1. This is a petition by the Managing Director of the company named Sir Sarupchand Hukum-chand (Private) Ltd., under Articles 226 and 227 of the Constitution of India. The petition is directed against the Authority under Payment of Wages Act, Madhya Pradesh and Additional Inspector of Factories both of Ujjain.
2.The only question raised in this petition is as regards the vires of the Provisions, which were initially brought into force by means of the Ordinance No. IV of 1957 dated 27-4-1957 issued by the President of India, giving them retrospective effect from 1-12-1956 and which later were enacted by the Parliament and became a part of the Provisions of Industrial Disputes Act as Section 25FFF. The said Provision is as follows:
'1. Where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure, shall, subject to the provisions of Sub-section (2), be entitled to notice and compensation in accordance with the provisions of Section 25F, as if the workman had been retrenched: Provided that where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under Clause (b) of Section 25F, shall not exceed his average pay for three months.'
3. The circumstances leading up to this petition arc as follows: The Industrial concern aforesaid conducted and carried on, among other things, a business of manufacturing Safety Razor Blades at Ujjain, The business was run in the name of 'Vidyut Metallics'. The case of the petitioner is that the said Industrial venture had been running into continuous and heavy losses since its inception so that it had become quite uneconomic to carry it on and the management therefore decided to close it, down permanently to save the said company from further, losses and a notice was given to its workers on 1-3-1957 that the business would be closed down permanently from 1-5-1957, This was accordingly done.
During the interval between the date of notice and the date fixed for closure of date industry the President issued the Ordinance aforesaid giving it a retrospective operation as from 1-12-1956. Now on closure of the business the Divisional La-hour Inspector gave a notice to the petitioner by his letter dated 22-5-1957 that the compensation in terms of the Ordinance aforesaid would have to be paid to the workmen who had been employed in the concern on the date of its closure. The petitioner thereupon suggested that the question regarding the validity of the provision was being considered by the Supreme Court and that until the matter was decided by the said Court the demand ought not to be pressed. This was not accepted by the Officer named, above and an application under Section 15(3) of the Payment of Wages Act was moved before the appropriate authority-It was upon that the present petition was moved on the grounds that:
1. Section 25FFF, which replaced the Ordinance aforesaid places an unreasonable restriction upon the fundamental right of the company, guaranteed under Article 19(1)(g) of the Constitution, to carry on any business; this right to carry on any business, it is said, includes a right to close down any uneconomic undertaking. The said provision is not saved by Article 19(6) of the Constitution as it places unreasonable restriction upon the right aforesaid and is not in public interest.
2. Section 25FFF contravenes Article 14 of the Constitution.
4. Now as regards the applicability of Article 14, no serious argument was addressed nor do I think that any serious argument can legitimately be pressed. The provision applies equally to all the industries which fall within a certain group and the classification made therein cannot be said to be unrelated to the object sought to be achieved and consequently arbitrary. The requirement of reasonability in the classification is also meticulously followed. Industries which are set up for indefinite time are differently classified than those which involve undertakings which from their nature are set up for a limited period or for particular undertakings such as the undertakings for the construction of roads, bridge, buildings, etc.
A separate classification is made of industries which are closed down for unavoidable circumstances beyond the control of the employer such as those which are closed down due to vis major. Industries which are running at a profit ordinarily will not be closed and a separate classification for them is naturally not considered necessary, For these reasons it cannot be said that the classification involved in Section 25FFF is either arbitrary or unreasonable and consequently in violation of Article 14 of the Constitution.
5. We have next to consider whether the provision is contrary to fundamental right of the employer to carry on any business guaranteed under Article 19(1)(g) subject to the provision under Article 19(6). Now as regards this it appears well settled that if a person has a fundamental right to carry on any business he has as much the right not to carry it on if he so chooses. A person carries on business with a view to earn profit. The fundamental right conferred upon him to carry on any business is to enable him to act freely in the matter subject to such restrictions as are mentioned in Clause (6) of Article 19.
The carrying on of any business being a right and not an obligation, any industrial concern ought to have as much liberty to carry it on as to close it down particularly when it does not yield any profit. This appears to be the correct line of thought from the decisions reported in Indian M. and M. Corporation v. Industrial Tribunal, AIR 1953 Mad 98 and K. N, Joglekar v. Barsi Light Rly. Co., Ltd., (S) AIR 1955 Bom 294. The Supreme Court in its decision reported in Hariprasad v. A. D. Divelkar, (S) AIR 1957 SC 121, seems to approve of this position though this question was not specifically answered in that case.
6. The argument of Mr. Chitale the learned counsel for the petitioner in this case is that the business of the petitioner was continuously running at a loss and the management therefore decided to close it down for good. They gave two months' notice to the workers to enable them to find an alternative job in the meanwhile. This was a reasonable time. In these circumstances to compel the owner to pay the workers in accordance with the scheme laid down in Section 25FFF of the Industrial Disputes Act, is to put it to further losses when there were no prospects whatsoever to make them good. The general scheme of the Industrial Disputes Act barring this newly added provision contained in Section 25FFF is that it applied to a running business and not to one which is closed down.
This provision consequently is not in tune with the rest of the Act. He in this connection referred to and relied upon the decisions of the Supreme Court in Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union, (S) AIR 1957 SC 95. The provision in Section 25FFF, according to the learned counsel, unduly and unreasonably restricts the fundamental right of the petitioner to close down the business. It acts as a damper not permissible by the constitutional guarantee under Article 19(1)(g) of the Constitution. The unreasonability of restriction arises, urged the learned counsel, as it applies to all cases of closure of business irrespective of the nature of business, its size, its capacity to pay and the actual need of the employee in the context in which the closure occurred.
It is in the nature of a bounty given to the labour at the cost of an employer who is already bent down due to losses which brought about the closure. The learned counsel referred to the decision reported in (S) AIR 1957 SC 121 and pointed out that although in that case the question as to the grant of compensation under Section 25F of the Act was considered and decided, from the point of view whether the term retrenchment included termination of employment due to bona fide closure of business, yet according to him contentions raised before the Supreme Court regarding constitutional validity of Section 25F, though left undecided, have great force in them, and that restriction imposed upon the quondam employer requiring him to pay compensation on bona fide closure of business irrespective of the size of the concern and its capacity to bear the losses and the period of unemployment of the worker involves over simplification of the complex problem not justified by the purpose of the Act and the necessity of the situation. Such a restriction according to him cannot be said to be reasonable or in public interest.
7. In order to appreciate this contention it is first necessary to consider what is the correct test to determine reasonableness of a statute with reference to public interest. This has been answered by the Supreme Court in a series of decisions reported in State of Madras v. V. G. Row, AIR ;1952 SC 196, State of West Bengal v. Subodh Gopal, AIR 1954 SC 92 and Mohd. Hanif Quareshi v. State of Bihar, AIR 1958 SC 731. In the first mentioned case their Lordships observed:
'It is important in this context to bear in mind that the test of reasonableness, wherever prescribed should be applied to each individual statute impugned and no abstract standard, Or general pattern, of reasonableness can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of given case, it is inevitable that the social philosophy and the scale of values of judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restraint and the sobering reflection that the, Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people have, in authorising the imposition of the restrictions, considered them to be reasonable.'
8. In the last mentioned case, AIR 1958 SC 731, their Lordships said:
'In this connection it will also be well to remember the observation of Mahajan, J., in State of Bihar v. Kameshwar Singh of Darbhanga, 1952-3 SCR 889 at p. 941: (AIR 1952 SC 252 at p. 274), namely, that 'the Legislature is the best judge of what is good for the community, by whose suffrage it comes into existence .....'This should be the) proper approach for the Court but the ultimate responsibility for determining the validity of the law must rest with the Court and the Court must not shirk that solemn duty cast on it by the Constitution.'
9. These observations of their Lordships indicate (i) what the phrase 'reasonable in the interest of the general public' connotes (ii) and what should be correct line of approach in determining whether a particular legislation impugned satisfies the aforesaid test of reasonableness or not at the same time warning that the ultimate responsibility of determining the validity of the law is upon the Court.
10. Before proceeding to consider the question of reasonability of restrictions on the aforesaid lines, it will be interesting and instructive to take a brief account of things which led to the promulgation of Ordinance No. IV of 1957 with retrospective effect and subsequent passing of the Industrial Disputes (Amendment) Act enacting Section 25FFF.
11. Exact scope and constitutional validity of Section 25F came to be considered before the Bombay High Court in (S) AIR 1955 Bom 294, in connection with the transaction of taking over the business of Barsi Light Railway Company by the Central Govt. The workers claimed compensation in terms of Section 25F from the quondam employer which the latter was not prepared to concede on the grounds that the said provision is inapplicable to a business which is closed down and that it contravened his right under Article 19(1)(g) to close his business and that the restrictions imposed by reason of the said provision upon fundamental right of the employees under Article 19(1)(g) of the Constitution, are unreasonable because they confer a right upon a workman to claim compensation whether the business which is closed was run at a profit or loss and irrespective of the fact that a particular termination of service may not result in any detriment to him as when he is employed by another employer or a successor of business without break.
These objections were answered by Chagla, C. J. in that case. He held that in view of the definition of the term Retrenchment as given in Section 2(oo) of the Act with sufficiently wide connotation it cannot be restricted to a running business and could properly include a business which is closed down. Dealing with the objection regarding fundamental right his Lordship observed that the Legislature by requiring an employer to pay compensation to his workers did not dictate to him to carry on his business at a loss. By what the Legislature has provided, all that an employer is required to do, according to him, is to calculate what he will be required to pay if he closes down his business and what loss he will suffer if he carries it on and that there is no obligation imposed upon him either to carry it on or to close it down. Dealing with the two objections regarding unreasonability of restrictions it was observed with reference to the first objection;
'In our opinion that argument is entirely untenable. Labour Legislation has gradually proceeded to standardise several rights of workmen, and when the Legislature standardises these rights, it does not consider whether the employer is making a profit or loss. The legislation is put on the statute book from the point of view of the workman, and what the Legislature is considering 13 what the workman is entitled to receive irrespective of whether the employer makes a profit or not, and Section 25F is nothing more than a further step towards the standardisation of the rights of the workman. 'The Legislature has fixed a certain amount as the proper amount to be paid to a workman whose services have been terminated. What exactly should be the rights of labour, where the line must be drawn, are matters of policy with which the Court is not concerned. But it cannot possibly be said that if the Legislature passes a law in order to improve the status and position of labour and to confer upon it certain rights and to standardise those rights, the restriction imposed upon the employer to carry on his business is not a reasonable restriction or not in public interest.'
While dealing with the other objection on this score :
'It is then pointed out that this restriction is unreasonable because it may confer a right upon the workman, although the termination of his services may not result in any detriment to him. Instances are given where a workman may be dismissed and his services may be continued by the successor business where there may be no break in the continuity of the business at all, and it is pointed out that in such a case the workman has suffered no prejudice by his services being terminated by one business because his services are continued by the succeeding business, In our opinion that is a wrong approach to this piece of legislation.
'What the Legislature was contemplating was the prejudice caused to the workman by his losing his job with a particular employer with whom he was employed. It was not contemplating the possibility of the workman getting employment with the successor business or getting employment with some other employer. There is no obligation on the successor business employing a workman who has been dismissed by the owner of a business to which it succeeds, nor has the workman any guarantee that after his services are terminated he would be re-employed.
'Therefore the Legislature was satisfied with providing for compensation for loss of service without entering into the region of speculation as to whether in certain cases the employee may or may not be employed. We are not also prepared to accept the contention that merely because an employee immediately gets fresh employment or is re-employed by the same business no prejudice or detriment is caused to him. 'If an employee has continued in service for a curtain length of time, the termination of his service by its very nature causes some detriment or prejudice to him. The new business may not have the same security of tenure, it may not be as acceptable as the previous business, and it is precisely because of various human factors which it is impossible to legislate about that the Legislature did not provide for cases where the employee receives employment immediately on the termination of his services.'
12. Thus the objections, as to violation of the guarantee under Article 19(1)(g) in general or by reason of unreasonability of restrictions imposed by the impugned provision, were not accepted by the learned Judge, He held the provision to involve reasonable restrictions in the interest of general public. This case was taken to the Supreme Court. Before that court there was two-pronged attack upon the decision of the Bombay High Court. One line of attack was based on the construction of Section 25F itself and particularly on the exact import and significance of the term 'retrenched' used therein in view of the definition of the term 'Retrenchment' in Section 2(oo) of the Act.
It was contended that having regard to the true meaning of the term in the context in which it is used and the general scheme and object of Industrial Disputes Act the provision can only apply to a running business and not to one which is closed down in the absence of any specific provision to that effect in the Act itself. Such a specific provision, it was said, cannot be imported by the apparently extended definition of the term 'Retrenchment' as introduced by the Industrial Disputes (Amendment) Act No. XLIII of 1953. That definition is quite consistent with the narrower meaning which is in tune with the general scheme and object of the Act.
13. Second line of attack was on the ground that the provision was contrary to the constitutional guarantee under Article 19(1)(g) which enables an employer to close his business, if he so chooses, by placing upon him unreasonable restriction which is in no way in the interest of the general public.
14. Their Lordships accepted the first line of attack as sufficient to demolish the decision ot the High Court. They therefore considered it unnecessary to examine the correctness of the second line off attack. Their Lordships however summarised briefly but clearly the reasoning put forward before them with regard to it thus :
'Under Article 19(1), Sub-clauses (f) and (g) of the Constitution, all citizens have the right to acquire, hold and dispose of property and to practise any profession, or to carry on any occupation, trade or business. Under Clauses (5) and (6) of the said Article, the right is, inter alia, subject to reasonable restrictions in the interests of the general public. The right to carry on a business, it is contended, has three facts (a) the right to start a business, (b) the right to continue a business and (c) the right to close a business. Section 25F of the Act, it is argued, imposes a restriction on that right, if the section is so widely interpreted as to include a closure of business.
The restriction, it is submitted is not a reasonable restriction, in the interests of the general public, because (a) it is unrelated to the capacity of the employer to pay and (b) unrelated to needs of the employee. From the other point of view the argument is that even in respect of a running or continuing industry, Section 25F imposes an unreasonable restriction. Reasonableness, it is submitted, has to be considered with regard to the object of the legislation and if the direct and immediate object of Section 25F is relief against involuntary unemployment, then the restriction imposed is excessive, because a provision for such relief unrelated to the period of unemployment and other relevant factors is over-simplification of a complex problem. Such over-simplification, it is stated, itself amounts to an unreasonable restriction.'
15. This decision was given by their Lord-ships on 27-11-56. This was followed by the promulgation of Ordinance No. IV of 1957 which brought in amended Section 25FF and added another Section 25FFF. The Ordinance was operative from 1-12-1956 although it was promulgated later in 1957. The Ordinance was replaced by Act No. 18 of 1957 f practically in the same terms. In introducing these provisions and particularly Section 25FFF, which is at present before us for consideration, the Legislature appears to have regard to some of the points raised in the argument before the Supreme Court quoted above.
16-17. It is beyond doubt as indicated earlier that an employer has a fundamental right to close his business if he so chooses subject to reasonable restrictions imposed by law in the interest of the general public and the only question is whether Section 25FFF involves unreasonable restriction upon that right and is not in public interest. Bearing in mind the test of reasonability laid down by their Lordships of the Supreme Court and the line of approach to be adopted as suggested by them in their decision in AIR 1958 SC 731 as pointed out earlier, we ought to consider this question. Now the object of all labour legislation is to ensure fair terms to workmen and to prevent disputes between employers and employees so that the production may not be adversely affected and the interest of the general public may not suffer. It is also to raise the position and status of labour and to standardise their rights in relation to industry. This too can well be said to be in the interest of general public.
18. The object of the provisions contained in Section 25F, 25FF and 25FFF is :
(i) to provide for involuntary unemployment,
(ii) to create a sense of security in a workerto a reasonable extent that in case he sticks to hiswork he will not be thrown out in case his employment is terminated either when the industrycontinues to run or when it is closed down forany reason including one due to transfer of business to a new employer or due to its closure onthe ground of expediency,
(iii) to raise the position and status of labour and to standardise its rights, in relation to industry.
19. Now it cannot be said that the provision contained in Section 25FFF involves unreasonable restriction if the object of the provision be as indicated above. If a worker slicks to his job he becomes more adept at carrying it out efficiently. To induce him to do so and not run from one kind of industry to another a certain amount of security is needed. If he is assured of such a security, production will be augmented instead being adversely affected. No one will doubt that such a thing is certainly in the interest of general public as held in (S) AIR 1957 SC 38, Burn and Co. v. Their Employees.
It is also in the interest of the general public to have restriction within reasonable limits upon the fundamental right of the employer to close down his business if such a thing is necessary with a view to raise the status of the workers who had contributed by their labour while it was being carried on and to standardise their rights in relation to it. Where a line is to be drawn with a view to standardise such a right is a matter no doubt of legislative policy. All that the courts need take care of is that such a line is drawn too far so as to pass into the limits of unreasonability or injustice. The proportion of imposition is also kept within well defined limits in the impugned provision and is not arbitrary.
The right of labour and the obligation of industry are sought to be balanced and adjusted so that a worker is paid only fifteen days' wages for one complete year of his service or any part there-of in excess of six months. The case of closure of business for unavoidable circumstances beyond the control of the employer is separately treated and much less burden is cast upon the employer in that situation. No doubt closure due to financial difficulties as in the present case, or due to accumulation of undisposed of stock is not treated as closure due to unavoidable circumstances beyond the control of the employer.
This again may be due to the fact that an employer is expected to either carry on his business with proper care and discretion or with anticipation that in case he finds himself in financial difficulties or allows stocks to pile up leading to closure of his business he will have to bear further loss due to this provision. It may also be due to difficulty in preventing manipulation by the employer in the control of business so as to show tosses where there are none. These are some of the possible reasons. Other reasons may also be there. This again is a matter of legislative policy and as long as the imposition is within certain well-defined and reasonable limits the courts need not interfere.
20. The prevailing conditions of labour inIndia are not similar to those in other countriessuch as England, United States of America, WestGermany and the payment of compensation to a.worker here will not amount to an unnecessarybounty disproportionate to requirement of the situation.
21. For these reasons I, am not pursuaded to hold that the impugned provisions under Section 25FFF of the Industrial Disputes Act violate the constitutional right guaranteed under Article 19(1)(g) or involve unreasonable restriction not to the interest of general public upon that right.
22. The petition is therefore unsustainable and is hereby dismissed with costs. The counsel's fees shall be taxed at Rs. 100/-.
23. I agree. I would like to add the following comments relating to the special circumstances in which this new provision, Section 25FFF of the Industrial Disputes Act, was enacted.
24. The petition and the argument of the petitioner have proceeded on the assumption that this provision has enacted a restriction on the right to carry on or close down any business substantially different in kind from what is already contained in Section 25F of the Industrial Disputes Act, 1947. This is not quite correct. Really, it is the same kind of restriction; in view of a judgment by the Supreme Court, holding that Section 25F did not apply to a case where the undertaking itself is closed down by the employer, this was enacted by Parliament. Formerly, it seems to have been assumed that the word 'retrenchment' as defined in Section 2(oo) as it then stood, also covered a case of the employer's closing down the undertaking.
Though this was the view taken by the Bombay High Court in the Barsi Light Railway case, (S) AIR 1955 Bom 294 the Supreme Court, in, appeal, has made it clear that 'retrenchment' as defined in Section 2(oo) as it then stood, only applied to where the undertaking was still kept running. At the same time, it has not said anything suggesting that a restriction of the kind imposed by Section 25F is unreasonable, or constitutionally bad for any other reason. In fact, that question has been left open.
25. Since Parliament felt that this interpretation of Section 25F by the highest Court left unassisted, a category of workman, which it considered necessary to assist in the same manner as in Section 25F, it forthwith enacted the present provision in Act XVIII of 1957. Subject to the proviso which is in favour of the employer, this new provision gives the benefit of Section 25F to the workman even in case the undertaking is closed down. Broadly speaking, whatever can be said for or against this restriction, can also be urged in respect of the restriction already contained in Section 25F, which in the present form, came into the statute-book in 1953 (Act 43 of 1953) and has not yet been invalidated by any court. There is certainly one difference from the employer's view-point, namely, that the other provision, would apply where he is still running the undertaking. Section 25FFF comes in when, for any reason, he has already closed down, and may find the obligation heavier than if he is still in the business.
But this restriction is primarily one calculated to enable the workman to absorb the shock of unemployment, and rehabilitate himself to save society or the public in general, from the well-known inconveniences and commotion finevitable when a number of workmen are thrown out. Thus, the workmen who are an ascertainable section of the public, and the public as a, whole, are benefited. At the same time, the employer who is closing down is made to bear some additional burden in the interest of the public, in this as in other beneficient labour legislation, he is made the shock absorber between society and the workmen. It is always a difficult and a highly controversial question, how much should be his burden and where the balance should be struck. But it is a problem for the Legislature. The Courts are only entitled to know, whether it is reasonable in general terms to make the erstwhile employer to shoulder this burden. That it certainly is.
26. Thus, it cannot be held that this provision which enables the workmen of a closed undertaking to get the benefits of retrenchment under the original Section 25F is ultra vires.