The Management of Best and Crompton Engineering Ltd. Vs. the Presiding Officer, I Addl. Labour Court, - Court Judgment

R. Jayasimha Babu, J.

1. The employer's claim that it had transferred its undertaking and, therefore, the offer of employment to the claimants before the Labour Court by the alleged transferee was sufficient compliance with Section 25FF and that the appellant employer was not liable to pay any amount to the claimants or to retain them in service was accepted by the Labour Court, but has been negatived by the learned single Judge, at the instance of the workmen who had challenged that award in the writ petition. The employer is in appeal before us.

2. It is the case of the employer/appellant that it was manufacturing lifts besides other items and that the lift factory was functioning at Thondayarpet High Road. It had been manufacturing lifts at a different location from 1959. The shift to the Thondayarpet High Road was in the year 1961. The premises at which the lift was being manufactured between 1959 and 1961 also contained a foundry and that foundry was registered as a separate factory. After the shift of the manufacturing facility for lifts a separate factory licence was obtained for the lift factory. By the year 1978, the company had established a factory at Ambathur and shifted the foundry also to Ambathur. It had also by then commenced manufacture of new items like train lighting alternators, DC Motors for railways, etc. in the lift factory.

3. The appellant company, in the year 1984, entered into a collaboration agreement with M/s Kone Corporation for the manufacture of lifts and for that purpose it incorporated a new company called, Beacon Kone Ltd., which put up factory at Ayanambakkam. That collaboration agreement was preceded by an agreement with 'Finish Fund for Industrial Development Co-operation Ltd.' which agreement had contemplated the setting up of a new company, which was to enter into an agreement with the appellant for the purchase of the equipments and the business relating to the appellant's lifts Division and also to pay amounts for the goodwill of that business. However, no such agreement appears to have been entered into and there was no evidence placed before the Labour Court to show that any part of the assets of the appellant relating to the lifts Division was taken over by the new company Beacon Kone Limited, which incidentally is a company in which over 50 per cent of the shares are held by the appellant. There is also no evidence about any amount having been paid by Beacon Kone to the appellant company. The witnesses examined for the management who included an employee of the subsidiary company Beacon Kone Ltd., did not claim that any asset of the appellant company relating to lift division had been transferred to Beacon Kone Ltd., or that any payment had been made therefore by Beacon Kone to the appellant. The appellant's case also was that the new company put up a new factory at a different location and that over a period of time some of the workmen who had been working with the appellant were asked to go over and join the factory at Ayanambakkam put up by the newly formed company. It is not the case of the appellant that any part of the machinery that had been installed for its lift factory was handed over to Beacon Kone Ltd., or that any payment was received from Beacon Kone for anything done by the appellant company.

4. The evidence on record also establishes that the company did not regard the manufacture of lifts as a distinct division. On the other hand, the factory in which the lifts were manufactured was also the location where several items such as the train lighting alternators, DC Motors for railways, etc. were manufactured and the manufacture of those other items continued even after the appellant ceased to manufacture lifts from the end of the year 1987. It was admitted by the management witnesses that there was one set of standing orders applicable to all; that separate accounts were not being maintained for the lift factory and that there was no further sub-division therein as between the operations relating to the manufacture of lifts and the operation relating to the manufacture of electrical machinery. It was further brought out in evidence that the workmen were bound to work at whichever location the appellant chose among its different units and that those employed in the lift factory worked on the manufacture of the lifts as also on the manufacture of electrical machinery. There was one muster roll for the entire factory. The standing order was a single set of standing orders applicable to all those working in the factory. It was also shown in evidence that even as late as in December 1988 the appellant had appointed a workman to the lifts division, even though it has claimed that it stopped manufacturing of lifts in December 1987 and even though the agreement that was entered into by the appellant with Finish Fund for Industrial Development Co-operation Ltd., several years prior to the establishment of the newly incorporated company, contemplated the transfer of the maintenance contracts in relation to the lifts to the newly formed company.

5. It is evident from the foregoing that although initially the appellant had contemplated transferring the assets of the lift manufacturing section together with the business relating to lifts and its maintenance to the newly incorporated company, that was not done after its incorporation and, on the other hand, the newly formed company set up a factory of its own apparently with new and more modern machinery, at an entirely different location. There is no evidence whatever to show of any assets having been transferred from the appellant to that company nor is there any evidence to show the receipt of any money for anything done by the appellant for the benefit of that company. All that appears to have been done is that the workmen who had worked with the appellant were offered jobs in the newly formed company and those styled as transferees were in fact persons who consented to accept employment in the new company which had assured them of the benefit of the services rendered by them under the appellant and had also undertaken to pay the same scale of wages and other benefits which they had been receiving under the appellant.

6. The Labour Court was completely in error in holding, in the face of this evidence, that the lift division was a distinct and separate division and that there had been a transfer of the ownership and management of that division to Beacon Kone Limited. The learned single Judge, in our view, was right in holding that the Labour Court had committed such error and in recording the finding that there was infact no transfer of the undertaking at all so as to attract Section 25FF of the Industrial Disputes Act and that the appellant had not complied with the requirements of law while denying employment to the workmen, who had raised the dispute.

7. Learned Senior Counsel for the appellant/employer, Sri. R. Thiagarajan, submitted that the word 'undertaking' used in Section 25FF is a term of general import which takes within its fold a part of the business and, thus viewed, the transfer of even a part of the business amounts to transfer of the entire undertaking and would suffice to attract Section 25FF of the Act. Learned counsel in this context invited our attention to the decision of the Apex Court in the case of Management, Hindustan Steel v. Workmen : wherein it was observed by the Apex Court at paragraph 10 thus:

'The word undertaking as used in Section 25FF seems to us to have been used in its ordinary sense connoting thereby any work, enterprise, project or business undertaking. It is not intended to cover the entire industry or business of the employer as was suggested on behalf of the respondents. Even closure or stoppage of a part of the business or activities of the employer would seem in law to be covered by this Section'

Section 25FFF, which was referred to in that judgment deals with compensation to workmen in case of closure of undertakings. It refers to the closure of an undertaking for any reason whatever and provides for compensation in the manner provided under that section, to workmen in continuous service for the period specified therein.

8. Section 25FF, which deals with transfer of undertaking, in its opening part reads thus:-

'25FF. Compensation to workmen in case of transfer of undertakings:- Where the ownership or management or an undertaking is transferred whether by agreement or by operation of law, from the employer in relation to that undertaking to a new employer, every workman who has been in continuous service for not less than one year in that undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of Sec. 25FF, as if the workmen 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 not been interrupted by such transfer;

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 such transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.'

9. The sine qua non for invoking Section 25FF is transfer of the management or ownership of undertaking. Absent such transfer, the Section would have no relevance to this dispute. This provision was considered by a three Judge Bench of the Apex Court in the case of Madho Ram and Sons v. The Workmen : The Court after posing the question 'Does Section 25FF apply at all?', observed at paragraph 11 thus:-

'It would be noticed that the first and foremost condition for the application of Section 25FF is that the ownership or management of an undertaking is transferred from the employer in relation to that undertaking to a new employer. What the section contemplates is that either the ownership or the management of an undertaking should be transferred; normally this would mean that the ownership or the management of the entire undertaking should be transferred before Section 25FF comes into operation. If an undertaking conducts one business, it would normally be difficult to imagine that its ownership or management can be partially transferred to invoke the application of S. 25FF. A business conducted by an industrial undertaking would ordinarily be an integrated business and though it may consist of different branches or departments they would generally be inter-related with each other so as to constitute one whole business. In such a case, Section 25FF would not apply if a transfer is made in regard to a department or branch of the business run by the undertaking and the workmen would be entitled to contend that such a partial transfer is outside the scope of S. 25FF of the Act.'

10. The Court further elaborated on the scope of Section 25FF, at paragraph 12 thus:-

'It may be that one undertaking may run several industries or businesses which are distinct and separate. In such a case, the transfer of one distinct and separate business may involve the application of S. 25FF. The fact that one undertaking runs these businesses would not necessarily exclude the application of Section 25FF solely on the ground that all the businesses or industries run by the said undertaking have not been transferred. It would be clear that in all cases of this character the distinct and separate businesses would normally be run on the basis that they are distinct and separate, employees would be separately employed in respect of all the said businesses and their terms and conditions of service may vary according to the character of the business in question. In such a case, it would not be usual to have one muster roll for all the employees, and the organisation of employment would indicate clearly the distinctive and separate character of the different businesses. If that be so then the transfer by the undertaking of one of its businesses may attract the application of S. 25FF of the Act.'

11. Subsequently, a four Judge Bench of the Apex Court in the case of Management of Wenger and others v. Workmen : while considering the question as to whether industrial establishments owned by the same management constitute separate units or one establishment, held that 'several factors are relevant for deciding this question and that the significance to be attached to those factors would not be the same in each case'.

12. In the case of S.G. Chemicals and Dyes Employees' Union v. Management : a case which involved consideration of Section 25-O, a two Judge Bench of the Apex Court noticed thus:-

'The term 'undertaking' though it occurs in several sections of the Industrial Disputes Act, as for instance, Sections 25FF, 25-FFA and 25-FFF, is not defined anywhere in the Act. Even the new clause (ka) which was inserted in Section 2 by the Amendment Act, 1982, defines the expression 'industrial establishment or undertaking' and not the term 'undertaking' simpliciter. It would appear from the opening words of clause (ka), namely, ''industrial establishment or undertaking' means an establishment or undertaking in which any industry is carried on', that the term 'undertaking' in that definition applies to an industrial undertaking. It would thus appear that the word 'undertaking' wherever it occurs in the Industrial Disputes Act, unless a specific meaning is given to that term by the particular provision, is to be understood in its ordinary meaning and sense....'.

'...the word 'undertaking' in the expression 'an undertaking of an industrial establishment' in Section 25-O means an undertaking in its ordinary meaning and sense as defined by this Court in the case of Hindustan Steel Ltd. :Section 25-O would apply to the closure of the undertaking provided the condition laid down in Section 25-K is fulfilled.'

13. Applying the test laid down by the Supreme Court it is not possible to regard the manufacture of the lifts in the lift factory, wherein electrical machinery was also being manufactured, as constituting a distinct undertaking which was capable of being transferred and on the transfer of which the employer would be entitled to claim the benefit of Section 25FF.

14. In this case, there is no transfer at all whether of the lift division or any other division. The evidence placed by the employer before the Labour Court does not in the least prove that it has transferred anything to the newly formed company Beacon Kone Ltd. Although it had contemplated the transfer of the lift division several years prior to the formation of the company Beacon kone Ltd. that obviously was not done. That newly formed company having decided to set up a new factory at an entirely different location, it has not chosen to take any part of the machinery or any part of the business of the appellant. Needless to say, the burden was clearly on the appellant to substantiate its claim that it was entitled to claim the benefit of Section 25FF and that it had transferred its undertaking. But the appellant had failed to place before the Labour Court any evidence to show that there was in fact a transfer of the lift division and such transfer would enable it to claim the benefit of Section 25FF.

15. As the necessary facts to hold that there was a transfer are absent in this case, further consideration of Section 25FF is unnecessary. Even if one were to assume that there was a transfer of the lift section, it is difficult to regard that section as a separate undertaking, as in the same factory workmen were employed in the manufacture not only of the lifts but also of electrical machinery and, even after the appellant stopped manufacture of lifts, work on the manufacture of electrical machinery continued and persons far junior to these workmen were retained in service, and further that division was later transferred to a different location and the workman continued to be employed therein. The tests laid down by the Apex Court in the case of Madho Ram and Sons v. The Workmen : have not been satisfied in this case. The witnesses examined for the management have clearly stated that a common muster roll was maintained; that the workmen could be deployed either on the manufacture of lift or on the manufacture of electrical machinery; that the lift division was not regarded as a separate entity; that separate accounts were not maintained and that the wages paid to the workmen employed in those locations were uniform. No separate seniority list was produced to substantiate the claim made by one of the witnesses of the management that a separate list did exist.

16. We are compelled to observe that the management has not been honest in the manner in which it has chosen to disclose the facts to the Labour Court. The reliance placed by it on an agreement which was not followed up by any further act to carry out the things contemplated in the original agreement was not quite fair on the part of the management. To try to make out a case on the basis of what was only contemplated instead of what was actually done was not a conduct which can be regarded as proper and which is expected of a respectable employer.

17. In the result, we do not find any warrant for interfering with the finding of the learned single Judge that there was no transfer under Section 25FF of the Industrial Disputes Act. We cannot, however, uphold the direction given for the payment of interest on back wages and the further direction that supernumerary posts should be created to accommodate the workmen. That however does not mean that they need not be reinstated. The workmen are entitled to reinstatement. They are also entitled to back wages.

18. While affirming the judgment of the learned single Judge that there has been no transfer of the undertaking and that the workmen are entitled to be reinstated with back wages, the directions for payment of interest on back wages and creation of supernumerary posts are set aside.