Jestamani Gulabrai Dholkia & Ors Vs.
The SC India Steam Navigation Company, Bombay & Ors  INSC 243 (30
CITATION: 1961 AIR 627 1961 SCR (2) 811
CITATOR INFO :
D 1970 SC 823 (10) RF 1977 SC1112 (10) R 1988
SC 876 (14)
Industrial Dispute--Employee loaned to
existing air company, if and when its employee--Air Corporations Act, 1953
(XXVII of 1953), S. 20(1).
Section 20(1) of the Air Corporations Act,
1953 (XXVII of 1953), read with the proviso, is a perfectly reasonable
provision and in the interest of the employees and it is not correct to say
that it can apply only to the direct recruits of the existing air 812 companies
and not at all to loaned employees working under them.
The two conditions of its applications are
(i) that the officer or employee was employed by the existing air company on
July 1, 1952, and (ii) that he was still in its employment on August 1, 1953,
the appointed day.
In the instant case where the appellants who
had been recruited by the Sc India Steam Navigation Co., Ltd., and on purchase
by it of the Air Services of India Ltd., loaned to the latter, and were working
under its direction and control on and between the said dates and being paid by
it, Held, that in law they were the employees of the Air Ser- vices of India
from the appointed day, notwithstanding the existence of certain special
features of their employment, and as such governed by s. 20(1) of the Act and
since they did not exercise the option given to them under the proviso, they
became employees of the Corporation established under the Act and ceased to
have any rights against the original employers.
Nokes v. Doncaster Amalgamated Collieries
Ltd.,  A.C. 1014, considered.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 395 of 1959.
Appeal by special leave from the Award dated
November 25, 1957 of the Industrial Tribunal, Bombay, in Reference (I. T.) No.
24 of 1956.
N....C. Chatterjee, D. H. Buch and K. L.
Hathi, for the appellants.
M....C. Setalvad, Attorney-General for India,
J. B. Dadachanji and S. N. Andley, for the respondent Nos. 1 and 2.
M. C. Setalvad, Attorney-General for India,
Dewan Chaman Lal Pandhi and I. N. Shroff, for the respondent No. 3.
1960. November 30. The Judgment of the Court
was delivered by WANCHOO, J.-This is an appeal by special leave in an
industrial matter. It appears that the appellants were originally in the
service of the Sc India Steam Navigation Co. Ltd. (hereinafter called the Sc
Indias). Their services were transferred by way of loan to the Air Services of
India Limited (hereinafter referred to as the ASI). The ASI was formed in 1937
and was 813 purchased by the Sc Indias in 1943 and by 1946 was a full
subsidiary of the Sc Indias. Therefore from 1946 to about 1951, a large number
of employees of the, Sc Indias were transferred to the ASI for indefinite
periods. The Sc Indias had a number of subsidiaries and it was usual for the Sc
Indias to transfer their employees to their subsidiary companies and take them
back whenever they found necessary to do so. The' appellants who were thus
transferred to the ASI were to get the same scale of pay as the employees of
the Sc Indias and the same terms and conditions of service (including bonus
whenever the Sc Indias paid it) were to apply. The Sc Indias retained the right
to recall these loaned employees and it is the case of the appellants that they
were entitled to go back to the Sc Indias if they so desired. Thus the terms
and conditions of service of these loaned employees of the ASI were different
from those employees of the ASI who were recruited by the ASI itself.
This state of affairs continued till 1952
when the Government of India contemplated nationalisation of the existing air
lines operating in India with effect from June 1953 or thereabouts. When
legislation for this purpose was on the anvil the appellants felt perturbed
about their status in the ASI which was going to be taken over by the Indian
Air Lines Corporation (hereinafter called the Corporation), which was expected
to be established after the Air Corporations Act, No. XXVII of 1953,
(hereinafter called the Act) came into force. They therefore addressed a letter
to the Sc Indias on April 6, 1953, requesting that as the Government of India
intended to nationalise all the air lines in India with effect from 1 June,
1953, or subsequent thereto, they wanted to be taken back by the Sc Indias.
On April 24, the Sc Indias sent a reply to
this letter in which they pointed out that all persons working in the ASI would
be governed by cl. 20 of the Air Corporation Bill of 1953, when the Bill was
enacted into law. It was also pointed out that this clause would apply to all
those actually working with the ASI on 103 814 the appointed day irrespective
of whether they were recruited by the ASI directly or transferred to the ASI
from the Sc Indias or other associated concerns. It was further pointed out
that if the loaned employees or others, employed under the 'ASI, did not want
to join ,the proposed Corporation they would have the option not to do so under
the proviso to cl. 20(1) of the 'Bill; but in case any employee of the ASI
whether loaned or otherwise made the option not to join the proposed
Corporation, the Sc Indias would treat them as having resigned from service, as
the Sc Indias could not absorb them. In that case such employees would be
entitled only to the usual retirement benefits and would not be entitled to
Finally, it was hoped that all those in the
employ of the ASI, whether loaned or otherwise, having been guaranteed
continuity of employment in the new set-up would see that the Sc Indias would
not be burdened with surplus staff, requiring consequential retrenchment of the
same or more junior personnel by the Sc Indias.
On April 29, 1953, a reply was sent by the
union on behalf of the appellants to the Sc Indias. It was pointed out that the
loaned staff should not be forced to go to the proposed Corporation without any
consideration of their claim for re- absorption into the Sc Indias. It was
suggested that the matter might be taken up with the Government of India and
the persons directly recruited by the ASI who were with other subsidiary
companies might be taken by the proposed Corporation in place of the
appellants. It seems that this suggestion was taken up with the Government of
India but nothing came out of it, particularly because the persons directly
recruited by the ASI. who were employed in other subsidiary companies did not
want to go back to the ASI.
In the meantime, the Sc Indias issued a
circular on May 6,1953, to all the employees under the ASI including the loaned
employees, in which they pointed out that all the persons working with the ASI
would be governed by cl. 20(1) when the Bill became law and would be absorbed
in the proposed Corporation, unless 815 they took advantage of the proviso to
cl. 20(1). It was also pointed out that such employees as took advantage of the
proviso to el. 20(1) would be treated as having resigned from service and would
be entitled to usual retirement benefits as on voluntary retirement, and to
It was also said that their conditions of
service would be the same until duly altered or amended by the proposed
Corporation. The circular then dealt with certain matters relating to provident
fund with which we are however not concerned.
It appears that the Act was passed on May 28,
1953. Sec. 20(1) of the Act, with which we are concerned, is in these terms:-
"(1) Every officer or other employee of an existing air company (except a
director, managing agent, manager or any other person entitled to manage the
whole or a substantial part of the business and affairs of the company under a
special agreement) employed by that company prior to the first day of July,
1952, and still in its employment immediately before the appointed day shall,
in so far as such officer or other employee is employed in connection with the
undertaking which has vested in either of the Corporations by virtue of this
Act, become as from the appointed date an officer or other employee, as the
case may be, of the Corporation in which the undertaking has vested and shall
hold his office or service therein by the same tenure, at the same remuneration
and upon the same terms and conditions and with the same rights and privileges
as to pension and gratuity and other matters as he would have held the same
under the existing air company if its undertaking had not vested in the
Corporation and shall continue to do so unless and until his employment in the
Corporation is terminated or until his remuneration, terms or conditions are
duly altered by the Corporation :
Provided nothing contained in this section
shall apply to any officer or other employee who has, by notice in writing
given to the Corporation concerned prior to such date as may be fixed by the
Central Government by notification in the official gazette 816 intimated his
intention of not becoming an officer or other employee of the Corporation."
After the Act was passed, notice was sent on June 17, 1953, to each employee of
all the air companies which were being taken over by the proposed Corporation m
and he was asked to inform the officer on special duty by July 10, 1953, if he
desired to give the notice contemplated by the proviso to s. 20(1). A form was
sent in which the notice was to be given and it was ordered that it should
reach the Chairman of the Corporation by registered post by July 10. The
appellants admittedly did not give this notice as required by the proviso to s.
In the meantime on June 8, 1953, a demand was
made on behalf of the appellants in which the Sc Indias were asked to give an
assurance to them that in the event of retrenchment of any loaned staff by the
proposed Corporation within the first five years without any fault, the said
staff would be taken back by the Sc Indias. Certain other demands were also
made. The Sc Indias replied to this letter on July 3 and pointed out that they
could not agree to give an assurance to take back the loaned staff in case it
was retrenched by the proposed Corporation within the next five years. We are
not concerned with the other demands and the replies thereto. On July 8, a
letter was written on behalf of the appellants to the Sc Indias in which it was
said that the appellants could not accept the contention contained in the
circular of May 6, 1953. Though the appellants were carrying on this
correspondence with the Sc Indias, they did not exercise the option which was
given to them under the proviso to s. 20(1) of the Act,. by July 10, 1953.
First of August, 1953, was notified the appointed day under s. 16 of the Act
and from that date the undertakings of the "existing air companies"
vested in the Corporation established under the Act (except the Air India
International). So on August:1, 1953, the ASI vested in the Corporation and s.
20(1) of the Act came into force. Hence as
none of the appellants had exercised the option given to them under the
proviso, they would also be governed by the said provision, 817 unless the
contention. raised on their behalf that they could in no case be governed by s.
20(1), is accepted.
The tribunal came to the conclusion that,
whatever the position of the appellants as loaned staff from the Sc Indias to
the ASI, as they were informed on May 6, 1953, of the exact position by the Sc
Indias and they did not ask for a reference of an industrial dispute
immediately thereafter with the Sc Indias and as they"' did not exercise
the option given to them by the proviso to s. 20(1) before July 10, 1953, they
would be governed by s. 20(1) of the Act. In consequence, they became the
employees. of the Corporation as from August 1, 1953 and would thus have no
right there- after to claim that they were still the employees of the Sc Indias
and had a right to revert to them. The consequence of all this was that they
were held not to be entitled to any of the benefits which they claimed in the
alternative according to the order of reference. It is this order of the tribunal
rejecting the reference which has been impugned before us in the present
The main contention of Mr. Chatterjee on
behalf of the appellants is that they are not governed by s. 20 (1) of the Act
and in any case the contract of service between the appellants and the Sc Indias
was not assignable and transferable even by law and finally that even if s.
20(1) applied, the Sc Indias were bound to take back the appellants.
We are of opinion that there is no force in
any of these contentions. See. 20(1) lays down that every officer or employee
of the "existing air companies" employed by them prior to the first
day of July, 1952, and still in their employment immediately before the
appointed day shall become as I from the appointed day an officer or employee,
as the case may be, of the Corporation in which the undertakings are vested.
The object of this provision was to ensure continuity of service to the
employees of the "existing air companies" which were being taken over
by the Corporation and was thus for the benefit of the officers and employees
concerned. It is further provided in s. 20(1) that the terms of service etc...
would be the same until they are duly altered by the Corporation. One should
have thought that the employees of the air 818 companies would welcome this
provision as it ensured them continuity of service on the same terms till they
were duly altered. Further there was no compulsion on the employees or the
officers of the "existing air companies" to serve the Corporation if
they did not want to do so. The proviso laid down that any officer or other
employee who did not want to go into the service of the Corporation could get
out of service by notice in writing given to the Corporation before the date
fixed, which was in this case July 10, 1953.
Therefore, even if the argument of Mr.
Chatterjee that the contract of service between the appellants and their
employers had been transferred or assigned by this section and that this could
not be done,, be correct, it loses all its force, for the proviso made it clear
that any one who did not want to join the Corporation, was free not to do so,
after giving notice upto a certain date. Mr. Chatterjee in this connection
relied on Nokes v. Doncaster Amalgamated Collieries Ltd. where it was observed
at p. 1018- "It is, of course, indisputable that (apart from statutory
provision to the contrary) the benefit of a contract entered into by A to
render personal service to X cannot be transferred by X to Y without A's
consent, which is the same thing as saying that, in order to produce the
desired result,, the old contract between A and X would have to be terminated
by notice or by mutual consent and a new contract of service entered into by
agreement between A and Y." This observation itself shows that a contract
of service may be transferred by a statutory provision; but in the present
case, as we have already said, there was no compulsory transfer of the contract
of service between the "existing air companies", and their officers
and employees to the Corporation for each of them was given the option not to
join the Corporation, if he gave notice to that effect. The provision of s.
20(1) read with the proviso is a perfectly reasonable provision and, as a
matter of fact, in the interest of employees themselves. But, Mr. Chatterjee
argues that s. 20(1) will only apply to those who were in the employ of the
"existing air companies"; it would not (1)  A.C. 1014, 819
apply to those who might be working for the "existing air companies"
on being loaned from some other company. In other words, the argument is that
the, appellants were in the employ not of the ASI but of the Scinaias and
therefore s. 20(1) would not apply to them and they would not become the
employees of the Corporation by virtue of that provision when they failed to
exercise the option given to them by the proviso. According to him, only those
employees of the ASI who were directly recruited by it, would be covered by s. 20(1).
We are of opinion that this argument is
fallacious. It is true that the appellants were not originally recruited by the
ASI. They were recruited by the Sc Indias and were transferred on loan to the
ASI on various dates from 1946 to 1951. But for the purposes of s. 20(1) we
have to see two things: namely, (i) whether the officer or employee was
employed by the existing air company on July 1, 1952, and (ii) whether he was
still in its employment on the appointed day, (namely, August 1,1953). Now it
is not disputed that the appellants were working in fact for the ASI on July 1,
1952, and were also working for it on August 1, 1953. But it is contended that
though they were working for the ASI they were still not in its employment in
law and were in the employment of the Sc Indias because at one time they had
been loaned by the Sc Indias to the ASI. Let us examine the exact position of
the appellants in order to determine whether they were in the employ of the ASI
or not. It is not disputed that they were working for the ASI and were being
paid by it; their hours of work as well as control over their work was all by
the ASI. From this it would naturally follow that they were the employees of
the ASI, even though they might not have been directly recruited by it. It is
true that there were certain special features of their employment with the ASI.
These special features were that they were on the same terms and conditions of
service as were enjoyed by the employees of the Sc Indias in the matter of
remuneration, leave, bonus, etc. It may also be that they could not be,
dismissed by the ASI and the Sc Indias may have had to take action in case it
was 820 desired to dismiss them. Further it may be that they could be recalled
by the Sc Indias and it may even be that they might have the option to go back
to the Sc Indias. But these are only three special terms of their employment
with the ASI. Subject to these special terms, they would for all purposes be
the employees of the ASI and thus would in law be in the employment of the ASI
both on July 1, 1952 and on August 1, 1953. The existence of these special
terms in the case of these appellants would not in law make them any the less
employees of the ASI, for whom they were working and who were paying them, who
had power of control and direction over them; who would grant them leave, fix
their hours of work and so on. There can in our opinion be no doubt that
subject to these special terms the appellants were in the employ of the ASI in
law. They would therefore be in the employ of the ASI prior to July 1, 1952 and
would still be in its employ immediately before August 1, 1953.
Consequently, they would clearly be governed
by s. 20(1).
As they did not exercise the option given to
them by the proviso to s. 20(1), they became the employees of the Corporation
from August 1, 1953, by the terms of the statute.
The last point that has been urged is that
even if s. 20(1) applies, the Sc Indias are bound to take back the appellants.
Suffice it to say that there is no force in
this contention either. As soon as the appellants became by force of law the employees
of the Corporation, as they did so become on August 1, 1953, in the
circumstances of this case, they had no further right against the Sc Indias and
could not; claim to be taken back in their employment on the ground that they
were still their employees, in spite of the operation of s. 20(1) of the Act.
Nor could they claim any of the alternative benefits specified in the order of
reference, as from August 1, 1953, they are by operation of law only the
employees of the Corporation and can have no rights whatsoever against the Sc
Indias. We are therefore of opinion that the tribunal's decision is correct.
The appeal fails and is thereby dismissed. There will be no order as to costs.