Swadesamitran Limited, Madras vs Their Workmen on 1 March, 1960

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 1 March, 1960

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

The appeal, which was granted by special leave, concerned an industrial dispute between Swadesamitran Ltd., Madras, referred to here as the appellant, and the workmen identified as the respondents. On 3 November 1951 the Madras Government, invoking section 10(1)(c) of the Industrial Disputes Act, 1947 (Act XIV of 1947), sent three items of dispute for adjudication to the Industrial Tribunal at Madras. One of those items sought determination of whether the retrenchment of thirty‑nine workmen carried out by the appellant in May 1951 was justified, and if it was not justified, what relief the retrenched workmen were entitled to. For completeness, the material facts that led to the dispute are set out briefly. On 26 August 1950 the respondents presented a charter of demands to the appellant containing eleven separate demands and warned that, should those demands not be granted, they would embark on a strike. The appellant informed the respondents that it was operating at a loss and that proposals for retrenchment and rationalisation were under active consideration. The appellant further assured the respondents that, once its financial condition improved, the demands would be examined with sympathy. Consequently, the respondents withdrew the demands. Nevertheless, on 24 January 1951 the respondents issued another communication containing thirteen demands, again coupled with the threat of a strike if the demands were not met. A copy of this communication was forwarded to the State Government, which was requested to refer the matter to the Industrial Tribunal for adjudication. Instead, the Government referred the case to a Conciliation Officer, who concluded that the demands were not justified and submitted a report dated 22 February 1951. Immediately following that report the respondents wrote to the Government reiterating their request for reference, but on 24 April 1951 the Government declared that no case for reference had been made.

During the same period the appellant was undertaking steps to retrench staff in view of a steep increase in the price of newsprint, a shortage of supplies, the imposition by the Government of India of a price‑page schedule, and the gradual introduction of mechanisation in the composing section through the installation of lino‑type machines. When the respondents became aware of these developments, their Union called for a strike ballot, and as a result of that ballot the respondents resolved to go on strike. A notice of strike was issued on 9 May 1951. The appellant subsequently appealed to the respondents not to precipitate the situation, promised that their demands would be considered as soon as the financial position of the company improved, and warned that refusal to report for work in accordance with the strike notice would be deemed resignation from employment.

The Court recorded that the appellant had warned each striker that failure to obey the strike notice would be treated as a resignation from his job. The Conciliation Officer, who had been approached by the appellant, also advised the respondents not to commence a strike. Despite this advice, the respondents went on strike on 30 May 1951. Prior to the strike, the appellant had terminated the services of thirty‑nine members of staff by notice, 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 was referred for adjudication, the respondents filed a writ petition in the Madras High Court seeking a direction that the Government make a reference under section 10(1)(c) of the Act. The writ petition was allowed, but the Court of Appeal modified the order, substituting a direction that the Government discharge its duties under section 12(5) of the Act. On 12 June 1951 the respondents called off the strike and offered to resume work. By that time the appellant had hired new workers and was able to re‑engage only some of the respondents who wished to return. The appellant’s failure to take back all the workmen formed a further point of dispute, but the present appeal was confined to the original industrial dispute. It was on the basis of the order of the Madras High Court that the matter was eventually referred to the industrial tribunal for adjudication.

The industrial tribunal held that the strike declared by the respondents was not justified and that the appellant was justified in retrenching the thirty‑nine workmen. Although the tribunal observed that the “last‑come‑first‑go” principle had not been strictly observed, it concluded that the appellant was permitted to depart from that rule because it was entitled to give preference to persons who were mechanically inclined and possessed good eyesight. Accordingly, the tribunal rejected the respondents’ allegation that the retrenchment involved an unfair labour practice. Satisfied that the retrenchment was carried out in the ordinary course for sound reasons, the tribunal ordered that the dismissed workmen were not entitled to any relief. The respondents appealed this award to the Labour Appellate Tribunal. The appellate tribunal found that the lower tribunal’s finding on the bona‑fides and validity of the retrenchment was not justified and therefore remanded the case to the industrial tribunal to reconsider four specific points. Two of those points were directly relevant: first, whether the “last‑come‑first‑go” formula had been complied with, and if not, whether the reasons for deviating from it were sufficient in each individual case; second, whether the management’s actions were motivated by any unfair labour practice or victimisation.

Following the order of remand, the industrial tribunal gave the appellant an opportunity to present evidence. After examining that evidence, the tribunal concluded that the appellant had established a genuine necessity for the retrenchment and that the number of workers dismissed, thirty‑nine, was justified. The tribunal found no evidence of bad faith on the part of the appellant. However, the tribunal held that the “last come first go” rule had not been observed in the selection of the workers to be retrenched and it rejected the appellant’s explanation for the dismissal of fifteen of those thirty‑nine employees. Consequently, the tribunal ordered that those fifteen workers be reinstated but it did not award any back wages to them. No award regarding compensation for the remaining twenty‑four dismissed workers was made by the tribunal.

After receiving the tribunal’s findings, the matter returned to the Labour Appellate Tribunal, where both parties lodged objections to the findings. The appellate tribunal examined those objections and affirmed that the appellant had successfully demonstrated a case for retrenching all thirty‑nine employees. Nonetheless, the appellate tribunal agreed with the industrial tribunal that the “last come first go” principle had not been complied with and that there was no justification for departing from that rule. Accordingly, the appellate tribunal confirmed the order that the fifteen named employees be reinstated and further directed that they be paid half of the back wages they would otherwise have been entitled to. Regarding the remaining twenty‑four workers, the appellate tribunal ordered that each be awarded compensation equal to half a month's wages, including dearness allowance, for each year of service they had completed.

The appellant challenged this decision by obtaining special leave to appeal. In the appeal, the Attorney‑General, on behalf of the appellant, argued that the Labour Appellate Tribunal had erred in law by directing reinstatement when its conclusion did not differ from that of the industrial tribunal, which had found that the respondents’ strike was unjustified and that the appellant had acted in good faith in determining that the retrenchment of thirty‑nine workers was necessary. The argument asserted that only if the tribunal were satisfied that the appellant acted with malice could it interfere with the appellant’s order of retrenchment, and therefore the reinstatement order was inconsistent with the findings on the appellant’s bona fides. The Court considered this contention and held that the argument was misconceived. The Court observed that the appellate tribunal's considerations involved two distinct questions: first, whether the appellant was justified in concluding, as part of its managerial authority, that thirty‑nine workers needed to be retrenched; and second, whether the retrenchment was carried out in a proper manner. Both subordinate tribunals had answered the first question in favor of the appellant, finding the strike unjustified and the retrenchment necessary and bona fide. The Court noted, however, that the appellant’s good faith in deciding to retrench did not bear on the separate issue of whether the selection of the specific workers for retrenchment was fair and reasonable, which was the matter on which the appellate tribunal had recorded its contrary findings.

The Court examined two separate issues. First, it considered whether the employer was justified in concluding, within the exercise of its management authority, that the termination of thirty‑nine workmen was necessary, and second, whether the actual process of retrenchment had been carried out properly. Both the Industrial Tribunal and the Labour Appellate Tribunal had answered the first issue in favour of the employer. They held that the strike undertaken by the workmen was unjustified and that, for the reasons articulated by the employer, the retrenchment of the number of workmen claimed by the employer was warranted and justified. On this point the employer’s good faith was never doubtfully questioned. However, the Court noted that the employer’s good faith in deciding that thirty‑nine workmen should be retrenched did not have any material relevance to the question of whether the employer had acted fairly or reasonably in selecting the particular thirty‑nine individuals for termination. Regarding the second issue, both tribunals had found that the employer had acted without justification in selecting the fifteen workmen whose dismissal was specifically challenged, and that the dismissal of those fifteen amounted to an unfair labour practice. Consequently, the Court concluded that there was no inconsistency between the two sets of findings, because each set dealt with a distinct aspect of the dispute and therefore could not be said to conflict with the other.

The Court also addressed the argument that the Labour Appellate Tribunal had exceeded its jurisdiction by entertaining the workmen’s grievance concerning the order of retrenchment. The argument assumed that retrenchment was a purely normal management function and that, once the necessity for retrenchment was established, the employer should have unrestricted liberty to choose which employees to dismiss. The Court rejected this view. While it accepted that, in the ordinary course of industrial relations, the employer ordinarily decides which employees to retrench, it emphasized that the established industrial rule for retrenchment is “last come, first go,” and that, ceteris paribus, this rule must be observed. The Court added, however, that the rule does not strip the employer of the freedom to depart from it when there are sufficient and valid reasons. An employer may consider factors such as the efficiency, reliability, and overall character of the employees. If the employer is convinced that a long‑serving employee is inefficient, unreliable, or habitually irregular in performing duties, the employer may lawfully choose to retrench that employee while retaining younger workers who are more efficient, reliable and regular. In such departures from the rule, the employer must provide reliable evidence, preferably drawn from the employee’s service record, to demonstrate the justification for the departure, and the burden of proof rests with the employer.

The Court stated that an employer was entitled to dismiss certain workers while continuing to employ other workers who were more efficient, reliable and regular, even if those retained workers had shorter periods of service than the dismissed employees. The Court explained that when an employer departs from the usual “last‑come‑first‑go” rule, reliable evidence should ordinarily be produced, preferably drawn from the recorded history of the employees concerned, showing that those dismissed were inefficient, unreliable or habitually irregular. The Court clarified that industrial tribunals do not demand strict adherence to the retrenchment rule in every case; rather, they require satisfaction that any departure from the rule is supported by sound and valid reasons. Consequently, the Court held that whenever it is proved that the employer has departed from the established rule, the burden lies on the employer to persuade the industrial tribunal that the departure was justified, and that the onus therefore rests firmly upon the employer.

In addressing retrenchment matters, the Court emphasized that the “last‑come‑first‑go” principle serves as an important safeguard against discrimination among workers. Although an employer may deviate from this principle, the Court explained that the employer must be prepared to justify such a deviation before the industrial tribunal whenever an industrial dispute is raised by dismissed workers on the ground that their dismissal constitutes an unfair labour practice or victimisation. The Court then referred to the historical development of these rules, noting that in 1946 the Government of India’s Department of Labour issued a set of retrenchment rules and circulated them to all employers and trade unions with the aim of reducing disputes. Rule 4 among those rules provided that, as a general principle, surplus personnel should be discharged according to the short‑service principle, meaning that the most recently engaged worker should be the first to be let go, and that appropriate notice or payment in lieu of notice should be given.

The Court observed that this short‑service principle had been repeatedly accepted and applied by industrial tribunals, citing cases such as Indian Navigation and Industrials, Alleppey and Certain Workmen ((1952) II L.L.J. 611), Cuttack Electric Supply Co. Ltd. and Their Workmen (1954 I L.L.J. 723), and Shaparia Dock and Steel Company and Their Workers ((1954) II L.L.J. 208). The Court further noted that the principle had been incorporated into statute by section 25(g) of the Industrial Disputes Act, which expressly provides that, when a workman who is an Indian citizen is to be retrenched, the employer shall ordinarily retrench the workman who was the last person employed in the same category, unless the employer records reasons for retrenching any other workman. In other words, the statute imposes a statutory duty on the employer to follow the rule, and any departure from it must be recorded with reasons. The Court concluded this portion of its reasoning by indicating that, in support of his contention that the Labour Appellate Tribunal had exceeded its jurisdiction in examining

The Attorney‑General, for the appellant, relied on observations made by this Court in the case of J.K. Iron & Steel Co. Ltd. v. Its Workmen (Civil Appeal No 266 of 1958 decided on 11‑2‑1960). The appellant’s argument was that the decision on retrenchment should be left entirely to management and that a tribunal should not question a managerial determination that some employees were more qualified than others unless the tribunal concluded that the preferential treatment was made in bad faith. This Court observed that the argument itself was not unreasonable, but added that if a preference given to junior employees disregarded the well‑recognised industrial law principle of “first come, last go” and was not supported by acceptable or sound reasoning, a tribunal or adjudicator would be justified in finding that the management’s action was not made in good faith. The Court stated that it could not see how either of the two propositions set out in that judgment could support the appellant’s present contentions. The Court explained that industrial law clearly provides that management may retrench workmen so long as the retrenchment is justified. In carrying out retrenchment, management must ordinarily follow the established industrial rule governing such dismissals, although it may depart from that rule for valid reasons. If the departure does not appear to the industrial tribunal to be valid or satisfactory, the tribunal may regard the management’s action as being in bad faith or constituting an unfair labour practice. In other words, a departure from the ordinary industrial rule of retrenchment without justification may, in a proper case, lead to the inference that the challenged retrenchment was motivated by ulterior considerations and is therefore bad‑faith, an unfair labour practice, and victimisation. The Court noted that this principle had been precisely held in the J.K. Iron & Steel case mentioned above. Accordingly, the Court was satisfied that there was no merit in the appellant’s claim that the lower tribunals had exceeded their jurisdiction by examining the validity of the retrenchment of the thirty‑nine workmen in question.

The Court then mentioned a further point for brief consideration. After the matter was remanded, the industrial tribunal carefully examined the evidence put forward by the appellant. The record showed that at the original enquiry the appellant had not produced any evidence to justify the departure from the established rule, even though it had conceded that the rule had not been followed. Consequently, the Labour Appellate Tribunal fairly gave the appellant an opportunity to justify the departure, and the appellant subsequently presented evidence. That evidence consisted of the testimony of a senior employee of the appellant, whose statements were recorded and relied upon in the tribunal’s further deliberations.

Lakshminarasimhan, who had been employed by the appellant for thirty‑two years, held the position of Assistant Editor and also performed press‑work duties. He testified that he personally supervised the entire work of the press and that, when the retrenchment was carried out, a committee was formed consisting of himself, the Manager identified as Mr Ayyangar, and the Press Manager identified as Mr Rajagopala Ayyangar. At the time of the present enquiry the Manager, Mr Ayyangar, had died. According to the witness, the committee sought the advice of the foremen of the various sections before deciding which workmen should be retained and which should be retrenched. The witness gave detailed evidence concerning the alleged defects in the cases of the thirty‑nine workmen who were retrenched, and to support his oral testimony he submitted two written statements, labeled T‑1 and T‑2, which set out material particulars for each of the workmen concerned. It was admitted that no contemporaneous records had been made when the individual cases were examined, and consequently the witness was compelled to rely solely on his memory in giving his evidence. The tribunal held that, given the nature of the defects attributed to the various workmen by the witness, his testimony could not be accepted as satisfactory, and the tribunal was also not convinced that the witness possessed any personal knowledge of those alleged defects. Accordingly, the tribunal rejected the witness’s testimony. In addition, the tribunal examined several of the retrenchment cases in detail and found that the reasons offered for the dismissals 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 departing from the usual rule governing retrenchment, and this conclusion was affirmed by the Labour Appellate Tribunal. In view of that conclusion, the court saw no basis for the appellant to successfully challenge the determination that, in substance, the retrenchment of the fifteen workmen constituted an unfair labour practice and victimisation. The Attorney‑General then raised two subsidiary questions. First, he argued that even if the retrenchment of the fifteen workmen was unjustified, the order directing reinstatement should not have been made and that compensation ought to have been ordered instead. Second, he contended that the order directing compensation to the remaining twenty‑four retrenched workmen was also unwarranted. The court found no merit in either contention. Once it is established that a retrenchment is unjustified and improper, the appropriate relief is to be determined by the lower tribunals, and ordinarily a workman who has been illegally retrenched is entitled to claim reinstatement. The fact that the employer has subsequently engaged other employees does not, in itself, defeat the retrenched worker’s right to reinstatement, nor does the delay caused by protracted litigation defeat that claim.

In this case the Court noted that a workman who has been wrongfully dismissed, discharged or retrenched retains the right to seek reinstatement. The Court further reiterated that such a right cannot be lost merely because a considerable period of time has passed since the dismissal or because the employer has subsequently hired new employees to replace the dismissed workmen. The Court referred to its earlier decisions, specifically The Punjab National Bank Ltd. v. The All‑India Punjab National Bank Employees’ Federation and National Transport and General Co. Ltd. v. The Workmen (Civil Appeal No. 312 of 1956 decided on January 22 1957), to confirm that the passage of time or the engagement of fresh hands does not defeat a claim for reinstatement. Regarding the compensation that had been awarded to the fifteen workmen and the twenty‑four workmen, the Court held that the amount of compensation is a matter of discretion vested in the tribunals below and therefore is not open to challenge in the present appeal. Consequently, the Court concluded that the present appeal fails. 14. In the result the appeal fails and is dismissed with costs. 15. Appeal dismissed.