Modi Food Products Co. Limited vs Shri Faqir Chand Sharma and Others

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

Court: supreme-court

Case Number: Civil Appeal No. 353 of 1955

Decision Date: 8 May 1956

Coram: B. Jagannadhadas, Bhuvneshwar P. Sinha, Venkatarama Ayyar

The dispute was styled Modi Food Products Co. Limited versus Shri Faqir Chand Sharma and others, and the judgment was delivered on 8 May 1956 by the Supreme Court of India. The bench that heard the matter consisted of Justice Ayyar, Justice T. L. Venkatarama, Justice B. Jagannadhadas, Justice B. Sinha and Justice Bhuvneshwar P. Sinha. The petition was filed by the appellant, Modi Food Products Co. Limited, and the respondents were the workmen Shri Faqir Chand Sharma and other employees. The case was reported in the 1956 AIR 628 and in the 1956 SCR 560. The statutory framework relied upon included the Industrial Disputes (Appellate Tribunal) Act, 1950 (No. XLVIII of 1950), specifically sections 23 and 22(a), and the Industrial Disputes Act, particularly the provisions of proviso (b) to section 25-C. The factual matrix, as set out in the headnote, described that while an appeal was pending before the Labour Appellate Tribunal concerning an earlier industrial dispute between the same parties, the management laid off certain workmen and offered compensation equal to half the basic wages and dearness allowance for the first forty-five days, in accordance with proviso (a) to section 25-C of the Industrial Disputes Act. The workmen filed an application under section 23 of the Appellate Tribunal Act, alleging a breach of section 22(a) and contending that the lay-off was not bona fide; they claimed full wages for the entire period of lay-off as compensation. The Tribunal held that the lay-off was justified but that the workmen were entitled to half the basic wages and dearness allowance not only for the first forty-five days but for the whole period, relying on proviso (b) to section 25-C. The Court thereafter held that, because the Tribunal found the lay-off justified, the application under section 23 must be dismissed. Moreover, the Court clarified that proviso (b) to section 25-C applies only to a second and distinct lay-off and cannot be invoked for a period beyond the first forty-five days of a continuous lay-off.

The civil appeal, numbered 353 of 1955, was taken on special leave from the judgment and order dated 22 August 1955 of the Labour Appellate Tribunal at Lucknow in Miscellaneous Case No. 111-C-650 of 1954. Counsel for the appellant was Veda Vyas, assisted by S. K. Kapur and N. H. Hingorani, while counsel for the respondents was J. N. Bannerji, assisted by P. C. Agarwalla. The judgment was pronounced on 8 May 1956 by Justice Venkatarama Ayyar. In its factual description, the Court noted that the appellant was a company registered under the Indian Companies Act and owned a factory known as Modi Oil Mills situated in the district of Meerut. The respondents were workmen employed at that mill, which was engaged in the manufacture of oils and paints. On 12 July 1954 the management displayed a notice stating that, owing to the non-availability of groundnut seed and neem seed at prevailing market prices for groundnut oil and neem oil, the company was compelled to close the groundnut crushing section and the neem section until the next groundnut season, and consequently the workers listed therein were declared surplus and their services were laid off effective 14 July 1954. The notice further indicated that the affected workers would receive compensation in accordance with the Industrial Disputes (Amendment) Act, 1953, subject to the conditions specified therein, and that the attendance time prescribed in sections 25(D) and 25(E) would be 10 a.m. for all laid-off workers.

The management issued a notice stating that, because groundnut seed and neem seed were not available at the prevailing market prices for groundnut oil and neem oil, it was forced, with reluctance, to shut down the Groundnut Crushing Section and the Neem Section until the next groundnut season. Consequently, the workers listed in the notice were deemed surplus and their employment was terminated effective 14 July 1954. The notice further provided that the affected workers would receive compensation in accordance with the Industrial Disputes (Amendment) Act, 1953, subject to the conditions specified in that statute. Additionally, the notice specified that the attendance time prescribed in Section 25(D) and (E) would be 10 a.m. for all workers who were laid off. Pursuant to this notice, a total of 142 workmen, who later became respondents in the present appeal, were laid off on 14 July 1954. On 26 July 1954, the workmen, through their union, sent a notice to the management demanding full wages for the period of lay-off, contending that the lay-off was unjustified and unlawful. The management rejected these allegations and refused to meet the demand. Because this dispute fell within the definition of an industrial dispute under Section 2(k) of the Industrial Disputes Act, 1947, it would ordinarily have been dealt with under the provisions of that Act. However, at that time another industrial dispute between the same parties was already pending final adjudication. That earlier dispute had been referred, under Section 10 of the Industrial Disputes Act, to the Regional Conciliation Officer in Meerut, whose award had been pronounced, and both parties had subsequently filed appeals before the Labour Appellate Tribunal, which were still pending when the notice of lay-off was issued. The Industrial Disputes (Appellate Tribunal) Act, 1950, contains special provisions—Sections 22 and 23—that apply when a new dispute arises while another is still under adjudication. Section 22 provides that, during the thirty-day period allowed for filing an appeal under Section 10, or during the pendency of any appeal under the Act, an employer shall not, without the express written permission of the Appellate Tribunal, alter the conditions of service to the prejudice of the workmen concerned, nor dismiss or punish any such workmen. Section 23 states that if an employer breaches Section 22 while proceedings before the Appellate Tribunal are ongoing, any aggrieved employee may lodge a written complaint with the Tribunal, which shall then consider the complaint as if it were an appeal pending before it and render a decision accordingly, applying the provisions of the Act. Accordingly, on 24 August 1954, the respondents filed an application before the Labour Appellate Tribunal invoking Section 23 of the Act.

In the application filed under section 23 of the Act, the respondents claimed that the lay-off was not genuine because the reason stated – the non-availability of groundnut and neem seeds at the prevailing prices – was false. They further alleged that, since an industrial dispute between the parties was already pending before the Labour Appellate Tribunal, the lay-off violated section 22(a) of the Act. Consequently, they prayed that they should be awarded full wages as compensation for the entire period of lay-off. The appellant challenged these claims. It argued that the shortage of groundnut and neem seeds mentioned in the notice was real and that the lay-off was therefore bona-fide. The appellant also maintained that section 22(a) did not apply because the notice expressly provided that the workmen would receive compensation under section 25-C of the Industrial Disputes Act, as amended by Act XLIII of 1953. Furthermore, the appellant contended that under section 25-C compensation was payable only for the first forty-five days at the rate specified in the body of the section and not for any period thereafter.

The Tribunal concluded that the lay-off was justified. It interpreted section 25-C to mean that the workmen were entitled to half of their basic wages and dearness allowance not merely for the first forty-five days but for the whole duration of the lay-off. The Tribunal found that the appellant had failed to observe the provisions of that section, thereby effecting an alteration of the conditions of service within the meaning of section 22(a). Accordingly, it awarded compensation for the entire period at a rate of fifty percent of the basic wages and dearness allowance. The management appealed this decision by special leave. On behalf of the appellant, counsel argued first that when the Tribunal found the lay-off to be justified, the only order it could have made was to dismiss the petition, and that awarding compensation was beyond its jurisdiction. Second, counsel submitted that a correct construction of section 25-C limits compensation to the period of forty-five days as provided in proviso (a) to that section. The Court held that both arguments were well-founded. Regarding jurisdiction, it observed that relief under section 23 of the Act may be granted only if there is a proven contravention of section 22 by the employer. The respondents correctly understood this requirement and, to bring their claim within section 23, alleged that the lay-off was not bona-fide because groundnut and neem seeds were actually available. This allegation is based on the premise that the conditions for laying off workmen constitute conditions of service, and that laying off workmen without proper grounds amounts to a violation of section 22(a).

In this dispute the Court considered whether a lay-off, whether justified or not, could be treated as a breach of the conditions of service contemplated in section 22(a) of the Industrial Disputes Act. The Court noted that the central issue was whether the term “conditions of service” should be interpreted to include the circumstances under which an employer may lay off work-men. One side argued that the expression should be limited to those conditions that operate while the work-men are actually in service, such as the amount of wages, the number of hours of work, the provision of leave and similar matters. According to that view, when a lay-off occurs those particular conditions cease to have any practical application. The argument continued that if the lay-off were unjustified, the work-men would acquire a right to institute proceedings under the general provisions of the Industrial Disputes Act, but they could not sustain a claim under section 23 on the ground that there had been a breach of the specific provisions of section 22(a). The opposite contention advanced by the other side was that both the work-men and the management were deemed to have agreed that any lay-off would be effected only for good and proper reasons and in accordance with conditions permitted by law. Under that approach, if those agreed conditions were not satisfied, the lay-off would amount to an alteration of the conditions of service and therefore fall within the ambit of section 22(a). The Court observed that the question was of some importance, but it was unnecessary to pronounce a definitive view because the counsel for the appellant, after some discussion, conceded that the circumstances governing a lay-off would indeed be regarded as conditions of service.

Building on that concession, the appellant’s counsel argued that the lay-off in the present case was, in fact, justified; consequently there was no breach of any condition of service and section 22(a) of the Act could not be invoked. In contrast, the respondents submitted that a lay-off, by its very nature, must be temporary and of short duration. They contended that when a lay-off extends for a long or indefinite period, as alleged here, it cannot be described as a proper lay-off that the work-men had implicitly accepted, and therefore the provisions of section 22(a) should apply. Both parties agreed that there are no statutory rules that prescribe the precise conditions under which a lay-off may be effected. The Court noted that, had such rules existed, they would simply have formed part of the contractual conditions of service between the parties, and the issue would then have been reduced to a question of compliance with those rules. The Court further observed that, although the Industrial Employment (Standing Orders) Act of 1946 contained certain standing orders dealing with this matter, the counsel for both sides agreed that those standing orders ceased to be in force after the enactment of the Industrial Disputes (Amendment) Act of 1953, and that no other statutory provision was applicable to the present dispute. Accordingly, the Court concluded that the determination must be made on the basis that the only condition which the parties could be deemed to have agreed upon was that any lay-off should be based on adequate grounds and should be of a reasonable period.

The Court observed that the only condition the parties could be said to have agreed upon was that any lay-off must be based on adequate grounds and must be of a reasonable duration. On that point the Court noted a definitive finding in favour of the appellant. The Tribunal had concluded that groundnut and neem seeds were unavailable at parity prices, and consequently the work could not continue. The Court considered it unlikely that businessmen would forfeit their profits merely to antagonise the workmen. The Tribunal had expressed that the lay-off would last until the next groundnut season, and it was explained that the groundnut season ordinarily begins sometime in November or December. In practice, all of the respondents were re-engaged in stages beginning in September, and by the first week of December every respondent had been absorbed back into employment. On the Tribunal’s finding that the lay-off was justified, the Court held that the respondents’ application under section 23 of the Act should be dismissed because there was no breach of section 22(a). Nevertheless, despite that finding, the Tribunal also held that the application under section 23 of the Act was maintainable. To understand the reasoning behind that determination, the Court referred to the text of section 25-C of the Industrial Disputes Act, which provides: “Right of workmen laid-off for compensation: Whenever a workman (other than a badli workman or a casual workman) whose name is borne on the muster rolls of an industrial establishment and who has completed not less than one year of continuous service under an employer is laid-off, he shall be paid by the employer for all days during which he is so laid-off, except for such weekly holidays as may intervene, compensation which shall be equal to fifty per cent. of the total of the basic wages and dearness allowance that would have been payable to him had he not been so laid-off: Provided that – (a) the compensation payable to a workman during any period of twelve months shall not be for more than forty-five days except in the case specified in clause (b); (b) if during any period of twelve months, a workman has been paid compensation for forty-five days and during the same period of twelve months he is again laid-off for further continuous periods of more than one week at a time, he shall, unless there is any agreement to the contrary between him and the employer, be paid for all the days during such subsequent periods of lay-off compensation at the rate specified in this section.” The appellant did not dispute the respondents’ entitlement to compensation and, in fact, the notice dated 12-7-1954, under which the respondents were laid off, expressly informed them that compensation would be paid in accordance with section 25-C. The dispute between the parties concerned only the amount of compensation payable under that provision. The Court recalled that the lay-off had begun on 14-7-1954.

In this case the lay-off began on 14 July 1954 and was intended to last until the following groundnut season. The employer actually re-engaged the workers in batches starting in September, and by the first week of December every employee had been taken back to work. Consequently there was a single continuous lay-off whose duration varied between fifty-seven and one hundred twenty-one days. The appellant argued that, based on these facts, the workmen were only entitled to compensation for the first forty-five days in accordance with proviso (a) of section 25-C, which provided fifty percent of the basic wages and dearness allowance for that period, and that no compensation should be payable for the remaining days. The respondents accepted that proviso (a) applied to the initial forty-five days but contended that the balance of the lay-off fell under proviso (b) of section 25-C. They maintained that, under proviso (b), the same rate of fifty percent of basic wages and dearness allowance should continue to apply for the rest of the lay-off. The Tribunal adopted the respondents’ view, holding that the compensation awarded by the appellant did not comply with section 25-C, that there had been an alteration of the conditions of service, and therefore it awarded compensation under section 23 of the Act. The appellant challenged this construction, asserting that the Tribunal’s interpretation of section 25-C was incorrect and that the amount it had offered was the correct amount payable under that provision. There was no dispute that the compensation for the first forty-five days must be calculated according to proviso (a). The only contested issue was whether the workmen were entitled to compensation for the remainder of the lay-off under proviso (b). Proviso (b) could apply only where the workmen had already received compensation for forty-five days and were then laid off again for further periods of more than one week at a time. The wording of the statute indicated that the lay-off covered by proviso (b) had to be distinct, both in occurrence and in timing, from the lay-off for which compensation had been paid under proviso (a). Because the lay-off in the present case was continuous throughout the entire period, the court concluded that proviso (b) could not be invoked. The respondents’ counsel argued that, even though there was a single lay-off, it should be conceptually divided into two phases: the first forty-five days governed by proviso (a) and the subsequent period governed by proviso (b). It was suggested that a second, separate lay-off could follow the first without any interruption, for example when an employer first notifies a lay-off of forty-five days, pays compensation, and then issues a fresh notice after that period declaring an additional lay-off of more than seven days in continuation of the original notice, which would then fall within proviso (b). However, in the facts before the court there was only one notice, and that notice specified a lay-off lasting until the next season. The court found that, without stretching the language of proviso (b), such a lay-off could not be brought within its ambit.

The respondents argued that a lay-off could be treated as two separate periods. They said that the employer might first give a lay-off of forty-five days, pay compensation for that period, and then, at the end of those forty-five days, issue a new notice declaring a further lay-off that lasts more than seven days and continues the previously notified lay-off. According to the respondents, such a second lay-off would fall within proviso (b) of section 25-C.

The Court observed that, in the present case, there was only a single notification. That single notice specified that the lay-off would continue until the next season. The Court held that, without stretching the language of proviso (b) of section 25-C, the lay-off described in the single notice could not be brought within the scope of that proviso.

The respondents relied on the decision in Automobile Products of India Ltd. v. Their Workmen (1955 1 Labour Law Journal 67) to support their contention. The Court noted that the cited decision gave no effect to the words “again laid off.” Moreover, the Court pointed out that if the construction adopted in that decision were correct, the two provisos, (a) and (b), would become unnecessary, because the amount claimed to be payable under them would instead be payable under the main body of the section itself.

The Court further observed that, as indicated in the earlier decision, such an interpretation would create an anomalous situation. The Court said that it is the legislature’s prerogative to amend the section if it deems the result undesirable, and not the Tribunal’s role to reinterpret the clear language of the statute.

Consequently, the Court held that the respondents were entitled to compensation only for the forty-five days covered by proviso (a). The Court noted that the appellant had offered to pay that compensation in a notice dated 12-7-1954, and therefore there was no violation of the conditions of service contemplated in section 22 of the Act. In view of this, the Court concluded that the respondents’ petition must be rejected.

The appeal was allowed, the order of the Tribunal was set aside, and the petition of the respondents was dismissed. Each party was ordered to bear its own costs.