Mis. Swadesamltran Limited, Madras vs Their Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 483 of 1958

Decision Date: 31 March 1960

Coram: P.B. Gajendragadkar, K.C. Das Gupta, Subbarao, K. Gupta

In this case, the Supreme Court of India delivered a judgment on 31 March 1960 concerning a dispute between Mis Swadesamltran Limited, Madras (the petitioner) and its workmen (the respondents). The opinion was authored by Justice P B Gajendragadkar, who sat with Justices Subbarao, K Gupta and K C Das Gupta. The case is reported in the 1960 volumes of the All India Reporter and the Supreme Court Reports, with citations 1960 AIR 762 and 1960 SCR (3) 144, and it has been subsequently referenced in later reported decisions. The factual background involved the termination of thirty‑nine workmen by the employer through a notice, which the employer described as a measure of retrenchment. The dismissed employees responded by striking, thereby creating an industrial dispute that was referred to the Industrial Tribunal at Madras. The Tribunal examined the strike and concluded that it was not justified. It also found that the employer had demonstrated a genuine necessity for the retrenchment and that there was no evidence of bad faith on the part of management. However, the Tribunal observed that the employer had not applied the customary rule that the most recently appointed workers should be the first to be dismissed, commonly expressed as “last come, first go.” Consequently, the Tribunal ordered that fifteen of the thirty‑nine dismissed workers be reinstated. Both the Industrial Tribunal and the Labour Appellate Tribunal confirmed the finding of necessity for retrenchment, while the Appellate Tribunal modified the award by granting compensation to the affected workers. The employer subsequently challenged the award by obtaining special leave to appeal before the Supreme Court. The Supreme Court held that when a genuine case of retrenchment exists, the employer is ordinarily required to follow the established rule of “last come, first go.” The Court recognized that the employer may deviate from that rule for valid reasons, but such a deviation must be supported by reliable evidence, preferably drawn from the employment records of the workers, showing factors such as inefficiency, unreliability or habitual irregularity. In the absence of such proof, a departure from the rule may be characterised as bad faith or as an unfair labour practice. The Court further held that if the retrenchment is found to be unjustified, the Tribunal must decide the appropriate relief. Typically, workers who have been retrenched are entitled to reinstatement, and the fact that the employer has engaged other persons in the interim does not automatically defeat that right. Likewise, delays caused by prolonged litigation do not by themselves bar a claim for reinstatement. Accordingly, the Court concluded that the finding that fifteen of the dismissed workers had been improperly retrenched could not be successfully challenged. The judgment arose from Civil Appeal No 483 of 1958, which was filed by special leave against the decision dated 20 March 1956 of the Labour Appellate Tribunal, itself arising from the award dated 28 December 1951 of the Industrial Tribunal in Industrial Dispute No 48 of 1951. The Attorney‑General of India, assisted by counsel, appeared for the appellant.

In this case the dispute arose out of an industrial conflict between M/s Swadesamitran and its workmen. Three separate questions were referred to the Industrial Tribunal at Madras for determination. One of the questions concerned whether the termination of thirty‑nine workmen by the appellant in May 1951 was lawful, and, if the termination was unlawful, what relief those workmen were entitled to receive. The Tribunal issued a modified award that ordered the reinstatement of fifteen of the dismissed workmen. The correctness of that reinstatement order was subsequently contested. It is important to note that the reinstatement direction was issued on 28 March 1956, five years after the original dismissals, and that it prescribed payment of only half of the back wages due to the workmen. The Court observed that the Tribunal had applied the principle “last come first go” as if it were a rigid rule, whereas management is in the best position to decide which employees should be retained and which should be let go. The Court further held that if the selection process had revealed that management had engaged in an unfair labour practice, that would have provided a basis for judicial interference. Both the Industrial Tribunal and the Labour Appellate Tribunal, however, found that the management’s selection of personnel was not carried out in bad faith. The Court stated that it is not unreasonable for an employer to discharge employees who have attained an age that diminishes their efficiency and therefore makes them suitable for retrenchment. There is no principle that a workman, once employed, must be retained for life. The evidence showed that a three‑member committee was constituted to consider the selections; the committee examined all relevant factors, including length of service, efficiency, visual defects affecting the handling of very small type, and general aptitude for the new work on lino machines. The Court also noted that the workmen themselves had settled their accounts with management and had received any monies due to them, and that, having satisfied their claims, it would be unfair and unjust to order their reinstatement in their former positions together with back wages. The remaining workmen were found to be inefficient and irregular in attendance, and consequently the Court held that the Tribunal should not have interfered with the management’s decision in those cases. Principles of social justice do not obligate an employer to retain an inefficient, unsuitable, or superannuated employee. The Court further observed that the “last come first go” principle should not have been applied so strictly to the facts of this case. The Labour Appellate Tribunal erred in law by directing reinstatement because it did not depart from the Industrial Tribunal’s finding that the respondents’ strike was unjustified and that the appellants had acted bona‑fide in concluding that the retrenchment of thirty‑nine workmen was necessary. The Court explained that only if the Industrial Tribunal had been satisfied that the appellant acted in bad faith in retrenching its employees would it be appropriate for the Tribunal to interfere with the employer’s order of retrenchment. Consequently, the order of reinstatement was substantially inconsistent with the findings concerning the appellant’s bona‑fide conduct.

The Court observed that the Tribunal’s findings concerning the appellant’s bona fides were inconsistent with the evidence, and that the Tribunal also committed an error by preparing a pooled seniority list as a basis for determining seniority. The Court emphasized that management must be allowed the discretion to conduct its business in the manner it deems most beneficial, and that it is not within the Tribunal’s authority to declare that the work performed in the various sub‑sections of the composing department was identical or that workers could be inter‑shifted without regard to specialized duties. The Court further noted that the absence of written records regarding the physical fitness of each individual employee at the time of the retrenchment did not justify the inference that the management lacked any material on which to assess comparative fitness of the workmen. In reviewing the grievance filed by the employees against the order of retrenchment, the Labour Appellate Tribunal was found to have exceeded its jurisdiction because retrenchment is a normal managerial function and a privilege of the employer. Once the employer establishes a legitimate case for retrenchment, the law grants the employer the liberty and discretion to decide which particular employees shall be retrenched. By conducting an enquiry into the validity and reasonableness of the retrenchment of certain named persons, the appellate tribunal had intruded upon a management function and therefore overstepped its statutory limits. The Court also recorded that C. Anthoni Pillai, President of the City Printing Press Workers’ Union, representing the respondents, was not called upon to give a reply. The judgment dated March 1 1960 was delivered by Justice Gajendragadkar, who noted that this appeal by special leave arose out of an industrial dispute between Messrs. Swadesamitran Ltd., Madras (the appellant) and its workmen (the respondents). On November 3 1951 the Madras Government, invoking section 10(1)(c) of the Industrial Disputes Act, 1947 (Act XIV of 1947), referred three items of dispute to the Industrial Tribunal at Madras. One of those items concerned whether the retrenchment of thirty‑nine workmen in May 1951 was justified and, if not, what relief the retrenched workers might claim. The Court briefly recounted the factual background: on August 26 1950 the respondents submitted a charter of demands containing eleven separate points and warned that failure to meet those demands would lead them to strike. The appellant replied that it was operating at a loss and was actively considering proposals for retrenchment and rationalisation; it promised that the demands would be considered sympathetically once its financial position improved, leading the respondents to withdraw the demands. Nevertheless, on January 24 1951 the respondents issued a second communication listing thirteen demands, again threatening strike action if their demands were not satisfied. A copy of this second communication was sent to the State Government, which was asked to refer the demands for adjudication to the industrial tribunal.

The Government, after receiving the respondents’ request for reference, sent the matter to the Conciliation Officer. That officer examined the demands and concluded that they were not justified, and he prepared a report on 22 February 1951. Shortly afterwards the respondents wrote again to the Government, reiterating their request that the dispute be referred. On 24 April 1951 the Government issued an order stating that no case for reference existed. At the same time the appellant was proceeding with plans to retrench staff because of a sharp increase in the price of newsprint, a shortage of supplies, the imposition of a price‑page schedule by the Government of India, and the gradual mechanisation of the composing section through the installation of linotype machines. When the respondents learned of these developments, their union called a strike ballot, and the ballot resulted in a decision to strike. A strike notice was issued on 9 May 1951. The appellant appealed to the respondents not to precipitate the matter, promised that their demands would be sympathetically considered once the appellant’s financial condition improved, and warned that any refusal to report for work in accordance with the strike notice would be treated as a resignation of the individual striker. The Conciliation Officer, who had been approached by the appellant, also advised the respondents against striking. Nevertheless, the respondents went on strike on 30 May 1951. Prior to the strike, the appellant had issued termination notices to 39 members of the staff, effective from 18 May 1951, as a measure of retrenchment. The termination of these thirty‑nine workmen gave rise to the industrial dispute that is the subject of the present appeal. Before the dispute could be referred for adjudication, the respondents filed a writ petition in the Madras High Court seeking a writ directing the Government to make a reference under section 10(1)(c) of the Industrial Disputes Act. The High Court granted the writ, but on appeal the Court of Appeal altered the order, directing instead that the Government comply with its duties under section 12(5) of the Act. On 12 June 1951 the respondents called off the strike and offered to resume work; however, by that time the appellant had hired new workers and was able to re‑engage only a portion of the respondents who had offered to return. The appellant’s failure to reinstate all of its workmen constitutes another point of contention between the parties, but that issue is not before the present appeal. As a consequence of the High Court’s order, the dispute was ultimately referred to the industrial tribunal for adjudication.

The industrial tribunal examined the matter and held that the strike declared by the respondents was not justified and that the appellant was justified in retrenching the thirty‑nine workmen in question. According to the tribunal, though in retrenching 39 workmen

The industrial tribunal observed that the employer had not strictly adhered to the ‘last come first go’ rule in the retrenchment process. Nonetheless, it concluded that departing from that rule was permissible because the employer was entitled to prefer persons who were mechanically inclined and possessed good eyesight. For that reason the tribunal rejected the respondents’ claim that the employer had engaged in any unfair labour practice while effecting the retrenchments. Satisfied that the retrenchment of thirty‑nine workmen had been carried out in the ordinary course for sound and sufficient reasons, the tribunal ordered that those workers were not entitled to any relief. The respondents challenged this award by filing an appeal before the Labour Appellate Tribunal, seeking reversal of the finding. The appellate tribunal held that the industrial tribunal’s findings on the employer’s bona fides and the validity of the retrenchment were not justified. Consequently, it remanded the case to the industrial tribunal for a fresh determination of the four issues it had previously formulated. Two of those issues were relevant for the present discussion: whether the ‘last come first go’ formula had been complied with. If the formula had not been followed, the tribunal was asked to examine whether the reasons for deviating from it were sufficient for each individual workman. The second issue concerned whether the management’s actions were motivated by any unfair labour practice or victimisation, as alleged by the respondents. In compliance with the remand, the industrial tribunal allowed the employer to adduce evidence and then considered the material presented. After evaluating the evidence, the tribunal concluded that the employer had established a necessity for the retrenchment and had justified the extent of the retrenchment as pleaded. It further held that no mala fides on the part of the employer had been demonstrated in the conduct of the retrenchments. Nevertheless, the tribunal found that the ‘last come first go’ principle had not been observed in selecting the personnel for retrenchment. It rejected the employer’s explanation for the removal of fifteen of the thirty‑nine workmen and consequently ordered reinstatement of those fifteen employees without any back wages. No order was made regarding compensation for the remaining twenty‑four workmen, leaving their entitlement unresolved at that stage. The tribunal’s findings were then transmitted back to the Labour Appellate Tribunal, where both parties filed objections to the conclusions. After considering the objections, the appellate tribunal held that the employer had successfully shown a justification for retrenching all thirty‑nine employees. However, it agreed with the industrial tribunal that the ‘last come first go’ rule had not been observed and that no justification existed for departing from that rule. Consequently, the appellate tribunal confirmed the industrial tribunal’s order that the fifteen named employees be reinstated and additionally directed that they receive half of the amount of their back wages. Regarding the remaining twenty‑four retrenched workmen, the appellate tribunal directed that they should be awarded compensation at the rate of one‑half …

The appeal was filed under special leave against the decision that ordered a month's wages, including dearness allowance for each year of service, to be paid to the retrenched workmen. The counsel for the appellant, who acted on behalf of the employer, raised a primary question before the Court. The contention was that the Labour Appellate Tribunal had committed a legal error by directing the reinstatement of certain employees while it had not diverged from the findings of the Industrial Tribunal that the respondents’ strike was unjustified and that the employer had acted in good faith when it concluded that the termination of thirty‑nine workmen was necessary. The appellant further argued that interference with the employer’s decision to retrench could be justified only if the Industrial Tribunal were satisfied that the employer had acted in bad faith in executing the retrenchment. Consequently, the appellant maintained that the order of reinstatement was substantively at odds with the Tribunal’s findings concerning the employer’s bona‑fides.

The Court found this line of argument to be fundamentally misconceived. It observed that the appellate tribunal was dealing with two distinct issues. The first issue concerned whether the employer, in exercising its managerial authority, was justified in determining that the termination of thirty‑nine workmen was warranted. The second issue examined whether the actual process of retrenchment had been carried out in a proper and lawful manner. Both the Industrial Tribunal and the Labour Appellate Tribunal had resolved the first issue in favour of the employer, concluding that the strike by the workmen was without justification and that, for the reasons pleaded by the employer, the retrenchment of the thirty‑nine individuals was both necessary and lawful. The Court noted that, insofar as this aspect of the matter was concerned, the employer’s good faith had been duly recognised.

However, the Court emphasized that the employer’s good faith in deciding that retrenchment was necessary did not bear on the separate question of whether the employer acted fairly and reasonably in selecting the particular thirty‑nine workmen for termination. On that second aspect, the appellate tribunal had concurrently found that the employer had acted without proper justification and that the dismissal of the fifteen workmen specifically named amounted to an unfair labour practice. The Court therefore rejected the assertion that the two findings were inconsistent. It explained that the findings addressed two different dimensions of the dispute—one relating to the legitimacy of the decision to retrench and the other relating to the fairness of the selection process—and consequently could not be said to be in conflict.

The appellant further submitted that, by entertaining the grievance of the respondents against their retrenchment orders, the Labour Appellate Tribunal had exceeded its jurisdiction. The appellant’s position was based on the premise that retrenchment is a normal managerial function and that, once the necessity for retrenchment is established, the employer retains unfettered discretion to choose which employees are to be let go. The Court, however, indicated that this argument would be considered in the subsequent discussion. They deal

In examining whether the enquiry conducted by the appellate tribunal into the validity or reasonableness of the retrenchment of certain identified workmen was proper, the tribunal was said to have intruded upon a management function and therefore to have exceeded its jurisdiction. The Court was not persuaded by that submission. It was acknowledged that, where a genuine case for retrenchment exists, the ordinary position is that the employer decides which employees are to be laid off. However, the Court emphasized that an established industrial practice governs such decisions: the principle that “last come, first go” must be applied when all other considerations are equal. This rule obliges the employer, in carrying out retrenchments, to give preference to those who were most recently employed. The Court added, however, that this requirement does not strip the employer of all discretion. The employer may deviate from the “last come, first go” rule when there are sufficient and valid reasons, such as considerations of efficiency, reliability, or the trustworthy character of particular employees.

The Court explained that if an employer believes that a senior employee is inefficient, unreliable, or habitually irregular in discharging duties, the employer may lawfully choose to retrench that employee while retaining junior workers who demonstrate greater efficiency, reliability, and regularity. In instances where the employer departs from the ordinary rule, the employer should be able to produce reliable evidence—preferably drawn from the workmen’s recorded history—demonstrating the claimed inefficiency or unreliability. Industrial tribunals do not demand rigid compliance with the “last come, first go” rule; rather, they require satisfaction that any departure from the rule is justified by sound and valid reasons. Consequently, when a departure is alleged, the burden of proof rests on the employer to show that the deviation is warranted. The Court stressed that the purpose of the “last come, first go” principle is to provide a robust safeguard against discrimination in retrenchment. Hence, even when the employer departs from the rule, the employer must be prepared to justify the decision before an industrial tribunal if the retrenched workmen claim that the action amounts to an unfair labour practice or victimisation. The Court noted that, in 1946, the Government of India’s Department of Labour issued a set of retrenchment rules intended to minimise disputes. Rule 4 of those guidelines stipulated that, as a general rule, the discharge of surplus personnel should follow the short‑service principle, meaning that the last person engaged should be the first to be dismissed.

The Court explained that the rule requiring the dismissal of the most recently hired employee, commonly expressed as “last come first go,” demands that an employer give appropriate notice or the equivalent wages in lieu of notice. This rule has been repeatedly endorsed and applied by industrial tribunals in a number of decisions, including Indian Navigation & Industrials, Alleppey and Certain Workmen, Cuttack Electric Supply Co. Ltd. and Their Workmen, and Shaparia Dock and Steel Company and Their Workers. Moreover, the Court noted that the same principle has now been incorporated into legislation through section 25(g) of the Industrial Disputes Act. That provision states, inter alia, that when a workman who is an Indian citizen is to be retrenched from an industrial establishment, the employer shall, as a general rule, retrench the workman who was most recently employed in the same category. The provision further requires that, if the employer chooses to retrench a different workman, the employer must record the reasons for such deviation. In effect, the statute creates a mandatory duty for the employer to follow the “last come first go” principle and obliges the employer to set out any justification when departing from it.

The Attorney‑General argued that the Labour Appellate Tribunal had exceeded its jurisdiction by evaluating the merits of the retrenchment carried out by the appellant, and he relied on observations made by this Court in J K Iron and Steel Co. Ltd. v. Its Workmen. The appellant contended that the order of retrenchment should be left entirely to management and that management might prefer employees who are more qualified. The Court, referring to the earlier decision, observed that such a proposition is not unacceptable in principle; however, it added that if preferential treatment given to certain employees disregards the well‑recognised industrial law principle of “first come last go” and is not supported by any reasonable or sound justification, an adjudicating tribunal is fully justified in concluding that the management’s action is not made in good faith. The Court found that neither of the two propositions articulated in the earlier judgment supports the appellant’s present argument. It held that industrial law clearly provides that management may retrench workers only when the retrenchment is justified. In carrying out a retrenchment, management is normally required to apply the established industrial rule. While a genuine business reason may permit a departure from the rule, any such departure that the industrial tribunal deems unsatisfactory or unjustified will be regarded as mala fide and may amount to an unfair labour practice. Consequently, a departure from the ordinary rule of retrenchment without a proper justification can itself be treated as an unlawful act.

In this case the Court observed that if a proper case is established, it leads to the inference that the challenged retrenchment was motivated by ulterior considerations, is therefore mala fide and constitutes an unfair labour practice and victimisation. The Court referred to its earlier decision in J. K. Iron & Steel Co. Ltd. (4) to affirm that view. Consequently, the Court was satisfied that the appellant’s argument that the lower tribunals had exceeded their jurisdiction by examining the validity of the retrenchment of the thirty‑nine workmen lacked any substance. The Court noted an additional point for brief discussion. After the matter was remanded, the industrial tribunal carefully reviewed the evidence presented by the appellant. The record showed that at the original enquiry the appellant had not produced any evidence to justify the departure from the retrenchment rule, even though it was admitted that the rule had not been followed. Accordingly, the Labour Appellate Tribunal gave the appellant a fair opportunity to justify the departure, and the appellant then led evidence. That evidence consisted of the testimony of Mr Lakshminarasimian, who had been employed by the appellant for thirty‑two years as an Assistant Editor and also attended to press work. He testified that he personally supervised the entire work and that, when the retrenchment was effected, a committee was formed comprising himself, the Manager Mr Ayyangar and the Press Manager Mr Rajagopala Ayyangar; the Manager was deceased at the time of the enquiry. According to the witness, the committee sought the advice of the foremen of various sections in deciding which workmen should be retained and which should be retrenched. The witness gave evidence regarding the alleged defects in the cases of the thirty‑nine retrenched workmen and, to support his oral testimony, he filed two statements, identified as T‑1 and T‑2, which set out material particulars concerning all of those workmen. It was admitted that no contemporaneous records had been made when the cases of these workmen were examined, so the witness was compelled to rely on memory. The tribunal held that, given the nature of the defects attributed to the various workmen as described by the witness, his testimony could not be accepted as satisfactory, and the tribunal was also unconvinced that the witness possessed personal knowledge of those defects. As a result, the tribunal rejected his testimony. The tribunal further examined several cases in detail and found that the reasons given for the retrenchments were demonstrably unsatisfactory. On the basis of these findings, the tribunal concluded that the appellant had failed to show any valid or reasonable ground for deviating from the usual rule, a conclusion that was accepted by the Labour Appellate Tribunal. In such a

In the present case the Court stated that it could not discern any basis on which the appellant could successfully contest the correctness of the tribunal’s conclusion that, in substance, the termination of the fifteen workmen constituted an unfair labour practice and amounted to victimisation. The Court noted that the only remaining issues were two ancillary questions framed by the learned Attorney‑General. The Attorney‑General argued that, even if the termination of the fifteen workmen was found to be unjustified, the decree of reinstatement should not have been ordered and that instead a payment of compensation should have been directed; alternatively he contended that the order granting compensation to the remaining twenty‑four retrenched workmen was also unwarranted. The Court observed that it found no merit in either of these contentions. It held that once a retrenchment is declared unjustified and improper, the appropriate jurisdiction lies with the subordinate tribunals to determine the appropriate relief for the affected employees. As a general principle, a workman who has been illegally and improperly retrenched is entitled to claim reinstatement. The Court further explained that the fact that the employer has, in the meantime, engaged other workers does not, per se, defeat the claim for reinstatement, nor does the delay inevitably caused by protracted litigation. The Court reiterated that its own precedent has consistently held that in cases of wrongful dismissal, discharge or retrenchment a claim for reinstatement cannot be barred merely because time has elapsed or because the employer has employed fresh hands (Vide: The Punjab National Bank Ltd. v. The All‑India Punjab National Bank Employees’ Federation (1); and National Trans.port and General Co. Ltd. v. The Workmen (2)). Regarding the monetary compensation awarded to the fifteen and the twenty‑four workmen respectively, the Court said that such awards are matters of discretion and therefore are not open to challenge in the present appeal. Consequently the appeal was dismissed with costs. Appeal dismissed — — — (1) [1960] I S.C.R. 806. (2) Civil Appeal No. 372 of 1956 decided on January 22, 1957.