M/S Kundan Sugar Mills vs Ziyauddin And Others

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

Court: supreme-court

Case Number: Civil Appeal No. 136 of 1958

Decision Date: 9 February 1960

Coram: P.B. Gajendragadkar, K.C. Das Gupta, Subba Rao, P.B. Gupta

In the matter titled M/S Kundan Sugar Mills versus Ziyauddin and others, the Supreme Court of India rendered its judgment on 9 February 1960. The petition was instituted by M/S Kundan Sugar Mills as the petitioner, while Ziyauddin and other respondents were named as the opposite parties. The case was heard by a bench consisting of Justices P.B. Gajendragadkar, K.C. Das Gupta, Subbarao, K., Gajendragadkar, P.B. Gupta, and K. Das. The decision was reported in the year‑book references 1960 AIR 650 and 1960 SCR (2) 918. The dispute arose under the provisions of the Industrial Dispute Act, concerning the employer’s right to transfer a workman when such a right is not expressly stated in a contract of service.

The factual backdrop involved the General Manager of the appellant’s sugar mill ordering the transfer of four workmen from the existing mill to a newly purchased mill. The new mill had been acquired after the original employment relationship was established, and the sole link between the two establishments was the common ownership by the appellant. The workmen objected to the order of transfer and refused to comply. Consequently, the management served them with a notice alleging disobedience of standing orders and summoned them to provide an explanation. After the workmen gave their explanations, the management dismissed them from service. The Labour Appellate Tribunal examined the matter and concluded that the management lacked any authority to transfer the workmen to the new factory; therefore, the dismissal was held to be illegal.

The appellant appealed the tribunal’s decision by obtaining special leave to approach the Supreme Court. The appellant contended that an employer’s right to transfer an employee from one of his concerns to another is an implication inherent in every contract of service. The core legal question before the Court was whether a person employed in a factory could be transferred to a separate, independent concern started by the same employer after the date of the original employment. The Court held that, apart from any statutory provisions, the rights and obligations of an employee and employer are primarily governed by the terms of their contract, or by terms that can be necessarily implied from it. In the absence of an explicit agreement granting the employer a right to transfer, it cannot be presumed that the employer may move an employee to any of its other concerns, nor that the employee is bound to join the new concern. Applying this principle to the instant case, the Court found that the conditions of service of the four workmen did not contain either an express or an implied clause authorising the employer to transfer them to a newly established concern that came into existence after their employment commenced.

The Court referred to earlier authorities, including Alexandre Bouzourou v. The Ottoman Bank (A.I.R. 1930 P.C. 118), Mary (Anamalai Plantation Workers’ Union) v. Selali arai Estate ((1956) I.L.L.J. 243), and Bata Shoe Company Ltd v. Ali Hasan ((1956) I.L.L.J. 278), to support its reasoning. The appeal before the Supreme Court was recorded as Civil Appeal No. 136 of 1958, arising from the Labour Appellate Tribunal’s decision dated 30 April 1956, which itself was based on an award dated 6 February 1956 of the State Industrial Tribunal, Allahabad, in reference No. 96 of 1955. The Court’s judgment therefore affirmed that without a clear contractual provision, an employer cannot unilaterally transfer employees to a newly created enterprise.

Counsel for the appellants, and counsel for respondents numbers one to five, and counsel for respondent number six, appeared before the Court. The matter was listed on 9 February 1960 and the judgment was delivered by Subba Rao, J.

This proceeding was an appeal by special leave against an order of the Labour Appellate Tribunal of India. The Tribunal had set aside the award made by the Industrial Tribunal at Allahabad and had directed that the workers be reinstated in Kundan Sugar Mills located at Amroha. Kundan Sugar Mills was organised as a partnership concern and owned a sugar mill at Amroha. The four respondents—identified as respondents one through four—had been employed by the appellant as seasonal masons in the year 1946.

In 1951 the partners of Kundan Sugar Mills purchased the plant, machinery and other equipment of another sugar mill situated at Kiccha in the district of Nainital. After acquiring those assets, the partners closed the Kiccha mill and transferred the operations to a new location at Bulandshahr. The new establishment was named Pannijee Sugar & General Mills, Bulandshahr.

On 19 January 1955 the General Manager of Kundan Sugar Mills issued an order directing that respondents one through four be transferred from the Amroha mill to the newly opened mill at Bulandshahr. The four workers, through their representative identified as respondent number five, lodged a protest with the General Manager objecting to the transfer. The General Manager responded by letter dated 22 January 1955 (also referenced as 24 January 1955) insisting that the workers join the Bulandshahr mill. The workers declined to comply with that request.

Subsequently, on 28 January 1955 the General Manager served a notice on respondents one to four stating that they had contravened his orders and, in consequence, had committed misconduct under Standing Order No. LI(a). The notice required the workers to submit an explanation as to why disciplinary action should not be taken against them under the same standing order. The Labour Union, on behalf of the workers, replied on 31 January 1955 denying the alleged misconduct.

Despite the union’s denial, the General Manager issued an order on 2 February 1955 dismissing respondents one through four from service on the ground that they had disobeyed the transfer directive and were therefore guilty of misconduct under Standing Order No. LI(a). The dismissal gave rise to an industrial dispute, and the Government of Uttar Pradesh, by a notification dated 7 November 1955, referred the following question to the State Industrial Tribunal at Allahabad: whether the employers had wrongfully or unjustifiably terminated the services of Sarva Shri Zia Uddin, Raisuddin, Shafiquddin and Ahmed Bux for refusing to obey the transfer order to M/s Pannijee Sugar and General Mills Co., Bulandshahr, and, if so, what relief the workmen were entitled to. The State Industrial Tribunal, by its award dated 6 February 1956, held that the management had acted within its rights, found that the four respondents had disobeyed the management’s order, and concluded that their dismissal was proper. The respondents, through their union and represented by respondent number five, appealed this award to the Labour Appellate Tribunal of India. The Appellate Tribunal, in turn, held that the management had...

The management contended that there was no authority to transfer respondents 1 to 4 to the new factory and consequently that the order of dismissal was unlawful. The management therefore filed the present appeal against the order of the Labour Appellate Tribunal. Counsel for the appellant presented two questions for consideration. The first question was whether the right of an employer to transfer an employee from one of his concerns to another is implied in every contract of service. The second question was whether the State Industrial Tribunal, having held that the mills at Amroha and the mills at Bulandshahr constituted a single unit, had rendered the Appellate Tribunal without jurisdiction to overturn that finding under section 7(1) of the Industrial Disputes (Appellate Tribunal) Act, 1950. To examine the first question, the Court first set out the undisputed facts. The partners who owned the Sugar Mills at Amroha also owned the Sugar Mills at Bulandshahr; however, they were proprietors of the Amroha mills as early as 1946, whereas they acquired the Bulandshahr mills only in 1951 and commenced operations there around 1955. Respondents 1 to 4 had been employed by the owners at the Amroha mills at a time when the owners did not yet possess the Bulandshahr mills. It was admitted that the service contracts between the appellant and respondents 1 to 4 contained no express clause requiring the employees to serve in any future concern that the appellant might acquire or establish. Further, the evidence showed that although the same individuals owned both mills, the two establishments were distinct concerns. The Appellate Tribunal observed that the sole link between them was common ownership; absent that, the two entities would have had no relationship. Additional evidence demonstrated material differences in the conditions of work. An imported workman at Amroha was entitled to house‑rent, fuel, light and travel expenses in both directions, whereas workmen at Bulandshahr received none of these allowances. Workers at Amroha enjoyed benefits under the Kaul Award, a privilege not extended to those at Bulandshahr. The General Manager, E. W. 1, testified that the interim bonus for the Bulandshahr factory, as ordered by the Government in November 1955, was Rs 1,000, while the bonus for Amroha was nearly Rs 1.5 lakh. He further explained that the bonus for the preceding year at Amroha would likely have amounted to about two months’ wages, whereas at Bulandshahr it would have been equivalent to four or five days’ wages. Moreover, the accounts for the two mills were prepared separately, reflecting distinct financial records. Thus, it was clear that the two mills were located at different sites, maintained separate accounts, and operated under different service conditions, even though they were managed by the same owners, indicating that they should be treated as separate entities.

In this matter the factual background must be kept in view when the legal issue is examined. The counsel for the appellant argued that a right of transfer is automatically contained in every contract of service. The Court found that argument to be excessively expansive. Apart from any provision that may be contained in legislation, the relationship between an employer and an employee is determined by the express terms of their contract and by those terms that must necessarily be read into the contract. Both parties admitted that there was no explicit clause in the agreement between the appellant and the respondents that gave the appellant the authority to move the respondents to any other concern of its business, nor did the agreement impose on the respondents a duty to accept such a transfer. The Court therefore asked whether such a clause could be said to be a term that must be implied as a matter of necessity. At the time the four respondents were hired, the appellant operated only a single factory located at Amroha. No record shows that the appellant had, at that stage, any intention to acquire additional factories or to expand its operations to other locations. It was also not suggested that, even if the appellant later contemplated such expansion, the respondents were aware of that intention. In those circumstances, the Court held that it would be unreasonable to imply a term permitting transfer when there was no contemplation of establishing new factories at other sites. Ordinarily, employees agree to work only at the establishment that exists at the time of their hiring, and the employer engages them solely for service in that establishment.

The situation, however, does not end there. As previously indicated, the two factories involved in this case are separate legal entities located at different places. To read into the contract a provision that grants the employer a power to transfer respondents 1 to 4 to another concern would, in effect, create a new contractual relationship between the parties. The authorities cited by the appellant do not support the broad position advanced by him. In the case of Alexandre Bouzourou v. The Ottoman Bank, the employee was transferred from the head office to a branch situated in a different town. He refused the transfer and was subsequently dismissed, after which he sued for wrongful dismissal. The argument before the Judicial Committee was that the employee’s contract of service limited his employment to the head office and did not extend to the branches. Evidence in that case demonstrated that transfer was a usual incident of employment with the bank, typically accompanied by a rise in salary and responsibilities, and was regarded as a matter of convenience for the bank. Moreover, the employee himself did not claim in his correspondence that the transfer constituted a breach of his contract. The Court therefore concluded that the Bouzourou decision, where the bank’s branches were part of a single organizational unit and transfer was an ordinary incident of service, was not applicable to the present dispute where the factories are distinct entities.

The Judicial Committee, referring to the case mentioned earlier, observed on page 119 that “From the point of view of proper organization of their staff it is difficult to assume that the Bank would willingly agree that their employees should not be bound to serve outside the place where the contract was made except with their consent, and, in their Lordships’ opinion such a condition of the contract would require to be clearly established.” The Court explained that the crucial difference between that case and the present matter lay in the fact that the bank and its branches constituted a single organisational unit, and the records plainly showed that transfer was an ordinary incident of employment in that bank. Because of that factual backdrop, the Privy Council was able to imply a term allowing transfer, and consequently that decision held no relevance to the case now before the Court.

In the decision of Mary (Anamalai Plantation ‘Workers’ Union) v. Seliparai estate, labour was recruited for plantations without distinguishing between factory and field workers, and it had long been the common practice to move factory workers to the field and vice‑versa according to work demands. A worker who had been appointed in that plantation was transferred from the factory to the field because of mechanisation. The Labour Appellate Tribunal of India held that, under those circumstances, the obligation to be transferred must be regarded as an implied condition of service. Similarly, in Bata Shoe Company, Ltd. v. Ali Hasan (Industrial Tribunal, Patna & Ors.), the transfer of an employee from one post to another was held not to constitute an alteration of any service condition within the meaning of section 33 of the Industrial Disputes Act. That case involved a management that employed a worker in one concern and subsequently transferred him to another post, and the Tribunal found that it was possible to imply a condition giving the management the right to effect such a transfer.

The judgment in S. N. Mukherjee v. Kemp & Co. Ltd., decided under section 23 of the Industrial Disputes (Appellate Tribunal) Act, 1950, dealt with a complaint that the management had transferred an employee in order to victimise him, thereby allegedly altering his conditions of employment. The Tribunal ruled that when an employer hires a person, it is implicit in the appointment that the employee may be transferred to any place where the employer carries on business in the same line, unless the contract expressly provides otherwise. In that case the employee worked for Kemp & Co., Limited, which operated branches in different locations, and the decision rested on the assumption that the business functioned as a single unit and that the only issue concerned the right to transfer within that unit.

The question that was raised concerned whether the employee could be transferred to a place different from the one where he was actually performing his duties, and the Court noted that those observations must be confined to the facts of that particular case. It was not necessary to repeat the citation repeatedly, because the other decisions cited by the counsel for the appellant follow the same reasoning as the earlier cases. The Court clarified that it had referred to those decisions solely to distinguish them from the present matter and not to endorse their correctness. In each of the cited decisions the workers had been employed in a business or concern, and the enquiry was whether, under the circumstances of each case, a transfer from one branch to another was valid or amounted to victimisation. None of those decisions dealt with a situation like the present appeal, namely, whether a person employed in a factory could be transferred to some other independent concern that the same employer had started after the date of the employee’s original appointment. None of the earlier cases, contrary to the counsel’s suggestion, held that every employer possesses an inherent right to move an employee to any new location where the employer later establishes a business. Consequently, the Court held that there was neither an express nor an implied condition of service authorising the employer to transfer the respondents to a new concern created after their date of employment.

The respondents also relied on Government Order No. 6122 (ST)/XXXVI‑A‑640(S)‑T‑1953 to support their contention that the order of transfer was invalid. By that Order, the Government of Uttar Pradesh directed that the employment of seasonal workmen in all vacuum‑pan sugar factories should be governed by the rules set out in the annexure. Rule I of the annexure states: “A worker who has worked or, but for illness or any other unavoidable cause, would have worked in a factory during the whole of the second half of the last preceding season will be employed in this season in such factory.” The Court observed that this rule bears no relevance to the issue presently raised. The rule merely obliges an employer to employ a worker in the same factory in the following season when the conditions described are satisfied; it does not restrict an employer from transferring an employee if the employer possesses such a right under the contract of service or any statutory provision. Having already determined that the employer in the present case lacked such a right, the Court found the reliance on the Order unavailing. Finally, it was asserted that the Appellate Tribunal lacked jurisdiction to set aside the finding of the State Industrial Tribunal. The Court rejected that submission, holding that the Tribunal was empowered to consider the appeal.

In the appeal, the State Industrial Tribunal had held that the dispute did not involve any substantial question of law within the meaning of section 7(1) of the Industrial Disputes (Appellate Tribunal) Act, 1950. The specific issue that had been raised was whether the appellant possessed the legal authority to transfer respondents numbered one through four from one of its concerns to another concern owned by the same employer. The Court observing the submissions recognized that the point in contention was indeed a question of law, because it concerned the interpretation of the employer’s power to move employees between his various undertakings. Moreover, the Court noted that the question was not only a legal one but also raised an important principle governing the right of an employer to transfer employees from one of his concerns to another under the facts of the present case. Consequently, the Court held that a substantial question of law had arisen and that the Labour Appellate Tribunal was competent to entertain the appeal on that ground. Accordingly, the appeal was dismissed. The dismissal was accompanied by an order that the costs of the appeal be borne by the appellant. The final direction was that the appeal failed and was dismissed with costs.