http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

CASE NO.: Appeal (civil) 1422  of  1999

PETITIONER: INLAND STEAM NAVIGATION WORKS  UNION & ANR.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       01/02/2001

BENCH: S. Rajendra Babu & Shivaraj V. Patil.

JUDGMENT:

L...I...T.......T.......T.......T.......T.......T.......T..J RAJENDRA BABU, J. :

   A  Limited  Company Rivers Steam Navigation Co.   Ltd. [hereinafter  referred to as the Company] operated a river service  from West Bengal to Assam with a personnel of about 8,000  including clerical staff.  Part of its operations was through East Pakistan.  On account of armed conflict in 1965 with  Pakistan,  the Company had to suspend a major part  of its  operation.   Retrenchment was done on a large scale  as the  Company  had  been incurring heavy losses  for  several years   in  spite  of  Government   of  India  acquiring   a controlling  interest in it to prevent its liquidation.   In the  course  of conciliation proceedings, the Management  of the Company arrived at a settlement with the appellant Union on August 26, 1965.  However, the Company could not carry on profitably  and,  therefore,  on account of  its  bankruptcy various  creditors,  the  Union of India and  several  banks filed  a petition in the Calcutta High Court for winding  up of  the  Company.  After protracted proceedings in the  High Court, an application was filed under Sections 391 to 394 of the  Companies  Act,  1956  for   sanctioning  a  Scheme  of Arrangement  and  Compromise  between the  company  and  the Central    Inland   Water     Transport   Corporation   Ltd. [hereinafter  referred  to as the Corporation].  When  the Scheme  was  sanctioned,  the appellant Union  had  appeared before  the  Court to protect the interests of the  workmen. The  appellant Union in fact filed an appeal to the Division Bench  of  the  High  Court which,  however,  was  dismissed upholding  the order of the learned Single Judge sanctioning the Scheme.

   In  brief, the Scheme provided, inter alia, that all the properties and assets but only some of the liabilities would vest in the Corporation.  It was agreed that the Corporation would take over as many of the members of the staff and work force of the Company as was possible under the circumstances but  the  number to be employed would be in its  discretion. Those  employees who were not taken over by the  Corporation were to be paid compensation by the Company out of the funds the Government of India agreed to supply.  Upon the approval of  the Scheme the Company would be closed and on payment of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

all  creditors it would stand dissolved without winding  up. In the course of the order made by the Company Court certain questions were left open for consideration and they are:

   1.  whether there is a closure of the Company within the meaning  of  the Industrial Disputes Act, 1947  [hereinafter referred to as the ID Act] ;

   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;  and

   4.   whether  the transferor Company or  the  transferee Company  can assert that there has been closure and  further that agreement is not capable of enforcement.

   The  scheme  was in fact sanctioned by an order made  on 3.5.1967  and on that very day, the Company issued a  notice of  closure.   Thereafter,  the   Corporation  issued  fresh letters  of  appointment and out of 8,000 employees  of  the Company,  the  Corporation is stated to have employed  about 5,173  workers.   Thus, a large number of employees  of  the former company stood unemployed.

   The  State  of  West Bengal made an order  of  reference purportedly  under  Section 33C(2) of the ID Act to  compute the  benefits  covered  by the  settlement  dated  25.8.1965 between  the  Union and the Company and by another order  of reference  called  for  computation   of  the   retrenchment benefits  arising  under Section 25 FF of the ID  Act.   The orders  of references were challenged in the High Court  and were  quashed  by  an order made on  15.7.1969.   Again,  on 27.10.1969, the Government of West Bengal made another order of reference to the Labour Court on various claims preferred by the Union from the Corporation which are capable of being computed  in  terms of money arising out of  the  settlement dated  25.8.1965  and  under Section 25FF of the ID  Act  to which  two  lists were attached.  List I consisted of  names and  addresses  of  420 employees and the Labour  Court  was asked  to adjudicate as to whether these employees continued in  the employment under the Corporation and other  monetary benefits  they were entitled to.  In regard to 98  employees mentioned  in  the  List II, the Labour Court was  asked  to compute  retrenchment benefits arising under Section 25FF of the ID Act.  Another question was referred as to whether the Company has been closed within the meaning and contemplation of  Section  25FFF of the ID Act and if so, what  amount  of compensation  the  workmen mentioned in both the lists  were entitled  to?   This reference was again challenged  in  the High  Court under Article 226 of the Constitution by a  writ petition.   The  writ petition was partly  allowed  striking down the issue relating to claim arising under Section 25FFF from  the Company.  The Union of India did not file  against it  an appeal but the Corporation went in appeal against the order  in  so far as the learned Single Judge held that  the Labour  Court  had  jurisdiction to  adjudicate  upon  other issues.    The   Division  Bench   dismissed   the   appeal. Thereafter the matter was carried to this Court.  This Court in Central Inland Water Transport Corporation Ltd.  vs.  The Workmen  &  Anr.,  1974  (4) SCC 696 disposed  of  the  said

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

matter.

   In the said decision, it was explained that the scope of Section   33C(2)  of  the  ID   Act  is  limited  and  those proceedings  are akin to the execution proceedings.  It  was also made clear that the right to receive compensation as if the  workmen are retrenched under Section 25FF is  available only  against  the  owner  of the undertaking  that  is  the transferor  and  not against the transferee and in order  to decide  the  claims of the workmen it would be necessary  to decide  as  to whether the Corporation was a closure of  the Company  and  whether the transferee would be liable to  pay compensation   and   that  the   workmen  are  entitled   to reemployment against the Corporation.  If the Tribunal comes to  the conclusion that the Corporation wrongfully  absorbed the employees, the Tribunal will have to consider as to what reliefs  to  be given depending upon the  circumstances  and such  questions  can be adjudicated under Section 33C(2)  of the  ID  Act and thus allowed the appeal, holding  that  the Labour  Court had no jurisdiction to deal with the questions referred  to  it  under  Section  33C(2).   Thereafter,  yet another reference was made to the Labour Court.

   The  Government of West Bengal by an order made on  June 8,  1978 with subsequent corrigendum referred the industrial dispute  between the Company and the Corporation on the  one hand and their workmen represented by appellant Union on the other for adjudication upon the following issues:

   1.  Whether M/s River Steam Navigation Co.Ltd.  has been closed  down within the meaning and contemplation of Section 25 FFF of the ID Act?

   2.  Whether the said company has been transferred to M/s Central Inland Water Transport Corporation Ltd.?

   3.  Whether Section 25 FFF of the ID Act is attracted to the present case?

   4.  Whether the settlement dated 25.8.1965 is binding on M/s Central Inland Water Transport Corporation Ltd.?

   5.   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?

   6.  To what relief, if any, are the workmen entitled?

   The  Tribunal  found that as regards the question as  to closure  of the company the scheme of arrangement itself set at  rest the matter.  Clause 8 of the scheme of  arrangement would show 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 an order to be obtained  from  the court.    Pursuant  to  the  approval   of  the  scheme   of arrangement,  a  notice  of  closure  was  obtained  in  the Anandabazar  Patrika, the Jugantar Patrika and the Hindustan Standard, as per Ex.  A, A/1 and A/2.  In case under Section 481 of the Companies Act when the affairs of the company had been  completely  wound  up or when  the  liquidator  cannot proceed with the winding up of the company for want of funds and  assets  or for any other reason whatsoever, and  it  is just  and reasonable an order of dissolution can be  passed.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

In  the instant case, such an order was made and, therefore, this  resulted in the civil death and the very existence  of the  company  came  to  an end.  It was also  held  that  by Section 25F of the ID Act a prohibition against retrenchment until   the  conditions  prescribed  by  that  section   are fulfilled,  is  imposed, by Section 25FFF(1) of the  ID  Act termination  of  employment  on closure of  the  undertaking without  payment of compensation and without either  serving notice  or paying wages in lieu of notice is not prohibited. So it is not a condition precedent to closure.  The Tribunal held  that  there is a complete closure of the company  with effect  from  3.5.1967  and thus answered the issue  no.   1 against  the  appellant union.  On the second issue, it  was noticed  that  in  the  scheme there  is  no  provision  for transfer  of  the undertaking and stating so this issue  was disposed  of.  As regards the third issue, the Tribunal took the view that Section 25FF of the ID Act is not attracted in the  present  case  inasmuch  as there  is  no  transfer  of undertaking  and hence the payment of compensation would not arise.   On  Issue No.  4, the Tribunal recorded  a  finding 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.   On  Issue  No.   5,  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.  On  the  contrary,  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.  It was  also held  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.   This  award  was challenged  before  the High Court and the High  Court  held that  the  none  of  the reliefs could  be  granted  to  the appellant  union  and  so far as claim made  in  respect  of compensation  under  Section 25FFF of the ID Act,  the  High Court  took the view that the appellant union can claim  the same  but the quantum of compensation can be determined by a court  in  accordance with law in the presence of  necessary parties.   The  writ petition was accordingly  disposed  of. Against  this order, the present appeal is filed by  special leave.

   Before us it is contended that the Division Bench of the High  Court while dealing with the appeal arising out of the company  matter held that it was not within the scope of the scheme  to find out first whether there was a closure of the company  within the meaning of the ID Act and the that claim of  the  workmen under the ID Act based on  agreement  dated 25.8.1965  was  not within the jurisdiction and province  of the  application  for  sanction of the scheme and  that  the agreement will have to be enforced in a properly constituted proceedings.   The  stand of the appellant union is that  in view  of  this  statement made in the course  of  the  order according  sanction  of  the scheme for dissolution  of  the company  it  could  be  inferred  that  it  was  a  case  of reconstruction of the company, the properties and the assets are  transferred  to  and vested in the Corporation  by  the members   of  the  company.    Liabilities  in  relation  to creditors  have nothing to do with the matter of  employment in  relation to River Transport Undertaking continued by the Corporation  after  sanction  of the scheme as  employer  as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

defined by Section 2(g) of the ID Act and in support of this proposition  relied  upon  the decision in Central  Bank  of India Ltd.  vs.  P.S.Rajagopalan, 1964 (3) SCR 140.

   The  party  in  person  emphasised that  this  Court  in Central  Inland  Water Transport Corporation  Ltd.   [supra] observed  that  there  is no actual change  of  employer  by reason  of the transfer nor do the three clauses of  Section 25F  of the ID Act apply.  Therefore, prima facie the  claim of  the workmen would be either for work or for compensation under  Section  25FF of the ID Act against the  Corporation. It  is  also  submitted  that the workmen  belonged  to  the under-privileged  segments of the society and were exploited and   dominated  and  that  the   scheme  did   not   reveal discontinuity  in  service and that they had  not  impleaded Union  of  India  as  party  in  the  proceedings  initiated earlier.   Therefore,  it  is contended that  the  appellant union  are  entitled to relief at any rate from the  defunct company  and  in  terms  of   the  agreement  the   monetary compensation  will  have to be paid by the Union  of  India, wherever  the  workmen  of  the erstwhile  company  are  not absorbed in service of the Corporation.

   This Court in Central Inland Water Transport Corporation Ltd.   [supra]  took  the  view that the  liability  of  the Corporation would not arise in the case because the question as  to  whether  the  transferee  of  an  undertaking  is  a successor  or  not involves several factors.  So far as  the claim  against the Corporation is concerned this Court  made it  clear  that  the  workers who were  taken  over  by  the Corporation  were given fresh appointments from June 5, 1967 with  different conditions of service and there was break in the  condition  of  service.   Even assuming  that  on  such investigation,   conclusion   could  be   drawn   that   the Corporation  is  a successor the matter will not be  settled because,  the transferee even as a successor would be liable neither  to  pay compensation nor to re- employ the  workmen whose  employment  stood  automatically  terminated  on  the transfer.   Where  by  operation of law  the  employment  of workmen stands terminated, it may be difficult to sustain it on  the  basis  of  a   term  in  a  settlement  prohibiting retrenchment,  though statutorily binding on the  transferee as  a successor.  Therefore, the view taken by the  Tribunal that   the  Corporation  is  not   liable  to   pay   either compensation  or  to  absorb  the  workmen  in  question  is unexceptionable.   As  rightly held by the High  Court,  the workmen  in question are entitled to compensation in case of closing  down  of  an undertaking.  Here there has  been  no transfer  of  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 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 years  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

workmen  or  by  the union on their behalf before  a  Labour Court  under Section 33C(2) of the ID Act it will be  proper for  the  Labour Court to examine the claims  under  Section 25FFF  of  the  ID 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.

   In  the  circumstances, we direct the  concerned  Labour Court on the filing of such applications to dispose the same within  a  period of three months.  The appeal  shall  stand allowed  in  part accordingly.  In other respects, the  same shall stand dismissed.  No costs.