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PETITIONER: MANAGEMENT OF R.S. MADHORAMAND SONS AGENCIES (P) LTD.

       Vs.

RESPONDENT: ITS WORKMEN

DATE OF JUDGMENT: 14/11/1963

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS

CITATION:  1964 AIR  645            1964 SCR  (5) 379

ACT: Industrial Dispute-Transfer of workmen and business-Business not separate-If transfer valid-Industrial Disputes Act, 1947 (14 of 1947), s. 25FF.

HEADNOTE: An  industrial  dispute  arose  between  the  appellant  the Management of R.S. Madhoram & Sons (Agencies) (P) Ltd.,  and the respondents its workmen, in regard to the transfer of 57 employees from the Management of R.S. Madhoram & Sons, which was there original employer, to the appellant.  By agreement the  transferor firm transferred its retail business to  the appellant.   This dispute was referred for  adjudication  to the  Industrial Tribunal.  The case of the  respondents  was that  s.  25FF is inapplicable to their  case,  because  the ownership  or  management of the undertaking  has  not  been transferred by the firm to the company within the meaning of that  section.  The case of the appellant was that the  said transfer was fully valid and justified under s. 25FF of  the Act.  In the present case, the muster roll showing the  list of employees was common in regard to all the departments  of business run by the transferor firm.  The employees could be transferred  from one department run by the transferor  firm to  another  department.  In the payment of  bonus  all  the employees  were treated as constituting one unit  and  there was  thus both the unity of employment and the  identity  of the  terms  and  conditions  of  service.   The  respondents succeeded  before the Tribunal.  The appellant has  come  to this Court against the award of the Tribunal. Held:-(i)  The first and foremost condition for  the  appli- cation of s. 25FF is that the ownership or management of  an undertaking is transferred from the employer in relation  to that  undertaking  to a new employer.  Normally  this  would mean  that  the ownership or the management  of  the  entire undertaking should be transferred before s. 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.  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

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separate  business may involve the application of  s.  25FF. On  the  facts  of this case it was  held  that  the  retail business  of  the  transferor firm was not  a  separate  and distinct business and as such, the impugned transfer did not amount to the transfer of 380 the  ownership  or  management of an undertaking  so  as  to attract  the  provisions  of s. 25FF of  the  Act.   In  the present case. the appellant cannot claim to be a  successor- in-interest of the firm so as to attach s. 25FF of the Act. (ii)It  would be difficult to lay down any  categorical  or general  proposition  as  to the  application  of  s.  25FF. Whether  or  not  the  transfer  in  question  attracts  the provisions of s. 25FF must be determined in the light of the circumstances  of each case.  The question as to  whether  a transfer  has  been effected so as to attract s.  25FF  must ultimately  depend upon the evaluation of all  the  relevant factors and it cannot be answered by treating anyone of them as of over-riding or conclusive significance. Anakapalle Co-operative Agricultural and Industrial Society v.   Its Workmen, [1963] Supp. 1.S.C.R. 730, relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 13 of 1963. Appeal  by  special leave from the award dated  January  20, 1962, of the Industrial Tribunal No. 307 of 1961. M.C. Setalvad and A.N. Goyal. for the appellant. B.P. Maheshwari and O.P. Singh for the respondent. November 14, 1963.  The Judgment of the Court was  delivered by GAJENDRAGADKAR J.-The short question of law which arises  in this appeal by special leave relates to the construction  of s.  25  FF of the Industrial Disputes Act, 1947 (No.  14  of 1947) (hereinafter called ’the Act’) This question arises in this  way.   Between the appellant, the Management  of  R.S. Madhoram  & Sons (Agencies) (P) Ltd., and  the  respondents, its  workmen  an Industrial dispute arose in regard  to  the transfer of 57 employees from the management of R.S.  Madho- ram  &  Sons,  which was their  original  employer,  to  the appellant.   This dispute was referred for  adjudication  by the  Delhi  Administration to the Industrial  Tribunal,  New Delhi. The  case of the respondents was that the impugned  transfer is  invalid, whereas the appellant contended that  the  said transfer was fully valid and justified under s. 25FF of  the Act.  Certain other pleas were 381 raised by the parties before the Tribunal and they have been considered by it, but it is not necessary for the purpose of the  present appeal to refer to them, since the  only  point which has been urged betoken us by Mr. Setalvad on behalf of the appellant is in relation to the finding of the  Tribunal that s. 25FF does not apply to the present case. R.S.  Madhoram & Sons, and R.S. Madhoram &  Sons  (Agencies) (P) Ltd. are the two concerns involved in this dispute.  The first  is a firm consisting of the members of a joint  Hindu family  and  the  second is a company  formed  by  the  said members.  The firm has been in existence since April 1, 1946 whereas the company came into existence on August 29,  1961. The  head-office  of the firm is at Dehra Dun  and  it  runs branches  at Delhi, New Delhi, Mussoorie and Amritsar.   The firm  acts as selling representatives of  Obeetee  (Private) Ltd., Mirzapur: Commonwealth Trust Ltd., Calicut, and United

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Coffee  Supply  Co.  Ltd.,  Coimbatore.   It  also  acts  as Government  contractors  as well as stockists of  the  Elgin Mills  Co.  Ltd., Kanpur.  The 57 employees  whose  transfer from  the firm to the company has given rise to the  present dispute were originally employed by the firm.  On the muster roll of the firm, 92 employees were entered.  Out of  these, 57  have  been transferred by the firm to the company  as  a result  of  the  agreement between the  two  concerns.   The company was formed as a separate and different concern,  and in   accordance   with  its  memorandum  and   articles   of association and in pursuance of the agreement between it and the firm, it has taken over the retail business of the  firm together  with  the staff employed by the firm in  the  said retail  business as from September 15, 1961.  The  agreement shows that when the staff was taken over by the company from the firm, continuity of service was guaranteed to the  staff and  the  terms and conditions of service  enjoyed  by  them before the taking over also remained unaffected. The appellant contends that it is the  successor-in-interest of the firm in regard to the retail business 382 which was one of the businesses carried on by the firm,  and it  argues  that  since the  conditions  prescribed  by  the proviso  to s. 25FF have been complied with,  the  grievance made by the respondents that the transfer of the 57  workmen in  question  is unjustified cannot be  sustained.   On  the other  hand,  the  respondents  contend  that  s.  25FF   is inapplicable  to  their  case,  because  the  ownership   or management  of the undertaking has not been  transferred  by the  firm  to  the company within the meaning  of  the  said section.  If the said section does not apply, then there  is no  scope for applying the provisions of the  proviso.   The Tribunal has upheld the plea raised by the respondents,  and Mr.  Setalvad contends that the finding of the  Tribunal  is based on a misconstruction of s.   25FF of the Act. Before dealing with this point, it would be useful to  refer to  the  relevant facts which preceded the  transfer  of  57 employees.  It appears that on September 14, 1961, there was an agreement between the transferor and the transferee as  a result of which the employees engaged by the transferor were transferred  to  the  transferee  company.   This  agreement provided  that the service of the said workmen shall not  be interrupted  by reason of the transfer, that the  terms  and conditions  of service applicable to the said workmen  shall not  be  less  favorable  than  those  applicable  to   them immediately  before  the transfer, and that  the  transferee concern  shall be liable to pay to the workmen in the  event of their retrenchment, compensation on the basis that  their service had been continuous and had not been interrupted  by the transfer. Another  agreement  was executed between the  firm  and  the company  on  September 15, 1961, as a result  of  which  the company took over the entire retail business hitherto run by the firm.  Clauses 2 to 5 of the said agreement provide  the other terms and conditions subject to which the transfer  of the  retail business was effected between the firm  and  the company. 383 After  this transaction was thus completed between the  firm and  the  company,  notice  was issued  to  the  workmen  in question intimating to them that as a result of the transfer their  services  would  be  taken  over  by  the  transferee company.   These  workmen were told that  in  computing  the length  of their service, the period of their  service  with the transferor firm would be taken into account.  They  were

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also told that if any of them did not want to work with  the transferee company, they should intimate accordingly to  the said  company  within  three days from the  receipt  of  the notice whereupon their legal dues would be paid to them. For   reasons  which  it  is  not  easy  to  understand   or appreciate,   the   respondent   Union   representing    the appellant’s  employees  does not appear  to  have  responded favourably  to  this notice and correspondence  that  passed between  the  respondent and the appellant  shows  that  the workmen were not prepared to be treated as the employees  of the transferee company.  It seems that they were willing  to do the work of retail business which had been transferred to the company, but they were unwilling to forego the status as the   employees  of  the  transferor  firm.    Attempts   at conciliation  were  made, but the  differences  between  the parties could not be resolved, and so, the matter ultimately went to the Industrial Tribunal for its adjudication.   That is  bow the only question which arises for our  decision  is whether s. 25FF and its proviso apply to the present case. Section 25FF of the Act provides, inter alia, that where the ownership  or management of 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 satisfies the test  prescribed  in  that section  shall  be entitled to notice  and  compensation  in accordance with the provisions of s. 25FF as if the  workman had  been  retrenched.  This provision  shows  that  workmen falling under the category contemplated by it, are  entitled to claim retrenchment compensation in 384 case  the undertaking which they were serving and  by  which they  were  employed is transferred.  Such a transfer  ,  in law,  is regarded as amounting to retrenchment of  the  said workmen  and  on that basis s. 25FF gives  the  workmen  the right to claim compensation. There is, however, a proviso to this section which. excludes its operation in respect of cases falling under the proviso. In substance, the proviso lays down that the provision as to the  payment  of  compensation  on  transfer  will  not   be applicable  where in spite of the transfer, the  service  of the  workmen  has  not  been  interrupted.   The  terms  and conditions of service are not less favorable after  transfer then  they were before such transfer, and the transferee  is bound under the terms of the transfer to pay to the  workmen in  the  event of their retrenchment,  compensation  on  the basis  that  their service had been continuous and  had  not been  interrupted by the transfer.  The proviso,  therefore, shows that where the transfer does not effect the terms  and conditions  of the employees, does not interrupt the  length of  their  service and guarantees to them  payment  of  com- pensation, if retrenchment were made, on the basis of  their continuous  employment,  then s. 25FF of the Act  would  not apply  and  the workmen concerned would not be  entitled  to claim compensation merely by reason of the transfer.  It  is common  ground  that  the  three  conditions  prescribed  by clauses (a) (b) and (c) of the proviso are satisfied in this case  and so, if s. 25FF were to apply, there can be  little doubt  that the appellant would be justified  in  contending that the transfer was valid and the 57 employees can make no grievance of the said transfer.  The question, however,  is: does s. 25FF apply at all? It  would be noticed that the first and  foremost  condition for  the  application of s. 25FF is that  the  ownership  or management  of  an  undertaking  is  transferred  from   the employer in relation to that undertaking to a new  employer.

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What  the section contemplates is that either the  ownership or  the management of an undertaking should be  transferred; normally this would 385 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, s.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. 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 s. 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. But where the undertaking runs several allied businesses  in the same place or places, different 1/SCI/64--25 386 considerations  would come into play.  In the present  case, the muster roll showing the list of employees was common  in regard  to  all  the  departments of  business  run  by  the transferor  firm.  it  is not disputed that  the  terms  and conditions  of service were the same for all  the  employees and what is most significant is the fact that the  employees could  be  transferred  from  one  department  run  by   the transferor firm to another department, though the transferor conducted  several  branches of business which are  more  or less allied, the services of the employees were not confined to any one business, but were liable to be transferred  from one  branch  to another.  In the payment of  bonus  all  the employees  were treated as constituting one unit  and  there was  thug both the unity of employment and the  identity  of the terms and conditions of service.  In fact, it is  purely a matter of accident that the 57 workmen with whose transfer we  are  concerned  in the present  appeal  happened  to  be engaged  in retail business which was the subject-matter  of the  transfer  between the firm and the company.   These  57 employees  had not been appointed solely for the purpose  of the  retail  business  but  were in  charge  of  the  retail business  as  a  mere  matter  of  accident.   Under   these

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circumstances,  it appears to us to be very  difficult  to’- accept  Mr.  Setalvad’s  argument that  because  the  retail business has an identity of its own it should be treated  as an independent and distinct business run by the firm and  as such, the transfer should be deemed to have constituted  the company into a successor-in-interest of the transferor  firm for the purpose of s. 25FF.  As in other industrial matters, so  on this question too, it would be difficult to lay  down any categorical or general proposition.  Whether or not  the transfer in question attracts the provisions of s. 25FF must be  determined  in the light of the  circumstances  of  each case.   It is hardly necessary to emphasise that in  dealing with  the  problem,  what  industrial  adjudication   should consider is the matter of substance and not of form.  As has been  observed  by  this  Court  in  Anakapalla  Cooperative Agricultural and In- 387 dustrial Society v. Workmen and others(1) the question as to whether  a  transfer has been effected so as to  attract  s. 25FF  must ultimately depend upon the evaluation of all  the relevant  factors and it cannot be answered by treating  any one  of  them as of overriding or  conclusive  significance. Having regard to the facts which are relevant in the present case, we are satisfied that the appellant cannot claim to be a  successor-in-interest  of the firm so as to  attract  the provisions  of s. 25FF of the Act.  The transfer  which  has been  affected by the firm in favour of the  appellant  does not, in our opinion, amount to the transfer of the ownership or  management  of an undertaking and so, the  Tribunal  was right in holding that s. 25FF and the proviso to it did  not apply to the present case. The result is, the appeal fails and is dismissed with costs. Appeal dismissed.