The Bagalkot Cement Co. Ltd vs R. K. Pathan and Ors

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

Court: supreme-court

Case Number: Civil Appeal No. 577 of 1960

Decision Date: 22 January, 1962

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

The case titled The Bagalkot Cement Co. Ltd v. R. K. Pathan and Others was decided on 22 January 1962 by the Supreme Court of India. The judgment was recorded by Justice P. B. Gajendragadkar, with Justices A. K. Sarkar and K. N. Wanchoo constituting the bench. The petitioner in the proceedings was The Bagalkot Cement Co. Ltd and the respondents were R. K. Pathan and the other appellants. The official citation of the decision appears as 1963 AIR 439 and 1962 SCR Supl. (2) 697, with a citator reference to D 1968 SC 585 covering paragraphs 13, 16 and 18. The matter concerned the Industrial Employment (Standing Orders) Act, 1946, as amended by the 1956 amendment, specifically sections 4 and 10 and clause 5 of the Schedule to the Act.

According to the headnote, the appellant company had submitted a draft of standing orders to the Certifying Officer as required by section 3 of the Industrial Employment (Standing Orders) Act, 1946. When the Certifying Officer examined the draft, he inserted a further clause into paragraph 11 of the draft, which provided, inter alia, for certain festival holidays as well as casual and annual leave of a specified number of days. The appellant appealed the additions, but the Appellate Authority, acting as the Chief Labour Commissioner, essentially affirmed the modifications made by the Certifying Officer. The central question framed before the Court was whether, under the Act, the Certifying Officer or the Appellate Authority possessed the jurisdiction to make such additions to the draft standing orders.

The Court examined section 4 of the Act, which permits certification of draft standing orders only if they address every matter enumerated in the Schedule. Clause 5 of the Schedule reads: “conditions of, procedure in applying for, and the authority which may grant, leave and holidays.” The Court held that both the Certifying Officer and the Appellate Authority had the authority to incorporate the additional provisions. It explained that the term “conditions” in clause 5 should not be interpreted narrowly; rather, it must be given a broad and liberal construction that aligns with the purpose of the legislation. On such a construction, clause 5 is not merely procedural; it also encompasses substantive provisions for fixing the quantum of holidays and leave, thereby enabling the conditions of employment to be clearly defined and prescribed in standing orders that have statutory effect.

Further, the Court observed that the Certifying Officer and the Appellate Authority are, in substance, industrial authorities. Considering the powers conferred upon them by the Schedule, there is no inconsistency in holding that they may also determine the quantum of holidays and leave. The Court noted that any hardship that might result from the orders of these authorities could be remedied under section 10 of the Act. The judgment was recorded under the civil appellate jurisdiction, concerning Civil Appeal No. 577 of 1960, and arose from a special leave appeal against the order dated 15 October 1959 issued by the Appellate Authority, the Chief Labour Commissioner (Central) of New Delhi, pursuant to the relevant provisions of the Act.

The appeal was taken by special leave and presented before the Court on 22 January 1962. Counsel for the appellant, consisting of B. Narayanaswamy, S. N. Andley and Rameshwar Nath, appeared for the Bagalkot Cement Co. Ltd., while counsel for the respondent, M. K. Ramamurthi, represented the opposing party. The judgment was delivered by Justice Gajendragadkar. The matter before the Court concerned a narrow issue regarding the scope and operation of clause five in the Schedule to the Industrial Employment (Standing Orders) Act, 1946, which is hereinafter referred to as the Act. The issue arose out of the circumstances surrounding the appellant, Bagalkot Cement Co. Ltd., a limited company incorporated under the Indian Companies Act, 1930, engaged in the manufacture of cement and the operation of a factory and a limestone quarry situated at Bagalkot in the State of Mysore. Pursuant to section three of the Act, the appellant submitted a draft of its Standing Orders to the Certifying Officer and to the Regional Labour Commissioner (Central) in Madras on 3 March 1958, seeking certification of those orders. The Certifying Officer examined the draft, heard representations from the appellant, its employees, and the respondents, and thereafter issued an order of certification on 16 June 1959. In the course of reviewing the draft for certification, the Certifying Officer introduced certain amendments and additions to the appellant’s original draft. One such addition was clause seven to paragraph eleven, and it is this particular addition that forms the focus of the present appeal. Paragraph eleven of the draft Standing Orders originally dealt with the matter of leave. Sub‑paragraph (1) of that draft specified that holidays with pay would be granted in accordance with the provisions of the Factories Act, 1948, and that other holidays would be granted as per law and existing contracts. Sub‑clauses (2) through (6) addressed related matters. In the final certified version of the Standing Orders, sub‑paragraph (1) of paragraph eleven was modestly altered to refer to the Mines Act instead of the Factories Act, a change that no party contested. Clause seven was newly inserted into paragraph eleven and read as follows: “The workmen shall be allowed during the course of a year: (a) Ten festival holidays with pay for the celebration of important festivals, which shall be fixed before the beginning of each calendar year in consultation with the workmen, including Republic Day (26 January) and Independence Day (15 August), and any other paid holidays that may be declared and notified by the Government from time to time. Workmen required to work on festivals and national holidays shall receive an equal number of compensatory holidays on a day convenient to the company; (b) Fifteen days’ casual leave with wages, which shall include all types of leave due to sickness or any other cause; (c) Casual leave shall not be permitted for more than three days at a time except in cases of sickness and emergencies.” The appellant later argued before the Certifying Officer that the addition of this clause exceeded the Officer’s jurisdiction; however, the Officer rejected that objection and proceeded to certify the Standing Orders with the amendment. Dissatisfied with the certification, the appellant filed an appeal under section six of the Act on 5 July 1959 before the appellate authority, namely the Chief Labour Commissioner (Central) in New Delhi.

The appellant argued before the Certifying Officer that the Certifying Officer lacked jurisdiction to consider the matters covered by clause (7) which the appellant sought to add, but the objection was overruled. The appellant then appealed the order of the Certifying Officer, which had certified the Standing Orders with the additions and amendments, to the appellate authority, the Chief Labour Commissioner (Central) in New Delhi, under section 6 of the Act on 5 July 1959. The appellate authority largely agreed with the Certifying Officer and kept the insertion of clause (7) into paragraph 11. However, the appellate authority made minor modifications: in sub‑clause (a) it reduced the number of festival holidays from ten to seven, and in sub‑clause (b) it reduced casual leave from fifteen days to ten days. The appellate authority also replaced sub‑clause (d) with a new provision stating that casual leave could not be accumulated and that any unavailed casual leave would lapse at the end of the calendar year. Regarding sub‑clause (e), the appellate authority held that the wording duplicated a statutory provision, and therefore it was amended to read that annual leave with wages would be allowed in accordance with the Mines Act. The appellate authority also made other amendments to the Standing Orders as previously certified by the Certifying Officer, and the modified Standing Orders were finally certified. The appellate authority’s order was dated 15 October 1959. The appellant then applied for special leave to the Supreme Court against that order, and special leave was granted on 1 February 1960. Acting on the granted special leave, the appellant, through counsel, argued that the addition of clause (7) to paragraph 11 of the Standing Orders was beyond the jurisdiction of the certifying authority. He contended that clause 5 of the Schedule, which empowers the certifying authority, only requires the Standing Orders to specify the conditions for granting leave and holidays, the procedures, and the authority to grant them, and does not empower the authority to decide the amount or quantum of leave and holidays, which he claimed lies outside the Schedule’s scope.

In this appeal the Court was asked to determine the limits of clause 5 of the Schedule to the Act, particularly as it relates to leave and holidays. The petitioners argued that the Schedule only obliges the Standing Orders to describe the categories of leave and holidays that may be granted, to prescribe the procedure for granting them, and to name the authority empowered to approve such leave. They maintained that the Schedule does not empower the certifying authority to decide the amount or the quantum of leave that each workman should receive. Consequently, any provision attempting to fix the quantum of leave within the Standing Orders would lie outside the scope of the Schedule and could not be included in a certified order. The Court therefore framed the precise question before it as follows: what is the scope and effect of clause 5 of the Schedule? Before addressing that issue, the Court found it useful to set out the overall scheme of the legislation. The Act, which was enacted in 1946, reflected the Legislature’s view that it was expedient to require every employer in an industrial establishment to define with sufficient precision the conditions of employment and to make those conditions known to the workmen employed by them. Before the Act, the terms of employment in many industrial establishments were governed by individual contracts, some of which were reduced to writing while others existed only as oral agreements. This situation often resulted in ambiguities and uncertainties as to the nature and extent of the conditions of service. To remedy this, the Legislature decided that, for establishments to which the Act applied, the conditions of employment under which industrial labour was hired should be clearly defined and precisely communicated to both parties. Accordingly, the Act introduced provisions for the preparation of Standing Orders, which, once certified, would become the statutory terms of employment between the industrial establishment and its employees. This objective constituted the principal purpose of the legislation.

The Act applies to every industrial establishment in which one hundred or more workmen are employed or were employed on any day during the preceding twelve months. The Act also empowers the appropriate Government to extend its operation to establishments with a smaller workforce, but it does not apply to any industry that falls within Chapter VII of the Bombay Industrial Relations Act, 1946, nor to any establishment governed by the Madhya Pradesh Industrial Workmen (Standing Orders) Act, 1959. In practice, wherever an employer employs more than one hundred industrial workmen, the employer is required to draft Standing Orders and to obtain certification for those orders under Section 1(3) of the Act. Section 2(c) defines the “certifying authority” as a Labour Commissioner or a Regional Labour Commissioner, and it also includes any officer who may be appointed by the appropriate Government by means of a notification in the Official Gazette to perform all or any of the functions of a certifying officer under the Act. The Act further provides a mechanism for an appeal against an order made by the certifying officer. The term “appellate authority” is defined to mean an Industrial Court where such a court exists; in the absence of an Industrial Court, the appellate authority is an authority appointed by the appropriate Government by notification in the Official Gazette to exercise the functions of an appellate authority under the Act.

The government may, by publishing a notification in the Official Gazette, specify the geographical area in which an officer may perform appellate functions under section two a. Section two g defines “Standing Orders” as the rules relating to each matter listed in the Schedule that accompanies the Act. Consequently, every matter enumerated in the Schedule must be incorporated into the draft Standing Orders that the employer submits to the Certifying Officer. Section three obliges the employer to file the draft Standing Orders within six months from the date on which the Act becomes applicable to the industrial establishment. Under section four, the Standing Orders become certifiable only if they contain provisions for every item specified in the Schedule and otherwise comply with the Act. The amendment enacted in 1956 added a duty on both the Certifying Officer and the appellate authority to adjudicate the fairness and reasonableness of the Standing Orders. Before this amendment, those authorities were not permitted to examine the fairness of the employer’s submitted Standing Orders. As a result, section four requires that the Standing Orders address all topics listed in the Schedule and remain in full conformity with the provisions of the Act. The appropriate authorities may then evaluate the reasonableness of those provisions and, if necessary, modify them according to their adjudication. Section five prescribes the procedural steps that the Certifying Officer must follow before granting certification to the Standing Orders. This procedure is intended to give both parties an opportunity to be heard prior to the issuance of the final certification order. Section six of the Act establishes the right of any aggrieved party to file an appeal against the Certifying Officer’s decision. Section seven provides that the Standing Orders shall become effective thirty days after authenticated copies are dispatched as required by section five sub‑section three, unless an appeal is filed. If an appeal is preferred, the Standing Orders will take effect seven days after the appellate order copies are sent under section nine. The Certifying Officer is also required under section nine to maintain a register of all certified Standing Orders. Section nine further mandates that the employer must prominently display the certified Standing Orders in English and in the language most commonly understood by the workmen on special notice boards. Section ten deals with both the period during which certified Standing Orders remain in force and the circumstances under which they may be modified. Except by mutual agreement, the provisions of certified Standing Orders cannot be altered until six months have elapsed from the date they became operative. Section ten paragraph two further empowers either the employer or the workman to apply to the Certifying Officer for a modification of the Standing Orders after the six‑month period has expired. Thus, once certified, the Standing Orders must remain in force for at least six months before any amendment may be considered, unless the parties agree otherwise.

The Court explained that, once standing orders have been certified, they must remain in force for a period of six months unless the parties consent to a modification during that time. After the six‑month period expires, either the employer or the employees may apply to modify the standing orders, and such an application would be dealt with according to the procedure laid down in the Act for certifying the original standing orders. Section 11 of the Act confers on the Certifying Officer and the appellate authority the powers of a civil court. Section 12 forbids the admission of oral evidence that would add to, vary, or contradict the standing orders as finally certified under the Act in any court. Section 13 sets out the penalties and the procedure for enforcing them. Section 13A deals with the interpretation of the standing orders, while section 13B provides for the exemption of certain industrial establishments specified in the Act. Section 14 empowers the appropriate Government to exempt any industrial establishment, either conditionally or unconditionally. Section 15 authorises the appropriate Government to make rules necessary to give effect to the purposes of the Act, specifically to provide for matters enumerated in sub‑clause (a) to (e) of clause (2). Sub‑section (3) of section 15 contains a safeguard that every rule made by the Central Government under this section must be placed before the House in the manner prescribed. The Schedule to the Act contains eleven clauses; clauses one through ten prescribe the various subjects on which standing orders must make provision, and clause eleven allows the appropriate Government to include any other matter it deems necessary. In short, this is the overall scheme of the Act.

Mr Narayanaswami argued that, given the nature and scope of the various clauses in the Schedule, clause five should be interpreted as not covering the quantum or extent of leave and holidays. He maintained that clause five is intended solely to prescribe the conditions, the procedure for applying, and the authority empowered to grant leave and holidays. Clause five reads: “Conditions of, procedure in applying for, and the authority which may grant, leave and holidays.” According to his submission, the number of holidays an employee is entitled to, as well as the amount of casual or medical leave, lie outside the Schedule and are to be governed by other applicable statutes or by the contract between the parties; they therefore cannot be incorporated into the standing orders. He contended that the standing orders may only set out the conditions under which leave and holidays may be applied for, the method of application, and the authority that may grant them. Accordingly, he asserted that the Certifying Officer and the appellate authority had exceeded their jurisdiction by inserting substantive provisions on the quantum of leave and holidays through paragraph eleven (seven) of the certification. This argument formed the basis of the appellant’s case as presented to the Court.

In the submissions presented by counsel Mr Narayanaswami, reliance was placed on clause 3 of the Schedule, which deals with shift‑working. It was argued that because clause 3 explicitly mentioned shift‑working, the substantive rules governing shift‑working and the conditions under which it could be permitted legitimately fell within the scope of that clause. The argument continued that, had the Legislature intended the substantive provisions concerning leave and holidays to be covered by the standing orders, it would have confined reference to leave and holidays solely to clause 5 without any additional wording. The extra words that had been inserted into clause 5 were described as limiting terms, indicating that the substantive matters of leave and holidays lay outside the reach of that clause. While acknowledging that this line of reasoning possessed some merit, the Court noted that other factors must also be considered when construing clause 5. The Court recalled that the purpose of the Act, as previously explained, was to require employers to express the conditions of employment in a clear and definite manner, and that the Act ultimately sought to prescribe those conditions through statutory standing orders, thereby supplanting the contractual regime that had previously governed such matters. Consequently, it would be unreasonable to hold that the “conditions of employment” referred to in the preamble of the Act could exclude provisions dealing with the quantum of leave and the quantum of holidays to which an employee was entitled. Accordingly, the term “conditions” in clause 5 of the Schedule was required to be interpreted in a broad and liberal sense. The Court observed that the ordinary dictionary meaning of “condition” is a provision or stipulation, and that any provision or stipulation concerning leave and holidays would necessarily encompass a provision regarding the amount of leave and holidays. Such an interpretation harmonised with the usage of the word “condition” in the preamble of the Act. Counsel Mr Ramamurthi, appearing as amicus curiae for the respondents at the Court’s invitation, contended that a narrow construction of “conditions” in clause 5 would defeat the very purpose of that clause. He maintained that merely setting out the procedure for applying for leave and holidays and identifying the authority empowered to grant them, without specifying the quantum of leave and holidays, would render the clause almost meaningless. The Court found force in this contention and expressed an inclination to adopt a broad and liberal construction of the term “condition” in clause 5. Moreover, the Court observed that the first three clauses, which dealt with conditions, procedure, and authority, applied to both leave and holidays, and it was difficult to envisage what specific conditions the standing orders could prescribe solely for holidays. It was also noted that Mr Narayanaswami had suggested that “conditions” in relation to holidays might refer to holidays with full pay, without pay, or with half pay, a possibility the Court found theoretically conceivable but not practically useful without accompanying provisions on the quantum of leave and holidays.

In this case the Court observed that the reference to “pay” relates to the first clause concerning holidays and that this interpretation is consistent with the language of that clause. It was acknowledged that, in theory, the term “conditions” could be understood to refer to the manner in which holidays are granted – for example, whether they are paid, unpaid or partially paid – as suggested by counsel. However, the Court held that such a narrow construction would be ineffective, because it would merely set out procedural steps for applying for leave and holidays without specifying the amount of leave or the number of holidays that the standing orders were intended to prescribe. By adopting a broader construction of clause 5, the provision becomes a self‑contained and reasonable rule. Under this broader view, the standing orders are expected to state the leave to which employees are entitled, to set out the number of holidays they may enjoy, and, having fixed those quantities, to also prescribe the conditions applicable to them, the procedure for making applications, and the authority empowered to grant such leave or holidays.

The Court noted that, although it may appear puzzling why an employee would need to apply for holidays, a plausible explanation exists where certain holidays are sectional in nature; that is, only employees belonging to a particular section are eligible and therefore must submit an application to obtain them. Consequently, the Court concluded that the lower authorities had not adopted an unreasonable construction of clause 5 when they allowed the inclusion of additional provisions concerning leave and holidays by adding clause 7 in paragraph 11 of the standing orders. The Court referred to the Model Standing Orders prepared by the Central Government in 1946 for guidance. In those Model Orders, clause 9 provides that holidays with pay shall be allowed as stipulated in Chapter VI of the Factories Act, 1948, and that other holidays shall be granted in accordance with law, contract, custom and usage. The appellant’s draft standing orders similarly contain paragraph 11(1), which states that holidays with pay will be allowed as provided for in the Factories Act and that other holidays will be granted according to law and contract. Since this provision is properly placed under clause 5 of the Schedule, the Court found it difficult to accept the argument that a more specific provision could not be inserted under the same clause by plainly stating the number of holidays to which employees are entitled – a purpose that paragraph 11(7) precisely fulfils.

The Court further examined clause 10 of the Model Standing Orders, which deals with casual leave. That clause stipulates that a workman may be granted casual leave of absence, with or without pay, not exceeding ten days in total during a calendar year, and it additionally sets out further conditions governing the grant of such casual leave. The Court emphasized that the quantum of casual leave to which an employee is entitled is thereby explicitly provided within clause 10 of the Model Standing Orders.

The Court observed that clause 10 of the Model Standing Orders was supplied by clause 10 of those Model Orders. It acknowledged that if clause 5 of the Schedule were interpreted narrowly, as argued by counsel Narayanaswamy, then clause 10 of the Model Standing Orders would be invalid and could not aid in construing clause 5. However, the Court noted that if clause 5 were given a broad construction, as counsel Ramamurthi proposed, clause 10 would be consistent with the purpose of the Schedule and might even support the broader reading of the agreement. Regarding the contention that the Schedule’s ten clauses were intended to have a very narrow scope, the Court rejected that view. It pointed to clause 8, which deals with termination of employment, and clause 9, which addresses suspension or dismissal for misconduct, as examples of matters of general importance that must be covered in the Standing Orders. Consequently, the Court held that it would not be inconsistent with the Schedule’s scheme to require the substantive provisions on leave and holidays, together with their conditions, to be placed in the Standing Orders under clause 5. The Court recalled that section 10 of the Act stipulates the duration of Standing Orders and provides that any Standing Order found to be unreasonable or inconvenient may be modified after six months from the date it became operative, upon application by either the employer or the employees. Thus, requiring the Standing Orders to contain a provision on leave and holidays did not cause hardship, because such provisions could be amended following the procedure set out in section 10. The Court also recognized that a claim for leave and holidays could become the subject of an industrial dispute, and that an Industrial Tribunal, when seized of such a dispute, could determine the appropriate quantum of leave and holidays. It further noted that the certifying officer and the appellate authority function as industrial authorities, and that, given their powers to provide for termination of employment and for suspension or dismissal for misconduct, there was nothing inconsistent with the spirit of the Schedule or

The Court noted that the discussion must be read in the light of the purpose for which the Act was enacted. In view of that purpose, the Court expressed that it was not persuaded that the lower authorities had committed any error when they held that they possessed the competence to introduce the additional provision into the Standing Orders in the manner prescribed by paragraph 11(7). Accordingly, the Court concluded that the appeal could not be sustained. As a result, the appeal was dismissed in its entirety. The Court further observed that no order as to costs would be made in this matter. Accordingly, the appeal was dismissed without any award of costs.