Supreme Court Upholds Employee Transfers Based on Contractual Terms: Divgi Metal Wares Ltd. vs. Divgi Metal Wares Employees Association (2024)

Introduction

Date of the Judgment: March 21, 2024
Citation: 2024 INSC 237
Judges: B.R. Gavai, J. and Sandeep Mehta, J.
Can an employer transfer an employee to any of its establishments across India if the employment contract allows it, even if the company’s standing orders seem to limit transfers within the same establishment? The Supreme Court of India recently addressed this question in a case involving M/s. Divgi Metal Wares Ltd. The core issue revolved around whether the specific terms of an employment contract could override the general provisions of the company’s standing orders regarding employee transfers. The judgment was delivered by a two-judge bench comprising Justice B.R. Gavai and Justice Sandeep Mehta, with the majority opinion authored by Justice B.R. Gavai.

Case Background

M/s. Divgi Metal Wares Ltd. (the appellant), manufactures automobile gears at two factories, one in Pune, Maharashtra, and another at Sirsi, Karnataka. The M/s. Divgi Metal Wares Employees Association (respondent No. 1) is a registered trade union. The relationship between the company and its employees is governed by the Industrial Employment (Standing Orders) Act, 1946. On July 3, 1989, the Deputy Labour Commissioner and Certifying Officer certified the company’s Standing Orders, which included Clause 20 regarding transfers. This clause stated that employees could be transferred within the company, and refusal to accept a transfer would be considered misconduct. Additionally, the appointment and confirmation letters issued to employees included a clause stating that their services were transferable to any department or works belonging to the company. In 1998, due to a reduction in orders, the company transferred 66 workmen from the Sirsi factory to the Pune factory. These workmen did not report to the Pune factory and raised industrial disputes.

Timeline:

Course of Proceedings

The initial challenge to the Certified Standing Order of 1989 was rejected by the Industrial Tribunal as time-barred in 1996. Following the transfer of 66 workmen in 1998, the Deputy Labour Commissioner modified the Standing Orders in 1999, deleting the provision for transfers to other establishments in India. The Industrial Tribunal partly allowed the company’s appeal against this modification in 2001. In 2002, the Industrial Tribunal rejected the industrial disputes filed by the transferred workmen, stating that the transfers were not malafide. However, in 2006, the same tribunal allowed similar references by other transferred workmen. The Single Judge of the Karnataka High Court dismissed the writ petition filed by the workmen in 2006. The Division Bench of the High Court, while hearing the appeal against the Single Judge’s order, also considered other pending writ petitions and ultimately allowed the workmen’s appeal, while dismissing the company’s writ petition. The company then appealed to the Supreme Court.

Legal Framework

The case is primarily governed by the Industrial Employment (Standing Orders) Act, 1946. Section 2(g) of the said Act defines “standing orders” as rules relating to matters set out in the Schedule. Section 3 mandates that employers must define the conditions of employment in their standing orders. Section 7 of the said Act specifies the date of operation of standing orders stating that, “Standing orders shall, unless an appeal is preferred under Section 6, come into operation on the expiry of thirty days from the date on which authenticated copies thereof are sent under sub -section (3) of Section 5, or where an appeal as aforesaid is preferred, on the expiry of seven days from the date on which copies of the order of the appellate authority are sent under sub-section (2) of Section 6.” Section 10 of the said Act deals with the duration and modification of standing orders. Sub-section (3) of Section 10 states that, “The foregoing provisions of this Act shall apply in respect of an application under sub-section (2) as they apply to the certification of the first standing orders.” The Schedule of the said Act lists matters to be covered by standing orders, but does not explicitly mention transfers. Clause 20 of the company’s Standing Orders, certified in 1989, allowed for transfers. Clause 31 of the Standing Orders states that, “Nothing contained in these standing Orders shall operate in derogation of any law for the time being in force or to the prejudice of any right under a contract of service, custom or usage, or an agreement settlement or award applicable to the establishment.” The letters of appointment and confirmation issued to employees also contained a clause stating that their services were transferable to any department or works belonging to the company.

Arguments

Appellant’s (M/s. Divgi Metal Wares Ltd.) Arguments:

• The appellant argued that the Division Bench’s reasoning that the 1999 amendment was not tenable because the Schedule of the said Act does not contain provisions with regard to transfer is incorrect. According to Section 3 of the said Act, while provisions must be made for every item in the Schedule, there is no restriction on adding additional items.
• The appellant contended that under Section 7 read with Section 10(3) of the said Act, the modified Standing Order would only take effect after seven days from the date the copies of the appellate authority’s order are sent. Since the 1999 modification was challenged and the writ petition against the appellate order was dismissed, the 1989 Standing Orders were still in effect when the transfers were made.
• The appellant relied on the Supreme Court’s judgment in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300] to argue that even if the words deleted by the 1999 amendment were removed from Clause 20, the transfers of workmen from the Sirsi factory to the Pune factory could not be interfered with.

Respondent’s (M/s. Divgi Metal Wares Employees Association) Arguments:

• The respondents argued that the Division Bench rightly held that there was no power to provide a stipulation for transfer in the Standing Order. Therefore, the 1999 amendment was correctly deemed unsustainable.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues, but the core issue was whether the transfers of the workmen from the Sirsi factory to the Pune factory were valid. The Court considered the following sub-issues:

• Whether the 1999 amendment to the Standing Orders was valid.
• Whether the terms of the employment contract could override the company’s standing orders.
• Whether the transfers were in accordance with the law.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court primarily relied on the following authority:

The Court also considered the following legal provisions:

• Section 2(g) of the Industrial Employment (Standing Orders) Act, 1946, which defines “standing orders”.
• Section 3 of the Industrial Employment (Standing Orders) Act, 1946, which mandates that employers must define the conditions of employment in their standing orders.
• Section 7 of the Industrial Employment (Standing Orders) Act, 1946, which specifies the date of operation of standing orders.
• Section 10 of the Industrial Employment (Standing Orders) Act, 1946, which deals with the duration and modification of standing orders.

Judgment

The Supreme Court quashed the judgment of the Division Bench of the High Court and upheld the order of the Single Judge. The Court held that the transfers of the workmen from the Sirsi factory to the Pune factory were valid. The Court reasoned that the terms of the appointment/confirmation letters, which allowed for transfers to any of the company’s establishments, were valid and not in conflict with the standing orders. The Court also held that the 1989 Standing Orders were in operation during the time of the transfers as the 1999 modification was set aside by the Industrial Tribunal. The Court relied on the precedent set in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300], which held that the terms of the employment contract could override the general provisions of the company’s standing orders regarding employee transfers.

How each authority was viewed by the Court?

• Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300]: The Court followed this precedent, holding that the terms of the employment contract could override the general provisions of the company’s standing orders regarding employee transfers.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The specific terms of the employment contract, which clearly stated that the employees’ services were transferable to any department or works belonging to the company.
• The precedent set by the Supreme Court in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300], which held that the terms of the employment contract could override the general provisions of the company’s standing orders regarding employee transfers.
• The fact that the 1989 Standing Orders were in operation during the time of the transfers as the 1999 modification was set aside by the Industrial Tribunal.
• The Court found that there was no conflict between the Standing Orders and the terms of the employment contract. The Standing Orders covered transfers within the same establishment, while the contract covered transfers to other establishments.

The court emphasized the importance of upholding the contractual terms agreed upon between the employer and the employee. The court’s reasoning was also heavily influenced by the legal precedent established in the Cipla Ltd. case.

The Court considered the terms of the employment contract, the standing orders, and the precedent set by the Supreme Court in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300]. The Court found that there was no conflict between the Standing Orders and the terms of the employment contract. The Court also held that the 1989 Standing Orders were in operation during the time of the transfers as the 1999 modification was set aside by the Industrial Tribunal.

The Supreme Court’s decision was based on the following reasoning:

• The Court observed that the terms of appointment and confirmation letters clearly stipulated that services were transferable to any department or works belonging to the company.
• The Court stated that the terms of appointment, which fell for consideration in the case of Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300] are almost similar to the terms of the appointment in the appointment order as well as the confirmation order in the present case.
• The Court noted that Clause 31 of the Schedule of the Standing Order specifically provides that nothing contained in the Standing Order shall operate in derogation of any law for the time being in force or cause prejudice to any right under contract of service.
• The Court stated that, “Even for a moment if it is accepted that the reasoning of the Division Bench that the amendment to clause 20 of the Standing Order by order dated 30.09.1999 is not permissible ; still, in view of the law laid down by this Court in the case of Cipla Ltd. (supra), it would make no difference.”
• The Court observed that, “If that be so, the clause in the Standing Order would be similar with the clause that fell for consideration before this Court in the case of Cipla Ltd. (supra), and as such , there would be no conflict between the Standing Order and the terms and conditions as stipulated in the order of appointment/confirmation.”
• The Court stated that, “Whereas the Standing Order would cover the transfer from one department to another within the same unit/factory/office/establishment or from one job of similar nature and capacity to another job of same nature and capacity and also from one job to another similar job or from one shift to another shift. Per contra, the terms of appointment and confirmation would permit the transfer of an employee to any department or any works or offices belonging to the company.”
• The Court held that, “on the date of the orders of transfer as well as the date on which the learned Industrial Tribunal passed the award dated 28.02.2006 , it is the 03.07.1989 Standing Order which would be in operation.”
• The Court further held that, “the learned Division Bench has also erred in not taking into consideration the law laid down by this Court in the case of Cipla Ltd. (supra) though the said judgment was specifically cited before it.”

The Court did not consider any alternative interpretations. The Court’s decision was unanimous, with both judges agreeing on the outcome.

Key Takeaways

• Employment contracts can override general provisions in company standing orders regarding employee transfers.
• Employers can transfer employees to any of their establishments across India if the employment contract allows it.
• It is crucial for employers and employees to carefully review the terms of the employment contract.
• The Industrial Employment (Standing Orders) Act, 1946, does not prevent employers from having clauses in employment contracts that allow for transfers of employees to any of their establishments across India.

Directions

The Supreme Court quashed and set aside the impugned judgment and order of the Division Bench of the High Court. The Court dismissed the Writ Appeal No. 877 of 2006 filed by the respondent No.1 and upheld the order dated 20.03.2006 passed by the learned single judge in Writ Petition No. 44810 of 2001. The Court dismissed the Writ Petition No.31808/2003 filed by the respondent No.1 and allowed the Writ Petition No.7993/2006 filed by the appellant. The Court also quashed and set aside the order passed by the learned Tribunal dated 28.02.2006.

Development of Law

The ratio decidendi of this case is that the specific terms of an employment contract can override the general provisions of a company’s standing orders regarding employee transfers, especially when the contract allows for transfers to any of the company’s establishments. This case reaffirms the principle established in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300] and clarifies that the Industrial Employment (Standing Orders) Act, 1946, does not prevent employers from having such clauses in employment contracts.

Conclusion

The Supreme Court’s judgment in M/s. Divgi Metal Wares Ltd. vs. M/s. Divgi Metal Wares Employees Association & Anr. clarifies that an employer can transfer an employee to any of its establishments across India if the employment contract allows it, even if the company’s standing orders have a narrower definition of transfer. The Court emphasized the importance of upholding contractual terms and reaffirmed the precedent set in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300]. This decision provides clarity on the interplay between employment contracts and standing orders in the context of employee transfers.

Category

Parent Category: Labour Law
Child Categories: Industrial Disputes, Employee Transfers, Standing Orders, Contract of Employment, Industrial Employment (Standing Orders) Act, 1946
Parent Category: Industrial Employment (Standing Orders) Act, 1946
Child Category: Section 2(g), Industrial Employment (Standing Orders) Act, 1946
Child Category: Section 3, Industrial Employment (Standing Orders) Act, 1946
Child Category: Section 7, Industrial Employment (Standing Orders) Act, 1946
Child Category: Section 10, Industrial Employment (Standing Orders) Act, 1946

FAQ

Q: Can my employer transfer me to another city if my employment contract allows it?
A: Yes, according to this Supreme Court judgment, if your employment contract states that your services are transferable to any of the company’s establishments, your employer can transfer you to another city, even if the company’s standing orders have a narrower definition of transfer.

Q: What if my company’s standing orders say transfers are only within the same factory?
A: The Supreme Court has clarified that the terms of your employment contract can override the general provisions of the company’s standing orders regarding employee transfers. If your contract allows for transfers to any of the company’s establishments, that clause will be valid.

Q: What is the significance of the Cipla Ltd. case in this judgment?
A: The Supreme Court relied on the precedent set in Cipla Ltd. vs. Jayakumar R. and Another [(1999) 1 SCC 300], which held that the terms of the employment contract could override the general provisions of the company’s standing orders regarding employee transfers. This case reaffirmed that principle.

Q: What should I do if I have a question about my transfer?
A: You should carefully review your employment contract and the company’s standing orders. If you have any questions or concerns, you should consult with a legal professional or a trade union representative.

Q: Does this judgment mean that standing orders are not important?
A: No, standing orders are still important. They provide general rules for employment. However, this judgment clarifies that specific terms in your employment contract can override general provisions in the standing orders, especially regarding transfers.