Holding

Workmen are entitled to compensation under Section 25FFF of the Industrial Disputes Act as the undertaking was closed, there was no transfer of the undertaking, and the compensation is payable by the Union of India.

Summary

The River Steam Navigation Co. Ltd., operating a river service with about 8,000 employees, suffered heavy losses during the 1965 armed conflict with Pakistan and entered into a scheme of arrangement with the Central Inland Water Transport Corporation (CIWTC) that transferred assets but not the undertaking, and provided that CIWTC could absorb only a limited number of workers. The scheme, sanctioned on 3 May 1967, also mandated the closure and dissolution of the company, after which CIWTC appointed only 5,173 of the former employees, leaving many unemployed. The Industrial Tribunal held that the company had completely closed as of the sanction date, that there was no transfer of the undertaking, and that Section 25FFF of the Industrial Disputes Act was not attracted. The Calcutta High Court allowed the Union to claim compensation under Section 25FFF, leaving the quantum to be fixed by a court. The Supreme Court partially allowed the appeal, confirming that the closure was due to unavoidable circumstances beyond the employer’s control, that workmen with ten or more years of service are entitled to notice and compensation as if retrenched, and that the compensation is payable by the Union of India, with the labour court to determine the amount. The Court directed the labour court to dispose of the applications within three months and dismissed the remaining claims.

Issues considered

Whether the River Steam Navigation Co. Ltd. was closed within the meaning of Section 25FFF of the Industrial Disputes Act, 1947
Whether the undertaking was transferred to the Central Inland Water Transport Corporation
Whether Section 25FFF is attracted in the present circumstances
Whether the 1965 settlement is binding on the Corporation
Whether the former employees have a right to continue service with the Corporation
What relief, if any, the workmen are entitled to

Legislation cited

Companies Act, 1956s. 391, s. 392, s. 393, s. 394, s. 481
Industrial Disputes Act, 1947s. 25FF, s. 25FFF, s. 33C(2)

Subjects

closure of undertakingcompensationIndustrial Disputes ActSection 25FFFSection 33Cscheme of arrangementtransfer of undertakingretrenchmentlabour court

Judgment

A INLAND STEAM NAVIGATION WORKS' UNION
v.
UNION OF INDIA AND ORS.

FEBRUARY I, 2001

B [S. RAJENDRA BABU AND SHIVRAJ V. PATIL, JJ.]

Labour Laws:

Industrial Disputes Act, 1947: Section 25 FF, 25 FFF and 33C (2)-
C A limited Company operating river service from West Bengal to Assam with
its 8,000 personnel-Due to armed conflict with Pakistan, a major part of the
company's operations were suspended leading to retrenchment on large
scale-Seulemenl between lhe Management of the Company and its workers
Union-Winding-up petition filed by the creditors of the Company-An
application for sanctioning of the Scheme of Arrangement between Central
D Inland Water Transport Corporation and the Company filed-One of the
terms of the scheme was that the Corporation would take as many employees
as it would be possible-The unabsorbed employees were to be paid
compensation out of the funds to be supplied to it by the Government-The
Scheme was sanctioned in 1967 and notice of closure issued on the same
E day-Industrial dispute referred to the Industrial Tribunal-Tribunal held
that there was complete closure of business with effect from the day of
issuance of the notice of closure-Writ Petition filed challenging the said
award-The High Court held that the appellant Union could claim
compensation which required to be quantified by a Court in accordance with
law in the presence of necessary parties-On appeal, Held: Jn the present
F case there was no transfer of the underlaking from the Company to the
Corporation-The Scheme of Arrangement was to close down the Company
and whal was taken by the Corporation was a separate arrangemen/-/n
case a company closes down due to unavoidable circumstances beyond the
control of the employer, the workmen in service of the Company for more than
G I 0 years immedia/ely before the closure are entitled to compensation under
section 25 FFF of 1he Act-In the present case, the situation being different,
it will be proper for the labour Court lo examine the claim of the Union/
workmen for compensation on an application moved under Sec/ion 33C (2)
of the Act-The compensation shall be payable by lhe Government which will
be a party to the said proceedings alongwith the erstwhile Company-
798
INLAND STEAM NAVIGATION WORKS'S UNION v. U 0.1 799
Companies Act, 1956-Section 391 to 394. A
River Steam Navigation Co. Ltd., operating a river service from West
Bengal tc Assam with the workforce of about 8,000 personnel underwent
heavy losses during the armed conflict with Pakistan. The said losses resulted ·
in large scale retrenchment. In the course of conciliation proceedings, the
Management of the company arrived at a settlement with the appellant Union. B
However, the creditors of the Company filed a winding-up petition in the High
Court which, protracted for long. Later, an application was filed under
_Sections 391to394 of the Companies Act, 1956 for sanctioning a Scheme of
Arrangement and Compromise between the company and the Central Inland
Water Transport Corporation Ltd. Under the Scheme, all the properties and C
assets except some of the liabilities were to vest in the Corporation. The
Corporation was left at its discretion to take over as many employees as
possible and those not so taken over were to be paid compensation by the
Company out of the funds the Government of India had agreed to supply.
Further, upon approval of the Scheme, the Company was to be closed and on
payment of all creditors it was to stand dissolved without winding up. The D
Scheme was sanctioned.in 1967 when the appellant Union also appeared before
the Court to protect the interest of the workers. An appeal before a Division
Bench preferred by the appellant Union was dismissed. The Company issued
~ notice of closure on the very day of sanctioning of the Scheme itself.
Thereafter the Corporation issued fresh letters of appointment appointing E
only 5173 employees out of the said 8000. After the decision in Central
Inland Water Transport Corporation ltd. v. The Workmen & Anr., 11974) 4
SCC 696, the Government of West Bengal referred the industrial dispute
between the Company and the Corporation on the one hand and their workmen
represented by the appellant Union on the other for adjudication upon the
issues (i) whether there was closure of the Company within the meaning of F
Section 25FFF of the Act, (ii) whether the Company was transferred to the
Corporation, (iii) whether Section 25 FFF of the Act is attracted to the present
case, (iv) whether the 1965 settlement is bin.ding on the Corporation, (v)
whether the employees of the Company have a right to continue in service of
the Corporation. The Industrial Tribunal answered the first issue against G
the appellant Union holding that there was complete closure of business with
·--+ effect from 3-5-1967. Rest of the answers were given in negative by the said
Tribunal. Writ petition challenging the said award was disposed by the High
Court holding that none of the reliefs could be granted to the appellant Union
except the claim made in respect of compensation under Section 25 FFF of
the Act. The High Court was of the view that the appellant Union can claim H
800 SUPREME COURT REPORTS [200 I] I S.C.R.

A the same but the quantum of compensation can be determined by a court in
accordance with law in the presence of necessary parties. Hence the present
appeal.

Partly allowing of the appeal, the Court

B HELD : I. The workmen in question are entitled to compensation in
case of closing down of an undertaking. There had 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 by the Corporation was a separate arrangement. Therefore, in the eye
C 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 had been in service for more than I 0 years in that undertaking
immediately before such closure shall be entitled to notice and compensation
in accordance with the provision of Section 25 FFF of the Act as if the workman
D has been retrenched. [806-E-GJ

2. Jn case where an undertaking is closed down by reason of financial
difficulties, as was 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
E the Union on their behalf before a Labour Court under Section 33C (2) of the
Act it will be proper for the Labour Court to examine the claims under
Section 25FFF of the 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 Union of India shall be parties.
1806-G-H; 807-A
F
Central Inland Water Transport Corporation v. The Workmen & Anr.,
(197414 SCC 696 and Central Bank of India ltd. v. P.S. Rajgopa/an, (1964!
3 SCR 140, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1422 of
G 1999.
From the Judgment and Order dated 9.5.97 of the Calcutta High Court
in M. No. 3919of1994.

In-person for the Appellants.

H Altaf Ahmed Additional Solicitor General and Ms. Smita Mukherjee for
INLAND STEAM NAVIGATION WORKS'S UNION v. U.0.1. [RAJENDRA BABU, J.] 80]

the Respondent No. 4. A
Tara Chand Sharma and Ms. Neelam Sharma for the Respondent No. 2.

P.P. Malhotra, Satpal Singh, Manoj Swarup and Ms. Anil Katiyar for the
Union of India.

The Judgment of the Court was delivered by B
~ RAJENDRA BABU, J. 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 C
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 D
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 E
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 ordet of the learned Single Judge sanctioning the Scheme.
F
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 G
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: H
802 SUPREME COURT REPORTS (2001] l S.C.R.

A I. 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 enforcement;

3. whether the workers are workmen or entitled to prefer any claim
B 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.

C 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.
D
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
E 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
F to which two lists were attached. List 1 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 11, the Labour Court was asked to compute retrenchment
G 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
H down the issue relating to claim arising under Section 25FFF from the Company.
INLAND STEAM NAVIGATION WORKS'S UNION 1·. U.0.1. [RAJENDRA BABU, .I.] 803

~..__,. The Union of India did n"ot file against it an appeal but the Corporation went A
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. v. The
Workmen & Anr., [1974] 4 SCC 696 disposed of the said matter.
B
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
c
necessary to decide as to whether the Corporation was a closure of the
Company and whether the tranferor 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 D
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.
E
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:
.......
I. Whether Mis River Steam Navigation Co., Ltd. has been closed F
down within the meaning and contemplation of Section 25 FFF
of the ID Act?

2. Whether the said company has been transferred to Mis Central
Inland Water Transport Corporation Ltd.?
'
G
-'. 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 Mis Central
Inland Water Transport Corporation Ltd.?

5. Whether the workmen who were employed by the said Company H
804 SUPREME COURT REPORTS 12001] l S.C.R.

A 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
B 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
C scheme of arrangement. a notice of closure was obtained in the Anandabazar
Patrika, the Jugantar Patrika and the Hindustan Standard, as per Ex. A, All
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
D 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
E 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. I against the appellant union. On the second
issue, it was noticed that in the scheme there is no provision for transfer of ~
F 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
G 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
H to the number of employees it could take. Thus there was no right to continue
•

INLAND STEAM NA VIGATJON WORKS'S UNION v, U,O I, [RAJENDRA BABU, J] 805
_._,,,,,_;..~iii employment with the Corporation. It was also hdd that the transferee A
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 B
,_.,, 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 leave.
c
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 mear.ing 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 D
scheme and that the agreement will have to be enforc<!d 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 ~ompany it could be inferred that it was a case
of reconstruction of the company, the properties and the assets are transferred E
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. v. P.S Rajagopalan. (1964] 3 SCR 140. F

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 JD Act apply. Therefore, prima facie the claim of the workmen would G
-~- be either for work or for compensation under Section 25 FF 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 H
•

806 SUPREME COURT REPORTS [200 I] I S.C. R.

A 'rate from the defunct company and in tenns of the agreement the monetary
compensation will have to be paid by the Union of India, where.ver the
workmen of the erstwhile company are not absorbed in service of the
Corporation.

This Court in Central Inland Water Transport Corporation Ltd. [supra]
B 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,
C 1967 with different conditions of service and there was break in the condition
of service. Even as3uming 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
D 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 U[\exceptionable. As rightly held by the
E 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
F 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
G 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 -J-
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
H examine the claims under Section 25FFF of the ID Act, of each of these
INLAND STEAM NA VI GA TION WORKS'S UNION v. U.0.1. [RA.IENDRA BABU, J.] 807
workmen and award compensatiori accordingly which shall be payable by the A
Union of India and to those proceedings the erstwhile company and the
Union of India shall be parties.

In the circumstances, we direct t~e 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 accotdlngly, In other respects, B
the same shall stand dismissed. No costs.

R.C.K. Appeal partly allowed.