# RASHTRIYA MILL MAZDOOR SANGH, NAGPUR v. THE MODEL MILLS, NAGPUR AND ANR

- **Citation:** [1985] 1 S.C.R. 751
- **Court:** Supreme Court of India
- **Decided:** 1984-09-18
- **Case number:** Civil Appeals No. 1619 to 1622 of 1971
- **Bench:** D.A. 0Esai, V. BALAKRISllNA ERADI, V. Khalid
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rashtriya-mill-mazdoor-sangh-nagpur-v-the-model-mills-nagpur-and-anr-8754
- **Pages:** 20

## Headnote

The Payment of Bonus Act 1965, Section 32(/V)-Scope of-Employees of
·undertaking managed by an author;zed controller under Section 18A lDR ActWhether entitled to payment of bonus.'
The Industries (Development and Regulation) Act 1951, Section 18A
Industrial' undertaking~Appointment of authorized controller-Such undertaking
whelher an industry carried on under the auth0r/ty of the Department of the
Central Government-Employees of undertaking whether entitled to payment of
bonus.
The Sick Textile Undertaking (National/sat/on) Act 1974, Sul/on 5(2J(C)
•wages, $alarles and other dues of the , emp/oyees'-JVhether includes statutory
· 1or.us payable under Bonus Act.
·
Words and Phrases : •Carried on by ·or' . under the authority of any
Jepartment of the Central G~vernment•-Meaning of_;_Section 32(JV) Payment of
Bonu1Act1965.
~
The appellant-Union served a notice of demand' for· the grant or
-....._bonus for the period 1964-6S to J967 .. 68. The matter was taken into conci ..
(
liation.
The Conciliation Officer recorded a failure, issued. a certificate
~
under Section 73A of the Bombay Industrial Relations Act, 1946 certifying
-.
that the dispute was not capable of being settled by conciliation. The Union
thereupon made four independent referenc!s to the Industrial Court, for the
•
grant of bonus for each of the four accounting years 1964-6S to 1967-68. The'
Union further alleged that it could not 'make a specific demand for bonus
calculated at a certain percentage of the salary as it had not got the requisite
infonnation about the fina.hcial position and the balance sheet of the
Employer, and that the Indu5trial Court should compute the bonus which
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become~ payable under the Bon.·s Act, and award the same to the workmen.
The employer resisted the eferences contending that once a notified
order was issued uilder Section 1 81\ of the Industries (Development and
Regulation) Act, 1951 appointing all authorised controller in respect of an
industrial undertaking, it was run by the authorised controller under the
authority or a D~partment of the Central G~verrunent and therefore, in view·
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[l 985) l.S.C.R
of the prov1s1ons contained in Section 32fIV) of the Bonus Act its einployees
were excluded from the application of the Bonus Act and the references must
consequently be rejected.
The Industrial Court upcld the aforesaid contention on behalf of the
en1ployer that having r~gard to_ the provisions. contained in Section 32(1V) of
the Bonus Act read V-.'Ith Section 18A of the IDR Act, the workmen employed
by the e1nployer,.wcrc excluded from the operation of the Bonus Act as it was
not applicable 'to the e111ployer. The Industrial Court howcve1 rejected the
alternative contention that even if the workn1cn c1nploycd by the employer
were not entitled to bouus under the Bonus Act, they were yet entitled to claim
bonus apart from the Bonus Act as a nonn of industrial relations by observing
that ::is the demand was made for bonus under the Bonus Act, and the alternative demand was not '.n1adc before the Conciliation Officer, the scope of
the references could not be enlarged to cover the same.
In the appeals to this Court on the questions :
(1) On the appointment of the authorised controller under Section 18A
of the IDR Act by the Central Government in respect of an industrial under_
taking whether the undertaking acquires the status of an establishment
engaged in an industry carried on under the authority of the Department of
the Central Government, and (2) Whether the employees employed in such an
industrial undertaking were excluded from the operation of the Bonus Act.
Allowing the Appeals,
HELD : l(a) If on the issue of a notified order appointing an authorised controlller under Sec. 18A Industries (Development and Regulation)
Act 1951, the management of the industrial undertaking undergoes a change,
yet it does not become an establishment engaged in an industry carried on by
the depar

## Text

_Characters 0–39,801 of 52,580. This is a partial read: ask again with offset=39801 for what follows._

RASHTRIYA MILL MAZDOOR SANGH, NAGPUR
v.
THE MODEL MILLS, NAGPUR AND ANR.
September 18, 1984
[D.A. 0ESAI, V. BALAKRISllNA ERADI AND V. KHALID, JJ.]
The Payment of Bonus Act 1965, Section 32(/V)-Scope of-Employees of
·undertaking managed by an author;zed controller under Section 18A lDR ActWhether entitled to payment of bonus.'
The Industries (Development and Regulation) Act 1951, Section 18A
Industrial' undertaking~Appointment of authorized controller-Such undertaking
whelher an industry carried on under the auth0r/ty of the Department of the
Central Government-Employees of undertaking whether entitled to payment of
bonus.
The Sick Textile Undertaking (National/sat/on) Act 1974, Sul/on 5(2J(C)
•wages, $alarles and other dues of the , emp/oyees'-JVhether includes statutory
· 1or.us payable under Bonus Act.
·
Words and Phrases : •Carried on by ·or' . under the authority of any
Jepartment of the Central G~vernment•-Meaning of_;_Section 32(JV) Payment of
Bonu1Act1965.
~
The appellant-Union served a notice of demand' for· the grant or
-....._bonus for the period 1964-6S to J967 .. 68. The matter was taken into conci ..
(
liation.
The Conciliation Officer recorded a failure, issued. a certificate
~
under Section 73A of the Bombay Industrial Relations Act, 1946 certifying
-.
that the dispute was not capable of being settled by conciliation. The Union
thereupon made four independent referenc!s to the Industrial Court, for the
•
grant of bonus for each of the four accounting years 1964-6S to 1967-68. The'
Union further alleged that it could not 'make a specific demand for bonus
calculated at a certain percentage of the salary as it had not got the requisite
infonnation about the fina.hcial position and the balance sheet of the
Employer, and that the Indu5trial Court should compute the bonus which
• ·
become~ payable under the Bon.·s Act, and award the same to the workmen.
The employer resisted the eferences contending that once a notified
order was issued uilder Section 1 81\ of the Industries (Development and
Regulation) Act, 1951 appointing all authorised controller in respect of an
industrial undertaking, it was run by the authorised controller under the
authority or a D~partment of the Central G~verrunent and therefore, in view·
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SUPREME COURT PEPORTS
[l 985) l.S.C.R
of the prov1s1ons contained in Section 32fIV) of the Bonus Act its einployees
were excluded from the application of the Bonus Act and the references must
consequently be rejected.
The Industrial Court upcld the aforesaid contention on behalf of the
en1ployer that having r~gard to_ the provisions. contained in Section 32(1V) of
the Bonus Act read V-.'Ith Section 18A of the IDR Act, the workmen employed
by the e1nployer,.wcrc excluded from the operation of the Bonus Act as it was
not applicable 'to the e111ployer. The Industrial Court howcve1 rejected the
alternative contention that even if the workn1cn c1nploycd by the employer
were not entitled to bouus under the Bonus Act, they were yet entitled to claim
bonus apart from the Bonus Act as a nonn of industrial relations by observing
that ::is the demand was made for bonus under the Bonus Act, and the alternative demand was not '.n1adc before the Conciliation Officer, the scope of
the references could not be enlarged to cover the same.
In the appeals to this Court on the questions :
(1) On the appointment of the authorised controller under Section 18A
of the IDR Act by the Central Government in respect of an industrial under_
taking whether the undertaking acquires the status of an establishment
engaged in an industry carried on under the authority of the Department of
the Central Government, and (2) Whether the employees employed in such an
industrial undertaking were excluded from the operation of the Bonus Act.
Allowing the Appeals,
HELD : l(a) If on the issue of a notified order appointing an authorised controlller under Sec. 18A Industries (Development and Regulation)
Act 1951, the management of the industrial undertaking undergoes a change,
yet it does not become an establishment engaged in an industry carried on by
the department of the Central Government, and therefore its employees would
not be excluded from the operation of the Payment of Bonus Act 1965 as
provided in Sec. 32(1V). [768 E-G]
Heavy Engineering Mazdoor Union v. The State of Bihar & Ors., [1969]
3 SCR 995 and M/s. Swadeshi Cotton Mills Thozhilalar She1nalana Padukappu
Union v. M/s. National Textile Corporation Ltd. & Ors, [1984] 1 L.L.J. 140,
referred to.
Carlsbad Mineral Water Mfg. Co. v. P.K. Sarkar, [1952] l L.L.J. 388;
Workmen, Karnataka P.F. Employees Union v. Additional Industrial Tribunal &
Anr., [1983] II L.L.J. 108; The Management of Bihar Khadi Gramodyog Sangh,
Muzaffarpur v. The State of Bihar & Ors., [1977] Lab. l.C. 466; Abdul Rehman
Abdul Gafur & Anr. v. Paul (Mrs. E.) & Ors., [1962) 2 L.L.J. 693; Bharat Glass
Works (Pvt.) Ltd. v. State of West Bengal & Ors; [1958] l L.L.J. 467 and Indian
Naval Canteen Control Board v, Jndastrial Tribunal, Ernakula111 & Anr., [1965]
II L.L,J. 366, approved.
D ,P. Kelkar, Amalner
I\qm. 124, over-ruled.
v. Ambadas Keshav Bajaj & Ors. 1 A,I,R. 197l
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MAZDOOR SANGH, v. r,IODEL MILLS,
753
1. (b) The Industrial Tribunal was clearly in error in rejecting the
references holding that the workn1en of the respondent were excluded from the
operation of the Bonus Act. [769 H]
I. (c) The Award of the Industrial Tribunal rejecting the references is
quashed and set aside and the matter remitted to the Industrial Tribunal for
disposal on merits. [769 H]
2. (a) The Industries (Dcvelop111ent and Regulation) Act, 195i, was
enacted to confer power on the Central Government to provide for developa
ment and regulations of scheduled industries. With a view to regulating the
industrial expflnsion of the country and to lay the infrastructure for the same,
the Central Government armed itself with the powers to order investigation
into the affairs of an industrial undertaking as also, if necessary of a schcdnled
industry as a wnole. The investigation n1ay be caused to be made where there
has been or 1ikely to be a substantial fall in the volun1e of production or
marked deterioration in the quality of an article or an unwarranted rise in the
price or for conserving any resources of national importance. On receipt of
the report of investigation, the Central Government could give necessary
directions. These directions are statutory in char; cter. [761 E-G]
2. (h) The Act provides not for taking over of the industrial under~
taking. It provides for control of management by giving directions or for
change of management. Where the industrial undertaking is owned by a
company. governed by the Con1panies Act in force at the relevant ti1ne, the
management would generally vest in the BoDrd of Directors, and/or the
Managing Director, as the case may be. Where It is <i firm or a proprietary
concern the partners or proprietors as the c<1sc 1nay be, would be in the saddle
of management. [761 H; 762 A-Bl
I
2. (c) On the issue of a notified order appointing an authorised
controller, the person in charge of management including persons holding
office as Managers or Directors of the industrial undertaking in1mediately
before the issue of the notified order shaJI be deemed to have vacated their
office as such. The contract of management between the industrial undertaking and any managing agent or any director theieof holding office imine~
diately before the issue of the notified order shall be deemed to have been
terminated. Subject to the limitation specified in Sec. 18E, the Companies
Act in force at the relevant time will continue to apply to such undertaking in
the same inanner as it applied thereto befor.:! the issuance of the notified order
under See. !SA. [762 B-E]
2. (d) The significant consequence that ensues on the issue of a noti·
fied order appointing an authorised controller is to divert the management
from the present managers and to vest it in the authorised controller. This
change of management does not tanarnount to either acquisition of the industrial undertaking or a take over of its ownership. The industtial undertaking
continues to be governed by the Companies Act or the P:lrtnership Act or the
relevant provisions of law aj,plicablc to a proprietory concern. The only
change is the removal of mana~ers and appointment of another n:ian[lger and
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SUPREME COURT PEPORTS
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to sa~e~uard his ~osition restriction on the rights of shareholders or partners
or or1g1nal proprietor. This is the net effect of the appointment of an authorised controller by a notified order. [762 F-H; 763 A-B]
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3. The expression 'under the anthority of and departn1ent of the
Central Govern1ncnt' would in ordinary parlance 111ean that the department is
directly responsible for the managen1ent of the industrial undertaking. This
responsibility may cover amongst others, financial responsibility as well.
Power to regulate n1anagement or control the managc1nent is entirely distinguishable from the power to run the industry under the authority of the
Central Government. [763 C-D]
4. The substitution of the n1anage1ncnt ordered under Sec. 1S.A does
not tantamount to the industrial undertaking being taken over by the
department of the Central Government. Nor could it be said to be run under
the authority of the department of the Central Government.
As the authorised contro11er enjoys all the powers of directors conferred by the relevant
provisions of the Companie!'! Act, he can exercise that power subject of course
to any restriction or limitation on his power specified in the notified order or
under the general supervision of the Central Government. But this power is
subject to the in-built limitation that it can be exercised for regulating the
management of the 'industrial undertaking. Neither,its identity nor its ownership is affected in "any manner. The change in personnel of management of
the industrial undertaking for a specified period can never n1ake the industrial
undertaking one engaged in an industry carried on under the authority of the
Central Government. [?63 E-G]
S. Under Sec, 16 of the IDR Act, the Central Government enjoys wide
powers to issue directions to the industrial undertaking as may be appropriate
in the circumstances for all qr any of the purpcses set out in the various subclauses of Sec. 16(1 ). This power to give directions witj1out appointing an
authorised controller or to appoint an aut-horised controller giving him specified directions is of a regulatory nature to be exercised with a view to regulating the managerial functions of an industrial undertaking so as to achieve
certain objects or to rectify tne mis-management in larger national interest
without in any manner affecting the identity, the status or the ownership of
the industrial undertaking, The appointment of the authorised controller
•Nould not make the industrial undertaking one run under the authority of the
department of the Central Government. WhiJe exercising power of giving
directions under Sec. 16 the existing management is subjected to regulatory
control, failing which the management bas to be replaced to carry out the
directions. In either case the industrial undertaking retains its identity, perso.
na!ity and status unchanged. [763 H ; 764 B-E]
6. The underlying purpose of Sec. 32(1V) of the Bonus Act is not to
exclude the employees of some stray etablishment from the operation of the
Act but to exclude alt employees of a11 establishments in any industry which is
carried on under the authority of the department of the Central Government.
[764 H]
7. The expression 'carried on by or under the authority of any departH
ment of the Central Governm1nt' qualifies tbc expression industry and not
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MAZDOOR SANGH, "· MODEL MILLS, (Desai, J.)
755
the expression 'establishment' as used in sub-sec. ·(iv) of Sec. 32 of the Bonus
A
Act. [765 A]
8. The intention of the framers of the Bonus Act was to exclude
employees employed in an establisment engaged in any industry which is
carried on by or under the authority of the department of the Central Government. It cannot be said that textile industry is being carried on under the
authority of the department of the Central Government. There may be
en1ployees in an industrial undertaking engaged in textile industry which may
have been established under the authority of the departlnent of the Central
Government. Ordinarily the Central Govern1nent would not like to treat an
industrial establishn1ent set up bY it in an industry in which there are other
private sector cstablishn1ents to differentiate and discrin1inate between
employees of establishments engaged i~ the same industry. [765 C-E]
9. The exception that is being carved out by Sec. 32(1V) is in respect
of employees of an industrial undertaking engaged in an industry carried on by
or under the authority of any department of the Central Government as a
whole and not individual establishments. [765 E]
10. The expression 'wages', salaries and other dues of the employees'
occuring in sub-cl. (e) of sub-sec. (2) of Sec. 5 of the Sick Textile Undertaking
(Nationalisation) Act, 1974 would without doubts include statutory bonus
payable under the Bonus Act. [770 E]
In the instant case, the liability arose for the period after the 1nanage1nent of the undertaking had been taken over by the Central Government by
appointing an authorised controller under Sec. 18A of the IDR Act. Therefore, the liability to pay the bonus if awarded would be of the National Toxtile
Corporation. [770 E-E]
CIVIL APPELLATE JURISDICTION : Civil Appeals No. 1619 to
1622 of 1971.
Appeals by Special Leave from the Award dated the 27th
November, 1970 of the Industrial Court, Maharashtra (Nagpur
Bench) Nagpur in References (I.C.N.) Nos. 13, 14, 15, and 19 of
1969 communicated to the parties on 14-1-1971.
M.K. Ramamurthi and A.G. Ratnaparlchi for the Appellant.
T.V.S.N. Chari Advocate for the Respondent
The Judgment of the Court was delivered by
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DESAI, J. Bonus has a tantalizing influence on industrial
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SUPREME COURT REPORTS
[1985] 1 s.c.1t
workers. They look forward to it with a craving, the degree of
which is immeasurublc.
And for the employees any form of bonus
has such a tremendous attraction that the time honoured concept of
its being a profit sharing formula to fill in the gap between the fair
wage and the living wage in the case of industrial workmen has been
for all practical purposes displaced by the Payment of Bonus Act
and bonus telescopmg into Government service where there being no
production and therefore it cannot be an incentive for higher production. And yet the management of The Model Mills, Nagpur
(Employer for short) has most successfully thwarted the meagre expectation of minimum bonus· to its workmen for full two decades.
Rashtriya Mill Mazdoor Sangh, appellant herein, ('Union' for
short) as an approved Union made four independent references under
Sec. 73A of the Bombay Industrial Relations Act, 1946 ('Act' for
short) against Model Mills Nagpur for grant of bonus for the period
1964-65 to 1967-68.
A separate reference was made in respect of
. each accounting year. The Union as representative Union of the employees served a notice of change making the demand for bonus.
The matter was taken into conciliation. The Conciliation Officer
recorded a failure on June 23, 1969 and issued a certificate under Sec.
73A of the Act certifying that the dispute was not capable of being
settled by conciliation. Armed with the power of an approved Union
the union made the aforementioned four references to the Industrial Court. The Union demanded bonus for each of the four accounting periods according to the provisions of the Payment of Bonus Act,
1965 (Bonus Act' for short). The Union could not make a specific demand for bonus calculated at a certain percentage of the salary alleging that as it has not got the requisit·' information about financial
position and balance sheet of the Employer, the Industrial Court
should compute the bonus which becomes payable under the Bonus
Act, and award the same to tile workmen of the Employer.
The employer resisted the references on diverse grounds. It
was contended that once a notified order is issued under Sec.
!SA
of the Industries (Development and Regulation) Act, 1951 (!DR
Act short) appointing an authorised controller in respect of an industrial undertaking, it is run by the authorised controller under the
authority of a Department of the Central Government and therefore, in view of the provision contained in Sec. 32(\V) of, the Bonus
Act its employees are excluded from the application of Bonus Act
and the references must accordingly be rejected.
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MAZDOOR SANGH v. MODEL MILLS (Desai, J.)
757
This contention found favour with the Industrial Court. The
learned Member with the consent of the parties directed that the
issue with regard to tho application of the Bonus Act may be tried
as a preliminary issue. The learned Member upheld the contention
on behalf of the employer observing that having regard to the provision contained in Sec. 32(IV) of the Bonus Act read with Sec.
J SA of the !DR Act, the workmen employed by the employer are
excluded from the operation of the Bonus Act as it is not applicable
to the employer. The )earned Member rejected the alternative
contention that even if the workmen employed by the employer are
not entitled to bonus under the Bonus Act, they are yet entitled to
claim bonus apart from the Bonus Act as a norm of industrial relation observing that as the demand was made for bonus under the
Bonus Act and the a Jternative demand was not made before the
Counciliator, the scope of the references cannot be extended to
cover the same.
Accordingly, all the four references were rejected.
Heuce these appeals by special leave.
On the rival contentions following questions arise in these
appeals :
(1) On the appointment of an authorised controller under
Sec. ISA of the !DR Act by the Central Government in
respect of an industrial undertaking, does it acquire the
status of an establishment engaged in an industry carried
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on under the authority of the Department of Central
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Govt.
(2) If the answer to the first question is in the affirmative,
whether the employees employed in such industrial undertaking are excluded from the operation of the Bonus
Act.
At the outset, a few statutory provmons which will have a
bearing and impact on the issues under examination may be noticed.
The Industries (Development and Regulation) Act, 1951 was.
enacted to provide for development and regulation of scheduled
industries. Chapter Ill confers power on the Central Government
for regulation of scheduled industries.
'Scheduled industry' is defined in Sec. 2(i) to mean any of the industries specified in tre First
Schedule. Textiles constitute a scheduled industry. lts entry is at
plecitum 23 in First Schedule. Sec. 15 confers power on the (:::entral 1,
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(1985] 1 S.C.R.
A Government to cause investigation to be made into scheduled industries or industrial undertaking for the purposes therein set out. Sec.
I SA confers similar power to direct investigation into the affairs of a
company in liquidation owning an industrial undertaking. This
specific power was conferred by introducing Sec. I SA in the Act by
the Amending Act 72 of 1971 because a company which is being
B wound up under the orders of the court cannot be directly dealt
with by the Central Government without the intervention of the
court. Sec. 16 confers power on the C~ntral Government to give
directions on completion of an investigation under Sec.
15 to the
industrial undertaking for the following purposes :
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"(a) regulating the production of any article or class of
aricles by the industrial undertaking or undertakings
and fixing the standards of production ;
(b) requiring the industrial undertaking or undertakings to
take such steps as the Central Government may consider necessary to stimulate the development of the
industry to which the undertaking or undertakings
relates or relate ;
(c) prohibiting the industrial undertaking or undertakings
from resorting to any act or practice which might
reduce its or their production, capacity or economic
value;
(d) controlling the prices, or regulating the distribution,
·of any article or class of articles which have been the
subject matter of investigation."
Chapter Ill-A which was introduced by Amending Act'26 of
1954 conferred power on the Central Government to assume management or control of an industrial undertaking in certain cases. Sec.
18A(l) is relevant for the present purpose and it may be extracted:
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. "18-A(l) : If the Central Government is of opinion that:
(a) an industrial undertaking to which directions have
been issued in pursuance of Section 16 has failed to
· comply with such directions, or
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(b) an industrial undertaking in respect of which an in-
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NAZDOOR SANGH v. MODEL MILLS, (Desai, J.)
759
vestigation has been made under Section 15 (whether
or not any directions have been issued to the undertaking in pursuance of Section 16), is being managed in
a manner highly detrimental to the scheduled industry
concerned or to public interest, the Central Government may by notified order authorise any person
or body of persons to take over the management of
the whole or any part of the undertaking or to exercise
in respect of the whole or any part of the undertaking
such functions, of control as may be specified in the
order."
Section 18A confers power on the Central Government
either to ~ssume management of an industrial undertaking or to
control its management. The power to assume management of an
industrial undertaking can be exercised by a notified order appointing an authorised controller to take over the management of the
whole or any part of the undertaking. The Central Government
may exercise in respect of the whole or any part of the undertaking
such functions of control as may be specified in the order. Sec. 18B
provides for the consequences that may ensure on the issue of a
notified order under Sec. l 8A authorising the taking over of the
management of an industrial undertaking. Two consequences
worth-noticing arc those set out in sub-cl. (b) and (c) of Sec. J8B
(I). They may be extracted :
"(b) any contract of management between the industrial
nndertaking any managing agent or any director' thereof holding office as such immediately before the issue
of a notified order shall be deemed to have been terminated.
(c) the persons, if any, authorised under Section 18-A to
take over the management of an industrial undertaking
which is a company shall be for all purposes the directors of industrial undertaking duly constituted under
the Indian Companies Act, 1913 (7 of 1913), and shall
alone be entitled to exercise all the powers of the
directors of the industrial undertaking, whether such
powers are derived from the said Act or from the
memorandum or articles of association of the industrial undertaking or from any other source."
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SUPREME COURT PEPORTS
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Section 18-E provides for continued application of the Companies Act then in force to the industrial undertaking in respect of
which an authorised controlkr is appointed under Sec. 18-A subject to the limitations therein specified as il applied prior to the
notified order. Sec. 18-F conferred power on the Central Government to cancel the notified order.
Sec- 32(iv) of the Bonus Act reads as under :
"Nothing in this Act shall apply to-
(iv) employees employed by an establishment engaged
in any industry carried on by or under the authority of
any department of the centra', Government or a State
Government or a local authority."
The question is : whether on the issue of a notified order under
Sec. 18-A appointing an authorised controller in respect of an
industrial undertaking governed by the !DR Act, the employees of
such undertaking are excluded from the application of the Bonus
Act for the only reason that they are or have become the employees
of an establishment in an industry carried on under the authority
of the department of Centra 1 Government.
The Bonus Act provides for payment of bonus to persons employed in certain establishments and for matters connected therewith.
Sub-Sec. (3) of Sec.
1 provides that save as otherwise provided in the Bonus Act, it shall
apply to-(a) every factory ; (b) every other establishment in which
twenty or·more persons are employed on any day during an account
ing year. Sec. 32 excludes the application of the Bonus Act to the
employees therein enumerated. E'cluding Sec. 32 for the time being,
it cannot be disputed that the Bonus Act would apply to the industrial undertaking of the employer. Is the application of Bonus
Act excluded on the ground that on the issuance of a notified order
appomtmg an
authorised
controller
under Sec.
18-A of the IDR Act, because the employees of the respondents can be said to have been employed by an establishment engaged in any industry carried on or by or under the
authority of any department of the Central Government.
Can it be
said that on the appointment of an authorised controller, the industrial undertaking of the respondent acquired the status of an establishment engaged in textile industry carried on by or under the authority of a department of the Central Government? ln order to attract Sec. 32(iv) it must be shown that the employees sought to be ex1
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eluded from the operation of theBonus Act have been employed by
an establishment engaged in any industry carried on by or under the
authority of the department of the Central Government. It was conceded that it cannot be mid that on the appointment of an authorised controller, the industrial undertaking acquired the status of an
establishment engaged in textile industry carried on by the department of the Central Government. It was, however, strenuously
urged that it was an establishment engaged in the industry carried
on under the authority of the department of the Central Government. Shorn of embellishment, the question is: whether on the
appointment of an authorised C8ntroller, did the industrial undertaking acquire the status. of an establishment engaged in the industry which is carried on under the authority of the department of
the Central Government?
!DR Act was enacted as its long title shows to confer power
on the Central Government to provide for development and regulation of scheduled industries.
The Statement of Objects and Reasons shows that the object behind the enactment was to provide
the Central Government with the means of implementing their industrial policy and for that purpose to extend the control of the
Central Government over the development and regulation of a
number of important industries the activities of which affect the
country as a whole and the development of which must be governed
by economic factors of all India import. The Act amongst others
confers power 9n the Central Government for regulating the production and development of the scheduled industries.
Broad scheme of
the Act shows that with a view to regulating the industrial expansion of this country on the threshold of development and to lay the
mfrastructure for the same, the Central Government was armed with
powers to order investigation into the affairs of the industrial undertaking as also. if necessary of a scheduled industry as a whole. The
investigation may be caused to be made where there has been or
likely to be a substantial fall in the volume of production or mar•,
ked deterioration in the quality of article or an unwarranted rise in
the price or for conserving any resources of national importance .
On receipt of the report of investigation, the Central Government
could give necessary directions.
These dlrections are statutory in
character and they may be disobeyed on the pain of the management being divested from those incharge and vested in authorised
controller, who may be appointed by the Central Government.
Therefore, the Act provides not for taking over of the industrial
undertakings. It provides for control of management by giving
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directions or for change of management. Where the industrial undertaking is owned by a company governed by the Companies Act in
force at the relevant time, the management would generally vest in
the Board of Directors, and or the Managing Director, as the case
may be. Where it is a firm or a proprietary concern the partners
or the proprietor, as the case may be, would be in the saddle of
management. On the issue of a notified order appointing an authorised controller, the person in charge of management including
persons holding office as Managers or Directors of the industrial
undertaking im:nediately before the issue of the notified order shall
be deemed to have vacated their office. as such. (Sec. 18-B(I).
Further the contract of management between the industrial undertaking and any managing agent or any director thereof holding
office as such immediately before the issue of the notified order
shall be deemed to have been terminated. (Sec.18-B{l)(b). But
the most important consequence that ensues on the issue of a notified order is to confer by a deeming fiction the position and powers
of a director as duly constituted under the Companies Act on the
authorised controller and he alone shall be entitled to exercise all
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the powers of the directors of the industrial undertaking, whether
such powers are derived from 'the Companies Act or from the
memorandum or article of association of the industrial undertaking or from any other source. (Sec. 18-B(I) (e). Further
subject to the limitation· specified in Sec. 18-E, the Companies
Act in force at the relevant time will continue
to apply to such
undertaking in the same manner as it applied thereto before the
issue of the notified order under Sec. 18-A.
Thus the significant consequence that ensues on the issue of a
notified order appointing authorised controller is to divert the management from the present managers and to vest it in the authorised
controller. Undoubtedly, the heading of Chapter III-A appears to
be slightly misleading when it says that the Central Government on
the issue of a notified order assumes direct management of the
industrial undertaking. In effect on the issuance of a notified order,
only the management of the industrial undertaking undergoes a
change. This change of management does not tantamount to either
acquisition of the industrial undertaking or a take over of its ownership because if that was to be the intended effect of change of management, the Act would h:ive been subjected to challenge of Art. 31
and 19(1)(0 of the Constitution. One can say confidently that was
not intended to be the effect of appointment of an authorised controller. The industrial underiaking continues to be governed by the
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MAZDOOR SANGH v. MODEL MILLS (DesaiJ, .)
763
Companies Act or tile Partnership Act or the relevant provisions of
law applicable to a proprietary concern. The only change is the
removal of managers and appointment of another manager and to
safeguard his position restriction on the rights of shareholders or
partners or original proprietor. This is the net effect of the appointmrnt of an authorised controller by a notified order .
Can it then be said that on the issne of a notified order appointing an authorised controller, the industrial undertaking is engaged in the industry carried on under the authority of the department af the Central Government. The expression 'under the authority of any department of the Central Government' would in
ordinary parlance mean that the department is directly responsible
for the management of the industrial undertaking. This responsibility
may cover, amongst others, financial responsibility as well. Power
to regulate management or control the management is entirely distinguishable from the power to run the industry under the authority
of the department of the Central Government. The substitution of
the management ordered under Sec. 18-A does not tantamount to
the industrial undertaking being taken over by the department of
the Central Government. Nor contd it be said to be run under the
authority of the department of the Central Government. In fact. as
the authorised controller enjoys all the powers of directors conferred
by the relevant provisions of the Companies Act, he can exercise
that power subject of course to any restriction or limitation on his
power specified in the notified order or under the general supervi~
sion of the Central Government. But this power is subject to the
in-built limitation that it can be exercised for regulating the mauagement of the industrial undertaking. Neither its identity nor its
ownership is affected in any manner. This change in personal of
management of the industrial undertaking for a specified period
can never make the industrial undertaking i one engaged in an industry carried on under the authority of the Central Government. On
a pure grammatical construction, of the expression 'establishment
engaged in an industry carried on under the authority of the department of the Central Government' cannot take in one in respect of
which the Central. Government in exercise of the power conferred
by IDR Act directed a change of management.
The conclusion in the preceding paragraph can be reached by
a different route.
Under Sec. 16 of the IDR Act, the Central government enjoys
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be appropriate in the circumstances for all or any of the purposes set
out in various sub-clauses of Sec. 16(1). The scheme of the Act shows
that while retaining the original management, the ,Central Government gives necessary directions for the aforementioned purposes
to achieve a certain result. If the desired result is not achieved, the
Central Government enjoys a consequential power of changing the
management by appointing an authorised controller so as to achieve
the same result.
This power to give directions without appointing
an authorised controller or to appoint an authorised controller giving
him specified directions is of a regulatory nature to be exercised
with a view to regulating the managerial functions of the management of an industrial undertaking so as to achieve certain objects
or to rectify the mismanagement in larger national interest without
in any manner affecting the identity, the status or the ownership of
industrial undertaking. It could by no stretch of imagination be
urged that on the exercise of the power to give directions under
Sec. 16, the industrial undertaking could be said to be engaged in
any industry carried on under the authority of the department of
the Central Government.
Ipso facto the appointment of an authorised controller would not make the industrial undertaking one' run
under the authority of the department of the Central Government.
While exercising power of giving directions under Sec. 16 the existing management is subjected to regulatory control, failing which the
management has to be replaced to carry out the directions. In either
case the industrial undertaking retains its identity, personality and
status unchanged. On a pure grammatical construction of sub-sec.
(4) of Sec. 32, it cannot be said that on the appointment of an authorised controller the industrial undertaking acquires the status of
being engaged in any industry carried on under the authority of the
department of the Central Government.
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Viewed from a slightly different angle, it appears that the expression 'carried on by or under the authority of any department of
the Central Government 'qualifies the expression 'industry' and not
the expression 'establishment' as used in sub-sec. (4) of Sec. 32 of
the Bonus Act.
Again on a pure grammatical construction it appears that where an industry is being carried on under the authority
of any department of the Central Government, the employed in an
establishment in such an industry would be excluded from the opera
ti on of the Bonus Act. The underlying purpose of Sec. 32(iv) is not to
exclude the employees of somestary establishment from the operation
Act but to exclude all employees of all establishment in any industry which is carried on under the authority of the department of the
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MAZDOOR SANGH v. MODEL MILLS (Deswi, J.)
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Central Government. If the expression 'carried on by or under
the authority of the department of the Central Government' qualifies the expression 'establishment' it would lead to a startling result
unintended by the framers of the Boirns Act. Let us illustrate it.
There are two industrial undertakings engaged in the same industry
situated side by side. In one case the management being incompetent or remiss,, an authorised Controller is appointed, If the construction canvassed for on behalf of the respondent is accepted the
employees of one would be excluded from the application of the
Bonus Act and not the other though both are industrial undertaking
engaged in the same industry. The framers of the Bonus Act which
went to the length of making payment of bonus obligatory on
industrial undertakings incurring losses could not have intended to
treat the employees with such gross discrimination. On the contrary,
it appears that the intention was to exclude employees employed in
an establishment engaged in any industry which is carried on by or
under the authority of the department of the Central Government.
It cannot be said that textile industry is being carried on under the
authority of the department of the Central Goven1ment. There may
be employees in an industrial undertaking engaged in textile industry which may have been established under the authority of the department of the Central Government.
Ordinarily the Central
Government would not like to treat an establishment set up by it
in an industry in which there are other private sector establishments
to differentiate and discriminate between employees of establishments engaged in the same industry. It, therefore, appears that the
exception that is being carved out by Sec. 32(4) is in respect of
employees of an industrial undertaking engaged in an industry carried on by or under the authority of any department of the Central
Government as a whole and not individual establishments. All establishments in that industry which is carried on by or under the authority of the department of the Central Government would be
excluded from the operation of the Bonus Act.
Having examined the matter- on principle, let us turn to some
precedents to which our attention was drawn.
Sec. 2(a) of the Industrial Disputes Act, 1947 defines 'appropriate Government' to mean (leaving aside the words which are
not relevant for our purpose 'in relation to any industrial dispute
concerning any industry carried on by or under the authority of the
Central Government, ......... the Central Government.' The expresA
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Central Government. This expressl?n came up for consideration
before this Court in the cont.en of~· :11.lustrial diSpute between a
Government Company as com prehtt1cled. \lithin the meaning of the
expression in Sec. 617 of the Companies Act.