Supreme Court Upholds Labour Court Decision on Transfer of Employees: Caparo Engineering India Ltd. vs. Ummed Singh Lodhi and Ors. (26 October 2021)

Introduction

Date of the Judgment: 26 October 2021
Citation: (2021) INSC 741
Judges: M.R. Shah, J. and A.S. Bopanna, J. (authored by M.R. Shah, J.)

Can an employer transfer employees to a distant location, changing their job roles without prior notice? The Supreme Court of India recently addressed this critical question in a case involving Caparo Engineering India Ltd. The court examined whether such transfers constitute a change in service conditions that require notice under the Industrial Disputes Act, 1947. This judgment clarifies the rights of employees and the obligations of employers in transfer matters, especially when transfers lead to a change in the nature of work.

The Supreme Court bench, comprising Justices M.R. Shah and A.S. Bopanna, delivered the judgment, with Justice M.R. Shah authoring the opinion. The court upheld the decisions of the Labour Court and the High Court, which had ruled in favor of the employees.

Case Background

The case originated from the transfer of several employees from the Dewas factory of Caparo Engineering India Ltd. to its Chopanki factory in Rajasthan on 13 January 2015. These employees were working at the Dewas factory for 25 to 30 years. The Chopanki factory is approximately 900 kilometers away from Dewas. The employees, through their union, raised an industrial dispute, arguing that the transfer was malafide and aimed to reduce the number of workmen at the Dewas factory. They also contended that the transfer would change the nature of their work and that the facilities available at Dewas were not available at Chopanki.

The employees argued that the transfer was a tactic to force them to resign, as the new location lacked proper residential, educational, and medical facilities. The employer, on the other hand, claimed that the transfer was due to a reduction in production at the Dewas factory and that the staff had become surplus. The Labour Court ruled in favor of the employees, declaring the transfer illegal and void. The High Court upheld this decision, leading to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The Labour Court, after examining the evidence, found that the employer could not prove a continuous reduction in production at the Dewas factory. It concluded that the transfer of nine employees was intended to reduce the workforce at Dewas, which is covered under Clause 11 of Schedule 4 of the Industrial Disputes Act, 1947. The Labour Court also found that the transfer would change the nature of work, as the employees were laborers at Dewas but would be supervisors at Chopanki. Consequently, the Labour Court declared the transfer orders null and void.

The employer then filed writ petitions before the High Court under Article 227 of the Constitution of India, which were dismissed. The High Court upheld the Labour Court’s decision. The employer then filed writ appeals before the Division Bench of the High Court, which were also dismissed as not maintainable, as the initial writ petitions were considered to be under Article 227. This led to the employer filing the present appeals before the Supreme Court.

Legal Framework

The core legal issue revolves around Section 9A of the Industrial Disputes Act, 1947, which mandates that employers must give notice to workmen before making any changes in their service conditions related to matters specified in the Fourth Schedule of the Act. The relevant portion of the Industrial Disputes Act, 1947 is as follows:

“9A. Notice of change.- No employer, who proposes to effect any change in the conditions of service applicable to any workman in respect of any matter specified in the Fourth Schedule, shall effect such change,- (a) without giving to the workman likely to be affected by such change a notice in the prescribed manner of the nature of the change proposed to be effected; or (b) within twenty-one days of giving such notice:”

The Fourth Schedule of the Industrial Disputes Act, 1947 lists the conditions of service for which notice is required. Clause 11 of the Fourth Schedule is particularly relevant, which states:

“11. Any increases or reduction (other than casual) in the number of persons employed or to be employed in any occupation or process or department or shift, not occasioned by circumstances over which the employer has no control.”

The court examined whether the transfer of the employees from Dewas to Chopanki constituted a change in service conditions as outlined in Clause 11 of the Fourth Schedule, thereby requiring a notice under Section 9A of the Act.

Arguments

Arguments on behalf of the Employer:

• The employer argued that the writ petitions before the High Court were actually under Article 226 of the Constitution, not Article 227, and thus, the Division Bench should have heard the appeals.
• The employer submitted that the transfer order did not bring about a change in the terms and conditions of service requiring a notice under Section 9A of the Industrial Disputes Act.
• It was contended that Clause 11 of Schedule 4 is not relevant when considering transfer orders. The purpose of the transfer was not to reduce the establishment.
• The employer argued that to bring a case within the ambit of Section 9A, the workmen must demonstrate that they have been adversely affected by the reduction.
• The employer further contended that the employees were not workmen.

Arguments on behalf of the Employees:

• The employees argued that the transfer was malafide and intended to reduce the number of workmen at the Dewas factory.
• They submitted that the transfer to Chopanki, which is 900 km away, would cause great hardship due to the lack of facilities and the change in the nature of work.
• The employees contended that the transfer amounted to an unfair labor practice, forcing them to quit their jobs.
• They argued that the transfer would change the nature of work, as they would be working as supervisors at Chopanki, which would deprive them of the beneficial provisions of the Industrial Disputes Act.
• The employees argued that the Labour Court and the High Court rightly concluded that the transfer was in violation of Section 9A read with the Fourth Schedule of the Industrial Disputes Act.

The employer relied on the case of Hindustan Lever Ltd. Vs. Ram Mohan Ray and Ors., (1973) 4 SCC 141, Harmohinder Singh Vs. Kharga Canteen, Ambala Cantt., (2001) 5 SCC 540, and Associated Cement Companies Ltd. Vs. Associated Cement Staff Union, 2009 SCC Online Bom 2132, to argue that a transfer does not constitute a change in service conditions. The employees argued that the transfer was a measure to retrench them without following the due process under law.

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issues:

1. Whether the transfer of the employees from Dewas to Chopanki was valid and proper.
2. Whether the transfer of the employees constitutes a change in the conditions of service requiring notice under Section 9A of the Industrial Disputes Act, 1947.
3. Whether the writ petitions before the High Court were under Article 226 or Article 227 of the Constitution of India.
4. Whether the employees were ‘workmen’ under Section 2(s) of the Industrial Disputes Act.

The court also considered whether the transfer would change the nature of work and deprive the employees of the benefits under the Industrial Disputes Act, even though it was not explicitly framed as an issue.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Hindustan Lever Ltd. Vs. Ram Mohan Ray and Ors., (1973) 4 SCC 141 – The employer cited this case to argue that a transfer does not constitute a change in service conditions. The court distinguished this case, stating that the present case involves a change in the nature of work and service conditions.
• Harmohinder Singh Vs. Kharga Canteen, Ambala Cantt., (2001) 5 SCC 540 – This case was also cited by the employer to support their argument that a transfer is a part of service conditions. The court distinguished this case on similar grounds as the previous case.
• Associated Cement Companies Ltd. Vs. Associated Cement Staff Union, 2009 SCC Online Bom 2132 – The employer relied on this Bombay High Court case to argue that a transfer does not constitute a change in service conditions. The Supreme Court distinguished this case, noting the specific circumstances of the present case.

Legal Provisions:

• Section 9A of the Industrial Disputes Act, 1947: This section mandates that employers must give notice before making changes in service conditions as specified in the Fourth Schedule.
• Clause 11 of the Fourth Schedule of the Industrial Disputes Act, 1947: This clause pertains to any increase or reduction in the number of persons employed, which the court found applicable in this case.
• Section 2(s) of the Industrial Disputes Act, 1947: This section defines “workman,” and the court confirmed that the employees in question fell under this definition.

Judgment

How each authority was viewed by the Court:

• The court distinguished Hindustan Lever Ltd. Vs. Ram Mohan Ray and Ors., (1973) 4 SCC 141, Harmohinder Singh Vs. Kharga Canteen, Ambala Cantt., (2001) 5 SCC 540, and Associated Cement Companies Ltd. Vs. Associated Cement Staff Union, 2009 SCC Online Bom 2132, stating that these cases did not apply to the present situation where the transfer resulted in a change in the nature of work and service conditions.
• The court applied Section 9A of the Industrial Disputes Act, 1947, holding that the employer was required to give notice before transferring the employees.
• The court applied Clause 11 of the Fourth Schedule of the Industrial Disputes Act, 1947, stating that the transfer resulted in a reduction of employees at Dewas, triggering the need for notice.
• The court applied Section 2(s) of the Industrial Disputes Act, 1947, confirming that the employees were ‘workmen’ and entitled to the protections under the Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by several factors. The court emphasized the concurrent findings of the Labour Court and the High Court, which highlighted the malafide nature of the transfer and the adverse impact on the employees. The court also focused on the fact that the transfer would result in a change in the nature of work and service conditions, which would deprive the employees of the protections under the Industrial Disputes Act. The court gave importance to the fact that the employees were transferred at the fag end of their service career, causing them significant hardship. The court also considered that the employer failed to justify the transfer, and the evidence on record showed that the transfer was intended to reduce the workforce at Dewas.

The Supreme Court’s reasoning was a blend of factual findings and legal interpretation. The court gave more weight to the factual aspects of the case, such as the malafide nature of the transfer and its impact on the employees. The legal aspects, such as the interpretation of Section 9A and the Fourth Schedule, were also important but took a secondary position in the court’s reasoning.

The court considered the argument that the transfer was a part of the service conditions, but rejected it because the transfer resulted in a change in the nature of work and a reduction in the number of employees at Dewas. The court also considered the argument that the employees were not workmen, but rejected it based on the evidence and the concurrent findings of the lower courts. The court did not consider any alternative interpretations of Section 9A or the Fourth Schedule.

The court stated, “The question is not about the transfer only, the question is about the consequences of transfer. In the present case, the nature of work/service conditions would be changed and the consequences of transfer would result in the change of service conditions and the reduction of employees at Dewas factory, for which the Fourth Schedule and Section 9A shall be attracted.”

The court also noted, “As observed above, by such transfer, their status as “workman” would be changed to that of “supervisor”. By such a change after their transfer to Chopanki and after they work as supervisor they will be deprived of the beneficial provisions of the Industrial Disputes Act and, therefore, the nature of service conditions/service would be changed.”

The court further emphasized, “Even from the judgment and award passed by the learned Labour Court as well as the impugned judgment and order passed by the learned Single Judge, it can be seen that the appellant/employer has failed to justify the transfer of nine employees from Dewas to Chopanki, which is at a distance of 900 Kms. and that too at the fag end of their service career.”

The court’s decision was unanimous, with both Justices concurring on the judgment. The court did not introduce any new doctrines or legal principles but applied the existing provisions of the Industrial Disputes Act to the facts of the case.

Key Takeaways

• Employers cannot transfer employees to distant locations if it results in a change in the nature of work or a reduction in the number of employees without prior notice under Section 9A of the Industrial Disputes Act, 1947.
• Transfers that lead to a change in the status of an employee from a ‘workman’ to a ‘supervisor’ are considered a change in service conditions, requiring notice.
• The courts will scrutinize transfers that appear to be malafide, arbitrary, or intended to victimize employees.
• Employers must justify transfers with valid reasons and cannot use transfers as a tool to reduce the workforce without following due process.

Directions

The Supreme Court directed the employer to comply with the judgment and award passed by the Labour Court, as confirmed by the High Court. The court also directed that all the concerned workmen shall be entitled to consequential benefits, including arrears of salary, as if they were not transferred from Dewas and continued to work at Dewas. The court ordered that these benefits, including arrears of salary/wages and retirement benefits, should be paid to the concerned workmen within four weeks from the date of the judgment. The court also imposed costs of Rs. 25,000/- per workman, to be paid within the same timeframe.

Development of Law

The Supreme Court’s judgment clarifies that a transfer, which may seem like a routine part of service conditions, can attract the provisions of Section 9A of the Industrial Disputes Act, 1947, if it results in a change in the nature of work, reduction in the number of employees, or any other condition specified in the Fourth Schedule. The court emphasized that the consequences of a transfer, rather than the mere act of transfer, determine whether Section 9A is applicable. This ruling reinforces the protection provided to workmen under the Industrial Disputes Act and ensures that employers cannot use transfers to circumvent the law.

The ratio decidendi of the case is that a transfer, which results in a change in the nature of work and/or a reduction in the number of employees, requires a notice under Section 9A of the Industrial Disputes Act, 1947. This judgment does not change the previous position of law but clarifies its application in cases of employee transfers.

Conclusion

In conclusion, the Supreme Court upheld the decisions of the Labour Court and the High Court, ruling that the transfer of employees from Dewas to Chopanki was illegal, arbitrary, and in violation of Section 9A of the Industrial Disputes Act, 1947. The court emphasized that the transfer resulted in a change in the nature of work and a reduction in the number of employees, thus requiring prior notice. This judgment reinforces the rights of employees and sets a precedent for similar cases involving employee transfers and changes in service conditions.