Anakapalla Co‑Operative Agricultural and Industrial Society vs Workmen

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

Court: supreme-court

Case Number: Civil Appeal No. 224 of 1962

Decision Date: 23 October 1962

Coram: P.B. Gajendragadkar, A.K. Sarkar, K.N. Wanchoo, K.C. Das Gupta, N. Rajagopala Ayyangar

In this case the petitioner was Anakapalla Co‑Operative Agricultural and Industrial Society and the respondent was the workmen, and the judgment was delivered on 23 October 1962 by a bench consisting of P B Gajendragadkar, A K Sarkar, K N Wanchoo, K C Das Gupta and N Rajagopala Ayyangar. The citation of the decision is 1963 AIR 1489, 1963 SCR Supl. (1) 730. The dispute arose from a sugar mill that had been incurring losses each year because of an insufficient supply of sugarcane. The owners of the mill wished to shift the mill, and the cane‑growers formed a cooperative society which purchased the mill. Under an agreement between the company and the society, the company terminated the services of its employees and paid them retrenchment compensation under section 25FF of the Industrial Disputes Act, 1917. The cooperative society subsequently employed some of the former employees but failed to employ 49 permanent and 103 seasonal workers. The workmen claimed that, as the successor‑in‑interest of the original company, the society should re‑employ them with continuity of service and that the claim for re‑employment was sustainable. The matter was referred to a tribunal which, by its award, directed the society to re‑employ the excluded former employees and to give them seniority over newly hired workers, and to re‑employ the remaining workers as vacancies arose. The society contended that it was not a successor‑in‑interest of the company and that, because the company had terminated the employees’ service and paid compensation under section 25FF, no claim could be made against the transferee. The Court held that the cooperative society was indeed the successor‑in‑interest of the company. The Court explained that determining whether a purchaser of an industrial concern is a successor‑in‑interest requires consideration of several relevant facts, such as whether the whole business was purchased, whether the business was a going concern, whether it continued to be carried on at the same place, whether there was a substantial break in continuity, whether goodwill was purchased, and whether all parts or only some parts were bought. The Court stressed that no single factor is decisive and that the decision depends on an overall evaluation of all relevant factors. In the present case the Court found that the society purchased the concern for the purpose of manufacturing sugar and continued the same business at the same location without any appreciable break, and therefore was deemed the successor‑in‑interest. Consequently the claim for re‑employment was not sustainable. The Court further observed that under section 25FF, when the transfer does not fall within the proviso, employees are entitled to claim compensation from the transferor but cannot claim re‑employment from the transferee. Employees cannot receive both compensation for termination and immediate re‑employment from the transferee. Section 25H was held not to apply because termination of service upon transfer or closure does not constitute retrenchment within the meaning of section 25F. The termination dealt with in section 25FF cannot be equated with retrenchment covered by section 25F.

The Court observed that the business was carried on at the same place without any appreciable break and referred to the authorities Ramjilal Nathulal v. Himabhai Mills Co. Ltd., (1956) 11 L.L.J. 244; New Gujarat Cotton Mills Ltd. v. Labour Tribunal, (1957) 11 L.L.J. 194; and Anthony D'Souza v. Sri Motichand Silk Mills, (1954) 1 L.L.J. 793. It held that the employees’ claim for reinstatement was not sustainable. The Court explained that in all cases falling under section 25FF of the Industrial Disputes Act, if the transfer does not fall within the proviso, the employees of the transferred concern are entitled to claim compensation against the transferor but they cannot claim re‑employment against the transferee. Consequently, the employees were not entitled to both compensation for termination of service and immediate re‑employment at the hands of the transferee. Section 25H was held not to apply because termination of service upon transfer or closure is not retrenchment within the proper meaning of the term. The termination dealt with by section 25FF cannot be equated with retrenchment covered by section 25F. The words “as if” in section 25FF clearly distinguish retrenchment under section 2(00) from termination of service under section 25FF. Moreover, the principles underlying section 25H could not be applied to the present case. The Court further stated that the general principles of social justice and fair play did not justify a claim for re‑employment simultaneously with the payment of retrenchment compensation, and it referred to Hariprasad Shiv, Shankar Shukla v. A.D. Divakar, [1957] 3 S.C.R.; Union of India, [1960] 3 S.C.R. 528; and Indian Hume Pipe Co. Ltd. v. The Workmen, [1960] 2 S.C.R. 32.

The judgment concerned Civil Appeal No. 224 of 1962, filed by special leave from the award dated 6 June 1961 of the Industrial Tribunal, Andhra Pradesh, Hyderabad, in Industrial Dispute No. 13 of 1960. Counsel for the appellant, including the Solicitor General of India and two other counsel, appeared, while counsel for respondent No. 1 and counsel for respondent No. 2, namely A.S.R. Chari, M.K. Ramamurthy, R.K. Garg and T.S. Venkatraman, represented the workmen. The decision was delivered on 23 October 1962 by Justice Gajendragadkar. The principal issue presented to the Court related to the scope and effect of section 25FF of the Industrial Disputes Act, 1947. An industrial dispute between the appellant, Anakapalla Co‑operative Agricultural & Industrial Society, and its workmen had been referred by the Governor of Andhra Pradesh for adjudication to the Industrial Tribunal, Hyderabad, under section 10(1)(d) of the Act on 7 December 1960. The respondents, who were formerly employed by Vizagapatnam Sugar and Refinery Ltd., claimed entitlement to re‑employment in the concern that had been purchased by the appellant. Their demand for re‑employment was rejected by the appellant, and they consequently approached the State Government requesting that their claim be referred to an Industrial Tribunal for adjudication. The Court’s analysis centred on whether the employees could claim re‑employment from the transferee alongside compensation under the statutory provisions, and it concluded that such a simultaneous claim was not permissible.

In this matter, the request for re‑employment was referred to the Tribunal under section 10(1)(d) of the Industrial Disputes Act. The Court noted that the Company involved was an established manufacturer of sugar, but its operations had not been profitable because the supply of sugar‑cane was inadequate. Management therefore feared that the enterprise would continue to incur losses each year and decided to relocate the business to Yerravaram in the East Godavari district, where it believed a reliable cane supply existed. That relocation plan, however, failed to materialise because the local cane growers opposed it. Consequently, those local growers chose to organise themselves as a cooperative society and to purchase the business of the Company. The cooperative, which later became the appellant Society, completed the purchase of the concern on 7 October 1959. At the time of the sale, the parties agreed that the Company would pay retrenchment compensation to its employees, terminate their services, and thereby grant the Society complete freedom to select its own workforce. Accordingly, the Company disbursed a total of Rs 1,90,000 to its employees as retrenchment compensation. Before the transaction was finalised, the employees proposed that their union might itself acquire the concern, but the union was unable to arrange the purchase. The union then suggested that the Rs 1,90,000 compensation be credited to the Society’s account, allowing employees to pay the amount in instalments; the Society rejected this proposal. As a result of the completed sale, the Society assumed control of the concern and recruited employees as it deemed appropriate, based on the recommendations of a committee appointed for that purpose.

The records showed that the Company previously employed eight hundred workers in total. Among them, three hundred and twenty‑nine were permanent employees, while four hundred and seventy‑one were employed on a seasonal basis. After taking over the concern, the Society employed six hundred and seventy‑eight persons, of whom two hundred and forty‑eight were permanent and the remainder were seasonal workers. Of the permanent staff engaged by the Society, two hundred and twenty were former employees of the Company, and twenty‑eight were newly appointed. Consequently, forty‑nine permanent workers and one hundred and three seasonal workers from the former Company were not taken on by the Society. The dispute that was referred to the Tribunal sought an order directing the Society to absorb these remaining permanent and seasonal employees. The Society contested this claim on three principal grounds. First, it argued that the matter before the Tribunal did not constitute an industrial dispute, and therefore the reference was legally improper. This contention was premised on the allegation that the Thummapala Sugar Workers Union, which had sponsored the demand for re‑employment, was not a representative union. The Court observed that the Union’s membership roll showed only a very small number of the Society’s current employees, while the majority of its members were former employees of the Company. The Society further asserted that its own employees had formed a separate union, which had not endorsed the present demand and, in fact, opposed it.

In this matter, the respondents pointed out that the workers had formed a separate union of their own, and that this latter union had neither sponsored the present demand nor supported it, but instead sought to oppose it. The Tribunal examined the material evidence relating to this question and concluded that, under the law, the union which had sponsored the present industrial dispute possessed the requisite authority to raise the dispute. Consequently, the Tribunal dismissed the appellant’s argument that the reference was invalid because the sponsoring union was incompetent. The appellant’s next contention was that it was not a successor‑in‑interest of the Company, and therefore, on the footing of industrial law, the claim advanced by the respondents for the re‑employment of both permanent and seasonal employees could not be sustained. The Tribunal held that the appellant was indeed a successor‑in‑interest of the Company and, on that basis, found that the demand for the re‑employment of the specified permanent and seasonal workers was permissible under the applicable industrial statutes. The appellant’s final argument asserted that it had already employed a full complement of the labour force it required, and therefore there was no possibility of re‑employing any of the workmen on whose behalf the dispute had been raised. The Tribunal rejected this contention and directed the appellant to re‑employ, as far as possible, the permanent employees who had been excluded in favour of the newly appointed staff, specifically ordering that the appellant re‑hire as many of the 49 permanent employees left out as vacancies arose, and to re‑employ any remaining permanent staff when further vacancies become available. With respect to the seasonal employees, the Tribunal issued a comparable order. The order further required the appellant to guarantee continuity of service to the reinstated workmen and to pay them one‑fourth of the arrears of wages due. Moreover, the Tribunal stipulated that if the Society employed fewer workers than before, only a number of former workers equal to the number of new workers appointed could be reinstated, and that such reinstatement should be carried out in order of seniority. The appellant has challenged this order before this Court by way of a special leave petition. The primary issue for determination on appeal is whether the appellant qualifies as a successor‑in‑interest of the Company. The learned Solicitor General argued that the sale agreement by which the appellant acquired the assets clearly demonstrates that the appellant cannot be regarded as a successor‑in‑interest. He pointed out that the terms of the sale agreement indicate that the appellant left with the Company part of its land, its investments valued at Rs 19 lakhs and its liabilities amounting to Rs 27 lakhs, and that 4,000 bags of processed sugar remained with the Company at the time of the transaction. Clause 8 of the agreement provides that the Company shall be entitled to withdraw and appropriate all advances, part payments and deposits made by it, whether in cash or security, and that the Society shall have no right to claim the same. Clause 13 similarly provides that the Company shall discharge all its liabilities, whether secured or unsecured, determined or to be determined, and that the Society shall not be liable for those obligations.

In the agreement of sale the parties stipulated that the company would retain the godown where the sugar stocks were stored without paying rent or compensation until the entire stock was released and delivered, as provided in clause eleven. The same agreement required the company to terminate the services of its employees on or before 9 October 1959, and clause seven further provided that any claims arising from such termination would be paid by the company. The appellant did not acquire the goodwill of the company. On this basis the learned Solicitor‑General argued that, although the business of the company continued in a limited sense after the sale, the appellant had not purchased the whole concern, including goodwill, and therefore could not be described as a successor‑in‑interest of the company. To support this position the Solicitor‑General cited the Labour Appellate Tribunal decision in Ramjilal Nathual v. Himabhai Mills Company Ltd. (1). In that case the Tribunal examined two separate transfers: one to Himabhai Mills Company Ltd. and another to New Gujarat Cotton Mills Company Ltd. The Tribunal held that the first transfer did not create a successor‑in‑interest because the transferee had not bought the transferor as a going concern, had not assumed any of its liabilities, and had started an entirely new business. By contrast, the second transfer was held to create a successor‑in‑interest because the transferee purchased all tangible assets and also the goodwill, which was expressly valued at Rs 3 lakhs in the sale deed, and continued the same business as the transferor. Consequently, the employees of the first transfer were not entitled to claim re‑employment, whereas the employees of the second transfer could sustain such a claim under law. The decision was later challenged by a writ petition before the Bombay High Court, which, relying on the Tribunal’s findings concerning the New Gujarat Cotton Mills transfer, concluded that there was no ground for interference under Article 226 of the Constitution, as reflected in New Gujarat Cotton Mills Ltd. v. Labour Tribunal (1). The Solicitor‑General also referred to another Labour Appellate Tribunal decision, Antony D’Souza v. Sri Motichand Silk Mills (2), which dealt with whether the purchaser could be regarded as a successor‑in‑interest within the meaning of section 114 of the Bombay Industrial Relations Act. The Tribunal held that the purchaser was not a successor‑in‑interest because the transaction involved only the purchase of plant, machinery and accessories, not a going concern or an operating business.

The Appellate Tribunal was asked to determine whether the purchaser could be regarded as a successor‑in‑interest under section 114 of the Bombay Industrial Relations Act. The Tribunal held that the purchaser was not a successor‑in‑interest because the transaction involved only the purchase of plant, machinery and accessories and did not involve the acquisition of a going concern or an operating business. The Court notes that the Tribunal’s decision rested largely on the fact that the workmen of the transferor company had signed a document containing specific and unambiguous demands, which bolstered the purchaser’s contention that the transfer did not create a successor‑in‑interest relationship. The same issue was later raised before this Court in the case of Workmen of Dahingeapara Tea Estate v. Dahingeapara Tea Estate (3) and in Keys Constructions Co. (Private) Ltd. v. Its Workmen (4). On both occasions the Court considered the matter unnecessary to adjudicate. The determination of whether a purchaser of an industrial concern is a successor‑in‑interest, as cited in (1) 1957 11 I. L. J. 194, (3) A. I. R. (1959) S. C. 1026, (2) (1954) 1 L. L. J. 793 and (4) A. I. R. (1959) S. C. 208, must be based on an assessment of several material facts. One must examine whether the purchaser acquired the entire business. One must also consider whether the business was a going concern at the time of sale. The Court must see if the business continues to be carried on at the same location. It must be ascertained whether there has been any substantial interruption in the operation. The nature of the purchaser’s business must be compared with the vendor’s business to determine similarity. If a break in continuity exists, the nature and reasons for that break must be scrutinised, as must the duration of the interruption. The question of whether goodwill was transferred must be addressed. It must also be examined whether the purchaser bought only certain parts and then introduced new elements to start a distinct, though perhaps similar, enterprise. All these factors and any other relevant circumstances must be taken into account when deciding if the purchaser qualifies as a successor‑in‑interest for purposes of industrial adjudication. The Court emphasizes that although each of these considerations is relevant, it would be unreasonable to overstate the importance of any single factor or to apply a rigid rule that makes the presence or absence of one element determinative.

In assessing whether a purchaser may be considered a successor‑in‑interest, the tribunal explained that insisting on the purchase of the entire property of the vendor concern would be unreasonable, because it could happen that only a trivial portion of the property is transferred and the opposite party might argue that the omission of that small fraction prevents the purchaser from being treated as a successor‑in‑interest. The tribunal rejected such a contention, holding that the determination must be based on the substance of the transaction rather than on its formal shape. The same principle that applies to the totality of the vendor’s tangible property also extends to goodwill, which is an intangible asset of any industrial concern. While the sale of goodwill together with the tangible assets would strongly support the view that the purchaser is a successor‑in‑interest, the absence of a transfer of goodwill does not by itself determine the outcome. Ultimately, the decision must rely on a balanced evaluation of all relevant factors, and no single factor may be treated as decisive or conclusive. Applying this legal position, the tribunal examined the relationship between the appellant and the vendor company. It recalled that the vendor company, suffering from recurring losses, sold its concern to the appellant. In that sale, the appellant was not prepared to acquire all the advances and outstanding liabilities. The appellant society had been formed by local cane growers with the purpose of manufacturing sugar, a purpose that aligned with the interests of each grower. Consequently, the purchaser did not place a particular emphasis on acquiring the company’s goodwill. The exclusion of 4,000 bags of processed sugar from the transaction indicated that the purchaser sought to accommodate the vendor in that respect. Moreover, the appellant continued to operate the business of the company without any appreciable interruption; the nature of the business, the location of the premises, and the objective of the sale—all aimed at enabling the local cane growers to carry on the company’s operations—remained unchanged. Considering all these facts, the tribunal concluded that the appellant should be regarded as a successor‑in‑interest of the company. Having resolved that issue, the tribunal turned to the question of the appellant’s liability to the employees of the company. It noted that before the introduction of section 25‑FF into the Act in 1956, such questions were addressed by industrial adjudication on the basis of general considerations of fairness and social justice.

In all instances where the employees of the transferor business sought re‑employment with the transferee business, the industrial adjudicator first examined whether the transferee could be described as a successor‑in‑interest of the transferor. If the adjudicator concluded that the transferee was indeed a successor‑in‑interest with regard to the business, the next step was to evaluate the request for re‑employment on the basis of general principles of fairness. The adjudicator asked whether the refusal by the successor to offer re‑employment was arbitrary and unjustified, or whether it rested on reasonable and bona‑fide reasons. Various circumstances were taken into consideration. In some situations there was insufficient work to absorb all of the former employees; in other cases the purchaser required the assistance of workers who were better qualified or of a different type; and at times the purchaser had existing obligations that limited his ability to employ additional labour. Consequently, the claim made by the vendor’s employees had to be balanced against the purchaser’s explanations for not employing them, and the dispute was resolved on overarching notions of fair play and social justice. Because of these differing facts, it was clear that no rigid rule could be laid down. Experience shows that industrial adjudicators, when settling disputes from case to case, deliberately avoid inflexible rules, since the essence of adjudication is to decide each matter on its own facts so as to achieve justice for both sides. This flexible approach continued until the year 1956, when section 25‑FF was introduced into the Act. Before that amendment, some cases resulted in the grant of re‑employment, while other cases led to considerations of compensation. Importantly, no industrial decision cited before 1956 held that the employees were entitled both to compensation from the vendor and to re‑employment from the purchaser on the basis that the purchaser was a successor‑in‑interest.

In response to the prevailing common‑law position, Parliament enacted section 25‑FF on 4 September 1956. The provision was inserted with the following wording: “Notwithstanding anything contained in section 25‑F, no workman shall be entitled to compensation under that section by reason merely of the fact that there has been a change of employers in any case where the ownership or management of the undertaking in which he is employed is transferred, whether by agreement or by operation of law, from one employer to another, provided that— (a) the service of the workman has not been interrupted by reason of the transfer; (b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable to the workman than those applicable to him immediately before the transfer; and (c) the employer to whom the ownership or management of the undertaking is so transferred is, under the terms of the transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.” The statutory language appears to presume that, when ownership of an undertaking changes, the employees of the transferred undertaking would be treated as retrenched persons to whom section 25‑F would apply. Consequently, section 25‑FF opens with a non‑obstante clause and sets out that a mere change of ownership does not automatically confer a right to compensation, unless the three conditions of the proviso are satisfied. In the absence of compliance with any of these conditions, the employees would be entitled to retrenchment compensation under the earlier provision.

The provision stated that the terms and conditions of service after the transfer must not be less favourable to the workman than those that applied immediately before the transfer, and that the employers to whom the ownership or management of the undertaking was transferred must, under the terms of the transfer or otherwise, be legally liable to pay compensation to the workman in the event of his retrenchment, provided that his service remained continuous and was not interrupted by the transfer. The section apparently proceeded on the assumption that when ownership of an undertaking was transferred, the employees affected by the transfer would be treated as if they were retrenched, thereby bringing them within the ambit of section 25‑F. For this reason, section 25‑FF opened with a non‑obstante clause and declared that a mere change of ownership would not by itself give rise to a right to compensation, unless the three conditions of the proviso were satisfied. Prima facie, if any of the three stipulated conditions were not fulfilled, the employee would be entitled to retrenchment compensation under section 25‑F. This appeared to be the legislative scheme contemplated when section 25‑FF was enacted, in light of the definition of “retrenchment” given in section 2(oo) of the Act.

That assumption, however, was successfully challenged before the Supreme Court in the case of Hariprasad Shivshankar Shukla v. A. Divikar. In that matter, the Court was asked to examine the true scope and effect of the concept of retrenchment as defined in section 2(oo). The Court held that the definition must be read in accordance with the ordinary meaning of the word. Accordingly, “retrenchment” meant the discharge of surplus labour or staff by the employer for any reason other than disciplinary punishment, and it did not include termination of services of all workmen on a bona‑fide closure of an industry or on a change of ownership or management thereof. In other words, although the statutory definition might have been broad enough to encompass termination caused by closure or transfer, the ordinary connotation of “retrenchment” excluded those two situations. Consequently, the word “retrenchment” in section 25‑FF had to be given a corresponding interpretation.

In the Hariprasad case, employees of the Barsi Light Railway Company, Ltd. claimed retrenchment compensation under section 25‑FF against the purchaser of the railway, and employees of Shri Dinesh Mills Ltd. made a similar claim against their employer on the ground that the mill had been closed. Both claims had been allowed by the Bombay High Court. The employers appealed to the Supreme Court, which, after examining the meaning of “retrenchment,” held that the term necessarily required termination of the employees’ services on the ground that they had become surplus. The Court therefore allowed the appeals filed by the employers and held that the employees’ claims against the purchaser in one case and against the employer who had closed the business in the other could not be sustained. This decision demonstrated that the legislative object of section 25‑FF—allowing employees of a transferor concern to claim retrenchment compensation unless the three conditions of the proviso were satisfied—could no longer be realised under the existing interpretation.

In this appeal, the parties and the employers had approached the Supreme Court for a review of the earlier judgment. The Court examined the meaning of the term “retrenchment” and held that the word inevitably required the termination of an employee’s services on the basis that the employee had become surplus. Applying that interpretation, the Court allowed the appeals filed by the employers and decided that the claims made by the employees could not succeed. One claim was against the purchaser of a concern, and the other claim was against an employer who had shut down his business; both claims were dismissed.

The Court observed that, as a result of this decision, it became clear that the legislative purpose behind introducing section 25‑FF could no longer be achieved. The purpose of the section was to permit workers of a transferring concern to claim retrenchment compensation unless the three conditions listed in the proviso were satisfied. Because the Court’s interpretation excluded such compensation, the objective could not be fulfilled.

The judgment in the case known as Hariprasad’s case was delivered on 27 November 1956. That judgment prompted the government to issue Ordinance No 4 of 1957, which substantially amended the original provision that had been inserted on 4 September 1956. Under the Ordinance, the text of section 25‑FF was rewritten as follows: “Where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, from the employer in relation to that undertaking to a new employer, every workman who has been in continuous service for not less than one year in that undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of section 25‑F, as if the workman had been retrenched. Provided that nothing in this section shall apply to a workman in any case where there has been a change of employers by reason of the transfer if (a) the service of the workman has not been interrupted by such transfer; (b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable than those applicable to him immediately before the transfer; and (c) the new employer, under the terms of the transfer or otherwise, is legally liable to pay the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.”

Subsequently, the amendment introduced by the Ordinance was incorporated into the principal legislation by Act 18 of 1957, which received assent on 6 June 1957. It is noteworthy that the Ordinance was made retrospective to 1 December 1956, that is, three days after the Hariprasad judgment was pronounced. The Solicitor‑General argued that the question presented in the present appeal should now be decided not by reference to general principles of industrial adjudication but by applying the specific language of section 25‑FF. The Court agreed with that submission.

The first part of the provision states that when the ownership or management of an undertaking is transferred, the employment of the workmen who were engaged by that undertaking is deemed to terminate. It further mandates that compensation must be paid to those employees for the termination of their services, provided that they meet the length‑of‑service requirement specified in the section. This part also outlines the manner and the extent to which such compensation is to be calculated and paid. According to the section, workmen are to receive notice and compensation in the same way as if they had been retrenched, as prescribed in S. 25‑F. The final clause makes clear that the termination of services in this context does not, in law, amount to retrenchment, a point that aligns with the Court’s decision in Hariprasad’s case (1) [1957] S.C.R. 121. Nevertheless, the Legislature intended that, although the termination may not technically constitute retrenchment as defined by the Court, the employees whose services are terminated because of the transfer should still be entitled to compensation. Accordingly, S. 25‑FF provides that compensation shall be paid to them “as if” the termination were retrenchment. The expression “as if” creates a legal distinction between retrenchment, as defined in S. 2(oo) and interpreted by the Court, and the termination of services that results from a transfer, which the provision addresses. In other words, the section holds that while termination of services on transfer may not be retrenchment, the affected workmen are nevertheless entitled to compensation as if it were retrenchment. This formulation serves the purpose of calculating the amount of compensation payable to such workmen; instead of recreating a new measure of compensation, S. 25‑FF simply refers back to S. 25‑F for that limited purpose. Consequently, in every case to which S. 25‑FF applies, the only legitimate claim that employees of the transferred concern can make is a claim for compensation against their former employer, the transferor. No claim for compensation may be made against the transferee of the concern. The proviso to S. 25‑FF reinforces this policy. If the three conditions laid down in the proviso are satisfied, there is no termination of service either in fact or in law, and therefore no basis for any compensation. Thus, reading S. 25‑FF as a whole, it appears that unless the transfer falls within the scope of the proviso, the employees of the transferred concern are entitled to claim compensation from the transferor and cannot claim re‑employment from the transferee. The effect of enacting S. 25‑FF, as amended, is to restore the position that the Legislature apparently intended when S. 25‑FF was originally enacted on 4 September 1956.

The Legislature, by inserting section 25‑FF, expressly provided that when an industrial undertaking is transferred, the workmen of the transferred concern are liable to receive compensation, unless the continuity of their service is left undisturbed. Such undisturbed continuity can occur only when the transfer fulfills the three conditions laid down in the proviso to that section. It is also necessary to observe that, even before the first introduction of section 25‑FF into the Act, the adjudicatory approach on general principles of fairness and social justice did not recognise a simultaneous right to compensation for termination of service and an immediate right to re‑employment with the transferee. Consequently, the present legal position, as it stands after the amendment of section 25‑FF, remains substantially the same as the earlier position that existed before the amendment. Moreover, it is a settled point of law that where a transfer is fictitious or “benami”, section 25‑FF is inapplicable. In such circumstances there is no real change of ownership or management; the apparent transfer merely masks the fact that the original employer continues to be the true employer. Accordingly, the employment continues under the same terms and conditions, and no liability for compensation arises because the service has not been terminated in law or in fact.

Mr Chari, however, contended that the present dispute should be governed by the provisions of section 25‑H of the Act. This line of argument rests on the assumption that a termination of service caused by a transfer of ownership or management, to which section 25‑FF applies, amounts to a retrenchment within the meaning of the law. The Court rejected this assumption as unsound. The first reason for rejecting it lay in the decision of this Court in the Hariprasad case, which clearly held that termination of service resulting from a transfer or closure does not constitute retrenchment. The enactment of the amended section 25‑FF was based precisely on that finding. Furthermore, a plain construction of section 25‑FF does not permit the equation of the termination it addresses with the retrenchment contemplated by section 25‑F. Section 25‑F is merely referenced in section 25‑FF to facilitate the calculation of compensation payable to the workmen covered by the latter provision. The inclusion of the words “as if” in the text of section 25‑FF underscores the distinction between a retrenchment falling under section 2(oo) and a termination of service under section 25‑FF. This distinction was examined by this Court in M/s Hatisingh Manufacturing Co. Ltd. v. Union of India, where the Court considered the significance of the phrase “as if the workmen had been retrenched” and concluded that the statutory language does not treat the two situations as identical.

The Court observed that the legislature deliberately did not place the closure of an undertaking on the same footing as a retrenchment under section 25‑F. Accordingly, the submission that section 25‑H should apply to the facts of the present dispute could not be accepted. Counsel for the petitioner then contended that, although the literal terms of section 25‑H might not govern the case, the underlying principle of that provision should nevertheless be invoked when considering the claim asserted by the respondents against the appellant. The counsel argued that excessive emphasis should not be placed on the identity of the individual employer in this context. He suggested that what mattered was the continuity of the undertaking itself – the same enterprise that had been operated by the vendor before the transfer and was now being operated by the vendee. If the undertaking remained the same, the counsel maintained, there could be no reason to deny a workman the right to claim continuity of service in that undertaking. The Court, however, found this line of reasoning to be misconceived.

In the Court’s view, once it is established that a transfer of any undertaking triggers the provisions of section 25‑FF, which expressly provides for compensation to employees on the clear and distinct basis that their services have been terminated by such transfer, it becomes difficult to justify, on the basis of fairness or social justice, a claim by the respondents that they ought to be re‑employed by the appellant. The Court acknowledged that under section 25‑F, workmen may be entitled to retrenchment compensation and, in some circumstances, may also seek re‑employment under section 25‑H, leading to a situation where certain workmen could receive both compensation and re‑employment. This result follows from a combined reading of sections 25‑F and 25‑H. Nevertheless, the Court emphasized that in a retrenchment scenario the undertaking itself continues to exist and only a limited number of workers are discharged as surplus; the re‑employment of those surplus workers is precisely the issue addressed by section 25‑H. Moreover, section 25‑H does not guarantee an immediate right to re‑employment after retrenchment; such a right may arise only if the employer who dismissed the surplus workers later requires additional labour. The situation before this Court was fundamentally different. Once a transfer is effected under section 25‑FF, all employees become entitled to compensation, except where the proviso to the transfer applies. If the counsel’s suggestion were accepted, the same workmen who have already received compensation would also be immediately entitled to re‑employment by the transferee. The Court held that granting such a double benefit – payment of compensation together with an immediate right to re‑employment – could not be justified on any notion of fair play or justice. The concepts of fair play and justice, the Court noted, must apply equitably to both parties. Consequently, it would be unfair to require the vendor to pay compensation to its employees while simultaneously obligating the vendee to take them back on the ground that social justice demands such a move.

In this case the Court observed that it would be inappropriate to require the vendor to pay compensation to his employees on the ground that the transfer terminates their services, nor to compel the vendee to re‑engage them merely because principles of social justice demand such action. The Court reminded that the industrial principle behind retrenchment compensation, as stated by this Court in The Indian Hume Pipe Co. Ltd. v. The Workmen, is to give partial protection to workmen who lose employment through no fault of their own, helping them through the period of unemployment; this compensation is therefore distinct from gratuity. Consequently, where the transferor is statutorily obliged to pay retrenchment compensation to his workmen, it would be anomalous to contend that those workmen who have already received compensation are simultaneously entitled to immediate re‑employment with the transferee. The contention, citing [1960] 2 S. C. R. 32, that in such cases workmen must obtain both retrenchment compensation and almost simultaneous re‑employment is inconsistent with the very purpose of retrenchment compensation, as noted in the cited authority. The Court therefore concluded that the general principles of social justice and fair play invoked by the respondents do not support their claim. Accordingly, the appeal was allowed, the award set aside and no order as to costs was made. Appeal allowed.