M/S. Swadeshi Cotton Mills Co., Ltd. vs Rajeshwar Prashad and Ors

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 53 of 1958

Decision Date: 14 November 1960

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

In the matter of M/S Swadeshi Cotton Mills Co., Ltd. versus Rajeshwar Prashad and Others, the Supreme Court of India rendered its judgment on 14 November 1960. The opinion was authored by Justice P. B. Gajendragadkar, who was joined on the Bench by Justices A. K. Sarkar, K. N. Wanchoo and K. N. Wanchoo. The petition was filed by the appellant, M/S Swadeshi Cotton Mills Co., Ltd., a company based in Kanpur, and the respondents were Rajeshwar Prashad and the other employees indicated as “others.” The case was cited as 1961 AIR 429 and 1961 SCR (2) 359. The principal statutes involved were the Uttar Pradesh Industrial Disputes Act, 1947, specifically sections 6‑c and 2(t); the Uttar Pradesh Industrial Disputes Rules, 1957, rule 5(1); and the Payment of Wages Act, 1936, section 23. The headnote recorded that while the special leave appeal concerning an industrial dispute was pending before the Court, a director of the appellant and a representative of the employees applied for a court order to enforce a compromise that they claimed had been reached between the parties. Some of the employees challenged the existence and validity of that compromise, prompting the Court to refer the questions to the Tribunal. The Tribunal found that a compromise had indeed been concluded and that it was valid. Those findings were contested in the present appeal. The Court held that a compromise agreement intended to settle an industrial dispute that was still under consideration by the Court did not violate section 23 of the Payment of Wages Act, which protects rights that are not ordinarily altered or reversed by judicial processes. Moreover, the procedural requirements of section 6‑c of the Uttar Pradesh Industrial Disputes Act did not limit the Court’s authority or the parties’ ability to settle the dispute amicably while the appeal was pending. The Court further observed that the procedure for securing an order based on the compromise was governed by its own rules, and that the provisions of section 2(t) of the Uttar Pradesh Industrial Disputes Act and rule 5(1) of the corresponding Rules were inapplicable to the present situation.

The judgment arose from Civil Appeal No. 53 of 1958, which was entertained by special leave after the Labour Appellate Tribunal, Bombay, delivered its decision on 28 February 1957 in Appeal No. 111‑160 of 1956. Counsel for the appellant was represented by a senior advocate, while a team of counsel appeared for the respondents. The Court noted that the appeal concerned an industrial dispute between the Swadeshi Cotton Mills and its employees, and that the preliminary issue to be decided was whether the Court should refuse to pass an order in the appeal on the basis of the alleged compromise agreement reached between the parties. The Court proceeded to examine the legal questions raised, applying the relevant statutes and the findings of the Tribunal, before arriving at its conclusion that the compromise could be recognized without contravening the statutory provisions cited, and that the appropriate procedural mechanisms for enforcing the compromise lay outside the scope of the questioned rules.

It was alleged that a compromise had been reached between the appellant and the respondents. The background of the dispute showed that on 28 December 1955 the Government of Uttar Pradesh referred an industrial disagreement to the Industrial Tribunal of Uttar Pradesh at Allahabad for adjudication under sections 3, 4 and 8 of the Uttar Pradesh Industrial Disputes Act, 1947 (U.P. Act XXVIII of 1947) and in accordance with clause 11 of Government Order No. U‑464(LL)/XXXVI‑B‑257 (LL)/1954 dated 14 July 1954. The dispute concerned whether the existing wage rates of the jobbers listed in the annexure employed in the appellant’s weaving department required revision, and if so, what the revised rates should be and from which date they should be applied. The Tribunal examined the matter and held that the respondents had not established any case for revision. The respondents then appealed this determination before the Labour Appellate Tribunal. The Labour Appellate Tribunal allowed the appeal, set aside the Tribunal’s award and ordered that, from the date of reference, a uniform rate of two annas should be introduced in both the old and new sheds, irrespective of the number of looms assigned to the line jobbers. Consequently, the earlier wage rates were revised and the revision was made effective retrospectively from the date of reference. The appellant challenged this Labour Appellate Tribunal decision by filing the present appeal by special leave. While the appeal was pending before this Court, the appellant claimed to have entered into a compromise with the respondents. The terms of that compromise were reduced to writing, and on 26 February 1958 an application was filed in this Court, signed by Mr Bagla in his capacity as a Director of the appellant and by Mr Maqbool Ahmad Khan, the General Secretary of the Suti Mill Mazdoor Sabha, Kanpur, on behalf of the respondents. The application set out the material terms of the compromise, one of which provided that the revised wage rate should take effect not from 28 December 1955, the date of reference, but from 1 July 1957, together with certain other amendments to the decision under appeal.

Before the compromise could be placed before the Board for the issuance of orders, an application was lodged on behalf of some of the respondents. That application asserted that Mr Khan, the General Secretary, lacked authority to conclude any compromise as a representative of the respondents and that the purported compromise was therefore unacceptable to them. To support this contention, the application relied on a resolution passed by the General Council of the Mazdoor Sabha, which declared that no office‑bearer could conclude an agreement with an employer concerning an industrial dispute without the consent of the General Council. The application also cited the relevant provisions of the Mazdoor Sabha’s constitution to reinforce the claim that the General Secretary had exceeded his powers in entering into the alleged compromise.

The Tribunal noted that a resolution of the Mazdoor Sabha’s General Council had declared that no office‑bearer was permitted to conclude an agreement with an employer concerning an industrial dispute without the Council’s consent, and the Tribunal also relied on the relevant provisions contained in the Sabha’s constitution. After this declaration, the petition for compromise was placed before the Court for hearing on 10 April 1960. The Court then ordered that both the application for recording the compromise and the appeal itself should be heard together as soon as the parties filed their respective statements of case. Once the statements were filed, the Court listed the appeal and the petition for consideration on 5 May 1960. By way of an interlocutory judgment, the Court framed two questions for the Tribunal and directed that the Tribunal hear the parties on those points and record its findings. The first question asked whether the compromise alleged by the appellant had actually taken place between the parties. The second question asked, if the compromise had indeed taken place, whether it was legally valid. In compliance with the Court’s direction, the Tribunal recorded evidence, heard the parties and then rendered its findings. The Tribunal concluded that the compromise had in fact occurred as set out in the petition before the Court and that the compromise was valid. To address the first factual question, the Tribunal examined the evidence in depth, considering the background of the dispute. It observed that negotiations between the parties had continued for a considerable period, during which the parties examined the advantages and disadvantages of the compromise. The Tribunal found that during these negotiations Mr Khan remained vigilant in protecting the respondents’ interests, that the workmen concerned had approved the compromise, and that the agreement was overall beneficial to them, did not contravene established principles of industrial adjudication, and had been implemented rather than remaining a mere paper document. The Tribunal further explained that the opposition to the compromise stemmed mainly from a dispute between Mr Khan, the Secretary, and Mr Bajpai, the President. Nonetheless, the Tribunal was convinced that the compromise resulted from a bona‑fide effort by both sides to settle the dispute amicably, thereby fostering goodwill and cooperation between employer and employees. Concerning the second, legal question, the Tribunal held that the compromise was perfectly valid. It examined the relevant constitutional provisions of the Sabha, the prevailing practice regarding such compromises, and several prior compromise agreements that had been executed in accordance with that practice. Although it was contended before the Tribunal that the compromise was invalid under section 6‑B of the Uttar Pradesh Industrial Disputes Act, 1947, and under section 2(vi)(c) of the Payment of Wages Act, 1936 (Act 4 of 1936), the Tribunal rejected those contentions and affirmed the validity of the compromise.

In this matter the Tribunal recorded findings that favored the compromise on both issues that were before it. Those findings were later placed before this Court, and the appeal together with the petition for compromise now stand before the Court for a final determination. The factual finding of the Tribunal concerning the first issue is not open to challenge in the present proceeding and must therefore be treated as established. Accordingly, it is accepted that at the material time Mr Khan held the position of General Secretary of the respondents’ Sabha, that he possessed the authority to represent the Sabha, and that he indeed exercised that authority throughout the adjudicative process now before the Court. The Tribunal also concluded that the settlement reached between Mr Khan and the appellant resulted from a series of mutual discussions that extended over a considerable period and that, on the whole, the terms of the settlement were advantageous to the respondents. The prevailing practice in the Sabha, supported by numerous precedents consistent with that practice, demonstrates clearly that the Union Secretary, who acts as the representative of the work‑men in industrial disputes, has been duly authorized and has historically exercised the power to resolve such disputes when it was deemed reasonable and appropriate to do so. The Court has repeatedly observed that it is desirable for industrial disputes to be settled amicably because such settlements foster harmonious industrial relations and promote cooperation between the parties. Consequently, when industrial disputes are brought before the Court under Article 136 of the Constitution, the Court usually appreciates genuine attempts at amicable settlement and, where appropriate, encourages those settlements. Nevertheless, counsel for the respondents, Mr Jha, argues that despite the general desirability of amicable settlement, the law renders such a settlement or compromise illegal. He submits that if the Court were to hold that a compromise of an industrial dispute pending an appeal is prohibited by law, or that it conflicts with statutory provisions, then the present compromise must be declared void notwithstanding its practical benefits. The core question for determination, therefore, is whether the contention advanced by Mr Jha—that the compromise is legally invalid—holds merit.

Mr Jha’s principal argument is founded upon Section 23 of the Payment of Wages Act. He explains that this legislation was enacted to regulate the payment of wages to certain categories of industrial employees, and that there is no doubt that the wages revised by the Labour Appellate Tribunal in the present case qualify as “wages” within the meaning of Section 2(vi) of that Act. Section 23 provides that any contract or agreement, whether executed before or after the commencement of the Act, which purports to cause an employed person to relinquish any right conferred by the Act, shall be void to the extent that it seeks to deprive that person of such right. The relevant sections of the Act also prescribe the determination of wage periods, stipulate the times at which wages must be paid, authorize specific deductions, and permit the imposition of fines only under conditions expressly outlined in the statute. By invoking these provisions, Mr Jha contends that the revised wage structure ordered by the Labour Appellate Tribunal creates a right to claim the indicated amounts as wages, and that the effect of the contested compromise is to have the respondents surrender a portion of that statutory right. Accordingly, he argues that the compromise amounts to an unlawful relinquishment of legal rights guaranteed by the award.

The Act stipulates the permissible time for payment of wages, authorises specific deductions, and allows the imposition of fines only when the conditions laid down in the statute are satisfied. Section 15 of the Act deals with the determination of claims that arise from either the deduction of wages or a delay in the payment of wages, and it also provides for the imposition of a penalty where claims are found to be malicious or vexatious. Section 16 prescribes the procedure for filing an application in which such claims may be set out, and Section 18 confers the necessary powers on the authorities appointed under the Act to enforce its provisions. Mr Jha submits that the revised wage structure ordered by the Labour Appellate Tribunal gives the respondents the right to claim the amounts identified in that structure as their wages, and that the effect of the disputed compromise is to cause the respondents to surrender part of that right. He further argues that by relinquishing their claim for the retrospective operation of the Tribunal’s decision over a substantial portion of the period, the respondents are contracting out of the legal rights conferred by the award, rights that are therefore governed by this Act, and that such a surrender renders the compromise void. The Court observes that this argument is fundamentally mistaken because it presumes that the decision under appeal has become final and that the rights arising from that decision cannot be altered by any compromise. In reality, the decision on which the alleged rights are based is itself pending an appeal before this Court; consequently it is not a final determination, and it may be reversed or modified. As long as the decision remains subject to appeal, the rights claimed under it may also be defeated or materially affected. In such circumstances the industrial dispute remains pending before this Court, and it would be misplaced for Mr Jha to assert that attempting to settle the dispute without invoking a decision of this Court contravenes the provisions of section 23 of the Act. Just as an industrial dispute could be settled by the parties either before it was referred to the Industrial Tribunal or after referral but before the Tribunal pronounced its award, the parties may also settle the dispute while it is pending before either the Labour Appellate Tribunal or this Court. Section 23 of the Act envisions certain definite rights that are not likely to be altered or reversed during ongoing judicial proceedings, and because that condition does not exist when an appeal is pending before this Court, it would be unreasonable to rely on section 23 to claim that it prevents or prohibits an amicable settlement of the dispute. The Court notes that the remaining contention against the validity of the compromise is grounded in the provisions of section 6‑C of the Uttar Pradesh Industrial Disputes Act, 1947, which will be considered subsequently.

The Court examined the provisions of the Uttar Pradesh Industrial Disputes Act, 1947, particularly the section that is substantially identical to section 19 of the Industrial Disputes Act, 1947. That provision states that, as a matter of course, an award shall remain in force for one year, or for a shorter period if the award itself specifies such a duration. The same provision also empowers the State Government to extend the period of operation of the award whenever it deems it appropriate. In addition, the provision allows the State Government, either on its own initiative or upon application by any party bound by the award, to shorten the period of operation where a material change in the circumstances on which the award was based is demonstrated.

The parties argued that any alteration to the award could be effected only by following the procedure laid down in section 6‑C of the same Act. The Court found that argument to be without merit. While acknowledging that section 6‑C indeed confers on the State Government the authority to determine the duration of an award’s operation, the Court emphasized that this section does not limit the jurisdiction of the Court when an industrial dispute is presented before it under article 136 of the Constitution. The award referenced in section 6‑C is one that has become final, meaning that it is no longer subject to review by any Tribunal or Court. Consequently, as long as an award remains pending before a Tribunal or a Court, the power of those bodies to adjudicate the matter according to law remains intact, and the parties’ ability to settle the dispute while it is pending is not curtailed by section 6‑C. The Court observed that the reasoning applied to the earlier argument based on section 23 of the Payment of Wages Act applies equally to the present contention.

The next contention was that the compromise under dispute qualified as a “settlement” within the meaning of section 2(t) of the Uttar Pradesh Act and therefore could be executed only in the manner prescribed by that Act. Section 2(t) defines a settlement as an agreement reached either during conciliation proceedings or, alternatively, as a written agreement between the employer and the workmen concluded outside those proceedings, provided that the agreement is signed in the manner prescribed and a copy is sent to the State Government and the conciliation officer. Rule 5(1) of the Uttar Pradesh Industrial Disputes Rules, 1957, sets out the procedure for recording a settlement as defined by section 2(t). Although the Court noted that the parties had not complied with the procedure mandated by rule 5(1), it expressed difficulty in seeing how either section 2(t) or the rule‑prescribed procedure could apply to a compromise agreement that was entered into while the matter was pending before the Court on appeal.

The Court observed that a compromise had been reached between the parties while the appeal was pending before this Court. The parties intended to present the compromise to the Court so that it could grant an order implementing the terms of that compromise. The Court explained that the procedure for obtaining such an order must follow the rules that govern this Court, just as a compromise reached before the Tribunal would be subject to the procedural rules prescribed for that Tribunal. Consequently, the Court found no basis for applying Rule 5(1) of the Uttar Pradesh Industrial Disputes Rules to the present compromise. Because the compromise was not subject to that rule, the Court affirmed the Tribunal’s finding that the compromise was valid. The Court emphasized that, having established that the compromise was indeed effected and was otherwise lawful, there was no reason to refuse to give effect to it. Accordingly, the Court directed that an order be drawn up in accordance with the terms of the compromise in the present appeal, and it ordered that the relief sought by the parties be granted as contemplated by that compromise.