Tea Districts Labour Association vs Ex-Employees of Tea Districts Labour Association

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 169 of 1959

Decision Date: 9 March, 1960

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

In this case, the Court identified the parties as the Tea Districts Labour Association of Calcutta, who were the petitioners, and the ex‑employees of the same association together with another respondent, who were the respondents. The judgment was delivered on 9 March 1960 by a bench consisting of Justice P. B. Gajendragadkar and Justice K. N. Wanchoo. The citation of the decision appears as 1960 AIR 815 and 1960 SCR (3) 207, with subsequent citations in later reports. The dispute arose under the Industrial Disputes (Appellate Tribunal) Act, 1950, specifically invoking sections 22, 23 and 25F(c). The factual background recorded by the Court stated that because the activities and business of the appellant had noticeably declined, the appellant resolved by a formal resolution to close two of its local agencies situated at Koraput and Berhampur (Ganjam) effective on 31 May 1957, and simultaneously considered retrenching ten of its employees with effect from 1 December 1956. An industrial dispute consequently emerged from the closure and the retrenchment and was referred to the Industrial Tribunal for adjudication. Before the Tribunal, the appellant conceded that the retrenchment of the ten employees was invalid because the statutory notice required by section 25F(c) of the Act had not been served, although the appellant later asserted that the mandatory compensation had been paid to the retrenched workers. Regarding the question of closure, the Tribunal concluded that the closure was not bona fide; consequently it held that, in law, a real closure had not occurred. The Tribunal therefore ordered the appellant to reinstate the ten retrenched workers and to pay all employees at the two agencies as if the agencies had remained open and operational. On appeal by special leave, the Court held that when the two agencies had in fact been closed, the finding of mal‑afides could not support a conclusion that the agencies should be deemed to continue, and the Tribunal was not empowered to make an award on that basis. The Court distinguished the decision in Banaras Ice Factory Ltd. v. Its Workmen, 1957 SCR 143. The appeal was recorded as Civil Appeal No. 169 of 1959, arising from the award dated 26 June 1958 of the Industrial Tribunal, Orissa at Cuttack, reference No. 2 of 1957. Counsel for the appellant included the Attorney‑General for India and other representatives, while counsel for the respondents were also identified. The judgment was delivered by Justice Gajendragadkar.

The dispute that was referred to the industrial tribunal involved two separate questions. The first question asked whether the dismissal of ten workers employed at the Koraput and Ganjam agencies of the Tea Districts Labour Association on 30 November 1956 was lawful, and if it was not lawful, what compensation those workers should receive. The second question concerned the proposed closure of the same Koraput and Ganjam agencies, an action that the secretaries of the association, Messrs Jardine Henderson Ltd, intended to implement from 31 May 1957. The tribunal was asked to determine whether that closure was made in good faith. If the closure was found to be genuine, the tribunal had to decide whether the displaced workers were entitled to alternative positions in any other establishment run by the same management. If the closure was not genuine, the tribunal needed to specify the relief to which those workers were entitled. The award issued by the tribunal required the appellant to pay the ten dismissed workmen all wages and allowances due from 30 November 1956 up to 31 May 1957. Additionally, the award ordered the appellant to continue paying all employees of the Berhampur and Koraput agencies, including the ten dismissed workers, their full wages and allowances from 31 May 1957 until one month after the award was published. During that period the management, if it chose, could shut down the agencies, and in such a case no further notice of retrenchment would be needed for the ten workers. The award also stated that if the agencies were not closed in good faith, the ten dismissed workers would be entitled to the statutory notice period should the management still wish to retrench them. For the remaining employees, the award confirmed that they would continue to receive their normal pay and allowances and that, in the eyes of the law, the agencies would remain operational. The appellant challenged the validity of the latter part of the award before this Court by filing the present appeal by special leave.

The appellant is a company limited by guarantee, formed in 1917, whose purpose is solely to provide services to its members. Its members consist of owners of several tea gardens located in West Bengal and Assam. The principal aim of the association is to recruit labour from various parts of India and to supply that labour to the member tea gardens according to their needs. Since 1953, Jardine Henderson Ltd has acted as the secretary of the association and continues to hold that position. The association operates a number of establishments across India, known as Local Agencies, Local Forwarding Agencies, and Forwarding Agencies. The Local Agencies and Local Forwarding Agencies are primarily engaged in the recruitment of labour, whereas the Forwarding Agencies are mainly responsible for providing accommodation and meals to labourers while they are in transit to and from the tea gardens. Near the end of the financial year 1955‑56, the secretary obtained estimates from the member tea gardens regarding their anticipated labour requirements for the planting seasons covering 1956 to 1959. Those estimates indicated that the required number of adult labourers would range between six thousand and ten thousand, a substantial reduction compared with the association’s earlier annual recruitment of about thirty thousand labourers. This decline formed the background to the later decisions concerning the closure of certain agencies and the retrenchment of employees.

In the year 1955‑56 the appellant’s organisation, which had previously recruited about thirty thousand labourers each year, was now estimating that its annual requirement would fall to between six thousand and ten thousand labourers. This marked a substantial reduction in the volume of business and consequently raised the issue of whether some of its agencies should be closed. Around the beginning of March 1957 the appellant became aware that the demand for labour was decreasing rapidly and that it would be necessary to discontinue certain agencies. The appellant’s general committee met on 7 March 1957 to discuss the matter and resolved, among other things, that the two local agencies located at Koraput and at Berhampur (in Ganjam district) should be shut down, if feasible, by 1 April 1957. Pursuant to that resolution the appellant finally effected the closure of the two agencies on 31 May 1957. One of the matters referred to the Industrial Tribunal concerned this closure. At about the same time the appellant also contemplated reducing its workforce. In line with that intention ten employees were retrenched with effect from 1 December 1956. The retrenchment of those ten employees formed the second issue that was placed before the Industrial Tribunal for determination.

During the proceedings before the Tribunal the appellant conceded that the retrenchment of the ten workmen was invalid because the statutory notice required by section 25F(c) of the relevant legislation had not been served. The appellant therefore agreed that those ten individuals were entitled to continue receiving the same wages and privileges that they were enjoying on the date of retrenchment until 31 May 1957, which was the date on which the two agencies were closed. Consequently there was no dispute regarding the legal position of the retrenchment. Regarding the question of closure, the Tribunal observed that its task was to ascertain whether the closure was genuine and made in good faith. After examining the evidence, the Tribunal was inclined to hold that the appellant’s apprehensions about a decline in activity and work were not justified and that the appellant could have continued to operate the two agencies in question. The Tribunal also noted that shortly after the alleged closure of the Koraput and Berhampur agencies, the appellant opened a new agency at Vizianagaram in Andhra Pradesh, a location some distance from Koraput in Orissa. The explanation offered by the appellant for establishing the Vizianagaram agency, which had itself been closed on 6 September 1956, was found to be unsatisfactory. As a result the Tribunal concluded that the closure was not bona‑fide and that, in legal terms, it did not constitute a real closure. On the basis of that conclusion the Tribunal issued an order directing the appellant to reinstate the ten retrenched workmen and to pay all employees at the two centres as if the centres had never been closed and were continuing to operate.

In reaching its conclusion, the tribunal relied upon the observations made by this Court in Banaras Ice Factory Ltd. v. Its Workmen (1). It was accepted as common ground that compensation, on the premise that the closure was not justified, had been duly paid to every employee affected, and the learned Attorney General informed the Court that the ten retrenched workmen had also received the statutory compensation. On behalf of the appellant, the learned Attorney General made it unmistakably clear that, even if the appeal were to succeed, the appellant would not seek any repayment from any of the employees, although it would be legally entitled to do so. The principal grievance advanced by the appellant before this Court concerned the tribunal’s direction that the closure must be treated as non est and that the agencies should be considered as continuing to operate despite their factual shutdown.

The appellant argued that even if the closure were not bona fide, it did not follow that the closure had, in fact, never occurred; they maintained that the situation was not one in which the closure was a pretence or an unreal plea, meaning that the agencies had ostensibly continued to function under a different guise. In reality, the agencies had indeed been closed, as found by the tribunal. The appellant further contended that the tribunal’s finding of mala fides regarding the closure was seriously doubtful because it was unsupported by any legal evidence and appeared contrary to the weight of the evidence on record. The Court was inclined to think that this contention possessed considerable force. Nevertheless, the Court considered whether the mere lack of a bona fide closure necessarily rendered the closure a fiction that could be treated as legally non‑existent. That precise and narrow issue formed the crux of the matter for decision in the present appeal.

As indicated earlier, the tribunal’s conclusion rested on the observations of this Court in Banaras Ice Factory Ltd. v. Its Workmen (1). Accordingly, it became necessary to revisit those observations and determine whether they truly justified the tribunal’s finding. In that earlier case, this Court examined a decision of the Labour Appellate Tribunal arising from a complaint filed under section 22 of the Industrial Disputes (Appellate Tribunal) Act, 1950. During the pendency of an appeal before the Labour Appellate Tribunal, the appellant company decided to shut down its business and gave notice to all workmen that their services would be terminated thirty days after July 16, 1952. This action gave rise to a complaint under section 23 of the Act, alleging a contravention of section 22. The Labour Appellate Tribunal initially held that the closure was bona fide, conceded that the appellant possessed the right to close its business for bona fide reasons, but nevertheless opined that prior permission should have been obtained, thereby finding the appellant guilty of violating section 22(b). This Court subsequently reversed that decision, analysing the true scope and effect of sections 22 and 23, and holding that if the closure was bona fide, neither section came into operation, and consequently the appellant had committed no breach of section 22(b).

In this case, the Court observed that the appellant had given notice to all workmen that their services would be terminated thirty days after July 16, 1952. That notice gave rise to a complaint filed under section 23 of the Industrial Disputes (Appellate Tribunal) Act, alleging that section 22 of the same Act had been violated. The Labour Appellate Tribunal held that the closure was bona fide. It acknowledged that the appellant possessed the right to shut down its business for genuine reasons, but it nevertheless concluded that the appellant should have obtained permission before effecting the closure. Accordingly, the Tribunal found the appellant liable for contravening section 22(b) of the Act. The Supreme Court reversed that finding. In its reversal, the Court examined the true scope and effect of sections 22 and 23 of the Act and held that when a closure is bona fide, neither provision is triggered. Consequently, the Court concluded that the closure was bona fide and that the appellant had not breached section 22(b). While discussing the scope of section 23, the Court remarked that there is scarcely any occasion to seek permission to lift the prohibition of section 22 when an employer lawfully and genuinely closes his business, resulting in the industry’s cessation. The Court added that if a closure is merely a pretense or is carried out in bad faith, no actual closure exists in the eyes of law, and the workmen may raise an industrial dispute and may even invoke section 23. The Tribunal based its decision on this latter observation. The Court, however, clarified that it did not lay down an absolute rule that every bad‑faith closure must be deemed unreal; rather, it indicated that in cases of pretended closure, no real closure occurs, and for the purposes of section 23, a malicious closure may be treated similarly. In the present matter, the facts were undisputed: the two agencies had been closed and their business wound up. If the closure were found not to be bona fide, the employer would be liable for higher compensation under section 25‑FFF of the Industrial Disputes Act, 1947. Nonetheless, the Court found it difficult to justify treating the closed agencies as if they continued to exist merely on a finding of bad‑faith, and therefore could not sustain an award based on that premise.

The Court observed that the finding concerning the alleged mala fides of the closure was seriously questionable. In the Court’s view, that finding rested only on conjecture and speculation, and it contradicted the overall weight of the evidence that had been presented during the proceedings. Consequently, the Court concluded that the part of the award which had directed the appellant on the premise that, for legal purposes, the closure had not occurred could not be sustained. Accordingly, that portion of the award was set aside. The Court therefore held that the appeal succeeded in respect of that specific issue and that the appeal should be allowed to the extent of overturning the impugned directions. In addition, the Court decided that, given the circumstances of the case, no order awarding costs to either party would be made. The final order of the Court was that the appeal was allowed.