1. The Metro-Goldwyn Mayer India Limited, an Indian Subsidiary firm of the American Company, 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 seventeen persons, mainly as clerical personnel, in the eight Sections of its office. With effect from 20th September, 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 referred by the Government to the Industrial Tribunal, Madras, for adjudication.
2. In an elaborate order, the Tribunal held that the retrenchment of the seven persons was not justified, and directed that they should be reinstated 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 Ayyar, 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 Ayyar, 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 "last to come, first to go", which principle finds expression in Section 25-G 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 Ayyar, 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 Easwaran, Mani Ayyar, 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 & Steel Co. v. Mazdoor Union approving the dicta in Western India Automobiles Association v. Industrial Tribunal, Bombay (1949) F.L.J. 154 : 1949 F.C.R. 321 : A.I.R. 1949 F.C. 111:
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 v. Mettur Industries Limited , observations have also been made to the offect 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 Article 226 of 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 socpe and functions might be,
their powers are derived from the statute that creates them, and they have to function within, the limits imposed there. Bharat Bank Limited v. Employees of Bharat Bank (1950) S.C.R. 83 : (1957) S.C.R. 121 : A.I.R. 1957 S.C. 121
What Balakrishna Ayyar, 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 events, 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 films 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 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 percent, 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 crippling 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 30th August,. 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 staring 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 Ayyar, 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 imposed 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.
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 findings, 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, amounts 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 this period or any period. Indisputably, the question is that of justification from the standpoint of the Indian Company, and its Madras Branch. Actually, what happened was that the subsequent turn of events was more favourable 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 figure. Finally, we may note that the Tribunal took the view that the loss of nearly Rs. 20,000 was not an 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. It found that 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 increase in Customs Duty and restrictions on quota of imported films, and on account of the actual loss experienced up to that date. But the Tribunal examined the decision in the light of subsequent events, and came to the conclusion that, in the light 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 retrenchment and not a possibility or even a likelihood of reduction ii, 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 some time in the future. If there is no actual reduction in the business in presenti, the work in the office will remain the same, so that any retrenchment in the expectation of the reduction of the business in the futwre will only increase the work load of the retained staff.... So long as the office 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 dead weight of uneconomic surplus, to use the language of their Lordships of the Supreme Court and till such surplus is established, retrenchment Gannot be effected.
7. We have no doubt whatever that, in the light of the principles as laid down by the authorities, and a scrutiny of Industrial Law not morely 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.
8. As far as the Industrial Disputes Act itself is concerned, it is well-known that "retrenchment" is defined in Section 2 (ee) 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 the Barsi Light Railway case (1957) S.C.J. 83 : (1957) S.C.R. 121 : A.I.R. 1957 S.C. 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 J.K. Iron & Steel Co. v. Mazdoor Union . 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 dead-weight 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 Macrobile & Co. v. Their Employees Union (1958) 2 Lab. 497, the judgment of Rajagopalan, J., in India Tyre & Rubber Co. v. Their Workmen (1957) 2 Lab. L.J. 506; Tata Oil Mills Co. Ltd. and their workmen (1953) 1 Lab. L.J. 45; Viswamitra Press and their workmen (1952) 2 Lab. L.J. 181 , and Presidency Jute Mills Co. v. Their Employee Union (1952) 1 Lab. L.J. 796.
9. Certain broader aspects of the situation that we are now confronted with, may be referred to here. Obviously, there are two poles of this concept of Industrial Law, as related to the right of an employer to retrench. Intermediate positions are, of course, also possible. On the one hand, we may have a policy of laissez 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 irrelevent, provided that the contract permits such a discharge upon any alleged pretext, of restriction 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 regaards its justification, both upon bona fides 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 Viswamitra Press and their workmen (1952) 2 Lab. L.J. 181 (relied upon by the Tribunal) and Presidency Jute Mills Co. Ltd. v. Their Employee Union (1952) 1 Lab. L.J. 796, 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 th at 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 Ayyar, J., has stressed, the alleged later increase in the workload is quite irrelevant. It may very well be, that originally, this office was somewhat over-staffed and the individual members some what under-employed. If the retained staff had been working over-time, 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 must reiterate that, so long as the private sector is permitted to exist, and managements in that sector run the hazards of industry, it would be totally unjustified to substitute 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 dead-weight of uneconomic surplus the management should not act upon incurred loss and threatened dangers, but must wait For the loss to prove overwhelming; 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 a scheme of rationalization. As far as the situation that we are discussing is concerned, there is obvious force in the dictum of Balakrishna Ayyar, J., that
A wise captain does not wait for the slorm to strike. He takes in sail or makes for port, before storm breaks.
10. In Macrobllo & Co. v. Their Employees Union (1958) 2 Lab. L.J. 497, the Supreme Court was concerned with retrenchment effected, not because of loss and 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 India Tyre and Rubber Co. v. Their Workmen (1957) 2 Lab. L.J. 506 Rajagopalan, J., said
that observation, in my opinion, does not justify the contention, in my opinion, 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 six per cent, on the paid-up capital.... The dead-weight of an unconcomic 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) strenously contents 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 upheld by the Industrial Tribunal; at least, it is indisputable that they are closely inter-related. What we are quite unable to concede is that, even in such a perspective, justification could be 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. Verma v. Mettur Industries Ltd. , to the effect (page 87) 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 these observations could be pressed into service, when considering a wholly different case of retrenchment owing to industrial necessity.
11. 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 Edition), 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 employess, is deemed discriminatory.
In brief, in the United States 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 of labour to proof of justification before retrenchment is upheld by an Industrial Tribunal.
12. In 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.