2001 (2) TMI 955 - SC - Companies Law

Whether there is a closure of the company within the meaning of the Industrial Disputes Act, 1947 ? Whether the agreement dated 25-8-1965 is capable of enforcement ? Whether the workers are workmen or entitled to prefer any claim on the basis of the agreement dated 25-8-1965? Whether the transferor-company or the transferee-Corporation can assert that there has been closure and further that agreement is not capable of enforcement? Held that - Here there has been no transfer for the undertaking from the company to the Corporation as found by the Tribunal and upheld by the High Court, because by order made by the company court, the scheme of arrangement was to close down the company and what was taken over by the Corporation was a separate arrangement. Therefore, in the eye of the law, what is to be held is that the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer and every workman who has been in service for more than ten (one ?) year in that undertaking immediately before such closure shall be entitled to notice and compensation in accordance with the provision of section 25F, as if the workman has been retrenched. In case where an undertaking is closed down by reason of financial difficulties as was the position in the present case, it cannot be deemed to have been closed down on account of unavoidable circumstances beyond the control of the employer. Therefore, if an application is made by the workmen or by the union on their behalf before a Labour Court under section 33C(2), it will be proper for the Labour Court to examine the claims under section 25FFF of the Industrial Disputes Act, of each of these workmen and award compensation accordingly, which shall be payable by the Union of India and to those proceedings, the erstwhile company and the Union of India shall be parties. Thus direct the Labour Court concerned on the filing of such applications to dispose of the same within a period of three months

Summary

Issues Involved:
1. Whether there is a closure of the company within the meaning of the Industrial Disputes Act, 1947.
2. Whether the agreement dated 25-8-1965 is capable of enforcement.
3. Whether the workers are workmen or entitled to prefer any claim on the basis of the agreement dated 25-8-1965.
4. Whether the transferor-company or the transferee-Corporation can assert that there has been closure and further that the agreement is not capable of enforcement.
5. Whether River Steam Navigation Co. Ltd. has been closed down within the meaning and contemplation of section 25FFF of the Industrial Disputes Act.
6. Whether the said company has been transferred to Central Inland Water Transport Corpn. Ltd.
7. Whether section 25FF of the Industrial Disputes Act is attracted to the present case.
8. Whether the settlement dated 25-8-1965 is binding on Central Inland Water Transport Corpn. Ltd.
9. Whether the workmen who were employed by the said company have a right to be continued in service by the said Corporation and whether the refusal of the said Corporation to absorb them is wrongful.
10. To what relief, if any, are the workmen entitled.

Detailed Analysis:

Issue 1: Closure of the Company within the Meaning of the Industrial Disputes Act, 1947

The Tribunal found that the scheme of arrangement itself sets at rest the matter. Clause 8 of the scheme of arrangement indicated that upon approval of the scheme by the court, the existing company shall be closed and upon payment to all the creditors, the existing company shall be dissolved without winding up. Pursuant to the approval of the scheme of arrangement, a notice of closure was obtained in various newspapers. The Tribunal held that there is a complete closure of the company with effect from 3-5-1967 and thus answered Issue 1 against the appellant union.

Issue 2: Enforceability of Agreement Dated 25-8-1965

The Tribunal noted that there is no agreement or settlement to which the Corporation is a party and the binding effect on the company, which is not in existence and which was not a party to the settlement, cannot be agitated. Therefore, the agreement dated 25-8-1965 was not enforceable against the Corporation.

Issue 3: Workers' Entitlement to Claims Based on the Agreement Dated 25-8-1965

The Tribunal held that the scheme does not provide for any right to continuation in service in the Corporation in respect of former employees of the company. The scheme of arrangement provided that it was left with the bona fide discretion of the Corporation as to the number of employees it could take. Thus, there was no right to continue in employment with the Corporation.

Issue 4: Assertion of Closure and Enforceability of the Agreement by Transferor-Company or Transferee-Corporation

The Tribunal concluded that the transferee Corporation has no obligation whatsoever in relation to payment of compensation, etc., to the workmen as per the list attached and these workmen are not entitled to any relief whatsoever.

Issue 5: Closure of River Steam Navigation Co. Ltd. under Section 25FFF of the Industrial Disputes Act

The Tribunal found that the company was closed down within the meaning and contemplation of section 25FFF of the Industrial Disputes Act. The High Court upheld this finding, and the Supreme Court affirmed that the closure was due to financial difficulties.

Issue 6: Transfer of the Company to Central Inland Water Transport Corpn. Ltd.

The Tribunal observed that there was no provision for transfer of the undertaking in the Scheme. The High Court and the Supreme Court both upheld this view, indicating that there was no transfer of the undertaking from the company to the Corporation.

Issue 7: Applicability of Section 25FF of the Industrial Disputes Act

The Tribunal held that section 25FF of the Industrial Disputes Act is not attracted in the present case as there was no transfer of undertaking. Consequently, the payment of compensation under this section would not arise.

Issue 8: Binding Nature of the Settlement Dated 25-8-1965 on Central Inland Water Transport Corpn. Ltd.

The Tribunal recorded a finding that the settlement dated 25-8-1965 is not binding on the Corporation since the Corporation was not a party to the settlement.

Issue 9: Right of Workmen to be Continued in Service by the Corporation and Wrongfulness of Refusal to Absorb Them

The Tribunal held that the scheme does not provide any right to continuation in service in the Corporation for former employees of the company. The High Court and the Supreme Court affirmed that the Corporation's refusal to absorb the workmen was not wrongful.

Issue 10: Relief Entitlement of the Workmen

The Supreme Court directed that the workmen are entitled to compensation in case of closing down of an undertaking. The Labour Court should examine the claims under section 25FFF of the Industrial Disputes Act and award compensation accordingly, payable by the Union of India. The erstwhile company and the Union of India should be parties to these proceedings.

Conclusion

The Supreme Court allowed the appeal in part, directing the Labour Court to dispose of the claims within three months. The workmen are entitled to compensation under section 25FFF of the Industrial Disputes Act, payable by the Union of India. The appeal was dismissed in other respects.