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Judgment
Anantanarayanan, J.
(1) The Metro-Goldwyn Mayer India Ltd., an has its head office at Bombay with a branch at Madras. The business of the Indian concern consists
in the import of films produced outside India and distributing them to customers inside the country. The commission charged by the company on
the income realised by exhibitors constitutes its principal income. The Madras branch employed 17 persons, mainly as clerical personnel, in the 8
sections of its office. With effect from 20-9-1957 eight of the employees were given notice of retrenchment, the grounds, being the extraordinary
state of affairs resulting from a sharp increase in Customs duty of films drastic import restrictions, and loss experienced in consequence, Seven of
these retrenched persons, with the exception of one Miss Jayalakshmi, represented their grievances to the Secretary of the Film Distributors
Employees'' Association, which, in turn, led to an industrial dispute refereed by the Government to the Industrial Tribunal, Madras, for
adjudication.
(2) In an elaborate order, the Tribunal held that the retrenchment of the 7 persons was not justified, and directed that they should be reinstate with
a half of their back wages. The company then filed W.P. No. 49 of 1959 for the issue of a writ of certiorari quashing the award of the Tribunal.
This petition was allowed by Balakrishna Aiyar J. Except in certain respects which we shall presently indicate. The appeal before us is by the
concerned employees, against the order of the learned judge.
(3) A certain area of the dispute is not now before us, since the learned Judge (Balakrishna Aiyar J.) confirmed the order of the Industrial Tribunal
in that respect. It was alleged by the workers that, even upon the assumption that the measure of retrenchment was justified, persons had not been
retrenched upon the rule of ""1st to come, first to go"", which principle finds expression in S. 25G of the Industrial Disputes Act. The matter was
dealt with very elaborately by the Industrial Tribunal, which found that the principle had been contravened, and gave directions accordingly. The
learned Judge (Balakrishna Aiyar J.) observed that he did not find it necessary to differ from the Tribunal in its view that the order of juniority had
been departed from in the cases of the clerks Eswaran, Mani Aiyar, Srinivasan and Bart. The learned Judge directed the management to revise the
list of those to be retrenched, in the order of juniority indicated by the tribunal. Hence, this may be excluded from the purview of our consideration.
(4) Another preliminary ground is also sought to be raised on behalf of the appellants, that of jurisdiction, but it is fairly obvious that this cannot be
dealt with abstractly, divorced from the particulars of the cause. It is no doubt true that, as observed by the Supreme Court in J.K. Iron and Steel
Co. Ltd., Kanpur Vs. The Iron and Steel Mazdoor Union, Kanpur, , approving the dicta in AIR 1949 111 (Federal Court)
Adjudication does not mean adjudication according to the strict law of Master and Servant.......... an adjudicator''s award may contain provisions
for settlement of a dispute which no court could order if it was bound by ordinary law."" Recently, in the Bench decision of this Court in A.R.
Varma and Another Vs. Mettur Industries Ltd. and Another, observations have also been made to the effect that, in an industrial dispute,
the matter is no longer confined to the limits of contractual rights, but other considerations having a larger bearing upon industrial relations and
industrial peace come into play."" But the point is that the jurisdiction of the Court to interfere, under Art. 226 of the Constitution has necessarily to
be related to the particulars of the justification for the interference as arising from the facts. Even with respect to industrial tribunals, and however
broadly conceived their scope and functions might be,
their powers are derived from the statute that creates them, and they have to function within the limits imposed there'';
The Bharat Bank Ltd., Delhi Vs. Employees of the Bharat Bank Ltd., Delhi and The Bharat Bank Employees'' Union, Delhi, . What Balakrishna
Aiyar J. Found in the present case was that the order of the Industrial Tribunal holding that this retrenchment was unjustified though repeatedly
affirming the bona fides of the management, was vitiated by a fundamental error. The Industrial Tribunal substituted its own finding upon the
justification for retrenchment, particularly as influenced or governed by the turn of events subsequent to the decision, for the judgment of the
management at the time it took its decision, and how far that judgment could be held proper upon facts and apprehensions as then existent. There
was also a further error, consequent upon this error in perspective, that the Industrial Tribunal permitted evidence on material not germane to the
issue, and indeed material which ought to have been excluded, in the form of evidence concerning later event, and later statistics of the volume of
office work. There can be no doubt that, if these views of the learned Judge are to be upheld, there was both a fundamental error in the criterion of
the tribunal, and a failure to exclude extraneous and improper considerations. That, indisputably, clothes this court with ample jurisdiction to
interfere by the issue of the appropriate writ. For these reasons, it is necessary to proceed directly to the heart of the matter, viz, the justification for
the retrenchment.
(5) The facts as found by both the Tribunal and the learned Judge, are not in dispute. As we stated earlier, the decision to retrench was taken in
September 1957. As early as December 1956, the Government of India announced that the customs duty for exposed firms would be enhanced
by one hundred per cent. The Managing director of this company and other concerned parties went on deputation, but their efforts to persuade the
Government failed. In addition to persuade the Government failed. In addition to the increasing import duty, in January 1957, the Government
imposed a cut of 50 per cent on the quota that could be imported for the basic year. From 1st July 1957 till 30th September 1957 no import
licences were issued.
Actually, from October 1957 to 31st March 1958 the import cut was increased by 90 per cent, and the result was that only ten per cent of the
quota of the basic year could be imported. There can be no doubt that the policies of Government during this period, dealt almost a cripping blow
to the trade of the distributors of foreign films. This company sustained a loss of Rs.19,852-16 nP. For the financial year ending 30-8-1957, and
this without taking into account the provision that had to be made for taxes. If this is included, the loss would amount to Rs. 56,995. It is in the
context of these facts, and with the apprehensions arising from these facts starting them in the face, that the management claimed that they took the
decision to retrench these workers, as a bona fide business decision.
(6) It has to be carefully noted that the original case of the employees was that, under the pretext of retrenchment, the company was really trying to
victimise these persons for certain trade Union activities. The learned Judge (Balakrishna Aiyar J.) has quoted the relevant passage to the effect
that ""they (management) used this as a weapon to penalise the poor people just because they are members of the Union."" Actually, the Tribunal
found against this contention, and affirmed the bona fides of the management, in no uncertain terms. Since this has to be made clear at the outset, in
order to follow the logic of the order of the Tribunal at all, the relevant passages from the Award may be immediately set forth. The Tribunal
observed in one context:
On account of the restrictions impose by the Government of India, this management must have entertained an honest and bona fide belief that their
business would be adversely affected and that there would be an appreciable decline in their business.
Again
I may repeat that the management might have bona fide apprehended serious decline in their business, and effected the retrenchment."" In view of
these explicit, finding, we have to see what the facts and considerations are, upon the basis of which the Tribunal held that the retrenchment was
unjustified. The Tribunal has referred to the fact that, according to the record, amount to the fact that, according to the record, amount to the tune
of Rs. 18,775 lakhs were transferred to New York as Film rentals. But as the learned Judge has observed, this is really an irrelevant factor; the
question is not the quantum of profits derived by the American company during the period or any period. Indisputably, the questions is that of
justification from the stand-point of the Indian company, and its Madras branch. Actually, what happened was that the subsequent turn of events
was more favorable than might have been anticipated, and several apprehensions, no doubt both reasonable and grave at the moment were proved
to be groundless in time. The Government ultimately reduced the Customs duty on imported pictures by 50 per cent, bringing the duty to almost
the same level as in 1956, Equally, the Government later relaxed the restrictions on import, to 75 per cent of the original figures Finally, we may
note that the Tribunal took the view that the loss of nearly Rs. 20,000, was not appreciable loss ""for a company of that magnitude"". But this, as the
learned Judge justifiably observed, was to consider the loss in the context of the parent world concern, and not in the context of the Indian
subsidiary and its Madras branch, which is the real test.
In brief, what the Tribunal really did was this. If found that the decision of the management was a bona fide business decision; it found that, at that
time, (September 1957) grave difficulties were facing the management both on account of the increases in customs duty and restrictions on quota
of imported films, and on account of the actual loss experienced upto that date. But the Tribunal examined the decision in the light of subsequent
events, and came to the conclusions that, in the right of that knowledge this measure of retrenchment could not be justified, as the volume of
business did not decline appreciably, and the volume of work in office was much the same. The true question is whether the criterion applied by the
Tribunal, namely, that ""the deadweight of an uneconomic surplus"" should be actually proved to have eventuated before a management could
retrench, is the correct view. The following passage in the award really expresses the logic of the decision:
In order to justify a retrenchment, there should be actual reduction in business on the date of the retrenchments and not a possibility or even a
likelihood of reduction in the future, for, in effecting retrenchment, the employer tells the worker ''you go out because I have no work for you at
present'' and not ''you go out because there may be no work for you sometime in the future."" If there is no actual reduction in the business in
present, the work in the office will remain the sam, so that any retrenchment in the expectation of the reduction of the business in the future will only
increase the workload of the retained staff..................... So long as the officer work remains the same whatever may be the forebodings of the
future, and even if the business had ended in loss ""there can be no scope for retrenchment of the clerical staff. Retrenchment means the removal of
''the deadweight of uneconomic surplus'', to use the language of their Lordships of the Supreme Court.................................and till such a surplus is
established, retrenchment cannot be effected.
We have no doubt whatever that, in the light of the principles and laid down by the authorities, and a scrutiny of Industrial law not merely in this
country, but even in the most advanced countries like the United States of America, this approach is wholly fallacious, and that this is not the
criterion to be applied. The grounds for the view may be now set forth.
(7) As far as the Industrial Disputes Act self is concerned, it is well-known that ""retrenchment"" is defined in S. 2(oo) of the Act, as ""the termination
by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action."" In
Barsi Light Rly. Co., Ltd. v. K. N. Jogalekar, (S) AIR 1957 SC 121, the Supreme Court held that this really implied ""the discharge of surplus
labour or staff by the employer for any reason whatsoever"". It is well-settled law that the management has a right to determine the volume of its
labour force. Consistent with its business, or anticipated business, and its organisation. The leading decision in the matter, where the expression
the deadweight of uneconomic surplus"" occurs is (S) J.K. Iron and Steel Co. Ltd., Kanpur Vs. The Iron and Steel Mazdoor Union, Kanpur, .
When that decision is actually studied, it shows clearly that the criterion is always the bona fide judgment of the management, in the light of their
knowledge and anticipations. For instance, we have the following passage (Page 236):
There is nothing in these Standing Orders to indicate that retrenchment is a measure of last resort, and that an employer must continue to lay off his
workmen, however uneconomical that may be to the business.
Again (page 237):
The question of retrenchment cannot be made to depend on the duration of the shortage or even on the fact that those retrenched will be thrown
out of employment but on the effect that an omission to retrench will have on the business. Finally, their Lordships observed (Pages 237-238):
The only question referred was, was the retrenchment justified? And we find it impossible to see how that can be determined without considering
the question of good faith, which in turn would largely depend on the finances of the company, on the adverse effect that retention would have on
the business, and on whether retention would mean the deadweight of an uneconomic surplus and so forth.
The right of the management to take a decision to retrench, provided that it is bona fide and justified by the situation in which the decision was
taken, has been affirmed in all the decisions. In addition to the decision just quoted above, we may refer to the dicta in D. Macropollo and Co.
(Private) Ltd. Vs. D. Macropollo and Co. (Private) Ltd. Employees'' Union and Others, the judgment of Rajagopalan J. In India Tyre and Rubber
Co. V. Their workmen, 1957 2 LLJ 506 : AIR 1958 Mad 205, Tata Oil Mills Ltd. V. Their Workmen, 1953 1 LLJ 45 (LATI-Mad), Viswamitra
press v. Their Workmen, 1952 1 LLJ 796(LATI-Cal).
(8) Certain broader aspects of the situation that we are now confronted with, may be referred to here. Obviously there are two poles of this of an
employer to retrench; intermediate positions are, on course, also possible. On the one hand, we may have a policy of laisse-faire, so that it is the
strict law of Master and Servant which governs all such possible interference. In such an attitude, even the motives of the employer would be
irrelevant, provided that the contract permits such a discharge upon any alleged pretext of restrictions of the labour force To the other extreme we
can have a position of interference by Tribunals administering the law, whenever any such Tribunal feels that, in the light of subsequent events such
a measure of retrenchment need not have been effected. In brief, the question here is whether a Tribunal, which does not run the hazards of
industry, and the survival of which is not threatened by industrial vicissitudes, could claim to substitute its later and cold decision, for a judgment to
be taken by a management under anxiety and stress. We think it is clear that, even in the most advanced industrial countries, the true position is the
intermediate one. The decision to retrench should be judged as regards its justification, both upon bonafides and upon the reasonableness of their
decision in the situation that confronted the management. Once that is upheld, it is really not permissible for a Tribunal to take subsequent facts into
account, and to argue that such a measure of retrenchment was not really necessary. Actually, both 1952 1 LLJ 181 (LATI-Cal) (relied upon by
the Tribunal) and 1952 1 LLJ 796 (LATI-Call) affirm that where the management has taken such a bona fide and reasonable decision, the extent
of the retrenchment cannot be canvassed at all. Hence, the subsequent data which might prove that the apprehensions were belied owing to the
industrial policies of the Government of India, and that the volume of work remained much the same, ought not to be permitted to affect the
picture. Equally, as Balakrishna Aiyar J. Has stressed, the alleged later increase in the workload is quite irrelevant. It may very well be that
originally, this office was somewhat overstaffed and the individual members somewhat under employed. If the retained staff had been working
overtime, admittedly there are special rules governing that matter. That might be an industrial dispute between the retained staff and the
management, but it has nothing to do with the present decision. We much reiterate that, so long as the private sector is permitted to exist, and
management in that sector run the hazards of industry, it would be totally unjustified to substituted the later judgment, either of the State or of any
industrial Tribunal, for the judgment of the management, in such a vital measure, affecting the very survival of a concern, as retrenchment. Nor does
the law require that, in order to prove the existence of ""the deadweight of uneconomic surplus"" the management should not act upon incurred loss
and threatened dangers, but must wait for the loss to prove over whelming; in brief, that the management must almost proceed into bankruptcy,
before it can retrench. We shall presently show the authority for the view, that, even apart from any threatened extinction, a business could retrench
upon such factors as scheme of rationalisation. As far as the situation that we are discussing is concerned, there is obvious force in the dictum of
Balakrishna Aiyar J. The ""A wise captain does not wait for the storm so strike. He takes in sail or makes for port, before the storm breaks.
(9) In D. Macropollo and Co. (Private) Ltd. Vs. D. Macropollo and Co. (Private) Ltd. Employees'' Union and Others, , the Supreme Court was
concerned with retrenchment effected, not because of loss an threatened dangers to business at all, but in consequence of a scheme of
Reorganisation adopted for reasons of economy and convenience. The right of the employer to retrench in consequence of such a bona fide
decision was upheld by court, though the inevitable discharge of the workmen may be most unfortunate. In 1957 2 LLJ 506: AIR 1958 Mad 205,
Rajagopalan J. Said:
that observation in my opinion, does not justify the contention that good faith attendant on a retrenchment could be established only if the
employer was losing or was making no profits, or even a contention that retrenchment would be at least prima facie mala fide if it was ordered
when the employer was already getting a return of more than 6 per cent in the paid-up capital.................. The deadweight of an uneconomic
surplus to which Bose J. Referred, can operate at any level of profits.
We are now concerned with a far stronger situation, in respect of the management. Learned counsel for the appellants (Sri. B. Kalyanasundaram)
strenuously contends that the concept of justification is wider than that of bona fides. Even the concept of bona fides, according to him, has a
special and more pervasive significance, in relation to industrial disputes in particular. It is not necessary for us to dissent from the view that both
bona fides and justification would have to be established, before retrenchment could be up-held by the Industrial Tribunal; at least, it is indisputable
that they are closely interrelated. What we are quite unable to concede is that even in such a perspective, justification could b e assessed, not as
the reasonableness of a decision taken by the management in a particular situation of actual and threatened losses, but as the vindication of that
step by future events, and by the substituted judgment of any other agency, judicial or otherwise, which has no responsibility or hazard in industry.
We must also point out that the dicta of the Bench of this court in A.R. Varma and Another Vs. Mettur Industries Ltd. and Another, , to the effect
(page 87 (of Mad LJ): (at pp. 397-398 of AIR) that other grounds besides mala fides may be considered by the Tribunal in granting relief, had
relevance to a case of individual discharge on the ground of a false complaint to the Union about the conduct of the shift-manager; moreover, a
case in which no charges were framed, and no opportunity to show cause was given. We fail to see how those observations could be pressed into
service when considering a wholly different case of retrenchment owing to industrial necessity.
(10) If we might turn, for a moment, to the state of affairs in other countries representing an advanced state of Industrial law and Labour Relations,
we find that nowhere has it been ruled that, apart from a ground of discrimination or ""unfair labour practice"" the right of an employer to retrench
could be canvassed at all. The following passage from ""Rothenberg on Labour relations"" 1949 Edn. Page 417, which is really upon the rights of the
employer in the United States, as dealt with in the ""Labour Management Relations Act"" is significant:
While an employer has the right and privilege to discharge a group or all of his employees, even as he has the right to discharge particular
individuals, he is under the same prohibition against discrimination........................ Accordingly, while an employer is permitted to mete out
individual or collective lay-offs, furloughs or discharges for any proper reason, such as seasonal slack, lack of work cessation of operations,
inventory problems, etc, or, indeed, for no reason at all, a ""lock-out"" of some or all of his employees which flows from and is directed at the Union
activities or affiliations of the affected employees is deemed discriminatory"".
(11) In brief, in the United Estates of America, justification and bona fides appear to be regarded as equivalent concepts. Actually, it would appear
as if the decisions in our country have proceeded a little farther in recognising the rights or labour to proof of justification before retrenchment is up
held by an Industrial Tribunal.
(12) In the result, therefore, we are fully satisfied that the order of the Industrial Tribunal was vitiated by an erroneous approach altogether to the
problem of justification for retrenchment, and also by the inclusion and consideration of extraneous and irrelevant material. The issue of the writ
was hence with jurisdiction, and on justifiable grounds. The writ appeal fails accordingly, and is dismissed. No order as to costs.
(13) Writ appeal dismissed.