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CASE NO.: Appeal (civil)  4800 of 2007

PETITIONER: Managing Director, Karnataka Forest Development Corporation Ltd

RESPONDENT: Workmen of Karnataka Pulpwood Ltd. & Ors

DATE OF JUDGMENT: 11/10/2007

BENCH: S.B. Sinha & Harjit Singh Bedi

JUDGMENT: J U D G M E N T [CA 4802 of 2007 arising out of SLP (C) No.21054 of 2006] (Arising out of SLP (C) No.19783 of 2005)

S.B. Sinha, J.

1.      Leave granted.  2.      These appeals are directed against judgments and orders dated  22.6.20005 and 19.07.2006 passed by a Division Bench of the Karnataka  High Court whereby and whereunder the judgment and order dated 7.2.2005  passed by a learned Single Judge of the said High Court dismissing writ  Petition Nos. 1651-1685 of 2005 filed by the respondents herein claiming  their absorption in the appellant-Corporation.   3.      Indisputably the private-respondents herein were the workmen of  Karnataka Pulpwood Ltd. (the company).  It was a Government company.  It  was running at a loss.  Karnataka Pulpwood Ltd. is a joint sector company of  Karntaka Forest Development Corporation Ltd. and and Karntaka Harihar  Polyfibres Ltd., the share capital was fixed in the ratio of 51:49. 4.      The Government stood as a guarantor in respect of the loans to be  raised by the joint sector company from the commercial banks.  A lease was  granted in favour of the said company.  Karnataka Pulpwood Ltd. which is  said to be a subsidiary of the appellant-Corporation faced hostility from the  local people for various reasons.  A public interest litigation was also filed  before this Court against lease of forest lands, inter alia, on the ground that  the same was violative of the provisions of the Forest (Conservation) Act,  1980.  This Court granted an order of stay regarding possession of the said  leasehold property.  Protracted legal battle adversely affected the  commercial viability of KPL project.  Great difficulty was also experienced  in the matter to of obtaining loans from banks for raising of maintenance of  plantations.       A question, therefore, arose as to whether the said company should be  wound up.  By reason of a decision taken by the State of Karnataka on or  about 24.10.1991, it was, inter alia, directed : \023(a) To wind-up Karnataka Pulpwood Ltd., a  Joint Sector Company.  The company is  directed to take steps in this connection  following prescribed procedure under  Companies Act, 1956. (b)     That all the Assets and Liabilities of the  Karnataka Pulpwood Ltd. and any guarantee  given by the Government to Karnataka  Pulpwood Ltd. for raising loans are  transferred to Karnataka Forest  Development Corporation Ltd. (c)     Karnataka Forest Development Corporation  is directed to settle obligations contained in  promoters an agreement amicably through  the dialogue between the promoters or in

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terms of arbitration clause in case of any  dispute between the parties. (d)     Karnataka Forest Development Corporation  is directed to absorb the staff of Karnataka  Pulpwood Ltd. in Karnataka Forest  Development Corporation. (e)     To return the enquiry to M/s. Harihar  Polyfibers Ltd. The question regarding  payment of interest on equity has to be  negotiated and settled between the  promoters viz., Karnataka Forest  Development Corporation and M/s. Harihar  Polyfibers.\024

5.      An attempt was made to wind up the said industrial undertaking in  terms of the provisions of the Companies Act.  On or about 16.11.1993, the  State accorded its approval for merger of the said company with the  appellant herein in place of closure of the former.  It is, however, not known  as to whether formalities required to be complied with for merger of the said  companies under the Companies Act were undertaken or not.  Apparently,  such an exercise was undertaken.  A proposal was also mooted that a  voluntary retirement scheme be floated in regard to the employees of the  company and in its meeting held on 27.1.2003, it was resolved : \023The matter was also discussed in the meeting of  the High Power Committee on Public Sector  Undertakings under the chairmanship of the Chief  Secretary on 20.01.2993. It was pointed out that in  the HPC a decision has been taken to close the  KPL revising the earlier decision of merger with  KFDC.\024

6.      Yet again, a Government order was issued on 02.01.2004 directing : \0231.  Close down KPL. 2.      Extend financial help to KPL in order to  extend VRS to all its employees.  Those  employees who do not opt for VRS should  be terminated as per Industrial Disputes Act. 3.      KPL should obtain necessary permission  from the Government\022s Labour Dept. for  closure under Section 25-O of the Industrial  Disputes Act.\024

7.      Pursuant thereto and in furtherance thereof, an application was filed  for closure of Karnataka Pulpwood Ltd. before the State Government.   Respondent-Union was also given an opportunity of hearing in the  proceedings initiated therefor.  It was, inter alia, observed : \023All the employees of KPL are ready and willing  to accept the VRS as proposed by the Management  of KPL in its letter dated 14.02.2003 and the VRS  scheme revised upto 31.03.2003 as per G.O. of  DPAR (RPE) dated 10.08.2001 provided other  conditions are fulfilled\024

       It was opined : \023Therefore, the union pleads to either to  reject/dismiss the application of the KPL or to  defer its consideration till after the absorption of  the KPL staff in the KFDC or at least after the  judgment of the Hon\022ble High Court in WP  No.39406-455/2003.  In the alternative, refer the  application to the Tribunal for adjudication in the  interest of justice. As against the above, objections of the unions, the  advocate appearing for the management has stated  that the majority of the objections raised by the

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union are regarding absorption of the KPL staff to  that of KFDC.  These points are not relevant in the  matter of closure and the union can raise all these  points before the appropriate authority, as this  authority is not concerned to the absorption of  KPL employees.  Therefore, the management has  requested to over rule the objections and to accord  sanction for closure as requested by the  management as unless the closure is decided the  absorption of KPL employees cannot be decided. The reasons advanced by the management for  closure of their company the objections of the  union and counter objections of the management  have been examined by the Government.  As could  be seen from the various objections raised by the  union, which are all relating to the absorption of   workers in the KFDC, voluntary retirement etc. ,  the Government considers that these issues or  objections of the union are not relevant to the  request of the closure or non-closure of the  company.  The union has not refuted anywhere in  their objection about the losses incurred non- functionality of the company for the purpose,  which was established.  The union has also not  questioned the genuineness and adequacy of the  reasons advanced by the management.  Though the  union has pointed out that the closure is not  justified and there is no adequacy and genuineness  in the reasons, but it has not substantiated as to  how the closure is not justified and how the  reasons are not adequate and genuine.  The issues  to be considered for closure of the company are  status of the company, its viability to pursue its  objective etc.  The union has not made out its  strong case on these issues.  Therefore,  Government after taking into consideration all  aspects of the matter has decided to allow the  application of the management and to grant  permission for closure as required under Section  25-O of the Industrial Disputes Act, 1947.   Accordingly the following orders. G.O. No.LD559 IDG 2004, Bangalore dated  23.11.2004 In the circumstances explained in the preamble, the  permission of the Government is hereby accorded  as required under Section 25-O of Industrial  Disputes Act, 1947, to the management of M/s.  Karnataka Pulpwood Ltd., Bangalore to close  down the above industrial undertaking as proposed  by them.\024

8.      Aggrieved by and dissatisfied therewith, the respondents filed a writ  petition before the High Court of Karnataka which was marked as Writ  Petition Nos.1651-1685 of 2005.  In the said writ petitions, the following  prayers were made : \023a)  Issue a writ of certiorari or any other  appropriate writ, order or direction quashing the  order bearing reference LD559, IDG 2004,  Bangalore dated 23.11.2004 issued by the 2nd  respondent, a true copy of which is produced and  marked as Annexure-J since the same is unjust,  arbitrary and opposed to the scheme of the  Industrial Disputes Act, 1947. b)      issue a writ of mandamus or any other  appropriate writ, order or direction, directing the

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respondents 1, 3 and 4 to immediately absorb the  services of the petitioners 2 to 35 in KFDC  pursuant to Government Order dated 24.10.1991  vide Annexure-B and also representations  submitted by the 1st Petitioner Union vide  Annexure-E to H since non-consideration of the  same by the respondents 1, 3 and 4 is unjust,  arbitrary and violative of Articles 14 and 16 of the  Constitution of India.\024

9.      It appears that another writ petition was filed by another union , i.e.,  Karnataka Pulpwood Ltd. Employees Union (Regd) which was marked as  Writ Petition Nos.3520-3533 of 2005.  A learned Single Judge of the High  Court of Karnataka by a judgment and order dated 28.1.2005 held as under : \023The learned counsel for the Petitioner submits  that all the employees are not interested in VRS  scheme, some of them are interested in taking  closure compensation and absorpition in the  services of the third respondent and further  submits that the petitioners have no objection for  the closure, but their rights have to be properly  protected and the benefits available under law have  to be properly ensured. In view of the submission made at the Bar, it is  directed that the second respondent is permitted to  close the undertaking by 7.2.2005.  The first  respondent shall act upon the proposal of VRS  scheme within three months from the date of  closure.  The petitioners those who are willing to  opt VRS can apply for VRS otherwise they can  place the request for absorption in the services of  the third respondent and closure compensation to  be payable to the petitioners who are eligible for  closure compensation in accordance with law and  to be payable as on the date of closure.   Accordingly, the writ petition is disposed of.\024

10.     When the writ petition filed by the respondents herein came up for  consideration before another Bench, it by a judgment and order dated  7.2.2005 held : \023I respectfully agree with the conclusion reached  by this Court in the aforesaid writ petitions. Hence,  these writ petitions are disposed of in terms of the  order dated 28th January, 2005 in WP Nos.3520- 3533/2005 (S-R). The petitioners herein are at liberty to opt  either  for VRS scheme or for closure compensation with  request for absorption in Karnataka Forest  Development Corporation Ltd. on or before 28th  February, 2005.\024

11.     Both, the Management as also the workmen, preferred intra court  appeals thereagainst.  A Division Bench by an order dated 22.6.2005  directed the Principal Secretary of the Government to inform the Court as to  whether the Government order dated 24.10.1991 on which reliance had been  placed by the respondent-workmen was subsisting or not.  It, however, does  not appear from the records that any response thereto was made.  When the  writ appeals preferred by the parties hereto came up for consideration before  the Division Bench, it allowed the appeals filed by the workmen and  dismissed the appeals preferred by the Management stating : \023What is contended by the learned counsel  appearing for the Corporation is that the  Government order dated 24.10.1991 stands  superseded by the subsequent decision taken by  the State Government.  He referred to the

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averments made in the written statement filed by  the Corporation before the learned Single Judge  and we find that the Corporation has nowhere  stated that the said order stands superseded.  Be  that as it may, no such order of the State  Government was produced before the learned  Single Judge which could show that the earlier  order dated 24.10.1991 stood withdrawn or  superseded.  The learned State counsel, on the  other hand, on receipt of instructions from the  Secretary of the Department who is present in  Court, informs us that the Government order dated  24.10.1991 has not been superseded. This  obviously puts an end to the controversy.  This  being so, we are clearly of the view that the  appellants are entitled to be absorbed in the service  of the Corporation and that the learned single  Judge was in error in not issuing such a direction.

       It was, however, noticed :

We may, however, make it clear that the prayer  made in the writ petition for quashing the order of  the Government granting permission to close down  the company was not pressed before us and the  same stands rejected.\024

12.     Mr. Kailash Vasdev, learned counsel appearing on behalf of the  appellant, would submit that the matter in regard to closure of the company  being no longer in dispute, the High Court committed a serious error in  directing absorption of the workmen of the company by the appellant.   According to Mr. Vasdev, the financial implication of the said order comes  to about Rs.60 lac per year and the losses suffered by it would not be borne  by the Government.   13.     We may, however, place on record that during the pendency of this  SLP, a meeting was held on 21.6.2006 in regard to the claim of absorption of  the workmen concerned wherein it was resolved : \023Agreeing with the views of Sri Sogadu Shivanna  MLA and others, the Hon\022ble Minister instructed  that the following action be taken immediately : 1)      Necessary action to be initiated to withdraw  the SLP filed before the Hon\022ble Supreme  Court on the High Court order dated  22.6.2005 by following necessary procedure  without taking much time for the same and  after this action to be initiated to absorb  these 81 employees. Action : Managing Director, KFDC Ltd. And  Principal Secretary, FEE\024

2)      Arrears of differential salary on account of  release of increments and D.A. be released  to the employees at an early date. Action : Managing Director KFDC Ltd. and  Principal Secretary, FEE

3)      Any dues to be settled to VRS optees such  as difference in ex-gratia etc. be settled  without giving scope for the KPL employees  to approach Court of law again. Action : Managing Director, KFDC Ltd. and  Principal Secretary, FEE         All the officers present in the meeting  assured their full co-operation in solving these

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issues in a time bound manner.\024 14.     We are informed by Mr. Sanjay Hegde, the learned counsel appearing  on behalf of the Government of Karnataka that the question of absorption of  the retrenched employees in the appellant-Corporation is pending before the  Cabinet.  We do not intend to make any observation as regards consequence  arising therefrom. 15.     Mr. Naveen R. Nath, learned counsel appearing on behalf of the  respondents would submit that the State of Karnataka as also the appellant  Corporation had all along been representing to the workmen that services of  those employees who have been working under the company would be  absorbed by the Corporation and in that view of the matter, this Court should  not interfere with the impugned judgment.  It was furthermore contended  that the State as also the Corporation had allowed the order of the learned  Single Judge dated 28.1.2005 passed in Writ Petition No.3530-3533 of 2005  to attain finality and in that view of the matter, there is absolutely no reason  as to why the other workmen would not be treated at par with them.   16.     It is unfortunate that the State of Karnataka as also Appellant- Corporation did not specifically take one stand or the other.  It has been  prevaricating its stand from stage to stage.  The relationship between the  company and the respondents being employer and workmen is governed by  the provisions of the Industrial Disputes Act, 1947.  The Management of an  industrial undertaking is entitled to take recourse to closure of its  undertaking in terms of the provisions of the said Act itself.  Section 25-O of  the said Act lays down the procedure for closing down an undertaking.    Once the permission had been given by the State Government, all  consequences would ensue.  In terms of sub-section (8) of Section 25-O, all  the workmen would be entitled to receive compensation which shall be  equivalent to 15 days\022 average pay for every completed year of continuous  service or any part thereof in excess of six months.  Section 25-S provides  that in relation to a closure of an undertaking governed by Chapter V-B, the  provisions of Sections 25-B, 25-D, 25-E, 25-F, 25-G, 25-H and 25 would  also apply.  Section 25-J provides that the provisions of Chapter VA shall  have effect notwithstanding anything inconsistent therewith contained in any  other law for the time being in force. Indisputably in the event an  undertaking is closed down, the only right which accrues in favour of the  workmen is to obtain compensation as provided for.  We may notice that  sub-section (4) of Section 25O provides that an order of the appropriate  Government is final and binding on the parties.   17.     Before the Division Bench of the High Court, as we have noticed  hereinbefore, the order of the State Government directing prior permission  for effecting closure of the industrial undertaking has not been questioned.   In fact, even the learned Single Judge had made observations to the effect  that the closure may be affected.  Having regard to the fact that rights of the  workmen flow from the provisions of the Industrial Disputes Act, a writ  court could not have issued any other direction.  One of the questions which  had arisen for consideration before the Division Bench was as to whether the  order of the State Government dated 24.10.1991 subsists.  For considering  the said question, it was not necessary for the High Court to ascertain the  view point of the State.  In the year 1991, a decision was taken not to close  down the undertaking of the company.  The 1991 decision was modified by  a subsequent order that the undertakings also as that of the company are  merging with each other.  No order of merger has been passed.  No decision  by a competent authority under the Companies Act had been taken.   Indisputably, the appellant and the company have not merged.  In absence of  any valid order of merger of two different entities, evidently the relationship  of employer and employee between the respondents and the said company,  as had been obtaining, continued.  Furthermore, as soon as the closure of an  undertaking became effective, it is trite that the said relationship ceased to  exist.   18.     The right of the workmen, therefore, was only to receive the amount  of compensation.  If the State is not in a position to take upon itself the  financial burden of the appellant-Corporation for appointing the concerned  workmen; direction to continue their services could not be issued.  There  cannot be any doubt whatsoever that the said order dated 24.10.1991 has  been superseded by necessary implication.  Both merger of two undertakings

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and the closure of one undertaking do not stand together.  If the workmen,  therefore, think that any other or further right has accrued to them in terms  of the purported assurance given by the State, it may take recourse thereto  before an appropriate forum but a writ petition was not maintainable. 19.     For the foregoing reasons, we are of the opinion that impugned  judgment cannot be sustained.  It is set aside accordingly.  The appeals are  allowed.  No costs.