Workmen Of Dewan Tea Estate And Ors vs The Management

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 390 of 1963

Decision Date: 25 November 1963

Coram: P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta

In this matter the appellant was identified as the workmen of the Dewan Tea Estate and others, while the respondent was the management of the same estate. The case was listed as Workmen of Dewan Tea Estate and Ors. versus The Management and the judgment was delivered on the twenty‑fifth day of November, 1963 by the Supreme Court of India. The judgment was authored by Justice P B Gajendragadkar and the bench was composed of Justice P B Gajendragadkar, Justice K N Wanchoo and Justice K C Das Gupta. The formal citation of the decision appears in the Indian law reports as 1964 AIR 1458 and also as 1964 SCR (5) 548. Additional citator references include D 1966 SC 987 (5), R 1966 SC 1471 (24) and RF 1976 SC 1775 (16). The substantive issue that the Court was called upon to consider related to the applicability of provisions of the Industrial Disputes Act, 1947 (Act 14 of 1947), particularly sections 2(kkk) and 25 C, in the context of a lay‑off that the respondent claimed was necessitated by a difficult financial position or by adverse trade circumstances. The Court also examined whether a common law right to lay‑off could be derived from section 25 of the Act, and how that right interacted with the Standing Order No 8 issued under the Industrial Employment (Standing Orders) Act, 1946 (Act 20 of 1946), which contains the expressions “stoppage of supply” and “other causes beyond his control.” The question of the meaning of those expressions, especially “stoppage of supply,” and whether they could encompass the financial difficulties of the employer, formed part of the legal inquiry.

The headnote of the reported judgment records that the respondent management declared a lay‑off of workmen in the tea estates it operated, which gave rise to an industrial dispute between the management and the workmen who were the petitioners. The management defended the lay‑off by asserting that its financial condition was severely strained and that the lay‑off was a necessary step taken in the interest of both the employees and the enterprise to prevent a complete shutdown of the business. The petitioners contended, among other points, that a downturn in trade or the arising financial hardships could not be treated as “trade reasons” sufficient to justify a lay‑off under the relevant Standing Order, and therefore they were entitled to receive full wages throughout the period of lay‑off. The Tribunal that initially heard the matter concluded that Standing Order No 8 did permit the lay‑off because the trade depression and the consequent financial liabilities fell within the scope of that order. The Tribunal further held that, even if the lay‑off could not be justified by the Standing Order, the employer possessed a common law right to effect a lay‑off, a right that was recognised by section 25 C of the Industrial Disputes Act, 1947. The Tribunal reasoned that because section 25 C is a statutory provision, it would prevail over any contrary provision in the Standing Order. The matter was subsequently appealed to the Supreme Court by special leave, where the Court examined the correctness of the Tribunal’s interpretation of section 25 C, the meaning of “stoppage of supply,” and the applicability of the phrase “other causes beyond his control” within the context of the employer’s financial difficulties.

The Court explained that when a lay‑off is not addressed by the Standing Orders, the matter must be dealt with under the Industrial Disputes Act, and such a lay‑off is allowed only if at least one of the conditions specified in section 2(kkk) exists; where those conditions are satisfied, compensation is to be awarded pursuant to section 25C. The Court then turned to the meaning of “stoppage of supply” and held that, in the context of the dispute, the phrase signifies the interruption of raw material or a similar item. For a factory the stoppage may refer to the halting of tea leaves, while for field work it may denote the interruption of other articles required for field operations. The Court emphasized that “supply” in this sense cannot be interpreted as money or funds. The Court further examined the last clause of rule 8(a)(i) of the Standing Order, which mentions “other causes beyond his control”, and concluded that this clause does not encompass the financial difficulties of the companies. The Court observed that “other causes beyond his control” should be comparable to causes that have previously arisen; moreover, there is no justification for arguing that the alleged financial difficulty faced by the respondent was beyond its control. Regarding rule 8(a)(iii), which refers to temporary curtailment of production, the Court stated that it must be read in light of rule 8(a)(i). If the present lay‑off does not fall within rule 8(a)(i), then rule 8(a)(iii) cannot improve the respondent’s position. The Court held that the dispute must be governed by rule 8(a)(i) of the respondent’s Standing Orders and rejected the contention that because the Standing Orders were certified before the lay‑off definition was introduced in the Act, the respondent could rely on that later definition to justify the impugned lay‑off. The Court cited the case of Management of Kairbetta Estate, Kotagiri v. Raja‑manickam & Ors., [1960] 3 S.C.R. 371 for reference. The judgment proceeded to note the civil appellate jurisdiction, identifying the appeal as Civil Appeal No. 390 of 1963, filed by special leave against the award dated 11 December 1959 of the Industrial Tribunal, Assam at Gauhati in Reference No. 7 of 1959. Counsel for the appellants and respondents were listed, and the judgment dated 25 November 1963 was delivered by Justice Gajendragadkar. The Court described the background of the appeal, stating that it arose from an industrial dispute between the Management of eleven tea estates and their workmen. The workmen contested a lay‑off declared by the management in February 1959, which lasted forty‑five days. The workmen asserted that the lay‑off was unjustified and claimed entitlement to full wages for that period. The managing agents of the nine companies operating the estates defended the lay‑off as justified and contended that the workmen were entitled only to the compensation prescribed by section 25C of the Industrial Disputes Act.

The dispute concerned the application of the Industrial Disputes Act of 1947, which the parties referred to as “the Act.” The Governor of Assam had invoked section 10(1)(d) of the Act to refer the matter to the Industrial Tribunal for adjudication. The eleven tea estates that formed the subject of the dispute were listed in Appendix A to the order of reference. It was undisputed that these eleven estates were operated by nine separate companies, and that Macneill and Barry Limited served as the managing agents for all of those companies. The respondent, representing the management of the estates, argued that the estates, all located in Cachar District, were suffering from a prolonged depression in trade because the tea they produced fetched low market prices. In 1959 the management claimed to be in a very difficult financial situation and decided that, in order to protect both the employees and the business, it was necessary to lay off the workmen for a limited period so as to avoid the complete closure of the estates. The respondent maintained that the financial depression stemmed from circumstances beyond its control, making the lay‑off inevitable and fully justified. In contrast, the appellants contended that other tea estates in the same district were confronting similar trade problems, that the labour costs incurred by the respondent were not higher than those of the other estates, that the tax burden was identical for all estates in the district, and that the quality of tea produced was broadly comparable. They asserted that the respondent’s difficulties were partially the result of its own mismanagement and neglect. The workmen, they said, had been promised continuous employment throughout the year, and a lay‑off lasting forty‑five days exposed them to the risk of semi‑starvation. The appellants further argued that a downturn in trade or financial hardship, even if characterised as “trade reasons,” did not constitute a valid ground for lay‑off under the applicable Standing Order, and therefore they were entitled to receive their full wages for the period of the lay‑off. The Tribunal examined the provisions of Standing Order No. 8 and concluded that the order did indeed justify the lay‑off. It held that the trade reasons arising from the depression in trade and the attendant financial liabilities fell within the scope of the Standing Order, and that the final, broadly worded clause of the order could be relied upon by the respondent to support its claim of justification. In the alternative, the Tribunal observed that even if the lay‑off were not justified by the specific clause of the Standing Order, the respondent possessed a common‑law right to institute a lay‑off, a right that was recognised by section 25C of the Act. The Tribunal noted that section 25C both acknowledged this common‑law right and, being a statutory provision, superseded the relevant clause of the Standing Order.

Having found that the lay‑off was justified, the Tribunal examined whether the trade reasons relied upon by the respondent had actually been proved. The Tribunal considered the documentary evidence on the matter and observed several general features that applied to all the tea companies before it. It remarked that the companies “have suffered losses which are by no means inconsiderable” and that “some of the companies have not been able to declare dividends in time during the last ten years, though others have declared them from year to year.” The Tribunal rejected the respondent’s contention that the losses were caused by high labour charges; instead it concluded that the tea companies were not generating adequate profits. Nevertheless, the Tribunal was satisfied that the companies possessed reserves and large capital assets and therefore would not have found it difficult to raise the necessary finances. On the whole, the Tribunal felt it was necessary to distinguish between the different tea estates before it. After considering each estate’s individual circumstances, it concluded that of the nine companies, five did not need to declare a lay‑off for the full period of forty‑five days. In those five cases, the Tribunal held that a lay‑off was justified but that its duration should have been limited to twenty‑one days. Acting on that finding, the Tribunal ordered that for the twenty‑four days in excess of three weeks during which the lay‑off was justified, the five companies should pay their workmen full wages rather than merely the compensation prescribed by section 25C of the Act.

Regarding the remaining four companies, the Tribunal held that the lay‑off was fully justified and therefore the workmen were not entitled to full wages for the period of the lay‑off. Consequently, the Tribunal’s award partially granted relief to the appellants by providing full wages for only twenty‑four days against the five companies named Bhubandhar, Doyapore, Western Cachar, Borak and Koyah. No relief was granted to workmen of the other four companies, namely Doodputlee ’ Majagram, Scottpore and Tarrapore. This award gave rise to the present appeal by the appellants. The first issue for determination was whether the Tribunal was correct in holding that section 25C recognises the respondent’s common‑law right to declare a lay‑off for reasons other than those specified in the relevant clause of the Standing Order. While addressing this argument, the Court assumed that the financial difficulties described by the respondent as trading reasons for the lay‑off did not fall within the scope of the relevant clause. The respondent argued that, even if the trading reasons did not justify the lay‑off under that clause, prudent employers who must run their industry in the best manner have a common‑law right to declare a lay‑off if they believe that the alternative would be closure, and that acting in good faith they choose the lesser evil of a lay‑off.

In the judgment the Court observed that an employer is free to manage his industry in the manner he considers best. Accordingly, the Court held that an employer possesses a common‑law right to declare a lay‑off when it believes that the only alternative to a lay‑off would be the complete closure of the undertaking. The Court further noted that, acting in good faith, an employer may prefer to adopt the lesser evil of a lay‑off in order to avoid the more drastic step of shutting down the business. The Court then examined whether section 25C of the Industrial Disputes Act supports this argument. It pointed out that section 25C(1) recognises a right of a workman who has been laid off to receive compensation, and that the provision obliges the employer to pay the workman, for the whole period of the lay‑off except for any intervening weekly holidays, compensation calculated at the rate prescribed by that section.

The Court explained that the proviso to section 25C limits the compensation payable to a workman during any twelve‑month period to a maximum of forty‑five days, indicating that the legislature apparently contemplated that, under normal circumstances, the duration of a lay‑off within a year would not exceed forty‑five days. However, section 25C(2) was described as providing for the possibility that a lay‑off may last longer than forty‑five days, whether continuously or intermittently, and it mandates that the workman shall then be paid compensation in the manner indicated by that clause. Consequently, the Court stated that the statutory scheme creates an entitlement to compensation for workmen who are laid off, and that the method of calculating such compensation is set out in the two sub‑clauses of section 25C. The Court emphasised that when section 25C addresses workmen who are laid off and prescribes the manner of payment, it necessarily refers to the definition of “lay‑off” contained in section 2(kkk) of the Act. That definition, as quoted by the Court, describes a lay‑off as the failure, refusal, or inability of an employer, because of shortage of coal, power, raw materials, accumulation of stocks, breakdown of machinery, or any other reason, to give employment to a workman whose name appears on the muster rolls and who has not been retrenched. The Court concluded that, for the purpose of invoking section 25C, the lay‑off must be one that falls within this statutory definition, and that any lay‑off giving rise to a claim for compensation under section 25C must therefore satisfy the criteria laid down in section 2(kkk).

In this case the workmen argued that a lay‑off authorized by the Standing Order would also satisfy the definition of lay‑off contained in section 2(kkk) of the Act. The Court observed that whether section 25C may be invoked by workmen who are laid off for reasons authorized by the relevant clause of the Standing Order, when those reasons do not fall within the definition of section 2(kkk), is not a question that needed to be decided in the present appeal. The matter before the Court was limited to the inquiry of whether section 25C creates a common‑law right for an industrial employer to lay off his workmen. The Court answered this question in the negative. It held that the reference to “lay‑off” in section 25C is confined to the lay‑off as defined by section 2(kkk). Consequently, only those workmen who are laid off for reasons that are covered by the definition in section 2(kkk) are entitled to claim the benefit of section 25C. In other words, section 25C confers benefits only upon workmen who are laid off under the specific circumstances enumerated in section 2(kkk). The Court further explained that if any situation is not covered by the Standing Orders, the applicable provisions of the Act would govern, and a lay‑off would be permissible only when one of the factors listed in section 2(kkk) is present; such lay‑offs would attract compensation under section 25C. Accordingly, the Court concluded that the Tribunal was incorrect in holding that section 25C recognizes an inherent right of the employer to declare a lay‑off for any reason the employer deems sufficient or satisfactory. No such common‑law right can be derived from the language of section 25C. Having settled that point, the Court turned to the question of whether the lay‑off in the present matter was justified under Rule 8 of the Standing Orders, which have been duly certified under the Industrial Employment (Standing Orders) Act, No 20 of 1946. The pertinent portion of Rule 8 provides that the manager may, without notice, close down the factory or field work, or both, in the event of fire, catastrophe, breakdown of machinery, stoppage of power or supply, epidemic, civil commotion, strike, extreme climate conditions, or other causes beyond his control. It further states that where workmen are laid off for short periods because of plant failure or a temporary curtailment of production, the period of unemployment shall be treated as compulsory leave, either with or without pay as appropriate, whereas workmen laid off for an indefinite period may have their services terminated after due notice or payment in lieu thereof. Thus, the circumstances in which a lay‑off may be declared are expressly set out in Rule 8(a)(1), and the Court noted that two grounds have been cited before it in support of the Tribunal’s conclusion that the impugned lay‑off was justified.

The Court observed that counsel for the respondent had advanced two submissions in support of the Tribunal’s finding that the lay‑off was warranted. The first submission sought to extend the meaning of the phrase “stoppage of supply” in Rule 8(a)(1) to include a failure to obtain financial assistance. It was alleged that in February 1959 the companies could not raise sufficient funds to continue operations in the tea gardens, and that this constituted a “stoppage of supply”, thereby justifying the lay‑off. The Court rejected this contention as wholly misconceived. It held that, within the context of the rule, “stoppage of supply” referred to the interruption of raw material or other items necessary for factory or field work, such as tea leaves for the factory or essential articles for field operations. The Court could not accept an interpretation that allowed “supply” to mean money or funds. The second submission relied on the terminal clause of Rule 8(a)(i), which mentions “other causes beyond his control”, arguing that the companies’ financial difficulties fell within that category. The Court was not persuaded. It noted that “other causes beyond his control” should be similar in nature to the preceding causes listed in the rule, and it found no justification for treating the alleged financial strain as beyond the companies’ control. The Tribunal had recorded that the respondent produced a letter dated 9 April 1959 from the Chartered Bank, in which the bank expressed reluctance to provide financial facilities. However, the Tribunal observed that the letter merely indicated the bank’s intention to consider the request and write again; no evidence was offered showing the bank’s subsequent response or whether funds were eventually secured. Moreover, the Court noted that at the conclusion of the lay‑off period all the companies resumed operations in their tea gardens, and those operations have continued without interruption. The letter relied upon was dated after the lay‑off had already been declared in February 1959, and the record contained no evidence to support the assumption that the financial difficulties were beyond the companies’ control. The Court further held that the mere fact that some of the companies incurred losses and failed to earn profits did not, by itself, demonstrate that their financial position at the relevant time was beyond their control.

It was observed that the three companies identified as Scottpore, Tarrapore and Doodputalee had failed to declare any dividends during the period from 1951 to 1958. Apart from the year 1954, the overall financial condition of each of these companies appeared to be unsatisfactory. Nevertheless, the observation was qualified by noting that other tea gardens located in the same geographical area were not shown, nor was any suggestion made, to be in a better financial position than the companies under consideration. In addition, it was recognised that at the relevant time all the tea companies operating in Cachar, and particularly the managing agents of the nine companies involved in the present proceedings—namely M/s. Macneill and Barry Ltd.—were actively seeking assistance from the Assam Government in order to obtain relief with respect to their tax liabilities. The central issue for determination, however, was whether the financial circumstances revealed by the evidence on record could be characterised as a cause that lay beyond the control of the respondent. The Court expressed that it was not inclined to reach a conclusion favourable to the respondent on that point. Having regard to the factors enumerated in Rule 8(a)(i) and to the subsequent introduction of a clause dealing with other causes beyond the employer’s control, the Court found it difficult to accept the argument that a commercial or trading difficulty of the sort suggested by counsel could be subsumed under that clause. Accordingly, the Court concluded that the Tribunal had erred in holding that the lay‑off in question could be justified under Rule 8(a)(i). Moreover, Rule 8(a)(iii), which pertains to a temporary curtailment of production, must be read in conjunction with Rule 8(a)(1); consequently, if the present lay‑off does not fall within the scope of Rule 8(a)(i), the provision of Rule 8(a)(iii) does not improve the respondent’s position.

Subsequently, counsel for the respondent argued that the existing Standing Orders, which had been duly certified under the Standing Orders Act in 1950, should be interpreted in light of the definition of “lay‑off” introduced by Section 2(kkk) of the Act through the Amending Act 43 of 1953, dated 24 October 1953. The argument advanced was that because the certification of the Standing Orders preceded the statutory definition, the respondent was entitled to rely upon that later definition in support of the contention that the lay‑off was justified. Relying on the definition set out in Section 2(kkk), counsel asserted that this definition was broader than the provisions of Rule 8(a)(1) contained in the respondent’s Standing Orders and that it would encompass the commercial reasons on which the respondent relied. The Court, however, was not prepared to accept the proposition that the respondent could invoke the definition of lay‑off contained in Section 2(kkk) for the present case. It was recalled that the Standing Orders, once certified under the Standing Orders Act, become an integral part of the statutory terms and conditions of service that govern the relationship between an industrial employer and his employees. Section 10(1) of the Act further underscores the statutory effect of such certified Standing Orders.

The Court observed that under the Standing Orders Act a standing order that has been finally certified may not be altered, except by mutual agreement between the employer and the workmen, for a period of six months measured from the date on which the standing order or its last amendment actually came into operation. Consequently, once the certified standing orders become incorporated into the statutory terms and conditions of service, they govern the contractual relationship between the employer and the employees unless it can be demonstrated that a provision of the Industrial Disputes Act is inconsistent with those certified orders. In a situation where an inconsistency is established, it may be permissible to argue that the statutory provision of the Act should prevail over a standing order that was certified before the later statutory provision was enacted. The Court, however, assumed without deciding that section 2(kkk) of the Act might include trading reasons, as suggested by counsel for the petitioner, but noted that the definition contained in section 2(kkk) is not itself an operative provision of the Act. Therefore, an alleged inconsistency between that definition and the relevant rule of the certified standing orders does not assist the petitioner’s case. The Court further explained that if the Act had contained an explicit provision granting an employer the right to lay off work‑men for reasons specified in section 2(kkk), the analysis might have been different. In the present matter, the only statutory provision relied upon by the respondent is section 25C, which merely incorporates the definition of “lay‑off” by referring to work‑men who have been laid off and by prescribing the manner in which compensation should be paid to them. Accordingly, any purported conflict between the definition of lay‑off in section 2(kkk) and the substantive rule of the certified standing orders would not enable the respondent to argue that the definition supersedes the statutory conditions of lay‑off contained in the standing order. For these reasons, the Court concluded that the petitioner could not successfully contend that section 2(kkk) of the Act is broader than the applicable rule in the standing orders and therefore should be applied to the facts of this case. The Court also clarified that it was not necessary to decide whether the wide‑ranging construction of section 2(kkk) advocated by the petitioner is justified. Counsel for the appellants, on the other hand, strongly argued that the phrase “for any reason” in section 2(kkk) does not encompass trading considerations. He submitted, with some prima facie force, that the words should be interpreted ejusdem generis, i.e., in the same kind as the words that precede them, citing the decision in Management of Kairbetta Estate, Kotagiri v. Rajamanickam & Ors. According to this submission, the circumstances listed in section 2(kkk) that justify a lay‑off must be intrinsically linked to production, and therefore trading reasons cannot be read into that definition. He further explained that the distinguishing features of the genus to which the various circumstances mentioned in the definition belong are that they are beyond the employer’s control, are expected to be of short duration, and have a compulsive effect.

The Court observed that the different species,(1) are characterized by three features: they are beyond the control of the employer, they are expected to be of short duration, and they have a compulsory effect. The Court further noted that it was not necessary to resolve this intriguing point in the present appeal because it was satisfied that the present dispute must be governed by Rule 8(a)(1) of the respondent’s Standing Orders, as indicated earlier. Consequently, the Court set aside the Tribunal’s finding that the lay‑off declared by the respondent for forty‑five days in 1959 was justified. Since that finding was reversed, the Court found it unnecessary to examine the individual circumstances of the nine companies involved, because irrespective of each company’s financial position, the applicable Rule did not permit a valid lay‑off, nor could the lay‑off be justified on any alleged common‑law right. Accordingly, the questions that had been referred to the Tribunal were answered in favour of the appellants. The appeal was therefore allowed, and the appellants were awarded full wages for the forty‑five days of lay‑off affecting the eleven tea gardens. The appellants were also granted costs throughout the proceedings. The appeal was thus allowed.