G. Ramanujam, J.
1. As both the writ petitions arise out of the same award of the Industrial Tribunal, they are dealt with together.
2. The petitioner in the first case is the management and they challenge that portion of the award which is against them. The workmen have filed W.P. No. 3281 of 1971 challenging that portion of the award which is adverse to them.
3. A partnership firm called 'The Mysore Premier Metal Factory' was carrying on business of manufacture in aluminium utensils and other articles from the year 1939. In or about 1945, in order to facilitate its business of manufacture, it purchased the Hindustan Metal Refinery and Rolling Mills. The Government of India gave separate registration numbers for the rolling mills purchased as well as for the undertaking owned by the firm for manufacturing utensils. In or about the year 1965 the management of Jeewanlal (1929) Limited, hereinafter referred to as the company, purchased the two undertakings owned by the Mysore Premier Metal Factory and the change of ownership was recognised by the Government of India separately for the rolling mills and the utensils manufacturing section under the Industries (Development Regulation) Act, 1951. After such acquisition it was found that the machinery and the equipment in the rolling mills were far from trouble-free and required repairs, overhauling and replacement. The working of the rolling mill ever since the purchase by the company resulted in the output being of extremely poor quality which had no market. In or about 1968 the machinery in the rolling mills is said to have become unworkable and the manufactured stocks accumulated to a value of Rs. 10 lakhs. Even though services of experts were requisitioned to suggests ways and means to make the running of the rolling mills worthwhile and remunerative it was found that even if the repairs were carried out at a considerable cost, the quality of the manufactured goods would not improve. Thereafter the company decided to close down the rolling mills which they did by a notice dated 14th October, 1968. Along with that notice, the company also sent individual notices to each worker offering closure compensation, limiting it to three months under the proviso to Section 25-FFF on the basis that the closure was on account of unavoidable circumstances beyond the control of the company.
4. Consequently on the closure of the rolling mills, the union of workers, the petitioners in W.P. No. 3281 of 1971 raised an industrial dispute challenging the validity of the closure in I.D. No. 92 of 1968. As the names of three workmen who had been employed in the rolling mills had been omitted in the first reference, a second reference relating to the non-employment of these three workers was made in I.D. No. 61 of 1969.
5. The Union, in its claim statement filed before the Industrial Tribunal, contended that the rolling mills was not a separate undertaking and as such it was not a case of closure but retrenchment, that the condition precedent to retrenchment as laid down in Section 25-F of the Industrial Disputes Act had not been complied with by the company and therefore the non-employment of the workmen of the rolling mills and the termination of their services were illegal and invalid. It was also contended that the company had contravened the rule of 'last come first go' laid down in Section 25-G of the Act in effecting the retrenchment and that the termination of their services was illegal on this ground as well. The Union alternatively contended that even, assuming that the termination of the employees was as a result of the closure the company would not be entitled to limit the compensation to three months but would be bound to pay the entire compensation under Section 25-FFF.
6. The Company in its counter-statement took up the stand that the rolling mills was a separate undertaking, that it was clearly a case of closure of that undertaking due to unavoidable circumstances beyond its control, that as the statutory obligation to pay the three months' compensation had already been complied with in that the petitioner company had offered the compensation to all the workers affected by the closure, no further question could arise in respect of their non-employment. The Company further contended that the 67 workers had in fact received the compensation for three months offered to them and settled their accounts fully and finally, and that in respect of those workers there could be no subsisting dispute. The Company further contended that on the wording of the reference by the Government once the Tribunal finds that it is a case of closure and it is justified, it cannot go into the question as to whether the closure is due to unavoidable circumstances beyond the control of the company.
7. On these pleadings, the Tribunal, after recording the evidence of the witnesses and after considering the relative contentions of parties with reference to the entire evidence passed a common award in both I.D. Nos. 92 of 1968 and 61 of 1969. It found as a fact that the rolling mills was a separate undertaking and that, therefore, it was a case of closure of an undertaking and not a case of retrenchment. It also found that the closure was due to the financial losses and breakdown of the machinery and that, therefore, the closure of the rolling mills was justified. It, however held that the closure being due to the financial losses and accumulation of stocks, it cannot be said to be due to circumstances beyond their control, that the compensation payable to the workmen cannot be limited to 3 months, and that they are entitled to the entire compensation as laid down in the main part of Section 25-FFF. It also negatived the Company's contention that the 67 workers having received three months' compensation in full and final settlement, they are estopped from reagitating their claims, and held that as the 67 workers had received compensation payable to them at a time when the dispute was pending consideration before the Tribunal, they cannot be estopped from claiming the amount legally and legitimately payable to them under the statute.
8. The Union is aggrieved against the finding given by the Tribunal that the rolling mills is a separate undertaking and that therefore, it is a case of closure and not retrenchment. The management on the other and, is aggrieved against the finding of the Tribunal that the closure of the rolling mills was not due to circumstances beyond the control of the company and that the 67 workmen who have received three months' compensation due to them under the proviso to Section 25-FFF are not estopped from claiming a higher compensation due to them under the main part of Section 25-FFF.
9. Having regard to the contest between the parties in the above writ petitions, the points that arise for consideration are : (1) Whether the rolling mills is a separate undertaking; (2) If the rolling mills is a separate undertaking, whether its closure was due to circumstances beyond the control of the company so as to attract the proviso to Section 25-FFF; and (3) whether the 67 workers who had accepted the three months' compensation from the company pending the reference before the Tribunal is estopped from claiming higher compensation under Section 25-FFF.
10. The question whether the rolling mills is a separate undertaking is the most crucial question for on it will depend the other questions. If the rolling mills is a separate undertaking then the non-employment of 169 workers can be said to be due to the closure of the rolling mills and the workmen will then only be entitled to the closure compensation as provided either under the main part of Section 25-FFF or the proviso thereto. But if the rolling mills is not a separate undertaking, then the non-employment of the workmen will have to be held unjustified as the company has not followed the rule of 'last come first go' provided in Section 25 (G) and the offer of three months' compensation under the proviso to Section 25-FFF (1) cannot be taken to be a due compliance with the procedure for retrenchment under Section 25-F.
11. As already stated, the Tribunal has held that the rolling mills is a separate undertaking by itself and the factors that are taken by the Tribunal in support of that finding are these : The industrial licences were separate for the utensils department and the rolling mills department. The two departments always existed as separate departments. The rolling mills department was housed at No. 61, Gollavar Agraharam Street, and the utensils department was carried on at No. 7, Thandavaraya Gramani Street, where the work of pressing, blending, cutting, fitting and polishing were carried on and the work of washing and packing were done in No. 77, Gollavar Agraharam Street. Though at all times there was only one union of workmen for all the departments, there were separate joint secretaries for the union for each of the three departments. Though the factory licence was common for all the three units and the management was common and a common balance-sheet was prepared for the entire factory and a single standing order existed covering all the workers, the union always took up the stand that the departments were separate departments and no interdepartmental transfer of workmen could be made from the rolling mills section to any other section. No production work was normally carried on in the rolling mills section and the work done in each department was different. Though the circles made in the rolling section were out and fitted in the other sections, that cannot mean that the other sections were not turning out work different from the rolling mills section. The work done in the rolling mills section is independent of the work of manufacture of utensils, though the ingots produced in the rolling mills are used for the manufacture of utensils in the other sections. Thus the rolling factory is not an integral part of the other departments. The ingots and circles required for manufacturing utensils could be got from elsewhere and the utensils manufacturing process could be continued without the rolling mills as the company has been doing before 1965 when they purchased the rolling mills in question. There is no reason for mixing up the rolling mills where manufacture of ingots is done and the manufacture of utensils in the other sections. Thus rolling mills is independent of the other departments. There were separate wage registers and attendance registers for the rolling mills and other sections. The rolling mills had a separate premises with a separate Works Manager. The Workmen in the rolling mills section were entitled to incentive bonus while the workmen in the other sections were not so entitled. There is no controversy between the parties as to the above factual position. The question is whether on these factors, the rolling mill section could be held to be a separate undertaking as has been held by the Tribunal.
12. The word 'undertaking' has not' been defined in the Industrial Disputes Act though it defines 'industry' as any business, trade, undertaking, manufacture or calling of employees and includes any calling, service, employment, handicraft or industrial occupation or avocation of workmen. Section 25-FFF provides for compensation to workmen in case of closing down of undertaking. Having regard to the definition of industry, it is not possible to equate undertaking with industry. In Radio and Electricals Limited v. Industrial Tribunal : (1970)IILLJ206Mad , Alagiriswami, J., had dealt with a case where the mechanical section of an industrial concern was closed down and the question arose as to whether it was a case of closure of an undertaking, under Section 25-FFF or whether it was a case of retrenchment under Section 25-F. The learned Judge, after referring to certain earlier decisions on the point expressed the view thus:
I am of the opinion therefore that this is a case of permissible closure of part of the business of the petitioner company and consequently retrenchment compensation is payable under Section 25-FFF and not under Section 25-F, and such being the case, the payment of the benefits due to the workers is not a condition precedent...
In Hotel Ambassador v. Its Workmen (1963) II L.L.J. 87, this Court held that the closure of a part of an undertaking was permissible.
13. In Hindustan Steel Limited v. Their Workmen 43 F.J.R. 192, the Supreme Court had held that the word ' undertaking ' in. Section 25-FFF (1) of the Industrial Disputes Act is used in its ordinary sense connoting thereby any work, enterprise, project or business undertaking and it is not intended to cover the entire industry or business of an employer and that, therefore, the closure or stoppage of a part of the business or activities of an employer would be covered by the section. The Supreme Court had referred to two of its earlier decisions in. Workmen of Indian Leaf Tobacco Development Company Limited v. Management : 2SCR282 , where the closure of eight out of the twenty-one depots of the company was held to be a closure within the meaning of Section 25-FFF (1) and Parry and Company Limited v. Second Industrial Tribunal, Calcutta : (1970)IILLJ429SC , where it was observed that it Was within the managerial discretion of an employer to organise and arrange his business in the manner he considers best and that if a bona fide scheme for such reorganisation results in surplusage of employees, no employer is expected to carry on the burden of such economic deadweight and retrenchment has to be accepted as inevitable, however, unfortunate. In Workmen v. Straw Board Manufacturing Company : (1974)ILLJ499SC , which appears to be the latest decision on the point, certain tests had been laid down to find out when various units will constitute one establishment. In that case two units, the straw board mill and the Regmal Mill were owned by the Straw Board Manufacturing Company. The Straw Board mill was closed while the other mill continued to function. The question was whether the closure of one unit will attract Section 25-FFF. It was held by the Supreme Court that the most important aspect in a case of closure is to see whether one unit has such a componental relation with the other, whether the closing of one must lead to the closing of the other, or one cannot reasonably exist without the other and whether it is functionally integrated with the other. If the other unit is capable of functioning in isolation without the other it is of very material import in the case of closure, though there is bound to be a shift of emphasis in application of the various tests from one case to another. It referred to the test of functional integrality laid down in Pakshiraja Studios v. Its Workmen : (1961)IILLJ380SC and the test of unity of Ownership and management and control laid down in The South India Mill Owners' Association v. Coimbatore District Textiles Workers' Union : (1962)ILLJ223SC , and stated that the significance of the several relevant factors Would not however be the same in each case. Mr. V. P. Raman, learned Counsel appearing for the company relies on the above decisions of the Supreme Court and contends that the rolling mill is not functionally integrated to the other sections and that even if the rolling mills is closed, the utensils manufacture can go on without interruption. He states that the rolling mills can be closed by the management without reference to the other sections, and the motive of the employer is not relevant for finding out whether the closure of the rolling mills will come under Section 25-FFF.
14. Mr. Ramaswami, learned Counsel appearing for the workmen, on the other hand, contends that the rolling mill is not a separate undertaking and that the case is governed by the principle laid down by the Supreme Court in R. S. Madho Ram and Sons (Agencies) v. Its Workmen : 5SCR379 . According to the learned Counsel the company had purchased in 1965 the entire concern called ' Mysore Premier Metal Factory' which had the rolling mills section as well as the utensils manufacturing section, that therefore it is not possible to separate the two units owned by the same management as rolling mill section and the utensils manufacturing section, that in fact there were certain instances of transfer from the rolling mills section to other sections even though it Was resisted by the workers and that all the workmen are governed by the common standing orders. R.S. Madho Ram and Sons (Agencies) v. Its Workmen : 5SCR379 , dealt with a case of a transfer of Workman from one unit to another under the same management coming under Section 25-FF. In that case it was held that Section 25-FF would not apply if a transfer is made from one department or branch to another which are integrated or inter-related and that to find out whether there are two distinguished and separate businesses, it may be necessary to see whether the muster roll or the conditions of service are common and whether the employees are transferred from one unit to another belonging to the transferor. The learned Counsel construes the above decision as laying down that the most significant test is the test of transferability of the employees from one department to another and in this case though the workers resisted there was in fact one instance of transfer as between the rolling mill section and the utensils-making section. I do not think that the above decision will apply to the facts of this case. In that case the question for consideration was whether the transfer of a part of an undertaking would attract Section 25-FF. The transfer of a portion of an undertaking does not stand on the same footing as the closing down of a portion of an undertaking. It has been consistently held that the closure of a part of an industrial undertaking was permissible. Therefore, even if it is held that the rolling mill section is not a separate undertaking still the rolling mill section as an independent and separate unit of the main undertaking can be closed. Without the rolling mill section the utensils-making section could be carried on and is in fact being carried on by the company both before the acquisition of the rolling mill and after its closure. I have to, therefore, hold that the non-employment of the workers was as a result of the closure of the rolling mill and that it is not a case of retrenchment as contended by the workmen.
15. As regards the second question as to whether the closure was ' on account of unavoidable circumstances beyond the control of the employer ' so as to attract the proviso to Section 25-FFF (1) the Tribunal has taken the view that the closure was not due to unavoidable circumstances beyond the control of the company. But on the facts, I am not inclined to accept the view of the Tribunal. The case of the company is that the rolling mills purchased by them in 1965 consisted of machineries which were old and worn out, that all efforts taken to set right the same had failed and that even if the machinery could be set right the sub-standard articles produced cannot have a market at all in the face of the products manufactured by the rolling mills having latest, up-to-date and sophisticated machinery. It is because of that reason the company is said to have accumulated large stocks which could not be marketed. The Tribunal, while accepting the case of the management that the machinery in the rolling mills was out-dated and that there has been financial loss due to accumulation of stocks, proceeds to state that the company having purchased an out-dated and old machinery should have taken steps to repair the existing machines or replace the same by new machinery but it went on getting work from the machinery as a result of which the machinery was getting worn out and becoming useless for any further operation. It therefore took the view that the closure of the rolling mills was not due to circumstances beyond the control of the company. The question is whether the view taken by the Tribunal that the company should have replaced the worn-out machinery long earlier and by the continued working of the out-dated machinery the company placed itself in a position that it cannot work profitably is justified. I am not inclined to agree with this view of the Tribunal that the company should have replaced the out-dated machinery by new and sophisticated machinery at a considerable cost as to see that the rolling mill continues to run and that because of its failure to do so it cannot claim that the closure was due to circumstances beyond their control. The documents produced in the case show the very many attempts made by the company to rectify the defects in the machinery of the rolling mills and it is only when all their attempts failed to produce any substantial results, they decided to close the rolling mills. It is also seen that the company took the services of certain experts in the field and they had reported that even after repairs and replacement of some machinery the rolling mills cannot work profitably as the entire machinery was obsolete and that to make the working of the rolling mills profitable the entire machinery should be replaced with new modern high speed ones. One of such reports is contained in Exhibit M-10, dated 16th September, 1968. From the said report it is seen that the rolling mills had been working for half a century, much more than the lifetime of similar mills, that it is very uneconomical and risky to work it any further, that notwithstanding the repairs done several times in the past to the machinery, the continued running of the rolling mills is not possible unless there is a complete re-machining and realignment and that the damages to the existing machinery were so extensive in nature that unless the rolling mills is stopped and the machineries dismantled it may result in a serious break-down involving risk and danger to men and machinery. The report further states that even if the existing damages to the machinery are rectified, it will produce only sub-standard products as it has been doing since many years. From the report it is also clear that the main shaft and the gear box etc., were dismantled for the purpose of effecting repairs but it was found after dismantling that the condition of those machineries were such that even after their repairs they are likely to give constant trouble in operation leading to frequent break-down as a result of the worn out condition of most of the component parts of wooden gearing, couplings, main rolling stand guides etc. In answer to query from the company whether the products of the rolling mills even after complete overhauling and repairs at a considerable cost, will con-form to Indian Standards for rolled products to be used for manufacturing utensils, the report says that since the erection of the mill with slow-speed machinery and its working for over half a century, the technology and techniques have advanced so considerably that the new high-speed machinery erected in modern rolling mills produce materials in much larger quantities at a very fast rate which alone can conform to the standards drawn by I.S.I., and that even after considerable repairs at heavy cost the rolling mill of the company could not produce materials conforming to I.S.I, standards. In Exhibit M-11 which is a report given by the Madras Aluminium company limited whose services were also requisitioned to rectify the defects in the machinery the Company had reported that it is apparent that normal wear coupled with operation of the equipment in a mechanically unsatisfactory condition have resulted in a situation where it appears inadvisable to attempt to repair this equipment, and that even if the equipment is restored to a mechanically workable condition, it will have a very low productivity and the quality of the products--circles for utensils manufacture will also be poor, as the installed machinery is out-dated and has outlived its usefulness. There is also one other factor which is crucial which has not been referred to by the Tribunal. In Exhibit M-7 the Government of India had specifically pointed out that as the aluminium utensils are being used for domestic purposes, it is considered dangerous to health if sub-standard materials are used in the manufacture of utensils which are declared as essential commodity under the Essential Commodities Act, 1955, that in order to safeguard against health hazards of the users of aluminium utensils, the manufacturers of aluminium sheets should adhere to the I.S.I. specifications to ensure that the aluminium sheets used for the manufacture of utensils should be of the prescribed specifications. This direction taken along with the experts' report in Exhibit M-10 show that the company cannot continue to produce sub-standard material as they have been doing before and that the company will be committing an offence under the Essential Commodities Act if it produced sub-standard products by working the rolling mills. From the facts set out above, it is clear that unless the rolling mill is modernised by replacing the existing machinery with the latest, upto-date and sophisticated machinery at a huge cost it was not possible to work the mill profitably or without offending the law. The question is whether the company is bound to do so for providing continued employment to the workmen.
16. In Bhattackarjee Rubber Works v. B.R.W.W. Union : (1960)IILLJ198Cal , the Calcutta High Court dealing with the scope of the expression ' unavoidable circumstances beyond the control of the employer ' in the proviso to Sub-section (1) of Section 25-FFF expressed the view that all that the employer is required to do is to use ordinary diligence, that he is not called upon to make any special efforts to avoid the circumstances leading to the closure that an employer is entitled to run his business in a normal manner meeting emergent situations and applying normal remedies but that he is not called upon to take extraordinary measures or incur extraordinary expenses in order to continue to run his business. The following observations by Sinha, J., in that case are pertinent:
The question is what is the meaning of the words ' unavoidable circumstances beyond the control of the employer '. The idea behind the introduction of Section 25-FFF appears to me to be quite clear. If an employer chooses to close his business, there is nothing in the Act preventing him from doing so. If, however, he chooses to do so arbitrarily and without any reasonable cause, then he has to pay compensation to the workmen as if they were retrenched. But if he has to close his business due to unavoidable circumstances beyond his control, then compensation payable will be very much less. It would be observed that there are two pre-conditions to bring the matter within the scope of this section. The closure must be due to circumstances which could not be avoided by the employer, and the circumstances which justify the closure must be such as cannot be controlled by the employer.
In Hathising Manufacturing Company and Ors. v. Union of India : (1960)IILLJ1SC , the Supreme Court had held that where the closure is merely on account of financial difficulties or accumulation of undisposed stocks, it cannot be said to be due to circumstances beyond the control of the employer, for such factors may be temporary and may be brought about by mismanagement, deliberate or otherwise, directly attributable to the employer. But in assessing whether the circumstances for the closure were beyond the control of the employer the fact that the employer has suffered financial losses or there is accumulation of stocks cannot be excluded from consideration and if the closure is not merely due to financial difficulties or temporary accumulation of stocks but also due to causes such as unfavourable market conditions and impossibility of making any profit in future etc., that may justify the view that the closure is due to unavoidable circumstances beyond the control of the employer. In Kalinga Tubes v. Their Workmen : (1969)ILLJ557SC , the Supreme Court had laid down that wherever there is a closure of an undertaking the burden is on the undertaking to bring the case within the proviso to Section 25-FFF and to prove that the circumstances were unavoidable and were beyond the control of the company for closing down the undertaking, that except in cases where the working of the factory would involve unusual exertion or expenses and it is impossible for the management to continue the working of the factory in the prevailing circumstances, the closure cannot be said to be beyond the control of the employer. The Supreme Court observes:
The explanation appearing in the proviso gives some indication of the anxiety of the Legislature to expressly rule out certain contingencies which ordinarily could have been pleaded by the employer as unavoidable circumstances beyond his control. In the normal working of business of a commercial undertaking financial losses or accumulation of undisposed of stocks and the expiry of the period of the lease or the licence can ordinarily go a long way in establishing that it has virtually became impossible to carry on the business. For instance, if a company is, heading towards liquidation, its business will, in normal course, have to be closed down. Similarly if the period of lease of the site on which a factory has been set up has expired and there is no provision for its renewal or extension, it would ordinarily present insurmountable difficulty in the way of the working of an undertaking by a company or a commercial concern. Notwithstanding all this the Legislature provided that in spite of the aforesaid difficulties or impediments or obstacles the conditions of the proviso would not be satisfied merely by the happening or existence of the circumstances embodied in the explanation. The reason for doing so seems to be that whenever such difficulties, as are mentioned in the explanation, arise, the employer is not expected to sit idly and not to make an all-out effort like a prudent man of business in the matter of tiding over these difficulties for saving his business. The Legislature was apparently being very stringent and strict about the nature of the circumstances which would bring them within the proviso. The laying down of two pre-conditions therein in the language in which they are couched is significant and must be given due effect.
In view of the above pronouncement by the Supreme Court the circumstances such as the nature and condition of the machinery which can only produce sub-standard products by the company and the prohibition by the State of the manufacture in future of such sub-standard products which cannot conform to the I.S.I, standards and the difficulty in marketing those sub-standard products in a competitive market where products manufactured by some modern sophisticated mills are available, have to be taken to be unavoidable circumstances beyond the control of the company. I am not inclined to agree with the learned Counsel for the workmen that as a prudent employer, the company should have avoided the situation by replacing the old and worn-out machinery by more modern and sophisticated machinery by the use of the amount of depreciation and other allowances allowed under the Income-tax Act. The employer is not compelled by the statute to involve himself in unusual exertion or expenses with a view to avoid any particular circumstance necessitating the closure of the business. The facts proved in this case clearly establish that the matter has gone out of the company's hands and that even with ordinary and due diligence the machinery in the mill cannot be worked profitably. For the foregoing reasons I cannot agree with the view taken by the Tribunal that the closure of the rolling mills will not fall under the proviso to Section 25-FFF (1). The company is, therefore, entitled to invoke the proviso to Section 25-FFF (1).
17. In view of the fact that the workmen have been held to be entitled to compensation under the proviso to Section 25-FFF (1) the third question as to whether the 61 workers who have received payment of compensation as per the proviso are entitled to claim a higher compensation does not arise for consideration.
18. The result is Writ Petition No. 1419 of 1971 is allowed and the rule nisi issued therein is made absolute. Writ Petition No. 3281 of 1971 is dismissed. There will however, be no order as to costs in both these petitions.