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Musaliar Industries (Private) Ltd. Vs. State of Kerala and ors. - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtKerala High Court
Decided On
Judge
Reported in(1960)IILLJ341Ker
AppellantMusaliar Industries (Private) Ltd.
RespondentState of Kerala and ors.
Cases ReferredLtd. v. Ispahani Employees
Excerpt:
- - 2. while this dispute was pending, the tribunal had passed an interim award directing the management either to reinstate hussankutty or to pay him salary till the final disposal of the dispute, and the management, having failed in the appeal against the order, had paid hussankutty his salaries till the end of november 1956. meanwhile a. thangal kunju musaliar, as well as the donor, executed a mortgage of the properties in favour of the state government. it is, therefore, well settled that the government's power under section 10(1) of the industrial disputes act is not judicial, and when considering a question from the point of view of policy and expediency, it is not under a duty to act judicially......that the same business of working the cashewnut factories wa3 being carried on by the petitioner-company. the business would not become different had the old management before reopening taken a fresh lease, and we do not see what difference it causes where the new management begins to carry on the same business under a fresh lease.11. we are not called upon to decide how far the petitioner-company has been justifiably called upon to reemploy some one who had not been employed when the former employer had closed the business, for hussankutty though dismissed in 1955, and because of the interim award, had been continued in service till november 1956. therefore his position would not be different to that of other employees when the factories were closed due to financial difficulties. the.....
Judgment:

M.A. Ansari, J.

1. The petitioner seeks certiorari to vacate the award by the industrial tribunal, Trivandrum, in I.D. No. 212 of 1955. Thereby the petitioner's management has been directed to reinstate one Hussankutty with back-wages, which must include the salary and allowances Hussankutty was getting from the date they were stopped till the date of his reinstatement. Prior to the dispute this Hussankutty was a clerk in the Eruva Cashew Factory of A. Thangal Kunju Musaliar & Sons (Private), Ltd., hereinafter referred to as A.T.K.M. & Sons, Ltd. That company was then engaged in caehewnut business, and was working 26 cashew factories. It is alleged that the number of labourers employed in all the factories came to about 17,000. One Thangal Kunju Musaliar was the managing director of A.T.K.M. & Sons, Ltd., and Mrs. Nafeesa and Mrs. Aiysha Beebi, the other directors. On 27 July 1955, Hussankutty, who had been employed for nearly seven years, was called by the managing director, and was told that his services had been terminated which effect from that date. The tribunal has found that the clerk before his dismissal was intimately connected with the move to form a trade union of the employees of A.T.K.M. & Sons, Ltd., which union was registered a few days after the clerk's dismissal. Thereupon a dispute arose between the employees' union, and the management, and the Government had, by order of 29 November 1955, referred two questions to the tribunal. We are not concerned with the second, and the first of the questions reads as follows:

Is the dismissal of Hussankutty, a clerk attached to the Bruva Cashew Factory of A.T.K.M. & Sons, Ltd., justifiable, and if not, to what relief is he entitled?

2. While this dispute was pending, the tribunal had passed an interim award directing the management either to reinstate Hussankutty or to pay him salary till the final disposal of the dispute, and the management, having failed in the appeal against the order, had paid Hussankutty his salaries till the end of November 1956. Meanwhile A.T.K.M. & Sons, Ltd., found itself in difficulties and in August 1956 stopped working the factories due to various reasons, the most important of which is stated to be the financial breakdown brought about by excessive income-tax assessment. The closure is said to have created a serious industrial unrest in the Quilon area, and to have thereby caused anxiety to the State Government. After negotiations, the State Government agreed to guarantee a loan of Rs. 20 lakhs from the Central Bank of India, Ltd., to Sri A. Thangal Kunju Musaliar, and on 7 March 1957, the donees of A. Thangal Kunju Musaliar, as well as the donor, executed a mortgage of the properties in favour of the State Government. This was in consideration of the Government's having guaranteed the loan by the Central Bank of India. In Para. 6 of the affidavit furnished in support of this writ petition, it has been averred that in fulfilment of the promise to provide employment for the workmen, who were rendered unemployed by the closure of A.T.K.M. & Sons, Ltd., a new company by the name 'Muealiar Industries (Private), Ltd.' was inaugurated, and its certificate of incorporation is also dated 7 March 1957. This new company is the petitioner before us, and appears to have reopened the factories in April 1957.

3. The Government has, by order of 16 September 1957, added the petitioner-company as a party to the dispute that had been earlier referred to the industrial tribunal and purports to have done so in exercise of powers under Section 10(5) of the Industrial Disputes Act, 1947. The tribunal, thereafter, proceeded to adjudicate on the first question referred to it and has found the petitioner-company to be A.T.K.M. & Sons, Ltd., in another garb. It has, therefore directed the petitioner-company to reinstate Hussankutty in service with back-wages, which order this petition seeks to vacate on three grounds. Before enumerating these, we would state that there are four respondents to the petition. Of these the State of Kerala is the first; the industrial tribunal, Trivandrum, the second; A.T.K.M. & Sons (Private), Ltd., the third; and the employees' association the fourth. Now the grounds taken for vacating the award are that:

(1) The petitioner-company, having no connexion with A.T.K.M. & Sons, Ltd., having a distinct and separate personality and having succeeded to no rights and obligations of A.T.K.M. & Sons, Ltd., cannot be impleaded to the dispute that had arisen earlier, and the State Government act was ultra vires.

(2) The petitioner-company is neither a successor, nor an assignee in respect of the same hjjsineaa and therefore the tribunal's direction concerning the employee of A.T.K.M. & Sons, Ltd., being raemployed by the petitioner is not justified.

(3) As there was no contractual relation between the petitioner-company and the dismissed employee, the tribunal's direction of reinstatement is wrong.

4. It is clear from Ex. P. 5, which is the certificate of incorporation that the petitioner-company has been registered with a share capital of one crore and Sri Thangal Kunju Musaliar is not on the board of directors. It is also stated that the petitioner-company has commenced the business after having taken a fresh lease of the cashewnut factories worked by A.T.K.M. & Sons, Ltd., from the persons to whom they had been gifted earlier. Moreover there is no document showing the petitioner-company having taken over any of the assets or liabilities of A.T.K.M. & Sons, Ltd. The employees of the latter are also stated to have been engaged on basis of fresh agreements. The petitioner-company, however, admits the owners of the factories having earlier mortgaged them to the Government 'because of the guarantee by the Government for the loan, and the loan has apparently facilitate the factories being again reopened. The mortgage deed is not before us, but parts of the document had been given in the tribunal's award and may be usefully reproduced here. One such extract runs thus:

Whereas all the said factories now remained closed and locked up due to want of funds for working capital and which has resulted in the unemployment of a large number of workers, and whereas the first mortgagor, A. Thangal Kunju Musaliar on behalf of the mortgagors has approached. the mortgagee with the request that he would pay up the arrears of the income-tax in accordance with the specific directions of the Central Board of Revenue and open and resume working of all the said factories provided he is able to get overdraft accommodation for rupees twenty lakhs with the Central Bank of India, Ltd., for which the bank is amenable, if only the mortgagee would stand guarantee.

The next passage reads as fellows:

And whereas the mortgagors have requested the mortgagee to stand guarantee to the Central Bank of India, Ltd., for the sum of Rs. 20 lakhs to be advanced to A. Thangal Kunju Musaliar and whereas the factories have fallen into disrepair and the goodwill is in danger of being lost-occasioning considerable loss to the mortgagors, and whereas the mortgagee is anxious that the workers who had been thrown out of employment due to the closing of the factories are all provided with work in the factories.

The third important extract in the award is Clause 6 of the deed which provides:

the mortgagors shall within one month from the date of execution thereof reopen all the factories, resume working and re-employ all the employees who were working in the factories on or immediately before the fourth day of April 1956.

At this stage, we would also quote the following passage from Ex. P. 1 which is the letter of guarantee:

In consideration of your, at the request of the Government of Kerala State (hereinafter called the Government), making advances or otherwise giving credit to Sri A. Thangal Kunju Musaliar, businessman Kandacnalil House, Kilikolloor village, Quilon (hereinafter referred to as the principal) whether to him alone or to him jointly with any other party or parties, and whether by allowing him to overdraw his account or by discounting bills, hundis or drafts of any kind and/or otherwise howsoever, the Government guarantee payment to the bank of the amounts of all such advances and credits and of interest, commission, costs, charges and expenses chargeable by the bank in respect of such advances and credits provided that the Government shall in no event be liable under his guarantee to pay to the bank a sum exceeding Rs. 20 lakhs.

5. It is therefore clear that the petitioner-company, though it be having a different juristic personality, has been inaugurated to discharge the obligation of employing again the workers of A.T.K.M. & Sons, Ltd., and to preserve the old goodwill from destruction. It is equally clear that it has had the benefit of the loan from the Central Bank, without Which apparently the factories could be neither reopened nor worked. Therefore the question arising for decision in the writ petition is how far the petitioner-company has, in such circumstances, been rightly held as the successor in respect of A.T.K.M. & Sons, Ltd.

6. The counsel for the petitioner has firstly urged that a person cannot be impleaded as a party to the labour dispute in exercise of powers under Section 10(5) of the Act unless the management be having some interest in the question of wages or condition of service pending adjudication before the tribunal. He has further argued that as the petitioner-company had no such interest, the Government order of 16 September 1957 was ultra Hires. In support of the argument he relies on the observation Rajagopalan, J. in S.R.V.S., Ltd. v. State of Madras 1956 I L.L.J. 498 at 506, that:

Section 10(5) of the Act is an enabling provision to extend the scope of reference for adjudication of an industrial dispute which by itself affects only a given industrial establishment. But the conditions prescribed by Section 10(5) of the Act are not present in the case. It cannot be said that the dispute in the case, whether the dismissal of Natesan was justified, was of such a nature that any other establishment group or class of establishment of similar nature is likely to be interested in or affected by such a dispute within the meaning of Section 10(5) of the Act.

We do not take the learned Judge as thereby deciding that the exercise of power under Section 10(5) of the Act is judicial, and can be supervised under Article 226 or 227; for there are cogent reasons against treating the power under sub-section to be such. In the State of Madras v. C.P. Sarathy 1953 I L.L.J. 174 at 179, Patanjali Sastri, C.J., while dealing with the Court's jurisdiction over exercise of powers under Section 10(1) of the same Act, has observed as follows:

But it must be remembered that in making a reference under Section 10(1) Government is doing an administrative act and the fact that it has to form an opinion as to the factual existence of an industrial dispute as a preliminary step to the discharge of its function does not make it any the less administrative in character. The Court cannot, therefore canvass the order of reference closely to see if there was any material before the Government to support its conclusion, as if it was judicial or quasi-judicial determination. No doubt, it will be open to a party seeking to impugn the resulting award to show that what was referred by the Government was not an Industrial dispute within the meaning of the Act and that, therefore, the tribunal had no jurisdiction to make the award.

7. Moreover it has been again, held in Radeshyam Khare v. State of Madhya Pradesh 1959 S.C J. 6 that certiorari would not He to correct errors of a statutory body which was invested with purely administrative functions and Das, C.J., has held therein that in arriving at the conclusion about the Committee's not being competent to perform the duties imposed on it, the State Government was performing only an administrative function. It is, therefore, well settled that the Government's power under Section 10(1) of the Industrial Disputes Act is not judicial, and when considering a question from the point of view of policy and expediency, it is not under a duty to act judicially. It follows that the powers under Section 10(5) of the Act cannot be differently construed; and the rule of ejusdem generis would apply to the several powers under the different sub-sections of the same section. Therefore the observation in the case relied on behalf of the petitioner-company is not of much assistance. The Question whether the tribunal has jurisdiction to adjudicate against the petitioner-company is a different one, which must be determined under what constitutes the second attack against the award.

8. The counsel for the petitioner has next argued that his client could be bound as the successor only when the business of A.T.K.M. & Sons, Ltd., has been taken over as a going1 concern with continuity of service for the employee. In support of this argument, he relies on a passage in Workmen, Dimakuchi Tea Estate v. Dimakuchi Tea Estate 1958 I L.L.J. 500 where the Supreme Court stating the two aforesaid ingredients urged before it in order to constitute transfer of business had declined to adjudicate on the argument, as the case was being decided on a different point. Therefore, the case is no authority for the argument pressed before us. The counsel has next relied on Odeon Cinema v. workers of Sagar Talkies 1954 II L.L.J. 314 where Rajagopalan, J., has held that no succession had occurred because of the hiatus between the workings of the cinema business by the two managements, there being no link to connect them, and that the fact of a somewhat similar business being carried on in the same premises would not be sufficient, it was also held that the dispute between the persons agreed to be taken for employment but not taken and the person who agreed to employ them could not be an Industrial dispute. The appeal against this decision was dismissed by Bajamannar, J. [vide Workers of Sagar Talkies v. Odeon Cinema 1957 I L.L.J. 639. Another case relied by the counsel is Arunachala Pillai v. Central Government Industrial Tribunal 1957 II L.L.J. 682. Here some of the buses run by the former employer had been purchased by another, the former employer had dispensed with the services of the workmen as a result of the sale of the buses, and the purchaser was held not bound to pay compensation to the retrenched workmen. So deciding the learned Judge has followed Odeons case 1954 II L.L.J. 314 as an authority for the proposition that transfer of some asset of the business does not constitute the transferee a successor-in-business. Finally the counsel has relied on Ispahani, Ltd. v. Ispahani Employees' Union 1959 II L.L.J. 4 where the business of a company including goodwill, trade rights, properties, assets and stock-in-trade were taken over by a new company; but the services of the workmen under the old company were treated as having been terminated, though they were entertained in service by the new company, there being no express or implied undertaking regarding continuity of service. The Supreme Court has held that the concerned workmen in these circumstances are not entitled to claim continuity of service.

9. In order to sustain the award, the counsel for the first respondent has relied on New Gujarath Cotton Mills, Ltd. v. Labour Appellate Tribunal 1957 II L.L.J. 194. Here the factory for manufacture of cotton textiles was closed in October 1952, the company was wound up, the official liquidator sold the goodwill and the factory, and the purchaser-company began work in November 1953. In this context, Shah, J., has held that labour courts have taken a different view about the duties and obligations of a successor-in-business should the successor decide to continue the same business, and have held the employees of the old concern entitled to submit their disputes to the tribunal regarding their rights and obligations. The learned Judge has further held that these rights and obligations must be regarded as continuing and enforceable against the new management, and not affected by the substitution of the new management for the old. While rejecting the argument that as the work of the factory had stopped for more than a year prior to the date at which the sale-deed was executed, there would be the legal impossibility of anything in the nature of a succession to a business, the learned Judge has observed:

Even if the factories of the company had stopped working, it is difficult from the circumstances to arrive at a conclusion that the business of the old company had ceased. There is necessarily no direct connexion between the stoppage of the factory and the stoppage of business of the concern. For diverse reasons the factory may have been closed, but that does not lead to the conclusion that the business comes to an end. Again the goodwill of the business is inclusive of positive advantage such as carrying on the commercial undertaking at a particular place and in a particular name, and also its business connexions, its business prestige, and several other intangible advantages which a business may have acquired. Unless there is clear evidence to show that this goodwill which was intended to be sold and in fact sold by the liquidator to the new company, was nothing1 but a name, we will not be justified in holding that no real and substantial goodwill of the old company was conveyed. In corning to that conclusion we are impressed by the circumstances that the goodwill has been separately mentioned and has been valued in the sale-deed.

10. The case therefore supports the proposition that interruption of or gaps in doing business are not always decisive, and a purchaser of such a business may become its successor. The same High Court has in Chavan v. Sawarkar 1958 I L.L.J. 36, held the principle deducible from the several decisions to be that the employees of a business are entitled to all the rights and privileges acquired by them by reason of past services even after transfer of business, provided there be continuity of service and identity of business. These cases of the Bombay High Court do not support the view that the succession to business, which carries with it the obligations of the predecessor, only happens where there be no interruption between the predecessors carrying and the successors starting the business. We also think that gaps in carrying on a business by different persons should not be destructive of what the employees have acquired; for once gaps in ; working a business by the same management be held not to constitute a break in employment, the rule should not be different with change of management in similar condition. The conclusion therefore, is justified that where the identity of business be not destroyed by the interruption the outgoing and incoming management would be doing the same business. In the first Bombay case ouch an identity was held established because of the purchase of the goodwill at a high price, but that need not happen in every case in order to arrive at a similar conclusion. In the case before us the stoppage of work had caused considerable unemployment and the loan had been arranged for A.T.K.M. & Sons, Ltd., to facilitate workers being reemployed. Had A.T.K.M. & Sons, Ltd., reopened the factories, the gap would not be of importance, and we do not see how the petitioner-company's resuming the work changes the situation. The same factories were being worked with the same goodwill, in discharge of the obligation to employ those who had been thrown out of work, and with the aid of the loan given to A.T.K.M. & Sons, Ltd. In these circumstances it is but a fair inferrence to draw that the same business of working the cashewnut factories wa3 being carried on by the petitioner-company. The business would not become different had the old management before reopening taken a fresh lease, and we do not see what difference it causes where the new management begins to carry on the same business under a fresh lease.

11. We are not called upon to decide how far the petitioner-company has been justifiably called upon to reemploy some one who had not been employed when the former employer had closed the business, for Hussankutty though dismissed in 1955, and because of the interim award, had been continued in service till November 1956. Therefore his position would not be different to that of other employees when the factories were closed due to financial difficulties. The counsel for the petitioner has relied on Ispahani, Ltd. v. Ispahani Employees' Union 1959 II L.L.J. 4, in support of the argument that the position of the old employees becomes fundamentally different with new contracts, and urged that because the petitioner-company has entered into new contracts with the old workers, the business cannot be the same., We do not take their lordships of the Supreme Court as overruling in the case the principle generally followed by labour courts that in determining continuity of service importance is attached to the factual continuance of employment. It follows that such continuity was held not established in the case. At any rate, we do not think new contracts in favour of a new management, inaugurated for honouring the undertaking of continuing in employments those who have been thrown out, because of the financial difficulties of the earlier employer, can be treated as destroying the workers' continuity of service. It would be more fair to inter that new contracts have been entered into because of the new management. The second ground for vacating the award therefore fails.

12. The third ground can be shortly dealt with. If the new employer be burdened with the obligations of the old employer, the industrial tribunal, would be within its jurisdiction if it were to give effect to such an obligation. Such an order would then be based, not on the contractual relation between the new employer and the employee but on the obligation of the new employer due to the succession in business, and we have already decided the legal position of the petitioner-company to be such. For these reasons, we think this petition falls and we dismiss with costs of Rs. 100 to the first respondent. We need not adjudicate on the complaint of the third respondent, for if the old employer was anxious to challenge the correctness of the award, it ought to have filed a writ petition.


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