Companies Act Case Law Inland Steam Navigation Works Union & amp; Anr.Vs Union Of India And Ors

Appeal (civil) 1422 of 1999





DATE OF JUDGMENT: 01/02/2001

S. Rajendra Babu & Shivaraj V. Patil.


A Limited Company Rivers Steam Navigation Co. Ltd.
[hereinafter referred to as the Company] operated a river
service from West Bengal to Assam with a personnel of about
8,000 including clerical staff. Part of its operations was
through East Pakistan. On account of armed conflict in 1965
with Pakistan, the Company had to suspend a major part of
its operation. Retrenchment was done on a large scale as
the Company had been incurring heavy losses for several
years in spite of Government of India acquiring a
controlling interest in it to prevent its liquidation. In
the course of conciliation proceedings, the Management of
the Company arrived at a settlement with the appellant Union
on August 26, 1965. However, the Company could not carry on
profitably and, therefore, on account of its bankruptcy
various creditors, the Union of India and several banks
filed a petition in the Calcutta High Court for winding up
of the Company. After protracted proceedings in the High
Court, an application was filed under Sections 391 to 394 of
the Companies Act, 1956 for sanctioning a Scheme of
Arrangement and Compromise between the company and the
Central Inland Water Transport Corporation Ltd.
[hereinafter referred to as the Corporation]. When the
Scheme was sanctioned, the appellant Union had appeared
before the Court to protect the interests of the workmen.
The appellant Union in fact filed an appeal to the Division
Bench of the High Court which, however, was dismissed
upholding the order of the learned Single Judge sanctioning
the Scheme.

In brief, the Scheme provided, inter alia, that all the
properties and assets but only some of the liabilities would
vest in the Corporation. It was agreed that the Corporation
would take over as many of the members of the staff and work
force of the Company as was possible under the circumstances
but the number to be employed would be in its discretion.
Those employees who were not taken over by the Corporation
were to be paid compensation by the Company out of the funds
the Government of India agreed to supply. Upon the approval
of the Scheme the Company would be closed and on payment of
all creditors it would stand dissolved without winding up.
In the course of the order made by the Company Court certain
questions were left open for consideration and they are:
1. whether there is a closure of the Company within the
meaning of the Industrial Disputes Act, 1947 [hereinafter
referred to as the ID Act] ;
2. whether the agreement dated 25.8.1965 is capable of

3. whether the workers are workmen or entitled to
prefer any claim on the basis of the agreement dated
25.8.1965; and

4. whether the transferor Company or the transferee
Company can assert that there has been closure and further
that agreement is not capable of enforcement.

The scheme was in fact sanctioned by an order made on
3.5.1967 and on that very day, the Company issued a notice
of closure. Thereafter, the Corporation issued fresh
letters of appointment and out of 8,000 employees of the
Company, the Corporation is stated to have employed about
5,173 workers. Thus, a large number of employees of the
former company stood unemployed.

The State of West Bengal made an order of reference
purportedly under Section 33C(2) of the ID Act to compute
the benefits covered by the settlement dated 25.8.1965
between the Union and the Company and by another order of
reference called for computation of the retrenchment
benefits arising under Section 25 FF of the ID Act. The
orders of references were challenged in the High Court and
were quashed by an order made on 15.7.1969. Again, on
27.10.1969, the Government of West Bengal made another order
of reference to the Labour Court on various claims preferred
by the Union from the Corporation which are capable of being
computed in terms of money arising out of the settlement
dated 25.8.1965 and under Section 25FF of the ID Act to
which two lists were attached. List I consisted of names
and addresses of 420 employees and the Labour Court was
asked to adjudicate as to whether these employees continued
in the employment under the Corporation and other monetary
benefits they were entitled to. In regard to 98 employees
mentioned in the List II, the Labour Court was asked to
compute retrenchment benefits arising under Section 25FF of
the ID Act. Another question was referred as to whether the
Company has been closed within the meaning and contemplation
of Section 25FFF of the ID Act and if so, what amount of
compensation the workmen mentioned in both the lists were
entitled to? This reference was again challenged in the
High Court under Article 226 of the Constitution by a writ
petition. The writ petition was partly allowed striking
down the issue relating to claim arising under Section 25FFF
from the Company. The Union of India did not file against
it an appeal but the Corporation went in appeal against the
order in so far as the learned Single Judge held that the
Labour Court had jurisdiction to adjudicate upon other
issues. The Division Bench dismissed the appeal.
Thereafter the matter was carried to this Court. This Court
in Central Inland Water Transport Corporation Ltd. vs. The
Workmen & Anr., 1974 (4) SCC 696 disposed of the said

In the said decision, it was explained that the scope of
Section 33C(2) of the ID Act is limited and those
proceedings are akin to the execution proceedings. It was
also made clear that the right to receive compensation as if
the workmen are retrenched under Section 25FF is available
only against the owner of the undertaking that is the
transferor and not against the transferee and in order to
decide the claims of the workmen it would be necessary to
decide as to whether the Corporation was a closure of the
Company and whether the transferee would be liable to pay
compensation and that the workmen are entitled to
reemployment against the Corporation. If the Tribunal comes
to the conclusion that the Corporation wrongfully absorbed
the employees, the Tribunal will have to consider as to what
reliefs to be given depending upon the circumstances and
such questions can be adjudicated under Section 33C(2) of
the ID Act and thus allowed the appeal, holding that the
Labour Court had no jurisdiction to deal with the questions
referred to it under Section 33C(2). Thereafter, yet
another reference was made to the Labour Court.

The Government of West Bengal by an order made on June
8, 1978 with subsequent corrigendum referred the industrial
dispute between the Company and the Corporation on the one
hand and their workmen represented by appellant Union on the
other for adjudication upon the following issues:

1. Whether M/s River Steam Navigation Co.Ltd. has been
closed down within the meaning and contemplation of Section
25 FFF of the ID Act?

2. Whether the said company has been transferred to M/s
Central Inland Water Transport Corporation Ltd.?

3. Whether Section 25 FFF of the ID Act is attracted to
the present case?

4. Whether the settlement dated 25.8.1965 is binding on
M/s Central Inland Water Transport Corporation Ltd.?

5. Whether the workmen who were employed by the said
Company have a right to be continued in service by the said
Corporation and whether the refusal of the said Corporation
to absorb them is wrongful?

6. To what relief, if any, are the workmen entitled?

The Tribunal found that as regards the question as to
closure of the company the scheme of arrangement itself set
at rest the matter. Clause 8 of the scheme of arrangement
would show that upon approval of the Scheme by the Court the
existing company shall be closed and upon payment to all the
creditors the existing company shall be dissolved without
winding up pursuant to an order to be obtained from the
court. Pursuant to the approval of the scheme of
arrangement, a notice of closure was obtained in the
Anandabazar Patrika, the Jugantar Patrika and the Hindustan
Standard, as per Ex. A, A/1 and A/2. In case under Section
481 of the Companies Act when the affairs of the company had
been completely wound up or when the liquidator cannot
proceed with the winding up of the company for want of funds
and assets or for any other reason whatsoever, and it is
just and reasonable an order of dissolution can be passed.
In the instant case, such an order was made and, therefore,
this resulted in the civil death and the very existence of
the company came to an end. It was also held that by
Section 25F of the ID Act a prohibition against retrenchment
until the conditions prescribed by that section are
fulfilled, is imposed, by Section 25FFF(1) of the ID Act
termination of employment on closure of the undertaking
without payment of compensation and without either serving
notice or paying wages in lieu of notice is not prohibited.
So it is not a condition precedent to closure. The Tribunal
held that there is a complete closure of the company with
effect from 3.5.1967 and thus answered the issue no. 1
against the appellant union. On the second issue, it was
noticed that in the scheme there is no provision for
transfer of the undertaking and stating so this issue was
disposed of. As regards the third issue, the Tribunal took
the view that Section 25FF of the ID Act is not attracted in
the present case inasmuch as there is no transfer of
undertaking and hence the payment of compensation would not
arise. On Issue No. 4, the Tribunal recorded a finding
that there is no agreement or settlement to which the
Corporation is a party and the binding effect on the company
which is not in existence and which was not a party to the
settlement cannot be agitated. On Issue No. 5, the
Tribunal held that the scheme does not provide for any right
to continuation in service in the Corporation in respect of
former employees of the company. On the contrary, the
scheme of arrangement provided that it was left with the
bona fide discretion of the Corporation as to the number of
employees it could take. Thus there was no right to
continue in employment with the Corporation. It was also
held that the transferee Corporation has no obligation
whatsoever in relation to payment of compensation, etc. to
the workmen as per the list attached and these workmen are
not entitled to any relief whatsoever. This award was
challenged before the High Court and the High Court held
that the none of the reliefs could be granted to the
appellant union and so far as claim made in respect of
compensation under Section 25FFF of the ID Act, the High
Court took the view that the appellant union can claim the
same but the quantum of compensation can be determined by a
court in accordance with law in the presence of necessary
parties. The writ petition was accordingly disposed of.
Against this order, the present appeal is filed by special

Before us it is contended that the Division Bench of the
High Court while dealing with the appeal arising out of the
company matter held that it was not within the scope of the
scheme to find out first whether there was a closure of the
company within the meaning of the ID Act and the that claim
of the workmen under the ID Act based on agreement dated
25.8.1965 was not within the jurisdiction and province of
the application for sanction of the scheme and that the
agreement will have to be enforced in a properly constituted
proceedings. The stand of the appellant union is that in
view of this statement made in the course of the order
according sanction of the scheme for dissolution of the
company it could be inferred that it was a case of
reconstruction of the company, the properties and the assets
are transferred to and vested in the Corporation by the
members of the company. Liabilities in relation to
creditors have nothing to do with the matter of employment
in relation to River Transport Undertaking continued by the
Corporation after sanction of the scheme as employer as
defined by Section 2(g) of the ID Act and in support of this
proposition relied upon the decision in Central Bank of
India Ltd. vs. P.S.Rajagopalan, 1964 (3) SCR 140.

The party in person emphasised that this Court in
Central Inland Water Transport Corporation Ltd. [supra]
observed that there is no actual change of employer by
reason of the transfer nor do the three clauses of Section
25F of the ID Act apply. Therefore, prima facie the claim
of the workmen would be either for work or for compensation
under Section 25FF of the ID Act against the Corporation.
It is also submitted that the workmen belonged to the
under-privileged segments of the society and were exploited
and dominated and that the scheme did not reveal
discontinuity in service and that they had not impleaded
Union of India as party in the proceedings initiated
earlier. Therefore, it is contended that the appellant
union are entitled to relief at any rate from the defunct
company and in terms of the agreement the monetary
compensation will have to be paid by the Union of India,
wherever the workmen of the erstwhile company are not
absorbed in service of the Corporation.

This Court in Central Inland Water Transport Corporation
Ltd. [supra] took the view that the liability of the
Corporation would not arise in the case because the question
as to whether the transferee of an undertaking is a
successor or not involves several factors. So far as the
claim against the Corporation is concerned this Court made
it clear that the workers who were taken over by the
Corporation were given fresh appointments from June 5, 1967
with different conditions of service and there was break in
the condition of service. Even assuming that on such
investigation, conclusion could be drawn that the
Corporation is a successor the matter will not be settled
because, the transferee even as a successor would be liable
neither to pay compensation nor to re- employ the workmen
whose employment stood automatically terminated on the
transfer. Where by operation of law the employment of
workmen stands terminated, it may be difficult to sustain it
on the basis of a term in a settlement prohibiting
retrenchment, though statutorily binding on the transferee
as a successor. Therefore, the view taken by the Tribunal
that the Corporation is not liable to pay either
compensation or to absorb the workmen in question is
unexceptionable. As rightly held by the High Court, the
workmen in question are entitled to compensation in case of
closing down of an undertaking. Here there has been no
transfer of the undertaking from the company to the
Corporation as found by the Tribunal and upheld by the High
Court because by order made by the company court the scheme
of arrangement was to close down the company and what was
taken over by the Corporation was a separate arrangement.
Therefore, in the eye of law what is to be held is that the
undertaking is closed down on account of unavoidable
circumstances beyond the control of the employer and every
workman who has been in service for more than ten years in
that undertaking immediately before such closure shall be
entitled to notice and compensation in accordance with the
provision of Section 25F as if the workman has been
retrenched. In case where an undertaking is closed down by
reason of financial difficulties as was the position in the
present case it cannot be deemed to have been closed down on
account of unavoidable circumstances beyond the control of
the employer. Therefore, if an application is made by the
workmen or by the union on their behalf before a Labour
Court under Section 33C(2) of the ID Act it will be proper
for the Labour Court to examine the claims under Section
25FFF of the ID Act, of each of these workmen and award
compensation accordingly which shall be payable by the Union
of India and to those proceedings the erstwhile company and
the Union of India shall be parties.

In the circumstances, we direct the concerned Labour
Court on the filing of such applications to dispose the same
within a period of three months. The appeal shall stand
allowed in part accordingly. In other respects, the same
shall stand dismissed. No costs.



Leave a Comment