Tatanagar Foundry Company vs Their Workmen on 9 March, 1962

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 315 of 1961

Decision Date: 9 March 1962

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

The Supreme Court of India heard the appeal brought by Tatanagar Foundry Company against its workmen on 9 March 1962. The bench for the hearing comprised Justice P. B. Gajendragadkar, Justice A. K. Sarkar and Justice K. N. Wanchoo. The case is reported in 1962 AIR 1533 and 1962 SCR Supl. (3) 795. The dispute concerned the application of the Industrial Disputes Act, 1947, particularly sections 2(kkk) and 25C, which relate respectively to the definition of a lay‑off and to the statutory compensation payable for such lay‑offs. The appellant owned a factory at Jamshedpur that manufactured cast‑iron railway sleepers, pipes and other related articles. The raw materials essential for producing the sleepers were pig iron, coke, limestone and moulding sand. The Railway Board was the sole purchaser of the sleepers, and production was undertaken only on receipt of orders from that Board. In the year 1959, despite the appellant’s earnest attempts, it was unable to obtain the required raw materials. Consequently, the company concluded that continued manufacture of sleepers was impossible, issued a notice of lay‑off, and placed the workers employed in the sleeper factory on lay‑off from 15 December 1959 until 11 September 1960. On 12 September 1960 the appellant permanently closed the Sleeper Foundry Department and issued a notice of retrenchment, paying the retrenched workmen the compensation prescribed under the Act. In addition, the appellant paid the respondents the statutory compensation for the lay‑off period as mandated by section 25C of the Industrial Disputes Act, 1947. The workmen, however, contested the validity of the lay‑off, alleging that it was not justified. The Government of Bihar referred the controversy to the Industrial Tribunal for adjudication.

The Industrial Tribunal found that the appellant was experiencing genuine financial difficulties at the relevant time and that there was no malafide intention on the part of the employer; the lay‑off was not the product of any ulterior motive. Nevertheless, the Tribunal observed that, had the appellant managed its affairs more prudently and exercised greater foresight before the crisis developed, it might have secured the necessary pig iron and thereby avoided the lay‑off. Accordingly, the Tribunal concluded that the lay‑off could not be regarded as completely justified and accordingly awarded the workmen compensation in excess of the amount fixed by the statute. Upon review, the Supreme Court held that the lay‑off was justified because the appellant was genuinely unable to obtain the raw materials required for production at the relevant time. The Court clarified that the only relief to which the workmen were entitled was the statutory relief prescribed by section 25C. The Court further explained that if a lay‑off is declared with malafide intent—meaning the employer deliberately creates a situation to make lay‑off necessary—or if it is used to victimise workmen or for some ulterior purpose, then the lay‑off does not fall within the definition of section 2(kkk). In such a case, the relief provided under section 25C would not be the exclusive remedy available to the workmen. Consequently, the Court affirmed that the lay‑off in the present circumstances was justified and limited the award to the statutory compensation prescribed under section 25C.

It was observed that when a lay‑off has not legally occurred and a finding is made that the employer acted with malice in declaring a lay‑off, the lay‑off is removed from the definition contained in section 2(kkk). The Court explained that if a lay‑off is declared for the purpose of victimising workmen or for any other ulterior motive, the lay‑off cannot be treated as a genuine lay‑off within the meaning of the statute. The judgment was delivered in a civil appeal numbered 315 of 1961, arising by special leave from an award dated 29 December 1960 of the Industrial Tribunal, Bihar, Patna, under reference number 4 of 1960. Counsel for the appellant included the Solicitor General of India and another representative, while counsel for the respondents was also identified. The judgment was pronounced on 9 March 1962 by Justice Gajendragadkar. The appeal sought to set aside the Tribunal’s order that required the appellant, Tatanagar Foundry Company, to pay the workmen seventy‑five percent of their consolidated wages as compensation for a lay‑off that had lasted forty‑five days beginning on 1 December 1959. The appellant maintained that it had complied with the statutory requirement by paying compensation prescribed in section 25C of the Industrial Disputes Act, 1947. The respondents, however, contended that the lay‑off was not justified and that the statutory payment did not meet the requirements of justice. The dispute was referred by the Government of Bihar to the Industrial Tribunal on 9 February 1960. The Tribunal concluded that the lay‑off could not be regarded as wholly justified and consequently awarded the respondents compensation exceeding the amount fixed by the statute. The appellant argued that the Tribunal’s award was contrary to law and asked that it be set aside.

Before addressing the substantive arguments, the Court set out the factual background leading to the lay‑off. The appellant was a public limited company that operated a manufacturing plant at Jamshedpur. The plant produced cast‑iron sleepers, pipes, general engineering castings and non‑ferrous castings. The principal raw materials required for producing sleepers were pig‑iron, coke, limestone and moulding sand. The Railway Board was the sole purchaser of the sleepers, and production was undertaken only on receiving orders placed through tenders issued by the Board. The normal procurement procedure involved the appellant, after obtaining an order from the Railway Board, submitting its requirement for pig‑iron to the Iron and Steel Controller of the Government of India. The Controller then allocated the required quantity of pig‑iron among various manufacturers, notably Tata Iron & Steel Co. Ltd. and Indian Iron & Steel Co. Ltd. Historically, these two companies supplied the appellant with the necessary pig‑iron for its manufacturing operations.

In the early part of 1959 the appellant paid cash for pig iron received from Tata Iron & Steel Co. Ltd, and it employed a Letter of Credit to obtain pig iron from Indian Iron & Steel Co. Ltd, which supplied the material under that arrangement. Both of those companies ceased supplying pig iron later that year, despite an order issued by the Iron & Steel Controller authorising the appellant’s requirement; they wrote to the appellant suggesting that it ask the Controller to cancel the order and to seek other vendors. After a series of letters between the appellant and the two companies, the appellant received notice in November 1959 that neither company would be able to meet its raw‑material needs. In June 1959 the Bhilai Steel Works made its first shipment of pig iron addressed to the appellant, and in August 1959 it dispatched a consignment of twenty wagons. Of those wagons fourteen were lost completely, while the remaining six were misdelivered, later being located in Gomoh and in Tatanagar, and none reached the appellant in a timely manner. The appellant had arranged, in May 1959, a Letter of Credit for the sum of one hundred thousand rupees to finance purchases from Bhilai Steel Works. Under that credit an amount of four hundred and forty tons was supplied in August, followed in September by thirty‑six wagons each containing roughly twenty to twenty‑one tons, amounting to approximately seven hundred and sixty tons in total. No further supplies were received from Bhilai during the two months that followed. The Letter of Credit was drawn as a revolving facility, so that as soon as one transaction was completed the same credit of one hundred thousand rupees remained outstanding for the next transaction, effectively keeping the full amount of credit continuously available. Despite this revolving arrangement Bhilai Steel Works failed to deliver any pig iron in October and November, and the appellant repeatedly reminded the Works that no shipments had been received after 27 July 1959, yet no dispatch advice was ever received. It later emerged that the twenty wagons sent in August and September had been delivered to K. P. Docks and other locations, never reaching the appellant’s factory. Concerning supplies from the Rourkela Steel Works, the appellant financed the purchases on a cash basis, advancing a total of one hundred seventy‑five thousand rupees between August and December. Of the amount advanced, pig iron worth approximately one hundred sixty‑four thousand rupees was actually received, leaving an outstanding balance of eleven thousand rupees. In addition to those cash advances the appellant opened, in November 1959, another Letter of Credit for one hundred thousand rupees to fund the purchase of steel from Rourkela Steel Works.

In 1959 the appellant received a notice from TISCO stating that the company regretted its inability to supply the appellant’s requirements on a regular basis, and that the situation regarding supply from IISCO was even worse. The appellant kept both its employees and the Assistant Labour Commissioner informed of these developments as they occurred. The Assistant Labour Commissioner, together with Mr John, the President of the respondents’ Union, sought governmental assistance to help the appellant obtain the needed raw material. Despite these efforts, the situation did not improve, and the appellant determined that it had no raw material available to enable its foundry to produce railway sleepers. Consequently, on 15 December 1959 the appellant issued a notice of lay‑off and suspended the workers of the Sleeper Factory. This lay‑off lasted until 11 September 1960. From 12 September 1960 the appellant closed the Sleeper Foundry department and served a notice of retrenchment. The retrenched workmen subsequently received the compensation due to them. This series of events formed the factual background of the lay‑off whose validity was the subject of the present reference before the Tribunal.

The respondents argued before the Tribunal that the appellant had deliberately created the shortage of raw material in order to shift the sleeper orders to its Belur factory, where production was allegedly cheaper because it used contract labour. They contended that if this allegation were proved, the appellant’s actions would be shown to be mal‑afides and the workmen would be entitled to additional compensation. The Tribunal rejected this contention, observing that no evidence had been produced to demonstrate any malicious intention on the part of the appellant. The respondents also claimed that the sleeper manufacturing could have continued by using a substitute material despite the lack of pig iron, and they presented four witnesses to support this claim. The Tribunal found the testimony of those four witnesses to be unreliable and unsatisfactory. Moreover, the General Manager, when cross‑examined on this point, stated unequivocally that without pig iron the foundry could not cast sleepers, even with scrap iron and tin, and affirmed that the appellant had never produced a sleeper without pig iron. Accordingly, the Tribunal dismissed the alternative argument that the appellant could have avoided the lay‑off by employing substitute material. While the Tribunal expressed the view that more foresight on the part of management might have prevented the unfortunate circumstances, it concluded that the lay‑off was not wholly justified, a conclusion that the appellant later disputed.

The Tribunal observed that the circumstances confronting the appellant at the relevant time were partly the result of its own negligence, and therefore it concluded that the lay‑off was not entirely justified. The Tribunal’s reasoning suggested that, had the appellant exercised reasonable care, the situation could have been avoided. The appellant disputes this portion of the Tribunal’s finding. Under a. 2 (kkk), the term “lay‑off” is defined to include, among other things, the failure or inability of an employer, due to a shortage of raw materials, to provide work to a labourer whose name appears on the muster rolls of the establishment and who has not been retrenched. As previously noted, there is no doubt that raw materials were unavailable to the appellant at the relevant time, and consequently the lay‑off that is the subject of the present dispute satisfies the definition prescribed by that provision. Section 25C provides that workmen who are laid off are entitled to compensation, and it is uncontested that the appellant paid the respondents compensation equal to fifty per cent of the total of basic wages and dearness allowance as prescribed in that section. The question referred to the Tribunal was whether the management’s decision to lay off the workmen was justified, and if it was not, what additional relief the respondents might be entitled to. In other words, only if the Tribunal were to hold that the lay‑off was unjustified would the issue of further compensation arise.

If the lay‑off is found to be justified and meets the criteria set out in s. 2(kkk), the only remedy available to the laid‑off workmen is the statutory compensation prescribed by a. 25C, a position that is not contested. It is also undisputed that where a lay‑off is malafide—meaning the employer deliberately and maliciously created the circumstances that made the lay‑off necessary—the lay‑off does not fall within the definition of s. 2(kkk). Consequently, the relief under a. 25C would not be the sole remedy to which the workmen are entitled. A finding of malafide intent in declaring a lay‑off effectively removes the lay‑off from the definition in s. 2(kkk), and therefore a. 25C cannot be said to apply so as to limit the workmen’s right to the compensation stipulated therein. The same result follows if the lay‑off was declared to victimise the workmen or for any other ulterior purpose; it would not constitute a lay‑off as contemplated by a. 2 (kkk). However, when dealing with a lay‑off such as the one under consideration in the present appeal, the Tribunal should not be empowered to inquire whether the appellant could have avoided the lay‑off by being more diligent, careful or forward‑looking, unless malafide intent is alleged or proved.

In the case before the Court, it was held that with a lay‑off such as the one involved in the present appeal, the Industrial Tribunal could not be permitted to inquire whether the appellant might have avoided the lay‑off by being more diligent, more careful or more far‑sighted. The Court explained that such a question related to the management of the undertaking, and unless the employer’s malafides were alleged or proved, the Tribunal did not possess jurisdiction to sit in judgment over the employer’s managerial acts or to investigate whether a more prudent management could have averted the circumstance that led to the lay‑off. The Court warned that granting the Tribunal such jurisdiction would be dangerous, as illustrated by the award under review. The Tribunal had found that the appellant was in financial difficulty at the relevant time, had found that the appellant was not motivated by any malafide intention, and had concluded that the lay‑off was not the result of any ulterior motive. Nevertheless, the Tribunal went on to assert that, had the appellant’s affairs been better managed and had greater foresight been shown before the crisis arrived, pig iron could have been secured and the lay‑off avoided. The Court observed that this conclusion was not supported by any evidence on record and that the Tribunal had exceeded its jurisdiction by attempting to decide whether better management could have averted the crisis. While recognizing that an employer is expected to manage its affairs prudently, the Court held that it would not be reasonable or fair to require an employer, faced with a shortage of raw materials that forces a lay‑off, to submit to an enquiry by the Industrial Tribunal into the prudence of its management or the foresight it displayed in anticipating and avoiding the difficulty. Consequently, the Court concluded that the Tribunal’s enquiry into whether the appellant had shown sufficient foresight in managing its affairs was beyond its jurisdiction. Moreover, the Tribunal’s finding of negligence was unsupported by any evidence or probability in the case. The Court also noted that, subsequently, the section in question had been closed and the retrenched workmen had received the retrenchment compensation due to them. Accordingly, the appeal succeeded, the award ordering payment of compensation equal to seventy‑five percent of the consolidated wages was set aside, and no order as to costs was made. The appeal was allowed.