Holding

Closure of a distinct unit lacking functional integration with other units constitutes a "closure" under Section 25FFF, limiting the workmen's remedy to compensation and not reinstatement under Sections 25F/25G.

Summary

The District Red Cross Society closed its Maternity Hospital due to financial constraints, terminating the services of staff nurses including Babita Arora, while other units such as a Drug De‑Addiction Centre, Family Planning Centre and Viklang Kendra continued to operate. The employees claimed protection under Sections 25F and 25G of the Industrial Disputes Act, 1947, seeking reinstatement and back wages, arguing that the employer had not closed its entire establishment. The Industrial Tribunal and the High Court held that because other units remained open, the terminations amounted to retrenchment, ordering reinstatement. On appeal, the Supreme Court examined whether the closure of a distinct unit without functional integration with the other units constitutes a "closure" under Section 25FFF, which would limit relief to compensation only. Relying on earlier Supreme Court decisions and the definition of "closure" in Section 2(cc), the Court held that the Maternity Hospital was a separate undertaking and its closure attracted Section 25FFF, not Sections 25F/25G. Consequently, the awards for reinstatement and back wages were set aside and the employer was directed to pay compensation as per Section 25FFF. The appeals were allowed.

Issues considered

Whether termination of employees due to closure of a single unit, while other units of the same employer remain operational, attracts protection under Sections 25F and 25G of the Industrial Disputes Act, 1947.
Whether the closed unit has functional integrity with the other units such that its closure amounts to closure of the entire establishment.
Whether the award of reinstatement with back wages is sustainable in view of the applicable provisions of the Act.

Legislation cited

Industrial Disputes Act, 1947s. 25F, s. 25FF, s. 25FFF, s. 25G, s. 2(cc)

Subjects

Industrial Disputes Actclosure of undertakingreinstatementcompensationsection 25Fsection 25Gsection 25FFFfunctional integrityretrenchmentlabour law

Judgment

_.._

' A DISTRICT RED CROSS SOCIETY
v.
BAB ITA ARORA AND ORS.

AUGUST 14, 2007

B [G.P. MA THUR AND P.K. BALASUBRAMANYAN, JJ.]

·r~
Industrial Disputes Act, 1947-ss. 25 F, 25 FFF and 25 G~Termination
of services of employees-On closure of one of the units of the employer-
Order of reinstatement by courts below on the ground that other units of the
c employer were running-On appeal, held: Order ofreinstatement not justified-
If only one unit of the employer is closed which has no functional integrity
with other running units of the employer, it will amount to closure of the unit
and would attract s. 25 FFF-Hence workmen entitled to compensation
u!s. 25 FFF alone.
D
The question for consideration in the present appeals was whether the
~
respondent-employees were entitled to protection u/ss. 25F and 25G of
Industrial Disputes Act, 1947, ifthe establishment in which they were working,
itself had been closed down though certain other wings or units of the
employer-society had not been closed down.
E
Industrial Tribunal as well as High Court had held that since other units
of the employer-society were running, on closure of one of the units, it cannot
be said that the establishment of the employer had been closed. Therefore the
order for reinstatement of the employees with continuity of service and full
back wages was passed. Hence the present appeals.
F
Allowing the appeals, the Court

HELD: I. The respondent would be entitled to compensation only in
accordance with Section 25FFF of lndustriai Disputes Act, 1947 and the award
for reinstatement in service with back wages passed by the Tribunal which ;
G was affirmed by the High Court ca.nnot be sustained and must be set aside.
~-
tpara IOJ 11025-GI
}
./.-
2. If the entire establishment of the employer is not closed down but
only a unit or undertaking is closed down which has no functional integrity

H 1018
_.,.
DISTRICT RED CROSS SOCIETY v. BABITA ARORA [G.P. MA THUR, J.) 1019

- ).
with other units or undertaking, it will amount to closure and the provisions A
of Section 25FFF of the Act will get attracted and the workmen are only
entitled to compensation as provided in Section 25FFF of the Act which has to
be calculated in accordance with Section 25F of the Act. The Tribunal as also
the High Court clearly erred in holding that as other units of the appellant
were functioning, the termination of services of the respondent would amount
to retrenchment. The other units are functioning as separate entities and the
B
mere fact that they have not been closed down, cannot lead to the inference
that the termination of services of the respondent was by way of retrenchment
...... which was illegal on account of non-compliance of the provisions of Section
'r
,/ 25F of the Act. (Para 91 (1025-C, D, E, F)

Workmen of the Indian Lea/Tobacco Development Co. Ltd, Guntur v.
c
The Management ofIndian Leaf Tobacco Development Co. Ltd, Guntur, AIR
(1970) SC 860; Management of Hindustan Steel Ltd. v. The Workmen and
Ors., (1973) Labour and Industrial Cases 461; Workmen of the Straw Board
Manufacturing Company Limited v. Mis Straw Board Manufacturing
Company Limited, (1974) 1LLJ499; JK. Synthetics v. Rajasthan Trade Union D
Kendra and Ors., (2001) 2 SCC 87 and Maruti Udyog Ltd. v. Ram Lal and
Ors., [2005) 2 SCC 638, relied on.
> ,,
..

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3735-3738 of
2007.
E
From the Final Orders dated 24. l 0.2002 of the High Court of Punjab and
Haryana at Chandigarh in C.W.P. Nos. 1236, 6081, 6347 and 6349 of2002.

Bairam Gupta, A.P.S. Shergill and S. Janani for the Appellant.

·Rajesh Tyagi, Aparana Bhardwaj and Praveen Jain for the Respondent. F
The Judgment of the Court was delivered by

G.P. MATHUR, J. I. Leave granted.

2. These appeals, by special leave, have been preferred against the G
judgment and order dated 24.10.2002 of High Court of Punjab and Haryana,
by which four writ petitions filed by the appellant herein were dismissed by
/
a common order. In the writ petitions challenge was raised to the awards dated
.)- 7.9.200 I of Industrial Tribunal-cum-Labour Court, Kamal, in Reference Nos.1433
./
to 1436of1999.
H
'~
1020 SUPREME COURT REPORTS (2007] 8 S.C.R.

A 3. We will give the facts of Civil Writ Petition No.1236 of 2002 which
was directed against the award made in Reference No.1433 of 1999. Babita
Arora (respondent herein) filed a claim petition before the Presiding Officer,
Industrial Tribunal-cum-Labour Court, Kamal, (hereinafter referred to as 'the
,.{

-
Tribunal') on the ground, inter alia, that she was appointed as staff nurse in
the appellant District Red Cross Society, Kamal, by the order dated 20.3.1992
B and she continuously worked on the said post till her services were terminated
on 30.9 .1998, due to the closing down of the Red Cross Maternity Hospital,
but the management had not followed the procedure laid down in Sections
-( /
25F to 25H of the Industrial Disputes Act (hereinafter referred to as 'the Act') "--

which was a clear violation of the statutory provisions. The management had
c also not followed the principle of 'first come last go' while terminating her
services and had thereby contravened Section 25G of the Act. No retrenchment
compensation was paid to her at the time of termination of her services. The
alleged closing down of the Maternity Hospital was only a paper transaction
as the Out Patient Department was still functioning and the patients were
being given treatment by the doctors as well as other staff. Tubectomy
D operations were still being conducted in the hospital. Her case further was
that there were several other schemes/projects under the appellant, like, ..-'
'--
~-
Family Welfare Scheme; Drug De-addiction-cum-Research Centre, etc., where
the respondent could be absorbed. It was accordingly prayed that an award
may be passed directing the appellant to reinstate her in-service with continuity
E of service and full back wages.

4. The appellant District Red Cross Society, Kamal, filed written statement
on the ground, inter alia, that claim petition was not maintainable as the
hospitals and social organizations were not covered under the Industrial
Disputes Act. The services of the respondent were terminated on account of
F closing down of the Red Cross Maternity Hospital w.e.f. 30.9.1998 as the
hospital was being run on donations and not on government grant. The
donations had considerably reduced and due to financial constraints and
heavy expenditure, the appellant had no option but to close the maternity
hospital. It was further pleaded that on account of closure of the charitable
Maternity Hospital, the services of the entire staff working therein had been
G terminated and no one was retained in service. The respondent was, however,
offered a post in another organization, viz., Drug De-Addiction-cum- ~
Rehabilitation Centre, Kamal, wherein a post of nurse was sanctioned by the •..
~
..(,__
Government on 2.11.1998, but the respondent refused to accept the said offer.

5. The parties adduced oral and documentary evidence in support of _,
H
DISTRICT RED CROSS SOCIETYv. BABITA ARORA [G.P. MATHUR, J.] 1021
their case. The appellant employer examined Brahm Dutt, Clerk, incharge of A
the District Red Cross Society, Kamal, who stated that the management
carried on social work and the same was done on charitable basis from the
donations received from public. The appellant Society was also running a
Drug De-Addiction-cum-Rehabilitation Centre, a Family Planning Centre and
a Viklang Kendra, which were being run as separate establishments as they
were receiving grants from the Government to the extent of 90% to I 00%. A B
decision was taken in a meeting held on 4.9.1998 to close down the Maternity

... ':'
Hospital on account of extreme financial stringency as it was not receiving
any aid from the Government and was being run entirely from donations. In
the said meeting Civil Surgeon, Kamal, had suggested that all the facilities
of a Maternity Hospital were available in the Civil Hospital which was nearby c
and the hospital being run by the Red Cross Society was not serving any
..
,.
useful purpose. He also stated that the respondent had been offered service
in Drug De-Addiction-cum-Research Centre but she refused the said offer.

· 6. The Tribunal held that the appellant Society was running a Drug De-
Addiction-cum-Rehabilitation Centre, a Family Planning Centre and a Viklang D
Kendra and thus it cannot be said that the establishment of the appellant had
~·
been closed. It was further held that the respondent had completed more than
" 240 days of service in the year preceding the date of termination of her service
and, therefore, she was entitled to reinstatement compensation which had not
been given by the management and thus termination of her service was in
E
violation of Section 25F of the Act. It was also held that persons junior to
the respondent were working in the aforesaid other centres of the appellant
and thus the termination of her service was in ciear violation of Section 25G
of the Act. On these findings, the Tribunal held that the termination of service
of the respondent was illegal and contrary to law and accordingly gave an
award directing her reinstatement with continuity of service and full back F
wages from the date of demand notice i.e. 6.11.1998. Similar awards were given
.,.
in the three other adjudication cases and orders for reinstatement with
continuity of service and full back wages were passed in favour of the
concerned employees (respondents herein). The appellant challenged the
awards of the Tribunal by filing [our writ petitions in the High Court. The
High Court held that from the evidence on record it could be safely concluded
G
that the 11ppellant Red Cross Society was running other projects like Drug De-
Addiction-cum-Rehabilitation Centre, Family Planning Centre and Viklang
).- Kendra and they had not been closed. The Red Cross Society, Kamal, itself
" had not ceased to exist and its other units were functioning. It was further
held that in a case where other units which are under the same management H
1022 SUPREME COURT REPORTS [2007] 8 S.C.R.

A are functioning and the Red Cross Society was receiving grants from the
Government, the termination of the services of the respondents was clearly
illegal. On these findings, the writ petitions were dismissed.

7. As mentioned earlier, it was the specific case of the appellant District
Red Cross Society that the Maternity Hospital had been closed down w.e.f.
B 30.9.1998 as it was not receiving any grant from the Government, but was
being run on donations and was thus experiencing extreme financial stringency.
It was also th~. cas·e· of the appellant that the services of the entire staff of
the Maternity Hospital had been terminated on account of closing down of
the hospital and the respondent Babita Arora had been offered the post in
C another organization viz. Drug De-Addiction-cum-Rehabilitation Centre. In
fact, there is no dispute from the side of the respondent regarding closing
down of the Maternity Hospital. Paragraph 2 of the claim statement filed by
the respondent Babita Arora reads as under :

"2. That the services of the workman have been terminated due to the
D closing down of Red Cross Maternity Hospital, Kamal w.e.f. 30.9.98
but the management has not followed the procedures laid ~own in
Section 25-F and 25-H of the Industrial Disputes Act which is a clear
·~

violation of the Act." ).

8. The question which arises for consideration is whether the respondent
E is entitled to protection of Section 25F and 25G of the Act ifthe establishment
in which she was working itself has been closed down though certain other
wings or units ofthe appellant District Red Cross Society, Kamal, have not
been closed down and are still functioning. Section 25F of the Industrial
Disputes Act lays down the conditions precedent to retrenchment of workmen
and it reads as under:
F
25F. Conditions precedent, ;retrenchment of workmen.- No workman
employed in any industry who has been in continuous service for not
less than one year under an employer shall be retrenched by that
. employer until·-

G (a) the workman has been given one month's notice in writing
indicating the reasons for retrenchment and the period of notice '
has expired, or the workman has been paid in lieu of such notice,
wages for the period of the notice:
~
~
(b) the workman has been paid, at the time of retrenchment, i
H compensation which shall be equivalent to fifteen days' average
-,.,_
l
DISTRICT RED CROSS SOCIETY v. BABITA ARORA [G.P. MA THUR, J.] 1023

pay [for every completed year of continuous service] or any part A
thereof in excess of six months; and

(c) notice in the prescribed manner is served on the appropriate
Government [or such authority as may be specified by the
appropriate Government by notification in the ~fficial Gazette].

Section 25FFF deals with compensation to workmen in case of closing
B
down of undertakings. The relevant part of Sub-section {I) of Section 25FFF
(omitting the proviso) reads as under :

25FFF. Compensation to workmen in case of closing down of
undertakings.- (1) Where an undertaking is closed down for any C
reason whatsoever, every workman who has been in continuous service
for not less than one year in that undertaking immediately before such
closure shall, subject to the provisions of sub-section (2), be entitled
to notice and compensation in accordance with the provisions of
section 25F, as if the workman had been retrenched:c
D
Provided ........................... .

Therefore, the legislature has treated closing down of undertakings
which automatically result in termination of services of all workmen working
therein differently from a retrenchment simplicitor as defined in Section 25F
of the Act. E
In Workmen of the Indian Lea/Tobacco Development Co. Ltd., Guntur
v. The Management of Indian Leaf Tobacco Development Co. Ltd., Guntur,
AIR (1970) SC 860, it was held as under :

"No Industrial Tribunal, even in a reference under Section IO(l )(d) F
can interfere with discretion exercised by a company in the matter of
closing down some of its branches or depots. Even if such closure
may not amount to closure of business of the Company, the Tribunal
has no power to issue orders directing a Company to reopen a closed
depot or branch, if the Company, in fact, closes it down and that
closure is genuine and real. The closure may be treated as stoppage G
of part of the activity or business of the Company. Such stoppage of
part of a business is an act of management which is entirely in the
discretion of the Company carrying on the business ..................... "

In Management of Hindustan Steel Ltd. v. The Workmen & Ors., (1973) H
1024 SUPREME COURT REPORTS [2007) 8 S.C.R.

A Labour & Industrial Cases 461, it was held by this Court as under in para I 0
of the reports :

"IO. The word undertaking as used in S.25FFF seems to us to have
been used in its ordinary sense connoting thereby any work, enterprise,
project or business undertaking. It is not intended to cover the entire
B· industry or business of the employer as was suggested on behalf of
the respondents. Even closure or stoppage of a part of the business
or activities of the employer would seem in law to be covered by this
sub-section. The question has indeed to be decided on the facts of
each case .......................... "

c In workmen of the Straw Board Manufacturing Company Limited v.
Mis Straw Board Manufacturing Company Limited, (1974) I LLJ 499, this
Court laid down the test of closure of a unit by observing that the most
important aspect in a case relating to closure is whether one unit has such
componental relation that the closing of one must lead to the closing of the
D other or the one cannot reasonably exist without the other. Functional integrity
will assume an added significance in the case of closure.

9.. It appears that after the aforesaid decisions of the Supreme Court, the
legislature by an amendment made in the year 1982 to the Industrial Disputes
Act defined the word "closure" by adding Section 2(cc). Section 2(cc) of the.
E Act reads as under :

2(cc). "closure" means the permanent closing down of a place of
employment or part thereof.

It is, therefore, clear that in order to attract Section 25FFF it is not
p necessary that the entire establishment of an employer should be closed. If
a unit or part of an undertaking which has no functional integrity with other
units is closed, it will amount to closure within the meaning Of Section 25FFF
of the Act. In JK. Synthetics v. Rajasthan Trade Union Kendra & Ors., [2001)
2 sec 87, it has been observed that the closure need not be of the entire
plant. A closure can also be of a part of the plant. In Maruti Udyog Ltd v.
G Ram Lal & Ors., [2005) 2 SCC 638, it was held as under in para 2 I of the ~

report: I
,.-
'
"21. How far and to what extent the provisions of Section 25F of the
194 7 Act would apply in case of transfer of undertaking or closure .
thereof is the question involved in this appeal. A plain reading of the ~-
H ~

)..
DISTRICT RED CROSS SOCIETY v. BABITA ARORA [G.P. MA THUR, J.] } 025

provisions contained in Section 25FF and Section 25FFF of the 1947 A.
Act leaves no manner of doubt that Section 25F thereof is to apply
..
only for the purpose of computation of compensation and for no
other. The expression "as if' used in Section 25FF and Section 25FFF
of the 1947 Act is of great significance. The said tenn merely envisages
computation of compensation in tenns of Section 25F of the 1947 Act B
and not the other consequences flowing therefrom. Both Section 25FF
and Section 25FFF provide for payment of compensation only, in case
of transfer or closure of the undertaking. Once a valid transfer or a
valid closure comes into effect, the relationship of employer and
employee does not survive and ceases to exist. Compensation is
required to be paid to the workman as a consequence thereof and for C
no other purpose."

The position in law is, therefore, well settled that if the entire
establishment of the employer is not closed down but only a unit or
undertaking is closed down which has no functional integrity with other units
or undertaking, the provisions of Section 25FFF of the Act will get attracted D
and the workmen are only entitled to compensation as provided in Section
25FFF of the Act which has to be calculated in accordance with Section 25F
of the Act. The Tribunal and also the High Court clearly erred in holding that
as other units of the appellant Red Cross Society like Drug De-Addiction-
cum-Rehabilitation Centre, Family Planning Centre and Viklang Kendra were E
functioning, the tennination of services of the respondent would amount tc.·
retrenchment. The Maternity Hospital was functioning as a distinct entity. It
was not receiving any grant from the Government and was being run entirely
on charitable basis from donations received from public. Due to financial
stringency, the Maternity Hospital had to be closed down. The other three
units, viz., Drug De-Addiction-cum-Rehabilitation Centre, Family Planning F
Centre and Viklang Kendra are receiving grants from government and are
functioning as separate entities and the mere fact that they have not been
closed down, cannot lead to the inference that the tennination of services of
the respondent was by way of retrenchment which was illegal on account of
non-compliance of the provisions of Section 25F of the Act.
G
IO. In view of the findings recorded above, the respondent would be
entitled to compensation only in accordance with Section 25FFF of the Act
and the award for reinstatement in service with back wages passed by the
Tribunal which was affirmed by the High Court cannot be sustained and must
he set aside.
H
1026 SUPREME COURT REPORTS [2007) 8 S.C.R.

A I I. The cases of other three respondents are exactly identical to that of
Babita Arora as they were all working in the Maternity Hospital. Therefore,
the awards passed by the Tribunal directing their reinstatement in service and
back wages have to be set aside.

12. In the result, the appeals succeed and are hereby allowed. The
B judgment and order dated 24. I 0.2002 of the High Court and the awards dated
7.9.2001 of the Tribunal are set aside. The appellant shall pay the compensation
to the respondents in accordance with Section 25FFF of the Act within two
months from today, failing which it will be open to the respondents to ...,. -<
approach the Tribunal for computation of the amount. No costs.
c K.K.T. Appeals allowed.