief Justice Chagla and Justice Dixit in the earlier Railway Company case. Accordingly, the order issued by respondent No. 3 was set aside, and the authority was directed to dispose of the application in accordance with the law. Civil Appeal No. 103 of 1956 arose from that High Court judgment dated 25 July 1955. While the factual matrices of the two appeals before this Court differ slightly, both raise a common question of law: whether the claim of the former workmen—both those of the Railway Company and those of Shri Dinesh Mills Limited—to compensation under clause (b) of section 25F of the Payment of Wages Act is a valid legal claim. The ancillary issue of the jurisdiction of the authority under the Payment of Wages Act, 1936, is no longer live in Civil Appeal No. 105 of 1956 because the parties settled the matter in the High Court. However, that jurisdictional question does arise in Civil Appeal No. 103 of 1956. Counsel for the appellants in that appeal, nevertheless, expressed a willingness to forgo further discussion of the jurisdictional point, not on the ground that it lacks merit, but because, under the provisions of section 25 I of the Act, any retrenchment compensation claim that is found to be legally valid can be enforced against the appellants.
In the present matter the Court noted that Section 19 of the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, 1956 purports to repeal Section 25I of the principal Act, but that provision has not yet been brought into force; consequently the provisions of Section 25I remain available for the recovery of retrenchment compensation. Counsel for the appellants submitted that, because the claim under Section 25I could still be enforced against them, the appellants would be prepared to accept the Court’s decision on the principal issue that arose in both appeals, namely whether the claim for retrenchment compensation under clause (b) of Section 25F of the Act is legally valid. The Court observed that the Act, which has been in force since 1 April 1947, has acquired a complex series of amendments, some of which have been quite extensive in nature. Section 25F appears in Chapter VA of the Act, the chapter dealing with “lay-off and retrenchment,” which was inserted by the amending Act XLIII of 1953. The text of Section 25F reads as follows: “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, or the workman has been paid in lieu of such notice, wages for the period of the notice; provided that no such notice shall be necessary if the retrenchment is under an agreement which specifies a date for the termination of service; (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 service or any part thereof in excess of six months; and (c) notice in the prescribed manner is served on the appropriate Government.” The Court pointed out that the introductory part of the provision uses the verb “retrenched,” while clauses (a) and (b) employ the noun “retrenchment,” and that the two terms convey the same meaning, differing only in grammatical form. To appreciate the true scope and effect of Section 25F, the Court explained that it is necessary first to understand the expression “retrenched” or “retrenchment.” By the same amending Act of 1953 a new definition was inserted into the definitions clause of Section 2, specifically clause (oo), which defines “retrenchment” as follows: “‘retrenchment’ means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include—(a) voluntary retirement of the workman; or (b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or (c) termination of the service of a workman on the ground of continued ill-health.” The Court noted that the excluding sub-clauses (a), (b) and (c) are not directly applicable to the cases under consideration and therefore, when the definition is analysed, it yields four essential requirements: (i) termination of the service of a workman; (ii) by the employer; (iii) for any reason whatsoever; and (iv) otherwise than as a punishment inflicted by way of disciplinary action. The Court concluded that the definition is framed in very wide terms, and the issue before it is whether this definition merely codifies the ordinary, accepted notion of retrenchment in a continuing industry, or whether it extends to cover the termination of all workmen when the industry itself ceases to exist due to a bona-fide closure or discontinuance of the business by the employer.
The definition of “retrenchment” contained in the statute excluded three specific sub-clauses: (a) voluntary retirement of the workman; (b) retirement on reaching the age of superannuation where the employment contract provided for such retirement; and (c) termination of service on the ground of continued ill-health. For the purpose of the present discussion those exclusions were set aside because they did not directly apply to the matters before the Court. When the definition was examined, it was found to embody four essential elements: (a) the termination of the service of a workman; (b) such termination being effected by the employer; (c) the termination occurring for any reason whatsoever; and (d) the termination not being a punishment imposed through disciplinary action. The Court acknowledged that the wording of the definition was broad. The question that arose for determination was whether this definition merely gave effect to the ordinary, commonly accepted understanding of retrenchment – that is, the dismissal of a portion of the workforce in a continuing industry – or whether it extended the meaning so far as to cover the dismissal of all workmen when the entire business ceased to exist because of a genuine closure or discontinuance by the employer. Counsel for the appellants argued that the first, narrower interpretation correctly captured the meaning of the definition, whereas counsel for the principal respondents contended that the wide language warranted the second, broader understanding. The Court observed that when the statute itself provides a dictionary of terms, that dictionary must be the primary tool for interpreting the language, without resorting to any presumed legislative intention beyond what is expressed in the statute. Accordingly, the Court first examined the language of the definition to see whether the ordinary, accepted notion of retrenchment fitted squarely within it. The ordinary notion, as explained in the earlier decision of Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union, held that retrenchment ordinarily implies that the business continues while a segment of the staff is discharged as surplus; the termination of all employees due to the closure of the business could not properly be described as retrenchment. Although that earlier observation was made in a case concerning events in 1951 and left the precise meaning of the statutory definition open, it nevertheless clarified the ordinary meaning of the term. The Court then considered whether the ordinary meaning satisfied the four essential requirements of the definition. In the Court’s view, it did, because when a portion of the staff or labour force is dismissed as surplus in a business that continues to operate, the termination is effected by the employer, it occurs for any reason whatsoever, and it is not a disciplinary punishment. When a portion of the staff or labour force is
When a portion of the staff is discharged as surplus in a business that continues to operate, the situation satisfies four conditions: first, there is a termination of the service of a workman; second, the termination is effected by the employer; third, it occurs for any reason whatsoever; and fourth, it is not inflicted as a punishment or as a disciplinary action, as noted in the earlier decision reported at [1956] S.C.R. 872. It has been submitted that excluding a genuine closure of the business from the list of reasons for termination effectively narrows the phrase “for any reason whatsoever” and introduces words that are not present in the statutory definition. While we accept that applying the ordinary meaning of the phrase gives it a somewhat narrower scope, coloured by the context in which it appears, we do not agree that this amounts to importing new language into the definition. The expression “for any reason whatsoever” simply means that, when surplus personnel are let go in a running or continuing enterprise, the reason for their discharge may vary widely – it might be economic efficiency, rationalisation of production, introduction of a new labour-saving machine, or any other motive. By using this wording, the legislature is essentially stating that the particular motive is irrelevant; provided the remaining elements of the definition are satisfied, the termination constitutes retrenchment. In the absence of any explicit wording indicating that the legislature intended to encompass a bona-fide closure of the entire business, to read the phrase so broadly would detach it from its surrounding context and give it the expansive meaning urged by counsel for the respondents. The term being defined is “retrenchment,” and that is the proper context for interpreting the clause. Although a definition can, in theory, be crafted to convey a meaning that differs from or exceeds the ordinary sense of the word defined, such a deviation must be supported by clear and compelling language showing that the legislature intended a broader or alternative meaning. Where, within the ordinary sense of the word, every requirement of the definition is fulfilled, it would be erroneous to allow the definition to destroy the essential meaning of the term. Another approach is to presume that the definition clause is drafted in such a way that its requirements are met whether one adopts a restricted or a wider interpretation, thereby creating an inherent ambiguity that allows more than one reading. In such a circumstance, the correct construction must be guided by the light shed by other provisions of the Act, as well as by the purpose and the provisions of any subsequent statutes that amend the Act or deal with the same subject-matter.
In the decision of Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union (1), the Court explained that the whole framework of the Industrial Disputes Act is premised on the existence of a functioning industry, and that the statutory provisions concerning lock-out, strike, lay-off, retrenchment, conciliation, adjudication and the duration of awards acquire meaning only when they refer to an industry that is operational and not to one that has been shut down. A similar principle was reiterated in Burn & Co., Calcutta v. Their Employees (2), where the Court observed that labour legislation pursues two primary purposes: first, to secure fair conditions for workmen, and second, to avert employer-employee conflicts that could disrupt production and prejudice the public interest. The Court further quoted the earlier ruling in Pipraich Sugar Mills Ltd. (1) stating that those purposes can be realised only in a living industry, not a “dead” one. The view expressed in Indian Metal and Metallurgical Corporation v. Industrial Tribunal, Madras (3) and K. M. Padmanabha Ayyar v. The State of Madras (4) was invoked to confirm that the Act’s provisions apply exclusively to disputes arising out of an existing industry. Consequently, where a business has been closed and the closure is proved to be genuine and bona fide, any dispute relating to that closure falls outside the jurisdiction of the Industrial Disputes Act, as held in K. M. Padmanabha Ayyar (4). The Court therefore concluded that extending the definition of retrenchment to include the termination of all workmen’s services when the business ceases to exist would be contrary to the scheme of the Act.
The appellants’ counsel argued that the definition clause in section 2(oo) is poorly drafted, contending that sub-clauses (a) and (b) are difficult to interpret in relation to the essential requirement that termination of service must be effected by the employer. They submitted that voluntary retirement of workmen does not qualify as termination by the employer and therefore should be excluded from the definition. The Court, however, was not persuaded that sub-clauses (a), (b) and (c) settle the matter definitively. While acknowledging that these sub-clauses are directed at a running or continuing business, the Court observed that they may have been incorporated out of an abundance of caution or an excessive desire for clarity, and that they merely exclude certain categories of termination from the definition’s reach. The Court emphasized that these exclusions do not necessarily determine the full scope of what the definition of retrenchment is intended to cover, and therefore the question of whether termination of service upon genuine closure of a business falls within the definition remains open for further consideration.
In the judgment, the Court observed that the definition clause of the Act might be interpreted to include cases where a business ceases to exist, but the precise scope of that inclusion required examination. The Court noted two other related provisions, sections 25G and 25H, which clearly applied only to businesses that were still operating. The Attorney-General, who appeared for the principal respondent in one of the appeals, argued that even if the definition clause were held to cover termination of service both in a continuing business and in a business that had closed, the fact that sections 25G and 25H dealt only with certain instances of retrenchment did not mean that those sections exhausted every possible circumstance of retrenchment, nor did it imply that section 25F should be limited to a running business. The Court concurred that, assuming the definition clause did encompass closures, sections 25G and 25H would not present any difficulty. However, the Court identified the central issue as whether the definition clause truly covered closures of business when such closures were real and bona-fide. The Court emphasized that, apart from possibly section 25FF introduced by the 1956 Act XLI, there was no provision that could be said to bring a closed or “dead” industry within the ambit of the Act. Almost the entire legislation dealt with an existing or continuing industry, and the provisions concerning lay-off in sections 25A to 25E were likewise inappropriate for a dead business. Counsel for the appellants warned that a broader interpretation of the definition clause could lead to surprising outcomes. They pointed out that if an employer died and his heirs continued the business, or if a company underwent compulsory winding-up and was subsequently reconstructed, or if a business was converted into a limited company, or a new partner was admitted, the law would technically record a termination of service by the former employer and the emergence of a new employer. Under such circumstances, the question arose whether the workmen would be entitled to retrenchment compensation even though they remained in service. The Court held that such a result could be justified only if the statutory language contained very compelling reasons showing that the legislature intended this consequence. The Court found no such compelling reasons in the Act; on the contrary, the provisions clearly indicated that the legislation contemplated an existing or continuing industry, not a dead one. The Court then turned to two further arguments raised by the Attorney-General. The first argument asserted that, before the amendment enacted by Act XLIII of 1953, the term “retrenchment” had acquired a special meaning that included payment of compensation on closure of a business, and that the legislature reflected this meaning in the definition clause and by inserting section 25F. The second argument contended that section 25FF, inserted by the 1956 Act XLI, represented a parliamentary exposition of the definition clause and of section 25F.
The Court then turned to examine the two arguments raised by the Attorney-General. Regarding the first argument, it noted that a considerable number of decisions of Industrial or Labour Appellate Tribunals had been placed before it. The Attorney-General relied particularly on three cases: Hyderabad Vegetable Oil Products Ltd. v. Their Workers (1); Employees of Messrs. India Reconstruction Corporation Ltd., Calcutta v. Messrs. India Reconstruction Corporation Ltd., Calcutta (2); and Kandan Textiles Ltd. v. Their Workers (3). The Court recalled that the decision in Employees of Messrs. India Reconstruction Corporation Ltd., Calcutta v. Messrs. India Reconstruction Corporation Ltd., Calcutta (2) had been earlier considered by it in Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union (4), where it had expressed its inability to accept the Tribunal’s observation that, in substance, the difference between closure and ordinary retrenchment was merely a matter of degree. The Court was aware that in some instances Labour Appellate Tribunals had awarded retrenchment compensation on the closure of a business, even where the closure was bona-fide or justified, and it had dissented from those decisions in the Pipraich Sugar Mills case (4). Upon close examination, the Court found that none of the cited decisions demonstrated that the discharge of workmen on a bona-fide closure of business was treated as falling within the meaning of normal retrenchment. In Hyderabad Vegetable Oil Products Ltd. v. Their Workers (1) the grounds for allowing compensation were identified as (i) involuntary or forced unemployment of the workmen, (ii) absence of any social-security scheme such as unemployment insurance, and (iii) the financial position of the company. On similar grounds, compensation was awarded in Kandan Textiles Ltd. v. Their Workers (3) as an equitable relief, and a variety of factors were referred to in determining the appropriate relief in each case. The Court considered it unnecessary to analyse every decision on this point and deemed it sufficient to state the correct position. It held that retrenchment means the discharge of surplus workmen in an existing or continuing business and that the term had not acquired a special meaning to include discharge of workmen on a bona-fide closure of business, despite a number of Labour Appellate Tribunals having awarded compensation to workmen on closure as an equitable relief for various reasons. The Court reasoned that, in enacting section 25F, the legislature intended to standardise the payment of compensation to workmen retrenched in the normal or ordinary sense in an existing or continuing industry, thereby eliminating the perplexing variety of factors previously used to determine appropriate relief and adopting a simple yardstick based on the length of service of the retrenched workmen. If the legislature had intended to give statutory effect to those decisions that awarded compensation on a real and bona-fide closure of business, it would have expressed that intention expressly, rather than being satisfied merely by adding a definition clause whose every requirement is already met by the ordinary, accepted meaning of the word “retrenchment.”
The Court observed that the definition clause is fulfilled by the ordinary, accepted meaning of the word “retrenchment”. It then turned to the second argument raised before it. The Court reiterated that section 25FF was inserted in 1956 by amending Act XLI of 1956, and that the amendment came into force on 4 September 1956. Before that date the two decisions that were under appeal had been rendered by the Bombay High Court, and a further decision in The Hospital Mazdoor Sabha v. The State of Bombay (1) had also been pronounced. In that decision the Court had held that the failure to satisfy the condition for payment of compensation to an employee at the time of his retrenchment under section 25F(b) gave the employee the right to challenge his retrenchment and to claim that his services had not been legally and effectively terminated. Confronted with the situation created by those decisions, the legislature stepped in and enacted section 25FF. The provision reads as follows: “Notwithstanding anything contained in section 25F, no workman shall be entitled to compensation under that section merely by reason of the fact that there has been a change of employers in any case where the ownership or management of the undertaking in which he is employed is transferred, whether by agreement or by operation of law, from one employer to another: Provided that (1) (1956) 58 Bom. L.R. 769. (a) the service of the workman has not been interrupted by reason of the transfer; (b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable to the workman than those applicable to him immediately before the transfer; and (c) the employer to whom the ownership or management of the undertaking is so transferred is, under the terms of the transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.” The Court noted that the section is not retrospective and therefore does not, in terms, apply to either of the two cases presently before it. The Court then posed the question of what light the new provision throws on the meaning of section 25F. The learned Attorney-General placed great reliance on the non-obstante clause that begins the section and contended that it demonstrates, by necessary implication, that a workman whose service is terminated because of a change of employers arising from a change of ownership or management will be entitled to retrenchment compensation under section 25F unless the conditions (a), (b) and (c) laid down in section 25FF are fulfilled. According to the Attorney-General, this constitutes a parliamentary exposition of the true meaning of “retrenchment” in both the definition clause and in section 25F. The Court observed that, at first sight, the argument appears to possess considerable force, and that the Attorney-General had cited several English and American decisions of high authority in support of his contention, namely Attorney-General v. Clarkson (1); Ormond Investment Co. Ltd. v. Betts (2); and George H. Cope v. Janet (3).
In examining the effect of section 25FF the Court noted that the provision was inserted against a backdrop in which any transfer or closure of a business, and any change of employer or management, had been judicially held to give rise to a claim for retrenchment compensation. Such claims could lead to a complete industrial deadlock. The legislature therefore did not have the power to declare those judicial decisions wrong, but it could partially override their consequences by amending the law. Those were the circumstances that prompted the enactment of section 25FF. The Court agreed with counsel for the appellants that the purpose of the amendment was to partially supersede the effect of the aforesaid judicial decisions, at least with respect to the urgent matter of change of ownership or management of a business undertaking, which occurs with some frequency. The amendment was not intended to be a parliamentary exposition of the pre-existing law; the broader question of closure of a business, which was of a lesser degree of urgency, was deliberately left for later consideration after the appeals were decided. This view was reinforced by an examination of the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, 1956, which was passed on 28 August 1956, only about seven days before the enactment of section 25FF. Section 29 of that Act inserted new schedules into the Industrial Disputes Act. Item 10 of the Third Schedule, dealing with matters within the jurisdiction of Industrial Tribunals, reads “Retrenchment of workmen and closure of establishment”. In the Fourth Schedule, item 10 states “Rationalisation, standardisation or improvement of plant or technique which is likely to lead to retrenchment of workmen.” Although these new schedules have not yet come into force, the language of the items demonstrates that the legislature clearly intended to distinguish between retrenchment and closure, and that retrenchment did not include the closure of a business. Item 10 of the Fourth Schedule further clarifies that retrenchment of surplus labour may occur in an operating industry. When the two amending Acts of 1956 are compared for the purpose of determining which represents a parliamentary exposition, the Court held unhesitatingly that the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, 1956 (Act XXXVI of 1956) is more in the nature of an exposition, whereas the Industrial Disputes (Amendment) Act, 1956 (Act XLI of 1956) merely supersedes the effect of certain judicial decisions. The Court also observed that if the definition clause were interpreted narrowly on the basis of the ordinary, accepted meaning of “retrenchment”, section 25F would apply only to a continuing or running business and section 25FF would become largely unnecessary. The Court did not think that this consideration would cause any difficulty, and it noted that the earlier judicial decisions, when viewed in this light, would not be rendered erroneous.
In holding that section 25FF had been enacted on a mistaken basis, the Court observed that no difficulty or hardship arose from deeming section 25FF unnecessary, because the purpose of that provision was already fulfilled by the proper interpretation now given to the definition clause and to the provisions of section 25F. Both of those provisions, when read in the manner adopted by the Court, were brought into consistency with the remainder of the Industrial Disputes Act. The Court then addressed the authorities cited by the learned Attorney-General. It noted that the American decisions cited merely expressed the general principle that when several statutes of Congress address the same subject, they should be construed not only as showing the intention of Congress at the time each was passed, but also that later statutes may be treated as legislative interpretations of earlier ones. The Court stressed, however, that this principle is not rigid. Referring to the decision in Great Northern Railway Co. v. United States of America, the Court quoted that “we are not limited to the lifeless words of the statute and formalistic canons of construction in our search of the intent of Congress (Parliament in our case) and in construing a statute, we may with propriety recur to the history of the times when it was passed.” The Court said that such historical inquiry clearly demonstrated the aim and purpose behind the enactment of section 25FF. The Court further referred to the observation of Lord Atkinson in Ormond Investment Co. Limited v. Betts, that “an Act of Parliament does not alter the law by merely betraying an erroneous opinion of it.” Accordingly, legislation based on a mistaken assumption does not make that mistaken view the law. In the present cases, the Court noted the United States authorities—[1942] 315 U.S. 262, 273 and [1928] A.C. 143, 164—showed that the legislature had acted on the judicial decisions then available and had consequently enacted section 25FF. Having considered these materials, the Court concluded that the general rule of parliamentary exposition or the use of later legislation as a tool for construing earlier Acts could not be applied to interpret the definition clause and section 25F of the Act. For the reasons explained, the Court held, contrary to the decision of the Bombay High Court, that “retrenchment” as defined in section 2(oo) and employed in section 25F carries only its ordinary, accepted meaning. It signified the dismissal of surplus labour or staff by an employer for any reason other than a disciplinary punishment. The term did not extend to situations where an employer terminated the services of all workmen because of a genuine and bona-fide closure of business, such as in the case of Shri Dinesh Mills Ltd., nor to cases where all workmen were dismissed because the business or undertaking was taken over by another employer, as in the Railway Company scenario. The passage concluded with a reference to counsel appearing for respondents Nos. 4 and 5 in Civil Appeal No. 105 of 1956.
In the earlier discussion, an effort was made to separate the situation where ownership of a business is transferred but the employees continue to work from the situation where the business is shut down and the employees’ services are terminated. While a real distinction does exist between transferring a business and closing it, the Court observed that for the purpose of the definition clause both scenarios are treated alike if they result in the termination of the workmen’s service by the employer for any reason other than a disciplinary punishment. According to the Court’s interpretation, retrenchment can occur only where there is a discharge of surplus labour or staff in an industry that is still operating. The judgment had already examined the construction of the definition clause and of section 25F of the Industrial Disputes Act. On behalf of the appellants, a further question was raised concerning the constitutional validity of section 25F. The argument on this point was presented from two angles: one view held that retrenchment should include termination of service caused by the closure of a business, and the other view asserted that the provision also applies to terminations that occur in a business that continues to operate.
The constitutional argument invoked article 19 (1) (f) and (g) of the Constitution, which guarantee every citizen the right to acquire, hold and dispose of property and to practice any profession or to carry on any occupation, trade or business. Those rights, however, are subject to reasonable restrictions in the interests of the general public under clauses (5) and (6) of the same article. It was contended that the right to carry on a business comprises three facets – the right to start a business, the right to continue a business and the right to close a business. Section 25F, it was argued, imposes a restriction on this right if it is interpreted so broadly as to include a closure of business, and that such a restriction is unreasonable because it bears no relation to the employer’s capacity to pay or to the employee’s needs. The opposing submission maintained that even in a running or continuing industry, section 25F imposes an unreasonable restriction, because the test of reasonableness must be measured against the object of the legislation. If the primary object of section 25F is to provide relief against involuntary unemployment, then the restriction is excessive, since it offers relief without reference to the period of unemployment or other relevant factors, thereby oversimplifying a complex problem. This oversimplification was characterized as an unreasonable restriction. Relying on the construction it had adopted for the definition clause and for section 25F, the Court said it was therefore relieved of the duty to make a final pronouncement on the constitutional question. According to that construction, section 25F has no application to a closed or dead industry and
In these appeals the Court found that constitutional arguments premised on an alternative construction of section 25F did not require examination. Regarding a running or continuing industry, the Court observed that it is evident that the provision is not intended solely to secure unemployment relief. The Court previously noted that it is reasonable to presume that the legislature also aimed to achieve standardisation of retrenchment compensation and to eliminate the confusing assortment of factors that had previously governed the award of such compensation, although the primary objective remained the provision of relief to persons who became involuntarily unemployed. Applying the Court’s interpretation of section 25F to the facts of the two appeals, it concluded that the appellants were under no obligation to pay any retrenchment compensation under that provision. Consequently, the Court held that it was unnecessary to determine whether section 25F would constitute a reasonable restriction in other matters that are of a different nature. Accordingly, the Court allowed both appeals and set aside the judgments of the High Court of Bombay that had been rendered in the two cases. The Court further held that the former employers in the appeals were not liable to make any payment to their former workmen who had not been retrenched as defined by the expression in section 25F. Finally, the Court ordered that each party bear its own costs throughout the proceedings, and recorded that the appeals were allowed.