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Judgment
V. Ramasubramanian, J.—The petitioner has come up with the present writ petition challenging the proceedings of the Labour Commissioner, the first respondent herein, for the determination of the dues payable to the workmen of
the petitioner-company.
I have heard Mr. Ravi, learned Counsel appearing for the petitioner, Mr. D. Srinivasan, learned Government Pleader (Pondicherry) for the first respondent and Mr. B. Ravi, learned Counsel appearing for the fourth respondent.
The petitioner-company availed credit facilities from the Indian Bank and committed default in making repayment. Therefore the Bank initiated proceedings under the SARFAESI Act, 2002, by issuing a notice u/s 13(2) on 25.9.2004.
It was followed by a possession notice dated 1.1.2005 u/s 13(4) of the Act. A notice of tender was issued on 18.3.2005 by the Bank for the sale of the secured assets, both movable and immovable. The auction was held on 24.3.2005
and a company by name EID Parry India Limited emerged as the successful bidder. They also remitted a sum of Rs. 12.5 crores on the same day towards part payment of the bid amount.
However, further proceedings pursuant to the auction held on 24.3.2005 got stalled due to a batch of writ petitions in W.P. Nos. 9834, 10060, 10077, 11715, 13593 and 15303 of 2005 by various persons for various reliefs on the
file of this Court. The details of the same are filed in the form of a tabular statement for easy appreciation, as follows:
W.P. No. Petitioner Status Prayer
W.P. No. 9834 PNL The petitioner is an For a direction to
of 2005 Depositors'' Association of persons the respondents 1
Welfare who had deposits with a to 4 therein to
Association company by name PNL initiate necessary
Nidhi Ltd. According to action to
the petitioner safeguard the
PNL Nidhi Ltd., interest of the
was a group sixth respondent,
company and controlled depositors of the
by New Horizon Sugar sixth respondent,
Nidhi Ltd., was a group namely, PNL
company and controlled Nidhi Ltd.,
herein) and that the Pondicherry by
deposits made by its taking members were actually appropriate
lying with New action under the
Horizon and that provisions of law.
therefore, the
deposit amounts are
recoverable from the
assets of New Horizon.
W.P. No. 1006 0 Puduvai Trade Union of workmen of To quash the
of 2005 Pradesa New Horizon tender issued by the Sarkarai Aalai Sugar Mills notification
Thozhilalar Ltd., Indian Bank and Sangam to direct the Indian Bank and others, to resort
to action under
Section 13(4)(c)
and 13(4)(b) of
the SARFAESI
Act, Instead of
straight away
initiating action
u/s 13(4)(b) of the
SARFAESI Act.
W.P. No. 1007 Indian Bank Secured creditor of the Challenging the
7 of 2005
the Deputy
Collector, Government of
Pondicherry
dated 21.3.2005 by which the
Deputy Collector
restrained the Bank from
proceeding with
the tender for the
sale of molasses
and immovable
properties.
W.P. No. 1171. Pondicherry Another creditor of the To set apart a sum
5 of 2005 State writ petitioner herein of Rs. 1,88,56,704/- as
Cooperative due and payable to the
Bank
petitioner out of the auction
proceeds realised by the Indian
Bank.
W.P. No. 1359 Bank of Baroda, Another creditor of the For a direction to the Indian
3 of 2005 Pondicherry writ petitioner herein Bank to safeguard the interests
of the petitioner-bank for
appropriating its claim in a sum
of Rs. 75,73,873/-
W.P. No. 1530 Greata Enterprises One of the bidders who Challenging the rejection
3 of 2005 & Developers (P) participated in the of their bid and for a
Ltd. auction conducted on direction to accept their
24.3.2005 by Indian bid.
Bank.
By a final order dated 12.7.2005 reported as PNL Depositors'' Welfare Association v. Union of India 2005 (4) CTC 469, F.M. Ibrahim Kalifulla, J., (i) dismissed W.P. No. 9834 of 2005 on the ground of availability of alternative
remedy (ii) dismissed W.P. No. 10060 of 2005 (iii) disposed of W.P. No. 10077 of 2005 in the light of the observations made in paragraphs 16 to 18 of the judgment (iv) dismissed W.P. No. 11715 of 2005 on the ground of availability
of alternative remedy (v) dismissed W.P. No. 13593 of 2005 on the ground of availability of alternative remedy and (vi) dismissed W.P. No. 15303 of 2005 on the ground that there were no merits.
Since we are not concerned in this writ petition with most of the issues that arose for consideration in the above batch of cases, I do not wish to dwell in detail on them. However, one of the issues that arose for consideration in the
above batch of writ petitions, was about the rights of the workmen u/s 25-FF of the Industrial Disputes Act, 1947. Even while rejecting the prayer of the trade union for the sale of the petitioner company as a going concern (in W.P. No.
10060 of 2005), the learned Judge made an observation in paragraph 41, to the effect that ""all the workmen will be entitled to the benefits available u/s 25-FF of the Industrial Disputes Act, 1947, as against the third and fourth
respondents, by virtue of the prescriptions made u/s 13(6) of the SARFAESI Act, 2002"". The third and fourth respondents indicated in para-41 of the said judgment, are the petitioner herein and the successful bidder.
After the disposal of the above writ petitions, a Sale Certificate was issued in respect of the movable assets, on 10.8.2005, in favour of the successful bidder. However, it appears that the Sale Certificate in respect of the immovable
properties could not be registered, in view of certain orders of attachment passed by the competent authority under the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004.
In the meantime, three fresh writ petitions came to be filed, in W.P. Nos. 24834, 30532 and 36900 of 2005. The details of these petitions are as follows:
W.P. No. Petitioner Prayer
W.P. No. 24834 Puduvai Pradesa For a direction to Indian
of 2005 Sarkarai Aalai Bank to deposit with the
Thozhilalar Sangam Commissioner of Labour, a
sum of Rs. 6 crores from
out of the sale proceeds,
so that the Commissioner
may compute and disburse
the amounts due to the
workers, within one month.
W.P. No. 30532 The Authorised For a direction to the
of 2005 Officer, Indian Union of India to invoke
Bank Section 14 of the SARFAESI
Act, within a time frame
and take control of the
securities and hand over
vacant possession of land
and building, plant and
machinery of New Horizon
Sugar Mills.
W.P. No. 36900 Ariyur Sugar Mills For a direction to the
of 2005 Staff Welfare Indian Bank to deposit with
Union the Commissioner of Labour,
a sum of Rs. 9,70,00,000/-
from out of the sale proceeds,
so that the Commissioner may
compute and disburse the
amounts due to the workers,
from June 2004 onwards and
to deposit the remaining amount
with LIC against Group Gratuity
Scheme.
When the above 3 writ petitions came up for hearing, an interim order was passed on 7.12.2005 by A. Kulasekaran, J. It was to the following effect:
(a) Instead of entrusting the work of computation of the dues of the workmen and the disbursement of amounts to the Commissioner of Labour, Mr. Justice K.P. Sivasubramaniam (retired) was appointed by consent of parties, for
receiving the claims from the workmen and processing the same and for submitting a report to the Court;
(b) The Indian Bank was directed to deposit an initial amount of Rs. 6 crores in a no-lien Account, for the purpose of eventual disbursement to the workmen, after the computation was made.
In accordance with the said order, the Bank appears to have deposited the amount in a no lien account.
In the meantime, another batch of writ petitions came to be filed on the file of this Court. While some of them challenged the vires of Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004, the others
challenged the orders of attachment passed by the competent authority under that Act. The batch of writ petitions were disposed of by Elipe Dharma Rao, J., by an order dated 23.8.2006. By the said order, the validity of the Act was
upheld, but the orders of attachment were lifted. Therefore, a Sale Certificate in respect of the immovable properties was also executed and registered on 24.8.2006.
The final orders passed by F.M. Ibrahim Kalifulla, J., in the batch of 6 cases in W.P. Nos. 9834 of 2005 etc., the interim orders passed by A. Kulasekaran, J., in the batch of 3 cases W.P. Nos. 24834 of 2005 etc., and the final
orders passed by Elipe Dharma Rao, J., in W.P. No. 1897 of 2006 batch of cases, all became the subject matter of a batch of writ appeals in W.A. Nos. 1788 and 1919 of 2005, 1142 to 1144, 1209, 1342 to 1345 of 2006 and 293
of 2007. These writ appeals were taken up along with 3 writ petitions, one filed by the successful bidder and the other two filed by the employees and workmen.
The writ appeals and the connected writ petitions were disposed of by a Division Bench, by a common order dated 27.3.2007. In paragraph 18 of the said common order, the Division Bench arrived at the following conclusions, with
regard to the claims of the workers:
We are in entire agreement with the reasonings and findings rendered by F.M.Ibrahim Kalifulla, J., particularly in respect of the conclusion arrived at regarding the claim of the workers with reference to Section 25-FF of the Act.
As far as the claims of the workers and their unions as well as Sacrur Society, in modification of the order of A. Kulasekaran, J., in directing the parties/workers to go before the Commissioner appointed by the Court (K.P.
Sivasubramaniam, J.), we allow them to approach the Labour Commissioner, Puducherry, who shall go into the identity/veracity/eligibility/computation/distribution of their claims-amounts. As observed earlier, the Labour Commissioner
shall along with the materials available before him, take the Memo filed by Justice K.P. Sivasubramaniam (Retd. Judge) as a supplement/extra material while deciding the claims. After decision, the Commissioner is at liberty to draw and
disburse the amount lying with the Bank and if the Commissioner finds the amount available insufficient/deficit for the purpose of settling the claims or finds the amount in excess after settlement, in either case, he shall approach this Court
for appropriate direction to the Bank.
As against the common order passed by the Division Bench in W.A. Nos. 1788 of 2005 batch of cases on 27.3.2007, two appeals came to be filed on the file of the Supreme Court in C.A. Nos. 6381 and 6382 of 2009 (arising out
of SLP (Civil) Nos. 8387 and 13569 of 2007). The first appeal was by the petitioner herein (New Horizon Sugar Mills) against the order in W.A. No. 1209 of 2006, arising out of the interim order passed by A. Kulasekaran, J.,
directing the Indian Bank to deposit Rs. 6 crores and permitting the adjudication of the claims of the workmen. The other appeal was by the successful bidder EID Parry India Ltd., against the order in W.A. No. 1788 of 2005 arising out
of the final order dated 12.7.2005 passed by F.M. Ibrahim Kalifulla, J., in the first batch of 6 writ petitions, holding the erstwhile employer and the purchaser as liable for the workers'' dues u/s 25-FF of the Industrial Disputes Act, 1947.
Both the appeals C.A. Nos. 6381 and 6382 of 2009 were disposed of by the Supreme Court by an order dated 31.8.2009. It is seen from paragraph 6 of the said order that the question taken up for consideration by the Apex
Court was as to who should be made liable to pay compensation to the workmen u/s 25-FF of the Industrial Disputes Act, 1947.
However, it was conceded before the Supreme Court on behalf of the petitioner herein that in view of the law well settled by several decisions of the Apex Court starting from Anakapalle Cooperative Agricultural and Industrial
Society Ltd. v. Workmen 1962 II LLJ 629, the liability u/s 25-FF was that of the petitioner herein. Therefore, the Supreme Court held in para-7 of its order that the amount due to the workers will have to be paid from out of the sale
proceeds lying with the Indian Bank and that the purchaser EID Parry will have no liability.
Ultimately, the Apex Court issued certain directions, which are found in paras-8 and 9 of its order. They are reproduced herein, for easy reference:
However, having regard to the fact that the quantification of the workmen''s dues would involve verification of records/claims, it will be convenient and appropriate, if the management of New Horizon is associated with the process of
verification, quantification and payment to its workmen. Therefore, the Commissioner of Labour will hear New Horizon in regard to each claim before passing appropriate orders in favour of workmen.
The Indian Bank will now transfer the sum of Rs. 6 crores as directed by the High Court, from the sale proceeds, without prejudice to its contentions to a no lien account in its Pondicherry Main Branch which shall be operated by the
Commissioner, who shall endeavour to complete the exercise of verification, quantification and payment of the employees'' dues within three months. The balance, if any, remaining in the no lien account after such settlement of workers''
dues, shall be paid to the New Horizon without prejudice to the contentions of the Bank. If the amount of Rs. 6 crores is found to be insufficient by the Commissioner, the Commissioner may apply to Madras High Court for release of
further funds from the amount in deposit with it.
After the disposal of the appeals by the Supreme Court as aforesaid, the petitioner sent a communication dated 15.10.2009 to the Commissioner of Labour, enclosing a calculation sheet, containing the names of workmen, the date of
joining duty, their basic pay, the allowances paid, the compensation payable etc. But when the Commissioner of Labour took up the exercise of computation of the dues of the workmen, a doubt arose as to whether such computation
should be confined only to the amount payable u/s 25-FF or could extend even to other dues. Therefore, a clarification was sought for, from the Apex Court.
By an order dated 11.12.2009, the Supreme Court clarified that with a view to avoid the retrenched workmen and other employees being driven to various fora, for the purpose of getting their various dues, it was necessary that the
exercise of computation should be in respect of all the amounts due to the workmen. The Court also recorded the fact that New Horizon had become the ex-employer of the workmen and the purchaser EID Parry did not want their
services. After clarifying this position, the Court also issued certain additional directions, which are as follows:-
(a) The sum of Rs. 6 crores and interest accrued thereon referred to in paragraph 9 of our order shall be used for the purpose of settling the dues of workmen/employees.
(b) If the said amount (Rs.6 crores and interest thereon) is insufficient, as already directed, the Commissioner should apply to the Madras High Court for release of further fund from the amount in deposit with it.
This direction means that until the Commissioner completes the assessment of the amount due to be paid to the employees/workman, the Madras High Court shall not release the amounts deposited with it to anyone else as it should be
first used for settling the dues of employees/workmen.
(c) In paragraph 10 of this Court''s order, this Court had directed that Rs. 2 crores deposited by the EID Parry should be refunded to EID Parry. The question whether EID Parry is liable for any of the employees/workmen''s dues other
than Section 25-FF or whether it should be paid to the New Horizon itself is an issue pending in Writ Petition No. 24834 of 2005 or any other proceeding pending between them. Until that is done, the sum ofRs.2 crores deposited by the
EID Parry shall continue to be in deposit and EID Parry shall not withdraw the said amount or interest thereon. After the issue of liability is ultimately decided, consequential orders may be passed by the High Court in regard to the said
sum of Rs. 2 crores.
(d) In the proceedings for determination of the employees/workmen''s dues before the Labour Commissioner, both New Horizon and EID Parry may participate. As New Horizon contends that the entire records have been taken over by
the Indian Bank, the said Bank shall make available the records to New Horizon.
(e) In view of the fact that the workers'' dues are being fully settled, the employees/workmen shall not claim employment under EID Parry nor obstruct reopening or functioning of the unit by EID Parry.
(f) The period of three months mentioned in the order dated 31.8.2009 to enable the Labour Commissioner to complete the quantification process is extended by another six months from today.
After the Supreme Court issued clarifications and additional directions, the petitioner-management submitted another letter dated 21.1.2010 to the Commissioner of Labour along with a consolidated statement of all the alleged dues
payable to the retrenched workmen upto 31.12.2004. The workers/employees also submitted their claim applications indicating the gratuity, retrenchment compensation, wage arrears, bonus and other dues such as LIC, PF contributions
etc., calculated upto October 2006.
Thereafter the Commissioner of Labour convened a meeting and provided an opportunity of hearing to the petitioner-management. In the meeting, the petitioner consented for the computation of dues calculated for the period upto
31.12.2004. But the petitioner-management protested the calculation of dues for the period beyond 31.12.2004 upto October 2006.
Therefore, the Commissioner of Labour appears to have examined the records and analysed the claims and came to the conclusion that the workers should be deemed to have been in service upto October 2006 and that therefore,
the workmen are entitled to have all their claim amounts except credit society, settled upto the period of October 2006. Recording the said finding, the Labour Commissioner passed an order dated 18.3.2010, proposing to proceed
further with the disbursement of all dues to the workmen.
Aggrieved by the decision taken by the Labour Commissioner, as reflected in his order dated 18.3.2010, to the effect that the workmen are entitled to settlement of dues upto October 2006, the petitioner-management has come up
with the present writ petition. The relevant portion of the order of the Labour Commissioner dated 18.3.2010, as against which the present writ petition arises, reads as follows:
Whereas the NHSM in the said meeting has consented for disbursement of all dues to be calculated and paid upto 31.12.2004, but not ready to certify any dues that may be paid to the workers, after the period 31.12.2004.
Whereas the undersigned in compliance with the orders of the Hon''ble Supreme Court and in the context of stand exhibited by the NHSM has made a thorough examination and objective analysis of the veracity of the claims raised upto
10/2006, and arrived at a reasoned decision that during the period of possession and the auction of the New Horizon Sugar Mills by the Indian Bank and the EID Parry have been the successful auction purchaser, came into occupation
of the said Mill in November 2006, the workers as per the records available, were continuously been in the service of the Mill without been issued with any appropriate Notice/for their Retrenchment till 10/2006, by the Management of
NHSM, Ltd.,
And further having noted from the other documents available that some of the employees, having been admitted into retirement by the NHSM, vide its own communication dated 31.1.2006, that the workers irrespective of the various
developments taken place, were remained in service of the NHSM, and carrying out the maintenance works upto 10/2006, and therefore are entitled to have all their claim amounts, except credit Society, settled upto the period of
October 2006.
Assailing the impugned order, Mr. Ravi, learned Counsel for the petitioner contended that all dues payable to the workmen, including the amounts payable u/s 25-FF of the Industrial Disputes Act, 1947, should be calculated only
upto 31.12.2004, since the possession notice u/s 13(4) of the SARFAESI Act, 2002 was issued by the Indian Bank on 1.1.2005. Consequently, even Justice K.P. Sivasubramaniam (Retd.), appointed by this Court to compute the
claims of workmen, carried out the exercise, keeping in mind 31.12.2004 as the date for determination of all dues. According to the learned Counsel, the Commissioner of Labour already disbursed compensation to 46 workmen
calculated only upto 31.12.2004 as seen from the communication dated 31.3.2010. Since possession was taken over by the Authorised Officer of the Bank on 1.1.2005 in terms of Section 13(4) of the SARFAESI Act, 2002, the
petitioner contends that the finding of the Labour Commissioner in the impugned order as though the workmen continued in service till October 2006, was fallacious. According to the petitioner, the delay in holding the auction and the
delay in the issue of Sale Certificates, on account of various interim orders of this Court in various proceedings, cannot enure to the benefit of the workmen, in postponing the date with reference to which the benefits u/s 25-FF of the
Industrial Disputes Act, 1947 are to be calculated. According to the petitioner, the date on which possession was taken, will be the date of termination of the services of the workmen and it is at that moment that the provisions of Section
25-FF will get attracted. Moreover, the petitioner contends that the very benefit available to the workmen u/s 25-FF of the Industrial Disputes Act, 1947, became one of the issues agitated in the first round of writ petitions decided by
F.M. Ibrahim Kalifulla, J., in his order dated 12.7.2005. Therefore, it is a misconception, according to the petitioner, to postpone the date to 31.10.2006, as it would virtually mean that even on the date of the said order viz., 12.7.2005,
the workmen continued in service. The learned Counsel also drew my attention to the sale notices issued and the terms and conditions incorporated therein, in support of his contentions.
In response, Mr. B. Ravi, learned Counsel appearing for the workmen contended that in terms of the express provisions of Section 25-FF of the Industrial Disputes Act, 1947, the liability to pay compensation and other dues to the
workmen, arises ""on the date of transfer"". It is only when a Sale Certificate is issued by the Authorised Officer that a transfer actually takes place. In the case on hand, though a Sale Certificate was issued on 10.8.2005 in respect of
movables, a Sale Certificate in respect of immovables was issued only on 24.8.2006. Therefore, according to the learned Counsel for the workmen, the crucial date can never be before 24.8.2006. The learned Counsel for the workmen
also filed a set of documents, some of which were issued either by the Labour Officer or by the General Manager of the petitioner, to the effect that some of the workmen continued upto 31.10.2006. But in the course of arguments, the
learned Counsel for the workmen submitted that even if the management disputed the veracity of those documents, the crucial date as per law, could only be 24.8.2006.
As seen from the rival contentions extracted in the immediately preceding two paragraphs, there is only one issue of fact, on which there was a controversy at the bar. It was in respect of 46 workmen to whom, the Commissioner of
Labour claims to have made a payment. But the learned Government Pleader of Pondicherry representing the Labour Commissioner confirmed in the course of hearing that what was paid to 46 workmen, as reflected in his letter dated
31.3.2010 was only an interim payment. He also confirmed in the course of hearing that the total number of workmen/ employees for whom computation is to be made, is 333 and that a few of them died, either out of natural causes or by
committing suicide.
Inasmuch as the factual issue with regard to the payment of amount to 46 workmen stands cleared, the only issue to be decided now by me, is wholly legal. The issue is as to whether the compensation payable u/s 25-FF of the
Industrial Disputes Act, 1947, is to be reckoned as on the date of the secured creditor taking possession of the secured assets u/s 13(4) of the SARFAESI Act, 2002 or on the date on which a Sale Certificate is issued to the purchaser.
In order to find an answer to the above riddle, it is necessary to have a look at the provisions of Section 25-FF of the Industrial Disputes Act, 1947 and the provisions of Section 13, (4), (6) and (8) of the SARFAESI Act, 2002.
From The Perspective of Industrial Disputes Act
First let me take a look at Section 25-FF of the Industrial Disputes Act, 1947 which reads as follows:
25-FF. Compensation to workmen in case of transfer of undertakings.- Where the ownership or management of an undertaking is transferred, whether the agreement or by operation of law, from the employer in relation to or that
undertaking to a new employer, every workman who has been in continuous service for not less than one year in that undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with the
provisions of Section 25-FF, as if the workman had been retrenched:
Provided that nothing in this Section shall apply to a workman in any case where there has been a change of employers by reason of the transfer, if-
(a) the service of the workman has not been interrupted by such transfer;
(b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable to the workman than those applicable to him immediately before the transfer; and
(c) the new employer is, under the terms of such transfer or otherwise legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by
the transfer.
A reading of Section 25-FF shows that where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, to a new employer, every workmen becomes entitled to notice and
compensation, in accordance with Section 25-F (provided he satisfies the conditions prescribed). The Section operates both when the ownership is transferred and also when the management is transferred. It operates irrespective of
whether the transfer was by agreement or by operation of law. As is obvious from the plain language of Section 25-FF, the emphasis is on ""transfer of undertaking"". This is reflected in the very first sentence viz., ""where the ownership or
undertaking is transferred"".
The word ""transfer"" is not defined in the Industrial Disputes Act, 1947. The word ""undertaking"" is also not defined, though the phrase ""Industrial Establishment or Undertaking"" is defined u/s 2(ka). It reads as follows:
(ka) ""industrial establishment or undertaking"" means an establishment or undertaking in which any industry is carried on:
Provided that where several activities are carried on in an establishment or undertaking and only one or some of such activities is or are an industry or industries, then,
(a) if any unit of such establishment or undertaking carrying on any activity, being an industry, is severable from the other unit or units of such establishment or undertaking, such unit shall be deemed to be a separate industrial establishment
or undertaking;
(b) if the predominant activity or each of the predominant activities carried on in such establishment or undertaking or any unit thereof is an industry and the other activity or each of the other activities carried on in such establishment or
undertaking or unit thereof is not severable from and is, for the purpose of carrying on, or aiding the carrying on of, such predominant activity or activities, the entire establishment or undertaking or, as the case may be, unit thereof shall be
deemed to be an industrial establishment or undertaking.
The proviso to Section 2(ka) indicates that an undertaking is to be identified normally by the activities carried on and not by its mere assets. The assets of a business establishment/undertaking include both tangible and intangible assets
including the goodwill, intellectual properties such as trademarks, patents, copyrights etc., one or more of which can always be traded by way of sale, lease, assignment or pledge. None of these may result in ""transfer of undertaking.
In other words, every transfer of asset need not necessarily result in a transfer of undertaking, though every transfer of undertaking may result in the transfer of all assets and liabilities. Sale of stock/finished product takes place in every
industrial undertaking as a matter of daily routine. Therefore ""transfer of assets"" cannot be taken to be synonymous with ""transfer of undertaking"".
In Anakapalla Co-operative Agricultural and Industrial Society Limited Vs. Workmen, , the leading case on the exposition of Section 25-FF, the Constitution Bench of the Supreme Court considered the question as to whether the
purchaser of an industrial concern can be said to be a successor-in-interest of the vendor and held that the said question will have to be decided on a consideration of several factors. The relevant portion in paragraph-9 of the said
judgment reads as follows:
Did the purchaser purchase the whole of the business? Was the business purchased a going concern at the time of the sale transaction? Is the business purchased carried on at the same place as before? Is the business carried on without a
substantial break in time? Is the business purchased carried in at the same or similar to the business in the hands of the vendor? If there has been a break in the continuity of the business, what is the nature of the break and what were the
reasons responsible for it? What is the length of the break? Has goodwill been purchased? Is the purchase only of some parts and the purchaser having purchased the said parts purchased some other new parts and started a business of
his own which is not the same as the old business but is similar to it? These and all other relevant factors have to be borne in mind in deciding the question as to whether the purchaser can be said to be a successor-in-interest of the vendor
for the purpose of industrial adjudication.
In Management of R.S. Madhoram and Sons Agencies (P) Ltd. Vs. Its Workmen, , a question arose as to whether the transfer of a section of the workmen from a partnership firm consisting of the members of a joint Hindu Family to
a Private Limited Company, formed by the very same members of the family, gave rise to a right in the workmen to claim the benefits of Section 25-FF. In that case, there was an agreement between the transferor and the transferee, as a
result of which, the workmen engaged by the transferor were transferred to the transferee company. The agreement provided for continuity of service and contained terms and conditions not less favourable than those applicable before
the transfer. It was agreed that in the event of retrenchment, the transferee would be liable to pay compensation on the basis that their service had been continuous and not interrupted by transfer. When the workmen challenged the
transfer and the matter ultimately landed up in the Supreme Court, the Court held in paragraph 11 that ""the first and foremost condition for the application of Section 25-FF is that the ownership or management of an undertaking is
transferred from the employer in relation to that undertaking to a new employer"". Paragraphs 11 and 12 of the said decision read as follows:
It would be noticed that the first and foremost condition for the application of Section 25-FF is that the ownership or management of an undertaking is transferred from the employer in relation to that undertaking to a new employer.
What the section contemplates is that either the ownership or the management of an undertaking should be transferred; normally this would mean that the ownership or the management of the entire undertaking should be transferred
before Section 25-FF comes into operation. If an undertaking conducts one business, it would normally be difficult to imagine that its ownership or management can be partially transferred to invoke the application of Section 25-FF. A
business conducted by an industrial undertaking would ordinarily be an integrated business and though it may consist of different branches or departments they would generally be inter-related with each other so as to constitute one whole
business. In such a case, Section 25-FF would not apply if a transfer is made in regard to a department or branch of the business run by the undertaking and the workmen would be entitled to contend that such a partial transfer is outside
the scope of Section 25-FF of the Act.
It may be that one undertaking may run several industries or business which are distinct and separate. In such a case, the transfer of one distinct and separate business may involve the application of Section 25-FF. The fact that one
undertaking runs these businesses would not necessarily exclude the application of Section 25-FF solely on the ground that all the businesses or industries run by the said undertaking have not been transferred. It would be clear that in all
cases of this character the distinct and separate business would normally be run on the basis that they are distinct and separate, employees would be separately employed in respect of all the said businesses and their terms and conditions
of service may vary according to the character of the business in question. In such a case it would not be usual to have one muster roll for all the employees and the organisation of employment would indicate clearly the distinctive and
separate character of the different businesses. If that be so, then the transfer by the undertaking of one of its businesses may attract the application of Section 25-FF of the Act.
The decision rendered in R.S. Madhoram, in 1964 has stood the test of time and was also followed as late as in Management, Mattur Beardsell Ltd. Vs. Workmen of Mattur Beardsell Ltd. and Another, .
Interestingly, the question with reference to the purport of Section 25-FF of the Industrial Disputes Act, 1947, also arose in a case under the Income Tax Act. In Commissioner of Income Tax, Kerala Vs. Gemini Cashew Sales
Corporation, Quilon, , the Supreme Court was concerned with the question as to whether the compensation payable u/s 25-FF of the Industrial Disputes Act, 1947, constituted an allowable expenditure. While deciding the case in favour
of the Revenue, the Supreme Court held that ""under Section 25-FF, the right of the workmen to retrenchment compensation arises on transfer of ownership or management from the employer in relation to the undertaking to a new
employer"". Paragraph 7 of the said decision is of significance and it reads as follows:
Liability to pay retrenchment compensation arises u/s 25-FF when there is a transfer of the ownership or management of an undertaking: it arises on the transfer of the undertaking and not before. Transfer of ownership or management
of an undertaking in law operates, except in the conditions set out in the proviso, as retrenchment of the workmen. But until there is a transfer of the undertaking resulting in the determination of employment, the workmen do not become
entitled to retrenchment compensation. So long as the ownership of the business continues with the employer, the right of the workmen to claim compensation remains contingent. A workman may, before the transfer of ownership of the
business, himself terminate the employment: he may die or he may become superannuated: in none of these cases the owner of the business is under any obligation to pay retrenchment compensation to the workman. The obligation to pay
compensation becomes definite only when there is retrenchment by the employer, or when the ownership or management of the undertaking is, except in the cases contemplated by the proviso, transferred to a new employer, and not till
then. The right therefore arises from determination of employment, or from transfer of the undertaking: it has no existence before these events take place.
The last sentence extracted above is of great significance in as much as it steers clear of any doubt about the date on which the liability u/s 25-FF would arise.
In Maruti Udyog Ltd. Vs. Ram Lal and Others, , the Supreme Court was concerned with a case where, upon the winding up of a company by name Maruti Limited, by the Company Court, the workmen were retrenched in
accordance with the provisions of the Industrial Disputes Act, 1947. A settlement was arrived at by the Official Liquidator with the workmen. After 3 years thereof, the Parliament enacted the Maruti Limited (Acquisition and Transfer of
Undertakings) Act, 1980, by which the assets of the company were vested with the Central Government. Thereafter, a notification was issued by the Central Government, vesting the assets in the company by name Maruti Udyog
Limited. Three workmen raised industrial disputes seeking reemployment in terms of Section 25-H of the Industrial Disputes Act, 1947. The Labour Court passed an Award, directing reemployment with back wages, on the reasoning
that Maruti Udyog Limited was a successor-in-interest of the wound up company. But the award was set aside by a single Judge of the Punjab and Haryana High Court. However, the Division Bench reversed the same and Maruti
Udyog Limited went on appeal to the Supreme Court. While allowing the appeal, the Supreme Court pointed out in para 21 of its judgment that ""both Section 25-FF and Section 25-FFF provide for payment of compensation only in
case of transfer or closure of undertaking"" and that ""once a valid transfer or valid closure comes into effect, the relationship of employer and employee does not survive and cease to exist"".
The line of decisions referred to above make it clear that there must be a valid transfer; that the transfer must be of the undertaking; and that such transfer should have resulted in the cessation of employment. Therefore, the date on
which the right accrues to the workmen to claim the benefits of Section 25-FF, is the date on which a valid transfer takes effect leading to the cessation of employment. In The Board of Directors of the South Arcot Electricity Distribution
Co., Ltd. Vs. N.K. Mohammed Khan etc., , relied upon by Mr. B. Ravi, learned Counsel for the workmen, the Supreme Court pointed out as follows:
It appears to us that the language of that principal clause makes it perfectly clear that, if the right to retrenchment compensation accrues under it, it must be a right to receive that compensation from the previous employer who was the
owner upto the date of transfer. It is implicit in the language of that clause. The clause lays down that every workman mentioned therein shall be entitled to notice and compensation in accordance with the provisions of Section 25-F as if
the workman had been retrenched. Obviously, in such a case, the date of the deemed retrenchment would be the date when the ownership or management of the undertaking stands transferred to the new employer.
Therefore, it is clear that the cessation of employment, which is a sine qua non for entertaining a claim for compensation u/s 25-FF, happens only on the date on which the ownership or management of the undertaking stands
transferred to a new employer. But then this conclusion, does not take us to the destination, in view of the fact that under certain enactments, such as the State Financial Corporations Act, 1951, the SARFAESI Act, 2002 etc., it is
possible for the creditors to bring the assets of the borrower companies to sale, without actually offering the industrial undertaking itself for sale. Therefore, let us now analyse the issue from the perspective of the the SARFAESI Act,
2002.
From The Perspective of SARFAESI Act, 2002
Section 13(4)(a) of the SARFAESI Act, 2002, enables a secured creditor to take possession of the secured assets, including the right to transfer the same by way of lease, assignment or sale. In contrast, Clause (b) of Section 13(4)
enables the secured creditor to take over the management of the business of the borrower, including the right to transfer the same by way of lease, assignment or sale. This clause is circumscribed by two provisos. By the first proviso, the
right to transfer the management of the business of the borrower, is made exercisable only where the substantial part of the business of the borrower is held as security. By the second proviso, the right of the secured creditor to take over
the management of the business of the borrower, is restricted only to such portion as is relatable to the security, if the management of the whole of the business is severable. Section 13(4) reads as follows:-
(4) In case the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.
(c) appoint any person (hereafter referred to as the Manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
Before its amendment under Amendment Act 30 of 2004 with effect from 11.11.2004, Clause (b) of Section 13(4) read as follows:
Take over the management of the secured assets of the borrower, including the right to transfer by way of lease, assignment or sale and realise the secured assets.
The change made by Amendment Act 30 of 2004 to Section 13(4)(b) is very significant. The expression ""take over the management of the secured assets of the borrower"" was changed by the amendment to ""take over the management
of the business of the borrower"". The focus was shifted from the management of the secured assets to the management of the business.
Sub-section (6) of Section 13 of the SARFAESI Act, 2002, also made it clear that the transfer made under Sub-section (4) either by the secured creditor or by the manager of the secured creditor, would be equivalent to a transfer
by the owner himself. Sub-section (6) reads as follows:
(6) Any transfer of secured asset after taking, possession thereof or take over of management under Sub-section (4), by the secured creditor or by the Manager on behalf of the secured creditor shall vest in the transferee all rights in, or in
relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
Sub-section (8) obliges the secured creditor not to proceed with the sale or transfer, if all the dues, together with all costs, charges and expenses incurred by the secured creditor, are tendered by the borrower, at any time before the
date fixed for sale or transfer. Sub-section (8) reads as follows:
(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or
transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.
Therefore, it is clear that till a Certificate of Sale is issued by a secured creditor, no valid transfer takes place in the eye of law. Till a valid transfer takes place in the eye of law, there is no cessation of employment of the workmen of
the borrower. Consequently, the obligation to pay compensation u/s 25-FF arises only on the date of such transfer and not any time before, since the borrower has a right guaranteed u/s 13(8) to retrieve his business/assets.
Section 2(2) of SARFAESI Act, 2002, makes it clear that words and expressions used and not defined in the Act, but defined in the Indian Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4 of 1882) or the
Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall have the same meanings respectively assigned to them in those Acts. Section 5 of the Transfer of Property Act, 1882,
defines a ""transfer of property"" to mean an Act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons. Section 8 of the Transfer of
Property Act, gives an indication of how the transfer operates and what its incidents are.
As a matter of fact, Section 29 of the State Financial Corporations Act, 1951 is the forerunner to Section 13(4) of the SARFAESI Act, 2002. Sub-sections (1) and (2) of Section 29 of the State Financial Corporations Act, 1951 are
similar to Sub-sections (4) and (6) of Section 13 of the SARFAESI Act, 2002. They read as follows:
Rights of Financial Corporation in case of default.-(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment
thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take
over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under Sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the
property.
The expression ""take over the management of the business of the borrower"" appearing in Section 13(4)(b) of the SARFAESI Act is an improvement over the expression ""right to take over the management or possession or both
appearing in Sub-section (1) of Section 29 of the S.F.C. Act, 1951.
The S.F.C. Act defines an ""industrial concern"" as follows in Section 2(c):
(c) ''industrial concern'' means any concern engaged or to be engaged in
(i) the manufacture, preservation or processing of goods;
(ii) mining or development of mines;
(iii) the hotel industry;
(iv) the transport of passengers or goods by road or by water or by air or by ropeway or by lift;
(v) the generation or distribution of electricity or any other form of power;
(vi) the maintenance, repair, testing or servicing of machinery of any description, or vehicles or vessels or motor boats or trailers or tractors;
(vii) assembling, repairing or packing any article with the aid of machinery or power;
(viii) the setting up or development of an industrial area or industrial estate;
(ix) fishing or providing shore facilities for fishing or maintenance thereof;
(x) providing weigh bridge facilities;
(xi) providing engineering, technical, financial, management, marketing or other services or facilities for industry;
(xii) providing medical, health or other allied services;
(xiii) providing software or hardware services relating to information technology, telecommunications or electronics including satellite linkage and audio or visual cable communication;
(xiv) setting up or development of tourism related facilities including amusement parks, convention centres, restaurants, travel and transport (including those at airports), tourist service agencies and guidance and conselling services to the
tourists;
(xv) construction;
(xvi) development, maintenance and construction of roads;
(xvii) providing commercial complex facilities and community centres including conference halls;
(xviii) floriculture;
(xix) tissue culture, fish culture, poultry farming, breeding and hatcheries;
(xx) service industry, such as altering, ornamenting, polishing, finishing, oiling, washing, cleaning or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal;
(xxi) research and development of any concept, technology, design, process or product whether in relation to any of the matters aforesaid, including any activities approved by the Small Industries Bank; or
(xxii) such other activity as may be approved by the Small Industries Bank.
Thus it is clear that the definition of ""industrial concern"" under the State Financial Corporations Act, 1951 and the definition of ""Industrial Establishment or Undertaking"" under the Industrial Disputes Act, 1947, lay emphasis, not on assets,
but on the activities carried on. Assets are only instruments in the hands of the entrepreneurs, to carry on an industrial activity. Therefore, the distinction between ""transfer of assets"" and ""transfer of undertaking"" is clearly borne out by the
Industrial Disputes Act as well as the SARFAESI Act, and the State Financial Corporations Act, 1951.
Though Mr. Ravi, learned Counsel for the petitioner contended that the Indian Bank sold all the movable and immovable assets of the petitioner, leaving no more assets and that consequently, the sale was of the entire undertaking, I
am unable to accept the same. Even if all the movable and immovable assets are sold by the secured creditor, by exercising the power u/s 13(4)(a) of the SARFAESI Act, 2002, it would not amount to the transfer of undertaking as a
going concern. The tender notifications issued by the Bank, to which my attention was drawn by the learned Counsel for the petitioner do not indicate that the industrial undertaking of the petitioner was transferred as such. As a matter of
fact, the very reason why the trade unions came to Court and the very prayer made by the Unions in the first round of writ petitions, was to ensure that the Bank takes steps u/s 13(4)(b) and not Section 13(4)(a). That prayer was
negatived by the learned Judge in his order dated 12.7.2005. Therefore, there is no use contending today that what was transferred was the industrial undertaking and not merely the assets.
Despite the fact that what were transferred were the assets of the petitioner and not the industrial undertaking as such, the transfer resulted in the cessation of employment of the workmen. Such cessation could be taken to have
happened only on 24.8.2006, the date on which the Certificate of Sale was issued. Though the Certificate of Sale in respect of movable assets was issued on 10.8.2005, that could not have led to the cessation of employment of the
workmen, since the petitioner-company still had a chance to retain all other assets and the business activities, so as to continue its operations. So long as the petitioner had the opportunity to retain the majority of the assets, including all the
immovables, the rights of the workmen to seek employment continued to exist. Therefore, I am of the view that the right of the workmen to receive the benefits u/s 25-FF of the Act, arose only on 24.8.2006, when the curtain was drawn
finally in the entire episode, putting an end to their hopes of revival of the company. In such circumstances, the Commissioner of Labour, who is the first respondent herein is entitled to work out the compensation upto 24.8.2006 and not
upto 31.10.2006.
The learned Counsel for the petitioner contended that by virtue of the order passed by F.M. Ibrahim Kalifulla, J., on 12.7.2005, holding that the workmen are entitled to the benefits of Section 25-FF and by virtue of the interim order
dated 7.12.2005, passed by A. Kulasekaran, J., appointing Mr. Justice K.P. Siva Subramaniam (retd.) for computing the benefits, the dates on which the workmen were entitled to receive the benefits was crystallised as 31.12.2004.
Therefore, he contended that the date cannot be postponed.
But I am unable to countenance the above submission. The decision dated 12.7.2005 and the interim order dated 7.12.2005, merely spoke about the entitlement of the workmen to the benefits u/s 25-FF. Both the orders did not deal
with the issue as to the date on which the right to receive the benefits u/s 25-FF got crystallised.
Therefore, in view of the above, the writ petition is partly allowed, setting aside the penultimate paragraph of the impugned order of the first respondent dated 18.3.2010 and directing the first respondent to take the date 24.8.2006 as
the date as on which the benefits u/s 25-FF of the Act as well as all other benefits, are to be reckoned for the workers. The exercise shall be completed by the first respondent, as per the orders of the Supreme Court. There will be no
order as to costs. Consequently connected miscellaneous petition is closed.