Pipraich Sugar Mills Ltd vs Pipraich Sugar Mills Mazdoor Union

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

Court: supreme-court

Case Number: Civil Appeal No. 247 of 1954

Decision Date: 23 October, 1956

Coram: Venkatarama Ayyar

In this case, the Supreme Court recorded that the petitioner, Pipraich Sugar Mills Ltd, was unable to operate its mill at full capacity because of an insufficient supply of sugar‑cane. The Government granted the company permission to sell its machinery, yet the company continued to crush cane under a lease from the purchaser. The workmen’s union, seeking to obstruct the transaction, resolved to go on strike and communicated this resolution to the company. Subsequent correspondence between the parties showed that the company offered to pay the workmen twenty‑five percent of the profits from the sale on the condition that the strike notice be withdrawn immediately. The workmen did not meet that condition and instead made certain counter‑proposals. The company replied that the condition must first be satisfied before any counter‑proposals could be considered, and it renewed its original offer. Although the workmen never actually commenced a strike, they failed to withdraw the strike notice and also refused to cooperate with management in dismantling and delivering the machinery to the purchaser, causing the company to incur heavy losses. When the lease expired and the industry was closed, the company terminated the services of the workmen on 21 March 1951. Thereafter, the workmen claimed a share of the profits based on the company’s earlier offer, and the dispute was referred by the Uttar Pradesh Government to an Industrial Tribunal for adjudication under section 3 of the Uttar Pradesh Industrial Disputes Act, 1947. The Tribunal held that the company was bound by the offer it had made and awarded the workmen a sum of Rs 45,000 as their share of the profits. On appeal, the Labour Appellate Tribunal affirmed the Tribunal’s award. The company contended that the Government’s notification was beyond its authority, rendering the reference and the award void, and further argued that, in the absence of a concluded agreement, the company was not bound to make any payment. The Court held that the definition of an industrial dispute contained in section 2(k) of the Industrial Disputes Act, 1947, as adopted by the Uttar Pradesh Industrial Disputes Act, contemplated the existence of an industry and a continuing employer‑employee relationship between the parties, thereby affecting the applicability of the statutory provisions to the dispute.

In this case the Court explained that where an industry had been genuinely shut down, and the shutdown was real and bona‑fide, any dispute that arose because of that closure or later could not be described as an industrial dispute within the meaning of the relevant statutes. Section 3 of the Uttar Pradesh Industrial Disputes Act of 1947 required only that an industrial dispute exist before the Government could refer the matter under that section. Accordingly, when the claim in dispute had arisen, if it had arisen at all, before the industry was closed, the Government was fully competent to issue the required notification. The Court noted that the rulings in Indian Metal and Metallurgical Corporation v. Industrial Tribunal, Madras (A.I.R. 1953 Mad. 98) and E. N. Padmanabha Ayyar v. The State of Madras ([1954] 1 L.L.J. 469) were approved, and that the decision in Messrs Burn and Co. Ltd., Calcutta v. Their Workmen (Civil Appeal No. 325 of 1955, decided on 11 October 1956) was referred to for its relevance.

Having considered the facts of the present matter, the Court observed that the findings of the Industrial Tribunal were inconsistent and conflicting. After examining the correspondence between the parties, the Court held that the documents did not demonstrate the existence of a concluded agreement by which the workmen could claim any share of the profits. Consequently, the award made by the Labour Appellate Tribunal was required to be set aside. The Court further found that the award could not be sustained as compensation for termination of the workmen’s services on the closure of the industry, because such a discharge was distinct from a discharge on retrenchment, which presupposes the continuation of the industry and the removal only of surplus labour. Accordingly, the workmen were not entitled, either under the law as it stood on the date of their discharge or even on the merits of the case, to any compensation. The Court distinguished and disapproved the decisions in Employees of Messrs India Reconstruction Corporation Limited, Calcutta v. Messrs India Reconstruction Corporation Limited, Calcutta ([1953] L.A.C. 563) and Messrs Benett Coleman & Company Ltd. v. Their Employees ([1954] L.A.C. 24).

The judgment was rendered in the Civil Appellate jurisdiction as Civil Appeal No. 247 of 1954, an appeal from the judgment and decree dated 21 July 1953 of the Labour Appellate Tribunal, Third Bench, Lucknow. Counsel for the appellant was engaged, and an amicus curiae was appointed for the respondent. The Court’s opinion was delivered by Justice Venkatarama Ayyar. The appellant was identified as a limited company that had been engaged in crushing sugarcane at Pipraich in Gorakhpur District since 1932. In 1946 the company decided to expand its operations; it sold its old machinery, which had a crushing capacity of 160 tons per day, and purchased new machinery with a capacity of 650 tons. The new plant was installed in 1947 and commenced operations in the 1948‑49 season. During this period the sugar industry faced a severe crisis due to a shortage of sugarcane, prompting the Government to assume control over production and supply. The quota allocated to the appellant’s mill proved to be insufficient for its needs.

In the years 1948‑49 and 1949‑50 the company reported that it incurred a total loss amounting to rupees two lakh sixty‑seven thousand and forty‑two and three‑quarters, a figure the appellant asserted to be accurate. After a number of unsuccessful attempts to obtain a larger allocation of sugarcane, the management addressed a letter to the Government dated 11 May 1950 in which it asked either for an increase in its production quota or for permission to sell the mill. In October 1950 the Government granted the request for sale, and consequently the management disposed of the plant and its machinery to a purchaser based in Madras. Because the crushing season was already under way, the appellant entered into a lease with the purchaser for the balance of that season, agreeing to surrender possession of the mill at the end of the lease term. It should also be noted that the appellant was simultaneously negotiating with the same purchaser for the dismantling of the machinery and its re‑erection in Madras for a lump‑sum price, intending that its own workmen would carry out the dismantling work.

The workmen, upon learning of the sale agreement, reacted with strong hostility. Acting through their trade union, which was the respondent in this case, they resolved to obstruct the transaction because they feared that the sale would result in the loss of their employment. With that aim they appealed to the Government to cancel the permission that had been granted for the sale, and on 26 December 1950 the union passed a resolution announcing a strike to commence on 12 January 1951, a notice of strike that they communicated to the appellant. The subsequent exchange of letters between the parties formed the factual basis of the compensation claim filed by the union and later awarded by the Tribunal, and therefore the Court found it necessary to set out those communications in full detail.

On 3 January 1951 the Managing Director, through the Mill Manager, offered the union a share of twenty‑five per cent of the profit that would arise from the sale to the Madras party, subject to the condition that the strike notice be withdrawn immediately so that work arrangements could be made. The union replied on 5 January 1951, stating that the assurance referred to in the Managing Director’s communication, which had been sent under the reference number 975 dated 4 January 1951 and asked the union to withdraw the strike notice, could not be accepted because the union’s dispute was with the Government and not merely with the sale. The union emphasized that its members were determined to keep the sugar mill operating at any cost, whether by striking, observing satyagraha, or any other method endorsed by their federation, and that without such action there could be no guarantee of employment for the thousands of workers concerned. The union’s letter further objected to certain terms of the offer and concluded by indicating that the workers were awaiting guidance from their President, Kashinath Pandey, before taking any further step.

In response to the objections raised by the union, the management sent another letter on 8 January 1951 stating that it was prepared to reconsider the terms of its proposal, but it reiterated that the immediate withdrawal of the strike notice remained the principal condition for any further negotiation.

On 9 January 1951 the Union President, Kashinath Pandey, travelled to Pipraich and held discussions with the mill management. Following those talks, the General Manager wrote to the Union on 10 January 1951, stating that the Union’s demand for the withdrawal of the strike notice was the “chief point” and that, if the strike notice were withdrawn immediately, the management would assent to the other points raised by the Union. The General Manager then listed those points and concluded the letter by assuring that the compensation payable to the workmen would not be less than one lakh rupees. On the same day the Union responded that the workers were awaiting the “final order” of Kashinath Pandey on the matter, and it assured the management that, pending that order, the strike would not be lifted from the 12th of January. After this exchange no further communication was received from the Union, the strike never materialised, and crushing operations continued uninterrupted until the end of the crushing season in January 1951. The appellate court later had to determine whether, based on this correspondence, a concluded and binding agreement existed obligating the appellant to pay the workmen twenty‑five percent of the profits arising from the sale transaction.

When the lease expired at the close of the crushing season, the purchaser of the mill arrived at Pipraich to take delivery of the plant and to arrange for the machinery to be dismantled and shipped to Madras for re‑erection. The appellant, which was negotiating a lump‑sum payment for the dismantling, found that the workmen remained hostile and refused to cooperate with the dismantling work. In the respondent’s written statement the workmen were described as having “declined out of sentiment to dig their own graves.” After repeated unsuccessful attempts to secure their assistance, the management issued a notice dated 28 February 1951 stating that the mill had been sold, that the new party had arrived for dismantling, and that under the terms of the agreement the workers were expected to help. The notice further claimed that the management could arrange a contract for dismantling and erection in Madras, could retain the workers, and would request the purchaser to employ them in its own concerns. It warned that any worker who refused to cooperate would be considered discharged effective 1 March 1951, with fifteen days’ notice, and that anyone who caused obstruction would be deprived of the promised benefits. The Union could not accept the prospect of the mill being shifted, and on 4 March 1951 Kashinath Pandey wrote to the Government threatening to undertake a hunger strike if the mill were relocated from Pipraich. Consequently the workmen were in no mood to comply with the terms of the notice dated 28 February 1951.

In this case the workers were not prepared to accept the terms set out in the notice dated 28 February 1951, and consequently the management issued a further notice on 14 March 1951. That notice explained that the workers had already been informed that the entire plant had been sold to a party from Madras, that the Madras party had arrived to take charge of the machines, and that the plant would be handed over to the purchasers on 15 March 1951, leaving no work for the employees. The notice also recorded that the Mazdoor Union had refused the management’s suggestion to involve the workers in the dismantling and erection of the plant at Madras. Pursuant to the earlier notice of 28 February, the management declared that certain workers were discharged from service effective 1 March 1951, subject to the payment of fifteen days’ wages, and directed those workers to collect their wages on 15 and 16 March. A subsequent notice dated 16 March 1951, sent by the appellant to the respondent, showed that after the 14 March notice was issued, Kashinath Pandey had a discussion with the management. As a result of that discussion the date of termination of service for the workers was extended from 15 March to 21 March, pending the Government’s decision on the “future programme of the Pipraich factory”. The workmen, in turn, agreed that they would take up the dismantling of the mill after that later date. However, the Government, by a letter dated 21 March 1951, declined to interfere with the sale of the machinery. Accordingly, based on the understanding reached in the March 16 discussion, the workers were expected to cooperate with the appellant in dismantling the machinery from 21 March onward. The workers refused to do so, and consequently, acting in accordance with its notices of 28 February 1951 and 14 March 1951, the management duly discharged them.

Because the appellant was unable to secure the dismantling contract, the purchaser entered into direct negotiations with the workmen and on 1 April 1951 concluded an agreement with them for dismantling the machinery. The net result was that the appellant lost a contract on which, as admitted by the respondent, it would have earned a profit of at least rupees two lakh. After obtaining the benefit of the direct contract with the purchaser, the workers turned their attention to the appellant and, relying on letters dated 3 January 1951 and 10 January 1951, sent a notice on 19 April 1951 demanding that the appellant distribute among the workers a 25 per cent labour‑share of the profits from the sale of the machinery. The appellant replied on 19 June 1951, repudiating the claim and referring to its notice dated 27 February 1951, in which it had appealed to the labour to cooperate so that the appellant might obtain the dismantling contract at Pipraich and the erection contract at Etikoppaka, and had warned that those who did not cooperate should consider themselves discharged.

The appellant’s letter stated that any workman who did not co‑operate should consider himself discharged, adding that such a stance would have allowed the company to save enough to meet the labour’s demands; however, the appellant complained that despite the appeal and notice, the workmen refused to co‑operate, causing the appellant to suffer a heavy loss for which the workmen were directly responsible. Following this communication, the respondent approached the Government seeking action, and consequently on 16 November 1951 the Government of Uttar Pradesh issued a notification under section 3 of the Uttar Pradesh Industrial Disputes Act XXVIII of 1947 (hereinafter “the Act”). The notification referred the dispute to the Industrial Tribunal for adjudication and set out the question whether the services of workmen, if any, had been terminated by Pipraich Sugar Mills Ltd., Pipraich, District Gorakhpur, without settlement of their due claims and improperly, and, if so, what relief the workmen were entitled to. The Industrial Tribunal rendered its award on 28 February 1952. In its award the Tribunal first held that the closure of the business and the subsequent sale of machinery by the appellant were made in good faith because the enterprise had been continuously incurring losses and the sugarcane supply situation offered no immediate prospect of improvement. The Tribunal then found that the conduct of the workmen had been wholly unfair and such conduct, in its view, disqualified the workmen from any compensation. Nonetheless, the Tribunal observed that the promise contained in the letters dated 3 January and 10 January 1951 to pay twenty‑five per cent of the profits realised from the sale of the mills was binding on the management. Rejecting the appellant’s contention, the Tribunal ruled that the notification dated 16 November 1951 was competent even though the business had already been closed at that date. The Tribunal proceeded to calculate the profits realised from the sale and concluded that a sum of Rs 45,000, representing twenty‑five per cent of the net profits, was payable to the workmen.

The management appealed the award, but the Labour Appellate Tribunal affirmed the Tribunal’s decision by an order dated 21 July 1953. The present matter is before this Court on an appeal under article 136. Because the appeal raised questions of importance and the respondent was unrepresented, assistance was requested from counsel, whose comprehensive argument is acknowledged. Two principal contentions were advanced in support of the appeal. The first contention alleges that the notification dated 16 November 1951, which referred the dispute to the Industrial Tribunal, was ultra vires of the Act, rendering the reference and the award void. The second contention argues that there was no concluded or binding agreement by the appellant to pay the workmen any share of the profits from the sale, and therefore the award is untenable on its merits. Regarding the first contention, the Court noted that the statutory provision under which the impugned notification was issued is section 3 of the Act, which provides: “If in the opinion of the State Government, it is necessary or …”

The statute permits the State Government, when it considers it necessary or expedient for securing public safety or convenience, maintaining public order, ensuring the supply of essential services, or preserving employment, to issue a general or special order that makes provision, in particular clause (d), for referring any industrial dispute to conciliation or adjudication in the manner prescribed by the order. An “industrial dispute” is defined in section 2(k) of the Industrial Disputes Act, 1947, and, by virtue of section 2, the definition applies throughout the Act. The definition states that an industrial dispute means any dispute or difference between employers and employees, between employers and workmen, or between workmen and workmen, which is connected with the employment or non‑employment, the terms of employment, or the conditions of labour of any person.

The appellant contended that a prerequisite for the State to exercise its power under section 3 of the Act is the existence of an industrial dispute as defined above. According to the appellant, such a dispute cannot arise unless there is an employer‑employee relationship. In the present case the appellant argued that it had sold its mills, closed the business, and discharged the workmen on 21 March 1951, having paid them in full all amounts due under the standing orders. Consequently, the appellant claimed that after that date there was no longer any employer‑employee relationship and therefore no industrial dispute existed on the date of the notification of 16 November 1951, rendering the State’s action incompetent.

To support this position the appellant relied on the observation in Indian Metal and Metallurgical Corporation v. Industrial Tribunal, Madras (A.I.R. 1953 Mad. 98, 102) that the definition of an “industrial dispute” presupposes the continued existence of the industry, and on the decision in K. N. Padmanabha Ayyar v. The State of Madras ([1954] 1 L.L.J. 469) which held that no industrial dispute can arise with respect to a business that no longer exists. It is undeniable that the entire scheme of the Act assumes the existence of an industry, and the Act proceeds to prescribe various steps—such as provisions relating to lock‑out, strike, lay‑off, retrenchment, conciliation, adjudication proceedings, and the period for which awards remain in force—only where a dispute arises in a running industry, not in a closed one.

In the case of Messrs Burn and Co., Ltd., Calcutta v. Their Workmen (1), this Court observed that the object of all labour legislation is firstly to ensure fair terms for workmen and secondly to prevent disputes between employers and employees so that production is not adversely affected and the larger public interest is protected. Both of these objectives can be realised only in an existing, not a dead, industry. The view expressed in Indian Metal and Metallurgical Corporation v. Industrial Tribunal, Madras, therefore supports the argument that the statutory framework applies only where an industry continues to operate.

The Court affirmed the view expressed in Industrial Tribunal, Madras and in K. N. Padmanabha Ayyar v. State of Madras that the Industrial Disputes Act is intended to apply only to disputes which arise out of an industry that is actually in existence. Consequently, when a business has been closed and that closure is either admitted by the parties or proven to be genuine and bona‑fide, any dispute that is connected with that closure must, as held in K. N. Padmanabha Ayyar, fall outside the scope of the Act. This principle is even more forcefully applicable to a dispute that might be imagined to arise after the shutting down of the business between the former employer and the former employees.

In the present case the Court needed to determine the character of the dispute referred to in the challenged notification. The workmen asserted that letters issued by the management on 3 January 1951 and on 10 January 1951 contained a promise which was a binding agreement, and that they were therefore entitled to receive payment according to that promise. If that assertion were correct, the dispute would concern a claim that originated while the industry was still operating and between parties who were then in the legal relationship of employer and employee; such a claim would squarely fall within the definition of an industrial dispute under the Act. The appellant, however, contended that the notification dated 16 November 1951 was invalid because the industry had already been closed before that date, and therefore no employer‑employee relationship existed at the relevant time. In other words, the appellant argued that the State’s authority to make a reference under section 3 depended not only on the dispute having arisen in an existing industry but also on the industry continuing to exist on the date of the notification. The Court found no language in section 3 that supports imposing this additional restriction on the State’s power. Section 3 merely requires, apart from other conditions that are not presently at issue, that an industrial dispute exist before a reference can be made, and the Court had already held that a dispute qualifies as industrial when it arises out of an existing industry. Once that condition is satisfied, the State’s competence to act under the provision is complete, and the subsequent closure of the industry cannot affect that competence. To adopt any other interpretation would, in the Court’s view, lead to serious inconsistencies and grave injustice. For example, if a workman who was wrongly dismissed raised an industrial dispute and the government had not yet acted before the industry was shut down, the question would arise as to what would happen to the right to appropriate relief granted by the Act, if the Act

In this case the Court considered the problem that would arise if an industrial dispute gave a workman a right under the Act and the industry was subsequently closed, because the workman’s right would appear to disappear simply because the business no longer existed. The Court asked what would stop an employer, who for legitimate commercial reasons intends to shut down his enterprise, from committing widespread unfair labour practices, victimising employees and wrongfully dismissing them, and then escaping liability by closing the industry. The Court held that a proper construction of section 3 required that the State’s power to make a reference be measured not by the date on which the reference was issued but by the date on which the disputed right arose. Accordingly, the mechanisms provided by the Act would remain available to determine rights that had accrued before the business was dissolved. The Court then turned to the argument that, even on this view, the notification dated 16 November 1951 was invalid because management had, by a letter dated 3 January 1951, offered to pay the workmen twenty‑five per cent of the profits from a sale transaction only on 30 April 1951, and that the workmen’s right to that amount arose only after the business had been closed on 21 March 1951. The Court found this argument to be based on a misunderstanding of the facts. It explained that the promise in the 3 January 1951 letter gave the workmen an immediate right to twenty‑five per cent of the profits, although the actual payment could be made only on 30 April 1951 because the exact amount could be ascertained only after the transaction was completed. Since the claim for a share of the profits arose on 3 January 1951 and again on 10 January 1951, when the industry was still operating, the Court concluded that the reference dated 16 November 1951 was valid despite the closure of the business on 21 March 1951. The Court then addressed the second issue, namely whether a concluded agreement bound the appellant to pay the workmen twenty‑five per cent of the profits from the sale. The Industrial Tribunal had answered this question affirmatively, and the Appellate Tribunal had accepted that finding as a factual determination under section 7 of the Industrial Dispute (Appellate Tribunal) Act No. XLVIII of 1950. Counsel argued that, following the usual practice of this Court in special appeals, factual findings of Tribunals should not be disturbed absent exceptional reasons, and therefore the Tribunal’s finding of a concluded and enforceable agreement should stand. However, the Court noted a difficulty: the Tribunal had issued inconsistent and conflicting findings, effectively speaking in two voices. Consequently, the Court found it necessary to examine which of the Tribunal’s findings were supported by the material on record. The Court therefore began its analysis with the letter dated 3 January 1951, in which management made the initial offer to pay the workmen twenty‑five per cent of the profits from the sale transaction, subject to the condition that the strike be called off “at once and today”.

On 3 January 1951 the management issued a letter proposing to pay the workmen twenty‑five per cent of the profits that would arise from the sale of the mill. This proposal was expressly conditioned on the requirement that the strike be withdrawn “at once and today”. The workmen did not comply with that condition. Subsequently, the workmen replied on 5 January 1951 with a set of counter‑proposals, and the management answered on 8 January 1951, indicating that it would reconsider its terms provided that the strike notice was withdrawn. Because the strike notice was not withdrawn, the offer contained in the 3 January letter was never accepted and therefore lapsed. On 10 January 1951 the management renewed its offer, again making the withdrawal of the strike notice a condition precedent. The workmen did not pass any resolution to withdraw the notice, and in their reply dated the same day they stated that they were awaiting the final decision of Kashinath Pandey before taking any action. No further communication was received from the Union after that date. Consequently, the correspondence shows that there was no acceptance of the management’s offers, and the offers remained subject to an unmet condition.

The Tribunal’s later observations appear contradictory. At one point it regarded the lack of a final agreement as evidence that “no final agreement could be arrived at… and consequently the management served a notice on 28 February 1951”. Yet it also remarked that the workmen had not gone on strike on 12 January 1951, continued in service until the notice of discharge on 28 February, and that this continued service constituted consideration for the promise made in the management’s letters of 3 and 10 January 1951, rendering that promise a binding term of service entitling the workmen to compensation upon the mill’s closure. This reasoning is based on a confusion of concepts. The question of whether consideration existed for the management’s promise arises only if the offer had been accepted, thereby forming a contract. The Tribunal itself had found that no concluded agreement existed; therefore the inquiry into consideration and the transformation of the promise into a term of service was misplaced. The respondent argued that, although no formal resolution withdrawing the strike was passed, the fact that no strike occurred should be taken as acceptance by conduct. That argument fails because the respondent’s own letter of 10 January 1951 expressly indicated that a decision was still pending, which does not amount to acceptance. Moreover, the strike’s purpose was not directly related to employment terms but was aimed at preventing the relocation of the mill. The workmen continued to oppose the move, as demonstrated by Kashinath Pandey’s hunger‑strike threat on 5 March 1951, and they did not cooperate in dismantling the machinery. Accordingly, there can be no finding of a concluded and enforceable agreement between the parties.

In the correspondence dated 12 December, the respondent indicated that the strike was not in progress on that day but added that the situation remained pending the Union’s final decision. That statement was not an acceptance of the management’s offer. The issue, however, did not end with that letter. The purpose of the strike, as the Court recalled, was not directly related to the terms of employment but was a collateral matter intended to stop the relocation of the mills from Pipraich to Madras. When the management proposed to surrender twenty‑five per cent of the profits arising from the sale, the clear intention behind that proposal was to neutralise the workers’ opposition and to obtain the dismantling and delivery of the machinery to the purchaser without disturbance. The Court noted that the workers never consented to that proposal. As late as 5 March 1951, Mr Kashinath Pandey wrote to the Government stating that, should the mills be moved from Pipraich, he would commence a hunger strike. Even after the Government informed him that the sale could not be interfered with, the workers refused to cooperate with the management in dismantling the plant. Consequently, the appellant was forced to abandon the dismantling contract and suffered a loss of two lakh rupees in anticipated profit. Moreover, after successfully preventing the appellant from obtaining the dismantling contract, the workers themselves entered into a direct agreement with the purchaser and, according to the evidence, captured at least a portion, if not the whole, of the profit that the appellant would have earned. On the basis of these facts the Court found it impossible to conclude that a binding agreement existed between the parties that obligated the appellant to share the sale profits with the workers. The next argument, advanced by counsel for the respondent, asserted that even in the absence of a concluded agreement to share profits, the Tribunal could have awarded compensation for termination of the workers’ services by treating the termination as retrenchment, and that the award of Rs 45,000—an amount originally suggested by the management—might be sustained on that ground. That submission rested on the assumption that termination of employment due to the closure of a business qualified as retrenchment. The Court explained that, in its ordinary sense, retrenchment implies that the business continues to operate while a segment of the workforce is discharged as surplus; it does not ordinarily include the termination of all employees because the entire undertaking has been shut down. Nevertheless, counsel for the respondent contended that the definition of “retrenchment” contained in section 2(oo) of the Industrial Disputes Act, 1947, was sufficiently wide to encompass dismissals resulting from the closure of a business, and that, under section 25‑F, compensation could therefore be awarded. The Court noted that it had been urged, on behalf of the appellant, to consider the decision in J K Hosiery Factory v Labour Appellate Tribunal, where the court held that the statutory definition of retrenchment does not extend to dismissals occasioned by the closure of the undertaking.

The Court observed that the definition of “retrenchment” contained in section 2(oo) of the Industrial Disputes Act, 1947 does not include the termination of service that results from the closure of a business, although Mr Umrigar argued that this interpretation was mistaken. The Court explained that it was unnecessary to settle this particular question because the definition of “retrenchment” in section 2(oo) and the provision of compensation in section 25‑F were introduced only by the Industrial Disputes (Amendment) Act No XLIII of 1953. The Court further referred to its earlier decision in Messrs Burn and Co., Ltd., Calcutta v. Their Workmen (A I R 1956 All 498), where it held that the 1953 amendment did not have retrospective effect. Consequently, the rights of the parties to the present appeal had to be determined according to the law that existed on 21 March 1951, the date on which the workmen were dismissed.

The appellants then relied on two earlier decisions, namely Employees of Messrs India Reconstruction Corporation Limited, Calcutta v. Messrs India Reconstruction Corporation Limited, Calcutta (1) and Messrs Benett Coleman & Company Ltd. v. Their Employees (2). They argued that, even before the enactment of the 1953 amendment, industrial tribunals had adopted a view that “retrenchment” encompassed dismissals caused by the closure of a business, and that compensation had been awarded on that basis. They submitted that the award made by the Tribunal in the present case was consistent with that view and therefore should not be disturbed.

The Court examined the passage from Employees of Messrs India Reconstruction Corporation Limited, Calcutta v. Messrs India Reconstruction Corporation Limited, Calcutta, quoted at page 576, which stated: “Ordinarily retrenchment means discharge from service of only the surplus part of the labour force but in the case of closure the whole labour force is dispensed with. In substance the difference between closure and normal retrenchment is one of degree only. As in the case of retrenchment so in the case of closure the workmen are not responsible for closing their jobs. In both the cases, what is called compensation by way of retrenchment relief should be admissible.” The Court expressed its inability to agree with these observations. It noted that, although dismissals occur both in retrenchment and in closure, compensation is payable only for dismissals that qualify as retrenchment under the statute. Since the ordinary meaning of “retrenchment” is the discharge of surplus workers, it cannot be stretched to include dismissals that arise from the complete shutdown of a business.

Furthermore, the Court pointed out that the case of Employees of Messrs India Reconstruction Corporation Limited, Calcutta did not actually involve a total closure of business. Rather, one unit of the company located in Calcutta was shut down, which the Court characterised as a case of retrenchment, and the remarks quoted were obiter dicta. Those dicta were later cited without critical analysis by the Appellate Tribunal in Messrs Benett Coleman & Company Ltd. v. Their Employees, where the Tribunal added at page 27: “Thus whether the closure was justified or not, the workmen who have lost their jobs would in any event get compensation. If it was not bona fide or …” The Court rejected this line of reasoning, emphasizing that the earlier observations were not binding and that compensation could not be awarded merely because a business closed.

In this case the Court observed that if a business closure is not justified, the amount of compensation awarded to the workmen could be larger than it would have been if the closure were justified. The Court then explained that, for the reasons set out earlier in its judgment, it could not agree with the observations made in the earlier authority. The Court further pointed out that, in the decision of Messrs Benett Coleman and Company Ltd. v. Their Employee, the factual situation was different because there was no actual closure of the business; instead the Calcutta unit of a newspaper publishing company whose headquarters were in Bombay was simply wound up. On the basis of this distinction the Court overruled the earlier contention that the same rule on closure should apply. The Court also noted that the Tribunal had opined that, apart from any agreement that might exist, the conduct of the workmen was such that they should not be granted compensation, and the Court fully agreed with that assessment. Having found the agreement to be invalid, the Court concluded that the appeal must be allowed and that the Tribunal’s award of compensation to the workmen should be set aside. Finally, the Court directed that each party should bear its own costs throughout the proceedings. Accordingly, the appeal was allowed.