Supreme Court Upholds High Court Decision on Worker Count in Factory Closure Case: National Kamgar Union vs. Kran Rader Pvt. Ltd. (2018)

Introduction

Date of the Judgment: 5 January 2018

Citation: 2018 INSC 1

Judges: R.K. Agrawal, J. and Abhay Manohar Sapre, J.

When a company decides to close its operations, how many employees must it have for certain labor laws to apply? This question was at the heart of a dispute between a trade union and a manufacturing company. The Supreme Court of India had to decide whether the company had correctly followed the law when it closed its factory. The key issue was whether the company employed more than 100 workers, which would trigger specific legal requirements for closure.

The Supreme Court bench, consisting of Justice R.K. Agrawal and Justice Abhay Manohar Sapre, delivered the judgment, with Justice Abhay Manohar Sapre authoring the opinion.

Case Background

The National Kamgar Union, representing factory workers, challenged the closure of a manufacturing unit owned by Kran Rader Pvt. Ltd. The factory, initially owned by respondent Nos. 2 and 3, was sold to respondent No. 4 in 1991 and subsequently to respondent No. 1. The factory produced components for various industries, including the Railways. In 1990, due to business losses, respondent No. 1 decided to permanently close the unit and issued a closure notice on August 29, 1990, with the intention to cease operations on October 29, 1990.

The Union contested the closure, arguing that the company employed more than 100 workers, making it subject to Chapter VB of the Industrial Disputes Act, 1947, which mandates specific procedures for closure. The Union sought a declaration that the closure was illegal due to non-compliance with these provisions and demanded consequential relief for the workers.

Timeline

Course of Proceedings

The Industrial Court at Pune initially ruled in favor of the Union, stating that respondent No. 1 had employed 115 workers, thus requiring compliance with Chapter VB of the Industrial Disputes Act, 1947. The Industrial Court declared the closure illegal due to non-compliance with the relevant provisions.

Aggrieved by the decision of the Industrial Court, respondent No.1 filed a writ petition before the Bombay High Court. The High Court overturned the Industrial Court’s decision, holding that the total number of workers was 99, not 115. Therefore, the High Court concluded that Chapter VB of the Industrial Disputes Act, 1947, did not apply to respondent No. 1, and the closure was legal.

The Union then appealed to the Supreme Court, challenging the High Court’s judgment.

Legal Framework

The case primarily revolves around the interpretation and application of the Industrial Disputes Act, 1947, specifically:

• Section 25FFA of the Industrial Disputes Act, 1947: This section deals with the notice of closure. It states that an employer intending to close down an undertaking must serve a notice to the appropriate government, specifying the reasons for the intended closure.

  The source document states: “respondent No.1 served a notice of closure to the State Government (Maharashtra) under Section 25 FFA of the Industrial Disputes Act, 1947 (in short, “ID Act”) on 29.08.1990 with a copy to the appellant-Union expressing therein their intention to close the operation of the Unit on expiry of 60 days with effect from 29.10.1990.”

• Chapter VB (Section 25K) of the Industrial Disputes Act, 1947: This chapter contains special provisions relating to lay-off, retrenchment, and closure in certain establishments. Section 25K stipulates that the provisions of Chapter VB apply to industrial establishments employing 100 or more workers on an average per working day for the preceding twelve months.

• Section 28 of the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971: This section deals with the procedure for dealing with complaints relating to unfair labour practices.

The applicability of Chapter VB, particularly Section 25K, is crucial in determining whether the closure of respondent No. 1’s factory was legal. If the factory employed 100 or more workers, the company was obligated to comply with the provisions of Chapter VB, which include seeking prior permission from the government before closure.

Arguments

The appellant-Union argued that respondent No.1 employed more than 100 workers, making Chapter VB of the Industrial Disputes Act, 1947 applicable. They contended that the closure was illegal because respondent No.1 did not comply with the provisions of Chapter VB. The Union relied on evidence and records from the Factories Act, 1948, and the Payment of Wages Act, including statutory forms, to support their claim that the actual number of workers exceeded 100.

Respondent No.1, on the other hand, argued that they never employed more than 100 workers, and thus, Chapter VB of the Industrial Disputes Act, 1947, did not apply to them. They maintained that the closure was legal and in accordance with Section 25FFA of the Industrial Disputes Act, 1947. Respondent No.1 presented evidence to show that the number of workers was always less than 100. They contested the status of 36 employees, arguing that not all of them could be classified as “workers” under the law.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. How many workers were employed in the Unit of respondent No.1 at the relevant time—whether the strength of the workers was above 100 or below 100?
2. Whether the provisions of Section 25-K of Chapter VB of the ID Act were applicable to respondent No. 1-Unit at the relevant time?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court upheld the High Court’s decision, concluding that the total number of workers employed by respondent No. 1 was 99, not 115 as claimed by the Industrial Court.

The Supreme Court also addressed how the authorities were used in its reasoning:

• AIR 1967 SC 428: The Court considered this authority to determine the extent of its interference in the findings of the lower courts. It noted that it would not readily interfere with the conclusion of the Tribunal unless it is satisfied that the said conclusion is manifestly or obviously erroneous.
• Factories Act, 1948 and Payment of Wages Act: The Court considered the statutory forms prescribed under these Acts but found that the appellant did not adduce cogent evidence to prove the status of 16 employees as “workers.”
• Section 25FFA of the Industrial Disputes Act, 1947: The Court noted that respondent No. 1 had served a notice of closure to the State Government under this section.
• Chapter VB (Section 25K) of the Industrial Disputes Act, 1947: The Court determined that because the number of workers was below 100, the provisions of Chapter VB, including Section 25K, did not apply to respondent No. 1.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the factual determination of the number of workers employed by respondent No. 1. The Court emphasized that the appellant-Union failed to provide sufficient evidence to prove that the 16 disputed employees were indeed “workers.” The Court also gave importance to the fact that the High Court had rightly exercised its supervisory jurisdiction to correct the errors of the Industrial Court.

The sentiment analysis indicates that the factual accuracy of the worker count played a major role in the Court’s decision. The lack of evidence from the appellant and the High Court’s supervisory role also influenced the Court’s decision.

The ratio of fact to law in the Supreme Court’s decision is as follows:

This ratio shows that the factual aspects of the case, particularly the number of workers, were more influential in the Court’s decision than the legal interpretations.

Logical Reasoning

The Supreme Court’s logical reasoning for the applicability of Section 25K can be summarized as follows:

Key Takeaways

• Factual Determination is Crucial: The number of workers employed is a critical factual determination that directly impacts the applicability of Chapter VB of the Industrial Disputes Act, 1947.
• Burden of Proof: The onus is on the party claiming the applicability of Chapter VB to prove that the establishment employed 100 or more workers.
• Supervisory Jurisdiction: High Courts can exercise their supervisory jurisdiction under Article 227 of the Constitution to correct errors made by subordinate courts, especially when findings are based on insufficient evidence.
• Importance of Evidence: It is essential to maintain accurate records and provide cogent evidence to establish the status of employees as “workers.”

Directions

The Supreme Court directed that a compensation of Rs. 2,50,000/- (Two Lakhs and Fifty Thousand) be paid to each worker who did not accept the compensation offered by respondent No. 1.

The Court further directed that:

• Respondent No. 1 will deposit the compensation with the Industrial Court, Pune.
• The Industrial Court will notify the workers or their legal representatives to withdraw the amount.
• The amount will be paid by demand draft or directly deposited into the worker’s bank account.
• The appellant-Union will provide the details of the workers to the Industrial Court.
• The Industrial Court will complete the formalities within three months.

Development of Law

The ratio decidendi of this case is that the applicability of Chapter VB of the Industrial Disputes Act, 1947, hinges on the factual determination of whether an industrial establishment employed 100 or more workers on an average per working day for the preceding twelve months. The Supreme Court’s decision reinforces the principle that the burden of proof lies on the party asserting the applicability of Chapter VB. The Court also clarified the scope of the High Court’s supervisory jurisdiction under Article 227 of the Constitution.

Conclusion

In conclusion, the Supreme Court upheld the High Court’s decision, ruling that respondent No. 1 employed 99 workers, not 115. Consequently, Chapter VB of the Industrial Disputes Act, 1947, did not apply, and the factory closure was deemed legal. The Court also directed that a compensation of Rs. 2,50,000 be paid to each worker who did not accept the initial settlement. This judgment underscores the importance of accurate worker counts and adherence to legal procedures in industrial closures.