J.K. Iron And Steel Co. Ltd. vs Its Workmen on 11 February, 1960

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: Not extracted

Coram: K. Subba Rao, K.C. Das Gupta

In this case, the Court observed that the matter arose from an appeal by special leave against an award dated 27 May 1957 made by Shri J N Tewari, who was the Deputy Labour Commissioner in Kanpur. The appellant was J K Iron And Steel Co. Ltd., a public limited company incorporated under the Indian Companies Act, 1913, which had been engaged in steel making, re‑rolling, foundry work and steel fabrication at Kanpur since 1939. For efficient operation, the company had been organized into several departments, one of which was the rolling‑mill department. The Government of India had directed the company to transfer its baling‑hoop factory to the Calcutta area effective 19 March 1951, and at about the same time there was a severe shortage of scrap, the raw material required for steel production. Because of these two circumstances, on 15 May 1951 the company dismissed 128 workmen on the ground that they were surplus to requirements. Of the dismissed workers, 25 received full satisfaction of their claims, while the remaining workmen raised an industrial dispute. By a notification dated 20 June 1951, the Government of Uttar Pradesh referred the dispute to Shri J N Singh, Additional Regional Conciliation Officer, Kanpur, for adjudication, framing the question as whether the retrenchment of the workmen listed in the annexure was unjustified and, if so, what relief the workmen were entitled to. On 1 November 1951, the Deputy Labour Commissioner, acting as adjudicator, held that the retrenchment was not justified and ordered that all the workmen be reinstated and “played off” in rotation in accordance with the Standing Orders. Both parties appealed this decision to the Labour Appellate Tribunal. The Tribunal rejected the appellant’s appeal and allowed the respondents’ appeal, setting aside the order of retrenchment, deeming the workmen to still be in service, and awarding them wages for the specified period. Subsequently, the appellant obtained special leave to appeal to this Court, and on 23 December 1955 the Court set aside the Tribunal’s award and remanded the matter to the Tribunal for rehearing. After the remand, the Tribunal expressed the view that it could not return the case to the adjudicator, and the State Government issued a fresh notice on 10 September 1956 referring the dispute again to the Deputy Labour Commissioner, Kanpur. The Deputy Labour Commissioner then delivered an award on 27 May 1957, finding that the retrenchment of the workmen was justified, except for five workmen employed in the Punching and Pressing Department, for whom he concluded that the management’s action in retrenching them was mala fide. He also examined the case of nine clerks, holding that although eight junior clerks had been retained, three of those had been kept because of special qualifications, thereby justifying their retention; however, the management’s decision to retain the seniors and retrench the five remaining junior clerks was deemed unjustified. Accordingly, the Deputy Labour Commissioner listed the five workmen in the Punching and Pressing Department and five of the nine clerks as wrongly retrenched, providing their names in Appendix‑A to his award. For the five workmen in the Punching and Pressing Department, he further held that reinstatement was not advisable and instead directed that they be paid fifty percent of their wages for the entire period of their wrongful dismissal.

The Deputy Labour Commissioner examined the circumstances surrounding the retrenchment of workers in the Punching and Pressing Department and the treatment of nine clerical employees. He concluded that the employer’s decision to dismiss the five workers from the Punching and Pressing Department was undertaken in bad faith. Regarding the nine clerks, he observed that eight individuals who were junior to the senior clerks had been retained; however, three of those eight were kept because they possessed special qualifications, and therefore their continued employment was justified. For the remaining five junior clerks, the Commissioner held that the management's choice to retain them while dismissing their senior counterparts was unjustified. Consequently, the Commissioner determined that the five workmen from the Punching and Pressing Department and five of the nine clerks had been wrongly retrenched. The names of the persons deemed incorrectly dismissed were listed in Appendix‑A to the award. For the five workmen of the Punching and Pressing Department, the Commissioner found that reinstatement was not advisable for the reasons he set out, and instead ordered that each of these five individuals receive half of their wages for the entire period of unemployment, measured from the date of retrenchment up to the date the award was enforced, in addition to the full retrenchment compensation to which they were entitled. Concerning the five clerks, the Commissioner concluded that, under ordinary circumstances, they would have been retrenched in 1953; therefore, justice required that they be granted full retrenchment relief together with fifty per cent of their wages from the date of their dismissal until 7 September 1953. The Iron and Steel Mazdoor Union did not file any appeal challenging the award insofar as it was adverse to them, but the appellant‑company, as previously noted, filed the present appeal by special leave.

Mr. Pathak, the counsel representing the appellant, presented several points before the Court. First, he argued that the Adjudicator’s finding of bad‑faith retrenchment of the five workers in the Punching and Pressing Department was based on an additional finding that the department formed part of the workshop, a conclusion that, in his view, lacked evidential support. Second, he contended that the Adjudicator should have considered the functional separation of different categories of workers within a department when assessing retrenchment, rather than relying on the notion of a single administrative control. Third, he submitted that the written agreement entered into between the appellant and the workmen on 13 November 1956 settled all disputes between them, and therefore the ten persons whose cases were before the Court were bound by the terms of that agreement. Fourth, he maintained that management possesses a legal right to retrench its labour force at its discretion, and that when the employer acted in good faith by retrenching senior employees on the ground that junior employees possessed special qualifications, the Adjudicator lacked jurisdiction to replace the employer’s judgment with its own opinion. Finally, he asserted that the Adjudicator erred plainly in holding that the retrenchment of Yogeshwar Jha was improper, because, according to the Adjudicator’s own findings, that individual was obligated to leave the service.

In the matter before the Court, it was observed that the fifth point concerning the management’s right to retrench was that the Adjudicator had clearly erred in holding that the termination of Yogeshwar Jha was improper, because, based on the Adjudicator’s own findings, Mr Jha was obligated to leave his position. The Court then turned to the third question raised by counsel. This question had never been presented at any stage of the earlier, lengthy proceedings and was being introduced for the first time in the present hearing. The Court therefore stated that it was not appropriate to allow counsel to venture this new contention at this late stage.

To address the first question raised by counsel, the Court set out the two definitive findings made by the Adjudicator. First, the Adjudicator concluded that the management’s action with respect to the five workers was undertaken in bad faith. Second, the Adjudicator found that those five workers were members of the Workshop Department and consequently, either they should not have been retrenched at all, or, if retrenchment was deemed necessary, the five most junior employees of the Workshop Department should have been the ones dismissed. The Court then examined the argument that these two findings were unsupported by any evidence placed before the Adjudicator.

Regarding whether the Punching and Pressing Department formed part of the Workshop Department, the Court noted the testimony of Bishwanath Singh, a witness for the retrenched workers, who unequivocally stated that the Punching and Pressing Section was situated within the workshop. In addition, the appellant‑company had expressly admitted that fact during a 1948 inquiry conducted by the Regional Conciliation Officer concerning these workers and others. The Conciliation Officer’s order recorded the employer’s representative’s admission that the Punching and Pressing Section was merely a section of the workshop. On the basis of that admission, the Officer directed that three of the workers—Ganga Bishan, Ganga Prasad and Brij Kishore—should be given equivalent positions in the remaining structure of the concern, or, if that was not feasible, should be placed in posts with wages immediately lower than those they had been receiving in the retrenched section. The Officer further directed that the remaining three workers—Munni Lal, Bijay Bahadur and Bishwanath Singh—should be provided by management with posts offering equal wages. The Court pointed out that the five individuals for whom these directions were issued in 1948 were the same five persons who were later retrenched in 1951.

Against this body of evidence, which had been accepted by the Adjudicator, the appellant’s counsel relied on Issue 4(a) that had been referred for adjudication and argued that the issue presupposed a distinction between the two departments. Issue 4(a) read: “Was the employment of the workmen mentioned at serial Nos. 12 to 16 in the Annexure terminated as there was no work in the Punching and Pressing Department?” The Court noted this reliance but maintained that the evidence clearly established that the Punching and Pressing Section was part of the Workshop, thereby undermining the counsel’s contention that the Adjudicator’s findings lacked evidential support.

In this case the issues that were placed before the adjudicator were framed in two parts. Issue 4(a) was worded as follows: “Was the employment of the workmen mentioned at serial Nos. 12 to 16 in the Annexure terminated as there was no work in the Punching and Pressing Department?” Issue 4(b) read: “Were the workmen mentioned at Nos. 12 to 16 not employed in the Punching and Pressing Department and were instead employed in the Workshop and were the seniormost workmen there?”. It was observed that the wording of the issues was not ideal and therefore allowed the counsel for the appellant to comment that the formulation gave rise to ambiguity. Nevertheless, the Court found that Issue 4(b) clearly disclosed the dispute between the appellant and the respondents, because it captured the workmen’s contention that they had not been employed in the Punching and Pressing Department but instead had been placed in the Workshop. Issue 4(a), on the other hand, embodied the employer’s contention that the services of the said employees had been terminated on the ground that there was no work in the Punching and Pressing Department. Thus Issue 4(b) functioned as a response to Issue 4(a). The record further showed that both parties understood the issues in this manner. In paragraph 12 of the written statement filed by the appellant it was stated: “The employment of the workmen mentioned at serial Nos. 12 to 16 was terminated as there was no work in the Punching and Pressing Department and they had been receiving wages without doing any work whatsoever”. Issue 4(a) was based upon this pleading. The Mazdoor Union, in paragraph 3 of its written statement, countered with the allegation: “these workmen were not at all retrenched because there was no work in the Punching and Pressing Section, because they belong to the Workshop Department as a whole, and there was absolutely no retrenchment in the Workshop Department”. This pleading underpinned Issue 4(b). Mahalingam, who was the Secretary of the appellant‑company, testified that the discharged workmen did not belong to the Workshop Department and that the Punching and Pressing Department was a separate entity. However, during cross‑examination he explained: “The place where the machines of the Punching and Pressing department were installed was not in the same part of the premises as the workshop. Punching and Pressing department was making buckles for baling jute bundles and those buckles were sold out and not used in the Mills. The workshop does machining work and deals only with the parts consumed in the factory itself. The work in Punching and Pressing Department was reduced after war as there was no further demand for our highly priced articles.” From this evidence it became evident that the Punching and Pressing Department was, in fact, part of the Workshop, at least to the extent that it produced necessary components such as the buckles. The agreement that had been referred to earlier was invoked by the appellant to argue that the workmen in the Punching and Pressing Department were excluded from its provisions because that department was not part of the Workshop; conversely, if the department was considered part of the Workshop, then the terms of the agreement would apply to all employees, including those working in the Punching and Pressing Department. This line of argument, by implication, sought to determine the departmental status of the workmen for the purpose of applying the agreement.

The Court observed that the issue of whether the Punching and Pressing Department formed part of the Workshop had not been raised at the earliest stage, and that the terms of the agreement did not assist in deciding that issue. It noted that the Adjudicator, after considering the entire evidence, had made a definite finding that the Punching and Pressing Department was part of the Workshop. The Court held that there was evidence on which that finding could be based, and therefore it could not be said that the finding was unsupported. Accepting that finding, the Court concluded that the other finding—that the management’s action in the case of the five workmen was mala fide—was likewise unavoidable. The Adjudicator had pointed out that those five persons had been retrenched in 1948, that although the Conciliation Officer had directed the employer to reinstate them, the management had taken no steps to absorb them into the Workshop Department despite the presence of junior employees performing similar work, and that at the first opportunity the appellant‑company had discharged them. Accordingly, the Court rejected the first contention raised by the respondents.

The Court also rejected the second contention. Even assuming, without expressing an opinion, that the functional aspect should guide retrenchment when all employees belong to the same department, the Court could not allow that point because it had never been raised from 1948 to the present. Moreover, the evidence did not show any functional difference between employees of the two sections that would justify a different treatment in retrenchment. Both sections produced necessary parts of a single whole and were complementary. Consequently, the Court was not satisfied that any distinction existed that would require the retrenchment process to be confined separately to each section.

The Court was likewise not persuaded by the fourth contention. It recognized that management ordinarily may decide which employees to retain, and that a preference for more qualified persons could not be questioned unless the adjudicator concluded that the preference stemmed from mala fide intent. However, when a preference for junior employees ignored the established industrial‑law principle of “first come, last go” without a sound justification, a tribunal could rightly find the management’s action to be not bona fide. In the present case, the Adjudicator had already found that the management’s action toward the employees of the Punching and Pressing Department was mala fide. In regard to the clerks,

The Court examined the justification offered by the management for preferring certain clerks over others. The management argued that the junior clerks who had been retained possessed experience in a specific branch of clerical work. The Court observed that accepting this ground of preference without further explanation would undermine the fundamental principle of industrial law that seniority governs retrenchment. It noted that, while it might be practical for clerks who are already engaged in particular tasks to continue performing those tasks until a work‑readjustment occurs, there is no inherent scientific or specialized skill that distinguishes one class of clerical work from another. Clerks are not trained exclusively for a single type of work; their duties can be transferred readily without causing disruption in the department. Consequently, unless the management can clearly demonstrate that a particular clerk’s job is uniquely comparable to the work performed by clerks in other departments and that this similarity justifies retaining that clerk over his senior counterparts, the Court held that the established industrial‑law principle must be applied. In this case, the adjudicator had accepted the management’s reasons for retaining three individuals who were either specially trained or selected because of the trust placed in them by the management—namely, the labour comptometer operator and the cashier. For the remaining clerks, the only reason cited was that they had acquired some experience, and the adjudicator correctly concluded that this reason was a mere subterfuge intended to evade the seniority rule. Under such circumstances, the Tribunal was deemed fully justified in finding that the retrenchments affecting those clerks were not carried out in good faith.

The final contention raised before the Court concerned an alleged error in the adjudicator’s findings. The adjudicator had ruled that the retrenchments of five individuals—Sri Amarjit Lal, Sri B. P. Gupta, Sri S. P. Mittal, Sri R. P. Banerjee and Sri Yogeshwar Jha—were improper because their junior counterparts had been retained. Counsel for the appellant relied upon a list of clerks arranged “in order of their juniority” that had been filed with the adjudicator, which displayed the names of the clerks together with the dates of their respective appointments. The Court noted that the respondents did not contest the accuracy of this list. According to the list, the clerks identified by serial numbers 1, 5, 6, 7, 9 to 13 and 18 had been retrenched. The adjudicator had concluded that five of those individuals should not have been dismissed and that, consequently, the juniors standing behind them should have been the ones to lose their positions. The five names appearing in Appendix A to the award were: (1) Amarjit Lal (Serial No. 18); (2) B. P. Gupta (Serial No. 13); (3) S. P. Mittal (Serial No. 12); (4) R. P. Banerjee (Serial No. 11); and (5) Yogeshwar Jha (Serial No. 10). The Court was informed that serial number 1, A. N. Mukerji—the most junior clerk—had also been retrenched; this fact was not disputed and therefore fell outside the present controversy.

In the case, the Court observed that after excluding the most junior clerk A.N. Mukerji who had been retrenched, there remained eight clerks who had not been retrenched. The clerks identified by serial numbers fifteen, sixteen and seventeen, namely Piaray Lal, Brahma Lal and Lalta Prasad, were found to have been lawfully retained even though each of them occupied a position junior to the clerk bearing serial number eighteen, Amarjit Lal. Accordingly, the correct application of seniority required that five clerks who were senior in the order of appointment should be retained, and that five clerks who were junior should be retrenched. Under that scheme, the clerks with serial numbers eighteen, thirteen, twelve and eleven were to replace the clerks with serial numbers eight, four, three and two. This substitution left no vacancy for the clerk Yogeshwar Jha, who was listed as serial number ten. If the Court were to grant a place to Yogeshwar Jha, then the clerk Ram Kishan, who held serial number fourteen, would have to be removed. However, such removal could not be justified because Ram Kishan was indisputably senior to the clerks bearing serial numbers thirteen, twelve, eleven and ten. The counsel representing the respondents did not dispute any of these observations. Consequently, the Court set aside the Adjudicator’s order as it applied to Yogeshwar Jha. After making that modification, the Court confirmed the remainder of the Adjudicator’s order. Finally, the Court ordered that the appellant should bear the costs of the respondents.