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PETITIONER: THE FINE KNITTING CO., LTD.

       Vs.

RESPONDENT: THE INDUSTRIAL COURT, BOMBAY AND OTHERS

DATE OF JUDGMENT: 15/02/1962

BENCH:

ACT: Industrial  dispute Industrial concern-splitting up  of  a going  concern--Hosiery  Company-Installation  of   spinning machinery-Recognition of Company as hosiery undertaking  and spinning   undertaking   as   separate Validity Bombay Industrial Relations Act, 1946 (Bom. 11 of 1947), s. 11.

HEADNOTE: The  appellant  Company  was incorporated in  1908  and  its principal activity then was to manufacture hosiery.  In 1924 when  the  appellant  shifted its  factor  to  Ahmedabad  it installed spinning machinery with a view to ensure  suitable and  even  supply  of  yarn  for  its  hosiery  manufacture. Originally, a notification had been issued on May 30,  1939, under  the  Bombay  Industrial Dispute  Act,  1938,  whereby hosiery concerns were included in the definition of  "Cotton Textile  Industry",,  but  subsequently  on,July  17,  1945, another  notification  was issued as a result of  which  the Hosiery  manufacture  was excluded from the  Cotton  Textile Industry and it was covered by a separate notification.  For the  purposes of the Bombay Industrial Relations Act,  1946, the  appellant concern was recognised as an  undertaking  of the  hosiery industry by the Registrar under s. II  of  that Act.  Subsequently as a result of certain proceedings  taken by   the  Textile  Lobour  Association  of  Ahmedabad,   the Registrar decided 197 to  recognise  the appellant concern as  consisting  of  two undertakings, the hosiery section and the rest excluding the hosiery  section  and  this decision was  confirmed  by  the Industrial Court. The  appellant challenged the order of the Industrial  Court on  the  grounds  (1)  that the  spinning  and  the  hosiery sections  in its establishment were one concern because  (a) there was unity of ownership, management, supervision,  con- trol  and  employment,  (b) there  was  complete  functional integration, and (c) the two sections were functioning under the  same roof, and (2) that, in any case, s. 11 of the  Act did  not  authorise the splitting up of a concern  into  two undertakings.   The evidence showed that though in 1924  the spinning  section had begun as a subsidiary to  the  hosiery section  in  order  to serve as its  feeder,  later  on  the spinning section developed to such an extent that it  became a spinning mill by itself and could no longer be regarded as a minor section attached to the hosiery works, that only 20% of  the yarn manufactured by the spinning section  was  con- sumed  for hosiery purposes while the rest was sold  in  the market,  that the spinning department produced yarn  of  all counts,  some of which could not be used for  hosiery  work,

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that  when the knitting department was closed in ’1948,  the spinning  department  was not.  It was also found  that  the amount paid to the employees in each of the two  departments by   way  of  minimum  wages  and  dearness  allowance   was different. Held,  that  the decision of the Registrar  recognising  the hosiery and spinning departments of the appellant concern as separate  undertakings under s.11 of the  Bombay  Industrial Relations Act, 1946, was correct,  Held,  further,  that  the  question  whether  the  several undertakings carried on by the same company are separate  or not depends on whether they arc distinct and independent  of each other or are functionally integral or  inter-department and that the Registrar was within his powers under s. II  of the Act to come to a decision on this question on the  basis of the circumstances disclosed on evidence. Associated Cement Companies Ltd. v. Their Workmen, (1960)  1 S.C.R.703, Pratap Press v. Their Workmen, (1960) 1 L. L.  J. 497 Pakshiraja Studios v. Its Workmen. (1962) 2 L.L. J.  380 and  Honorary Secretary, The Soath India  Millowrers  ’Asso- ciation   v.  The  Secretary  Coimbatore  District   Textile Workers’ Union, Coimbotore (1962) Supp. 2, S.C.R. 926 relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 306 of 1961. 198 Appeal  by special leave from the Judgment and  order  dated May  16.,  1959, of the Industrial Court Bombay,  in  Appeal (I.C.) No. 90 of 1959.. J.P..Mehta and I.N. Shroff, for the appellant. N.M.   Barot,   Secretary,  Labour  Association,   for   the respondent No. 3. 1962.  February 15.  The Judgment of the Court was delivered by GAJENDRAGADKAR,  J. - The appellant, the Fine Knitting  Co. Ltd.,  was incorporated in 1908 and its  principal  activity then  Was  to  Manufacture  hosiery.   In  1924,  when   the appellant shifted its factory from.  Barejadi to  Ahmedabad, it  installed spinning machinery with 9000 spindles  with  a view  to  ensure suitable and even supply of  yarn  for  its hosiery  manufacture.   On May 30, 1939, the  Government  of Bombay  issued  a notification under the  Bombay  Industrial Disputes  Act,  1938  (No.  XXV of  1938),  whereby  hosiery concerns were included in the definition of ’Cotton  Textile Industry’.    Subsequently   on  July  17,   1945,   another notification  was  issued as a result of which  the  hosiery manufacture  was excluded from the Cotton  Textile  Industry and  it was covered by a separate notification issued  under the  said  Act.   This latter notification  which  was  made applicable  to the Hosiery Industry specified that the  said notification  inter  alia, to all concerns using  power  and employing  twenty or more persons which are engaged  in  the manufacture  of  hosiery or other knitted articles  made  of cotton   and  all  processes  incidental  or   supplementary thereto.  After this notification was issued, the  appellant ceased   to  be  covered  by  the  extended  and   inclusive definition   of  the  ’Cotton  Textile  Industry’  and   was recognised  as a Hosiery concern being engaged in the  Manu- facture  of hosiery.  Later, in 1946, the Bombay  Industrial Relations  Act, 1946 (No.  XI of 1947)  (hereinafter  called the Act.), was applied to the 199

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industries  to which the Bombay Industrial Disputes Act  bad been  applied, as a result of s.2(3) of the former Act.   In consequence,  for  the purposes of the  Act,  the  appellant concern  was  recognised as an undertaking  of  the  Hosiery Industry under s. 11 This was the result of notification No. 10  of  1948, issued by the Registrar under the  Act.   This position was recognised by the Industrial Tribunal in indus- trial   adjudications   concerning  disputes   between   the appellant and its workmen. Even  so, respondent No. 3, the Textile Labour  Association, Ahmedabad, sought to reopen the issue by applying by to  the Registrar  on October 16 1953, that the appellant’s  factory should  be recognised as an undertaking both in  the  Cotton Textile  Industry and the Hosiery Industry.   The  Registrar who  is the second respondent in the present appeal hold  an enquiry and ultimately came to the conclusion that there was no justification for splitting up the concern into two units and  recognising them as suggested by the third  respondent. The  third respondent did not prefer an appeal  against  the said decision of the second respondent; but respondent No. 4 who are the five elected representatives of the employees of the  appellant sought to challenge the said decision of  the second respondent by preferring an appeal to the  Industrial Court,  respondent  No.  1.- The  appellant  contended  that respondent  No.  4  were not entitled to  prefer  an  appeal because  they  were not parties to the  proceedings  in  the original  application  before the second  respondent.   This preliminary objection was upheld and the appeal preferred by respondent  No.  4 was dismissed.  The result was  that  the order passed by the Registrar rejecting the application made by respondent No. 3 concluded the dispute. Even  while  the said appeal was pending  before  the  first respondent, respondents Nos. 3 and 4 200 initiated   the   present  proceedings  by  means   of   two applications made before the second respondent in which  the same relief was claimed that the appellant concern should be recognised  as  an undertaking both in  the  Cotton  Textile Industry   and   in  the  Hosiery  Industry.    The   second respondent,  however,  rejected these  applications  on  the ground  that since he gave his earlier decision,  there  had been  no change of circumstances and so there was no  justi- fication for reconsidering the matter over again.  The third and  the fourth respondents then went in appeal  before  the first respondent and their appeals were allowed by the first respondent  and  a direction was issued that  the  appellant company should be recognised as two undertakings- one in the Cotton  Textile  Industry  and  the  other  in  the  Hosiery Industry.  The appellant then moved the High Court of Bombay under   Articles  226  and  227  of  the  Constitution   and challenged  the  validity of the order passed by  the  first respondent., In the High Court the parties took an order  by consent  on  August 20, 1958.  As a result of  this  consent order, the direction issued by the first respondent was  set aside  and the matter was remanded to the second  respondent to enable him to hold a fresh enquiry and to dispose of  the dispute between the parties in accordance with law. On  February 14, 1959, the second respondent pronounced  his decision.    He   came  to  the  conclusion  that   in   the circumstances  disclosed on evidence, the best courts  would be  to  recognise the spinning and hosiery sections  of  the appellant company as two separate undertaking and treat them as two separate enterprises.  That is why under s. 11(1)  he decided  to  recognise the Fine Knitting Co.  Ltd.  (Hosiery Section)  and the Fine Knitting Co. Ltd. (excluding  Hosiery

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Section)  as  undertakings in the Hosiery Industry  and  the Cotton  Textile  Industry  respectively  The  appellant  was aggrieved  by this order and so is preferred appeals  before the first 201 respondent.   The respondents Nos. 3 and 4  also  challenged the decision of the second respondent and contended that the entire concern of the appellant should be treated as  Cotton Textile  Undertaking.  All the three appeals failed and  the first  respondent confirmed the order passed by the  ,second respondent.   The  result is that the appellant  concern  is recognised  as consisting of two undertakings,  the  Hosiery Section  and the rest excluding the Hosiery Section.  It  is against  this  order  of  the  first  respondent  that   the appellant has come to this Court by special leave. The first point which Mr. Mehta has strenuously urged before us  on  behalf  of  the  appellant  is  that  on  a   proper application of the tests laid down by this Court, it  should be  held that the spinning and the Hosiery Sections  in  the appellant’s establishment are one concern and in support  of this  argument  he has referred us to the decisions  in  the Associated Cement Companies Ltd. v. Their Workmen(1), Pratap Press  v.  Their Workmen (2) and Pakshiraja Studios  V.  Its Workmen (3).  This question has been recently considered  by this Court in the case of the Honorary Secretary, The  South India Millowners’   Association v.’ The Secretary,Coimbatore District  Textile Workers’ Union, Coimbatore (1).  in  which judgment  has been pronounced on February 1, 1962.   In  the last  mentioned case, this Court has examined  the  relevant earlier decisions and has come to the conclusion that though the   question   about   the   unity   of   two   industrial establishments  has  to be considered in the  light  of  the relevant  tests  laid down from time to time,  it  would  be unreasonable to treat any one of the said tests as decisive. As  has  been  observed in that case, in  dealing  with  the problem, several factors are relevant, but it must be remem- bered that the significance of the several factors (1)  [1960) I S.C.R. 703. (3)  [19611 2 L L.J. 380. (2)  [1960] I. L.L,J. 497. (4)  [1962] Supp. 2 S.C R. 925 202 would not be the same in each case nor their importance.  It is in the light of these decisions that the point raised  by Mr. Mehta has to be considered . Mr.  Mehta contends that in the present case there is  unity of ownership and as a necessary corollary, there is unity of management  ,  supervision and control; there  is  unity  of purpose  and  design and he argues that  there  is  complete functional  integration.  According to him , as  no  hosiery could   be  maufactured  without  yarn,  there  is  such   a functional unter-dependence between the cannot exist without the   former.  There  is  also  unity  of  finance  and   in consequence,  there  is one capital  and  depreciation  fund account, of expenditure  and income, one balance-sheet   and one  profit  and  loss  account . There  is  also  unity  of employment  and  the two concerns functions under  the  same roof;  so  there is unity  of habitiation . It is  on  these grounds that Mr.Mehta contends that the first and the second respondents  were in error in splitting up  the  appellant’s establishment   into  two  sections  and  recoginsing   them separately as such. In  dealing  with  the significance and the  effect  of  the factors on which Mr.Mehta has righlty relied it is necessary to bear in mind certain other relevant factors on which  the

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decision  under  appeal is substantially based. It  is  true that in 1924, the spinning section of the establishment  may have  begun  as a subsidiary to the hosiery section  and  in order to serve as its feeder. But the evidence on the record clearly shows that the position is now reversed and that the spinning  section  has  now  assumed  major  importance  and hosiery takes a minor place in the industrial activities  of the  app-minor  place in the industrial  activities  of  the appellant.   The  inspection  notes  made  by   the   second respondent show that it was admitted by the 203 management  that the spinning, section has now developed  to such an extent that it is like aspinning mill by itself;  it can  no longer be regarded as a minor, section  attached  to the  hosiery  works.   It was  conceded  before  the  second respondent  that only about 20% of the yarn manufactured  in the spinning section is consumed for hosiery purposes  while the  rest  is  available  to be sold  in  the  market.   The production.   figures  in  the  spinning  section  and   the consumption   of   the  yarn  produced   in   that   section unmistakably point to the fact that the spinning section  is no longer a minor department run by the appellant solely for the purpose of its hosiery section. ID 1955 in the months of November  and  December,  the  production  in  the  Spinning department  was  worth  Rs. 1,17,742  whereas  whatever  was consumed  in  the knitting department was  only  Rs.  23,817 leaving  a  balance  which was sold  for  Rs.  93,925.   The corresponding  figures for the year, 1956 are Rs.  6,70,854, Rs. 1,40,105 and Rs.5 30,749.  Similar figures for 1957  are Rs.8,  17, 153, Rs. 1,31,725 and Rs. 7,04,018 and  for  1958 are  Rs.  6,68,095,  Rs. 1,26,252  and  Rs.  5,40,873.   The balance-sheet for the year 1954 shows that the total hosiery sale was worth Rs. 2,37,232-6-0 whereas the total yarn  sale was worth Rs. 14,82,705-5-0.  Similarly, for the year. 1955, the,  hosiery sale was kW. 2 56,986 and the yarn  :sale  was Rs.  14,44,929.  The. strength of the employees  engaged  in the two respective sectors tells the same story.  The  table prepared  by  the  second respondent  from  the  information supplied  by  the management shows that for the  year  1955, spinning  employees were 174, hosiery employees 56  and  the common workmen 35.  For the year 1956, the figures were 217, 54  and 38; for 1957, the figures were 194, 65 and  38;  and for  1958  the  figures  were 178, 60  and  32.   Mr.  Mehta quarrels with some of these figure but does not dispute  the broad  conclusion which is drawn from the figures  that  the number  of employees engaged in the spinning section is  far more 204 than that employed in the hosiery section.  Thus, there  can be  no  doubt that the spinning activity of  the,  appellant which  may have begun as subsidiary to the hosiery  activity has  now grown in importance and has taken a place of  pride in the industrial activity of the appellant considered as  a whole;  it  can  no  longer be  regarded  as  subsidiary  to hosiery. It  is common ground that by the notification  issued  under the  Cotton Textile (Control) Order, 1948, the appellant  is called  upon  to  supply to the  Government  the  prescribed quantity of yarn produced by the spinning department.  It is unnecessary  to refer to the details of the order or to  the extent of the yarn required to be supplied by the  appellant under  it.   What  is significant is the fact  that  by  the application  of  the  order  issued  in  that  behalf,   the Government has treated the appellant as a producer who has a spinning  plant  and  in that sense, the  existence  of  the

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spinning  activity of the appellant has been treated  as  an independent   activity  liable  to  be  controlled  by   the notification  issued  under  the  Cotton  Textile  (Control) Order, 1948. Then  as to the argument that the spinning and  the  hosiery are  functionally integrated, it is clear that  hosiery  can exist  without  spinning, provided the industry  engaged  in hosiery purchases yarn required for the purpose of  hosiery. That  is one aspect of the matter.  But the  more  important aspect  on  which  reliance  has  been  placed  against  the appellant  is  that  the  appellant’s  spinning   department produces  yarn of all counts some of which would  admittedly not  be  useful for hosiery work.  When  the  appellant  was asked whether the allegation made by respondents Nos. 3  and 4 in that behalf was true or not, the management of the app- ellant  hesitatingly  denied the said  allegation.   But  an advertisement  published  in the local daily  "Sandesh"  was produced by respondents Nos. 3  205 and  4  and it clearly showed that yarn of  all  counts  was offered  by  the appellant for sale in the  general  market. Therefore,  it  would be idle to contend that  the  spinning work  carried  on  in  the  spinning  department  is   meant exclusively  or solely for the hosiery department.   If  the spinning  department  produces yarn which is not  useful  or necessary  for,  and which cannot be used  by,  the  hosiery sections the only inference is that the spinning  department is  working on its own and is producing yarn to be  sold  in the  market.   That  being so, the  argument  of  functional inter-dependence or integrality cannot be treated as valid. Besides,   it  is  not  disputed  that  when  the   knitting department  was closed in 1948, the spinning department  was not.   If  the  two  departments  are  functionally   inter- dependent, the closure of the one without the closure of the other  may need an explanation.  The explanation  which  has appealed to the first and the second respondents  apparently is that though the spinning work carried on by the appellant may,  to  some extent, be useful for the hosiery  work,  the major  part of its work is carried on independently with  an eye  on the market and so the closure of the hosiery  cannot and   did  not  affect  the  continuance  of  the   spinning department. There  is  yet another circumstance  on  which  considerable reliance has been placed by the first and second respondents in  rejecting  the  appellant’s  contention  that  the   two departments  constitute one unit.  This circumstance  refers to  the conduct of the appellant itself in dealing with  the employees  engaged in spinning and in knitting  departments. It is admitted that the minimum wages paid to the  employees in  knitting  differed from the minimum wages  paid  to  the employees  in  spinning and so does the amount  of  dearness allowance  paid to the respective employees differ.   It  is difficult   to  understand  how  an  employer  can  make   a distinction ui 206 the payment of minimum wages between one class of  employees and another if both the classes of employees are engaged  in different departments Of the same establishment or  concern. If  there  is unity of employment and unity of  purpose  and design  as suggested by Mr. Mehta, it is inconceivable  that the   employees  engaged  in  two   departments   integrally connected with each other and constituting one unit would be paid  different  minimum  wages.  What  is  true  about  the minimum wages and the dearness allowance is also true  about the  bonus.   It  appears that even in years  in  which  the

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appellant made profits and actually paid bonus to the  work- men  employed in the spinning department, no bonus was  paid to  the employees engaged in the knitting department.   That again can be explained and justified only on the basis  that the  appellant treated the two departments as  distinct  and separate  and so the employees in the one got bonus and  not the  employees in the other.  It was suggested by Mr.  Metha that the genesis of the present dispute lies in the  anxiety of the third respondent to take within its jurisdiction  the employees  engaged by the appellant in its spinning  depart- ment.   On the other hand, Mr. Barot for respondents Nos.  3 and  4 contends that the present trouble arose  because  the appellant  began  to deny to its employees in  the  spinning department  the  benefits  of  all  relevant  conditions  of service  which  were  applicable to  the  employees  in  the Textile   Industry  in  Ahmedabad.   Whatever  may  be   the background  of  the  dispute and its genesis,  it  is  clear beyond doubt that the way in which the appellant has treated its   employees  in  spinning  is  distinguished  from   its employees  in knitting leads very strongly to the  inference that  the, appellant treated the two departments not as  one unit  but as separate units each one functioning on its  own and independently of the other. It is in the light of these circumstances that  207 the  first and the second respondents were not impressed  by the  relevant  factors  on which  the  appellant  relied  in support  of its plea of the unity of the two activities  and came to the conclusion that the two activities were separate and as such, as must be separately recognised under, s.  11. We  do not see how the appellant can successfully  challenge the correctness of this conclusion. There is one more point which yet remains to be  considered. Mr.  Metha  argues that the impugned order  recognising  two different  undertakings under s. 11(1) is not  justified  by the provisions of the statute.  Section II provides that the Registrar  may, after making such inquiry as he  deems  fit, recognise for the purposes of the Act-               (1)   any  concern  in an industry  to  be  an               undertaking ;               (2)   any  section of an undertaking to be  an               occupation. The  argument  is  that s. II (1)  does  not  authorise  the splitting up of a concern into two undertakings.  A concern, says Mr. Metha, is the whole of the concern or establishment run by the appellant and as such it has to be recognised  as one  undertaking in so far as the order under appeal  treats the appellant’s concern as two undertakings, it is  contrary to s. 11(1).  We are not impress,,-(I by this argument.  The appellant is undoubtedly engaged in the hosiery industry and that  part  of its business cannot be recognised  as  Cotton Textile Industry because it is a concern engaged in spinning only  which can be recognised under that category.  If  that is  so, industrial activity of the appellant in relation  to hosiery  industry  must be recognised  separately  from  the textile  undertaking.  If one concern or company carries  on several   businesses  or  undertakes  different   types   of industrial works, these businesses or works would amount  to separate enterprises or undertakings and would have to be 208 recognised  as such.  In fact, if the appellant  itself  has been treating the two kinds of work separately and has  thus split up its whole business into two   independent sections, it  is  not  easy to understand  why  the  Registrar  cannot recognise  the existence of two undertakings carried  on  by

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the  appellant and treat the said undertakings as such.   We see  no justification for the assumption made by  Mr.  Metha that  s. II (1) does not permit the recognition, of  several undertakings carried on by the same company separately.   It all  depends  on  whether  the  undertakings  are  separate, distinct  and independent of each other or are  functionally integral  or  inter-dependent.   In  the  former  case,  the Registrar  would  be,  justified  in  treating  the  several undertakings  separately  while in the latter case,  he  may recognise all of them as one undertaking. There is one minor point to which reference may incidentally be  made.  It appears that before the first  respondent,  it was  urged  by the appellant that the  present  applications made  by  respondents  Nos.  3 and 4  were  barred  by  res- judicata.  The argument was that since the second respondent had  on  an earlier occassion considered the merits  of  the case  and  refused to grant the request made  by  the  third respondent for recognising the two undertakings  separately, the same question could not be re-agitated again before  the same  authority.  In our opinion, there is no  substance  in this  argument.   As we have already pointed out,  when  the second  respondent passed his earlier order, an  appeal  was preferred  against the said order by the  fourth  respondent before  the  first respondent.  That  appeal  was,  however, dismissed  on the ground that the fourth respondent was  not party  to the proceedings before the second respondent  and, therefore,  he  could not prefer an appeal.  If  the  fourth respondent had no right to make an appeal because he was not a  party. to the said. proceedings, it is difficult to  see, how he can  209 be  precluded  from making the present  application  on  the ground  of  res  judicata.  At the highest, a  plea  of  res judicata pay -perhaps be raised against the third respondent but that would not be effective in view of the fact that  in the present case, an application has been made by the fourth respondent as well.  That is why Mr. Mehta did not seriously press the point of res judicata before us. In the result, fails the appeal and is dismissed with costs. Appeal dismissed.