The Management Of U.B. Dutt and Co vs Workmen Of U.B. Dutt and Co

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

Court: supreme-court

Case Number: Civil Appeal No. 50 of 1961

Decision Date: 29 January, 1962

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

The case titled The Management of U.B. Dutt & Co. versus Workmen of U.B. Dutt & Co. was decided on 29 January 1962 by a Bench of the Supreme Court consisting of Justice K.N. Wanchoo, Justice P.B. Gajendragadkar and Justice A.K. Sarkar. The petition was filed by the Management of U.B. Dutt & Co. and the respondents were the workmen of the same firm. The judgment is reported in 1963 AIR 411 and in the Supplement to the Supreme Court Reports, 1962, page 822. The case is cited in several subsequent authorities, including APL 1965 SC 1496, R 1966 SC 1672, D 1972 SC 1343, R 1973 SC 2634, RF 1976 SC 661, and RF 1980 SC 1896. The dispute concerned the application of the Industrial Disputes Act to the termination of an employee’s service under a contractual provision, specifically Rule 18(a) of the Standing Orders which authorized dismissal for misconduct, and the question of whether a colourable exercise of that power could be reviewed before an industrial tribunal.

In the factual backdrop, the employee identified as S was engaged by the appellant as a cross‑cutter in its saw‑mill. The management summoned S to show cause why his services should not be terminated on the ground of serious indiscipline and alleged misconduct, which S expressly denied. Subsequently the appellant announced a departmental enquiry to investigate the accusations and suspended S pending that enquiry. Nonetheless, invoking Rule 18(a) of the Standing Orders, the appellant terminated S’s employment without conducting the promised enquiry. The industrial tribunal, to which the dispute was referred, held that the termination, after the abandonment of the intended departmental proceedings, was not made in good faith and amounted to a colourable use of the power conferred by Rule 18(a). Accordingly, the tribunal ordered the reinstatement of S. The appellant argued that the dismissal was a pure contractual right under Rule 18(a), which permitted dismissal by giving fourteen days’ notice or, alternatively, by paying twelve days’ wages. The Supreme Court, however, held that the employer’s decision to discharge the employee after dropping the enquiry was a colourable exercise of the statutory power and could not be defended solely on the basis of contract. The Court emphasized that even a contractual “hire and fire” right is subject to industrial adjudication, and that powers such as those in Rule 18(a) must be exercised bona fide. Where termination is a colourable exercise of power, or stems from victimisation or an unfair labour practice, the industrial tribunal has jurisdiction to intervene and set aside the dismissal. The Court cited the decision in Buckingham and Carnatic Co. Ltd. v. Workers of the Company, [1952] L.A.C. 490, as supporting authority.

In earlier cases, the Court had followed Bombay v. The Chartered Bank Employees Union, reported in the 1960 volume 3 of the Supreme Court Reporter at page 441, and Assam Oil Company v. Its Workmen, also reported in the 1960 volume 3 at page 457. The Court held that the rule governing termination of service in the Government sector rests on a fundamentally different basis from that applicable to industrial employees, and therefore that rule could not be extended to industrial adjudication. The decision in Parshotaa Lal Dhingra v. Union of India, reported in the 1958 Supreme Court Reporter at page 828, was expressly distinguished.

The present matter concerned a civil appeal numbered 50 of 1961, which had been taken up by special leave from an award dated 10 March 1959 issued by the Industrial Tribunal in Kozhikode, identified as Inquiry Dated No. 89 of 1958. Counsel for the appellant were A V Viswanatha Sastri and T V R Tatachari, while the respondents were represented by Janardan Sharma. The judgment was delivered on 29 January 1962 by Justice Wanchoo.

The appeal arose out of an industrial dispute involving a saw‑mill operating in Kozhikode, Kerala. The mill employed a worker named Sankaran as a cross‑cutter. According to the facts presented, on 21 June 1958 Sankaran arrived at the mill while intoxicated and verbally abused the engineer, the secretary and other staff members, also threatening them with physical violence. Other workmen restrained him and removed him from the premises. Later that same day, at approximately 4 minutes 30 seconds pm, he returned and repeated the abusive conduct toward the same individuals.

Consequently, on 24 June 1958 the employer served Sankaran with a charge‑sheet detailing the alleged misconduct and invited him to show cause why his employment should not be terminated on the ground of grave indiscipline. Sankaran responded on the same day, denying the factual allegations while admitting that he had come to the mill at that time to collect his weekly wages.

On the following day, 25 June 1958, the employer informed Sankaran that, because of his denial, a departmental inquiry would be convened and that he would be placed under suspension pending that inquiry. Sankaran protested the suspension on that day and urged that any inquiry be expedited. No inquiry was held by 2 July 1958, and Sankaran wrote again requesting that the inquiry be conducted as soon as possible.

Despite the pending request, on 8 July 1958 the employer terminated Sankaran’s services by invoking rule 18(a) of the standing orders, without conducting a departmental inquiry. The termination order was communicated to Sankaran on the same day. In that communication the employer argued that holding the proposed inquiry would cause further friction and deterioration among the rank‑and‑file employees, and that retaining Sankaran would prejudice the maintenance of discipline in the undertaking; therefore, the employer concluded that no inquiry should be held.

The union subsequently raised a dispute over the termination, and the matter was referred by the Government of Kerala to the Industrial Tribunal for adjudication in October 1958.

The tribunal observed that an incident appeared to have occurred on the afternoon of 21 June 1958, but it found no evidence capable of establishing what actually happened. It further noted that the appellant had initially intended to take disciplinary action against the workman, yet subsequently abandoned the departmental proceedings and instead invoked rule 18(a) of the Standing Orders to terminate his employment. The tribunal concluded that this use of rule 18(a) was a colourable exercise of the power granted by that rule and therefore could not be regarded as a genuine or bona‑fide exercise of authority. Moreover, the tribunal pointed out that the appellant made no effort to justify the action taken under rule 18(a) by proving any alleged misconduct. Although two witnesses were produced before the tribunal concerning the alleged misconduct, the tribunal declined to rely on their testimony because the more important witnesses—the Engineer, the Secretary and other staff members whose evidence would have been substantially more valuable—were not produced, and no explanation was offered for their absence. Consequently, the tribunal was unable to reach a conclusion that the workman, Sankaran, had arrived at the mill while intoxicated or that he had insulted, abused, or attempted to assault the Engineer, the Secretary, or any other officer. On that basis, the tribunal set aside the order of discharge and directed that Sankaran be reinstated in his former position. The appellant then applied for special leave, which was granted, bringing the matter before this Court. The appellant’s principal contention is that, under rule 18(a) of the Standing Orders, it is entitled to terminate the service of any employee after complying with the rule’s terms. Rule 18(a) states: “When the management desires to determine the services of any permanent workmen receiving twelve rupees or more as daily wages, otherwise than under rule 21, he shall be given fourteen days’ notice or be paid twelve days’ wages.” It is noted that rule 21 deals with cases of misconduct and provides for dismissal or suspension for misconduct, whereby a suspended workman is not entitled to wages during the suspension period. The appellant therefore argues that, being a contractual term between it and its employees, rule 18(a) permits it to dispense with the service of any employee at any time by giving fourteen days’ notice or by paying twelve days’ wages in lieu thereof. This Court is of the opinion that the appellant’s claim cannot be accepted. It is untimely for an employer to raise such a claim, as it effectively amounts to a “hire‑and‑fire” power that would nullify the security of service that has been safeguarded for industrial employees through long‑standing industrial adjudication.

In the present dispute, the Court observed that the issue of terminating an employee solely by giving notice or by making a payment in lieu of notice without assigning any specific reason has long been examined by the Labour Appellate Tribunal. The Tribunal addressed this question as early as 1952 in the case of Buckingham and Carnatic Co. Ltd. Etg. v. Workers of the Company, where it held that even in such circumstances the requirement of bona‑fides on the part of the employer is indispensable. The Tribunal further stated that if the termination of service is a colourable exercise of statutory power, or if it results from victimisation or an unfair labour practice, the industrial tribunal possesses the jurisdiction to intervene and to set aside the termination. The Tribunal also clarified that a termination which is capricious, arbitrary, or unnecessarily harsh—as judged by the ordinary standards of a reasonable man—may constitute cogent evidence of victimisation or an unfair labour practice.

These observations of the Labour Appellate Tribunal were subsequently endorsed by this Court in the decisions of The Chartered Bank, Bombay v. The Chartered Bank Employees’ Union and Assam Oil Company v. Its Workmen. Drawing on that authority, the Court explained that where, as in the present case, an employer initially intends to address alleged misconduct through departmental proceedings but then abruptly abandons those proceedings and instead relies on rule 18(a) of the Standing Orders to discharge the employee, such a step amounts to a colourable use of the rule. The rule was employed not to follow the prescribed process of holding an inquiry after notice had been given, but rather to remove the employee without the substantive inquiry that was originally contemplated.

The Court examined the specific justification offered by the appellant in the termination order dated 8 July 1958, which dismissed the employee Sankaran. The appellant argued that conducting the proposed inquiry would create further friction among the rank and file and that retaining Sankaran would prejudice the maintenance of discipline in the undertaking. The Court found that this rationale could not be accepted at face value, and it could not be used to dispense with the necessity of an inquiry when misconduct had been alleged.

Even assuming that the employer chose not to conduct the inquiry and proceeded under rule 18(a), the Court noted that prevailing jurisprudence makes it clear that the employer must be prepared to demonstrate, before the industrial tribunal, that genuine misconduct existed and that the dismissal was therefore bona‑fide and not a colourable exercise of power. In the present case, the tribunal observed that the employer failed to meet this evidential burden. The employer produced only two witnesses and deliberately withheld other material witnesses who could have clarified the question of misconduct. Consequently, the tribunal could not accept the limited evidence offered, and it could not be said that the employer had satisfied the requirement of proving a bona‑fide ground for dismissal.

In this matter, counsel for the appellant maintained that the employer possessed the authority to act under rule 18(a) of the Standing Orders and that, having exercised that authority, the employer had nothing further to justify before the tribunal. The Court had already observed that such a position could not be accepted in industrial adjudication concerning the termination of an employee’s service, noting that industrial tribunals have consistently rejected this view over many years and that the Court itself had upheld the tribunals’ stance in the two authorities previously referenced. Nevertheless, the appellant’s counsel relied on the Supreme Court’s decision in Parshotam Lal Dhingra v. Union of India. That case, however, involved a public servant, and the Court considered the considerations applicable to a public‑service context to be entirely distinct from those relevant to industrial employees. The counsel emphasized the passage on page 862 of the decision, which stated that even if misconduct, negligence, inefficiency or other disqualification motivated the Government to act under a contractual term or a specific service rule, the existence of a contractual right to terminate the service rendered the Government’s motive irrelevant, as observed by Justice Chagla in Srinivas Ganesh v. Union of India. The appellant urged that the same principle should govern industrial adjudication. The Court pointed out that the position of government servants rests on a fundamentally different footing because Articles 310 and 311 of the Constitution, together with the rules framed under Article 309, govern the termination of service of government employees. No such constitutional provisions apply to industrial workers. Moreover, the Court rejected the notion that an employer may now invoke an unfettered “hire and fire” right derived solely from a contract. Such a right is now subject to scrutiny by industrial tribunals, and even a power conferred by rule 18(a) of the Standing Orders must be examined by the tribunal. Consequently, the appellant could not simply rely on rule 18(a) and claim that having acted under it there was nothing further for the tribunal to consider. The Court affirmed that an industrial court retains the authority to investigate the reasons that may have led to a termination, even when a rule such as 18(a) is invoked, and that if the tribunal is satisfied the employer’s action was a colourable exercise of power, the termination can be set aside.

In the case before the tribunal, the Court explained that if a termination of service is not carried out in good faith, or if it results from victimisation or an unfair labour practice, the tribunal possesses the authority to intervene and set aside the termination. The tribunal had examined the present matter and concluded that the employer’s exercise of power was colourable, and that conclusion could not be said to be erroneous. The appellant, however, failed to convince the tribunal that the power was exercised in good faith and was not colourable when the issue was brought before it for adjudication. The Court noted that the appellant could have satisfied this requirement by producing satisfactory evidence, but instead it relied on the proposition that no justification was necessary, and consequently, because it did not justify its action, it must bear the consequences. Counsel for the appellant referred to a previous decision of this Court, The Patna Electric Supply Co. Ltd. v. Bali Rai, and the Court observed that the cited case was inapplicable because that decision concerned an application under section 33 of the Industrial Disputes Act, whereas the present proceedings were instituted under section 10 of the same Act, and the considerations relevant to section 33 differ in several respects from those applicable to adjudication under section 10. Accordingly, the Court held that the appeal failed, dismissed it with costs, and entered an order of dismissal of the appeal.