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CASE NO.: Appeal (civil)  3735-3738 of 2007

PETITIONER: District Red Cross Society

RESPONDENT: Babita Arora & Ors

DATE OF JUDGMENT: 14/08/2007

BENCH: G.P. Mathur & P.K. Balasubramanyan

JUDGMENT: J U D G M E N T (Arising out of Special Leave Petition (C) Nos.17874-17877 of 2003)

G.P. Mathur, J.

1.      Leave granted. 2.      These appeals, by special leave, have been preferred against the  judgment and order dated 24.10.2002 of High Court of Punjab and  Haryana, by which four writ petitions filed by the appellant herein  were dismissed by a common order.  In the writ petitions challenge  was raised to the awards dated 7.9.2001 of Industrial Tribunal-cum- Labour Court, Karnal, in Reference Nos.1433 to 1436 of 1999.  3.      We will give the facts of Civil Writ Petition No.1236 of 2002  which was directed against the award made in Reference No.1433 of  1999.  Babita Arora (respondent herein) filed a claim petition before  the Presiding Officer, Industrial Tribunal-cum-Labour Court, Karnal,  (hereinafter referred to as ’the Tribunal’) on the ground, inter alia, that  she was appointed as staff nurse in the appellant District Red Cross  Society, Karnal, by the order dated 20.3.1992 and she continuously  worked on the said post till her services were terminated on  30.9.1998, due to the closing down of the Red Cross Maternity  Hospital, but the management had not followed the procedure laid  down in Sections 25F to 25H of the Industrial Disputes Act  (hereinafter referred to as ’the Act’) which was a clear violation of the  statutory provisions.   The management had also not followed the  principle of ’first come last go’ while terminating her services and had  thereby contravened Section 25G of the Act.   No retrenchment  compensation was paid to her at the time of termination of her  services. The alleged closing down of the Maternity Hospital was only  a paper transaction as the Out Patient Department was still functioning  and the patients were being given treatment by the doctors as well as  other staff.  Tubectomy operations were still being conducted in the  hospital. Her case further was that there were several other  schemes/projects under the appellant, like, Family Welfare Scheme,  Drug De-addiction-cum-Research Centre, etc., where the respondent  could be absorbed.   It was accordingly prayed that an award may be  passed directing the appellant to reinstate her in service with  continuity of service and full back wages.   4.      The appellant District Red Cross Society, Karnal, filed written  statement on the ground, inter alia, that claim petition was not  maintainable as the hospitals and social organizations were not  covered under the Industrial Disputes Act.  The services of the  respondent were terminated on account of closing down of the Red  Cross Maternity Hospital w.e.f. 30.9.1998 as the hospital was being  run on donations and not on government grant. The donations had  considerably reduced and due to financial constraints and heavy  expenditure, the appellant had no option but to close the maternity  hospital.  It was further pleaded that on account of closure of the

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charitable Maternity Hospital, the services of the entire staff working  therein had been terminated and no one was retained in service.   The  respondent was, however, offered a post in another organization, viz.,  Drug De-Addiction-cum-Rehabilitation Centre, Karnal, wherein a  post of nurse was sanctioned by the Government on 2.11.1998, but the  respondent refused to accept the said offer.  5.      The parties adduced oral and documentary evidence in support  of their case.   The appellant employer examined Brahm Dutt, Clerk,  incharge of the District Red Cross Society, Karnal, who stated that the  management carried on social work and the same was done on  charitable basis from the donations received from public. The  appellant Society was also running a Drug De-Addiction-cum- Rehabilitation Centre, a Family Planning Centre and a Viklang  Kendra, which were being run as separate establishments as they were  receiving grants from the Government to the extent of 90% to 100%.    A decision was taken in a meeting held on 4.9.1998 to close down the  Maternity Hospital on account of extreme financial stringency as it  was not receiving any aid from the Government and was being run  entirely from donations.  In the said meeting Civil Surgeon, Karnal,  had suggested that all the facilities of a Maternity Hospital were  available in the Civil Hospital which was nearby and the hospital  being run by the Red Cross Society was not serving any useful  purpose.   He also stated that the respondent had been offered service  in Drug De-Addiction-cum-Research Centre but she refused the said  offer.  6.      The Tribunal held that the appellant Society was running a  Drug De-Addiction-cum-Rehabilitation Centre, a Family Planning  Centre and a Viklang Kendra and thus it cannot be said that the  establishment of the appellant had been closed.   It was further held  that the respondent had completed more than 240 days of service in  the year preceding the date of termination of her service and,  therefore, she was entitled to reinstatement compensation which had  not been given by the management and thus termination of her service  was in violation of Section 25F of the Act.  It was also held that  persons junior to the respondent were working in the aforesaid other  centres of the appellant and thus the termination of her service was in  clear violation of Section 25G of the Act.   On these findings, the  Tribunal held that the termination of service of the respondent was  illegal and contrary to law and accordingly gave an award directing  her reinstatement with continuity of service and full back wages from  the date of demand notice i.e. 6.11.1998.  Similar awards were given  in the three other adjudication cases and orders for reinstatement with  continuity of service and full back wages were passed in favour of the  concerned employees (respondents herein).   The appellant challenged  the awards of the Tribunal by filing four writ petitions in the High  Court.   The High Court held that from the evidence on record it could  be safely concluded that the appellant Red Cross Society was running  other projects like Drug De-Addiction-cum-Rehabilitation Centre,  Family Planning Centre and Viklang Kendra and they had not been  closed.  The Red Cross Society, Karnal, itself had not ceased to exist  and its other units were functioning.  It was further held that in a case  where other units which are under the same management are  functioning and the Red Cross Society was receiving grants from the  Government, the termination of the services of the respondents was  clearly illegal.  On these findings, the writ petitions were dismissed.  7.      As mentioned earlier, it was the specific case of the appellant  District Red Cross Society that the Maternity Hospital had been  closed down w.e.f. 30.9.1998 as it was not receiving any grant from  the Government, but was being run on donations and was thus  experiencing extreme financial stringency.   It was also the case of the  appellant that the services of the entire staff of the Maternity Hospital  had been terminated on account of closing down of the hospital and  the respondent Babita Arora had been offered the post in another  organization viz. Drug De-Addiction-cum-Rehabilitation Centre.  In  fact, there is no dispute from the side of the respondent regarding

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closing down of the Maternity Hospital.   Paragraph 2 of the claim  statement filed by the respondent Babita Arora reads as under : "2.     That the services of the workman have been  terminated due to the closing down of Red Cross  Maternity Hospital, Karnal w.e.f. 30.9.98 but the  management has not followed the procedures laid down  in Section 25-F and 25-H of the Industrial Disputes Act  which is a clear violation of the Act."

8.      The question which arises for consideration is whether the  respondent is entitled to protection of Section 25F and 25G of the Act  if the establishment in which she was working itself has been closed  down though certain other wings or units of the appellant District Red  Cross Society, Karnal, have not been closed down and are still  functioning.  Section 25F of the Industrial Disputes Act lays down the  conditions precedent to retrenchment of workmen and it reads as  under: 25F. Conditions precedent to retrenchment of  workmen.- No workman employed in  any industry  who  has  been in continuous service for not less than  one year   under an  employer shall  be retrenched  by  that  employer until--   (a)       the workman has been given one month’s notice in  writing indicating the reasons for retrenchment and  the period of notice has expired, or the workman  has been paid in  lieu of  such notice,  wages  for   the  period  of  the  notice:    (b)    the workman has been paid, at the time of     retrenchment, compensation which shall be  equivalent to fifteen days’ average pay  [for every   completed year of continuous service] or  any part   thereof in excess of six months;  and   (c)       notice  in  the  prescribed  manner  is  served  on   the appropriate Government  [or such  authority as  may be specified by the appropriate Government  by notification in the Official Gazette].   Section 25FFF deals with compensation to workmen in case of  closing down of undertakings.   The relevant part of Sub-section (1) of  Section 25FFF (omitting the proviso) reads as under :  25FFF. Compensation  to  workmen  in  case  of   closing  down  of undertakings.- (1) Where an   undertaking is closed down for any reason whatsoever,    every  workman  who  has  been in continuous service for  not less  than one  year in  that undertaking  immediately  before such closure shall,  subject to  the  provisions  of   sub-section  (2),  be entitled to  notice and compensation  in accordance with the provisions of section 25F, as if the  workman had been retrenched:

Provided ............................

       Therefore, the legislature has treated closing down of  undertakings which automatically result in termination of services of  all workmen working therein differently from a retrenchment  simplicitor as defined in Section 25F of the Act.  In Workmen of the Indian Leaf Tobacco Development Co. Ltd.,  Guntur v. The Management of Indian Leaf Tobacco Development Co.  Ltd., Guntur AIR 1970 SC 860, it was held as under : "No Industrial Tribunal, even in a reference under  Section 10(1)(d) can interfere with discretion exercised  by a company in the matter of closing down some of its

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branches or depots.  Even if such closure may not amount  to closure of business of the Company, the Tribunal has  no power to issue orders directing a Company to reopen a  closed depot or branch, if the Company, in fact, closes it  down and that closure is genuine and real.  The closure  may be treated as stoppage of part of the activity or  business of the Company.   Such stoppage of part of a  business is an act of management which is entirely in the  discretion of the Company carrying on the business.  ...................."          In Management of Hindustan Steel Ltd. v. The Workmen &  Ors. 1973 Labour & Industrial Cases 461, it was held by this Court as  under in para 10 of the reports : "10.    The word undertaking as used in S.25FFF 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 sub-section.   The  question has indeed to be decided on the facts of each  case. ........................."

       In workmen of the Straw Board Manufacturing Company  Limited v. M/s Straw Board Manufacturing Company Limited (1974)  1 LLJ 499, this Court laid down the test of closure of a unit by  observing that the most important aspect in a case relating to closure  is whether one unit has such componental relation that the closing of  one must lead to the closing of the other or the one cannot reasonably  exist without the other. Functional integrity will assume an added  significance in the case of closure. 9.      It appears that after the aforesaid decisions of the Supreme  Court, the legislature by an amendment made in the year 1982 to the  Industrial Disputes Act defined the word "closure" by adding Section  2(cc).   Section 2(cc) of the Act reads as under : 2(cc).    "closure" means the permanent closing down of a  place of employment or part thereof.

       It is, therefore, clear that in order to attract Section 25FFF it is  not necessary that the entire establishment of an employer should be  closed.  If a unit or part of an undertaking which has no functional  integrity with other units is closed, it will amount to closure within the  meaning of Section 25FFF of the Act.  In J.K. Synthetics v. Rajasthan  Trade Union Kendra & Ors. (2001) 2 SCC 87, it has been observed  that the closure need not be of the entire plant.  A closure can also be  of a part of the plant.  In Maruti Udyog Ltd. v. Ram Lal & Ors. (2005)  2 SCC 638, it was held as under in para 21 of the report : "21.   How far and to what extent the provisions of  Section 25F of the 1947 Act would apply in case of  transfer of undertaking or closure thereof is the question  involved in this appeal. A plain reading of the provisions  contained in Section 25FF and Section 25FFF of the  1947 Act leaves no manner of doubt that Section 25F  thereof is to apply only for the purpose of computation of  compensation and for no other. The expression "as if"  used in Section 25FF and Section 25FFF of the 1947 Act  is of great significance. The said term merely envisages  computation of compensation in terms of Section 25F of  the 1947 Act and not the other consequences flowing  therefrom. Both Section 25FF and Section 25FFF  provide for payment of compensation only, in case of  transfer or closure of the undertaking. Once a valid  transfer or a valid closure comes into effect, the  relationship of employer and employee does not survive

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and ceases to exist. Compensation is required to be paid  to the workman as a consequence thereof and for no  other purpose."

       The position in law is, therefore, well settled that if the entire  establishment of the employer is not closed down but only a unit or  undertaking is closed down which has no functional integrity with  other units or undertaking, the provisions of Section 25FFF of the Act  will get attracted and the workmen are only entitled to compensation  as provided in Section 25FFF of the Act which has to be calculated in  accordance with Section 25F of the Act.  The Tribunal and also the  High Court clearly erred in holding that as other units of the appellant  Red Cross Society like Drug De-Addiction-cum-Rehabilitation  Centre, Family Planning Centre and Viklang Kendra were  functioning, the termination of services of the respondent would  amount to retrenchment.  The Maternity Hospital was functioning as a  distinct entity.  It was not receiving any grant from the Government  and was being run entirely on charitable basis from donations received  from public.  Due to financial stringency, the Maternity Hospital had  to be closed down.  The other three units, viz., Drug De-Addiction- cum-Rehabilitation Centre, Family Planning Centre and Viklang  Kendra are receiving grants from government and are functioning as  separate entities and the mere fact that they have not been closed  down, cannot lead to the inference that the termination of services of  the respondent was by way of retrenchment which was illegal on  account of non-compliance of the provisions of Section 25F of the  Act.    10.     In view of the findings recorded above, the respondent would  be entitled to compensation only in accordance with Section 25FFF of  the Act and the award for reinstatement in service with back wages  passed by the Tribunal which was affirmed by the High Court cannot  be sustained and must be set aside. 11.     The cases of other three respondents are exactly identical to that  of Babita Arora as they were all working in the Maternity Hospital.    Therefore, the awards passed by the Tribunal directing their  reinstatement in service and back wages have to be set aside.   12.     In the result, the appeals succeed and are hereby allowed.  The  judgment and order dated 24.10.2002 of the High Court and the  awards dated 7.9.2001 of the Tribunal are set aside.  The appellant  shall pay the compensation to the respondents in accordance with  Section 25FFF of the Act within two months from today, failing  which it will be open to the respondents to approach the Tribunal for  computation of the amount.  No costs.