# AND ANOTHER v. UNION OF INDIA AND OTHERS

- **Citation:** [1960] 3 S.C.R. 528
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** B. P. Sinha, Jafer Imam, A. K. Sarkar, K. N. \Vanchoo, ]. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/and-another-v-union-of-india-and-others-1742
- **Pages:** 19

## Headnote

Industrial Undertaking, Closure of-Compensation to workmen
-Constitutional validity of enactment-Industrial Disputes
Act,
1947 (14 of 1947), as amended by Act 18 of 1957, s. 25FFF(l)-
Constitution of India, Arts. 19\l)(g), 14, 20.
The question
for determination
in these
petitions relates
to the
constitutional
validity of s. 25FFF(l) of the
Industrial
Disputes Act, 1947, inserted by Act 18 of 1957, which provides
for payment of compensation to workmen on the closure of an
industrial undertaking.
The petitioners urged that the impugned
section (i) imposed
unreasonable restrictions
on the freedom to
carry on business
guaranteed by Art. 19(l)(g),
which included
the right to close
the business,
(ii) discriminated
between employers who closed their undertakings on or before November 27,
1956, and employers who closed thereafter and thus contravened
Art, 14 and (iii) also penalised acts which were not offences when
committed contrary to Art. 20( 1) of the Constitution:
Held, that s. ZSFFF(l) of the Industrial Disputes Act, 1947,
inserted by Act 18 of 1957, including the proviso and the explanation, is not violative of Arts. 19(l)(g), 14, and 20 of the Constitution and its constitutional validity is beyond question:
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3 S.C.R.
SUPREME COURT REPORTS
529
Held, further, that the question whether a restriction imposed
1960
by a law on the exercise of the fundamental right guaranteed by
Hatisingh Mfg.
Art. 19( 1 )(g) is a reasonable restriction
within the meaning of
Co. Ltd.
Art. 19(6) of the Constitution is to be judged not. by any theorev.
tical standards or
fixed patterns but in the light of the nature
Union of Indio
and incidents of the right,
the interest of the
general public
sought to be secured and the reasonableness of the quality and
extent of the restriction itself.
The clear intention of the legislature in using the words "as
if the workmen had
been retrenched"
in s. ZSFFF(l) of the
Act was not to place the closure of an undertaking on the same
footing as retrenchment under s. ZSF.
While under s. ZSF of
the Act no
workman can
be retrenched until
the conditions
prescribed therein are fulfilled, s. ZSFFF(l) does not prohibit the
closure of an undertaking without payment of compensation or
service of notice, or payment of wages in lieu thereof, and lays
down no conditions precedent to closure.
But termination of service due to closure of an industrial
under<aking stands on the same footing as termination of service
on retrenchment and it is in the interest of the general public
that the unemployed workmen should be afforded some protection
to tide over the period of unemployment.
Since the impugned
provision,
with that
object in view,
seeks to
achieve social
justice,
it is not
material to
probe into the
motives of
the
employer or the bona fides of the closure.
Indian Hume Pipe Co., Ltd. v. Their Workmen,
[1960] 2
S.C.R. 32, referred to.
Since wages in
lieu of
notice are normally inadequate recompense for loss of employment,
the payment
of additional
compensation related to the length of service of the employee
cannot be said to be unreasonable.
Nor can the provisicin for standardisation of compensation,
which does not leave it to be judicially ascertained on the basis
of the employer's capacity
to pay or the loss
suffered by the
employees, be said to be unreasonable.
Payment of gratuity, which is a retiral benefit is essentially
different from statutory compensation for term.ination of employment due to closure of an undertaking; a provision for payment
of such
compensation is not to
be deemed unreasonable .merely
because compensation for closure of an undertaking is in addition
to gratuity, payable under an industrial award.
Since there can be no doubt as to th~ constitutionality of the
principal provision for compensation, the proviso must also be
regarded as constitutional.
The explanation to s. ZSFFF(l) of the Act does not provide
that in no case of
financial difficulty or
accumulation of stocks
coupled wit

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528
SUPREME COURT REPORTS
[1960]
1960
permanenl enjoyment as Kapal-Giras, it has come to
an end.
Darbar Shri Vira
Vala Surag Vala
In that view of the matt.er the jJClitioner must be
Vadia
v.
held to have failed to make oul any infringement of
State"! ~"':rashtra his fundamental right by reason of the notification
Kapur J.
dated May 213, l 952.
The inf1;ingement which the
petitioner complains of is depri\ation of his property
oy State action and he bases his right on the terms
of the grant. If the grant is not an absolute grant
in the sense in which the peLiLioner contends, but is a
grant which Ly its \cry nature contains a defeasance
clause, then the petitioner cannot found his claim on
any violation of his fundamental rig·ht.
1960
Ap6l 14.
The petition is therefore dismissed with costs.
Petition dismissed.
M/s. 1-IATISINGH i\IFG. CO. LTD.
AND ANOTHER
v.
UNION OF INDIA AND OTHERS.
(B. P. SINHA, C. ]., JAFER IMAM, A. K. SARKAR,
K. N. \VANCHOO and]. C. SHAH, JJ.)
Industrial Undertaking, Closure of-Compensation to workmen
-Constitutional validity of enactment-Industrial Disputes
Act,
1947 (14 of 1947), as amended by Act 18 of 1957, s. 25FFF(l)-
Constitution of India, Arts. 19\l)(g), 14, 20.
The question
for determination
in these
petitions relates
to the
constitutional
validity of s. 25FFF(l) of the
Industrial
Disputes Act, 1947, inserted by Act 18 of 1957, which provides
for payment of compensation to workmen on the closure of an
industrial undertaking.
The petitioners urged that the impugned
section (i) imposed
unreasonable restrictions
on the freedom to
carry on business
guaranteed by Art. 19(l)(g),
which included
the right to close
the business,
(ii) discriminated
between employers who closed their undertakings on or before November 27,
1956, and employers who closed thereafter and thus contravened
Art, 14 and (iii) also penalised acts which were not offences when
committed contrary to Art. 20( 1) of the Constitution:
Held, that s. ZSFFF(l) of the Industrial Disputes Act, 1947,
inserted by Act 18 of 1957, including the proviso and the explanation, is not violative of Arts. 19(l)(g), 14, and 20 of the Constitution and its constitutional validity is beyond question:
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3 S.C.R.
SUPREME COURT REPORTS
529
Held, further, that the question whether a restriction imposed
1960
by a law on the exercise of the fundamental right guaranteed by
Hatisingh Mfg.
Art. 19( 1 )(g) is a reasonable restriction
within the meaning of
Co. Ltd.
Art. 19(6) of the Constitution is to be judged not. by any theorev.
tical standards or
fixed patterns but in the light of the nature
Union of Indio
and incidents of the right,
the interest of the
general public
sought to be secured and the reasonableness of the quality and
extent of the restriction itself.
The clear intention of the legislature in using the words "as
if the workmen had
been retrenched"
in s. ZSFFF(l) of the
Act was not to place the closure of an undertaking on the same
footing as retrenchment under s. ZSF.
While under s. ZSF of
the Act no
workman can
be retrenched until
the conditions
prescribed therein are fulfilled, s. ZSFFF(l) does not prohibit the
closure of an undertaking without payment of compensation or
service of notice, or payment of wages in lieu thereof, and lays
down no conditions precedent to closure.
But termination of service due to closure of an industrial
under<aking stands on the same footing as termination of service
on retrenchment and it is in the interest of the general public
that the unemployed workmen should be afforded some protection
to tide over the period of unemployment.
Since the impugned
provision,
with that
object in view,
seeks to
achieve social
justice,
it is not
material to
probe into the
motives of
the
employer or the bona fides of the closure.
Indian Hume Pipe Co., Ltd. v. Their Workmen,
[1960] 2
S.C.R. 32, referred to.
Since wages in
lieu of
notice are normally inadequate recompense for loss of employment,
the payment
of additional
compensation related to the length of service of the employee
cannot be said to be unreasonable.
Nor can the provisicin for standardisation of compensation,
which does not leave it to be judicially ascertained on the basis
of the employer's capacity
to pay or the loss
suffered by the
employees, be said to be unreasonable.
Payment of gratuity, which is a retiral benefit is essentially
different from statutory compensation for term.ination of employment due to closure of an undertaking; a provision for payment
of such
compensation is not to
be deemed unreasonable .merely
because compensation for closure of an undertaking is in addition
to gratuity, payable under an industrial award.
Since there can be no doubt as to th~ constitutionality of the
principal provision for compensation, the proviso must also be
regarded as constitutional.
The explanation to s. ZSFFF(l) of the Act does not provide
that in no case of
financial difficulty or
accumulation of stocks
coupled with other circumstances can the closure of an undertaking be regarded as due to unavoidable circumstances beyond
the control of the employer. It cannot, therefore, be regarded as
unreasonable for although it may be irksome to some citizem, it
is in the interest of the general public.
1960
Hatisingh Afjg,
Co. LJd.
v.
Union of India
530
SUPREME COURT REPORTS
[1960)
Mohd. Hanif Quareshi and 01s. v. The State of Bihar, [1959]
S.C.R. 629 and Bi1ay Cotton Mills Ltd. v. The State of Ajmer,
(1955] 1 S.C.R. 752, referred to.
A law which
is applicable
generally to all
persons who
come within its ambit cannot be
said to be
discriminatory and
violative of Art. 14 of the Constitution, even though it may be
retrospective in operation.
The impugned section does not make payment of compensation a condition precedent to closure and creates no criminal
liability and so neither s. 31(1) nor s. 31(2) of the Act can have
any application. Article 20(1) of the Constitution is not, therefore, attracted and there can be no contravention of it.
ORIGINAL
JuRrsmcnoN : Petitions Nos. 88 and
lOli of J 957 and l03 of 1959.
Petition under Article 3'.! of the Constitution of
India for enforcement of Fundamental Rights.
G. S. Pathak, I. M. Nariavati, S. N. Andley, ]. B.
Dadaclwnji, Rameshwar
Nath and P. L. Vohra, for
petitioner No. l (In Petns. Nos. 88 of 57 and 103 of
1959).
I. M. Nmwvati; S. N. Andley, ]. B. Dadachanji,
Ra1nes/1war Nath and P. L. Vohra, for petitioner No. 2
(In Petns. Nos. 88 of ii7 and IO:> of l'J'J!J).
B. Sen, B. K. B. Naidu and J. N. S/irof], for the
petitioner (In Petn. No. 106 of 57).
M. C. Setalvad, Attorney-General of India, C. K.
DajJ/itary, Solicilor-Genernl of India, B. R. L. Iyengar
and R. H. Dhe!J11r, for respondents Nos. 1 and 2 (In
Petn. No. 88 of 57) arnl the respondents (In Petn.
No. 103 of 59).
C. K. DajJ!ttary, Solicitor-General of India, N. S.
Bindra and R H. D/11:/Jar, for respondent No. 1 (In
Petn. No. I 03 of 59).
]ananlan Sharma, for respondent No. 2 (In Petn.
No. 103 of 59).
P. A. Melita and G. GojJalahrishnan, for the
Intervener.
HIGO. April H. The Judgment of the Court was
delivered bv
SHAH, J.-' In these
three
petitions the validity of
s. 25FFJ<° (l) of the Industrial Disputes Act No. XlV
of 1947 as amended by Act ,18 of 1953 is impugned.
..
Petition No. 88 of 1 %7 is by a company manufacI
tnrinocotton textiles in the town o[ Ahmedabacl.
"
The machinery in the factory of the company was
"<Ii.
3 S.C.R.
SUPREME COURT REPORTS
531
installed in the year 1898 and has not been replaced
thereafter.
The factory had, it is claimed by the
petitioners, become, by the passage of time, an uneconomic unit and was closed on that account on
April 27, 1957.
An attempt was made by the management to increase the number of spindles to make the
unit economic, but without success.
The company
was incurring losses year after year and early in the
year 1956, the Registrar of Companies, Bombay, requested the Central Government to authorise him to
wind up the company.
This authority was not given
and the factory continued to work till April 28, 1957,
on which date it was closed after notice of closure given
in March, 1957.
The petitioner in Petition No. I 06 of 1957 was
running a coal .mine which he had purchased in
November, 1953.
The petitioner says that he made
large investments in the mine, but due to flooding by
undergTound water, the working of the mine consistently resulted in losses which aggregated to over
rupees seven lakhs by February, 1957. The petitioner
decided to close the mine and gave notice in that
behalf to the employees.
The petitioner paid one
month's salary to the monthly paid staff and 15 days'
w;:iges to the weekly and daily rated staff, and closed
the mine on February 10, 1957.
Petition No. 103 of 1959 is by a company which
owns a spinning and we;:iving factory at J amnagar.
This factory which was started in the year 1938,
proved an uneconomic unit, it is claimed resulting
in persistent losses which aggregated to about Rs. 28
lakhs by the encl of the year l 9S7.
In view of these
losses, the weaving department of the factory was
closed on February l, 19.57, ;incl the entire factory was
closed on April 24, 1957, after notice of closure to the
employees.
By their petitions the three petit10ners impugn the
validity of s. 2SFFF( I) of the Industrial Disputes Act,
1947, which requires them to pay compens:ition on
closure of their undertakings, which they claim were
due to circumstances beyond their control.
To appreciate the contentions, a brief review of the
relevant legislative history may be set out :
1960
Hatisingh Mfg.
ro. Ltd.
V.
Union of India
.5/zah J.
1960
Hatisingh -~!Jg.
Co. Ltd.
v.
Uninn of lnrlin
Shah].
512
SUPREME
COURT REPORTS
[1960]
The Parliament amended the Industrial
Disputes
Act, 1917, by Act 4'l of 1953 and incorporated therein
Ch. VA which contained ss. 2?iA to 25].
By
this
Chapter, provision was made for payment of compensation for lay-off and retrenchment,
and certain incidental provisions enunciating and regulating liability
for payment: of compensation were enacted. By s. 2.~F
it was enacted that no workman employed in any
industry who had been in continuous service for not
less than one year under an employer shall be retrenched unless the workman had been given notice of one
month's duration or wages in lieu thereof and also
had been paid at the time of retrenchment compensation equivalent to
15 da)s· average pay for every
completed year of se1-vice or any part thereof in excess
of six months.
Retrenchmellt was defined by cl. (oo)
of s. 2, as ineaning- ter111ination of service of a 'i\'Orkma11
for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action.
But
the amending Act of 1 'l53 did not expressly provide
for liability to pay compensation for termination of
employment on closure of an indnstrial undertaking.
In
f-fnriprasnrl
Shivslwnlrnr
S/111'1/a v. A. D. Divr:-
lrnr (') decided on 27-11-1%6, it was
held
by
this
Court :
"The word 'retrenchment' as defined in s. 2(po)
ancl the worcl 'retrenched' in s.
2.~F of the Industrial Disputes Act, 1047, as amended by Act XL III
of l 95n, have no wider meanin~ than the ordinary
accepted connotation of those words and mean the
discharge of surplus labour or staff by the employer
for anv reason whatsoever,
otherwise
than as a
punish;,,cnt inflicted by way of disciplinary action,
and do not include termination of services of all
workmen on a bona fide closure of industry or on
change of ownership or management thereof."
The President of India on April 27, 19il7, promulgated Ordinance No. IV of l 957, which amended
Ch. VA of the Industrial Disputes Act, 1947. By this
Ordinance, provision was made for
payment with
retrospective effect from December 1, l %6, of compensation to workmen on termination of employment
(I) 1957] S.C.R. 121
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[3S.C.R.
SUPREME COURT REPORTS
533
upon transfer or closure of an industrial undertaking.
This Orclinan<;e was latei' replaced with certain modifications by Act 1 S of 19:)7 which came into force on
June 6, 1957, but with retrospective effect from November 28, 1956. Section 2SFFF which was incorporated
by the amending Act by the first sub-section confers
upon every workman who has been in continuous service for not less i:han one year immediately before the
closure, right to notice and compensation in accordance
with the provisions of s. 2.~F, and by the proviso thereto
the maximum amount of compensation payable to a
wot:kman is limited to average pay for three months
when the undertaking is closed on account of nrcumstances beyond the control of the· employer.
By the
explanation, an undertaking closecl down on account .
merely of financial difficulties (including financial
losses) or accumulation of undisposecl of stocks is
not to be deemed to have been closed down on account
of unavoidable circumstances beyond the control of
the employer within the meaning of the proviso.
This provision for a11·arcling compensation for termination of employment
on closure of an industrial
undertaking is challenged in these petitions on three
grounds : (J) that it imposes unreasonable restrictions
on the freedom guaranteed to every citizen by Art.
19( I )(g) of the Constitution to carry on business which
freedom includes the right to close his business, (II)
that
it
discriminates
between
different employers
belonging · to the same group placed in similar circumstances and thereby contravenes Art. 14 of the
Constitution, and (III) that contrary to Art. 20 of the
Constitution, it penalises acts which when committed
were not offences.
Re. I:.
Section 25FFF(l) is impugned as imposing unreasonable restrictions upon the fu11damental freedom to
close down an undertaking because liability to pay
compensation is made a condition. precedent to closure
of an undertaking even if it is effected bona fide by
an employer who is unable on account of unavoidable
circumstances to carry on the undertaking and also
because it operates retrospectively on closure ,effected
since a date arbitrarily fixed by the Act.
It is :ilso
6-,-6 SCI/ND/82
1960
Hatisingh Mfg.
Co. Ltd.
v.
Union of India
Shah].
1960
f-{nti~ingh .i\1je.
Co, !Ad.
v.
Union of l11dia
Shah].
534
SUPRE1\.1E COURT REPORTS
[1960]
impugned on the ground Lhat compcnsat:io11 is
not
related to the loss suffered by the employees by termination of employment on closure, but is cm·anlccl at
standardized rates without taking into account the
capacity o[ the employer t.o pay compensation to
discharged employees.
Snb-s. l of s. 2!iFFF reads as follm1·s:-
"\\'here an undertaking is close<! dmn1 for any
reason every 'rorkrnan ,,vho ha~ l)ccn in continuous
service fo1~ not. less than one year in that undertaking immediately before such closure, shall subject
to the provisions of sub-section (2) be entitled to
notice and compensation in accordance with the
provisions of s. 2!iF, as if the workman had been
retrenched."
There is between the text of s. 2.'iF and s. 25FFF(l)
a significant difference in phraseology. \\'hcreas by
s. 20F-the constitutional validity 11·hereof does not
fall t:o be determined in these petitions-certain conditions precedent to retrenchment of workmen are prescribed, s. 2t>FFF(l) merely imposes liability rn give
notice and to pay compensation on closure of an
undertaking· which results in termination of employment of the 1rnrkmen.
Under s. 2:iF, no workman
employed in an industrial unclertaking can be retrenched by the employer until (a) the workman has been
gi,·en one month's not.ice in writing indicating the
reasons for retrenchment and the period has expired
or the "·orkman has been paid salary in lieu of such
notice, (b) the workman has been paicl
retrenchment
compensation C<]uivalent to l :) days' average
salary
for every completed year of service ancl (e) notice in
the prescribed manner is sen·ccl on the appropriate
Government .. Section
~iiFFFll) hnwcver enacts that
the workman shall be entitled to notice and compensation in acconlance with the pro,ision of s. 2.'iF if the
undertaking is closed for any reason, as if the workman has been retrenched.
By the plain intenclment
of s. 2.'>FFF(I), the right to notice and compensation
for termination of employment: Arrn·s from closure of
the undertaking; the clause does not seek to make
closure effective upon payment of compensation and
upon service of notice or pavment of wages in lie11 of
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3 S.C.R.
SUPREME COURT REPORTS
535
notice.
An employer proposing to close his undertaking may serve notice of termination of employment
and if he fails to do so, he becomes liable to pay wages
for the period of notice.
On closure of an undertaking, the workmen are undoubtedly entitled to notice
and compensation in accordance with s. 25F as if they
had been retrenched, i.e., the workmen are entitled
besides compensation to a month's notice or wages in
lieu of such notice, but by the use of the words "as if
the workman had been retrenched" the legislature has
not sought to place closure of an undertaking on the
same footing as retrenchment under s. 25F.
By s. 25F,
a prohibition against retrenchment until
the tonditions prescribed by that section are fulfilled is imposed;
by s. 25FFF(l), termination of employment on closure
of the undertaking without payment of compens:ttion
and without either ·serving notice or paying wages in
lieu of notice.,. is, not prohibited. Payment of compensation and payment of wages ·for the period of
notice are not therefore conditions precedent to closure.
I
By Art. 19(1 )(g) of the Constitution freedom w carry
on any trade
or business
is guaranteed to
every
citizen, but this freedom is not absolute.
By cl. 8 of
Art. 19, operation of any existing law or any law
which the State
mav make in so
far as such law
imposes in the interest of the general public reasonable
restrictions on the exercise of the right is not affected.
In the interest of the general public, the
law
may
impose restrictions on the freedom of the citizens to
start, carry on or close their undertakings.
vVhether
an. impugned provision
imposing a fetter
on
the·
exercise
of
the
fundamerital right guaranteed by
Art. 19(1 )(g) amounts to a reasonable restriction imposed in the interest of the general public must be
adjudged not in the background of
any theoretical
standards or predeterminate patterns, but in the light
of the nature and incident.s of the right the interest of
the general public sought to be secured by imposing
the restriction and the reasonableness of the quality
and extent of the fetter upon the right.
By Act 18 of 19.57, employers who close their undertakings after November 27, 1958, are made liable to
pay compensation under s. 25FFF(l) at the prescribed
1960
Halisivgh lvlfg.
Co. Ltd.
v.
U11ion of India
Shah].
1960
Hatifiiigh Mfg.
Co. Ltd.
v.
Union of India
Shah].
536
SUPREME COURT REPORTS
[19601
rates, and this liability evidently arises even in respect
of undertakings closed before the date of the enactment of the impugned section.
A law which creates
a civil liability in respect of a transaction which has
taken place before the date on which the Act was
enacted docs not jJer se impose an unreasonable restriction.
It was on November 27, 1956, tbat this court
held that s. 25F did not support a claim for compensation for termination of employment arising
out of
closure of an undertaking. The Parliament, evidently,
respected the interpretation
put on s.
25F by this
court and directed that in respect of closures etfected
ou or before the date on which judgment was delivered
by this court in Tlariprasad's case, no compensation
for termination of ernployment on account of closure
of an undertaking would be awarded.
It is not disputed that a number of industrial undertakings were
closed down after the judg·ment in Hariprasad's case
was delivered by this court and
more than 25,000
workmen were thrown out of employment on account
of such closures.
The Parliament, in view of
these
developments enacted s.
~,-,FFF(I) ·imposing· liability
for payment of compensation by employers who closed
their undertakings since November, 27, 1968. ·
Closure of an industrial undertaking involves termination of employment of many employees, and throws
them into the ranks of the unemployed, and it is in
the interest of the general public that misery resulting
from unemployment should be redressed.
In
Indian
Hume Pipe Co Ltd. v. The Workmen (') this Court
considered the
reasom for awarding
compensation
under s. 2.5F (thoug·h not its constitutionality).
It was
observed that retrenchment compensation was intended to give the workmen some relief and to soften the
rigour of hardship which
retrenchment brings in its
wake when the retrenched workman is suddenly and
without his fault thrown on the streets, to face the
grim problem of unemployment.
It \\'as also observed
that the workman naturally expects and looks forward
to security of service spread over a long· period, but
retrenchment destroys his expectations.
The object
of retrenchment compensation
is therefore
to give
(!) [1960] 2 S.C.R. 32
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{
3 S.C.R.
SUPREME COURT REPORTS
537.
partial protection to the retrenched employee to enable
him to tide over the period of unemployment.
Loss
of service due to closure stands on the same footing as
loss of service due to retrenchment, for in both cases,
the employee_ is thrown out of employment suddenly
and for no fault of his and the hardships which he has
to face are, whether unemployment
is
the resnlt of
Tetrenchment or closure of business, the same. If the
true basis of the impugned provisions is the achievel
.,,, · ment of social justice, it is immaterial to consider the
motives of the employer or to decide
whether
the
closure is bona fide or otherwise.
Wages in lieu of notice are normally inadequate
compensation for loss of employment in an industrial
undertaking.
Having regard to the prevailing condi-
' · tions in the employment market, it would be difficult
for the workman thrown out of empldyment to secure
employment simi,lar to the one terminated within one
month.
and therefore the Parliament has thought it
proper to provide for payment of additional ~ompen
sation besides wages in lieu of notice.
The provision
for payment of such compensation
in
addition
to
wages in l·ieu of notice cannot therefore be
charac-
.;..,
terised as unreasonable.
Compensation related to the length of service of the
employee is also not
unreasonable.
An
employee
remaining employed in an industry for an appreciable
length of time acquires experience and some degree of
aptitude in the branch in which he is employed and
his experience in that branch qualifies him to pro-
-~
motion and to receive . wages at a higher level.
By
his continued employment, he reaches seniority in the
cadre of employme11t, with chances of promotion, the
1
bei;iefit of which he loses by sudden termination of
employment.
The workman,
on
termination
of
employment, may have to compete for employment at
~
a lower level in branches· to which he may be by
experience or aptitude, not' fitted, or to seek employment in· a _job similar to the one terminated at a. lower
·)
level.
If, in the light
of these considerations, the
legislature has
related the compensation
payable on
termination of employment to the period of service of
1960
Iiatisingh Mfg.
Co. Ltd.
v.
Union of lnaia
Slzah ].
1960
Hatisiugh .'1{/'g.
C'o. Ltd.
v.
U11io11 of India
Shah].
538
SUPRE:tvlE COURT REPORTS
[1960]
the employee, the provision cannot be reganled as unreaso11able.
._..,,
The plea of unreasonableness of the restriction
imposed as flowing· from the provision 11·hich
standardizes compensation and docs not leave it to be
ascertained by a judicial tribunal in the light of the
capacity of the employer and the loss suffered by the
employees on termination of employment, cannot also
be sustained.
Instead of leaving the question to be
decided in each individual case in the context
of a
v:iriety of ci1Tu111st:mc"cs
having a bearing
on the
amount of compensation to be awarclecl, the Parliament has standardized the compensation by relating
it to the length of service of the employee, and thereby a definite standard for payment of rnmpensation
related Lo readily ascertainable
data is
ptescribed .. ,
Standardization of compensation which dispenses with
recourse to a judicial tribunal for assessing the quantum is a recognized method of awarding compensation
especially where large nnmbers of workmen are involved in a similar situation.
Absence of a provision
for a judicial verdict on the quantum of
compensation payable does not therefore make the
law
unreasonable.
Gratuity which is a kind of retiral benefit is essentially different
from
statutory
compensation
for
termination of employmellt due to closure of an undertaking.
The objects intended to be achieved thereby
are also distinct.
Therefore the argument that it is
unreasonable to awarrl statutory compensation
under
s. 2C>FFF(l)
when
gratuity is otherwise
claimable
uncle!' an award binding upon the employer must be
rejected.
The impugned section
providing for payment of
compensation is evidently related to the. object sought
to be achieved by the Parliament, viz.: securing social
justice.
The right to receive
compensation
arises
because the workman is exposed to undeserved "''mt
and the reasons for closure mav have no direct bearing thereon.
Payment
of
co1;1pensation which
ts
clircctecl to he marlc at the rate of l!i clays wages for
every complctccl year of service
cannot
agaiff
be
characterised as was soug·ht t:o be done by one of the
·-
•·
•
t
3 S.C.R.
SUPREJVIE COURT REPORTS
539
learned counsel for the petitioriers as "drastic in its
scope and content".
Does the impugner! provision impose an unreasonable restriction
because it imposes liability
to
pay
compensation which is not related to the capacity of
the employer?
Before the
impugned
section
was
enacted, the industrial tribunals undoubtedly decided
the individual claims for compensation for termination of employment submitted to them on their merits
and sometimes, refused compensation if it was found
that the closure was bona fide and was in part clue to
irresponsible conduct of the workmen concerned.
The
decisions of the industrial tribunals before the impugned. section was enacted again show that even where
compensation
was
allowed,
there
was
not
fixed
standard or principle on which the compensation was
awarded.
' 1Vhere the business is continuing its capacity to meet the obligation to pay clearness allowance,
gratuity and provident fund, etc., may have to
be
taken into account; the reason
being that if the
capacity to pay is not taken into account, the
business itself may come to an end and the very purpose
of industrial adjudication in the, matter of fixation of
wages, payment of dearness allowance and the schemes
of gratuity and provident fund which are intended for
the amelioration of the conditions of labour may be
frustrated.
But where a business is closed, the capacity to pay is not a relevant consideration.
Normally,
if the business is capable of meeting the obligation to
pay the wages of the workmen a)1d
to meet the
other expenses necessary for its continuance, it would
not be closed down.
Capacity
to
pay has therefore
to be taken into account in the case of a running business in assessing liability to
fix
wages
or gratuity
or clearness 'allowance.
Once
the
undertaking
is
closed and
liability
to
p:1y
compensation
under
the irn pugned section is not made a condition precedent, the amount which the workmen may be able
to recover must depend upon the assets of the employer which may be available to meet the
obligation.
The workmen would be entitled to
recover
compensation only if the employ.er is able to meet
the obligation; otherwise they would have to rank pro
1960
Halis£1tgh Mfg.
Co. Ltd.
v.
Union of India
Shah}.
1960
f{atiJi11gh Alfi;.
Co. Lt.f.
v.
[Jnfon of India
Sl1t1h J.
510
SUPREME COURT REPORTS
l 1960
rata 11·it:h the other ordinary creditors of the employer.
The lcgisbture has imposed restricted liability in
cases where closure is due to circumstances beyond the
cont:rol of the employer.
By the proviso to sub-s. I
of s. 2iiFFF, where the underwking is closed down on
account of circumstances beyond
the control of the
employer, the compensation to be paid to the 11·ork·
men is not to exceed his average pay for three months.
If the principal provision is not unconstitutional
as
imposing an unreasonable restriction, it is not suggested that: the proviso is
on
any
independenl ground
unconsti t:ntional.
However, the explanation
it is snbmirted, unreasonable.
vides:
9'FFF
.
.
to s. _,,
• proviso 1s,
The explanation pro-
"An undertaking· which is closed down hy reason
merely of financial difTicnlties
(including
financial
losses) or accumulation of undisposed of stocks shall
not be deemed to have been closed down on account
of unavoidable circumstances beyond the control
of
the employer within rhe mem1ing of the
proviso to
this sub-section."
The .efl:cct of the impugned section along with the
proviso is to classify
the
undertakings
into
two
classes, viz., (I) those which are closed clown on account
of una\toiclable circumstances beyond the control of
the employer and (2) the remaining. \Vhen the closure
of an undertaking is clue to circumstances beyond the
control of the enrployer, the maximum limit of. compensation is average pay for three months, irrespective
of the length of service of the workmen; in the residuary class, the liability is unrestricted. The explanation is in substance a definition clause which sets out
what shall not be deemed to he closures on account
of circumstances beyond .the control of the emp1oyer.
By this explanation, employers who had to close down
their industrial undertakings merely because of financial difficulties including financial losses or accumulation of und is posed of stocks are excluded from
the
benefit of the proviso to s. 25FFF(l).
The
proviso
restricts the liability of employers who are compelled
to close down their undertakings on account of unavoidable circnmstances beyond their control, but in
.,
•
' -
..
I
-·
)
,•
3 S.C.R.
SUPREME GOUR T REPORTS
541
the view of the Parliament, in that category are not
to be included employers compelled to close down their
undertakings merely becau:;e of financial difficulties or
accumulation of undisposed of stocks.
Closure of an
undertaking attributable merely to financial difficulties
or accumulation of
undisposed
of stocks, is by the
explanation, excluded from
the benefit of restricted
liability; but couplecl with other circumstances, financial difficulties or accumulation of undisposecl of stocks
may justify the view that the
closure
is due to unavoidable circumstances beyond the
control
of
the
employer, and attract the application of the proviso
notwithstanding the explanation.
V\There an undertaking is closed down on account of
persistent losses clue to no fault of the employer or
due to accumulation of stocks having regard to persistent unfavourable market conditions, the
closure
may normally be regarded as clue to unavoidable circumstances beyond the ,control of the employer.
By,
the explanation, the jurisdiction of the Tribunal which
may be called upon to ascertain whether in a
given
case, the closure
·was on account of
circumstances
beyond the control of the employer and whether on
that account ·the employer was entitled to the benefit
of the proviso may he restricted.
But it is not provided that in no case of financial difficulty or accumulation of stocks coupled with other circumstances, the
closure is to be regarded as due to unavoidable circumstances beyond the control• of the employer.
It
is only where the closure is "merely" on
account of
financial difficulties or accumulation of undisposed of
stocks that the closure is not to be deemed due to circumstances beyond the control of the employer.
A state of financial difficulties or accumulation of
undisposed of stocks may
be temporary, it may be
brought about by past mismanagement directly attributable to the employer or may even be deliberately
brought about.
The closure on account of financial
difficulties or accumulation of undisposed of stocks is
accordingly not necessarily the result of unavoidable
circumstances beyond the control of
the employer.
That, in certain events, a statute may impose restrictions which will be irksome and may be so regarded
7-6 SCI/ND/84
1960
Hd!isingh Mfg.
Co. Ltd.
v.
Union of India
Shah].
1960
Hatisi11gh M.fff.
( 'o. f./d.
V.
Union of India
Shah J.
542
SUPREME COURT REPORTS
[ 1960]
by cenain citizens as unreasonable, is not decisive of
the question whether it imposes a reasonable restriction. As observed in Mohr!. Hanif Q11m·f'shi and Othrrs
v. Thi' Stat!' of Bihar (')by Das, C . .J.:
"In determining that question (the reasonableness
of the restriction) the court we conceive,
cannot
proceed on a general notion of "·hat is reasonable
in the abstract or even on a consideration of "·hat
i.s reasonable from the point of view of rhe person
or persons on whom the restrictions arc
imposed.
The right conferred by sub-cl. (g) is expresser! in
general lang·uagc and if there had been no qm.lifyi11g provision like cl. (6), the right so conferred ;rnukl
have been an absolute one. To the person "-ho has
this rig·ht, any rcst:riction will be irksome :rnd may
well be regarded by him as unreasonable. But the
question cannot he decided on that basis.
\\'hat
the court has to do is to consider whether the restrictions imposed are reasonable in the interest of the
g~ncral public."
Again, as observed in Bijay Cotton Mills Uri. v.
Thi' Sl11fl' of A jmer ('):
"Individual employers might find it difficult to
(arry on the business on the basis of the minimum
wages fixer! under the Act hut this must he due
entirely to the economic conditions of these particular employers.
That cannot be a reason for the
striking dmrn the law itself as unreasonable".
By the explanation, certain
person., became of
•
-,
...
' -
' .
persistent: losses or accumulation of stocks, find them-
-"
selves unable to carry on the business, and may still
not be entitled to the benefit of the proviso, hut that
"'iii not be a gronrnl for holrling th;it the explanation is
unreasonable.
The tribunal called
upon to
decide
"·hcther the case of an employer is coverecl hv the
proviso will certainly be entitled to look into the
•
causes which led to the financial losses or the accumulation of stocks and ascertain whether the closure was
merely on account of financial losses or accumulation of
stocks or was on ;iccoum of circumstances beyond the
control of the employer, and in assessing whether the
'·
(1) [1959] s.c.R, 629,
(2) [19.>oJ J s.c.R. 7o2, 7os,
••
•
•
3 S.C.R.
SUPREME. COURT REPORTS
543
circumstances "'ere beyond the control of the employer,
the fact that the employer has suffered financial losses
or there is accumulation of stocks is not required by
the legislature to be excluded from consideration.
The procedure for enforcement of liability to pa)
compensation, prescribed by s. 33( c) of the Act which
makes
the amounl
recover;ible as
arrears of land
revenue cannot, ex fac£c, be regarded il.S unreasonable
Undoubtedly, under certain State laws, (e.g., the. Bombay Land Revenue Code (Act V of 1879) for failure to
pay land revenue, rhe defaulter may be imprisoned;
but because of the special mode of recovery prescribed
the law imposing a civil liability to pay compensation
for termination of employment does not become unreasonable.
On a review of the relevant circumstances we are ol
the view that the restrictions imposed. by the impugned
provision including the proviso are not unreasonable
restrict.ions on the exercise of fundamental right of the
employers to conduct and close
their
undertakings.
The provision requiring the employers to pay compensation to
their employees though restrictive of the
fundamental freedom guaranteed by Art. 19(1 )(g) is
evidently in the interest of the general public, and is
therefore saved by Art. 19(6) of the Constitution from
the challenge that it infringes the fundamental right
of the employers.
Re. II:
Art. 14 of the Constitution is not violated by making
· by law a distinction betwee.n employers
who closed
their undertakings on or before November 27, 1956,
and those who close their undertakings after that date.
The State is undoubtedly prohibited from denying to
any person equality before the law or the equal i~ro
tection of the laws, but by enacting a law which applies
generally to all persons who come within its ambit as
from the date on which it becomes operative, no discrimination is practised. \\!hen Parliament enacts a law
imposing a liability as flowing from certain transactions
. prospectively, it evidently makes a distinction between
those transaclions 11·hich are covered by the Act and
those which are not covered by the Act, because they
1960
Hatisin.~h Alfg.
Co. Ltd.
v.
Union of India
--
'
Shah J.
1960
Halisingh J.lfjg.
Co. Ltd.
v.
Union of India
Shah].
544
SUPREME COURT REPORTS
[1960]
were completed before the dale 011 wliich the Act was
enacted.
This
differentiation,
however,
does
not
amount Lo discrimination which is liable Lo be struck
clown under Art. 14. The power of the legislature to
impose civil liability in respect 0£ transactions
completed even before the date on 'd1ich the Act is eHacted
does not appear to be restricted. If, as is conceclccland in our judgment rightly-by a statute imposing
civil liability in respect of post enactment: transactions,
no discrimination is practised, by a statute
which
imposes liability in respect 0£ t.r;insaction which have
taken place after a date fixed by the
statute,
but
before its enactment, it cannot be said that discrimination is practised.
An. 14 strikes at: discrimination in
the
application 0£ the laws bet"·cen persons
similarly circumstanced; it docs not strike at a differentiation which may res11lt by the enactment 0£ a law betwee11 transacticms governed thereby and those
which
are not governed thereby.
If the
argument
that
discrimination results when by statute a civil liability
is imposed upon tramact ions which were otherwise not
subject to such liability be accepted, every law which
imposes civil liability will be liable to be struck down
under Art. 14 even if it comes into operation on the
date on which it is passed, because immediately on its
coming into operation, discrimination will
arise
between transactions which will be covered by the law
after its coming into force and transactions before the
law came into force which "'ill not naturally be hit by
it.
If a statute creating
a civil liability
which is
strictly prospective is not hit by Art:. l4, a law "·hich
imposes liability
on transactions which have taken
place before the date on which it was enacted, cannot
also be hit by An. 14.
By bringing "·ithin its fold
transactions before rhc elate of its enactment, in truth,
the date or the application of the Act is related back
to a period anterior to the date on which the Act was
enacted.
Re. Ill:
For reasons already set out:, payment of compensation and wages in lieu of notice under the impuf(nccl
section are not made conditions precedent to effective
. -
..
...
3 S.C.R.
SUPREME COURT REPORTS
545
termination of employment.
The· section only creates
a right in the employees; it does not enjoin the employers to do anything before closure.
Section
31 (2)
of the Act which imposes penal liability for contravention of the provisions of the Act can therefore have
no application to failure to make payment
of
compensation and wages for the period of notice under
s. 25FFF(l). The amending Act was, it is true, passed
in June, 1957, and liability to pay compensation arises
in respect of
all undertakings
dosed on or after
November 26, 1956. But, if liability to pay compensation is.