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CASE NO.:

Appeal (civil) 1422 of 1999

PETITIONER:

INLAND STEAM NAVIGATION WORKS UNION & ANR.

Vs.

RESPONDENT:

UNION OF INDIA & ORS.

DATE OF JUDGMENT: 01/02/2001

BENCH:

S. Rajendra Babu & Shivaraj V. Patil.

JUDGMENT:

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RAJENDRA BABU, J. :

A Limited Company Rivers Steam Navigation Co. Ltd.

[hereinafter referred to as the Company] operated a river

service from West Bengal to Assam with a personnel of about

8,000 including clerical staff. Part of its operations was

through East Pakistan. On account of armed conflict in 1965

with Pakistan, the Company had to suspend a major part of

its operation. Retrenchment was done on a large scale as

the Company had been incurring heavy losses for several

years in spite of Government of India acquiring a

controlling interest in it to prevent its liquidation. In

the course of conciliation proceedings, the Management of

the Company arrived at a settlement with the appellant Union

on August 26, 1965. However, the Company could not carry on

profitably and, therefore, on account of its bankruptcy

various creditors, the Union of India and several banks

filed a petition in the Calcutta High Court for winding up

of the Company. After protracted proceedings in the High

Court, an application was filed under Sections 391 to 394 of

the Companies Act, 1956 for sanctioning a Scheme of

Arrangement and Compromise between the company and the

Central Inland Water Transport Corporation Ltd.

[hereinafter referred to as the Corporation]. When the

Scheme was sanctioned, the appellant Union had appeared

before the Court to protect the interests of the workmen.

The appellant Union in fact filed an appeal to the Division

Bench of the High Court which, however, was dismissed

upholding the order of the learned Single Judge sanctioning

the Scheme.

In brief, the Scheme provided, inter alia, that all the

properties and assets but only some of the liabilities would

vest in the Corporation. It was agreed that the Corporation

would take over as many of the members of the staff and work

force of the Company as was possible under the circumstances

but the number to be employed would be in its discretion.

Those employees who were not taken over by the Corporation

were to be paid compensation by the Company out of the funds

the Government of India agreed to supply. Upon the approval

of the Scheme the Company would be closed and on payment of

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all creditors it would stand dissolved without winding up.

In the course of the order made by the Company Court certain

questions were left open for consideration and they are:

1. whether there is a closure of the Company within the

meaning of the Industrial Disputes Act, 1947 [hereinafter

referred to as the ID Act] ;

2. whether the agreement dated 25.8.1965 is capable of

enforcement;

3. whether the workers are workmen or entitled to

prefer any claim on the basis of the agreement dated

25.8.1965; and

4. whether the transferor Company or the transferee

Company can assert that there has been closure and further

that agreement is not capable of enforcement.

The scheme was in fact sanctioned by an order made on

3.5.1967 and on that very day, the Company issued a notice

of closure. Thereafter, the Corporation issued fresh

letters of appointment and out of 8,000 employees of the

Company, the Corporation is stated to have employed about

5,173 workers. Thus, a large number of employees of the

former company stood unemployed.

The State of West Bengal made an order of reference

purportedly under Section 33C(2) of the ID Act to compute

the benefits covered by the settlement dated 25.8.1965

between the Union and the Company and by another order of

reference called for computation of the retrenchment

benefits arising under Section 25 FF of the ID Act. The

orders of references were challenged in the High Court and

were quashed by an order made on 15.7.1969. Again, on

27.10.1969, the Government of West Bengal made another order

of reference to the Labour Court on various claims preferred

by the Union from the Corporation which are capable of being

computed in terms of money arising out of the settlement

dated 25.8.1965 and under Section 25FF of the ID Act to

which two lists were attached. List I consisted of names

and addresses of 420 employees and the Labour Court was

asked to adjudicate as to whether these employees continued

in the employment under the Corporation and other monetary

benefits they were entitled to. In regard to 98 employees

mentioned in the List II, the Labour Court was asked to

compute retrenchment benefits arising under Section 25FF of

the ID Act. Another question was referred as to whether the

Company has been closed within the meaning and contemplation

of Section 25FFF of the ID Act and if so, what amount of

compensation the workmen mentioned in both the lists were

entitled to? This reference was again challenged in the

High Court under Article 226 of the Constitution by a writ

petition. The writ petition was partly allowed striking

down the issue relating to claim arising under Section 25FFF

from the Company. The Union of India did not file against

it an appeal but the Corporation went in appeal against the

order in so far as the learned Single Judge held that the

Labour Court had jurisdiction to adjudicate upon other

issues. The Division Bench dismissed the appeal.

Thereafter the matter was carried to this Court. This Court

in Central Inland Water Transport Corporation Ltd. vs. The

Workmen & Anr., 1974 (4) SCC 696 disposed of the said

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matter.

In the said decision, it was explained that the scope of

Section 33C(2) of the ID Act is limited and those

proceedings are akin to the execution proceedings. It was

also made clear that the right to receive compensation as if

the workmen are retrenched under Section 25FF is available

only against the owner of the undertaking that is the

transferor and not against the transferee and in order to

decide the claims of the workmen it would be necessary to

decide as to whether the Corporation was a closure of the

Company and whether the transferee would be liable to pay

compensation and that the workmen are entitled to

reemployment against the Corporation. If the Tribunal comes

to the conclusion that the Corporation wrongfully absorbed

the employees, the Tribunal will have to consider as to what

reliefs to be given depending upon the circumstances and

such questions can be adjudicated under Section 33C(2) of

the ID Act and thus allowed the appeal, holding that the

Labour Court had no jurisdiction to deal with the questions

referred to it under Section 33C(2). Thereafter, yet

another reference was made to the Labour Court.

The Government of West Bengal by an order made on June

8, 1978 with subsequent corrigendum referred the industrial

dispute between the Company and the Corporation on the one

hand and their workmen represented by appellant Union on the

other for adjudication upon the following issues:

1. Whether M/s River Steam Navigation Co.Ltd. has been

closed down within the meaning and contemplation of Section

25 FFF of the ID Act?

2. Whether the said company has been transferred to M/s

Central Inland Water Transport Corporation Ltd.?

3. Whether Section 25 FFF of the ID Act is attracted to

the present case?

4. Whether the settlement dated 25.8.1965 is binding on

M/s Central Inland Water Transport Corporation Ltd.?

5. Whether the workmen who were employed by the said

Company have a right to be continued in service by the said

Corporation and whether the refusal of the said Corporation

to absorb them is wrongful?

6. To what relief, if any, are the workmen entitled?

The Tribunal found that as regards the question as to

closure of the company the scheme of arrangement itself set

at rest the matter. Clause 8 of the scheme of arrangement

would show that upon approval of the Scheme by the Court the

existing company shall be closed and upon payment to all the

creditors the existing company shall be dissolved without

winding up pursuant to an order to be obtained from the

court. Pursuant to the approval of the scheme of

arrangement, a notice of closure was obtained in the

Anandabazar Patrika, the Jugantar Patrika and the Hindustan

Standard, as per Ex. A, A/1 and A/2. In case under Section

481 of the Companies Act when the affairs of the company had

been completely wound up or when the liquidator cannot

proceed with the winding up of the company for want of funds

and assets or for any other reason whatsoever, and it is

just and reasonable an order of dissolution can be passed.

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In the instant case, such an order was made and, therefore,

this resulted in the civil death and the very existence of

the company came to an end. It was also held that by

Section 25F of the ID Act a prohibition against retrenchment

until the conditions prescribed by that section are

fulfilled, is imposed, by Section 25FFF(1) of the ID Act

termination of employment on closure of the undertaking

without payment of compensation and without either serving

notice or paying wages in lieu of notice is not prohibited.

So it is not a condition precedent to closure. The Tribunal

held that there is a complete closure of the company with

effect from 3.5.1967 and thus answered the issue no. 1

against the appellant union. On the second issue, it was

noticed that in the scheme there is no provision for

transfer of the undertaking and stating so this issue was

disposed of. As regards the third issue, the Tribunal took

the view that Section 25FF of the ID Act is not attracted in

the present case inasmuch as there is no transfer of

undertaking and hence the payment of compensation would not

arise. On Issue No. 4, the Tribunal recorded a finding

that there is no agreement or settlement to which the

Corporation is a party and the binding effect on the company

which is not in existence and which was not a party to the

settlement cannot be agitated. On Issue No. 5, the

Tribunal held that the scheme does not provide for any right

to continuation in service in the Corporation in respect of

former employees of the company. On the contrary, the

scheme of arrangement provided that it was left with the

bona fide discretion of the Corporation as to the number of

employees it could take. Thus there was no right to

continue in employment with the Corporation. It was also

held that the transferee Corporation has no obligation

whatsoever in relation to payment of compensation, etc. to

the workmen as per the list attached and these workmen are

not entitled to any relief whatsoever. This award was

challenged before the High Court and the High Court held

that the none of the reliefs could be granted to the

appellant union and so far as claim made in respect of

compensation under Section 25FFF of the ID Act, the High

Court took the view that the appellant union can claim the

same but the quantum of compensation can be determined by a

court in accordance with law in the presence of necessary

parties. The writ petition was accordingly disposed of.

Against this order, the present appeal is filed by special

leave.

Before us it is contended that the Division Bench of the

High Court while dealing with the appeal arising out of the

company matter held that it was not within the scope of the

scheme to find out first whether there was a closure of the

company within the meaning of the ID Act and the that claim

of the workmen under the ID Act based on agreement dated

25.8.1965 was not within the jurisdiction and province of

the application for sanction of the scheme and that the

agreement will have to be enforced in a properly constituted

proceedings. The stand of the appellant union is that in

view of this statement made in the course of the order

according sanction of the scheme for dissolution of the

company it could be inferred that it was a case of

reconstruction of the company, the properties and the assets

are transferred to and vested in the Corporation by the

members of the company. Liabilities in relation to

creditors have nothing to do with the matter of employment

in relation to River Transport Undertaking continued by the

Corporation after sanction of the scheme as employer as

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defined by Section 2(g) of the ID Act and in support of this

proposition relied upon the decision in Central Bank of

India Ltd. vs. P.S.Rajagopalan, 1964 (3) SCR 140.

The party in person emphasised that this Court in

Central Inland Water Transport Corporation Ltd. [supra]

observed that there is no actual change of employer by

reason of the transfer nor do the three clauses of Section

25F of the ID Act apply. Therefore, prima facie the claim

of the workmen would be either for work or for compensation

under Section 25FF of the ID Act against the Corporation.

It is also submitted that the workmen belonged to the

under-privileged segments of the society and were exploited

and dominated and that the scheme did not reveal

discontinuity in service and that they had not impleaded

Union of India as party in the proceedings initiated

earlier. Therefore, it is contended that the appellant

union are entitled to relief at any rate from the defunct

company and in terms of the agreement the monetary

compensation will have to be paid by the Union of India,

wherever the workmen of the erstwhile company are not

absorbed in service of the Corporation.

This Court in Central Inland Water Transport Corporation

Ltd. [supra] took the view that the liability of the

Corporation would not arise in the case because the question

as to whether the transferee of an undertaking is a

successor or not involves several factors. So far as the

claim against the Corporation is concerned this Court made

it clear that the workers who were taken over by the

Corporation were given fresh appointments from June 5, 1967

with different conditions of service and there was break in

the condition of service. Even assuming that on such

investigation, conclusion could be drawn that the

Corporation is a successor the matter will not be settled

because, the transferee even as a successor would be liable

neither to pay compensation nor to re- employ the workmen

whose employment stood automatically terminated on the

transfer. Where by operation of law the employment of

workmen stands terminated, it may be difficult to sustain it

on the basis of a term in a settlement prohibiting

retrenchment, though statutorily binding on the transferee

as a successor. Therefore, the view taken by the Tribunal

that the Corporation is not liable to pay either

compensation or to absorb the workmen in question is

unexceptionable. As rightly held by the High Court, the

workmen in question are entitled to compensation in case of

closing down of an undertaking. Here there has been no

transfer of the undertaking from the company to the

Corporation as found by the Tribunal and upheld by the High

Court because by order made by the company court the scheme

of arrangement was to close down the company and what was

taken over by the Corporation was a separate arrangement.

Therefore, in the eye of law what is to be held is that the

undertaking is closed down on account of unavoidable

circumstances beyond the control of the employer and every

workman who has been in service for more than ten years in

that undertaking immediately before such closure shall be

entitled to notice and compensation in accordance with the

provision of Section 25F as if the workman has been

retrenched. In case where an undertaking is closed down by

reason of financial difficulties as was the position in the

present case it cannot be deemed to have been closed down on

account of unavoidable circumstances beyond the control of

the employer. Therefore, if an application is made by the

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workmen or by the union on their behalf before a Labour

Court under Section 33C(2) of the ID Act it will be proper

for the Labour Court to examine the claims under Section

25FFF of the ID Act, of each of these workmen and award

compensation accordingly which shall be payable by the Union

of India and to those proceedings the erstwhile company and

the Union of India shall be parties.

In the circumstances, we direct the concerned Labour

Court on the filing of such applications to dispose the same

within a period of three months. The appeal shall stand

allowed in part accordingly. In other respects, the same

shall stand dismissed. No costs.