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PETITIONER: RASHTRIYA MILL MAZDOOR SANGH, NAGPUR

       Vs.

RESPONDENT: THE MODEL MILLS, NAGPUR AND ANR.

DATE OF JUDGMENT18/09/1984

BENCH: DESAI, D.A. BENCH: DESAI, D.A. ERADI, V. BALAKRISHNA (J) KHALID, V. (J)

CITATION:  1984 AIR 1813            1985 SCR  (1) 751  1984 SCC  Supl.  352     1984 SCALE  (2)406  CITATOR INFO :  F          1985 SC 488  (12)  R          1986 SC 291  (8)  D          1988 SC1369  (14)

ACT:      The Payment of Bonus Act 1965, Section 32(IV)-Scope of- Employees of undertaking managed by an authorized controller under Section  18A IDR  Act-Whether entitled  to payment  of bonus.      The Industries  (Development and  Regulation) Act 1951, Section 18A Industrial undertaking-Appointment of authorized controller-Such undertaking  whether an  industry carried on under  the  authority  of  the  Department  of  the  Central Government-Employees  of  undertaking  whether  entitled  to payment of bonus.      The  Sick  Textile  Undertaking  (Nationalisation)  Act 1974, Section 5(2)(C) ’wages, salaries and other dues of the employees’-Whether includes  statutory bonus  payable  under Bonus Act.      Words  and   Phrases:  ’Carried  on  by  or  under  the authority of  any department  of  the  Central  Government’- Meaning of-Section 32(IV) Payment of Bonus Act 1965.

HEADNOTE:      The appellant-Union  served a  notice of demand for the grant of bonus for the period 1964-65 to 1967-68. The matter was  taken   into  conciliation.  The  Conciliation  Officer recorded a  failure, issued  a certificate under Section 73A of the Bombay Industrial Relations Act, 1946 certifying that the  dispute   was  not   capable  of   being   settled   by conciliation. The  Union  thereupon  made  four  independent references to  the Industrial  Court, for the grant of bonus for each  of the  four accounting  years 1964-65 to 1967-68. The Union  further alleged that it could not make a specific demand for  bonus calculated  at a certain percentage of the salary as it had not got the requisite information about the financial position  and the  balance sheet  of the Employer, and that the Industrial Court should compute the bonus which becomes payable  under the  Bonus Act, and award the same to the workmen.      The employer  resisted the  references contending  that

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once a  notified order  was issued  under Section 18A of the Industries (Development and Regulation) Act, 1951 appointing an  authorised   controller  in  respect  of  an  industrial undertaking, it  was run  by the authorised controller under the authority  of a Department of the Central Government and therefore, in view 752 of the  provisions contained  in Section 32(IV) of the Bonus Act its  employees were excluded from the application of the Bonus Act and the references must consequently be rejected.      The Industrial Court upheld the aforesaid contention on behalf of  the employer that having regard to the provisions contained in  Section 32(IV)  of the  Bonus  Act  read  with Section 18A  of the  IDR Act,  the workmen  employed by  the employer were  excluded from  the operation of the Bonus Act as it  was not  applicable to  the employer.  The Industrial Court however  rejected the alternative contention that even if the workmen employed by the employer were not entitled to bonus under  the Bonus  Act, they were yet entitled to claim bonus apart  from the  Bonus Act  as a  norm  of  industrial relations by observing that as the demand was made for bonus under the Bonus Act, and the alternative demand was not made before the Conciliation Officer, the scope of the references could not be enlarged to cover the same.      In the appeals to this Court on the questions:      (1) On  the appointment  of the  authorised  controller under Section  18A of  the IDR Act by the Central Government in  respect   of  an   industrial  undertaking  whether  the undertaking acquires  the status of an establishment engaged in an  industry  carried  on  under  the  authority  of  the Department of  the Central  Government, and  (2) Whether the employees employed  in such  an industrial  undertaking were excluded from the operation of the Bonus Act.      Allowing the Appeals, ^      HELD:  1(a)  If  on  the  issue  of  a  notified  order appointing  an   authorised  controller   under   Sec.   18A Industries  (Development   and  Regulation)  Act  1951,  the management of the industrial undertaking undergoes a change, yet it  does not  become  an  establishment  engaged  in  an industry  carried  on  by  the  department  of  the  Central Government,  and   therefore  its  employees  would  not  be excluded from the operation of the Payment of Bonus Act 1965 as provided in Sec. 32(IV). [768 E-G]      Heavy Engineering Mazdoor Union v. The State of Bihar & Ors., [1969]  3 SCR  995  and  M/s.  Swadeshi  Cotton  Mills Thozhilalar  Shemalana  Padukappu  Union  v.  M/s.  National Textile  Corporation  Ltd.  &  Ors.  [1984]  1  L.L.J.  140, referred to.      Carlsbad Mineral Water Mfg. Co. v. P. K. Sarkar, [1952] 1 L.L.J.  388; Workmen,  Karnataka P.F.  Employees Union  v. Additional Industrial Tribunal & Anr., [1983] II L.L.J. 108; The Management  of Bihar  Khadi Gramodyog Sangh, Muzaffarpur v. The  State of  Bihar &  Ors., [1977] Lab. I.C. 466; Abdul Rehman Abdul Gafur & Anr. v. Paul (Mrs. E.) & Ors., [1962] 2 L.L.J. 693;  Bharat Glass Works (Pvt.) Ltd. v. State of West Bengal &  Ors; [1958]  1 L.L.J. 467 and Indian Naval Canteen Control Board  v. Industrial  Tribunal,  Ernakulam  &  Anr., [1965] II L.L,J. 366, approved.      D.P. Kelkar,  Amalner v.  Ambadas Keshav  Bajaj & Ors., A.I.R. 1971 Bom. 124, over-ruled. 753      1. (b)  The Industrial Tribunal was clearly in error in rejecting the  references holding  that the  workmen of  the respondent were  excluded from  the operation  of the  Bonus

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Act. [769 H]      1.(c) The  Award of  the Industrial  Tribunal rejecting the references  is quashed  and set  aside  and  the  matter remitted to  the Industrial Tribunal for disposal on merits. [769 H]      2.(a) The  Industries (Development and Regulation) Act, 1951 was  enacted to  confer power on the Central Government to provide  for development  and  regulations  of  scheduled industries.  With   a  view  to  regulating  the  industrial expansion of  the country  and to lay the infrastructure for the same,  the Central  Government  armed  itself  with  the powers  to  order  investigation  into  the  affairs  of  an industrial undertaking  as also, if necessary of a scheduled industry as  a whole.  The investigation may be caused to be made where there has been or likely to be a substantial fall in the  volume of  production or marked deterioration in the quality of an article or an unwarranted rise in the price or for conserving  any resources  of  national  importance.  On receipt  of   the  report   of  investigation,  the  Central Government could give necessary directions. These directions are statutory in character. [761 E-G]      2. (b)  The Act  provides not  for taking  over of  the industrial  undertaking.   It  provides   for   control   of management by giving directions or for change of management. Where the  industrial undertaking  is  owned  by  a  company governed by the Companies Act in force at the relevant time, the  management   would  generally  vest  in  the  Board  of Directors, and/or the Managing Director, as the case may be. Where it  is a firm or a proprietary concern the partners or proprietors as  the case  may be,  would be in the saddle of management. [761 H; 762 A-B]      2.(c) On  the issue  of a  notified order appointing an authorised controller,  the person  in charge  of management including persons holding office as Managers or Directors of the industrial  undertaking immediately  before the issue of the notified  order shall  be deemed  to have  vacated their office as  such. The  contract  of  management  between  the industrial  undertaking   and  any  managing  agent  or  any director thereof holding office immediately before the issue of  the   notified  order  shall  be  deemed  to  have  been terminated. Subject to the limitation specified in Sec. 18E, the Companies  Act  in  force  at  the  relevant  time  will continue to  apply to such undertaking in the same manner as it applied thereto before the issuance of the notified order under Sec. 18A. [762 B-E]      2. (d)  The significant  consequence that ensues on the issue  of   a  notified   order  appointing   an  authorised controller is  to divert  the management  from  the  present managers and  to vest  it in the authorised controller. This change  of   management  does   not  tantamount   to  either acquisition of  the industrial undertaking or a take over of its ownership.  The industrial  undertaking continues  to be governed by  the Companies Act or the Partnership Act or the relevant provisions  of  law  applicable  to  a  proprietary concern. The  only change  is the  removal of  managers  and appointment of another manager and 754 to safeguard  his position  restriction  on  the  rights  of shareholders or partners or original proprietor. This is the net effect of the appointment of an authorised controller by a notified order. [762 F-H; 763 A-B]      3.  The   expression  ’under   the  authority   of  and department of  the Central  Government’  would  in  ordinary parlance mean  that the  department is  directly responsible for the  management  of  the  industrial  undertaking.  This

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responsibility   may   cover   amongst   others,   financial responsibility as  well. Power  to  regulate  management  or control the  management is entirely distinguishable from the power to run the industry under the authority of the Central Government. [763 C-D]      4. The  substitution of  the management  ordered  under Sec. 18-A  does not tantamount to the industrial undertaking being  taken   over  by   the  department   of  the  Central Government. Nor  could it  be  said  to  be  run  under  the authority of  the department  of the  Central Government. As the authorised controller enjoys all the powers of directors conferred by  the relevant  provisions of the Companies Act, be  can  exercise  that  power  subject  of  course  to  any restriction or  limitation on  his power  specified  in  the notified order  or under  the  general  supervision  of  the Central Government.  But this  power is  subject to  the in- built limitation that it can be exercised for regulating the management  of   the  industrial  undertaking.  Neither  its identity nor  its ownership  is affected  in any manner. The change  in   personnel  of   management  of  the  industrial undertaking for  a  specified  period  can  never  make  the industrial undertaking one engaged in an industry carried on under the authority of the Central Government. [763 E-G]      5. Under Sec. 16 of the IDR Act, the Central Government enjoys wide  powers to  issue directions  to the  industrial undertaking as  may be  appropriate in the circumstances for all or  any of  the purposes  set out  in the  various  sub- clauses of Sec. 16(1). This power to give directions without appointing  an   authorised  controller  or  to  appoint  an authorised controller  giving him specified directions is of a  regulatory   nature  to  be  exercised  with  a  view  to regulating  the   managerial  functions   of  an  industrial undertaking so  as to  achieve certain objects or to rectify the mis-management  in larger  national interest  without in any  manner  affecting  the  identity,  the  status  or  the ownership of  the industrial undertaking. The appointment of the authorised  controller would  not  make  the  industrial undertaking one run under the authority of the department of the Central  Government. While  exercising power  of  giving directions  under   Sec.  16   the  existing  management  is subjected  to   regulatory  control,   failing   which   the management has  to be  replaced to carry out the directions. In  either  case  the  industrial  undertaking  retains  its identity, personality and status unchanged. [763 H; 764 B-E]      6. The  underlying purpose  of Sec. 32(IV) of the Bonus Act  is   not  to   exclude  the  employees  of  some  stray establishment from  the operation  of the Act but to exclude all employees of all establishments in any industry which is carried on  under the  authority of  the department  of  the Central Government.                     [764 H]      7. The expression ’carried on by or under the authority of any  department of  the Central Government’ qualifies the expression industry and not 755 the expression  ’establishment’ as  used in sub-sec. (iv) of Sec. 32 of the Bonus Act. [765 A]      8. The intention of the framers of the Bonus Act was to exclude employees  employed in  an establishment  engaged in any industry  which is  carried on by or under the authority of the  department of  the Central  Government. It cannot be said that  textile industry  is being  carried on  under the authority of the department of the Central Government. There may be  employees in  an industrial  undertaking engaged  in textile industry  which may  have been established under the

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authority of  the  department  of  the  Central  Government. Ordinarily the Central Government would not like to treat an industrial establishment  set up  by it  in an  industry  in which there  are  other  private  sector  establishments  to differentiate  and   discriminate   between   employees   of establishments engaged in the same industry.[765 C-E]      9. The  exception that  is being  carved  out  by  Sec. 32(IV)  is   in  respect   of  employees  of  an  industrial undertaking engaged  in an  industry carried  on by or under the authority of any department of the Central Government as a whole and not individual establishments. [765 E]      10. The  expression ’wages’, salaries and other dues of the employees’  occurring in  sub-cl. (c) of sub-sec. (2) of Sec. 5  of the  Sick Textile  Undertaking  (Nationalisation) Act, 1974  would  without  doubts  include  statutory  bonus payable under the Bonus Act. [770 E]      In the instant case, the liability arose for the period after the  management of the undertaking had been taken over by  the  Central  Government  by  appointing  an  authorised controller under  Sec. 18A  of the  IDR Act.  Therefore, the liability to  pay the  bonus if  awarded  would  be  of  the National Textile Corporation. [770 E]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeals No. 1619 to 1622 of 1971.      Appeals by  Special Leave from the Award dated the 27th November, 1970  of the Industrial Court, Maharashtra (Nagpur Bench) Nagpur in References (I.C.N.) Nos. 13, 14, 15, and 19 of 1969 communicated to the parties on 14-1-1971.      M.K. Ramamurthi and A.G. Ratnaparkhi for the Appellant.      T.V.S.N. Chari Advocate for the Respondent      The Judgment of the Court was delivered by      DESAI,  J.   Bonus  has   a  tantalizing  influence  on industrial 756 workers. They  look forward to it with a craving, the degree of which  is immeasurable. And for the employees and form of bonus  has  such  a  tremendous  attraction  that  the  time honoured concept  of its  being a  profit sharing formula to fill in the gap between the fair wage and the living wage in the case  of industrial  workmen has  been for all practical purposes displaced  by the  Payment of  Bonus Act  and bonus telescoping into  Government service  where there  being  no production and  therefore it  cannot  be  an  incentive  for higher production.  And yet  the  management  of  The  Model Mills, Nagpur  (Employer for  short) has  most  successfully thwarted the  meagre expectation  of minimum  bonus  to  its workmen for full two decades.      Rashtriya  Mill   Mazdoor  Sangh,   appellant   herein, ("Union’  for   short)  as   an  approved  Union  made  four independent  references   under  Sec.   73A  of  the  Bombay Industrial Relations  Act, 1946  (’Act’ for  short)  against Model Mills Nagpur for grant of bonus for the period 1964-65 to 1967-68. A separate reference was made in respect of each accounting year.  The Union  as representative  Union of the employees served  a notice  of change  making the demand for bonus.  The   matter  was   taken  into   conciliation.  The Conciliation Officer recorded a failure on June 23, 1969 and issued a  certificate under  Sec. 73A  of the Act certifying that the  dispute  was  not  capable  of  being  settled  by conciliation. Armed  with the power of an approved Union the union  made   the  aforementioned  four  references  to  the

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Industrial Court.  The Union  demanded bonus for each of the four accounting  periods according  to the provisions of the Payment of Bonus Act, 1965 (Bonus Act’ for short). The Union could not  make a  specific demand for bonus calculated at a certain percentage of the salary alleging that as it has not got the  requisite information  about financial position and balance sheet  of the  Employer, the Industrial Court should compute the bonus which becomes payable under the Bonus Act, and award the same to the workmen of the Employer.      The  employer   resisted  the   references  on  diverse grounds. It  was contended  that once  a notified  order  is issued under  Sec. 18A  of the  Industries (Development  and Regulation)  Act,   1951  (IDR   Act  short)  appointing  an authorised  controller   in   respect   of   an   industrial undertaking, it  is run  by the  authorised controller under the authority  of a Department of the Central Government and therefore, in view of the provision contained in Sec. 32(IV) of the  Bonus  Act  its  employees  are  excluded  from  the application of Bonus Act and the references must accordingly be rejected. 757      This contention found favour with the Industrial Court. The learned  Member with the consent of the parties directed that the  issue with  regard to the application of the Bonus Act may  be tried as a preliminary issue. The learned Member upheld the  contention on  behalf of  the employer observing that having regard to the provision contained in Sec. 32(IV) of the  Bonus Act  read with  Sec. 18A  of the  IDR Act, the workmen employed  by the  employer  are  excluded  from  the operation of  the Bonus  Act as  it is not applicable to the employer.  The   learned  Member  rejected  the  alternative contention that even if the workmen employed by the employer are not  entitled to bonus under the Bonus Act, they are yet entitled to  claim bonus  apart from the Bonus Act as a norm of industrial relation observing that as the demand was made for bonus under the Bonus Act and the alternative demand was not  made   before  the   Counciliator,  the  scope  of  the references  cannot   be  extended   to   cover   the   same. Accordingly, all  the four  references were  rejected. Hence these appeals by special leave.      On the  rival contentions  following questions arise in these appeals:      (1)  On the  appointment of  an  authorised  controller           under Sec.  18A of  the IDR  Act  by  the  Central           Government   in    respect   of    an   industrial           undertaking, does  it acquire  the  status  of  an           establishment engaged  in an  industry carried  on           under the  authority of  the Department of Central           Govt.      (2)  If the  answer to  the first  question is  in  the           affirmative, whether  the  employees  employed  in           such industrial  undertaking are excluded from the           operation of the Bonus Act.      At the  outset, a  few statutory  provisions which will have a  bearing and  impact on  the issues under examination may be noticed.      The Industries  (Development and  Regulation) Act, 1951 was enacted  to provide  for development  and regulation  of scheduled industries.  Chapter  III  confers  power  on  the Central Government  for regulation  of scheduled industries. ’Scheduled industry’  is defined in Sec. 2(i) to mean any of the industries  specified in  the First  Schedule.  Textiles constitute a scheduled industry. Its entry is at plecitum 23 in First Schedule. Sec. 15 confers power on the Central 758

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Government to  cause investigation to be made into scheduled industries  or   industrial  undertaking  for  the  purposes therein set  out. Sec.  15A confers  similar power to direct investigation into  the affairs  of a company in liquidation owning an  industrial undertaking.  This specific  power was conferred by introducing Sec. 15A in the Act by the Amending Act 72  of 1971  because a  company which  is being wound up under the  orders of the court cannot be directly dealt with by the  Central Government  without the  intervention of the court. Sec.  16 confers  power on  the Central Government to give directions on completion of an investigation under Sec. 15 to the industrial undertaking for the following purposes:      "(a) regulating the  production of any article or class           of  articles  by  the  industrial  undertaking  or           undertakings   and   fixing   the   standards   of           production;      (b)  requiring   the    industrial    undertaking    or           undertakings to  take such  steps as  the  Central           Government may consider necessary to stimulate the           development  of   the  industry   to   which   the           undertaking or undertakings relates or relate;      (c)  prohibiting   the    industrial   undertaking   or           undertakings from resorting to any act or practice           which  might   reduce  its  or  their  production,           capacity or economic value;      (d)  controlling  the   prices,   or   regulating   the           distribution, of  any article or class of articles           which   have    been   the   subject   matter   of           investigation."      Chapter III-A  which was  introduced by Amending Act 26 of 1954  conferred power on the Central Government to assume management  or  control  of  an  industrial  undertaking  in certain cases.  Sec. 18A(1)  is  relevant  for  the  present purpose and it may be extracted:      "18-A(1): If the Central Government is of opinion that:      (a)  an industrial undertaking to which directions have           been issued  in pursuance of Section 16 has failed           to comply with such directions, or      (b)  an industrial  undertaking in  respect of which an           in- 759           vestigation  has   been  made   under  Section  15           (whether or not any directions have been issued to           the undertaking  in pursuance  of Section  16), is           being managed  in a  manner highly  detrimental to           the scheduled  industry  concerned  or  to  public           interest, the  Central Government  may by notified           order authorise  any person  or body of persons to           take over  the management of the whole or any part           of the  undertaking or  to exercise  in respect of           the whole  or any  part of  the  undertaking  such           functions, of  control as  may be specified in the           order."      Section 18A  confers power  on the  Central  Government either to  assume management of an industrial undertaking or to control its management. The power to assume management of an industrial  undertaking can  be exercised  by a  notified order appointing  an authorised  controller to take over the management of  the whole or any part of the undertaking. The Central Government  may exercise  in respect of the whole or any part of the undertaking such functions of control as may be specified  in  the  order.  Sec.  18B  provides  for  the consequences that  may ensure  on the  issue of  a  notified order under  Sec. 18A  authorising the  taking over  of  the management of  an industrial  undertaking. Two  consequences

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worth-noticing are  those set  out in sub-cl. (b) and (c) of Sec. 18B (1). They may be extracted:      "(b) any contract  of management between the industrial           undertaking any  managing agent  or  any  director           thereof holding  office as such immediately before           the issue  of a  notified order shall be deemed to           have been terminated.      (c)  the persons, if any, authorised under Section 18-A           to take  over  the  management  of  an  industrial           undertaking which  is a  company shall  be for all           purposes the  directors of  industrial undertaking           duly constituted  under the  Indian Companies Act,           1913 (7  of 1913),  and shall alone be entitled to           exercise all  the powers  of the  directors of the           industrial undertaking,  whether such  powers  are           derived from  the said  Act or from the memorandum           or  articles  of  association  of  the  industrial           undertaking or from any other source." 760      Section 18-E  provides for continued application of the Companies Act then in force to the industrial undertaking in respect of which an authorised controller is appointed under Sec. 18-A subject to the limitations therein specified as it applied prior  to the  notified order.  Sec. 18-F  conferred power on  the Central  Government  to  cancel  the  notified order.      Sec-32(iv) of the Bonus Act reads as under:           "Nothing in this Act shall apply to           .....................................           (iv)  employees   employed  by   an  establishment      engaged in  any industry  carried on  by or  under  the      authority of  any department  of the Central Government      or a State Government or a local authority."      The question  is: whether  on the  issue of  a notified order under Sec. 18-A appointing an authorised controller in respect of  an industrial  undertaking governed  by the  IDR Act, the employees of such undertaking are excluded from the application of  the Bonus  Act for the only reason that they are or  have become  the employees of an establishment in an industry carried on under the authority of the department of Central Government.  The Bonus  Act provides  for payment of bonus to  persons employed in certain establishments and for matters connected therewith. Sub-Sec. (3) of Sec. 1 provides that save  as otherwise  provided in the Bonus Act, it shall apply to-(a) every factory; (b) every other establishment in which twenty  or more persons are employed on any day during an accounting  year. Sec. 32 excludes the application of the Bonus Act  to the  employees therein  enumerated.  Excluding Sec. 32  for the  time being, it cannot be disputed that the Bonus Act  would apply  to the industrial undertaking of the employer. Is  the application  of Bonus  Act excluded on the ground that  on the  issuance of a notified order appointing an authorised  controller under  Sec. 18-A  of the  IDR Act, because the employees of the respondents can be said to have been employed  by an  establishment engaged  in any industry carried on or by or under the authority of any department of the  Central   Government.  Can  it  be  said  that  on  the appointment of  an  authorised  controller,  the  industrial undertaking of  the respondent  acquired the  status  of  an establishment engaged  in textile  industry carried on by or under  the   authority  of   a  department  of  the  Central Government ?  In order  to attract  Sec. 32(iv)  it must  be shown that the employees sought to be ex- 761 cluded from  the  operation  of  the  Bonus  Act  have  been

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employed by an establishment engaged in any industry carried on by  or under  the authority  of  the  department  of  the Central Government.  It was  conceded that it cannot be said that on  the appointment  of an  authorised controller,  the industrial   undertaking   acquired   the   status   of   an establishment engaged  in textile industry carried on by the department  of  the  Central  Government  It  was,  however, strenuously urged  that it  was an  establishment engaged in the  industry   carried  on   under  the  authority  of  the department   of    the   Central    Government.   Shorn   of embellishment, the  question is:  whether on the appointment of an  authorised controller, did the industrial undertaking acquire the  status  of  an  establishment  engaged  in  the industry which  is carried  on under  the authority  of  the department of the Central Government ?      IDR Act  was enacted  as its long title shows to confer power on  the Central  Government to provide for development and regulation  of scheduled  industries. The  Statement  of objects  and  Reasons  shows  that  the  object  behind  the enactment was  to provide  the Central  Government with  the means of  implementing their  industrial policy and for that purpose to extend the control of the Central Government over the development  and regulation  of a  number  of  important industries the  activities of  which affect the country as a whole and  the development  of which  must  be  governed  by economic factors of all India import. The Act amongst others confers power  on the  Central Government for regulating the production and  development  of  the  scheduled  industries. Broad scheme of the Act shows that with a view to regulating the industrial expansion of this country on the threshold of development and  to lay the infrastructure for the same, the Central  Government   was  armed   with  powers   to   order investigation into the affairs of the industrial undertaking as also.  if necessary  of a  scheduled industry as a whole. The investigation  may be  caused to be made where there has been or  likely to  be a  substantial fall  in the volume of production or marked deterioration in the quality of article or an  unwarranted rise  in the  price or for conserving any resources of  national importance.  On receipt of the report of  investigation,   the  Central   Government  could   give necessary directions.  These  directions  are  statutory  in character and  they may  be disobeyed  on the  pain  of  the management being  divested from those incharge and vested in authorised controller,  who may  be appointed by the Central Government. Therefore,  the Act provides not for taking over of the  industrial undertakings.  It provides for control of management by giving 762 directions or for change of management. Where the industrial undertaking is  owned by a company governed by the Companies Act in  force at  the relevant  time, the  management  would generally vest  in  the  Board  of  Directors,  and  or  the Managing Director, as the case may be. Where it is a firm or a proprietary concern the partners or the proprietor, as the case may  be, would  be in  the saddle of management. On the issue  of   a  notified   order  appointing   an  authorised controller, the  person in  charge of  management  including persons holding  office as  Managers  or  Directors  of  the industrial undertaking  immediately before  the issue of the notified order  shall be deemed to have vacated their office as such.  (Sec. 18-B(1).  Further the contract of management between the industrial undertaking and any managing agent or any director  thereof holding  office  as  such  immediately before the  issue of  the notified  order shall be deemed to have  been   terminated.  (Sec.  18-B(1)(b).  But  the  most

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important consequence that ensues on the issue of a notified order is  to confer  by a  deeming fiction  the position and powers of a director as duly constituted under the Companies Act on  the authorised  controller and  he  alone  shall  be entitled to  exercise all the powers of the directors of the industrial undertaking, whether such powers are derived from the Companies  Act or  from the  memorandum  or  article  of association of the industrial under taking or from any other source. (Sec. 18-B(1) (e). Further subject to the limitation specified in  Sec. 18-E,  the Companies  Act in force at the relevant time  will continue to apply to such undertaking in the same  manner as  it applied  thereto before the issue of the notified order under Sec. 18-A.      Thus the  significant consequence  that ensues  on  the issue of  a notified  order appointing authorised controller is to divert the management from the present managers and to vest it  in  the  authorised  controller.  Undoubtedly,  the heading of  Chapter III-A  appears to be slightly misleading when it  says that  the Central Government on the issue of a notified order  assumes direct  management of the industrial undertaking. In  effect on the issuance of a notified order, only the  management of the industrial undertaking undergoes a change.  This change  of management does not tantamount to either acquisition  of the  industrial undertaking or a take over of its ownership because if that was to be the intended effect of  change of  management, the  Act would  have  been subjected to  challenge of  Art.  31  and  19(1)(f)  of  the Constitution. One  can say confidently that was not intended to be the effect of appointment of an authorised controller. The industrial undertaking continues to be governed by the 763 Companies  Act  or  the  Partnership  Act  or  the  relevant provisions of  law applicable  to a proprietary concern. The only change  is the  removal of  managers and appointment of another manager and to safeguard his position restriction on the  rights   of  shareholders   or  partners   or  original proprietor. This  is the net effect of the appointment of an authorised controller by a notified order.      Can it  then be  said that  on the  issue of a notified order appointing  an authorised  controller, the  industrial undertaking is  engaged in the industry carried on under the authority of  the department  af the Central Government. The expression ‘under  the authority  of any  department of  the Central Government’ would in ordinary parlance mean that the department is directly responsible for the management of the industrial  undertaking.   This  responsibility  may  cover, amongst others,  financial responsibility  as well. Power to regulate management  or control  the management  is entirely distinguishable from the power to run the industry under the authority of  the department  of the Central Government. The substitution of  the management ordered under Sec. 18-A does not tantamount  to the  industrial undertaking  being  taken over by  the department of the Central Government. Nor could it be  said to  be run under the authority of the department of the  Central  Government.  In  fact.  as  the  authorised controller enjoys  all the  powers of directors conferred by the  relevant  provisions  of  the  Companies  Act,  he  can exercise that  power subject of course to any restriction or limitation on  his power  specified in the notified order or under the general supervision of the Central Government. But this power is subject to the in-built limitation that it can be exercised for regulating the management of the industrial undertaking. Neither  its  identity  nor  its  ownership  is affected  in   any  manner.   This  change  in  personal  of management of  the industrial  undertaking for  a  specified

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period can never make the industrial undertaking one engaged in an industry carried on under the authority of the Central Government. On  a  pure  grammatical  construction,  of  the expression ’establishment  engaged in an industry carried on under  the  authority  of  the  department  of  the  Central Government’ cannot  take in  one in  respect  of  which  the Central Government in exercise of the power conferred by IDR Act directed a change of management.      The  conclusion  in  the  preceding  paragraph  can  be reached by a different route.      Under Sec.  16 of  the IDR  Act, the Central government enjoys wide  powers to  issue directions  to the  industrial undertaking as may 764 be appropriate  in the  circumstances for  all or any of the purposes set  out in  various sub-clauses of Sec. 16(1). The scheme of  the Act  shows that  while retaining the original management,   the   Central   Government   gives   necessary directions for  the aforementioned  purposes  to  achieve  a certain result.  If the  desired result is not achieved, the Central Government  enjoys a consequential power of changing the management  by appointing an authorised controller so as to achieve  the same  result. This  power to give directions without appointing an authorised controller or to appoint an authorised controller  giving him specified directions is of a  regulatory   nature  to  be  exercised  with  a  view  to regulating the  managerial functions of the management of an industrial undertaking  so as  to achieve certain objects or to rectify  the mismanagement  in larger  national  interest without in  any manner affecting the identity, the status or the ownership  of industrial  undertaking. It  could  by  no stretch of  imagination be urged that on the exercise of the power to  give directions  under  Sec.  16,  the  industrial undertaking could  be said  to be  engaged in  any  industry carried on  under the  authority of  the department  of  the Central  Government.   Ipso  facto  the  appointment  of  an authorised  controller   would  not   make  the   industrial undertaking one run under the authority of the department of the Central  Government. While  exercising power  of  giving directions  under   Sec.  16   the  existing  management  is subjected  to   regulatory  control,   failing   which   the management has  to be  replaced to carry out the directions. In  either  case  the  industrial  undertaking  retains  its identity,  personality  and  status  unchanged.  On  a  pure grammatical construction  of sub-sec.  (4) of  Sec.  32,  it cannot be  said that  on the  appointment of  an  authorised controller the industrial undertaking acquires the status of being engaged in any industry carried on under the authority of the department of the Central Government.      Viewed from a slightly different angle, it appears that the expression  ’carried on by or under the authority of any department  of   the  Central   Government  ’qualifies   the expression ’industry’ and not the expression ’establishment’ as used  in sub-sec.  (4) of Sec. 32 of the Bonus Act. Again on a  pure grammatical construction it appears that where an industry is  being carried  on under  the authority  of  any department of  the Central  Government, the  employed in  an establishment in such an industry would be excluded from the operation of  the Bonus  Act. The underlying purpose of Sec. 32(iv)  is   not  to  exclude  the  employees  of  somestary establishment from  the operation  Act but  to  exclude  all employees of  all establishment  in any  industry  which  is carried on under the authority of the department of the 765 Central Government.  If the  expression ‘carried  on  by  or

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under  the  authority  of  the  department  of  the  Central Government’  qualifies  the  expression  ‘establishment’  it would lead  to a  startling result unintended by the framers of the  Bonus Act.  Let us  illustrate  it.  There  are  two industrial  undertakings   engaged  in   the  same  industry situated side  by side.  In one  case the  management  being incompetent  or   remiss,  an   authorised   Controller   is appointed, If  the construction  canvassed for  on behalf of the respondent  is accepted  the employees  of one  would be excluded from  the application  of the Bonus Act and not the other though  both are industrial undertaking engaged in the same industry.  The framers  of the  Bonus Act which went to the  length   of  making  payment  of  bonus  obligatory  on industrial undertakings  incurring  losses  could  not  have intended  to   treat   the   employees   with   such   gross discrimination.  On   the  contrary,  it  appears  that  the intention  was   to  exclude   employees  employed   in   an establishment engaged in any industry which is carried on by or under  the authority  of the  department of  the  Central Government. It cannot be said that textile industry is being carried on  under the  authority of  the department  of  the Central Government.  There may be employees in an industrial undertaking engaged  in textile industry which may have been established under  the authority  of the  department of  the Central Government.  Ordinarily the Central Government would not like  to treat  an establishment  set up  by  it  in  an industry  in   which  there   are   other   private   sector establishments to  differentiate  and  discriminate  between employees of  establishments engaged  in the  same industry. It, therefore,  appears that  the exception  that  is  being carved out  by Sec.  32(4) is  in respect of employees of an industrial undertaking  engaged in an industry carried on by or under  the authority  of any  department of  the  Central Government as a whole and not individual establishments. All establishments in  that industry  which is  carried on by or under  the  authority  of  the  department  of  the  Central Government would be excluded from the operation of the Bonus Act.      Having examined the matter on principle, let us turn to some precedents to which our attention was drawn.      Sec. 2(a)  of the Industrial Disputes Act, 1947 defines ‘appropriate Government’  to mean  (leaving aside  the words which are  not relevant  for our purpose ‘in relation to any industrial dispute  concerning any industry carried on by or under the  authority of  the  Central  Government,.......the Central Government.’  The expression  used is  any  industry carried on by or under the authority of the 766 Central   Government.    This   expression   came   up   for consideration  before  this  Court  in  the  context  of  an industrial  dispute   between  a   Government   Company   as comprehended within  the meaning  of the  expression in Sec. 617 of  the Companies  Act. Government Company is defined to mean ‘any  company in which not less than fifty-one per cent of  the  paid-up  share  capital  is  held  by  the  Central Government, or  by any  State Government  of Governments, or partly by  the Central  Government and partly by one or more State  Governments   and  includes  a  company  which  is  a subsidiary of  a Government  Company as  thus  defined.’  An interesting question  that came  up for consideration before this Court  was whether  in respect of an industrial dispute between such  Government Company  and its  workmen, which is the appropriate Government which can make a reference of the industrial dispute for adjudication under Sec. 10 (1) of the Industrial Disputes Act. 1947. In respect of such Government

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Company this Court in Heavy Engineering Mazdoor Union v. The State of  Bihar & Ors.(1) interpreting the expression ‘under the authority  of’ held  that the expression means ‘pursuant to the  authority’ such  as where an agent or a servant acts under or  pursuant to  the authority  of  his  principal  or master. The Court proceeded to examine the personality of an incorporated company  which the  law recognises  as juristic person, separate  and distinct  from its  members. The Court concluded that  ‘a  commercial  corporation  acting  on  its behalf, even  though it is controlled wholly or partially by a Government  department, will be ordinarily presumed not to be a  servant or  agent  of  the  State.  In  reaching  this conclusion, the Court approved the view of the Calcutta High Court in  Carlsbad Mineral  Water Mfg.  Co. v.P.  K.  Sarkar wherein the  Calcutta High  Court had  held that  a business which is carried on by or under the authority of the Central Government must be a Government business. The High Court had further held  that in an industry to be carried on under the authority of  the Central Government, it must be an industry belonging to  the Central  Government that is to say its own undertaking. Recalling here what is stated hereinbefore that on the  change of management by appointment of an authorised controller, the  industrial undertaking retains its identity and continues  to be  governed by  the Companies  Act or the Partnership Act,  as the  case may be, and there merely take place only  a change  in the personnel of management but the substitute management, say the authorised controller 767 appointed by  the Central Government is to be presumed to be a Director for the purposes of the Bonus Act, the conclusion is  inescapable  that  the  business  remains  that  of  the industrial undertaking  and  does  not  become  one  of  the Central Government.  The fact that the authorised controller is appointed  by the  Central Government  and that he has to work subject  to the  directions of  the Central  Government does not  render the  industrial undertaking an agent of the Central Government and therefore, could not be said to be an establishment engaged  in an industry carried on by or under the authority  of the  Central  Government.  In  fact,  this decision  should   conclude  the   point.  However,  as  our attention was  drawn to  some recent  decisions wherein  the same expression  came up  for consideration,  we may briefly refer to them.      In  Workmen,   Karnataka  P.F.   Employees   Union   v. Additional Industrial  Tribunal & Anr.(1) the Karnataka High Court held  that even  if the Provident Fund organisation is an instrumentality  of the  State and  therefore answers the definition of  the expression  ‘State’ in  Art.  12  of  the Constitution, it  cannot be  said that  it  is  an  industry carried  on  by  or  under  the  authority  of  the  Central Government, for  the purpose  of determining  which  is  the appropriate Government  in respect  of an industrial dispute between such instrumentality of the State and its workmen.      In  M/s  Swadeshi  Cotton  Mills  Thoznialar  Shemalana Padukaypu Union  v. M/s  National Textile Corporation Ltd. & Ors.(2) the Union in its writ petition contended that as the National  Textile   Corporation  a   Government   of   India Undertaking was  appointed as  the authorised  controller of the Swadeshi  Cotton Mills under Sec. 18-A of the IDR Act on April 13, 1978 the appropriate Government in respect of such mill  would   be  the   Central  Government  and  the  State Government had  no power to appoint the Conciliation Officer under  the   Industrial   Disputes   Act.   Repelling   this contention, it  was held  that appointment  of an authorised controller under  Sec. 18-A  by a  notified order  would not

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make  the  industrial  undertaking  an  undertaking  of  the Central  Government   because  by  the  appointment  of  the authorised controller,  the  management  of  the  industrial undertaking is changed to achieve a certain purpose and that too is  a temporary  phase. It was held that at any rate the appointment of  an authorised  controller does  not vest the ownership of  the  industrial  undertaking  in  the  Central Government. Owner- 768 ship is something more than management. Control of the whole or of  a part  of the  industrial undertaking by the Central Government will  not  make  the  industrial  undertaking  an undertaking of the Central Government itself.      In  The  Management  of  Bihar  Khadi  Gramodyog  Sangh Mazaffarpur v.  State of  Bihar &  Ors.(1) Patna  High Court held that  even though  the Sangh was set up under the Khadi and Village Industries Commission, yet it is not an industry carried on under the authority of the Central Government and the appropriate  Government would  be the  State Government. Same view  was also  taken by the Bombay High Court in Abdul Rehman Abdul Gafur & Anr. v. Paul (Mrs. E.) & Ors.(2)      In Bharat  Glass Works  (Pvt.) Ltd.  v. State  of  West Bengal & Ors(3). the Calcutta High Court after following the earlier decision in Carlabad Mineral Water Manufacturing Co. repelled the contention that even though the appellant was a controlled undertaking in a scheduled industry under the IDR Act, it  was not  an industry carried on under the authority of the  Central Government  and therefore,  the  appropriate Government in  respect of  it would be the State Government. It is  not necessary to multiply the decisions any more. But the same view appears to have been taken in the Indian Naval Canteen Central  Board v.  Industrial Tribunal,  Ernakulam & Anr.(4)      A different  note was  sounded by the Bombay High Court in D.P. Kelkar, Amalner v. Ambadas Keshav Bajaj & Ors.(5) In that case  the employees  of the  India  United  Mills  Ltd. approached the  authority under the Payment of Wages Act for directing the  employer to pay minimum bonus under the Bonus Act. It  was contended  on behalf  of the  employer that the employer-mill  was   managed  by  an  authorised  controller appointed under  Sec. 18-A of the IDR Act and therefore, the workmen  of  the  employer  are  employees  employed  by  an establishment engaged  in an  industry carried  on under the authority of  the Central  Government and  consequently they were excluded from the operation of the Bonus Act in view of the provision  contained in Sec. 32(iv). The authority under the payment  of Wages  Act  negatived  the  contention.  The matter came  up before  the High Court in two writ petitions under Art.  226 of the Constitution. The High Court rejected the construction canvassed before it that the 769 expression ‘carried  on by  or under  the authority  of  any department  of   the  Central   Government   qualified   the expression ‘industry’  and not an ‘establishment’ engaged in an  industry.   After  rejecting   this  plain   grammatical construction for  reasons which  do not  commend to  us, the High Court  held that where the Central Government appointed an authorised  controller under  the IDR Act, the industrial undertaking could  be said  to be  engaged  in  an  industry carried on  under the  authority of  the Central Government. The High  Court distinguished  the decision of this Court in Heavy Engineering  Mazdoor Union(1)  observing that  in  the facts  before   the  Supreme  Court,  the  company  was  one registered under  the Companies  Act and  that it  being  an incorporated company,  it has an independent existence while

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where the authorised controller is appointed, the management is taken  over by  the Central  Government. We are unable to appreciate this  view of  the High Court for the reason that the  High   Court  completely  overlooked  the  purpose  and intendment  of  appointing  an  authorised  controller,  its effect  on   the  continued   existence  of  the  industrial undertaking and the deeming fiction enacted in Sec. 18-B and the limitation  on the  powers of the shareholders placed by Sec. 18-E.  The High  Court failed  to notice  the provision contained in  sub-s. (2) of Sec. 18-E which clearly provides that subject  to the provisions contained in sub-section (1) and to the other provisions contained in the Act and subject so such  other exceptions,  restrictions and limitations, if any, as  the Central  Government may, by notification in the Official  Gazette,   specify  in  this  behalf,  the  Indian Companies  Act,   1913  shall  continue  to  apply  to  such undertaking in  the same manner as it applied thereto before the issue  of the notified order under Sec. 18 A.’ This very important provisions  which gives the clue to the expression ‘carried on  under the  authority of the Central Government’ was not taken note of by the High Court. Therefore, the said view of  the Bombay  High Court  does not  commend to us and must be overruled.      If on  the issue  of a  notified  order  appointing  an authorised controller under Sec. 18-A, the management of the industrial undergoes  a change,  yet it  does not  become an establishment  engaged   in  an   industry  carried  by  the department of  the Central  Government, its  employees would not be  excluded from  the operation  of the  Bonus  Act  as provided in Sec. 32(4).      The  Tribunal   therefore,  was  clearly  in  error  in rejecting the  references holding  that the  workmen of  the respondent were  excluded from  the operation  of the  Bonus Act. The Award of the Tribunal rejecting the references will have to be quashed and set aside 770 and the  matter remitted  to  the  Industrial  Tribunal  for disposing of the same on merits.      An incidental  argument was  that the  National Textile Corporation which  has  taken  over  the  respondent-Company would not  be liable  for the  period  when  the  authorised controller was  incharge of the management of the respondent company. This  contention has  merely to  be  stated  to  be rejected.  Sec.   5(1)  of   the  Sick  Textile  Undertaking (Nationalisation) Act,  1974 provides that ‘every liability’ other than the liability specified in sub-section (2) of the owner of  a sick  textile undertaking,  in  respect  of  any period prior to the appointed day, shall be the liability of such owner  and shall  be enforceable  against him  and  not against the  Central  Government  or  the  National  Textile Corporation. ‘Sub-cl. (c) of Sub-sec. (2) of Sec. 5 provides that ‘wages’  salaries and  other dues  of employees  of the sick textile undertaking, in respect of any period after the management such  undertaking had  been  taken  over  by  the Central Government, shall, on and from the appointed day, be the  liability  of  the  Central  Government  and  shall  be discharged, for  and on  behalf of  that Government,  by the National Textile  Corporation as  and when  payment of  such loans or  amounts becomes  due or  as and  when such  wages, salaries  or   other  dues  become  due  and  payable.’  The appointed day  has been  specified as  the 1st day of April, 1974. The  expression ‘wages, salaries and other dues of the employees’ would  without a  doubt include  statutory  bonus payable under  the Bonus  Act. This  liability arose for the period after  the management  of the  undertaking  had  been

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taken over  by  the  Central  Government  by  appointing  an authorised  controller   under  Sec.  18-A.  Therefore,  the liability to  pay the  bonus if  awarded  would  be  of  the National Textile Corporation. The contention of the National Textile Corporation  that it is not liable to pay bonus must be rejected.      Accordingly, these  appeals succeed and are allowed and the four awards of the Industrial Court, Maharashtra, Nagpur Bench dated  27th November,  1970 in all the four references are quashed  and set  aside and  all the  four  matters  are remitted to  the Industrial  Court for disposal according to law on  merits. As  the cases  are very  old, the Industrial Court is  directed to  dispose of the same within the period of  four   months  from  the  receipt  of  this  order.  The respondent shall  pay the  costs of the appellant quantified at Rs. 2,000. N.V.K.    Appeal allowed. 771