Jestamani Gulabrai Dholkia and Others vs The Scindia Steam Navigation Company

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 395 of 1959

Decision Date: 30 November 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar

In the case titled Jestamani Gulabrai Dholkia and Others versus The Scindia Steam Navigation Company, the Supreme Court delivered its judgment on 30 November 1960. The bench consisted of Justice K.N. Wanchoo and Justice P.B. Gajendragadkar, and the opinion was authored by Justice K.N. Wanchoo. The decision is reported in 1961 AIR 627 and 1961 SCR (2) 811, and it appears in later citators as D 1970 SC 823, (10) RF 1977 SC1112, and (10) R 1988 SC 876. The central statutory provision considered was Section 20(1) of the Air Corporations Act, 1953, read with its proviso. The Court held that this provision was a reasonable measure designed to protect employees and that it was not limited to direct recruits of existing air companies alone. The two conditions required for the section’s application were: first, that the officer or employee was employed by the existing air company on 1 July 1952; and second, that the officer or employee remained in that employment on 1 August 1953, the appointed day. In the present dispute, the appellants had been recruited by the Scindia Steam Navigation Company Limited and, after that company purchased the Air Services of India Limited, had been loaned to the latter. They performed their duties under the direction and control of Air Services of India between the relevant dates and received their remuneration from that company. The Court concluded that, despite certain special features of their employment arrangement, the appellants were, as a matter of law, employees of Air Services of India from the appointed day. Consequently, they fell within the ambit of Section 20(1) of the Act. Because the appellants did not exercise the option provided in the proviso, they became employees of the corporation established under the Act and consequently lost any right to claim remedies against their original employer. The Court also referred to the precedent Nokes v. Doncaster Amalgamated Collieries Ltd., [1940] A.C. 1014, in support of its reasoning.

The civil appeal was numbered 395 of 1959 and was filed by special leave in an industrial matter. The appeal challenged the award dated 25 November 1957 rendered by the Industrial Tribunal, Bombay, in Reference (I.T.) No. 24 of 1956. Counsel for the appellants included N.C. Chatterjee, D.H. Buch, and K.L. Hathi. Counsel for respondents Nos. 1 and 2 consisted of M.C. Setalvad, Attorney‑General for India, J.B. Dadachanji, and S.N. Andley. Counsel for respondent No. 3 comprised M.C. Setalvad, Attorney‑General for India, Dewan Chaman Lal Pandhi, and I.N. Shroff. The judgment was pronounced on 30 November 1960 and delivered by Justice Wanchoo. The Court observed that the appeal arose from the fact that the appellants originally served the Scindia Steam Navigation Company Limited, hereinafter referred to as the Scindias, and that their services had been transferred by way of loan to the Air Services of India Limited. The transfer was effected after the Scindias purchased the Air Services of India, and the appellants continued to work under the direction and control of the latter during the relevant period.

In this case the Court explained the background of the Air Services of India, referred to as the ASI. The ASI was incorporated in 1937, was purchased by the Scindia Steam Navigation Company in 1943 and by 1946 had become a wholly owned subsidiary of the Scindias. Consequently, from 1946 until about 1951 a large number of employees of the Scindias were transferred to the ASI for indefinite periods. The Scindias owned several subsidiary companies and it was a regular practice for the Scindias to move its employees to those subsidiaries and to recall them whenever the Scindias deemed it necessary. The appellants, who were among those transferred to the ASI, were to receive the same scale of pay as the regular employees of the Scindias and were to be subject to the same terms and conditions of service, including any bonus that the Scindias paid. The Scindias retained the right to recall these loaned employees and the appellants asserted that they were entitled to return to the Scindias if they so desired. Accordingly, the terms and conditions of service that applied to these loaned employees of the ASI differed from the conditions that applied to the employees of the ASI who had been recruited directly by the ASI. This arrangement continued until 1952 when the Government of India began contemplating the nationalisation of the existing airlines with effect expected from June 1953. While legislation for that purpose was being prepared, the appellants became uneasy about their status in the ASI, which was to be taken over by the Indian Air Lines Corporation, hereinafter called the Corporation, an entity that was expected to be established after the Air Corporations Act No XXVII of 1953 (the Act) came into force. On 6 April 1953 the appellants addressed a letter to the Scindias requesting that, as the Government intended to nationalise all airlines in India with effect from 1 June 1953 or thereafter, they be taken back by the Scindias. On 24 April the Scindias replied, pointing out that once the Air Corporation Bill of 1953 was enacted, all persons working in the ASI would be governed by clause 20 of that Bill. The Scindias further explained that clause 20 would apply to everyone actually employed by the ASI on the appointed day, irrespective of whether they had been recruited directly by the ASI or transferred from the Scindias or any other associated concern. The reply also observed that if any loaned employee or any other person employed by the ASI did not wish to join the proposed Corporation, that person could decline to do so under the proviso to clause 20(1) of the Bill; however, in the event that an employee, whether loaned or otherwise, chose not to join, the Scindias would treat that employee as having resigned, because the Scindias could not absorb the person. In such a case the employee would be entitled only to the usual retirement benefits and would not be eligible for retrenchment compensation.

The correspondence indicated that employees who chose the option provided by the proviso would receive only the normal retirement benefits and would have no entitlement to any retrenchment compensation. The parties further expressed the expectation that every individual employed by the Air Services Inc. (ASI), whether on loan or directly, had been assured of continuous employment within the new corporate arrangement. Consequently, it was hoped that the Scindia Steam Navigation Company would not be left with a surplus of staff, a situation which would otherwise compel the company to carry out additional retrenchments affecting either the same employees or those junior to them. On 29 April 1953 the union, acting for the appellants, submitted a formal reply to the Scindias. In that reply the union argued that staff who were on loan should not be compelled to transfer to the proposed Corporation without first having their right to be re‑absorbed by the Scindias considered. The union further proposed that the dispute could be referred to the Government of India and suggested that individuals who had been directly recruited by the ASI and were presently employed in other subsidiary firms might be taken over by the proposed Corporation in place of the appellant workers. Although this proposal was apparently raised with the Government of India, no result followed, primarily because those directly recruited by the ASI and working in other subsidiaries were unwilling to return to the ASI. In the interim, the Scindias issued a circular dated 6 May 1953 addressed to all employees of the ASI, including those on loan. The circular stated that, upon the enactment of the Bill, every person working for the ASI would fall under clause 20(1) and would be incorporated into the proposed Corporation unless they elected to invoke the proviso associated with that clause. It further clarified that any employee who opted to rely on the proviso would be deemed to have resigned from service, would receive the standard retirement benefits applicable to a voluntary retirement, and would not be entitled to any additional compensation. The circular added that the conditions of service for such employees would remain unchanged until the proposed Corporation lawfully altered or amended them. The circular also touched on certain matters concerning the provident fund, but those issues were not within the scope of the present consideration.

The passage noted that the relevant legislation was enacted on 28 May 1953. Section 20(1) of the Act, which formed the subject of the present analysis, reads as follows: “(1) Every officer or other employee of an existing air company (except a director, managing agent, manager or any other person entitled to manage the whole or a substantial part of the business and affairs of the company under a special agreement) employed by that company prior to the first day of July, 1952, and still in its employment immediately before the appointed day shall, in so far as such officer or other employee is employed in connection with the undertaking which has vested in either of the Corporations by virtue of this Act, become as from the appointed date an officer or other employee, as the case may be, of the Corporation in which the undertaking has vested and shall hold his office or service therein by the same tenure, at the same.”

Section 20(1) of the Act provided that every officer or other employee of an existing air company who was employed before 1 July 1952 and who was still in service immediately before the appointed day would, to the extent that he was employed in connection with the undertaking that had vested in either of the Corporations, become an officer or employee of the Corporation on the appointed date. He would retain his remuneration, tenure, terms and conditions, and the same rights and privileges with respect to pension, gratuity and other matters as he would have enjoyed had the undertaking not vested in the Corporation. His employment would continue until it was terminated by the Corporation or until the Corporation lawfully altered his remuneration, terms or conditions. The provision further stated that the rule would not apply to any officer or employee who, before a date fixed by the Central Government and announced in the official gazette, gave written notice to the concerned Corporation of his intention not to become an officer or employee of the Corporation.

After the Act was enacted, a notice was issued on 17 June 1953 to every employee of all the air companies that were to be taken over by the proposed Corporation. The notice required each employee to inform the officer on special duty, by 10 July 1953, whether he wished to give the notice contemplated by the proviso to section 20(1). A prescribed form for giving such notice was supplied, and the employees were instructed to send the completed form by registered post to the Chairman of the Corporation no later than 10 July. The appellants admitted that they did not submit the required notice within the prescribed time‑frame.

In the interim, on 8 June 1953, a demand was made on behalf of the appellants in which the Scindias were asked to assure them that, should any staff loaned to the proposed Corporation be retrenched within the first five years for reasons not attributable to fault, the Scindias would take those staff back. Several other demands were also made at that time. The Scindias responded on 3 July, indicating that they could not give such an assurance to take back loaned staff if retrenchment occurred within the next five years. The Court did not consider the remaining demands or the replies to them. On 8 July, the appellants sent a letter to the Scindias stating that they could not accept the contention contained in the circular dated 6 May 1953. Although the appellants continued this correspondence, they still failed to exercise the option provided by the proviso to section 20(1) before the 10 July deadline.

The appointed day under section 16 of the Act was notified as 1 August 1953, and from that date the undertakings of the “existing air companies” vested in the Corporation established under the Act, except for Air India International. Consequently, on 1 August 1953 the Air Service of India vested in the Corporation and section 20(1) of the Act became operative. Because none of the appellants had exercised the option granted to them by the proviso, they were deemed to be governed by the provisions of section 20(1) unless the contention that they could not be so governed were accepted.

In this case, the Court observed that, under the proviso attached to section 20(1), the appellants would also fall within the operation of that provision unless the argument raised on their behalf—that they could in no circumstance be governed by section 20(1)—was accepted. The tribunal had concluded that, irrespective of the appellants’ status as loaned staff from the Scindias to the Air Services Inc., they had been informed on 6 May 1953 by the Scindias of their exact position. The tribunal further noted that the appellants had not immediately sought a reference to an industrial dispute with the Scindias after receiving that information, and that they had failed to exercise the option provided by the proviso to section 20(1) before the deadline of 10 July 1953. Accordingly, the tribunal held that the appellants were subject to section 20(1) of the Act.

The Court explained that, as a result of being governed by section 20(1), the appellants became employees of the Corporation effective 1 August 1953. Consequently, they could no longer claim, after that date, that they remained employees of the Scindias or that they possessed any right to revert to their former employer. The tribunal therefore determined that the appellants were not entitled to any of the benefits they had alternatively claimed in the order of reference. That order of the tribunal, which rejected the reference, was the order that the appellants challenged before the Court in the present appeal.

The principal argument advanced on behalf of the appellants was that section 20(1) did not apply to them, that the contract of service between the appellants and the Scindias was not assignable or transferable even by operation of law, and, alternatively, that even if section 20(1) applied, the Scindias were obligated to take the appellants back. The Court, after careful consideration, expressed the view that none of these contentions possessed any merit. The Court referred to the language of section 20(1), which states that every officer or employee of the “existing air companies” who was employed by such a company prior to 1 July 1952 and who remained in employment immediately before the appointed day shall, from the appointed day, become an officer or employee, as appropriate, of the Corporation in which the undertakings are vested.

The Court noted that the purpose of this provision was to ensure continuity of service for the officers and employees of the existing air companies that were being taken over by the Corporation, and that the provision was intended for their benefit. Section 20(1) further provides that the terms of service would remain the same until the Corporation lawfully altered them. The Court observed that it was reasonable to expect that the employees of the air companies would welcome such a provision because it guaranteed them uninterrupted service on the same terms until any lawful alteration. Moreover, the Court emphasized that there was no compulsion on any officer or employee of the existing air companies to serve the Corporation if they chose not to do so. The proviso, the Court added, expressly allowed any officer or other employee who did not wish to enter the service of the Corporation to terminate his service by giving notice in writing before the date fixed, which in this case was 10 July 1953.

The Court noted that the notice required under the provision had to be delivered in writing to the Corporation before the fixed date, which in the present matter was July 10 1953. Consequently, even if the contention advanced by counsel that the contract of service between the appellants and their employers had been transferred or assigned by the statutory provision and that such a transfer could not lawfully occur were correct, that contention lost its effect because the proviso expressly allowed any person who did not wish to join the Corporation to refrain from doing so, provided that notice was given within the prescribed time‑frame. In support of his argument, counsel cited the decision in Nokes v. Doncaster Amalgamated Collieries Ltd., wherein the court observed at page 1018‑ that “It is, of course, indisputable that (apart from statutory provision to the contrary) the benefit of a contract entered into by A to render personal service to X cannot be transferred by X to Y without A's consent, which is the same thing as saying that, in order to produce the desired result, the old contract between A and X would have to be terminated by notice or by mutual consent and a new contract of service entered into by agreement between A and Y.” That passage demonstrates that a contract of service may be transferred by operation of a statutory provision; however, in the present case there was no compulsory transfer of the service contracts of the “existing air companies” to the Corporation because each employee was given the option to decline joining the Corporation by giving notice as required. The provision of section 20(1) together with its proviso was therefore a reasonable measure and, in fact, served the interests of the employees themselves. Nevertheless, counsel argued that section 20(1) would apply only to persons who were actually employed by the existing air companies and would not extend to those who might have been working for the existing air companies on loan from another firm. In other words, the argument was that the appellants were employed not by ASI but by the Scindias, and therefore section 20(1) would not render them employees of the Corporation when they failed to exercise the option provided by the proviso. According to that view, only those employees of ASI who had been directly recruited by ASI would fall within the scope of section 20(1). The Court held that this argument was untenable. While it was true that the appellants had not been originally recruited by ASI but had been recruited by the Scindias and subsequently loaned to ASI at various times between 1946 and 1951, for the purposes of section 20(1) two questions had to be answered: (i) whether the officer or employee was employed by the existing air company on July 1 1952, and (ii) whether he remained in its employment on the appointed day, August 1 1953.

In this case, the Court observed that the appointed day referred to was August 1, 1953. It was not contested that the appellants were actually working for the Andhra Sub‑Airline (ASI) on July 1, 1952 and that they continued to work for ASI on August 1, 1953. Nevertheless, the appellants argued that despite their actual work for ASI, they were not legally employees of ASI because they had at one time been loaned to ASI by the Scindias and, therefore, remained employees of the Scindias. The Court then examined the precise factual position of the appellants to decide whether legal employment with ASI existed. The factual record showed that the appellants performed their duties under the direction of ASI, received their wages from ASI, and that ASI controlled their working hours and overall supervision. From those circumstances, the Court reasoned that the appellants should be regarded as employees of ASI, even though they had not been recruited directly by ASI. The Court noted that the appellants’ service relationship contained certain special features. First, the terms of remuneration, leave, bonus and other conditions were the same as those enjoyed by employees of the Scindias. Second, the appellants could not be dismissed solely by ASI; any dismissal required action by the Scindias. Third, the Scindias retained the power to recall the appellants or to permit them to revert to the Scindias’ service. While acknowledging these three special terms, the Court held that they did not alter the basic fact that, for all practical purposes, the appellants were employees of ASI. Accordingly, the appellants were in legal employment with ASI on both July 1, 1952 and August 1, 1953. The presence of the special terms did not diminish their status as ASI employees, because ASI paid their wages, exercised control over their work, granted leave and fixed working hours. The Court concluded that there was no doubt that the appellants were lawfully employed by ASI prior to July 1, 1952 and remained so up to the day before August 1, 1953. Consequently, they fell within the ambit of section 20(1) of the Act. Because they did not exercise the option provided in the proviso to section 20(1), the statute transformed them into employees of the Corporation on August 1, 1953. The final argument raised was that, even if section 20(1) applied, the Scindias were nevertheless obligated to take the appellants back. The Court found that no such legal force existed.

In this respect the Court observed that once the appellants acquired the status of employees of the Corporation by operation of law on the date of 1 August 1953, the legal situation changed completely. From that moment they no longer possessed any right to pursue a claim against the Scindias. The Court explained that the appellants could not argue that they should be reinstated in the employment of the Scindias on the basis that they remained employees of that company, even though section 20(1) of the Act had come into effect. The Court further noted that the appellants were also unable to rely on any of the alternative benefits that were mentioned in the order that had been referred to. This was because, as of 1 August 1993, they were, by operation of law, exclusively employees of the Corporation and consequently could assert no rights whatsoever against the Scindias. After examining these points, the Court concluded that the decision of the tribunal was correct and that the appeal could not succeed. Accordingly, the appeal was dismissed. The Court also specified that no order regarding costs would be made. In summary, the Court affirmed the dismissal of the appeal and did not award any costs to either party.