Holding

The appointment of an authorised controller under Sec. 18A of the IDR Act does not render the undertaking an establishment engaged in an industry carried on under the authority of the Central Government, so its employees are not excluded from the Bonus Act and the liability for bonus lies with the National Textile Corporation.

Summary

The Rashtriya Mill Mazdoor Sangh filed four references under the Bombay Industrial Relations Act seeking bonus for workmen of Model Mills, Nagpur for the years 1964‑68, alleging the employer was liable under the Payment of Bonus Act, 1965. The employer contended that a notified order under Section 18A of the Industries (Development and Regulation) Act, 1951 had placed the mill under the authority of the Central Government, thereby exempting its employees from Section 32(iv) of the Bonus Act. The Supreme Court held that the appointment of an authorised controller merely changes management and does not make the undertaking an establishment engaged in an industry carried on by or under the authority of a Central Government department; consequently the employees remain covered by the Bonus Act. The Court also held that, after the takeover, liability for any bonus payable falls on the National Textile Corporation under the Sick Textile Undertaking (Nationalisation) Act, 1974. The awards of the Industrial Court were set aside and the matter remitted to the Industrial Tribunal for disposal on merits.

Issues considered

Whether the appointment of an authorised controller under Sec. 18A of the Industries (Development and Regulation) Act, 1951 converts an industrial undertaking into an establishment engaged in an industry carried on by or under the authority of a Central Government department.
Whether employees of such an undertaking are excluded from the operation of Section 32(iv) of the Payment of Bonus Act, 1965.
Whether the liability for bonus after the takeover rests with the National Textile Corporation under the Sick Textile Undertaking (Nationalisation) Act, 1974.

Legislation cited

Bombay Industrial Relations Act, 1946s. 73A
Companies Act, 1913
Industrial Disputes Act, 1947s. 2(a)
Industries (Development and Regulation) Act, 1951s. 15, s. 16, s. 18A, s. 18B, s. 18E
Payment of Bonus Act, 1965s. 32(iv)
Sick Textile Undertaking (Nationalisation) Act, 1974s. 5(1), s. 5(2)(c)

Subjects

Bonus ActIndustries Development and Regulation Actauthorised controllerindustrial undertakingexclusion clausestatutory bonusNational Textile Corporationindustrial disputemanagement takeover

Judgment

RASHTRIYA MILL MAZDOOR SANGH, NAGPUR A

v.

THE MODEL MILLS, NAGPUR AND ANR.
September 18, 1984 n

[D.A. 0ESAI, V. BALAKRISllNA ERADI AND V. KHALID, JJ.]

The Payment of Bonus Act 1965, Section 32(/V)-Scope of-Employees of
·undertaking managed by an author;zed controller under Section 18A lDR Act-
Whether entitled to payment of bonus.' c
The Industries (Development and Regulation) Act 1951, Section 18A
Industrial' undertaking~Appointment of authorized controller-Such undertaking
whelher an industry carried on under the auth0r/ty of the Department of the
Central Government-Employees of undertaking whether entitled to payment of
bonus. D
The Sick Textile Undertaking (National/sat/on) Act 1974, Sul/on 5(2J(C)
•wages, $alarles and other dues of the ,emp/oyees'-JVhether includes statutory
· 1or.us payable under Bonus Act. ·

Words and Phrases : •Carried on by ·or' . under the authority of any
Jepartment of the Central G~vernment•-Meaning of_;_Section 32(JV) Payment of £.
Bonu1Act1965. ~

The appellant-Union served a notice of demand' for· the grant or
-....._bonus for the period 1964-6S to J967..68. The matter was taken into conci..
( liation. The Conciliation Officer recorded a failure, issued. a certificate
~ under Section 73A of the Bombay Industrial Relations Act, 1946 certifying
-. that the dispute was not capable of being settled by conciliation. The Union F
thereupon made four independent referenc!s to the Industrial Court, for the
• grant of bonus for each of the four accounting years 1964-6S to 1967-68. The'
Union further alleged that it could not 'make a specific demand for bonus
calculated at a certain percentage of the salary as it had not got the requisite
infonnation about the fina.hcial position and the balance sheet of the
Employer, and that the Indu5trial Court should compute the bonus which
G
• · become~ payable under the Bon.·s Act, and award the same to the workmen.

The employer resisted the eferences contending that once a notified
order was issued uilder Section 1 81\ of the Industries (Development and
Regulation) Act, 1951 appointing all authorised controller in respect of an
industrial undertaking, it was run by the authorised controller under the
authority or a D~partment of the Central G~verrunent and therefore, in view· H
A
752 SUPREME COURT PEPORTS [l 985) l.S.C.R
of the prov1s1ons contained in Section 32fIV) of the Bonus Act its einployees
-
were excluded from the application of the Bonus Act and the references must
consequently be rejected.

The Industrial Court upcld the aforesaid contention on behalf of the
en1ployer that having r~gard to_ the provisions. contained in Section 32(1V) of
the Bonus Act read V-.'Ith Section 18A of the IDR Act, the workmen employed
by the e1nployer,.wcrc excluded from the operation of the Bonus Act as it was
B not applicable 'to the e111ployer. The Industrial Court howcve1 rejected the
alternative contention that even if the workn1cn c1nploycd by the employer
were not entitled to bouus under the Bonus Act, they were yet entitled to claim
bonus apart from the Bonus Act as a nonn of industrial relations by observing
that ::is the demand was made for bonus under the Bonus Act, and the alter-
native demand was not '.n1adc before the Conciliation Officer, the scope of
the references could not be enlarged to cover the same.
c •
In the appeals to this Court on the questions :

(1) On the appointment of the authorised controller under Section 18A
of the IDR Act by the Central Government in respect of an industrial under_ •
taking whether the undertaking acquires the status of an establishment
engaged in an industry carried on under the authority of the Department of
the Central Government, and (2) Whether the employees employed in such an
D industrial undertaking were excluded from the operation of the Bonus Act.

Allowing the Appeals,
'
HELD : l(a) If on the issue of a notified order appointing an autho-
rised controlller under Sec. 18A Industries (Development and Regulation)
Act 1951, the management of the industrial undertaking undergoes a change,
E yet it does not become an establishment engaged in an industry carried on by
the department of the Central Government, and therefore its employees would
not be excluded from the operation of the Payment of Bonus Act 1965 as
provided in Sec. 32(1V). [768 E-G]

Heavy Engineering Mazdoor Union v. The State of Bihar & Ors., [1969]
3 SCR 995 and M/s. Swadeshi Cotton Mills Thozhilalar She1nalana Padukappu
F Union v. M/s. National Textile Corporation Ltd. & Ors, [1984] 1 L.L.J. 140,
referred to.

Carlsbad Mineral Water Mfg. Co. v. P.K. Sarkar, [1952] l L.L.J. 388;
Workmen, Karnataka P.F. Employees Union v. Additional Industrial Tribunal &
Anr., [1983] II L.L.J. 108; The Management of Bihar Khadi Gramodyog Sangh,
Muzaffarpur v. The State of Bihar & Ors., [1977] Lab. l.C. 466; Abdul Rehman
G Abdul Gafur & Anr. v. Paul (Mrs. E.) & Ors., [1962) 2 L.L.J. 693; Bharat Glass
Works (Pvt.) Ltd. v. State of West Bengal & Ors; [1958] l L.L.J. 467 and Indian
Naval Canteen Control Board v, Jndastrial Tribunal, Ernakula111 & Anr., [1965]
•
II L.L,J. 366, approved.

D ,P. Kelkar, Amalner v. Ambadas Keshav Bajaj & Ors. 1 A,I,R. 197l
I\qm. 124, over-ruled. I
MAZDOOR SANGH, v. r,IODEL MILLS, 753
1. (b) The Industrial Tribunal was clearly in error in rejecting the
A
references holding that the workn1en of the respondent were excluded from the
f
operation of the Bonus Act. [769 H]

I. (c) The Award of the Industrial Tribunal rejecting the references is
quashed and set aside and the matter remitted to the Industrial Tribunal for
disposal on merits. [769 H]
• B
2. (a) The Industries (Dcvelop111ent and Regulation) Act, 195i, was
enacted to confer power on the Central Government to provide for developa
ment and regulations of scheduled industries. With a view to regulating the
industrial expflnsion of the country and to lay the infrastructure for the same,
the Central Government armed itself with the powers to order investigation
into the affairs of an industrial undertaking as also, if necessary of a schcdnled
industry as a wnole. The investigation n1ay be caused to be made where there
has been or 1ikely to be a substantial fall in the volun1e of production or c
marked deterioration in the quality of an article or an unwarranted rise in the
price or for conserving any resources of national importance. On receipt of

• the report of investigation, the Central Government could give necessary
directions. These directions are statutory in char; cter. [761 E-G]

2. (h) The Act provides not for taking over of the industrial under~
taking. It provides for control of management by giving directions or for D
change of management. Where the industrial undertaking is owned by a
, company. governed by the Con1panies Act in force at the relevant ti1ne, the
management would generally vest in the BoDrd of Directors, and/or the
Managing Director, as the case may be. Where It is <i firm or a proprietary
concern the partners or proprietors as the c<1sc 1nay be, would be in the saddle
of management. [761 H; 762 A-Bl
I E
• 2. (c) On the issue of a notified order appointing an authorised
controller, the person in charge of management including persons holding
office as Managers or Directors of the industrial undertaking in1mediately
before the issue of the notified order shaJI be deemed to have vacated their
office as such. The contract of management between the industrial under-
taking and any managing agent or any director theieof holding office imine~
diately before the issue of the notified order shall be deemed to have been F
terminated. Subject to the limitation specified in Sec. 18E, the Companies
Act in force at the relevant time will continue to apply to such undertaking in
the same inanner as it applied thereto befor.:! the issuance of the notified order
under See. !SA. [762 B-E]

2. (d) The significant consequence that ensues on the issue of a noti·
G
fied order appointing an authorised controller is to divert the management
" from the present managers and to vest it in the authorised controller. This
change of management does not tanarnount to either acquisition of the indus-
trial undertaking or a take over of its ownership. The industtial undertaking
continues to be governed by the Companies Act or the P:lrtnership Act or the
relevant provisions of law aj,plicablc to a proprietory concern. The only
change is the removal of mana~ers and appointment of another n:ian[lger and
H
754 SUPREME COURT PEPORTS (1985] l S.C.R.
A to sa~e~uard his ~osition restriction on the rights of shareholders or partners
or or1g1nal proprietor. This is the net effect of the appointment of an autho-
rised controller by a notified order. [762 F-H; 763 A-B]

3. The expression 'under the anthority of and departn1ent of the
Central Govern1ncnt' would in ordinary parlance 111ean that the department is
directly responsible for the managen1ent of the industrial undertaking. This

B
responsibility may cover amongst others, financial responsibility as well.
Power to regulate n1anagement or control the managc1nent is entirely distin- •
guishable from the power to run the industry under the authority of the
Central Government. [763 C-D]

4. The substitution of the n1anage1ncnt ordered under Sec. 1S.A does
not tantamount to the industrial undertaking being taken over by the
department of the Central Government. Nor could it be said to be run under
c the authority of the department of the Central Government. As the autho-
rised contro11er enjoys all the powers of directors conferred by the relevant
provisions of the Companie!'! Act, he can exercise that power subject of course
to any restriction or limitation on his power specified in the notified order or
under the general supervision of the Central Government. But this power is
subject to the in-built limitation that it can be exercised for regulating the
management of the 'industrial undertaking. Neither,its identity nor its owner-
ship is affected in "any manner. The change in personnel of management of
D the industrial undertaking for a specified period can never n1ake the industrial
undertaking one engaged in an industry carried on under the authority of the
Central Government. [?63 E-G]

S. Under Sec, 16 of the IDR Act, the Central Government enjoys wide
powers to issue directions to the industrial undertaking as may be appropriate
in the circumstances for all qr any of the purpcses set out in the various sub-
clauses of Sec. 16(1 ). This power to give directions witj1out appointing an
E authorised controller or to appoint an aut-horised controller giving him speci-
fied directions is of a regulatory nature to be exercised with a view to regulat-
ing the managerial functions of an industrial undertaking so as to achieve
certain objects or to rectify tne mis-management in larger national interest
without in any manner affecting the identity, the status or the ownership of
the industrial undertaking, The appointment of the authorised controller
•Nould not make the industrial undertaking one run under the authority of the
F department of the Central Government. WhiJe exercising power of giving
directions under Sec. 16 the existing management is subjected to regulatory
control, failing which the management bas to be replaced to carry out the
directions. In either case the industrial undertaking retains its identity, perso. I
na!ity and status unchanged. [763 H ; 764 B-E]

6. The underlying purpose of Sec. 32(1V) of the Bonus Act is not to
G exclude the employees of some stray etablishment from the operation of the
Act but to exclude alt employees of a11 establishments in any industry which is
carried on under the authority of the department of the Central Government.
[764 H]

7. The expression 'carried on by or under the authority of any depart-
H ment of the Central Governm1nt' qualifies tbc expression industry and not
MAZDOOR SANGH, "· MODEL MILLS, (Desai, J.) 755

the expression 'establishment' as used in sub-sec. ·(iv) of Sec. 32 of the Bonus A
Act. [765 A]

8. The intention of the framers of the Bonus Act was to exclude
employees employed in an establisment engaged in any industry which is
carried on by or under the authority of the department of the Central Govern-
ment. It cannot be said that textile industry is being carried on under the
authority of the department of the Central Government. There may be
en1ployees in an industrial undertaking engaged in textile industry which may
B

• have been established under the authority of the departlnent of the Central
Government. Ordinarily the Central Govern1nent would not like to treat an
industrial establishn1ent set up bY it in an industry in which there are other
private sector cstablishn1ents to differentiate and discrin1inate between
employees of establishments engaged i~ the same industry. [765 C-E]
c
9. The exception that is being carved out by Sec. 32(1V) is in respect
of employees of an industrial undertaking engaged in an industry carried on by
or under the authority of any department of the Central Government as a
whole and not individual establishments. [765 E]

• 10. The expression 'wages', salaries and other dues of the employees'
occuring in sub-cl. (e) of sub-sec. (2) of Sec. 5 of the Sick Textile Undertaking D
(Nationalisation) Act, 1974 would without doubts include statutory bonus
payable under the Bonus Act. [770 E]

In the instant case, the liability arose for the period after the 1nanage-
., 1nent of the undertaking had been taken over by the Central Government by
appointing an authorised controller under Sec. 18A of the IDR Act. There-
fore, the liability to pay the bonus if awarded would be of the National Toxtile E
Corporation. [770 E-E]

• CIVIL APPELLATE JURISDICTION : Civil Appeals No. 1619 to
1622 of 1971.
F
Appeals by Special Leave from the Award dated the 27th
November, 1970 of the Industrial Court, Maharashtra (Nagpur
Bench) Nagpur in References (I.C.N.) Nos. 13, 14, 15, and 19 of
1969 communicated to the parties on 14-1-1971.

; M.K. Ramamurthi and A.G. Ratnaparlchi for the Appellant. G

T.V.S.N. Chari Advocate for the Respondent

' The Judgment of the Court was delivered by

DESAI, J. Bonus has a tantalizing influence on industrial H
756 SUPREME COURT REPORTS [1985] 1 s.c.1t

A workers. They look forward to it with a craving, the degree of
which is immeasurublc. And for the employees any form of bonus
has such a tremendous attraction that the time honoured concept of
its being a profit sharing formula to fill in the gap between the fair
wage and the living wage in the case of industrial workmen has been
for all practical purposes displaced by the Payment of Bonus Act
B and bonus telescopmg into Government service where there being no
production and therefore it cannot be an incentive for higher pro-
j'
duction. And yet the management of The Model Mills, Nagpur
(Employer for short) has most successfully thwarted the meagre ex-
pectation of minimum bonus· to its workmen for full two decades.
c
Rashtriya Mill Mazdoor Sangh, appellant herein, ('Union' for
short) as an approved Union made four independent references under
Sec. 73A of the Bombay Industrial Relations Act, 1946 ('Act' for
short) against Model Mills Nagpur for grant of bonus for the period
1964-65 to 1967-68. A separate reference was made in respect of
D
. each accounting year. The Union as representative Union of the em-
ployees served a notice of change making the demand for bonus.
The matter was taken into conciliation. The Conciliation Officer
recorded a failure on June 23, 1969 and issued a certificate under Sec.
73A of the Act certifying that the dispute was not capable of being
settled by conciliation. Armed with the power of an approved Union
E the union made the aforementioned four references to the Indus-
trial Court. The Union demanded bonus for each of the four account-
ing periods according to the provisions of the Payment of Bonus Act,
1965 (Bonus Act' for short). The Union could not make a specific de-
mand for bonus calculated at a certain percentage of the salary alleg- •
ing that as it has not got the requisit·' information about financial
F position and balance sheet of the Employer, the Industrial Court
should compute the bonus which becomes payable under the Bonus
Act, and award the same to tile workmen of the Employer.

The employer resisted the references on diverse grounds. It
was contended that once a notified order is issued under Sec. !SA
G of the Industries (Development and Regulation) Act, 1951 (!DR
Act short) appointing an authorised controller in respect of an indus-
trial undertaking, it is run by the authorised controller under the
authority of a Department of the Central Government and there-
fore, in view of the provision contained in Sec. 32(\V) of, the Bonus '
Act its employees are excluded from the application of Bonus Act
H and the references must accordingly be rejected.
MAZDOOR SANGH v. MODEL MILLS (Desai, J.) 757

This contention found favour with the Industrial Court. The A
learned Member with the consent of the parties directed that the
issue with regard to tho application of the Bonus Act may be tried
as a preliminary issue. The learned Member upheld the contention
on behalf of the employer observing that having regard to the pro-
vision contained in Sec. 32(IV) of the Bonus Act read with Sec.
JSA of the !DR Act, the workmen employed by the employer are B
excluded from the operation of the Bonus Act as it is not applicable
• to the employer. The )earned Member rejected the alternative
contention that even if the workmen employed by the employer are
not entitled to bonus under the Bonus Act, they are yet entitled to
claim bonus apart from the Bonus Act as a norm of industrial rela-
tion observing that as the demand was made for bonus under the
Bonus Act and the a Jternative demand was not made before the
c
' Counciliator, the scope of the references cannot be extended to
cover the same. Accordingly, all the four references were rejected.
Heuce these appeals by special leave.

On the rival contentions following questions arise in these
appeals : D

(1) On the appointment of an authorised controller under
Sec. ISA of the !DR Act by the Central Government in
respect of an industrial undertaking, does it acquire the
status of an establishment engaged in an industry carried
on under the authority of the Department of Central E
Govt.

(2) If the answer to the first question is in the affirmative,
whether the employees employed in such industrial under-
taking are excluded from the operation of the Bonus
Act. F

At the outset, a few statutory provmons which will have a
bearing and impact on the issues under examination may be noticed.

, The Industries (Development and Regulation) Act, 1951 was.
G
enacted to provide for development and regulation of scheduled
industries. Chapter Ill confers power on the Central Government
for regulation of scheduled industries. 'Scheduled industry' is de-
fined in Sec. 2(i) to mean any of the industries specified in tre First
Schedule. Textiles constitute a scheduled industry. lts entry is at
plecitum 23 in First Schedule. Sec. 15 confers power on the (:::entral 1 , H
758 SUPREME COURT!REPORTS (1985] 1 S.C.R.

A Government to cause investigation to be made into scheduled indus-
tries or industrial undertaking for the purposes therein set out. Sec.
I SA confers similar power to direct investigation into the affairs of a
company in liquidation owning an industrial undertaking. This
specific power was conferred by introducing Sec. I SA in the Act by '
the Amending Act 72 of 1971 because a company which is being
B wound up under the orders of the court cannot be directly dealt
with by the Central Government without the intervention of the
court. Sec. 16 confers power on the C~ntral Government to give •
directions on completion of an investigation under Sec. 15 to the
industrial undertaking for the following purposes :

c "(a) regulating the production of any article or class of
aricles by the industrial undertaking or undertakings
and fixing the standards of production ; •
(b) requiring the industrial undertaking or undertakings to
D take such steps as the Central Government may consi-
der necessary to stimulate the development of the •
industry to which the undertaking or undertakings
relates or relate ;

(c) prohibiting the industrial undertaking or undertakings
from resorting to any act or practice which might
E reduce its or their production, capacity or economic
value;

(d) controlling the prices, or regulating the distribution,
·of any article or class of articles which have been the t

subject matter of investigation."
F
Chapter Ill-A which was introduced by Amending Act'26 of
1954 conferred power on the Central Government to assume mana-
gement or control of an industrial undertaking in certain cases. Sec.
18A(l) is relevant for the present purpose and it may be extracted:

G . "18-A(l) : If the Central Government is of opinion that:

(a) an industrial undertaking to which directions have
been issued in pursuance of Section 16 has failed to
· comply with such directions, or

H (b) an industrial undertaking in respect of which an in-
NAZDOOR SANGH v. MODEL MILLS, (Desai, J.) 759

vestigation has been made under Section 15 (whether A
or not any directions have been issued to the under-
taking in pursuance of Section 16), is being managed in
a manner highly detrimental to the scheduled industry
concerned or to public interest, the Central Govern-
ment may by notified order authorise any person
or body of persons to take over the management of B
the whole or any part of the undertaking or to exercise
in respect of the whole or any part of the undertaking
such functions, of control as may be specified in the
order."

Section 18A confers power on the Central Government c
either to ~ssume management of an industrial undertaking or to
control its management. The power to assume management of an
industrial undertaking can be exercised by a notified order appoint-
ing an authorised controller to take over the management of the
whole or any part of the undertaking. The Central Government
• may exercise in respect of the whole or any part of the undertaking D
such functions of control as may be specified in the order. Sec. 18B
provides for the consequences that may ensure on the issue of a
notified order under Sec. l 8A authorising the taking over of the
management of an industrial undertaking. Two consequences
.J worth-noticing arc those set out in sub-cl. (b) and (c) of Sec. J8B
(I). They may be extracted : E

"(b) any contract of management between the industrial
nndertaking any managing agent or any director' there-
of holding office as such immediately before the issue
of a notified order shall be deemed to have been ter-
minated. F

(c) the persons, if any, authorised under Section 18-A to
take over the management of an industrial undertaking
which is a company shall be for all purposes the direc-
• tors of industrial undertaking duly constituted under
the Indian Companies Act, 1913 (7 of 1913), and shall
G
alone be entitled to exercise all the powers of the
directors of the industrial undertaking, whether such
powers are derived from the said Act or from the
memorandum or articles of association of the indus-
trial undertaking or from any other source." H
760 SUPREME COURT PEPORTS [1985] 1 s.c.R.

A Section 18-E provides for continued application of the Com-
panies Act then in force to the industrial undertaking in respect of
which an authorised controlkr is appointed under Sec. 18-A sub-
ject to the limitations therein specified as il applied prior to the
notified order. Sec. 18-F conferred power on the Central Govern- '
ment to cancel the notified order.
B
Sec- 32(iv) of the Bonus Act reads as under :
•
"Nothing in this Act shall apply to-

(iv) employees employed by an establishment engaged
c in any industry carried on by or under the authority of
any department of the centra', Government or a State
Government or a local authority."
•
The question is : whether on the issue of a notified order under
Sec. 18-A appointing an authorised controller in respect of an
industrial undertaking governed by the !DR Act, the employees of
D such undertaking are excluded from the application of the Bonus
Act for the only reason that they are or have become the employees
of an establishment in an industry carried on under the authority
of the department of Centra 1 Government. The Bonus Act provi-
des for payment of bonus to persons employed in certain establish-
E ments and for matters connected therewith. Sub-Sec. (3) of Sec.
1 provides that save as otherwise provided in the Bonus Act, it shall
apply to-(a) every factory ; (b) every other establishment in which
twenty or·more persons are employed on any day during an account
ing year. Sec. 32 excludes the application of the Bonus Act to the
employees therein enumerated. E'cluding Sec. 32 for the time being,
F it cannot be disputed that the Bonus Act would apply to the indus-
trial undertaking of the employer. Is the application of Bonus
Act excluded on the ground that on the issuance of a noti-
fied order appomtmg an authorised controller under Sec.
18-A of the IDR Act, because the employees of the respon-
dents can be said to have been employed by an establish-
G ment engaged in any industry carried on or by or under the •
authority of any department of the Central Government. Can it be
said that on the appointment of an authorised controller, the indus-
trial undertaking of the respondent acquired the status of an esta-
blishment engaged in textile industry carried on by or under the au-
thority of a department of the Central Government? ln order to at-
H tract Sec. 32(iv) it must be shown that the employees sought to be ex-

1
MAZDOOR SANGH v. M• 'DEL MILLS (Desai, J.) 161

eluded from the operation of theBonus Act have been employed by A
an establishment engaged in any industry carried on by or under the
authority of the department of the Central Government. It was con-
ceded that it cannot be mid that on the appointment of an authori-
• sed controller, the industrial undertaking acquired the status of an
establishment engaged in textile industry carried on by the depart-
ment of the Central Government. It was, however, strenuously B
urged that it was an establishment engaged in the industry carried
on under the authority of the department of the Central Govern-
ment. Shorn of embellishment, the question is: whether on the
appointment of an authorised C8ntroller, did the industrial under-
taking acquire the status. of an establishment engaged in the indus-
try which is carried on under the authority of the department of c
the Central Government?
'
!DR Act was enacted as its long title shows to confer power
on the Central Government to provide for development and regula-
tion of scheduled industries. The Statement of Objects and Rea-
sons shows that the object behind the enactment was to provide D
the Central Government with the means of implementing their in-
dustrial policy and for that purpose to extend the control of the
Central Government over the development and regulation of a
number of important industries the activities of which affect the
country as a whole and the development of which must be governed
by economic factors of all India import. The Act amongst others E
confers power 9n the Central Government for regulating the produc-
tion and development of the scheduled industries. Broad scheme of
the Act shows that with a view to regulating the industrial expan-
sion of this country on the threshold of development and to lay the
mfrastructure for the same, the Central Government was armed with
powers to order investigation into the affairs of the industrial under-
F
taking as also. if necessary of a scheduled industry as a whole. The
investigation may be caused to be made where there has been or
likely to be a substantial fall in the volume of production or mar•,
ked deterioration in the quality of article or an unwarranted rise in
the price or for conserving any resources of national importance .
• On receipt of the report of investigation, the Central Government G
could give necessary directions. These dlrections are statutory in
character and they may be disobeyed on the pain of the manage-
ment being divested from those incharge and vested in authorised
controller, who may be appointed by the Central Government.
Therefore, the Act provides not for taking over of the industrial
undertakings. It provides for control of management by giving H
762 SUPREME COURT REPORTS [1985] l S.C R.
A directions or for change of management. Where the industrial under-
taking is owned by a company governed by the Companies Act in
force at the relevant time, the management would generally vest in
the Board of Directors, and or the Managing Director, as the case
may be. Where it is a firm or a proprietary concern the partners
or the proprietor, as the case may be, would be in the saddle of
management. On the issue of a notified order appointing an au-
B thorised controller, the person in charge of management including
persons holding office as Managers or Directors of the industrial •
undertaking im:nediately before the issue of the notified order shall
be deemed to have vacated their office. as such. (Sec. 18-B(I).
Further the contract of management between the industrial under-
taking and any managing agent or any director thereof holding
c office as such immediately before the issue of the notified order
shall be deemed to have been terminated. (Sec.18-B{l)(b). But
the most important consequence that ensues on the issue of a noti-
•
fied order is to confer by a deeming fiction the position and powers
of a director as duly constituted under the Companies Act on the
D authorised controller and he alone shall be entitled to exercise all
the powers ' of the directors of the industrial undertaking, whether
such powers are derived from 'the Companies Act or from the
memorandum or article of association of the industrial under-
taking or from any other source. (Sec. 18-B(I) (e). Further
subject to the limitation· specified in Sec. 18-E, the Companies
Act in force at the relevant time will continue to apply to such
.
E undertaking in the same manner as it applied thereto before the
issue of the notified order under Sec. 18-A.

Thus the significant consequence that ensues on the issue of a
notified order appointing authorised controller is to divert the mana-
F gement from the present managers and to vest it in the authorised
controller. Undoubtedly, the heading of Chapter III-A appears to
be slightly misleading when it says that the Central Government on
the issue of a notified order assumes direct management of the
industrial undertaking. In effect on the issuance of a notified order,
only the management of the industrial undertaking undergoes a
G change. This change of management does not tantamount to either •
acquisition of the industrial undertaking or a take over of its owner-
ship because if that was to be the intended effect of change of mana-
gement, the Act would h:ive been subjected to challenge of Art. 31
and 19(1)(0 of the Constitution. One can say confidently that was •
not intended to be the effect of appointment of an authorised cont-
H roller. The industrial underiaking continues to be governed by the
MAZDOOR SANGH v. MODEL MILLS (DesaiJ, .) 763

Companies Act or tile Partnership Act or the relevant provisions of A
• law applicable to a proprietary concern. The only change is the
removal of managers and appointment of another manager and to
safeguard his position restriction on the rights of shareholders or
partners or original proprietor. This is the net effect of the appoint-
• mrnt of an authorised controller by a notified order .
B
Can it then be said that on the issne of a notified order ap-
pointing an authorised controller, the industrial undertaking is en-
gaged in the industry carried on under the authority of the depart-
ment af the Central Government. The expression 'under the au-
thority of any department of the Central Government' would in
I
ordinary parlance mean that the department is directly responsible c
for the management of the industrial undertaking. This responsibility
may cover, amongst others, financial responsibility as well. Power
to regulate management or control the management is entirely dis-
tinguishable from the power to run the industry under the authority
of the department of the Central Government. The substitution of
the management ordered under Sec. 18-A does not tantamount to D
the industrial undertaking being taken over by the department of
the Central Government. Nor contd it be said to be run under the
authority of the department of the Central Government. In fact. as
the authorised controller enjoys all the powers of directors conferred
by the relevant provisions of the Companies Act, he can exercise
that power subject of course to any restriction or limitation on his E
power specified in the notified order or under the general supervi~
sion of the Central Government. But this power is subject to the
in-built limitation that it can be exercised for regulating the maua-
gement of the industrial undertaking. Neither its identity nor its
ownership is affected in any manner. This change in personal of
management of the industrial undertaking for a specified period F
can never make the industrial undertaking i one engaged in an indus-
try carried on under the authority of the Central Government. On
a pure grammatical construction, of the expression 'establishment
• engaged in an industry carried on under the authority of the depart-
ment of the Central Government' cannot take in one in respect of
which the Central. Government in exercise of the power conferred G
by IDR Act directed a change of management.
The conclusion in the preceding paragraph can be reached by
a different route.

Under Sec. 16 of the IDR Act, the Central government enjoys
wide powers to issue directions to the industrial undertaking as may ff
'
764 SUPREME COURT REPORTS [1985] 1 s.C.R.

A be appropriate in the circumstances for all or any of the purposes set
out in various sub-clauses of Sec. 16(1). The scheme of the Act shows
that while retaining the original management, the ,Central Govern- •
ment gives necessary directions for the aforementioned purposes
to achieve a certain result. If the desired result is not achieved, the
Central Government enjoys a consequential power of changing the
B management by appointing an authorised controller so as to achieve •
the same result. This power to give directions without appointing
an authorised controller or to appoint an authorised controller giving
him specified directions is of a regulatory nature to be exercised
with a view to regulating the managerial functions of the manage-
ment of an industrial undertaking so as to achieve certain objects
c or to rectify the mismanagement in larger national interest without
in any manner affecting the identity, the status or the ownership of
industrial undertaking. It could by no stretch of imagination be
urged that on the exercise of the power to give directions under
Sec. 16, the industrial undertaking could be said to be engaged in
,
any industry carried on under the authority of the department of
the Central Government. Ipso facto the appointment of an authori-
D
sed controller would not make the industrial undertaking one' run
under the authority of the department of the Central Government.
While exercising power of giving directions under Sec. 16 the exist-
ing management is subjected to regulatory control, failing which the
.
management has to be replaced to carry out the directions. In either
case the industrial undertaking retains its identity, personality and
E status unchanged. On a pure grammatical construction of sub-sec.
(4) of Sec. 32, it cannot be said that on the appointment of an au-
thorised controller the industrial undertaking acquires the status of
being engaged in any industry carried on under the authority of the
department of the Central Government.
I
F Viewed from a slightly different angle, it appears that the ex-
pression 'carried on by or under the authority of any department of
the Central Government 'qualifies the expression 'industry' and not
the expression 'establishment' as used in sub-sec. (4) of Sec. 32 of •
the Bonus Act. Again on a pure grammatical construction it ap-
G pears that where an industry is being carried on under the authority
of any department of the Central Government, the employed in an
establishment in such an industry would be excluded from the opera
ti on of the Bonus Act. The underlying purpose of Sec. 32(iv) is not to
exclude the employees of somestary establishment from the operation
Act but to exclude all employees of all establishment in any indus-
H try which is carried on under the authority of the department of the
MAZDOOR SANGH v. MODEL MILLS (Deswi, J.) 765

Central Government. If the expression 'carried on by or under A
the authority of the department of the Central Government' quali-
fies the expression 'establishment' it would lead to a startling result
unintended by the framers of the Boirns Act. Let us illustrate it.
There are two industrial undertakings engaged in the same industry
situated side by side. In one case the management being incompe-
tent or remiss,, an authorised Controller is appointed, If the cons- B
truction canvassed for on behalf of the respondent is accepted the
employees of one would be excluded from the application of the
Bonus Act and not the other though both are industrial undertaking
engaged in the same industry. The framers of the Bonus Act which
went to the length of making payment of bonus obligatory on
industrial undertakings incurring losses could not have intended to c
treat the employees with such gross discrimination. On the contrary,
it appears that the intention was to exclude employees employed in
an establishment engaged in any industry which is carried on by or
under the authority of the department of the Central Government.
It cannot be said that textile industry is being carried on under the
authority of the department of the Central Goven1ment. There may
be employees in an industrial undertaking engaged in textile indus- D
try which may have been established under the authority of the de-
partment of the Central Government. Ordinarily the Central
Government would not like to treat an establishment set up by it
in an industry in which there are other private sector establishments
to differentiate and discriminate between employees of establish-
ments engaged in the same industry. It, therefore, appears that the E
exception that is being carved out by Sec. 32(4) is in respect of
employees of an industrial undertaking engaged in an industry car-
ried on by or under the authority of any department of the Central
Government as a whole and not individual establishments. All esta-
blishments in that industry which is carried on by or under the au-
thority of the department of the Central Government would be F
excluded from the operation of the Bonus Act.
,
Having examined the matter- on principle, let us turn to some
precedents to which our attention was drawn.
G
Sec. 2(a) of the Industrial Disputes Act, 1947 defines 'appro-
priate Government' to mean (leaving aside the words which are
not relevant for our purpose 'in relation to any industrial dispute
concerning any industry carried on by or under the authority of the
Central Government, ......... the Central Government.' The expres-
aion used is any industry carried on by or under the authority of the ff
. /
/
/
766 SUPREME COURT REPORTS · [1~85] 1 s.c.R;
A Central Government. This expressl?n came up for consideration
before this Court in the cont.en of~· :11.lustrial diSpute between a
Government Company as com prehtt1cled. \lithin the meaning of the
expression in Sec. 617 of the Companies Act. Government Com-
pany is defined to mean 'any company in which not less than fifty- .
one per cent of the paid-up share capital is held by the Central
B Government, or by any State Government of Governments, or par-
tly by the Central . Government and partly by one or more State
Governments and includes a company which is a subsidiary of a
Government Company as thus defined.' An interesting question
that came up for consideration before this Conrt was whether in res-
pect of an industrial dispute between such Government Company and
c its workmen, which is the appropriate Government which can make
a reference of the industrial dispute for. adjttdication under Sec. 10
(I) of the Industrial Disputes Act.1947. In respect of such Govern-
ment Company this Court in Hea11y Engineering Mazdoor Union
v. The State of Bih~r & 0'8.( 1) interpreting the expression 'under
the authority of' held that the expression means 'pursuant to the
D authorty' such as where an agent or a servant acts under or pursuant
to the authority of his principal or master. The Court proceeded to
examine the personality of an incorporated company which the law
recoimises as juristic person, separate and distinct from its members.
The Court .concluded that· 'a commercial corporation acting on its
behalf, eventhough it is controlled wholly or partially by a Govern-
ment department, will be ordinarily presumed not to be a servant or
E
agent of the State. In reaching this conclusion, the Court approved
the view of the Calcutta High Court in Carlsbad .Mineral Water Mfg.
Co. v.P. K. Sarkar(•) wherein the Calcutta High Court had held that
.
a business which is carried on by or under the authority of the Cen-
tral Government mu.st be a Government business. The High Court
F had further held that in an industry to be carried on under the
authority of the Central Government, it must be an industry belong-
ing to the Central Gcvernnient that is to say its own undertaking.
Recalling here what is stated hereinbefore that on the change of
management by appointment of an authorised controller, the· indus-
trial undertaking retains its identity and continues to be governed by
G the Companies Act or the Partnership Act, as the case may be, and
there merely take place only a change in the personnel of manage- c
ment but ·the substitute management, say the authorised controller

(tl [1969] 3 S.C.R, 995
(2) [1952] IL. ·U.388
MAZDOOR SANGH v. MODEL MILLS (Desai, J.) 767

appointed by the Central Government is to be presumed to be a A
Director for the purposes of the Bonus Act, the conclusion is in-
escapable that the business remains that of the industrial underta.
king and does not become one of the Central Government. The fact
that the authorised controller is appointed by the Central Govern-
ment and that he has to work subject to the directions of
the Central Government does not render the industrial under- B
taking an agent of the Central Government and therefore,
could not be said to be an establishment engaged in an industry
carried on by or under the authority of the Central Government. In
fact, this decision should conclude the point. However, as our at-
tention was drawn to some recent decisions wherein the same ex- c
pression came up for consideration, we may briefly refer to them.
In Workmen, Karnataka P.F. Employees Union v. Additional
Industrial Trbiuna/ & And 1l the Karnataka High Court held that_
even if the Provident Fund organisation is an instrumentality of the
State and therefore answers the definition of the expression 'State' D
in Art. 12 of the Constitution, it cannot be said that it is an ind us-.
try carried on by or under the authority of the Central Government,
for the purpose of determining which is the appropriate Govern.
ment in respect of an industrial dispute between such instrumenta-
lity of the State and its workmen.
E
In M/• Bwadeshi Cotton Mills Thoznilalar Shemalana Padu-
kaypu Union v. M/s National Textile Cop.wation Ltd. & Ors.(') the
Union in its writ petition contended that as the National Textile
Corporation a Government of India Undertaking was appointed as
the authorised controller of the Swadeshi Cotton Mills under Sec.
F
18-A of the IDR Acton April 13, 1978 the appropriate Govern-
ment in respect of such mill would be the Central Government and
the State Government had no power to appoint the Conciliation
Officer under the Industrial Disputes Act. Repelling this contention,
it was held that appointment of an authorised controller under Sec.
18-A by a notified order would not make the industrial undertak- G
ing an undertaking of the Central Government because by the ap-
pointment of the authorised controller, the management of the in-
dustrial undertaking is changed to achieve a certain purpose and·
that too is a temporary phase. It was held that at any rate the ap-
• pointment of an authorised controller does not vest the ownership
of the industrial undertaking in the Central Government. Owner-

(1) [1983] II L.L.J. 108
(2) [1984] l.L.L,J. 140
..
ff
768 SUPREME COURT RbPORTS (1985] J S.C.R.
A ship is something more than management. Control of the whole or
of a par.t of the . industrial undertaking by the Central Government
will not make the industrial undertaking an undertaking of the •
Central Government itself.
In The Management of Bihar Khadi Gramodyog Sangh Mazaf-
farp"r ·v. State of Bihar & Ors.( 1) Patna High Conrt held that
B
even though the Sangh was set up under the Khadi and Village
Industries Commission, yet it is not an industry carried on under
the authority of the Central Government and the appropriate
Government would be the State Government. Same view was also
taken by the Bombay High Court in Abdul Rehrnan Abdul Gafu1· &
Anr. v.· Pa1'l (Mrs. E.) & Ors.(')
c: In Bharat Glas• Works (Pvt.) Ltd. v. State of West Bengal &
•
Ors(3). the Calcutta High Court after following the earlier decision in
Carlabad Mineral Water Manufacturing Co. repelled the contention
that den though the appellant was a controlled undertaking in a sche-
duled industry under 1he !DR Act, it was not an industry carried on
under ·the authority of the Central Government and therefore, the
D appropriate Government in respect of it would be the State Govern-
ment. It is not necessary to multiply the decisions any more. But the
same view appears to have been taken in the Indian Naval Canteen
Central Board v. lnd"'8trial Tribunal, Ernakulam & Anr.(4)
•
A different note was sounded by the Bombay High Court in
D.P. Kelkar, Amalnei· v. AmbadaBKeshav Bajaj & OrB.( 5 ) In that case
E the employees of the India United Mills Ltd. approached the authority
under the Payment of Wages Act for directing the employer to pay
minimum bonus under the Bonus Act. It was contended on behalf
of the employer that the employer-mill was managed by an authori-
sed controller appointed under Sec. 18-A of the IDR Act and there-
fore, the workmen of the employer are employees employed by an
F
establishment engaged in an industry carried on under the anthority
of the Central Government and consequently they were excluded
from the operation of the Bonus Act in view of the provision con-
tained fo Sec.· 12(iv). The authority under the payment of Wages '
Act negatived the contention. The matter came up before the High
G Court in two writ" petitions under Art. 226 of the Constitution. The
High Court' rejected the construction canvassed before it that the

(1) [1977] Lab. J.C. 466
(2) [1962] 2 L.L.J. 693
(3} [1958] I L.L.J. 467
(4) [1965] Il L,L,J. 366
v '"'' "ll 1!1'71 1lr111 WI
MAZDOOR SANGH v. MODEL MILLS (Desai, J.) 769

expression 'carried on by or under the authority of any department A
of the Central Government qualified the expression 'industry' and
• not an 'establishment' engaged in an industry. After rejecting this
plain grammatical construction for reasons which do not commend
to us, the High Court held that where the Central Government
appointed an authorised controller under the !DR Act, the industrial
undertaking could be said to be engaged in an industry carried on B
,under the authority of the Central Government. The High Court
distinguished the decision of this Court in Heavy Engineer-ing Maz-
door Union(1l observing that in the facts before the Supreme Court,
the company was one registered nuder the Companies Act and that
it being an incorporated company, it has an independent existence
while where the authorised controller is appointed, the management c
is taken over by the Central Government. We are unable to appre-
ciate this view of the High Court for the reason that the High Court
completely overlooked the purpose and intendment of appointing an
• ~uthorised controller, its effect on the continued existence of the
industriafondertaking and the deeming fiction enacted in Sec. 18-B
and the limitation on the powers of the shareholders placed by Sec. D
18-E. Tpe High Court failed to notice the provision contained in
sub-s. (2) of Sec. 18-E which clearly provides that subject to the
I provisions contained in sub-section (!) and to the other provisions
contained in the Act and subject so such other exceptions, restric-
tions and limitations, if any, as the Central Government may, by
notification in the Official Gazette, specify in this behalf, the Indian E
Companies Act, 1913 shall continue to apply to such undertaking in
the same manner as it applied thereto before the issue of the noti-
fied order under Sec. 18 A.' This very important provisions which
gives the clue to the expression 'carried on under the authority of
the Central Government' was not teken note of by the High Court.
Therefore, the said view of the Bombay High Court does not com- F
mend to us and must be overruled.
If on the issue of a notified order appointing an authorised
,. coniroller under Sec. 18-A, the management of ths industrial
undergoes a change, yet it does not become an establishment enga-
' ged in an industry carried by the department of the Central Govern-
ment, its employees would not be excluded from the operation of
the, Bonus Act as provided in Sec. 32(4).
The Tribunal therefore, was clearly in error in rejecting the
references holding that the workmen of the respondent were exclu-
1 ~ed,~rom the operation of the Bonus Act. The Award of the Tri-
bunal rejectin~ the references will have to be quashed and se( asi\le I JI
770 SUPREME COURT RllPORTS [1985) I S.C.R,
A and the matter remitted to the Industrial Tribunal for disposing of
the same on merits.
An incidental argument was that the National Textile Corpora-
tion which has taken over the resyondent-Comyany wonld not be
liable for the period when the authorised controller was incharge of
B the management of the respondent company. This contention has
merely to be stated to be rejected. Sec. 5(1) of the Sick Textile
Undertaking (Nationalisation) Act, 1974 provides that 'every lia-
bility' other than the liability specified in sub-section (2) of the
owner of a sick textile undertaking, in respect of any period prior to
the appointed day, shall be the liability of such owner and shall be
c enforceable against him and not against the Central Government or
the National Textile Corporation. 'Sub-cl. (c) of Sub-sec. (2) of Sec. •
5 provides that 'wages' salaries and other dues of employees of the
sick textile undertaking, in respect of any period after the manage-
ment such undertaking had been taken over by the Central Govern-
ment, shall, on and from the appointed day, be the liability of the
Central Govern merit and shall be discharged. for and on behalf of
D
that Government, by the National Textile Corporation as and when
payment of such loans or amounts becomes due or as and when such
wages, salaries or other dues become due and payable.' The ap-
pointed day has been specified as the Ist day of April, 1974. The ••
expression 'wages, salaries and other dues of the employees' would
without a doubt include statutory bonus payable under the Bonus
E Act. This liability arose for the period after the management of
the undertaking had been taken over by the Central Government by
appointing an authorised controller under Sec. 18-A. Therefore,
the liability to pay the bonus if awarded would be of the National
Textile Corporation. The contention of the National Textile Cor-
poration that it is not liable to pay bonus must be rejected.
F
Accordingly, these appeals succeed and are allowed and the
four awards of the Industrial Court, Maharashtra, Nagpur Bench
dated 27th November, 1970 in all the four references are quashed
and set aside and all the four matter; are remitted to the Industrial
Court for disposal according to law on merits. As the cases are
G very old, the Industrial Court is directed to dispose of the same with-
in the period of four months from the receipt of this order. The res-
pondent shall pay the costs of the appellant quantified at Rs. 2,000.

H