1956 (11) TMI 34 - SC - Indian Laws

Supreme Court rules no retrenchment compensation for business closure or transfer.

HARIPRASAD SHIVSHANKER SHUKLA Versus AD. DIVELKAR

The Supreme Court allowed the appeals, setting aside the decisions of the High Court of Bombay. The Court held that the appellants were not liable to pay ... - Issues Involved:1. Jurisdiction of the authority under the Payment of Wages Act, 1936.2. Entitlement to retrenchment compensation under clause (b) of Section 25F of the Industrial Disputes Act, 1947.3. Definition and scope of 'retrenchment' under Section 2(oo) of the Industrial Disputes Act, 1947.4. Impact of closure or transfer of business on retrenchment compensation.5. Constitutional validity of Section 25F of the Industrial Disputes Act, 1947.Issue-wise Detailed Analysis:1. Jurisdiction of the Authority under the Payment of Wages Act, 1936:In Civil Appeal No. 105 of 1956, the High Court of Bombay did not argue the jurisdiction of the authority under the Payment of Wages Act, 1936, because the parties agreed that the core issue was the validity of the claim for retrenchment compensation. In Civil Appeal No. 103 of 1956, the High Court of Bombay held that the authority under the Payment of Wages Act, 1936, had jurisdiction to deal with the claim of retrenchment compensation. The Supreme Court did not delve into this issue further as the appellants did not contest it, focusing instead on the principal question of the validity of the claim for retrenchment compensation.2. Entitlement to Retrenchment Compensation under Clause (b) of Section 25F of the Industrial Disputes Act, 1947:The Supreme Court examined whether the workmen were entitled to retrenchment compensation under clause (b) of Section 25F of the Industrial Disputes Act, 1947. The High Court had held that the workmen were entitled to such compensation. However, the Supreme Court concluded that retrenchment, as defined in Section 2(oo) and used in Section 25F, did not include termination of services due to bona fide closure of business or transfer of business. Therefore, the workmen were not entitled to retrenchment compensation under these circumstances.3. Definition and Scope of 'Retrenchment' under Section 2(oo) of the Industrial Disputes Act, 1947:The Supreme Court analyzed the definition of 'retrenchment' under Section 2(oo) of the Industrial Disputes Act, 1947. The Court held that retrenchment means the discharge of surplus labor or staff by the employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. It does not include termination of services due to bona fide closure of business or transfer of business. The Court emphasized that the ordinary, accepted notion of retrenchment applies to an existing or running industry, not a closed or dead industry.4. Impact of Closure or Transfer of Business on Retrenchment Compensation:The Supreme Court distinguished between retrenchment in a running business and termination of services due to closure or transfer of business. The Court held that termination of services due to bona fide closure of business or transfer of business does not constitute retrenchment under Section 2(oo) and Section 25F of the Industrial Disputes Act, 1947. Therefore, the workmen are not entitled to retrenchment compensation in such cases.5. Constitutional Validity of Section 25F of the Industrial Disputes Act, 1947:The appellants raised a constitutional challenge to Section 25F, arguing that it imposes unreasonable restrictions on the right to carry on a business under Article 19(1)(g) of the Constitution. The Supreme Court did not make a final pronouncement on this issue, as it held that Section 25F does not apply to a closed or dead industry. The Court noted that the primary purpose of Section 25F is to standardize retrenchment compensation and provide relief against involuntary unemployment in a running industry.Conclusion:The Supreme Court allowed the appeals, setting aside the decisions of the High Court of Bombay. The Court held that the appellants were not liable to pay retrenchment compensation under Section 25F of the Industrial Disputes Act, 1947, as the termination of services was due to bona fide closure of business or transfer of business, which does not constitute retrenchment. The parties were directed to bear their own costs throughout.