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CASE NO.: Appeal (civil)  1469 of 1999

PETITIONER: M/s Oswal Agro Furane Ltd. & Anr.                                

RESPONDENT: Oswal Agro Furance Workers Union & Ors.                  

DATE OF JUDGMENT: 14/02/2005

BENCH: N.S. Hegde & S.B. Sinha

JUDGMENT: J U D G M E N T

S.B. SINHA, J :

INTRODUCTION :

       Whether in a case of closure of an industrial undertaking, prior  permission of the appropriate Government is imperative and whether a  settlement arrived at by and between the employer and the workmen would  prevail over the statutory requirements as contained in Section 25-N and  Section 25-O of the Industrial Disputes Act, 1947 (’the Act’, for short) are  the primal questions involved in this appeal which arises from a judgment  and order passed by a Division Bench of the Punjab & Haryana High Court  dated 10.7.1998 in CWP No.8214 of 1997 allowing the writ petition filed by  the Respondents herein.

BACKGROUND FACTS :         The Appellant’s industrial undertaking  was set up as a 100% Export  Oriented Unit for Paddy Processing, Furfural and Rice Bran Extraction.   Allegedly, in view of lack of demand in the international market of its  product, Rice Bran Oil was sold by it in the local market, wherefor no  Registration-cum-Allocation Certificate below the minimum price was  obtained.   The said purported statutory violation  was the subject-matter of a  writ petition filed  by the Appellant herein before the Delhi High Court  which was allowed.   

The matter came up  for consideration  before this Court and in its  judgment rendered in Agricultural and Processed Food Products etc. vs.  Oswal Agro Furane and Others etc. [(1996) 4 SCC 297]  this Court held that  the Appellant is liable to pay a sum of Rs. fifty crores under different heads  to the State.  Allegedly, on the ground such a huge liability had been  incurred, a notice dated 29.5.1996 was issued to the State Government in  terms of Section 25-O of the Act.  Notices were also issued to the workmen  on 12.6.1996 whereupon a purported settlement was arrived at on or about  14.6.1996 in terms of Section 12(3) of the Act.  The Respondents herein  questioned the said settlement by filing a writ petition which, as noticed  hereinbefore, was allowed.

HIGH COURT :   The High Court in its impugned judgment arrived at the following  findings :

       1.      As the Management had not applied for prior permission to  close down the industrial undertaking as is mandatorily required under  Section 25-O of the Act, the purported notice dated 29.5.1996  was illegal.

2.      The closure of the industrial undertaking of the Appellant being  illegal, the workmen were entitled to all the benefits in terms of sub-section  (6) of Section 25-O of the Act. Although the settlement dated 14.6.1996 took

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place as a result of the purported closing down of  the industry, a valid  closure itself being a foundation of such settlement and it being illegal and  void and, thus, cannot  be sustained in law.

3.      Closure of the industrial undertaking resulting in retrenchment as  contained in Section 25-N of the Act envisages fulfillment of two conditions  precedent therefor, namely, (1) three months’ notice/ notice pay in lieu  thereof; and (2) prior permission of the appropriate Government and both  being mandatory in nature; the retrenchment of the workmen was  illegal as  prior permission therefor had not been sought from the State.

4.      The provisions of Sections 25-J, 25-N and 25-F should be read  conjointly with Section 25-N of the Act.

5.      Although Section 18 of the Act makes a settlement binding on all  workmen but such settlement cannot be entered into in contravention of the  provisions of Chapters VA and VB of the Act.  

SUBMISSIONS :

       Mr. P.N. Puri, the learned counsel appearing on behalf of the  Appellant would submit that having regard to the purport and object of the  Industrial Disputes Act , a settlement arrived at in course of conciliation  proceedings within the meaning of sub-section (3) of Section 12 of the Act  being binding on all workmen in terms of Section 18 thereof; the High Court  committed an error in passing the impugned judgment.  The learned counsel  would contend that in view of such a settlement, the writ petition filed by the  Respondents was not maintainable.  Strong reliance in this behalf has been  placed on P. Virudhachalam and Others vs. Management of Lotus Mills and  Another [(1998) 1 SCC 650].  The learned counsel would further urge that  the non-obstante clause contained in Section 25-J occurring in Chapter V-A  will have no application in relation to a  proceedings contained in Chapter  V-B thereof.  Reliance in this behalf was placed on Engineering Kamgar  Union vs. Electro Steels Castings Ltd. and Another.[(2004) 6 SCC 36].        .

       Mr. Himinder Lal, the learned counsel appearing on behalf of the  Respondents, on the other hand, would submit that the provisions of  Sections 25-N and 25-O are imperative in character.  

THE RELEVANT PROVISIONS OF THE ACT : Section 2(p) defines a settlement as one  arrived at in the course of  conciliation proceedings and includes a written agreement by and between  the employer and workmen entered into otherwise than in the course of  conciliation proceeding where such agreement has been signed by the parties  thereto in such manner as may be prescribed and a copy thereof has been  sent to an officer authorized in this behalf by the appropriate Government  and the conciliation officer.  Section 12 of the Act provides for duties of  conciliation officers.  Sub-section (3) thereof  provides that if a settlement of  the dispute or of any of the matters in dispute is arrived at in the course of  the conciliation proceedings the conciliation officer shall send a report  thereof to the appropriate Government together with a memorandum of the  settlement signed by the parties to the dispute.   Section 18 of the Act  provides for the binding nature of such settlement,  sub-section (3) whereof  reads as under :

       "(3) A settlement arrived at in the course of  conciliation proceedings under this Act or an arbitration  award in a case where a notification has been issued  under sub-section (3A) of section 10A or an award of a  Labour Court, Tribunal or National Tribunal which has  become enforceable shall be binding on \026

       (a)     all parties to the industrial dispute;

(b)     all other parties summoned to appear in the

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proceedings as parties to the dispute, unless  the Board, arbitrator, Labour Court, Tribunal  or National Tribunal, as the case may be,  records the opinion that they were so  summoned without proper cause;

(c)     where a party referred to in clause (a) or  clause (b) is an employer, his heirs,  successors or assigns in respect of the  establishment to which the dispute relates;

(d)     where a party referred to in clause (a) or  clause (b) is composed of workmen, all  persons who were employed in the  establishment or part of the establishment,  as the case may be, to which the dispute  relates on the date of the dispute and all  persons who subsequently become  employed in that establishment or part."

 Section 25-N of the Act lays down conditions precedent to  retrenchment of workmen whereas Section 25-O provides for the procedure  for closing down an undertaking of an industrial establishment.  Section 25- N of the Act lays down two conditions before a retrenchment of workman  can be effected which are : (a) the workman has been given three months’  notice in writing indicating the reasons for  retrenchment or paid in lieu such  notice wages for the said period; and (b) the prior permission of the  appropriate Government has been obtained by the employer on an  application made in this behalf.  Sub-section (2) of Section 25-N provides  for the manner in which the application for permission under sub-section (1)  is required to be made.  Sub-section (3) of Section 25-N postulates grant or  refusal of such permission by the appropriate Government upon making  such enquiry as it may think fit after giving a reasonable opportunity of  being heard to the employer, the workmen concerned and the persons  interested in such retrenchment, and also  having regard to the genuineness  and adequacy of the reasons stated by the employer, the interests of the  workmen and all other relevant factors.  Sub-section (4) of Section 25-N  provides that when an order passed  by the appropriate Government is not  communicated within a period of sixty days from the date on which such  application is made, the permission applied for shall be deemed to have been  granted on the expiration of the said period.  Sub-section (7) of Section 25-N  provides for the consequences emanating from non-making of application  for permission under sub-section (1) or where such permission has been  refused,  stating  the retrenchment of the workman shall be deemed to be  illegal from the date on which the notice of retrenchment was given to the  workman and the workman shall be entitled to all the benefits under any law  for the time being in force as if no notice had been given to him..  The only  exception provided for as regard grant of exemption from the operation  thereof is contained in sub-section (8) thereof i.e. in a case where the  appropriate Government is satisfied that owing to such exceptional  circumstances  as accident in the establishment or death of the employer or  the like, it may by order direct that the provisions of sub-section (1) shall not  apply in relation to such establishment.   

       Section 25-O of the Act contains similar provisions  as regard  issuance of such notice and passing of an order by the appropriate  Government.   

DETERMINATION : It is not in dispute that the Appellant herein did not ask for grant of  such prior permission before the appropriate Government disclosing its  intention to effect closure of the said unit and such question of grant of  prior  permission by the State did not arise.

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       Constitutionality of Section 25-N of the Act came up for consideration  before a Constitution Bench of this Court in Workmen of Meenakshi Mills  Ltd. and Others etc. vs. Meenakshi Mills Ltd. and Another etc. [(1992) 3  SCC 336], wherein  inter alia, a contention was raised that Section 25-O as it  originally stood having been declared unconstitutional by this Court in Excel  Wear etc. vs. Union of India and Others etc. [(1978) 4 SCC 224] holding  that an employer has a fundamental right not to carry on any business,  Section 25-N on the same analogy should be held to be ultra vires. In  Meenakshi Mills (supra) this Court noticed the distinguishing features  between Sections 25-N and 25-O as originally enacted and the amendments  effected therein in terms of the Industrial Disputes (Amendment) Act, 1984.

The following contentions raised therein by the learned counsel  appearing on behalf of the  employer  were noticed by this Court  :

       "(1) Adjudication by a judicial body available in  the case of retrenchment under Section 25-F has been  substituted by an administrative order passed by an  executive authority in the case of retrenchment under  Section 25-N and thereby a function which was  traditionally performed by Industrial Tribunals/Labour  Courts has been conferred on an executive authority.

       (II)    No guidelines have been prescribed for the  exercise of the power by the appropriate Government or  authority under sub-section (2) of Section 25-N and it  would be permissible for the authority to pass its order on  policy considerations which may have nothing to do with  an individual employer’s legitimate need to reorganize its  business.  The requirement that reasons must be recorded  by the appropriate Government or authority for its order  under sub-section (2) of Section 25-N is not a sufficient  safeguard against arbitrary action since no yardstick is  laid down for judging the validity of those reasons.

       (III)   There is no provision for appeal or revision  against the order passed by the appropriate Government  or authority refusing to grant permission to retrench  under sub-section (2) of Section 25-N  Judicial review  under Article 226 of the Constitution is not an adequate  remedy.

       (IV)    The provisions are ex facie arbitrary and  discriminatory inasmuch as while the workmen have a  right to challenge, on facts, the correctness of an order  passed under sub-section (2) granting permission for  retrenchment before the Industrial Tribunal by seeking a  reference under Section 10 of the Act, the management  does not have a similar right to challenge the validity of  an order passed under sub-section (2) refusing to grant  permission for retrenchment."                    

       This Court rejected all the aforementioned contentions and upheld the  constitutionality of the said Act.

       A bare perusal of the provisions contained in Sections 25-N and 25-O  of the Act leaves no manner of doubt that the employer who intends to close  down the undertaking and/or effect retrenchment of workmen working in  such industrial establishment, is bound to apply for prior permission at least  ninety days before the date on which the intended closure is to take place.   They constitute conditions precedent for effecting a valid closure, whereas    the provisions of Section 25-N of the Act provides for conditions precedent  to retrenchment; Section 25-O speaks of procedure for closing down an  undertaking.  Obtaining a prior permission from the appropriate  Government, thus, must be  held to be imperative in character.

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       A settlement within the meaning of Section 2(p) read with sub-section  (3) of Section 18 of the Act undoubtedly binds the workmen but the question  which would arise is, would it mean that thereby the provisions contained in  Sections 25-N and  25-O are not required to be complied with?  The answer  to the said question must be rendered in the negative.  A settlement can be  arrived at between the employer and workmen in case of an industrial  dispute.  An industrial dispute may arise as regard the validity of a  retrenchment or a closure or otherwise.  Such a settlement, however, as  regard retrenchment or closure can be arrived at provided such retrenchment  or closure has been effected in accordance with law.  Requirements of  issuance of a notice in terms of Sections 25-N and 25-O, as the case may,  and/or a decision thereupon by the appropriate Government are clearly  suggestive of the fact that thereby a public policy has been laid down.  The  State Government before granting or refusing such permission is not only  required to comply with the principles of natural justice by giving an  opportunity of hearing both to the employer and the workmen but also is  required to assign reasons in support thereof and is also required to pass an  order having regard to the several factors laid down therein.  One of the  factors besides others  which is required to be taken into consideration by the  appropriate Government before grant or refusal of such permission is the  interest of the workmen.  The aforementioned provisions being imperative in  character would prevail over the right of the parties to arrive at a settlement.  Such a settlement must conform to the statutory conditions laying down a  public policy.  A contract which may otherwise be valid, however,  must  satisfy the tests of public policy not only in terms of the aforementioned  provisions but also in terms of Section 23 of the Indian Contract Act.   

       It is trite that  having regard to the maxim "ex turpi causa non oritur  actio", an agreement which  opposes  public policy as laid down in terms of  Sections 25-N and 25-O of the Act would be void and of no effect.  The  Parliament has acknowledged the governing factors of such public policy.   Furthermore, the imperative character of the statutory requirements would  also be borne out from the fact that in terms of sub-section (7) of Section 25- N and sub-section (6) of Section 25-O, a legal fiction has been created.  The  effect of such a legal fiction is now well-known.  [See East End Dwellings  Co. Ltd. V. Finsbury Borough Council [(1951) 2 All ER 587, Om Hemrajani  vs. State of U.P. and Another \026 (2005) 1 SCC 617 and  M/s Maruti Udyog  Ltd. vs. Ram Lal & Ors. \026 2005 (1) SCALE  585].

       The consequences flowing from such a mandatory requirements as  contained in Sections 25-N and 25-O must, therefore, be given full effect.   The decision of this Court in P. Virudhachalam (supra) relied upon by Mr.  Puri does not advance the case of the Appellant herein.  In that case, this  Court was concerned with a settlement arrived at in terms of Section 25-C of  the Act.  The validity of such a settlement was upheld in view of the first  proviso to Section 25-C of the Act.  Having regard to the provisions  contained in the first proviso appended to Section 25-C of the Act, this Court  observed that Section 25-J thereof would not come in the way of giving  effect to such settlement.  However, the provisions contained in Sections 25- N and 25-O do not contain any such provision in terms whereof the  employer and employees can arrive at a settlement.   

In  Engineering Kamgar Union (supra), the question which fell for  consideration of this Court was as to whether in relation to an industry which  was governed by the State Act, the provisions of Section 25-O would be  attracted.  This Court held that having regard to the provisions contained in  Article 254 of the Constitution of India, the provisions of the State Act shall  prevail over the Parliamentary Act as the former received the assent of the  President of India stating :

       "The contention of Mr. Banerjee to the effect that  Section 25J of the Central Act has been incorporated by  reference in Section 25S cannot be accepted.  Section  25S does not introduce a non-obstante clause as regard

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Chapter V-A.  Furthermore, Section 25J is not a part of  Chapter V-B.  By reason of Section 25S, the provisions  of Chapter V-A were made applicable only in relation to  certain establishments referred to in Chapter V-B.  The  Parliament has deliberately used the words "so far as may  be" which would also indicate that provisions of Chapter  V-A were to apply to the industrial establishments  mentioned in Chapter V-B.  The non-obstante clause  contained in Section 25J does not apply to the entire  Chapter V-B.  Applicability of Chapter V-A in relation to  the industrial establishments covered by Chapter V-B in  terms of Section 25J vis-‘-vis Section 25S is permissible  but the contention cannot be taken any further so as to  make Section 25O of the Central Act prevail over the  State Act by taking recourse to the non-obstante clause.   Non-obstante clause contained in Section 25J is, thus,  required to be kept confined to Chapter V-A only and in  that view of the matter we have no hesitation in holding  that Chapter V-B does not have an overriding effect over  the State Act."

          Indisputably, in this case, the industrial undertaking belonging to the  Appellant herein  attracts the provisions of Chapter VB of the Act and  consequently the provisions referred to in Section 2(s) including Section 25J  shall apply in relation thereto.

       The decision of this Court in  Engineering Kamgar Union (supra)                      thus, must be understood to have been rendered in the fact situation  obtaining therein.

CONCLUSION :

       For the reasons aforementioned, we do not find any merit in this  appeal which is accordingly dismissed.  However, in the facts and  circumstances of the case, there shall be no order as to costs.