# L. L J. 244, New Gujarat Cotton Mills Ltd v. Labour

- **Citation:** [1963] Supp. 1 S.C.R. 730
- **Court:** Supreme Court of India
- **Decided:** 1960-12-07
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/l-l-j-244-new-gujarat-cotton-mills-ltd-v-labour-2742
- **Pages:** 21

## Headnote

730 SUPREME COURT REPORTS [1963] SUPP.
1962
ANAKAPALLA GO-OPERATIVE
Octoh,,, 23.
AGRICULTURAL AND INDUSTRIAL
SOCIETY LIMITED
'I:.
WORKMEN
( P. B.
GAJF.NDRAGADKAR, A. K.
SARKAR,
K. N. WANCHOO, K. C. DAS GUPTA and
N. RAJAGOPALA
AYYANGAR, JJ.)
Jndustrwl Dispute-Transfer
of
underta(ng-Wlten
transferee is successor-in-interest of
trnnsferor-Payment of
compensation
by transferor-Reinstatement
clai1ned against
transferee-Whether claim su.<tainable--Industrial Disputes Act,
1947 (14 of 1947), ss.25F, 25FF, 25H.
A company running a sugar 1nill was suffering losses· every
year due to insufficient supply of
sugar-cane and wanted
to shift the mill. The cane-growers formed a co-0pecative
society and
purchased the mill. As agreed between the
company and the society, the company terminated tl1e services
of the employees and paid retrenchrnent compensation to t!"!ein
under s.25FF of the Industrial Disputes Act, 1917. The
society employed some of the old employees of the company
but did not employ , 49 permanent and 103 >easonal employees
out of them. The dispute arising out of the refusal of the
society to absorb these workmen was referred for adjudicatiOn.
The Tribunal, by its award, directed the appellant society to
re-employ with continuity of service as many of old employres
as \Vere .left out in fav\1ur of new employees, and to re~empJoy
the remaining employees cis and when vacancies occurred.
The
society contended that it was not a successor-in-interest of the
company and the claim for re-employment was not sustainabJe
and that the services of the employees having been terminated
upon payment of compensation by the company under s. 25FF
no claim could be made against the transferee of the company.
Hel.d, that the appellant society was the successor-;ninterest of the company. The question as to whether,a
purchaser of an indus:rial concern is a successor-in-intere_st
of the vendor has to be decided on a consideration of several
relevant facts such as whether the purchaser purchased the
whole of the business; w;is the bilsiness p;irchased as a going
l S.C.R.
SUPREME COURT REPORTS
731
concern; is the business carried on the same or similar as that
carried on by the vendor; is it carried on at the same place;
is the business carried on without a substantial break in continuity; has goodwill been purchased; is the purchase of all the
parts or only of some etc. The decision of the question
depends upon the evaluation of all the relevant factors and it
cannot be reached by treating any one of them a• of over-ridinsi
or conclusive sig-nificance. rn• the present case the society
purchased the concern for the purpose of manufacturing sugai
and carried on the same business, at the same place without
any appreciable break.
Ramji/,al Nat/iu/,al v.
Himabhai Mills Co. Lid., (1956) II
L. L J. 244, New Gujarat Cotton Mills Ltd. v.
Labour
Tribunal, (1957) II L. L.J. I94andAntony D' Souza v. Sri
Motichand Silk Mills, (1954) I L. L. J. 793, referred to.
Held, further that the claim of the employees for re·
instatement was not mstainable. In all cases falling under
s.25FF of the Act, if the transfer does not come within the
proviso, the employees of the transferred concern arc entitled
to claim compensation against the transferor but they cannot
make any claim for re-employment against the transferee.
The employees were not entitled to both compensation for
termination of service and immediate re-employment at the hands
of the transferee.
Section 25H
was not applicable t'> the
case as the termination of service upon transfer or closure is
not retrenchment properly so called. Termination of service
with which s. 25FF. deals cannot be equated with retrenchment
covered bys 25 F. The words
"as if" in s. 25FF clearly
distinguish between retrenchment under s.2(00) and terminati'?n of ser:ice under _s.25FF.
Nor could the principles underlymg ~· 25H ~e applied. tn the _case.
'.Th~ general principles
of social JUS!lce and fa1r play did not JUst1fy the claim for reemp

## Text

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730 SUPREME COURT REPORTS [1963] SUPP.
1962
ANAKAPALLA GO-OPERATIVE
Octoh,,, 23.
AGRICULTURAL AND INDUSTRIAL
SOCIETY LIMITED
'I:.
WORKMEN
( P. B.
GAJF.NDRAGADKAR, A. K.
SARKAR,
K. N. WANCHOO, K. C. DAS GUPTA and
N. RAJAGOPALA
AYYANGAR, JJ.)
Jndustrwl Dispute-Transfer
of
underta(ng-Wlten
transferee is successor-in-interest of
trnnsferor-Payment of
compensation
by transferor-Reinstatement
clai1ned against
transferee-Whether claim su.<tainable--Industrial Disputes Act,
1947 (14 of 1947), ss.25F, 25FF, 25H.
A company running a sugar 1nill was suffering losses· every
year due to insufficient supply of
sugar-cane and wanted
to shift the mill. The cane-growers formed a co-0pecative
society and
purchased the mill. As agreed between the
company and the society, the company terminated tl1e services
of the employees and paid retrenchrnent compensation to t!"!ein
under s.25FF of the Industrial Disputes Act, 1917. The
society employed some of the old employees of the company
but did not employ , 49 permanent and 103 >easonal employees
out of them. The dispute arising out of the refusal of the
society to absorb these workmen was referred for adjudicatiOn.
The Tribunal, by its award, directed the appellant society to
re-employ with continuity of service as many of old employres
as \Vere .left out in fav\1ur of new employees, and to re~empJoy
the remaining employees cis and when vacancies occurred.
The
society contended that it was not a successor-in-interest of the
company and the claim for re-employment was not sustainabJe
and that the services of the employees having been terminated
upon payment of compensation by the company under s. 25FF
no claim could be made against the transferee of the company.
Hel.d, that the appellant society was the successor-;ninterest of the company. The question as to whether,a
purchaser of an indus:rial concern is a successor-in-intere_st
of the vendor has to be decided on a consideration of several
relevant facts such as whether the purchaser purchased the
whole of the business; w;is the bilsiness p;irchased as a going
l S.C.R.
SUPREME COURT REPORTS
731
concern; is the business carried on the same or similar as that
carried on by the vendor; is it carried on at the same place;
is the business carried on without a substantial break in continuity; has goodwill been purchased; is the purchase of all the
parts or only of some etc. The decision of the question
depends upon the evaluation of all the relevant factors and it
cannot be reached by treating any one of them a• of over-ridinsi
or conclusive sig-nificance. rn• the present case the society
purchased the concern for the purpose of manufacturing sugai
and carried on the same business, at the same place without
any appreciable break.
Ramji/,al Nat/iu/,al v.
Himabhai Mills Co. Lid., (1956) II
L. L J. 244, New Gujarat Cotton Mills Ltd. v.
Labour
Tribunal, (1957) II L. L.J. I94andAntony D' Souza v. Sri
Motichand Silk Mills, (1954) I L. L. J. 793, referred to.
Held, further that the claim of the employees for re·
instatement was not mstainable. In all cases falling under
s.25FF of the Act, if the transfer does not come within the
proviso, the employees of the transferred concern arc entitled
to claim compensation against the transferor but they cannot
make any claim for re-employment against the transferee.
The employees were not entitled to both compensation for
termination of service and immediate re-employment at the hands
of the transferee.
Section 25H
was not applicable t'> the
case as the termination of service upon transfer or closure is
not retrenchment properly so called. Termination of service
with which s. 25FF. deals cannot be equated with retrenchment
covered bys 25 F. The words
"as if" in s. 25FF clearly
distinguish between retrenchment under s.2(00) and terminati'?n of ser:ice under _s.25FF.
Nor could the principles underlymg ~· 25H ~e applied. tn the _case.
'.Th~ general principles
of social JUS!lce and fa1r play did not JUst1fy the claim for reemploymei;t simultaneously with the payment ofre~nchment
compensation.
HaripNUJad Bhivshankar ,S,hulda v. A. D. DitJalcar, [1957]
S. C. R:
121, ¥-/s.
HatAVJingh
Manufaclurif&g Co. Lid.
v.
Union of India, [1960] 3 S. C.R.
528 and Indian llutM
Pipe Co. Lt4. v. The Workmen. [1960] 2 S.C.R. 32, referred to.
C1vrr. APPELLATE JURISDICTION : Civil Appeal
No. 224of1962.
June
Appeal by special leave from the award dated
6, 1961, of the Industrial Tribunal, Andhra
1162
Analcapalla Coopn11ti'11 Agrin1l·
lural & Industrial
So<iltr Ltd.
v.
Work"""
1962
A.11.ak.ap;u~ Go·
operiltiri1 AgiiCul·
tural -antf J11d11st1ial
"'o1iet} Li'.'lite_d·
v •.
Workmen 1
Gajendragadk11r, J.
Pradesh, Hyderabad in Industrial Dispute No. 1.3 ,of
1960,
I
,,
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r
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'I
.
, I ·
' I( I I•
J,Q. JC Daphtary, .Solicitor General of , India,
K. 'Sirinivasamurthi
and Namiit Lal)o1•for !he
a.·p' p'·e·11anf:·
Joi;
IJ ,,
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j.
'B. ·P. 11Jaheshwari; for i·espoudent No. 1
I·
11
'''i_ 'Ill Iii''' •I
111
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r
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• .. .!•.A; S. ·R. Chari/ .M: K .. Rnmarnurthy, R1ilL.Garg
and 7'. S. Venkataraman. for the respondent No. ~.
1 •
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,
·, "1962. October 23. '{he .Ju~gment "bf .(l(e '<;;ourt,
was delivered,by ..
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~
GAJENDRAGADKAR, J.-Thc ·principal question
which' ari,ses'ih'thi~. appeal has relation to t)1e·•"s'cope
and'cffegt o,fs';'3~,l~ .. ~! ~\l~'. Ip.d.~?ttfal J?isputcs J1tt,
~947,(14 of.19*1) ,(hcremafter. called the A_<;t,).
An
industrial dispute between the appellant, Anakapa]Ja,
Co·operative'Agricultnral & IndustriaL Society, and
the respondents; its· workri:ieii, \vas teferrcd bv the
G.9v,epio'(of;~n.4hra Prad~sh for : adjud.i~a5ion 'to .the
lndusfrial,.Tnbun;,tl, Hyderabad,
u!fc)~r .~. l.9(l)(d) of
the Act on December 7, 1960. The r~spondents who.
were ·in the employment of Vizagapillnam Sugar.and
Refirirry ·Ltd:" (hereinafter ·called the Company)
clain'icd that' 'tb;ey were"eriiit\ed to re-employment
in .the said con~ern ~hi~h had been .. p1,1rchased by the
appellant,. and since ;thein demand for. rc-emp\oyment
by -the appellant•was not accepted by it, tbey ... reprcsented to the State Governmmt that the said demand
s!10uld b.e. a~jrn;iicated _upon by an Industrial T,ribunal. 'That 1s how their d.emand for .re-er,npfoyment
cametobe~eferredimders.•lO(L)(d): . · . \•
.. - ..
1
l
~J
I
,..
• ·
'
,
It appears that the Company was an old
qompany.wbich manufactured SU!!,'<IL . .Its .. business,
however, did not result in profits, because th,e•s.upply
of sugar-cane was insufficient and the management
apprehended that, it could not face the losS\'S' from
year to year;, a;o.d so, it thought of, shifting its•busirie;~s
1 S.C.R.
SUPRE11E COURT REPORTS
733
to Yerravaram in East Godavari where it anticipated that the supply of sugar-cane was asmred.
This attempt of the management, however, did not
succeed because of the local cane growers. The local
cane growers decided to form a co-opera ti vc society
themselves and to purchase the concern of the
Company.
Accordingly, the appellant Society was
formed and the sale transaction was effected between
the said concern and the appellant on October 7,
1959. It was agreed between the appellant and the
Company that the Company should pay retrenchment
compensation to its employees and terminate their
services leaving the appellant full freedom to choose
its own employees.
Accordingly,
Rs. 1,90,000/-
were paid by the
Company to
its
employees
by way of retrenchment compensation. Before the
completion
of
this
transaction,
however,
the
employees had suggested that their Union could itself
purchase the concern, but the Union could not
manage to effect the proposed sale transaction. It,
however,
suggested that
the
compensation of
Rs.l,90,000/- which the Company had to pay to its
employees may be credited to the accour;t of the
Society and the employees paid the said amount by
imtalments, but this suggestion was not accepted and
as a result of the sale transaction, the appellant took
over the concern and employed such perrnns as it
needed according to the
recommendations of a
committee appointed by the appellant in that behalf.
It appears that on the rolls of the Company, there
used to be 800 workmen in all ; of these 329 were
permanent workmen, whereas 4 71 workmen joined
the Company as seasonal workmen. The appellant
has employed 678 employees in all, 248 of whom are
permanent and the rest seasonal employees.
Out of
248 employees who are engaged on a permanent
basis, 220 are from amongst the employees of the
Company and about 28 have been newly appointed.
In the result, about 49 permanent employees and 103
1962
Anakapalla C•-
operative Agricul·
tural & lndustritl•
Society LtJ.
v.
Workmen
Gajeniragadkar, J.
1962
Anakapalla Co~
operative Agricv/ ..
llfura: & lnduslrial
Society Ltd.
v.
Workmen
:ajendrogadkar, J.
734 SUPREME COURT REPORTS [1963] SUPP.
seasonal employees of the Company have not been
absorbed by the appellant and the demand which has
been referred for adjudication in the present proceedings is that these permanent and seasonal employees
should be absorbed by the appellant.
The appellant disputed this claim on three
grounds. It urged that the dispute referred to the
adjudication of the Tribunal was not an industrial
dispute and so, the reference was incompetent. This
argument was based on the allegation that the
Thummapala
Sugar Workers Union which had
sponsored the present demand was not a representative Union.
On its roll, a very small number of the
appellant's present employees were shown as members.
The bulk of its membership consisted of the previous
employees of the Company. The appellant's employees have formed a separate Union of their own and
this latter Union has not only not sponsored the
present demand, but it seeks to resist it. The Tribunal considered the evidence bearing on this point
and held that the sponsoring Union was, in law,
competent to raise the present industrial dispute, and
so, it rejected the appellanfs contention about the
invalidity of the reference.
The next contention raised by the appellant
was that it was not a successor-in-interest of the
Company and as such, under industrial law, the
c!aim made by the respondents for re-employment of
the permanent and the seasonal employees was not
sustainable. The Tribunal has held that the appellant is a successor-in-interest of the Company and
so, it has come to the conclusion that the demand for
re-employment of the said specified employees was
permissible under the industrial law.
The last argument raised by the appellant was
that it had ali-eady employed a full complement of
the labour force that it needed and so, there was no
1 S.C.R.
SUPREME COURT REPORTS
735
scope for the re-employment of any of the workmen on
whose behalf the present dispute was raised.
Th!s
contention has been rejected by the Tribunal and It
has ordered the appellant to re-employ as many of
the permanent employees out of 49 as were left out
in favour of the new employees and to re-employ the
remaining permanent employees as and when vaca~
cies occur. In regard to the seasonal employees, it
made a similar direction.
This order requires the
appellant to 1;uarantee to the re-employed workmen
continuity of service and one-fourth of the back
waircs.
The Tribunal has, however, held that if the
Society has employed less workers, then only as many
old workers should be reinstated as the new workers
appointed in their place. In that case, the old
workers will be absorbed in the order of seniority. It
is against this order that the appellant has come to
this' Court by special leave.
The first question which falls to be considered
in this appeal is whether the appellant is a successorin-interest of the Company. The learned SolicitorGeneral contends that the agreement of sale under
which the appellant has arrived on the scene, clearly
shows that it cannot be treated as a successor-inintcrcst of ths Company. The terms of the agreement
of sale show that the appellant has left with the
Company a pare of its land, its investments to the tune
of Rs. 19 lakhs and its liability to the tune of Rs. 27
lakhs. 4,000 bags of processed sugar have also been
left with the Company at the time of the transaction.
Clause 8 of the agreement :·rovides that the Company
will be entitled to withdraw and appropriate to itself
all advances, part payments and deposits made by it
either in cash or security and the Society shall have
no right over them. Clause 13 similarly provides
that the Company will pay all its liabilities, secured
and unsecured, determined or to be ·determined and
the Society will not be liable to pay the same. Under
cl. 11, the godown in which the stocks of sugar were
1962
Anakapal't: Coo.berative Agricultu1al ar.d lndust1fol
Soc;etv Ltd.
v.
lVorkmen
Gajendragadkar, J.
1962
Anakapalla Coo fleratiw Agrieul ..
lural and Industrial
SocUty ltd.
v.
Workmen
Gajendragtitlkar, J.
736 SUPREME COURT REPORTS [1963] SUPP.
stored was to continue in the possession of the
Company free of rent or compensation until the entire
stock was released, sold and delivered. The C-1mpany
had also agreed to terminate the services of its employees on or before October 9, 1959, and cl. 7 which
deals with this topic, has provided that whatever
claims are to be paid to such employees on account
of such termination will be paid by the Company.
The appellant has also not purchased the goodwill of
the Company.
The argument, therefore, is that
though the work of the Company was, in a sense, a
going concern when it was purchased by the appellant, the appc:lant had not purchased the entire
concern including the goodwill; and so, it would be
inappropriate
to describe the appellant as the
succcsscr-in-intcrcst of the Company.
In support of his argument, the learned SolicitorGenera l has relied on the decision of the Labour
Appellant Tribunal in the case of Ramji/,al 1Yathulal
v. liinmbhcii Jfilfo Compcmy Ltd. (1). In that case,
the Appellate Tribunal had to consider the effect of
two transfers: (1) in favour of the Himabhai Mills
Company Ltd., and(~) in fav<iur of the New Gujarat
Cotton Mills Company Ltd.
The decision of the
Appellate Tribunal was that the first transfer did
not make the transferee a successor-ii1·intcrcst, whereas the second one did.
In regard to the first transfer,
it was found that the transferee Company had not
purchased the transferor Company as a going concern
and had not accepted any liabilities of the old
Company and had started a completely new business
of its own.
On the other hand, under the second
transfer, the transferee had purchased not only all
the tangible assets of the old Company, but the goodwill which was expressly valued in the sale-deed at a
very large sum of Rs. 3 lakhs.
It was also found
that the transferee Company carried on the same
business as the transferor Company in the result, the
employees of the transferor Company in the first
(I) (1956) II L. L.J. 244.
1 S.C.R. SUPREME COURT REPORTS
737
transaction were held not entitled to make a claim for
re-employment by the transferee Company, whereas a
claim made by the employees of the transferor
Company in regard to the second transfer "Yas he~d. to
be sustainable in law.
It appears that this decJSJon
was challenged by a writ petition before tlie Bombay
High Court, and the High Court took the view that
in view of the relevant findings recorded by the
Labour Appellate Tribunal in respect of the transfer
in favour of the New Gujarat Cotton Mills Ltd.,
there would be no justification to interfere under
Art. 226 of the Constitution, vide New Gujarat Cotton
.lit ills Ltd. v. Labour Tribunal(1).
ThG lea.rned Solicitor-General has also referred
to another decision of the Labour Appellate Tribunal
in the case of Antony D'Souza v. Sri Motichand Silk
Mills('). The question which fell for the decision of
the Appellate Tribunal in that case was whether the
purchaser could be said to be successor-in-interest
within the meaning of s. 114 of the Bombay Industrial
Relations Act, and it was held tliat the purchaser was
not a successor-in-interest, because the transaction
was a purchase of only plant, machinery and accessories and not of a going concern or running business.
We ought, however, to add that the decision in this
case was substantially, if not entirely, based on the
fact that the workmen of the transferor Company had
executed a document in which specific and unambiguous demands had been made which supported the
purchaser's claim that the transfer did not make the
purchaser a successor-in-interest of the vendor. This
question was sought to be raised before this Court in
the case of Workmen of Dahingeapara Te,a Estate v.
Dahingeapara Tw Estute(') as well as in the case of
Keys Constructions Go. (Private) Ltd. v. Its Workmen('), but on both the occasions, the Court tliought
it unnecessary to decide it.
. The question as to whether a purchaser of an industrial concern can be held to be a successor-in-interest
I I) 1957 II l . L. J. 194.
(2) (1954) IL. L.J. 793.
(3) A. I. R. (!958J, S. C. 1026.
(4) A. I. R. (1959) S, C. 208.
1962
Anaka;.11 o ..
op,,.ati.. Agriculturdl and Jntlustrial
Soci417 Lt'.
v.
Workmen
G•jenira1at!k•r, J.
1962
A1wka/Jalla Cooperative A!:rilultu•o.l and Industrial
Society Limited
v.
lV01kmtn
Gajtt11!ragudkar, J.
7:18 SUPREME COURT REPORTS [l\J63] SUPP.
of the
vendor will have to be decided
on a
consideration of several relevant
facts.
Did the
purchaser pure.base the whole of the business ? Was
the business purchased a going concern at the time
of the sale transaction ? Is the business purchased
carried on at the same place as before ? Is the
business carried on without a substantial break in
time ? Is the business carried on by the purchaser
the same or similar to the business in the hands of
the vendor ? If there has been a break in the con·
tinuity of the business, what is the nature of the
break and what were the reasons responsible for it?
What is tl_le length of the break ? Has goodwill
been purchased ? Is the purchase only of some parts
and the purchaser having purchased the said parts
purchased some other new parts and started a business of his own which is not the same as the old
business but is similar to it ? These and all other
relevant factors have to be borne in mind in decid·
ing the question as to whether the purchaser can be
said to be a successor-in-interest of the vendor for
the purpose of industrial adjudication. It is hardly
necessary to emphasise in this connection that though
all the facts to which we have referred by way of
illustration arc relevant, it would be unreasonable
to exaggerate the importance of any one of these
facts or to adopt the inflexible rule that the presence
or absence of any one of them is decisive of the
matter one way or the other. If industrial adjudication were to insist that a purchaser must purchase
the whole of the property of the vendor concern
before he can be regarded as a successor-in-interest,
it is quite likely that just an insignificant portion of
the property may not be the subject-matter of the
conveyance and it may be urged that the exclusion
of the said fraction precludes industrial adjudication
from treating the purchaser as a successor-in-interest.
Such a plea, however, cannot be entertained for the
simple reason that in deciding 'this question, industrial
adjudication will look at the subsklnce of the matter
1 S.C.R. SUPREME GOUR T REPORTS
73!l
and not be guided solely by the form of the transfer.
What we have said about the entirety of the property
belonging to the vendor concern, will apply also to
the goodwill which is an intangible asset of any
industrial concern. If goodwill along with the rest
of the tan()'ible property has been sold, that would
strongly support the plea that the purchaser is _a
successor-in-interest; but it does not follow that if
goodwill has not been sold, that alone will necessarily
show that the transferee is not a successor-in-interest.
The decision
of the
question must ultimately
depend upon the
evaluation of all the relevant
factors and it cannot be reached by treating any one
of them as of over·nding or conclusive significance.
It is in the light of this legal position that til<C
question about the character of the appellant vis-avis the vmdor company has to be judged. It would
be recalled that the vendor company sold the concern
to the appellant because it was faced with the problem of recurring losses, and so, the appellant, in
purchasing the concern, was not prepared to have
both the advances and the outstandings included in
the sale transaction. The appellant Society has been
formed by the local cane growers with the object
of manufacturing sugar which would suit each one
of them in turn and so,
the purchaser was not
particularly interested in including the goodwill of
the Company ill the sale transaction. The exclusion
of 4,000 bags of processed sugar shows that the
purchaser wanted to accommodate the Company
m.that '!latter. On t~1e other hand, the appellant
has earned. on the busmess of the Company without
~n appreciable break; the business thus carried on
Is t?e sa_me as that of the Company, the place of
?us1~ess is the same, and. the very object of entermg mto the sale transaction was to enable the local
~ane growers to carr~ on.the business of the Company.
fherefore, we arc mclmed to take the view that
having regard to
all the relevant facts in this case,
1962
Anaka/Jalla Cooperativ~ A !;riniltural 11nd Jmiu>lrial
Soc-'ety Limited
v.
lVorkmtn
Cajendragad,~- a· . .f,
1962
Anakapalla Cooperative Agricultural & Industrial
Sodety Ltd.
v.
Workmen
Gajendragadkar, J.
740 SUPREME COURT REPORTS [1963] SUPP.
the Tribunal was right in law in coming to the cO'llclusion that the appellant is a successor-in-interest
of the Company.
That takes us to the question as to what would
be the nature of
the
appellant's
liability to
the employees of the Company. Before s. 25-FF
was introduced in the Act in 1956, this question was
considered by industrial adjudication on general
considerations
of
fairplay and social
justice ..
In all cases where the employees of the transferor
concern claimed re-employment at the hands of the
transferee
ooncern,
industrial
adjudication
first enquired into the question as to whether
the
transferee concern could be said to be
a
successor-in-interest
of
the
transferor
concern.
If the answer was that the transferee was a successorin-interest in business, then industrial adjudication
considered the question of re-employment in the light
of broad principles. It enquired whether the refusal
of the successor to give re-employment to the
employees of his predecessor was capricious and
unjustified, or whether it was based on some reasonable and bonafide grounds. In some cases, it appeared
that there was not enough amount of work to justify
the absorption of all the previous employees; sometimes the purchaser concern needed bonafide the
as.sistance of better qualified and different type of
workers; conceivably, in some cases, the purchaser has
previous commitments for which he is answerable in
the matter of employment of labour; and so, the
claim of re-employment made by the employees of
the vendor concern had to he weighed against the
pleas made by the purchaser concern for not employing the said emplovees and the problem had to be
resolved on generai grounds of fairplay and social
justice. In such a case, it was obviously impossible
to lay down any hard and fast rules. Ind.eed, exp~ri
ence of industrial adjudication shows that m resol'?ng
industrial disputes from case to case and from time
/t
II
1 S.C.R. SUPREME COURT REPORTS
i41
·to time, industrial adjudication generally avoids- as it
should-to lay down inflexible rules because it is of
the essence of industrial adjudication that the problem
should be resolved by reference to the facts in each
case so as to do juotice to both the parties. It was
in this spirit that industrial adjudication approached
this problem until 1956 whens. 25-FF was introduced
in the Act. Sometimes, the claim for re-employment
was allowed, or sometimes the daim for compensation was considered. But it is significant that no
industrial decision has been cited before us prior to
1956 under which the employees were held entitled
to compensation against the vendor employer as well
as re-employment at the hands of the purchaser on
the ground that it was a successor-in-interest of the
vendor.
It was in the background of this broad position
which had evolved out of industrial adjudications
that the Legislature enacted s. 25-FF on September
4, 1956.
As it was then inserted, s. 25-FF read
thus:-
"Notwithstanding anything contained in section
25-F, no workman shall be entitled to compensation under that section by reason merely of the
fact that there has been a change of employers
in any case where the ownership or management
of the undertaking in which he is employed is
t:ansferrcd, whether by a,greement or by operation of law, from one employer to another :-
Provided that-
( a) the service of the workman has not been
interrupted by reason of the trans for;
(b) the terms and conditions of service applicable to the Wdrkman after such transfer are
not in any way !cos favourable to the workman than those applicable to him immediately before the transfer; and
1962
Analcapall• CtoP,ratiw A.gricu1tural & Industrial
s~ciety Lid.
v.
Workmen
Gajen4r11~adkar, J.
19ti
Anal-opal/a Cr>-
operative AgYicultural & [nr/ustrial
Society ltd.
v.
H'orkmen
Gaj,rrulrogadkar, 1.
742 SUPREME COURT REPORTS [1963] SUPP.
(c) the ~mployers to whom the ownership or
management of the undertaking is so
transferred is, under the terms of the transfer or othe~ise, legally liaJ:ile to pay to the
workman, in the event of his retrenchment
compensation on the basis that his servic~
has been continuous and has not been
interrupted by the transfer."
It may be relevant to add that this
section
conceivably proceeded on the assumption that if the
ownership of an undertaking was transferred, the
cases of the employees affected by the transfer would
be treated as cases of retrenchment to which s. 25-F
would apply. That is why s. 25-FF begins with a
non-obstante clause and lays down that the change of
ownership by itself will not entitle the employees to
compensation, provided the three conditions of the
proviso are satisfied.
Prima facie, if the three
conditions specified in the proviso were not satisfied,
retrenchment compensation would be payable to the
employees under s. 25-F; that apparently was the
scheme which the Legislature had in mind when it
enacted s. 25-FF in the light of the definition of the
word "retrenchment" prescribed by s.
2(oo) of
the Act.
The validity of this assumption was, however,
successfully challenged before this Court in the case
of Hariprasad Shivshankar Shukla v. A. D. Divikar(').
In that case, this Court was called upon to consider
the true scope and effect of the concept of retrenchment as defined ins. 2 (oo) and it held that the said
~
definition had to be read in the lig!it of the accepted
connotation of the word, and as such, it could have no
wider meaning than the ordinary connotation of the
word, and according to this connotation, retrenchment
means the disc!iar~e nf surplus labour or staff by the
employer for any- ~eas~m whatsoever, othe~~se.than
as a punishment mq1cted by way o.f d1sc1plu:1;ary
action, and does not mclude termmatlon of services
(1) [1957) S.C.R. 121.
1 S.C.R.
SUPREME COURT REPORTS 743
of all workmen on a bonalide closure of industrv or
on change of ownership or management thereof. ' In
other words, the effect of this decision was that though
the definition of the word "retrenchment" may
perhaps have included the termination of services
caused by the closure of the concern or by its transfer,
these two latter cases could not be held te fall under
the definition because of the ordinary accepted connotation of the said word. This decision necessarilv
meant that the word "retrenchment" in s. 25FF had
to b2ar a corresponding interpretation. In that case,
the employees of the Barsi Light Railway Company
Ltd. had made a claim for retrenchment compensation under s. 25-FF against the purchaser of the
Railway Co., and the employees of the Shri Dinesh
Mills Ltd. had made a similar claim against their
employer on the ground that the Mills had been
closed. .These claims had been allowed
by the
Bombay High Court and the employers had come to
this Court in appeal. This Court having held that
the word "retrenchment" necessarily postulatrd th('
termination of the employees' ,services on the ground
that the employees had become surplus, allowed the
appeals preferred by the employers and held that the
employees' claim against the purchaser in one case
and <'gains! the <'mployer who had closed his business
in the other, could not be sustained. Thm, as a
result of this decision, it was realised that if the' object
of the legislature in introducing section 25-FF was
to enable the employees of the transferor concern to
claim retrenchment compensation unless the three
conditions of the proviso to the said section were
satisfied, it could not be carried out any longer. The
decision of this Court in Hariprasad's case (') was
pronounced on November 27, 1956.
This decision led to the promulgation of an
Ordinance .No. 4 of 1957. By this Ordinance, the
original s. 25-FF ~s it was inserted on September 4,
1956, was substantially altered. Section 25-FF as it
(I) 11957] S.C.R. 121.
1962
Anf1lt11/u1 la Co·
operatfoe A,gricut1u1al and Industrial Society Ltd.
v.
f¥01Jme11
Gajendra,o;r.dkar, J
1962
Anal:apalla Cooperative Agricultural and Industrial Sociaty Ltd.
v.
Workmen
744 SUPREME COURT REPORTS [1963] SUPP.
has been enacted hy the Ordinance reads thus ;-
"Where the ownership or management of an
undertaking is
tr~nsferrcd, whether by agreement or by operat10n of law, from the employer
in relation to that undertaking to a new
employer, every workman who has been in
continuoμs service for not lrss than one year in
that undertaking, immediately before such
transfer, shall be entitled to notice and compensation in accordance with the provisions of
s. 25-F, as if the workman had been retrenched:
Provided that nothing in this section shall apply
to a workman in any case where there has
been a change of employers by reason of the
transfer, if-
( a) the service of the workman has hot been
interrupted by such tran<fer;
(b) the terms and conditions of service applicable to the workman after such transfer are
not in any way less favourable to the workman than those applicable to him immediately before the transfer; and
( c)
the new employer is, under the terms of
the transfer or otherwise, legally liable to
pay to the workman, in the event of his
retrenchment, compensation on the basis
that his service has b~cn continuous and
has not been interrupted by the transfer."
In due course, this Ordinance was followed by Act
18of1957 on June 6, 1957.
_By this Act, s. ~5-FF
as it was enacted by the Ordmance has b~en mtroduced in the parent Act.
It would be.noticed that
the Ordinance came into force retrospectivc;ly as from
December 1, 1956, that is to say, three. days ~fter th~
judgment of this Court was pronounce'.! m Hanprasad s
case(').
c11 [t957J s.c.R. 121.
1 S.C.R.
SUPREME COURT REPORTS
745
The Solicitor-General contends that the question
in the present appeal has now to be determined not
in the light of gener<il principles of industrial adjudication, but by reference to the specific provisions of
s. 25-FF _itself.
He argues, and we think rightly,
that the first part of the section postulates that on a
transfer of the ownership or management of an
undertaking, the employment of workmen engaged
by the said undertaking comes to an end, and it
provides for the payment of compensation to the said
employees because of the said termination of their
services, provided, of course, they satisfied the test of
the length of service rrescribed by the section.
The
said part further provides the manner in which and the
extent to which the said compensation has to be
paid. Workmen shall be entitled to notice and I
compensation in atcordance with the provisions of :
s. 25-F, says the section_. as if they had been retrenched. The last clause clearly brings out the fact that the
termination of the services of the employees does not ,
in law amount to retrenchment and that is consistent
with the decision of this Court in
Hariprasad' s
case('). Tfie Legislature, however, wanted to provide that though such termination may not be
retrenchment technically so-called, as decided by this
Court, nevertheless the employees in question whose
services are terminated by the transfer of the under-·,
taking should be entitled to compensation, and so,\
s. 25-FF provides that on such termination compensa- ,
tion would be paid to them as if the said termination
was retrenchment. The words "as if" bring out the
legal distinction between retrenchment defined by
s. 2(oo) as it was interpreted by
this Court and
termination of services
consequent upon transfer
with which it deals. In other words, the section
provides that though termination of services on
transfer may not be retrenchment, the workmen
concerned are entitled to compe11sation as if the said
termination was retrenchment. This provision has
been made for the purpose of calculating th<' amount
(1) (1957] S.C.R. 121.
1962
An«kapalia Cooperative Ag1 icu/
tural arid lndUJtri..
SocUi-, Ltd.
v.
tt'orkmen
Gajendrogodkar, ~
1962
An.U;.114 Cc·
•/>l'•liDI iltricultural & l•J.strial
s .. ;.,, Lid.
••
Wiri'""'
Sajmdragadkar, J.
746 SUPREME COURT REPORTS [1963] SUPP·
of compensation payable to such workmen; rather
than.provide for the measure of compensation over
again, s. 25-FF makes a reference to s. 25-F for that
limited purpose, and, therefore, in all cases to which·
s.25-FF applies, the only claim which the employees
of the transferred concern can legitimately make is
a: claim for compensation against their employers.
No claim can be made against the transferee of the
said concern.
The scheme of the proviso to s. 25-FF emphasises the same policy. If the three conditions
specified ·in the proviso are satisfied, there is no
termination of service either in fact or in law, and
so, there is no scope for the payment of any compensation. That is the effect of the proviso. Therefore, reading section 25-FF as a whole, it does appear
that unless the transfer falls under the proviso, the
employees of the transferred concern are entitled to
claim compensation against the transferor and they
cannot make any claim for re-employment against
the transferee of the undertaking. Thus, the effect
of the enactment of s.25· FF is to restore the position
which the Legislature had apparently in mind when
s. 25· FF was originally enacted on September 4,
1956. By amending s. 25-FF, the Legislature has
made it clear that if industrial undertakings are
transferred, the em.ployees of such transferred under·
takings should be entitled to compensation, unless, of
course, the continuity in their service or employment
is not disturbed and that can happen if the transfer
satisfies the three requirements of the proviso.
In this connection, it is necessary to point out
that even before s.25-FF was introduced in the Act
for the first time, when such questions were consider·
ed by industrial adjudication on general grounds of
fair play and social justice, it does not appear that
employees of the transferred
concern were held
entitled to bath compensation for termination of
service and immediate re-employment at the hands
I S.C.R. SUPREME COURT REPORTS
747
of the transferee. The present position which results
from the enactment of s. 25-FF, as amended, is,
therefore, substantially the same as it was at the
earlier stage. It is common ground that if a transfer
is fictitious or 'benami', s. 25-FF has no application
at all.
In such a case, there has been no change of
ownership or management and despite an apparent
transfer, the transferor employer continues to be the
real employer and there has to be continuity of
service under the same terms and conditions of
service as before and there can be no question of
compensation.
Mr. Chari, however, urges that the preoent case
ought to be governed by the provisions of s. 25-H of
the Act. This argument proceeds on the assumption that the case of termination of service resulting
from the transfor of ownership or management of an
undertaking to which s. 25-FF applies is a case
of retrenchment properly so-called. In our opinion,
this assumption is clearly not well-founded. The
first difficulty in accepting the correctness of this
assumption is the decision of this Court in Hariprasad's
case (1)
to which we have already referred.
The
decison of this Court in that case clearly shows that
the termination of services resulting from transfer or
closure is not retrenchment, and it is on the basis of the
correctness of this decision that s. 25-FF as amended
has been enacted. Besides, on a construction of
s. 25-FF itself, it is difficult to equate the termination of services with which it deals, with retrenchment covered by s. 2u-F.
As we have already in'
dicated, s. 25-F is referred to in s. 25-FF to enable
the assessment of compensation
payable to the
.;mplovees covered by s. 25-FF. The clause "as if"\
clearly shows the distinction between retrenchmen I '
under s. 2( oo) and termination of service under
s. 25-FF. In this connection, we may refer to the
decision of this Court in M f s. Hatisingh jfanufacturing Go. Ltd. v. Union of India(').
In that case,
{I) [1957] S.C.R. 121-
(2) (l!JC!)j 3 S. C.R. 528.
1962
Anakap.l/c C.-
operative .A.griculturcl
and industrial
Society Ltd.
v.
lVorkmen
Gajet1dragitlk.ar, J,
0
1962
Anakapalla Cooperative Agricultural
and Industrial
Saciety Ltd.
v.
Workmen
G1j .. dragaJkar, J.
748 SUPREME COURT REPORTS [i963] SUPP.
this Court had to consider the effect of the words
"as if" occuring ins. 25-FFF, and it has been held
that by the use of the words "as if the workmen had
been retrenched" under the said section, the Legislature has not sought to place closure of an undertaking on the same footing as retrenchment under
s.25-F. Therefore, the plea that s.25-H applies to
the present case cannot be accepted.
Mr- Chari then argued that though in terms
s. 25-H may not apply to the present case, the general
principle underlying the provisions of the said section
should be invoked in dealing with the claim made by
the respondents against. the appellant. His argument is
that too much emphasis should not be placed on the
identity of the individual employer in dealing with
the present question and he suggested that what is
important to bear in mind is the identity of the
hndertaking which was run by the vendor before
and which is run
by
the vendee
now. If the
undertaking is the same, there is no reason why the
workman should not be entitled to claim continuity of
service in the said undertaking. In our opinion, this
argument is misconceived.
Once we reach the
conclusion that in the case of a transfer of any undertaking the Legislature has by s. 25-FF provided for
payment of compensation to the employees on the
clear and distinct basis that their services have been
terminated by such transfer, it is difficult to see how.
any questions of fair play or social justice would
justify the claim by the respondents that they ought
to be re-employed by the appellant. It is true that
in cases falling under s. 25-F, workmen may get
retrenchment compensation and they may yet be able
to claim re-employment under s. 25-H and in that
sense, some workmen may get both retrenchment
compensation and re-employment. That is no doubt
the effect of reading s. 25-F ands.