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PETITIONER: MONOGRAM MILLS LTD. ETC.

       Vs.

RESPONDENT: THE STATE OF GUJARAT

DATE OF JUDGMENT07/05/1976

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ KRISHNAIYER, V.R. GOSWAMI, P.K.

CITATION:  1976 AIR 2177            1976 SCR  621  1976 SCC  (3) 294

ACT:      Bombay Industrial  Relations Act  (Bom. 1  of 1947)  as amended by Gujarat Act 21 of 1972, ss. 53A and 53B and rules thereunder-Whether State  Legislature competent to enact ss. 53A and 53B-Pith and substance-Rules-Field of operation of.

HEADNOTE:      Sections 53A and 53B of the Bombay Industrial Relations Act,  1946,   were  inserted  in  that  Act  by  the  Bombay Industrial  Relations   and  Industrial   Disputes  (Gujarat Amendment) Act,  1972. They  relate to  the constitution  of joint management  councils, which include representatives of the employees  also, for  the purpose  of  forestalling  and preventing industrial  disputes. Consequent  amendments were made in the Bombay Industrial Relations (Gujarat) Rules. The appellants challenged  the two  sections on  the ground that the  State   Legislature  was  incompetent  to  enact  them. According to  the appellants, the impugned legislation falls under Entries  43, 44  and 52 of List I, VII Schedule to the Constitution, which  relate to matters of incorporation etc. The High  Court held  that they fall under Entries 22 and 24 of List  III, which  relate to labour welfare and industrial disputes, and  that the  State Legislature  was competent to enact them.      Dismissing the appeal to this Court, ^      HELD: It  has been  recognised during  the last hundred years that  the wage  earners should have an effective voice in the management of the industry in which they are working. The concept  of joint management of industry by the employer and the  employee may  have a wide connotation, because, the joint  management   councils  may   not  only  perform  such functions as  pertain to  welfare of  labour, that is, those relating to  the various objectives mentioned in cls. (a) to (f) of  s. 53B(1)  but  may  also  claim  to  exercise  such functions as  can be  discharged by  the board of directors. This wider  aspect of  the joint management would however be impermissible under  the impugned  provisions,  because  the provisions should  be so  construed and implemented as would sustain  their   constitutional  validity.  They  have  been enacted by  the State Legislature and so the functions which

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can be performed by the joint management councils have to be of such a character as would pertain to welfare of labour or prevent industrial disputes. If the impugned legislation, in pith and substance, relates to subjects which are within the competence of  the State Legislature, the fact that there is an incidental encroachment on matters which are the subject- matter  of   Entries  in   List  I,  would  not  affect  the legislative competence  of the State Legislature to pass the impugned legislation. [628A, 629E]      Rules in  the very nature of things can operate only in that field  in which  the parent Act can operate, and hence, the impugned  rules, likewise,  relate to subjects which are within the competence of the State Legislature. [628D]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeals Nos. 600- 601 and 1699-1714 and 877-878 of 1975.      Appeals by  Special Leave  from the  Judgment and Order dated 30th  January 1975  of the  Gujarat High Court in Spl. Civil Applns. Nos. 15, 1194, 88, 89, 90, 107, 113, 121, 122, 124, 125,  166, 182,  202, 112,  123, 177, 1757, 149, 150 of 1974 respectively. 622      F. S. Nariman, K. S. Nanavati, P. C. Bhartari and J. B. Dadachanji, for Appellant (In CA 600/75).      K. S.  Nanvavati, P.  C. Bhartari and J. B. Dadachanji, for the Appellants (In CA 601/75 and CA 1700-1714/75).      V. M.  Tarkunde, K. S. Nanavati, P. C. Bharatari and J. B. Dadachanji for the Appellant (in CA 1699/75).      V. N. Ganpule, for Appellants (In CA 877-878/75).      M. C.  Bhandare and  M. N.  Shroff, for the Respondents (In CA  600-601 of 1975) and CA Nos. 1699-1714/75 and 877 to 878/75.      The Judgment of the Court was delivered by      KHANNA, J.-This judgment would dispose of civil appeals Nos. 600,  601, 877, 878 and 1699 to 1714 of 1975 which have been filed  by special leave against the judgment of Gujarat High Court  dismissing petitions  under article  226 of  the Constitution  of   India  filed   by  the   appellants.  The appellants in  these  petitions  assailed  the  validity  of sections 53A and 53B of the Bombay Industrial Relations Act, 1946 (Bombay  Act No. 1 of 1947) (hereinafter referred to as the principal  Act). These  sections along  with some  other provisions were  inserted in the principal Act by the Bombay Industrial  Relations   and  Industrial   Disputes  (Gujarat Amendment) Act,  1972 (Gujarat  Act No.  21  of  1972).  The appellants also  challenged the  validity of the rules which were added  to the  Bombay. Industrial  Relations  (Gujarat) Rules, 1961  as per  notification  dated  June  4  1973.  In addition to  that the  appellants challenged the validity of notification dated December 17, 1973.      The principal Act was enacted to regulate the relations of  employers   and  employees,   to  make   provisions  for settlement  of   industrial  disputes   and  certain   other purposes. In  1956 the  industrial policy  resolution of the Government of  India stated  inter alia  that in a socialist democracy  labour  is  a  partner  in  the  common  task  of development and  must participate  in  it  with  enthusiasm. Emphasis was  laid upon  joint consultation  of workers  and technicians and  for associating progressively labour in the management of  the industry.  Stress was again laid on joint management councils  at the  tripartite conference  held  in July  1957.   Representatives  of   labour,  management  and

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Government were  present  at  that  conference.  There  was, however,  no   statutory  provision   for  joint  management councils and  whatever was  done, was  on a voluntary basis. Sections 53A  and 53B  were inserted in the principal Act by Gujarat Act 21 of 1972.      The two sections read as under:           "53.A(1) If  in respect of any industry, the State      Government is of opinion that it is desirable in public      interest to  take action under this section, it may, in      the  case   of  all   undertakings  or   any  class  of      undertakings in such industry, in which five hundred or      more employees  are employed  or have  been employed on      any day  in the  preceding twelve months, by general or      special order require the employer to constitute 623      in the prescribed manner and within the prescribed time      limit a  Joint Management  Council, consisting  of such      number of  members as  may be  prescribed, comprised of      representatives of  employers and  employees engaged in      the  undertaking,   so  however   that  the  number  of      representatives of  employees on  the Council shall not      be less  than the  number  of  representatives  of  the      employers. Notwithstanding  anything contained  in this      Act,  the  representatives  of  the  employees  on  the      Council shall  be elected  in the  prescribed manner by      the employees  engaged in  the undertaking from amongst      themselves:           Provided that  a list  of industries in respect of      which no  order is  issued under this sub-section shall      be laid  by  the  State  Government  before  the  State      Legislature within thirty days from the commencement of      its first Session of each year.           (2) One  of the  members of  the Council  shall be      appointed as  Chairman in accordance with rules made in      this behalf.           53B (1)  The Council  shall be  charged  with  the      general duty to promote and assist in the management of      the  undertaking  in  a  more  efficient,  orderly  and      economical manner,  and for  that purpose  and  without      prejudice to the generality of the foregoing provision,      it shall be the duty of the council-                (a) to  promote cordial relations between the           employer and employers;                (b)  to  build  up  understanding  and  trust           between them;                (c)  to   promote  measures   which  lead  to           substantial increase in productivity;                (d)  to   secure  better   administration  of           welfare measures and adequate safety measures;                (e) to  train the  employees in understanding           the  responsibilities   of   management   of   the           undertaking and  in sharing  such responsibilities           to the extent considered feasible; and                (f)  to  do  such  other  things  as  may  be           prescribed.           (2) The Council shall be consulted by the employer      on all  matters  relating  to  the  management  of  the      undertaking specified  in sub-section  (1) and it shall      be the  duty of  the Council  to advise the employer on      any matter so referred to it.           (3) The Council shall be entrusted by the employer      with such  administrative functions,  appearing  to  be      connected with  or relevant  to, the  discharge by  the      Council of  its duties  under this  section, as  may be      prescribed.

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624           (4) It  shall be  the  duty  of  the  employer  to      furnish to  the Council  necessary information relating      to such matters as may be prescribed for the purpose of      enabling it to discharge its duties under this Act.           (5) The Council shall follow such procedure in the      discharge of its duties as may be prescribed." Consequent upon the insertion of sections 53A and 53B in the principal Act,  the Bombay  Industrial  Relations  (Gujarat) Rules were  also amended  and certain  new rules were added. Rule 47A  relates to  the manner  of election of two persons from amongst employees in disputes. Rule 61A reads as under:           "61-A. Constitution  of Joint Management Council.-      Any employer  who is  required by  an order  made under      sub-section (1)  of section  53-A to constitute a Joint      Management Council  shall constitute within a period of      ninety days  from the  date of  the said  order a Joint      Management Council  consisting of  ten members,  out of      which the  number of representatives of the employer to      be  nominated   by  the  employer  and  the  number  of      representatives of employees engaged in the undertaking      to be  elected from amongst themselves shall be such as      may be  determined by  the employer so however that the      number of  representatives  of  the  employees  on  the      Council  shall   not  be   less  than   the  number  of      representatives of the employer." Rule 61B  to  rule  61T  relate  to  election  of  employees representatives  on   the  Management   Council.  Rule   61U prescribes for  appointment of Chairman of the Council. Rule 61V deals  with the constitution of the Council from time to time and  the manner  of filling  in the vacancies. Rule 61W relates to  the  number  of  meetings  of  the  Council  and provides that  the Chairman  shall also  have  a  second  or casting vote  in the  event of  equality of  votes. Rule 61X makes other provisions for the meeting, while Rule 61Y deals with annual  returns. Rules  61Z, 61ZA  and  61ZB  to  which reference has  been made during the course of arguments read as under:           "61-Z. Duties  of the  Council.-It  shall  be  the      endeavour of the Council:-           (i)  to improve  the  working  conditions  of  the                employees;           (ii) to encourage suggestions from the employees;           (iii)to assist  in the  administration of laws and                agreements;           (iv) to serve generally as an authentic channel of                communication between  the management and the                employees;           (v)  to  create   in  the  employees  a  sense  of                participation;           (vi) to   render    advice,   in    the    general                administration of  Standing Orders  and their                amendment when needed; 625           (vii)to render  advice on  matters  pertaining  to                retrenchment  or   rationalisation,  closure,                reduction in or cessation of operations           61-Z-A. Administrative  functions with  which  the      Council shall  be entrusted  by  Employer.-The  Council      shall be  entrusted by the employer with administrative      functions in respect of:           (i)  operation   of    vocational   training   and                apprenticeship schemes;           (ii) preparation of schedules of working hours and                breaks and of holidays; and

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         (iii)payment of  rewards for  valuable suggestions                received from the employees.           61-Z-B. Matters  in respect  of which  the Council      shall be  entitled to  receive information.-The Council      shall be  furnished by the employer with information in      respect of:           (i)  general economic situation of the concern;           (ii) the state of the market, production and sales                programmes;           (iii)organisation  and   general  running  of  the                undertaking;           (iv) circumstances affecting the economic position                of the undertaking;           (v)  methods of manufacture and work;           (vi) the annual  balance sheet and profit and loss                of  statement  and  connected  documents  and                explanation; and           (vii)long term  plan for  expansion, re-employment                etc." Imugned notification dated December 17, 1973 reads as under:           "No. KH-SH-1988/BIR-1073-JH- Whereas in respect of      the industry  specified in  the Schedule annexed hereto      the State Government is of opinion that it is desirable      in public  interest to take action under section 53A of      the Bombay  Industrial Relations  Act,  1964  (Bom.  of      1947), in  the case  of all  undertakings in  the  said      industry in  which five  hundred or  more employees are      employed or have been employed any day in the preceding      twelve months.           Now,  therefore,   in  exercise   of  the   powers      conferred by  sub-section (1) of the said section 53-A,      the Government  of Gujarat hereby requires the employer      of each  such  undertaking  in  the  said  industry  to      constitute a Joint Management Council in the manner and      within the  time limit  specified in rule 61-A-G of the      Bombay Industrial Relations (Gujarat) Rules, 1961. 626                                                     SCHEDULE           Cotton  Textile   Industry  as  specified  in  the      Government of Bombay Political and Services Department,      Notification No. 2847/34-A, dated 30th May 1939 and the      Government of Gujarat, Education and Labour Department,      Notification No. BIR-1361, dated the 17th July 1961."      Although a  number of  contentions were advanced before the High  Court to  assail the  validity of sections 53A and 53B as  well as the rules mentioned above, before us learned counsel for  the appellants  have restricted their challenge to the  impugned provisions  only on  the ground  of lack of legislative competence of the State Legislature.      So far  as notification  dated  December  17,  1973  is concerned, we  may state  that the  said notification  is no longer in  force and,  instead of  that notification a fresh notification date  March 1,  1976 has  been issued.  In  the circumstances, no  opinion need be expressed on the validity of notification  dated December 17, 1973. We also express no opinion on  the reasons given by the High Court in upholding the aforesaid  notification. It  is also, in our opinion not necessary to  express any  opinion  about  the  validity  of notification dated  March 1,  1976 as  this notification was issued subsequent  to the decision of the High Court and was not the  subject matter  of writ  petitions before  the High Court.      We may  now advert  to the  question of the legislative competence of  Gujarat legislature to enact sections 53A and 53B reproduced  above. In  upholding the  contention of  the

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respondent-State that  the impugned  provisions were  within the sphere  of  the  legislative  competence  of  the  State legislature under  entries 22  and 24 of List III in Seventh Schedule to  the Constitution,  the High Court has held that the subject  matter of  the  above  legislation  was  labour welfare even  though it might have some incidental effect on corporate undertakings  or  controlled  industries.  Dealing with rule  61ZB the  High Court held that the information to be furnished  should be of such a nature that its disclosure would not be harmful to the undertaking. The information, it was held,  should not  be confidential  or relating to trade secrets.      Sections 53A and 53B as already mentioned were inserted in the principal Act by Gujarat Act No. 21 of 1972. This Act was published  on October 19, 1972 after it had received the assent of  the President.  According to the respondents, the above provisions  have been  enacted under entries 22 and 24 of List  III of  the Seventh  Schedule to  the Constitution. Entry 22  relates to  trade unions;  industrial  and  labour disputes, while  entry 24  deals  with  "welfare  of  labour including conditions  of work,  provident funds,  employers’ liability, workmen’s  compensation, invalidity  and old  age pensions and  maternity  benefits".  As  against  that,  the contentions advanced on behalf of the appellants is that the impugned legislation  falls under  entries 43,  44 and 52 of List I  in the Seventh Schedule which relate respectively to "incorporation,  regulation   and  winding   up  of  trading corporations  including  banking,  insurance  and  financial corporations but not including 627 co-operative  societies;"   "incorporation,  regulation  and winding up  of corporations,  whether trading  or not,  with objects  not  confined  to  one  State,  but  not  including universities;" and  "industries, the control of which by the Union is  declared by  Parliament by  law to be expedient in the public interest".      We have given the matter our earnest consideration, and we find  no sufficient  ground to interfere with the finding of the  High Court  that the  impugned statutory  provisions fall under entries 22 and 24 of List III in Seventh Schedule of the  Constitution and  that  the  State  legislature  was competent to  enact the same. The impugned provisions in our opinion, are intended in pith and substance to forestall and prevent industrial and labour disputes. They constitute also in essence a measure for the welfare of the labour.      From a  conceptual viewpoint,  workers’  management  of undertakings or  self-management represents  the  most  far- reaching degree  of  association  of  workers  in  decisions concerning them.  Probably the  best known  example of  this type of  workers’ participation  is the  Yugoslav system  of self-management. Under  that system,  the workforce  of  the undertaking exercises  the principal functions of management through the  self-management organs,  the  organisation  and powers of  which have  been established since the sixties by the statute  or internal  regulations  of  the  undertaking, namely, the  workers’ assembly  and the workers council. For varying lengths of time, in a large number of countries, and by virtue  of a  legal obligation,  workers’ representatives have been included in management organs in the public sector as a  whole or  in certain nationalised undertakings. In the private  sector,   the  system  which  has  pushed  workers’ representation to  the furtherest  degree  is  that  of  co- determination applied  in the  Federal Republic  of  Germanv since the beginning of the fifties. By an Act of 1951, equal representation of workers was established on the supervisory

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boards of  large iron  and steel  and  mining  undertakings. These    boards     generally    include    five    workers’ representatives" five  representatives of  the  shareholders and an  eleventh member  nominated by  mutual agreement.  In addition,  one   of  the   members  of  the  directorate  or management board,  namely,  the  "labour  director"  who  is generally responsible  for personnel  questions  and  social affairs, may  only be  nominated or  dismissed in  agreement with the  maiority of  the workers’  members of  that board. Under an  Act of  1952, the  workers’ representation  on the supervisory boards  of the  companies which do not belong to the above  industries is  one-third of the total membership. Pressure is  however, being  brought by the trade unions for equal representation of workers on the supervisory boards in sectors  other   than  iron   and  steel   and  mining  (see International  Labour   Organization  Background   Paper  on Symposium on  Workers’  Participation  in  Decisions  within Undertaking in  Oslo in August 1974). The object of workers’ participation in  joint management councils is to enlist co- operation of  workers with a view to bring about improvement in  the  performance  of  industrial  organisations.  It  is assumed that the above scheme would give a robust feeling of participation to  the workers  in the  management  and  thus result   in   improved   functioning   of   the   industrial undertaking. Another object appears to 628 be  to   democratise  the   industrial  milieu   and  ensure egalitarianism in the process.      It has  not been  disputed on  behalf of the appellants that the  various objectives mentioned in clauses (a) to (f) of sub-section  (1) of  section 53B  pertain to  welfare  of labour. What is, however, contended is that joint management councils may  claim to  exercise such  functions  under  the opening words  of sub-section  (1) of  section 53B as can be discharged only  by the Board of Directors. This contention, in our  opinion, is not well-founded. The impugned statutory provisions, in  our opinion,  should  be  so  construed  and implemented as  would sustain their constitutional validity. The functions which can be performed by the joint management councils have  to be of such a character as would pertain to welfare of  labour  or  prevent  industrial  disputes.  Such functions would  be analogous  to those specified in clauses (a)  to  (f).  If  the  impugned  legislation  in  pith  and substance  relates   to  subjects   which  are   within  the competence of the State legislature, as it in fact does, the fact that  there is  an incidental  encroachment on  matters which are  the subject matter of entries in List I would not affect the  legislative competence  of the State legislature to pass the impugned legislation. The impugned rules, in our opinion, likewise  relate to  subjects which  are within the competence of  the State  legislature. The rules in the very nature of things can operate only in that field in which the parent Act can operate.      For about a hundred years the term industrial democracy has been  often mentioned  in the  writings  of  socialists, trade  unionists   and  social   reformers.  Of   late   the industrialists have  taken it  over. The  reason for that is that industrialists  have become conscious that any approach which has  the effect  of treating  workers as  if they were commodities  is   unsound  and  wasteful  economically.  The industrialists, it  has  been  said,  tried  paternalism  or benevolent autocracy,  and they have found that this did not work, just  as Frederick  the Great  and his followers found that benevolent  political despotism did not work. Democracy in political  terms means the consent of the governed in the

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governance of  the country.  In industry  it means that wage earners shall  have an effective voice. It has been observed by Edward Filence.           "labour...., having  experienced the advantages of      democracy  in   government  now   seeks  democracy   in      industry. Is  it any  stranger that a man should have a      voice as  to the  conditions under  which he works than      that he  should participate  in the  management of  the      city and  the state  and the  nation ?  If a  voter  on      governmental problems,  why not  a voter  on industrial      problems  ?"   (See  page  339,  Personnel  and  Labour      Relations by Nash/Miner). The above  approach postulates  trade unions  as a potential positive force.  For  management  and  union  to  share  the pluralist ideology  requires more than agreement about joint decision-making as  such. It requires also that neither side enforces  claims   or  imposes   policies  which  are  found excessively burdensome by its counterpart. As observed 629 by Alan  Fox on  page 303  of Beyond Contract Work and Trust Relations:           "It follows  from this  analysis  that  management      will  be   readier  to   accept  pluralistic  forms  of      decision-making the greater its confidence that it will      always be  able, in  the last  resort, to bend employee      claims towards  acceptable compromises.  It may even be      convinced of  its ability to charm them away altogether      or at least much reduce them by ’rational’ argument and      persuasion designed  to bring  out  the  ’true’  common      interests.  In   this  sense  a  formal  acceptance  of      pluralistic patterns  may mask  unitary convictions  on      managements past about the nature of the enterprise. It      may  regard   joint   decision-making   and   a   fully      institutionalised handling of claims and grievances not      as mechanisms  for compromising  genuine  conflicts  of      interest but  as devices which facilitate the ’working-      through’   of   mistaken   conceptions,   psychological      blockages, and  organizational confusions  by a process      of ’rational’ clarification."      It would  appear from  the above  that the  concept  of joint management  has a  much wider  connotation. That wider aspect of  joint management  would plainly  be impermissible under the impugned legislation as it has been enacted by the State legislature.  Such legislation can operate only within a limited  field because  that is  the only way in which its constitutional  validity   can  be   sustained  against  the challenge on the ground of want of legislative competence by the State legislature.      With the above observations we dismiss the appeals, but in the   circumstances  leave the  parties to bear their own costs throughout. V.P.S.                                     Appeal dismissed. 630