Professional Documents
Culture Documents
lABOUR LAW SURYA - 1
lABOUR LAW SURYA - 1
MALAPPURAM CENTER
2021-22
LABOUR LAW
PROJECT
INDEX
PAGE
NO..
NO TOPI
TOPIC-
C- RE
RETR
TREN
ENCH
CHME
MENT
NT
NO.
1. Retrenchment, Definition,
Definition, for any reason
reason whatsoever, cases 3
3. Retrenchm
Retrenchment
ent can be only in a live industry,
industry, closur
closure
e should be real 6
5. Condition for
for valid retrenchment, notice
notice mandatory, retrenchment compensation
compensation 7
6. Rate of compensation,
compensation, Notice to appropriate
appropriate Government
Government 9
7. Reme
Remedy
dy - violation of sec 25-F, Impact
Impact of 1976 & 1984 amendment
amendment 10
9. Depa
Departure
rture from
from the rule ‘last
‘last come first
first go’ 13
11. Sec 25-H only prospective, not applicable for closure or transfer 15
15. When Sec 25-FF right are not available, Retrenchment attracts Sec 25-F , 19
17. Sec 25-FFF Infringes Art 14 And 19(1)(g), Closure differs from retrenchment, 21
19. Conclusion 24
20. Bibliography 25
2
RETRENCHMENT
basic change in the nature of the business. It results in a complete severance of employer-
the Industrial Disputes Act and in 1976 some more amendments were introduced.
of the service of a wo
w orkman for any reason whatsoever, otherwise than as punishment
the workman; (b) retirement on reaching the age of superannuation; (bb)1 termination of
the service of the workman as a result of the non-renewal of the contract of employment
“For
“For any
any re
reas
ason
onss what
whatso
soev
ever”: In Sundarma
er”: ny’s case3 th
Sundarmany’s thee ba
bank
nk,, empl
employ
oyed
ed
respondent as a temporary employee because the permanent cashier was away. When the
permanent cashier joined duty, Sundarmany’s services were dispensed with. The High
Court held this was nothing but discharge of Sundarmany as surplus employee. The bank
appealed before the Supreme Court and Justice Krishna Iyer gave a very wide content to
the definition of retrenchment. The words “for any reason whatsoever” was interpreted to
mean whatsoever be the reason every termination spells retrenchment. The Court
3
observed that had the bank known the laws, half a month’s pay would have concluded the
In Hindustan Steel case, the workmen were timekeepers for a number of years on the
fixed term. Their services have been extended from time to time. Later , consistent with
the economic policy, the employer chose not to renew the contract. The Supreme Court
held that such termination is retrenchment falling within Sundarmany’s case. The Court
discussed the impact of a composite order which implied the single order covering an
independent order terminating the services will not affect the coverage of retrenchment.
Abovee decisions
Abov decisions were reiterated in Delhi Cloth & General Mills v Sambu Nath 4, which
reiterated
In Santosh Gupta v State Bank of India 19805, the appointment of an employee of the
Bank in 1973 was terminated after a year in 1974 on the ground that she did not pass the
test which would have enabled her to be confirmed in the service. The Supreme Court
held
held this
this as re
retre
trenc
nchm
hmen
entt un
unde
derr se
secti
ction
on 25
25-F
-F.. The
The mana
manage
gemen
mentt co
cont
nten
ende
ded
d tha
hatt th
thee
termination was not due to discharge of surplus labour and therefore, section 25-F and
section 2(OO) would not attract. Rejecting this argument the court observed that section
2(OO) is so comprehensive to cover termination for any reason whatsoever except those
not expressly included in section 25-F or not expressly approved for by other provisions
of the Act such as section 25-FFF. The object of the above provisions is to compensate
4
AIR 1978 SC 8
5
Santosh Gupta v State Bank of India 1980, Lab IC 87 (SC)
6
Indian Hume Pipe Co v Workmen, AIR 1960 SC 251
4
Impact of 1984 amendment : However, after the insertion of section 2(OO) (bb) in 1984,
the
the ab
abov
ovee posit
positio
ion
n su
subs
bstan
tantia
tially
lly ch
chan
ange
ged.
d. Henc
Hence,
e, when
when th
thee empl
employ
oymen
mentt wa
wass for
for a
st
stip
ipul
ulat
ated
ed time
time pe
peri
riod
od un
unde
derr a cont
contra
ract
ct th
then
en th
thee no
non-
n-re
rene
newa
wall of th
thee cont
contra
ract
ct of
employment on the expiry of the stipulated period would not amount to retrenchment.
Pr
Proba
obatio
tioner
ner entit
entitled benefitt- In Karna
led to benefi Karnata
taka
ka S.R.
S.R.T
T Corp
Corpn.
n. V. Sh
Shei
eikh
kh Abdu
Abdull
serv
servic
icee of a prob
probat
atio
ione
nerr also
also amou
amount
nt to re
retre
trenc
nchm
hmen
ent.
t. As such
such wh
while
ile di
disch
schar
argi
ging
ng a
probationer if the requirements of section 25-F had not been complied with, the same is
void. Workers engaged only during crushing season in a sugar factory were ceased to
work subsequent
subsequent to closur
closuree of the season will not attract retrenchment.
retrenchment.
worker engaged for particular urgent work on completion of such work will not amount to
retrenchment. Where the workman was engaged on casual basis without a written service
cont
contra
ract
ct or lette
letterr of ap
appo
poin
intm
tmen
ent,
t, fo
forr do
doin
ing
g a pa
part
rticu
icular
lar ur
urge
gent
nt work
work,, hi
hiss servi
service
ce
automatically came to an end when the work was over and there was no retrenchment.
Therefore, the question of complying with the procedure for retrenchment does not arise
in such case. Further, in such a case merely because the workman was required repeatedly
for doing the urgent work and thus had to work for considerable time, the termination of
servic
servicee would not amount
amount to retrenc
retrenchment8. Un
hment Unli
like
ke in Sundarmany’s case
case or in the
came to an end by efflux of time in terms of the agreement between the parties, the
context
context and facts in the instant case are quite differen
different.
t.
5
Retrenchment can be only in a live industry - Since the termination of the services of a
industry which is alive and not closed. As in the case of strike, lock-out or lay-off there
Closur
Closuree should reall- Clo
should be rea Closu
sure
re shou
should
ld no
nott be mere
mere pr
pret
eten
ence
ce or cl
cloa
oak
k to av
avoi
oid
d th
thee
liability of a retrenchment. “If there is no real closure, but a mere pretence of a closure or
it is a mala fide one there is no closure in the eye of law and the workmen can raise an
industrial dispute”. Where there has been closure or not is a question of fact and once it is
proved that there is real and factual closure the bona fide or mala fides behind it is
immaterial
immaterial to the fact of closure.
Termin
Terminat
ation
ion not as punish
punishment- Term
ment Termin
inat
atio
ion
n of th
thee se
serv
rvic
ices
es of a work
workma
man
n as
punishment inflicted by way of disciplinary action will not be a retrenchment. The facts
way of disciplinary action. Hence, the termination of services on ground of misconduct 10,
abandoning or resigning from the service such as voluntary retirement will not be
b) Sup
Super
erann
annuation-To attract termination of service on superann
uation superannuation
uation it is necessary
that:-
9
Union of India v Pitu Kishu (1977) I Lab IC 1236 (Cal)
10
Imperial Tobacco Co. v Ethiraj (1954) II LLJ 637 (Lat)
6
Termin
Terminatio
ation
n of service
service on sati
satisfac
sfactio
tion
n of these
these two con
conditi
ditions
ons will
will not con
constit
stitute
ute
re
retr
trenc
enchm
hmen
ent.
t. Bu
Butt if such
such ag
agee of su
supe
pera
rann
nnua
uatio
tion
n is no
nott ment
mentio
ione
ned
d ei
eith
ther
er in th
thee
cont
contra
ract
ct of empl
employ
oyme
ment
nt or in
inva
vali
lid
d stan
standi
ding
ng or
orde
ders
rs,, it wi
will
ll no
nott be trea
treate
ted
d as
c) Ter
Termin
minat
ation
ion on non
non-r
-rene
enewal
wal of servic
servicee contr
contrac
actt or on exp
expiry
iry of fixed
fixed te
term
rm
contract - When the employment was for a stipulated time period under a contract
then the non-renewal of the contract of employment on the expiry of the stipulated
13
d) Contin
Continued
ued ill health -Termination owing to the continued ill health of the workman is
health
not covered in retrenchment. Ill health contemplated not only physical but mental
inc
incapa
apacita
citating
ting a work
work man
m an fo
forr fu
futu
ture
re work
work fo
forr an in
inde
defin
finite
ite pe
perio
riod.
d. The
The quest
questio
ion
n
i) He is given
given one mont
month’
h’ss noti
notice
ce of it wi
with
th reaso
reasons
ns,, or on
onee mont
month
h wag
wages
es in lieu of
su
such
ch no
notic
tice.
e. Prov
Provid
ided
ed no su
such
ch no
notic
ticee is ne
nece
cessa
ssary
ry if it is unde
underr an ag
agree
reeme
ment
nt
specifying
specifying the date of termination
termination of servic
service;
e;
11
J.K.Cotton
J.K.Cotton Spinnin
Spinning
g Mills & Co v State of UP AIR 1990 SC 1808
12
Harmohinder Singh v Kharga Canteen (2001) 5 SCC 540
13
Anand Bihari v Rajasthan St Rd Corpn 1991 Lab IC 494 (SC)
7
In Vishwamitra Press v Workmen14, it was held that mere receipt of notice or wages in
lieu of notice period does not mean that the workers voluntarily gave up their service and
Notice Mandatory- Notice or wages in lieu of notice under section 25(a) is mandatory.
Failure
Failure to give notice or wages
wages in lieu of notice will vitiate the retrenchmen
retrenchment.
t.
mandatory condition precedent for the validity and operative effect of the retrenchment.
If the compensation under Section 25-F(b) is not offered within the notice period under
Sec 25-F(a), such notice though initially valid would become inoperative and void and no
effect could be given to the notice. Notice or wages in lieu of notice under clause (a) of
Sec 25-F and payment of retrenchment compensation calculated in the manner set out in
clau
clause
se (b)
(b) of Se
Secti
ction
on 25
25-F
-F ar
aree co
cond
nditi
ition
onss pr
prece
ecede
dent
nt fo
forr re
retre
trenc
nchm
hmen
ent.
t. Henc
Hence,
e, th
these
ese
clauses operate as a prohibition against retrenchment until those conditions are fulfilled.
15
In Pramod Jha v. Bihar , the Supreme Court highlighted two fold object to Sec 25-F-
(1) a retrenched
retrenched employee
employee must have one month time to search for alternate
alternate job;
(2) the workman must be paid retren
retrenchment
chment compensatio
compensation
n at the time of retrenc
retrenchment
hment so
that once he is retrenched there is no need for him to go to his employer demanding
retrenchment compensation.
In order to be entitled to the compensa
compensation,
tion, the workmen should have put in minimum of
one year continuous service during a period of twelve calendar months; 190 days work in
14
(1952) I LLJ 181
15
(2003) 3 ACE 167
8
Rate of compensation. - Under Section 25-F (b), the workman is entitled to 15 days
average pay for every completed year of continuous service, or any part thereof in excess
of six months continuous service. Under the second proviso to Section 25-C the employer
has right to set off any amount paid to be workman as lay-off compensation during the
preceding twelve months as against the compensation payable for retrenchment. In case
Order when the workman refused to accept the payment of compensation is sufficient
the retrenchment compensation was given after the banking hours and thus the cheque
would be cashed only on the next day, it was held that the retrenchment order issued on
Notice
Notice to the appropria
appropriate
te Government- Sec 25-F (c) lays down the third condition
Government-
to the gov
governmen
ernmentt under section 25-F(C
25-F(C)) is only directo
directory
ry and not mandatory.
mandatory. In Bombay
Union of Journalists v State of Bombay17, the Supreme Court held that sec 27-F(a) and
(b) are mandatory whereas under section 25-F(e) previous notice to the government will
not render
render the retrenchm
retrenchment
ent invali
invalid.
d. Notice
Notice under
under Section
Section 25-F
25-F(e)
(e) was only
only to giv
givee
in
info
form
rmat
atio
ion
n to the
the Gove
Govern
rnme
ment
nt so as to ke
keep
ep in
info
form
rmed
ed abou
aboutt th
thee co
cond
ndit
itio
ions
ns of
16
Management of India Compressors Makers Corpn v D D Gupta (1997) Lab IC 694 (Delhi)
17
1964 I LLJ 351 (SC)
9
Remedy against violation of Section 25-F: As the right or obligation dispute pertaining
to Section 25-F cannot be raised straight away in writ proceedings. The Supreme Court
laid down that the remedy provided by way of making a reference under Section 10 of the
Industrial Disputes Act is the exclusive remedy which should be availed of in respect of
rights and obligations which are the creation of the Industrial Disputes Act itself.
benefit to an employee for his long, continuous service. But retrenchment compensation
is int
intend
ended
ed to give
give relief
relief for the sud
sudden
den and unexpe
unexpecte
cted
d termin
terminatio
ation
n of employ
employment
ment..
Since the contexts and purposes of both of them are not the same, a workman can claim
both gratuity benefit and retrenchment compensation, provided the gratuity scheme
framed in the establishment concerned does not prevent him for such double benefit 18.
The Imp
Impac
actt of 1976
1976 and 198
1984
4 amendm
amendment
ent on Ret
Retren
renchment- Under Section 25-N
chment 25-N
in
inse
sert
rted
ed by the
the 19
1976
76 amen
amendm
dmen
entt th
thee fo
foll
llow
owin
ing
g cond
condit
itio
ions
ns are
are requ
requir
ired
ed for
for va
valid
lid
retr
retrenc
enchm
hmen
ent,
t, an estab
establis
lishm
hmen
entt empl
employ
oying
ing 100
100 or more
more work
worker
erss on an av
avera
erage
ge pe
per
r
(i) No workm
workman
an employed
employed in such establishmen
establishmentt shall be retrenched who has been in the
company’s continuous service for not less than one year until:-
(a)
(a) The
The work
workma
man
n ha
hass be
been
en gi
given
ven thre
threee mont
months
hs no
notic
ticee in writi
writing
ng statin
stating
g reas
reason
onss for
for
retrenchment and the period of notice has expired or the workman has been paid
(b) No such no
notice
tice is required
required if the retren
retrenchment
chment is under
under an agre
agreement
ement which
which specif
specify
y
18
Indian Hume
Hume Pipe Co Ltd v Workmen AIR 1960 SC 251
10
every completed year of service or any part thereof in excess of six months; and
(ii) The appropriate Government on receipt of notice should hold an enquiry after which
In case the appropriate Government does not communicate the permission or the refusal
within three
three months
months from the date of service of notice seeking permission, the workman
dis
disput
putee involv
involving
ing questio
questions
ns of retrenc
retrenchme
hment
nt as well
well in an establis
establishme
hment
nt covered
covered by
Chapter
Chapter VB pend
pending
ing before a Concil
Conciliate
iate officer or the Central or State Govern
Government,
ment, if the
appropriate Government is of opinion that such retrenchment is not in the interest of
in the official Gazette. The order passed by such authority is final and binding on the
employer and the workman. Sec 25N(b) being mandatory, if the compensation is found to
be insufficient, the retrenchment would be void ab initio in the absence of bona fide
or fine up to Rs. 1,000/-, or with both for violation of the requirement of giving notice to
Government and the permission thereafter under Section 25N (1)(c) or for
for the violation of
sub-section
sub-section (4) of Section
Section 25-N of the Act.
19
P.L. Malik- Industrial Law
20
S.M. Chaturvedi- Labour and Industrial laws 13 th Edition
11
RETRENCHMENT PROCEDURE -
Section
Section 25-G incorporates
incorporates the well recognised
recognised principle of retrenchment
retrenchment in indust
industrial
rial law,
namely, the “last come first go” or “first come last go.” The Section becomes applicable
(ii) He shou
should
ld be a citizen
citizen of IIndia;
ndia;
Given all the above conditions, the employer shall “ordinarily” retrench the workman
who was the last person in that category. However, the employer can deviate from this
Last come first go- The principle of “last come first go” is statutorily incorporated
in Section 25-G. If a case for retrenchment is made out, it would normally be for the
employer to decide which of the employees should be retrenched. However, this rule is
not intended to deny the freedom of the employer to depart from it for sufficient and valid
reaso
reasons
ns.. The
The rule
rule “last
“last co
come
me fir
first
st go
go”” is in
inten
tende
ded
d to af
affo
ford
rd a ve
very
ry he
heal
alth
thy
y safe
safegu
guard
ard
industrial rule of retrenchment without any justification, may itself, in a proper case, lead
to the inference that the impugned retrenchment is the result of ulterior consideration and
hence it is mala fide and may amount to unfair labour practice and victimization. The rule
of ‘last come first go’ has to be complied with for the validity of the retrenchment.
12
Departure from the rule “last come first go” .-The rule is that the employers
shall retrench the workman who came last, first, popularly as ‘last come first go’. It is not
inflexible rule and extraordinary situations may justify variations. For instance, a junior
recruit who has a special qualification needed by the employer may be retained even
thou
though
gh an
anot
othe
herr who
who is on
onee up is re
retr
trenc
enche
hed.
d. But
But th
ther
eree must
must be va
valid
lid reason
reason for
for th
this
is
devi
deviati
ation
on.. The
The burd
burden
en is on th
thee mana
manage
gemen
mentt to subs
substa
tant
ntiat
iatee th
thee spec
specia
iall grou
ground
nd for
for
departure from the rule. Section 25-G insists on the rule “last come first go” being applied
ca
cate
tego
gory
ry wis
ise.
e. This
This is to sa
say
y, th
tho
ose who fa
fall
ll in th
thee sa
same
me cate
categ
gory
ory sh
shal
alll su
suff
ffer
er
retrenchment only in accordance with the principle of ‘last come first go’. Where the
seniority list of particular workmen is the same, there is a telling circumstance to show
that
that they
they fa
fall
ll in the
the same
same ca
cate
tego
gory
ry.. Grad
Gradin
ing
g fo
forr pu
purp
rpos
oses
es of scale
scaless of pa
pay
y an
and
d like
like
considerations will not create new categorisation. If grades for scales of pay, based on
In the
the 1980
1980 Supr
Suprem
emee Cour
Courtt Jore
Jorehau casee, out of 23 work
hautt Tea Co. cas workme
men
n 16 were
ere
retr
retren
ench
ched
ed in acco
accord
rdan
ance
ce wi
with
th Sect
Sectio
ion
n 25-G
25-G,, but
but th
thee re
rema
main
inin
ing
g 7 wo
work
rkme
men’
n’ss
retrenchment deviated from Section 25-G. Supreme Court observed that grading for the
purposes of scales of pay and like considerations will not create new categorisation21.
However, it is incumbent upon the employer to record the relevant circumstances and the
reaso
reasons
ns for
for devi
deviati
ation
on fr
from
om th
thee ru
rule
le like
like th
thee ef
effic
ficie
ienc
ncy,
y, un
unre
relia
liabi
bilit
lity,
y, or ha
habi
bitu
tual
al
irregularity of the workmen who is retrenched, so that the tribunal to which the dispute is
take
taken
n will
will be ab
able
le to ascert
ascertain
ain wheth
whether
er th
thee de
depa
partu
rture
re is ju
justi
stifie
fied
d by soun
sound
d an
and
d va
valid
lid
reasons. Therefore, employer’s order of retrenchment deviating the ‘last come first go’
rule must be a ‘speaking order’ otherwise it will be treated as mala fide or amounting to
21
Om Oil & Oil Seeds Exchang
Exchange
e Ltd v Workmen
Workmen (1966) I LLJ 324 SC
13
Effect of departure from ‘last come first go’ rule22- A retrenchment violating
the ‘last
and justifiable reasons. Normally the workman so improperly and illegally detained is
entitled
entitled to reinsta
reinstatement
tement and also for payment of remun
remuneration
eration for the period durin
during
g
i) He sha
shall
ll give an opp
opportun
ortunity
ity to the
the retr
retrenched
enched workmen
workmen who offer th
themselv
emselves
es for
re-employment; and
ii) These retren
retrenched
ched workmen
workmen have pref
preference
erence over the new applicants
applicants.. Thus, Sectio
Section
n
25-H
25-H impo
impose
sess a statu
statuto
tory
ry ob
oblig
ligat
atio
ion
n on th
thee empl
employ
oyer
er to gi
give
ve pref
prefere
erenc
ncee to
retrenched workmen when he subsequently employs any person.
Section 25-H to a retrenched workman will be available only if the following conditions
are satisfied:-
22
Dr Avtar Singh – Introduction to labour and Industrial laws 2 nd editon
14
post. Thus, a workman who was designated as assistant storekeeper, but who was
su
subs
bsta
tant
ntia
ially
lly do
doin
ing
g cleri
clerical
cal work
work wa
wass re
retre
trenc
nche
hed.
d. Subs
Subseq
eque
uent
ntly
ly,, th
thee mana
manage
geme
ment
nt
employed three persons as clerks in that establishment. It was held that Section 25-H is
Sectio
Section
n 25-H
25-H not applic
applicabl
ablee - if closur
closuree or tr
trans
ansfer
fer of under
undertaking-- Section
taking Section 25-H
when
when it gives
gives prefere
preference
nce to retren
retrenche
ched
d workme
workmen
n indica
indicates
tes that
that the prefere
preference
nce will be
available to those workmen who were retrenched individually. It will not apply to a case
where either because of transfer of business or closure, the services of all workmen are
terminated. This can be only possible view because the definition of retrenchment under
Se
Sect
ctio
ion
n 2(00
2(00)) of the
the Act
Act do
does
es not
not sp
spec
ecif
ifica
ically
lly in
incl
clud
udee th
thee ca
case
se eit
eithe
herr of trans
transfe
ferr of
the various courts as to whether re-employment connotes taking back into employment or
service on the same terms and conditions to which the employee was entitled previously.
The
The Bomb
Bombay
ay High
High Co
Cour
urtt hold
holdin
ing
g th
that
at th
ther
eree is no
noth
thin
ing
g in th
thee secti
section
on or an
any
y ot
othe
her
r
provision in the Act which gives the workman a right to secure re-employment on his
Back Wages : Retrenched employees later reinstated in service pursuant to the orders
of a tribunal or courts are not entitled to back wages as a matter of right for the period
15
Section
Section 25-F
25-FF-Scope of - Under Section 25-FF of the Industrial Disputes Act, 1947,
F-Scope
operation of law to a new employer, the workmen are entitled to notice and compensation
as contemplated in Section 25-F, as if they had been retrenched. But this is not applicable
les
esss favou
favourable
rable than those before
before the transfer;
transfer.
Industrial Dispute (Amendment) Act, 1956. The Supreme Court in Hari Prasad
Shivashankar Shukla v. A.P. Divelkar 23, and Barsi Light Railway Co.Ltd. v. K.N.
Jogalkar24, held that no retrenchment compensation under Section 25-F was payable to
workmen whose services were terminated by the employer on a real and bona fide closure
employ
employer
er to anothe
another.
r. The origin
original
al Sectio
Section
n 25-FF
25-FF was negativ
negativee in nature
nature.. The above
decision of the Supreme Court demanded amendment to Section 25-FF hence, Section
25-F
25-FF
F was
was re
recas
castt to its pr
prese
esent
nt fo
form
rm by th
thee In
Indu
dustr
stria
iall Disp
Disput
utes
es (Ame
(Amend
ndme
ment
nt)) Ac
Act,
t,
1957.The amended Section has made it clear that the employer is liable to give notice and
23
AIR 1957 SC 121
24
(1957) I LLJ 243 (SC)
16
(ii) Such u
underta
ndertaking
king must
must be an
an ‘industry
‘industry’’ within the me
meaning
aning of Secti
Section
on 2(
2(j);
j); and
(iv) Such w
workme
orkmen
n shoul
should
d hav
havee put in a min
minimum
imum o
one
ne year’s
year’s continuous service
the section has no application. The transfer of the ownership or management of the entire
undertaking must take place. Any partial transfer like transferring a branch or department
In R.S Madho Ram & Sons Agencies v. Workmen25, a partnership firm dealing in
varied allied lines of business transferred one of its businesses, namely, retail business to
a newly incorporated private company. The Supreme Court held that this transfer was not
covered by Section 25-FF for the following reasons. There was a common muster roll for
all the employees, the same set of conditions governed them, they were subject to inter-
department transfers, they were treated as one unit for the purpose of bonus and they were
not employed for any particular branch or line of business. Further, it was manifest that
25
(1964) I LLJ 366 (SC)
17
establishment for the purpose of Section 25-FF of the Act. The transfer of the undertaking
underr Section
unde Section 25-F
25-FF
F does not necessarily include the transf
transfer
er of employees as well.
In Ambal
Ambala
a Ca
Cant
nton
onme
ment
nt Ele
Elect
ctri
rica
call Supp
Supply
ly Corp
Corpor
orat
atio
ion
n v. Wo
Work
rkmen26, the
men
Corporation was taken over by the Punjab State Electricity Board as per the provisions of
the Indian Electricity Act, 1910. Some of the old corporation workers were recruited to
the
the new
new Bo
Board
ard as fresh
fresh en
entra
trant
nts.
s. Cons
Conseq
eque
uent
ntly
ly,, th
thee work
worker
erss claim
claimed
ed retre
retrenc
nchm
hmen
entt
compensation under Section 25-FF from the company. It was held that the compulsory
purchase of the Corporation by the Board amounted to a transfer of the management of
the undertaking from one employer to another employer even though it did not involve
the transfer of the employees. Hence, the workmen were entitled to compensation under
Section 25-FF in such transfer, court can review and issue appropriate directions as to
serv
servic
ice,
e, be
bene
nefi
fits,
ts, re
re-em
-empl
ploy
oymen
mentt of empl
employ
oyee,
ee, et
etc.
c. Simi
Simila
larly
rly,, wh
when
en a go
gove
vern
rnme
ment
nt
undertaking is taken over by the Company along with the employees for the continued
working of the undertaking, it was held that the employees ceased to be employees of the
The Obl
Obliga
igatio
tion
n to pay Com
Compen
pensa
sation: bec
tion: becom
omes
es de
defin
finite
ite on
only
ly when
when : (a)
(a) th
ther
eree is
except in cases mentioned in the proviso to Section 25-FF, transferring to a new employer.
Hence, the right under Section 25-FF does not arise either before the determination of
26
AIR 1971 Punj & Har 274
27
Comm of Income Tax, Kerala v Gemini Cashew Sales Corporation , Quilon AIR 1967 SC 1559
18
no
nott in any
any way
way le
less
ss fa
favo
vour
urab
able
le to th
thee work
workme
men
n th
than
an th
thos
osee appl
applic
icab
able
le to hi
him
m
(iii) The new employer is, under the term of such transfer or otherwise, legally liable to
pay to the workman, in the event of his retrenchment, compensation on the basis that
Retre
Retrench
nchmen
mentt by trans
transfer
feree
ee attra
attracts
cts Se
Sect
ction
ion 25-F
25-F and not Sectio
Section
n 25-FF ---- In
25-FF --
Workmen of Subong Tea Estate v. Subong Tea Estate 28, the estate was transferred to
Hi
Hind
ndus
usta
tan
n Tea
Tea Comp
Compan
any
y an
and
d po
posse
ssessi
ssion
on wa
wass ha
hand
nded
ed ov
over
er.. All
All its em
empl
ploy
oyees
ees got
got
instructions
instructions about their work and received their salaries from the Hindustan
Hindustan Tea Compa
Company
ny
on 17-2-1959. The manager of the vendor with permission of the vendee retrenched 8
work
workers
ers af
afte
terr pa
paym
ymen
entt of re
retr
trenc
enchm
hmen
entt co
comp
mpen
ensat
satio
ion
n on 31
31-8
-8-1
-195
959.
9. The
The wo
work
rkers
ers
challenged
challenged the validity
validity of the retrenchme
retrenchment
nt on the ground that it contr
contravened
avened Section 25-F
and 25-G. the Supreme Court found that the facts in this case proved that the vendee took
charge of the estate on 17-2-1959 and so became the employer of the employees who
were working in the estate. Therefore, Section 25-FF is not applicable to the impugned
retrenchment. It is retrenchment effected by the transferee and who in the meanwhile had
become the employer of the retrenched workmen. In that case Section 25-F and 25-G will
be applicable. Since Section 25-F and 25-G are not complied with, the retrenched so
declared
declared is inval
invalid
id and the workmen are entitled to reinsta
reinstatement
tement with full back wages
wages..
28
SC (1964) I LLJ 33
19
Closure Notice- Section 25-FFA inserted by the 1972 amendment requires an employer who intends
to close down an undertaking to give at least sixty days advance notice in the prescribe manner to the
appr
approp
opri
riate
ate Gove
Govern
rnme
ment
nt.. Th
Thee no
notic
ticee sh
shal
alll clearl
clearly
y state
state th
thee re
reaso
ason
n fo
forr th
thee in
inten
tends
ds clo
closu
sure
re of th
thee
(iii) Und
Undert
ertaki
aking
ng set up for the constru
constructio
ction
n of building
building,, bridg
bridges,
es, roads
roads,, canals,
canals, dams
dams or for
other
other constru
constructio
ction
n work
work or project
project.. The app
approp
ropriat
riatee Gov
Govern
ernmen
mentt is investe
invested
d with the
power to give exemption from this provision to any undertaking for such specified period,
Compens
Compensation
ation in case of Closure of undertaking--Section 25-FFF: Scope of the
Section29-Se
-Secti
ction
on 25-
25-FF
FFF
F was substit
substitute
ute in 1957
1957 by the Indust
Industrial
rial Disput
Disputes
es (Amend
(Amendmen
ment)
t) Act,
Act, 195
1957
7 to
override the decision of the Supreme Court. The Section is focused to provide some relief to the workmen
whose
whose servic
services
es stand
stand termin
terminate
ated
d conseq
consequen
uentt to the clo
closin
sing
g dow
down
n of an undert
undertaki
aking
ng exc
except
ept on certain
certain
situations. Under the section, where an undertaking is closed down, every workman, who has not less than
one year’s continuous service in that undertaking before the closure, is entitled to notice and compensation as
provided in Section 25-F. however, the proviso to Section 25-FFF(i) says that if the closing down of the
29
S.N. Mishra- Labour and Industrial Laws 24 th Edition Central law Publication
20
control of the employer, then the compensation under Section 25-F (2) shall not exceed
the workmen’s
workmen’s averag
averagee pay for three months.
Explanation to the above proviso says that a closure of the undertaking due to any of the
following
following reason
reasonss sh
shal
alll no
nott be de
deem
emed
ed to be cl
clos
osur
uree on ac
acco
coun
untt of un
unav
avoi
oida
dabl
blee
circumstances
circumstances beyon
beyond
d the contr
control
ol of the employer. The reasons are:
(i) Fin
Financi
ancial
al diffi
difficul
culties
ties or fina
financi
ncial
al lo
losses
sses of the
the eempl
mploy
oyer
er ; or
or
(ii) Accumu
Accumulati
lation
on of ind
indisp
ispose
osed
d sstoc
tocks
ks ;or
(iii)
(iii) Expiry
Expiry o
off the peri
period
od of leas
leasee or lic
licenc
ence.
e.
Sub-section (2) of section 25-FFF exempted the employer from the liability to give notice
and pay compensation on the closing down of an undertaking in the following situation;-
was set up ;
(i) To provid
providee relief in the event of any involu
involuntary
ntary unemploy
unemployment
ment in case of
closure of an undertaking;
(ii) To infuse a sense of security in the worker in relation to his job from the
absolute
absolute will and pleasur
pleasuree of the emplo
employer
yer ;
(iii) To raise the position and status of labour and to standardizes its rights in relation
to industry.30
30
O.P.Malhotra- Labour and Industrial Law
21
The Supreme Court in many cases had held that Section 25-FFF does not violate the
equal protection clause of Article 14 as the impugned Section 25-FFF applied to all the
industr
industrial
ial which
which fall
fall within
within a certain
certain group ad that
that the cla
classif
ssifica
ication
tion made therei
therein
n is
reasonable because it is not arbitrary and that it is related with the object sought to be
achieved by the Act. Similarly, the fundamental right under Article 19(i)(g) to carry on
trade or occupation which included to close down the business is also not violated by
Section
Section 25-FFF in view of the reasonable restrictio
restrictions
ns attached to the right.
(i
(i)) In the
the ca
case
se of closu
closure
re th
thee un
unde
dert
rtak
akin
ing
g is clo
closed
sed or pe
perm
rman
anen
ently
tly di
disco
scont
ntin
inue
ued,
d,
whereas
whereas in retrenc
retrenchme
hment
nt the bus
busine
iness
ss continu
continues
es its ope
operati
ration
on eve
even
n thoug
though
h the
services of some of the workers are terminated due to surplusage or due to any
other reason.
complying with those conditions will be invalid and inoperative. But such notice
or wages in lieu of notice and compensation are only the resultant rights of the
wo
work
rkme
men
n wh
whos
osee se
serv
rvic
ices
es ar
aree te
term
rmin
inat
ated
ed cons
conseq
eque
uent
nt to th
thee cl
clos
osur
uree of th
thee
undertaking.
(iii) The ‘last come first go’ rule under section 25-G and the duty to give preference to
the retrenched workman in case of re-employment under section 25-H which are
strictly applicable in case of closure. Section 25-H is never attracted to cases of
transferr of busin
transfe business
ess or of closure of an industry.
industry.
22
b) In case of lay-off there is failure, refusal or inability of the employer to give
em
empl
ploy
oymen
mentt to a work
workme
men
n fo
forr a tempo
tempora
rary
ry perio
period
d wh
while
ile in retre
retrenc
nchm
hmen
entt th
thee
c) Lay-off
Lay-off iiss on accou
account
nt of o
one
ne or more
more rreaso
easons
ns mentio
mentioned
ned in
in Sec 2
2(kk
(kkk)
k) while
while in
retrenchment
retrenchment the termination is on the ground of service of labou
labour.
r.
d) The reason
reasonss of lay-o
lay-off
ff are entirely
entirely dif
different
ferent as co
compared
mpared to reasons
reasons of retrenchm
retrenchment.
ent.
e) In lay-off
lay-off the labour
labour forc
forcee is not surplu
surpluss but in re
retrench
trenchment
ment it
it is surplu
surpluss which
which h
has
as
to be retrenched.
f) In llay-of
ay-offf the relatio
relationship
nship of eemploy
mployment
ment is n
not
ot termina
terminated
ted w
while
hile in retrenchment
retrenchment it
is terminated.
g) In lay-off
lay-off the relationship
relationship of em
employ
ployment
ment is only
only su
suspend
spended
ed while
while in retren
retrenchment
chment it
is terminated.
h) Consequences
Consequences of both
both are d
differen
ifferentt to each other and are g
govern
overned
ed by differe
different
nt
norms.
23
Conclusion
Industry must be given due emphasis, it is a fact that the development of industry is
correlated to labour contentment. Therefore to achieve this, our country aims to create
a welf
welfare
are State
State on a so
socia
cialis
listic
tic pa
patte
ttern
rn of soci
society
ety as ex
expr
pres
essly
sly embo
embodi
died
ed in ou
our
r
Policy to lessen their workforce due to heavy expenses. Downsizing literally means to
reduce the size of the organization by cutting down the number of employees presently
working in the company. The major techniques of adopting downsizing strategy are
Suggestions
1. Bring
Bringing
ing awareness
awareness amongst
amongst the workers regarding
regarding th
thee various ben
benefits
efits available
available to
2. Workm
Workmen
en must be encouraged
encouraged to approach
approach competitive
competitive aut
authority
hority to bri
bring
ng abou
aboutt
3. The Cha
Charter
rter of Demands
Demands system,
system, which is more prevalent
prevalent in recent times,
times, must be
beneficial to both workmen and management, it shall mention the terms of
retrenchment compensation.
4. Dow
Downsi
nsizing
zing is also aimed at increas
increasing
ing profitab
profitabilit
ility
y by red
reducin
ucing
g the costs
costs as well
well as
enhanci
enhancing
ng and improv
improving
ing the produc
productiv
tivity
ity of the ret
retain
ained
ed employ
employees,
ees, but the fear
fear
arises that the performance of the retained employees might be reduced because of
job stress they experience due to additional workload on them. In order to ensure
5. Whi
While
le follow
following
ing the proces
processs of retren
retrenchm
chment
ent the workme
workmen
n mus
mustt be pro
provid
vided
ed with
with
other employment opportunities in other industries and compensated for the period of
unemployment.
24
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Malik
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ndus
ustr
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iall Law
Law – 22nd Edition
22
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K.M.. P
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Labou
ourr a
and
nd Ind
Indust
ustria Laws 11th Edition 2007
riall Laws
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Chat
haturv
urvedi
edi – Labo
Labour
ur and Ind
Indus
ustr
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25