Workmen of the Straw Board
Manufacturing Company Limited Vs. M/S. Straw Board Manufacturing Company
Limited  INSC 67 (21 March 1974)
REDDY, P. JAGANMOHAN DWIVEDI, S.N.
CITATION: 1974 AIR 1132 1974 SCR (3) 703 1974
SCC (4) 681
R 1984 SC 516 (23) R 1987 SC1415 (11,13) R
1987 SC1478 (6)
UP. Industrial Disputes Act, Ss. 2N and
6N'--Industrial Disputes Act (14 of 1947) S. 25FFF--Two units of a
business--Tests for determining if they are independent--Principles of res
judicata--Applicability to industrial adjudication--Scope of s. 25 FFF of the
The respondent-company owned two units-S-mill
They were. in separate premises, but in close
The raw-materials used in the two mills were
different and were obtained from different sources. , They also manufactured
different products. Electricity was obtained by the two mills from different
sources. The sale of products manufactured in the respective units was effected
from their respective offices 'and the members of the staff of the two units
were separate, and wages were paid separately. The accounts of the two mills
were maintained separately although finally they were amalgamated into one
account. The Fire Insurance of the mills was done separately; the local manager
of the Employees State Insurance Corporation had allotted different numbers of
provident fund to the two mills; the assessment of the sales-tax for the sales
of the product of the two units was done separately; and as the products were
different, different rates of sales-tax were applied. The respondent closed the
S-mill on the ground of non-availability of certain raw-material for its
product and terminated the services of the workmen of that mill by stages
between May 7 and July 28, 1967. The first batch consisted of 98 workmen and
they raised a dispute which was referred for adjudication by the tribunal under
s. 4-K of the U.P.
Industrial Disputes Act.
On the questions (1) whether stoppage of work
by the employers and the consequent non-employment of the workmen amounted to a
lay-off, retrenchment, lock-out, or whether it was a legitimate closure; and
(2) to what relief, if any, the workmen concerned were entitled to, the
tribunal held that the closure was legitimate; that it was not a case of
lay-off, retrenchment or lock out; that since it legitimate closure, the
question. of compensation could not be determined by a sit; and that the
workmen were not entitled to any relief.
In appeal to his Court,
HELD :-(1)In the circumstances of the case
the S mill-which was an independent unit and a separate line of business, had
been closed in fact; and therefore, it was not a case of lay-off or lock-out or
retrenchment. [713G-H; 714A-D].
(a) Several factors are relevant in deciding
the question whether industrial establishments owned by the same management
constitute separate units or one establishment, and the significance or
importance of these relevant factors, would not be the same in each case but
depends on the facts of each case. There is bound to be a shift of emphasis in
the application of the various tests from one case to another. But among these
tests functional integrality, meaning thereby such functional interdependence
that one unit cannot exist conveniently or reasonably without the other, will
assume an added significance in the case of a closure of a branch or a unit. In
the present case, R-mill is a different line of business and the closure of the
S-mill has nothing to do with the functioning of the R-mill. This is a most
important aspect in this Particular case thought there are certain common
features as between the two units. The fact of the unity of ownership,
supervision and control and the existence of certain common features do not justify
a contrary conclusion. That most if the conditions of service of the two mills
were substantially identical can be easily explained by the fact that being
owned by the same employer and the two units being 704 situate in close
proximity it will not be in the interest of the management and peace and
well-being of the company to treat the employees differently, creating heart
burning and discrimination. Similarly, no particular significance could be
attached to "he fact that the standing orders of the company were applied
to the employees of R-mill. It is true that there were some case of transfer
from one mill to the other but they were all done with the consent of the
employees. In fact, the standing orders did not provide for transfer from one
unit to the other. The tribunal has not committed any manifest error of law by
any significant omission to consider relevant materials in this case.
Therefore, it was a clear case of closure of
an independent unit of the company and not a closure of a part of an establishment.
Such closure cannot be treated as lay-off or lock-out under the Act. The S-mill
was intended to be closed and was in fact closed and therefore, the question of
lay-off under s. 2-N of the Act does not arise. Similarly, it is also not a case
of lock-out within the meaning of s. 2-0. In both lay off and lock-out the unit
is not closed completely and there is also no intention of the employer to
close the concern. It is also not a case of retrenchment as it is ordinarily
understood nor even within the meaning of s. 2(s) of the Act which is
substantially identical with s.
2(00) of the Industrial Disputes Act 1947, as
interpreted by this Court. [713A-714H; 718C-D] Associated Cement Companies
Limited, Chaibassa Cement Works Jhinkuni v. Their Workmen,  1 S.C.R.
709/716, Indian Cable Co., Ltd. v. Its Workmen,  1 L.L.J. 409/419,
Pakshiraja Studios v. Its workmen,  11 L.L.J. 330/382, Pratap Press, etc.
v. Their Workmen,  1 L.L.J. 497 quoted in 1961 (11) L.L.J. 308/382; South
India Millowners' Association and others v. Coimbatore District Textile
Workers' Union and others,  1 L.L.J. 223/230 and Management of Wenger
& Co. v. Their Workmen,  Suppl. 2 S.C.R. 862/ 871, referred to.
(b) The employer was justified in deciding to
close It is not always possible to immediately shut down a though a decision to
close it may have been irrevocably wrong in the respondent company arranging
closure of way as to guard against unnecessary inconvenience to and the labour
and against possible avoidable wastage or loss to the concern.
It would be necessary to go on with the
unused stock of raw material for some time for which a lesser number of workers
would be necessary, some of whom would constitute the next batch to go. Hence
the termination of the services of the 98 workmen as the first batch selected
to go on account of closure, in the circumstances of the case, cannot be held
to be unjustified. [715C-F] (c)The timing of the termination of the 98 workmen
which was about three months earlier to the actual closure is not at all
relevant in the context of the present case which is one of a closure of an
independent unit with different processes of work for it-, end product. It
could not be contended that there was no closure on 7th May since the S-Mill
had been functioning till 28th July and that therefore the first batch of 98
workmen must be held to have been retrenched on 7th May with a right to
compensation as on retrenchment Under s. 6N of the U.P. Act. [715F-H] (d) (i)
The principles of res judicata under s. 11 C.P.C.
are applicable to industrial adjudication. In
the application of the principle in industrial adjudication the extremely
technical considerations usually invoked in civil proceedings may not be
allowed to outweigh substantial justice to the parties. This is so since
multiplicity of litigation and agitation and re-agitation of the same dispute
at issue between the same employer and his employees will not be conducive to
industrial peace which is the principal object of all labour legislation
bearing on industrial adjudication. But, whether a matter in dispute in a
subsequent case had already been directly and substantially in issue between
the same parties and the same had been heard and finally decided by the
tribunal will be of pertinent consideration and will have to be determined
before holding in a particular case that the principles of res indicate are
attracted. [717C-F] (ii) Rule 18 of the U.P Industrial Tribunal and Labour
Courts Rules Procedure, 1967, enables the tribunal to frame any issue that may
arise from the down the unit by stages mill or a concern even taken. There is
nothing the S-mill in such a both the management 705 pleadings but the decision
on such issue would not automatically attract the principle of res judicate.
The heart of the matter always will be what was the substantial question that
came up for decision in the earlier proceedings. Some additional issues may be
framed in order to assist the tribunal to better appreciate the case of the
parties with reference to the principal issue which has been referred to for
adjudication. The reasons for the decision in connection with the adjudication
of the principal issue cannot be considered as the decision itself to attract
the plea of res Judicate. The earlier question at issue must be relevant and
germane in determining the question of res judicata in the subsequent
proceedings. The real character of the controversy between the parties is the
determining, factor and in the complex and manifold human relations between
labour and capital no cast-iron rule can be laid down. [717F-718A] (iii) In the
present case, there were earlier. awards but in none of them was the question
whether R-Mill and S-Mill were one establishment substantially in issue.
[717A-C] 2(a) Since the U.P. Act does not make any provision for compensation
in the case of closure and the Central Act has supplied the lacuna there is no
repugnancy between the U.P.
Act and the Central Act and the beneficent
provisions of the latter Act can be availed of by labour even in their absence
in the U.P. Act. Any doubt in the matter is cleared by s. 25J of the Central
Act. Therefore, on the finding that the S-Mill was closed as an independent
unit it will fall for consideration whether the employees of the said mill are
entitled to compensation under s. 25F which is a counter part of s. 6N of U.P.
Act by virtue of the provisions of s. 25FFF (i) of the Central Act. The
Tribunal was, therefore, not correct in holding that's. 25FFF did not apply to
the employees concerned. [718D-719D] (b) It is no longer open to plead at that
there could be no industrial dispute with regard to eligibility of workmen to
compensation, or to its quantum, on closure of an establishment. Further, the
reference has not been challenged as incompetent either before the tribunal or
in this Court. On the other hand the explicit terms of the reference show that
the subject matter referred to is an industrial dispute. Once it is found that
there is a closure the question of applicability of s. 25FFF(i) or the proviso
thereto will automatically arise for consideration in determining the quantum
of compensation. The scheme of chapter V-A or even the language of s. 25FFF
does not indicate that the claim under the section can be made only under s.
33C of the Central Act. it was therefore incumbent upon the tribunal to
adjudicate upon the second issue of reference for granting appropriate relief
as a necessary corollary to the result of the first issue, and the matter must
be remitted to the tribunal. The tribunal should determine the amount of
compensation after giving an adequate opportunity to the parties to establish
their respective pleas. [719H-720H] (c) The word undertaking as used in s.
25FFF is not intended to cover the entire industry or business of the employer
and therefore, even closure or stoppage of a part of the business or activities
of the employer would be covered by the sub-section. [719E-G] Management of
Hindustan Steel Ltd. v. The workmen and others, A.I.R. 1973 S.C. 878/882,
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 52 of 1969.
Appeal by special. leave from the Award dated
the 30th April, 1968 of the Industrial Tribunal (11) Lucknow in Adj Case No.
110 of 1967.
S. C. Agrawal, Shanti Swarup Bhatnagar and Y.
J.. Francis, for the appellants.
F. S. Chitalev, I- N. Shroff and R. P. Kapur,
for the respondent.
706 The Judgment of the Court was delivered
GOSWAMI, J.-This appeal by special leave at
the instance of the workmen of the Straw Board Manufacturing Company Limited,
is directed against theaward of the industrial tribunal (11) at Lucknow
(briefly theTribunal) dated 30th April, 1968. The facts briefly are as
follows:- The Straw Board Manufacturing Company, the respondent here- inafter
to be referred to as the Company) is a Public Limited company and owns two
units shown as the Straw Board Mill and the Regmal Mill (hereinafter described
as S. Mill and R. Mill respectively). Straw Board was manufactured in S. Mill
and abrassive paper/cloth described as regmal was prepared in R. Mill. These
two Mills are situated close to each other with only a railway line intervening
Each has a factory registered separately under the Factories Act, but one
balanced sheet and one profit and loss account are prepared for the Company as
a whole consolidating the accounts of both units. S. Mill was stated some time
in 1932 and R. Mill was established some time in 1940-41. S. Mill had more than
200 workmen whereas R Mill had about 50 workmen. The Company closed the S. Mill
on the ground of non-availability of Bagase which is the raw material for the
manufacture of strawboaxd and terminated the services of the workmen of this
Mill by stages between May 7 and July 28, 1967 The first batch consisted of 98
workmen whose dispute was the subject matter of the reference before the
On a dispute being, raised by the workmen
over their termination of services and on failure of conciliation, the State
Government under section 4 K of the U.P. Industrial Disputes Act (briefly the
U. P. Act) referred the following two issues-for adjudication by the Tribunal
:- (1) Whether the stoppage of work by the employers and the consequent
non-employment by them of the Workmen, detailed in the Annevure, in stages as
from May 7, 1967, amounts to a lay-off/retrenchment/lock-out or whether it
should be treated as a legitimate closure? (2) To what relief, if any, are the
workmen concerned entitled on the basis of the findings on issue No. 1 above ?
Both the Parties submitted their written statements and rejoinders. In
accordance with the usual procedure followed by the Tribunal , the following
fresh issues were framed on the pleadings (i) Whether the Present reference is
bad in law by reason of withdrawal of the Previous reference? (ii) Whether this
Tribunal is not competent to go into the Question whether the closure was for
unavoidable reasons beyond the control Of the employers? (iii) Whether this
Tribunal is not competent to determine the question of compensation in this
reference? (iv) Whether the employers could validly close only the Straw Board
Mill without closing the Regmal Mill? 707 (v) Whether the awards in Adj. Cases
Nos. 53 of 1965 and 93 of 1965 of Labour Courts, Allahabad and Meerut,
respectively and in Adj.
Case No. 10 of 1967 of Industrial Tribunal
(1), Allahabad or any of them operate as res judicata between the parties ?
(vi) Whether this Strawboaid Mill and Regmal Mill form part of one and the same
establishment, and whether this matter has been finally determined by the award
of Industrial Tribunal (1) in Case No. 65 of 1963 and does the award operate as
res judicata? Issue No.(i) was not pressed before the Tribunal. Numerous
documents were exhibited by both the parties before the Tribunal, most of these
oil admission. The workmen examined only one witness while the Company examined
three witnesses, including its director. After hearing arguments in the case on
April 24, 1968, the Tribunal recorded the following order "24.4.68
Arguments have been heard on all the issues.
If it appears to me that the reference can be
answered on findings on the issues framed by me. I will proceed to give my
award and it will not be necessary to call upon the parties to adduce evidence
on the question of quantum of compensation. In case I am of the view that the
question of compensation is required to be determined in this case and this
Tribunal is competent to determine it, parties shall be called upon to adduce
evidence on the question of compensation and the related question of
availability or unavoidability of reasons of closure of the factory and in that
case the reference will be disposed of only after evidence on this point also
has been recorded and the parties have been heard further." On April 30.
1968, the Tribunal made the award by recording the following order
"30.4.68 While writing the award I found it possible to determine the
matters of dispute finally on the findings on the issues at which I have
arrived. It is not, therefore, necessary to call upon the parties to aduced
evidence on the question of compensation and any other related question. I do
not consider it necessary to go into the question of compensation in this case.
Award made. Let it be sent to the State Government."
The Tribunal came to the following conclusions (1) S. Mill and R. Mill do not
form parts of one and the same establishment.
708 (2) It is a case of complete closure of
an independent industrial unit.
(3) There is no res judicata on account of
the previous awards as claimed by the workmen.
(4) The employers could validly close the S. Mill
without closing R. Mill.
The Tribunal. therefore, answered the first
issue in the reference in favour of the Company 'and held that the closure was
legitimate and it was not a case of lay-off, retrenchment or lock-out. The
Tribunal further held that since it was a legitimate closure, the question of
compensation could not be determined by it and the workmen were not entitled to
any relief. Hence this appeal by the workmen.
Mr. Aggarwal, learned counsel appearing on
behalf of the appellants. submits as follows :-- (1) The action of the Company
is not a closure, far less, legitimate or bona fide closure, It was a lock-out.
(2) Even if it is accepted that suspension of
production in S. Mill was due to shortage of raw materials, the Company should
have )resorted only to lay-off in accordance with the provisions of section 6-K
of the U.P. Act.
(3) In any event, termination of the services
of 98 workmen constituted retrenchment and was made in violation of sections
6-N and 6-P of the U.P. Act and is, therefore, invalid in law.
(4) Alternatively, if the action of the
Company even amounts to closure, the workmen are entitled to compensation under
subjection , (1) of section 25FFF of the Industrial Disputes Act (briefly the
Central Act) and the proviso of that sub-section is not attracted.
On behalf of the respondent the principal
submissions of Mr Chitaley are as follows :- (1) If a distinct business
activity is closed then the provision of section 25FFF is satisfied. The
section uses the word undertaking' in a' general and popular sense;
the accent not being on financial o r other
unity but on separate line of business. The test of functional integrality is
not re- levant.
(2) Since the test for functional integrality
would depend upon the nature of the dispute raised and the test would be
different for section 25FFF, there cannot be any question of res judicata; the
matters directly and substantially in issue in the present award and the
earlier awards being different.
709 (3) Closure need not be instant. It can
be, and very often, in the nature of things, has to be in stages. All that
section 25FFF requires is that there should be a bona fide closure in the sense
that it should not be a mere pretence of closure.
The Tribunal has held that section 25FFF is
not applicable on account, of a similar provision being absent in the U. P.
Act. Although Mr. Chitaley also, had at first
submitted in the same vein but finally did not choose to take that position
before us. We will, therefore,, briefly give our own reasons at the appropriate
It may be noted here that the workmen were
paid by the Company three month's wages as compensation under the proviso to
section 25FFF, although there is no like, provision in the U. P. Act and the
workmen also accepted the payment without prejudice to their rights to agitate
against the same. Even 'so, the Company, however, had successfully raised the
non-applicability of section 25FFF before the Tribunal as an answer to the
workmen's claim on the score of noncompliance with section 25F under
sub-section (1) of section 25FFF of the Act.
With regard to the first submission. the
appellants' counsel took considerable pains, in the forefront of his argument,
to demonstrate that there was no closure as such of the Company at tll since
only a part of a single establishment was sought to be shut down. It is also
pointed out that there was in fact no closure of even the S. Mill on May 7, 1967
and that the same continued functioning until it was finally declared closed on
July 28, 1967. Hence, it is submitted that 98 workmen concerned in this appeal
should be held to be retrenched on May 7. 1967 and since the pre- conditions
laid down under section 6-N and the provisions of section 6-P of the U. P. Act
have not been complied with by the Company, the so described retrenchment
should be held as invalid.
in order to assess the correctness of the
above submissions of the parties. it is necessary first to find if the S. Mill
and Eli-, R. Mill were The U. P. Act follows the pattern of the Central Act,
namely, the industrial Disputes Act and the definitions of lay-off, lock-out
and retrenchment and the provisions relating thereto are almost identical. The
decision of this Court dealing with the problems arising out of the application
of the provisions of Chapter V-A of the Central Act relating to Jay-off and
retrenchment are, therefore, relied upon by both the parties.
The learned counsel for the appellants drew
our attention to a number of decisions of this Court with regard to the tests
of determining what is 'one establishment'. In the Associated Cement Companies
Limited, Chaibassa Cement Works, Jhinkuni v. Their Workmen, (1) the Court
observed, as follows "Several tests were referred to in the course of
arguments before us, such as, geographical proximity, unity (1)  1 S. C.
710 of ownership, management and control,
unity of employment and conditions of service, functional integrality, general
unity of purpose etc.... II is, perhaps impossible to lay down any one test as
an absolute and invariable lest for all cases. The real purpose of these tests
is to find out the true relation between the parts, branches, units, etc. If in
their true relation they constitute one integrated whole, we say, that the
establishments is one; If on the contrary.
they do not constitute one integrated whole,
each unit is then a separate unit. How the relation between the units will be
_judged must depend on the facts proved, having regard to the scheme and object
of the statute which gives the right of unemployment compensation and also
prescribes disqualification there for.
Thus, in one case the unity of ownership,
management and control may be the important test, in another case functional
integrality or general unity may be the important lest;
and in still another case, the important test
may be the unity of employment. Indeed, in a large number of cases several
tests may fall for- consideration at the same time".
In India co..Ltd. v. Its Workmen, (1) this
Court while approving of the principles laid down in Associated Cement
Companies case (supra) at page 419 entered a significant observation as follows
"In Associated Cement Companies case (supra) it was held that all the
tests referred to in the judgment were satisfied and therefore the question of
the comparative weight to be attached to the several tests did not arise for
In Pakshiraja Studios v. Its Workmen,(2) this
Court referring to its earlier decision in Pratap Press, etc. v. Their
Workmen,(1) reiterated the following principle :
"........ the Court has to consider with
care how far there is functional integrality meaning thereby such functional
interdependence that one unit cannot exist conveniently and reasonably without
the other and the further question whether in matters of finance and employment
the employer has actually kept the two units distinct or integrated".
In South India Millowners' Association and
others v. Coimba- tore District Textile Workers' Union and others,(1) this
Court on the same topic observed as follows.:- "In dealing with the
problem, several factors are relevant and it must be remembered that the
significance of the several relevant factors would not be the same in each
case, (3)  I L.L.J.497quoted in  II L. L. J. 380/382.
(4)  I L.L.J. 223/230.
(1)  I L. L. J. 4091419.
(2)  II L.L.J. 380/382.
711 nor their importance.. Unity Of ownership
and management and control would be relevant factors. So would be general unity
of the two concerns; the unity of finance may not be irrelevant and
geographical location may also be of some relevance; functional integrality can
also be a relevant and important factor in some cases. It is also possible that
in some cases, the test would be whether one concern forms an integral part of
another so that the two together constitute one concern, and in dealing with
this question the nexus 'of integration in the form of some essential
dependence of the one on the other may assume relevance. Unity of purpose or
design, or even parallel or co-ordinate activity intended to achieve a common
object for the purpose of carrying out the business of the one or the other can
also assume relevance and importance .... In the complex and complicated forms
which modern industrial enterprise assumes, it would be unreasonable to suggest
that any one of the relevant tests is decisive; the importance and significance
of the tests would vary according to the facts in each case and so, the
question must always be determined bearing in mind all the relevant tests and
corelating them to the nature of the enterprise with which the Court is
In Management of Wenger & Co. v. Their
Workmen,(1), this Court while referring to almost all the earlier decisions on
the subject emphasised the following aspect in these terms:- "Several
factors are relevant in deciding this question (whether industrial
establishments owned by the same management constitute separate units or one
establishment). But it is important to bear in mind that the significance or
importance of these relevant factors would not be the same in each case;
whether or not the two units constitute one
establishment or are really two separate and independent units, must be decided
on the facts of each case".
Bearing in mind the not too rigid principles
laid down by this Court, as noticed above, we have to consider if the two
units, the S. Mill and the R. Mill can be held, on the materials established in
this case, to be functionally one single establishment. Broadly the common
features of the two units emphasised before us by the appellants are unity of
ownership; ultimate control and supervision; unity oil finance; similarity of
service conditions in general, similarity Of general. wage structure; proximity
of the units; some work (viz., preparation. of water proof Masala) for the R.
Mill being performed in the S. Mill; common boiler located in the S. Mill supplying
steam to R. Mill;
location of the processing furnace of the R.
Mill ill tile S. Mill; identical bonus scheme for both the units except for one
year; intertransferability of employees from one unit to the other; identical
working conditions; maintenance of one balance sheet and profit and loss
account and one consolidated account for the company including both the units;
depreciation fund; same occupier, namely, the Director (1)  Supp. 2 S. C.
712 (E.W. 1), for both the Mills and above
all treatment by the Company of both the units as one in certain matters, such
as opening of Bank accounts except in the State Bank where it was in the name
of the Company, Regmal section, and the products of both the units bearing the
name of the Company'- The submission is sought to be reinforced by reference to
some earlier awards of Tribunals in certain adjudications where it is pointed
out that the Tribunal had held that the standing orders of the Company were
applicable to the R.
Mill and the workmen's terms of conditions of
service were the same in both the units.
On the other hand the circumstances pointed
out in favour of the respondent are "that the two units are separate. Both
factories are registered separately under the Factories Act and they are in
separate ,-premises. The raw materials used in the two factories are different
and it is obtained from different sources. Electricity is obtained by the two
factories from different sources, the sale of products manufactured in the
respective units is effected from their respective office, the staff of the two
mills is separate and wages are paid separately. The accounts of the two mills
are maintained separately, although finally they are amalgamated into one
account of the Company. Fire insurance of the two factories is done separately,
the local manager of the Employees State Insurance Corporation has allotted
different numbers of provident fund to the two factories, the assessment of
sales-tax for the sales of products of the two mills is done separately which
is obviously due to the fact that the products are different and different
rates of sales tax apply to them". There is no provision in the standing
orders of the Company regarding transfer of workmen from one unit to the other.
We have got to consider the appellants'
submission in the backdrop of the present dispute before the Tribunal. The
dispute centres round closure of S. Mill. By raising an industrial dispute the
closure is sought to be characterised by the workmen as either a lay-off or
lock-out or retrenchment. The controversy between the parties with regard to
the oneness of the establishment has to be viewed mainly from the point of view
of compensation for deemed retrenchment of the employees on closure since it is
absolutely clear that the S. Mill was ultimately closed on July 28, 1967 and
remained so till the date of the award.
It is, however, pointed out by the appellants
and not countered by the respondent that the Strawboard section has again been
restarted with about 58 workmen from October 1972 during the pendency of this
appeal. It is, therefore, clear that the S. Mill was not functioning at all
between July 1967 and October 1972. We will, therefore, have to consider the
matter in controversy in the above context and circumstances of this particular
case. Adverting to tile common features emphasised by the appellants, although
most of these are present, it is not correct that there was mutual transfer of
labour from one unit to the other without the consent of the employees. Again
too much significance.cannot be given in this case for application of the
provisions of the standing orders. The fact that in the earlier award, on a
dispute being raised by the workmen of the R. Mill the standing orders were
held to be applicable to them, would not assist the appellants for the purpose
of this case to enable an unerring conclusion on that ground alone that the two
units are one. Similarly 713 that some masala for the R. Mill is prepared in
the S. Mill or that the steam in the R. Mill is supplied from the boiler
located in the S. Mill are not decisive tests in this case when even for the
purpose of economy a common employer may arrange his matters in such a, way
that there is certain operational cooperation between units, not necessarily,
wholly interdependent one upon the other. The most important aspect in this
particular case relating to closure, in our opinion, is whether one unit has
such componential relation that closing of one must lead to the closing of the
other or the one cannot reasonably exist without the other. Functional
integrality will assume an added significance in a case of closure of a branch
That the R. Mill is capable of functioning in
isolation is of very material import' in the case of closure. There is bound to
be a shift of emphasis in application of various tests from one case to
another. In other words, whether independent functioning of the R. Mill can at
all be said to be affected by the closing of the S. Mill. At the time we are
hearing this appeal we should have, thought that the answer is easy since the
R. Mill admittedly has been functioning in the absence of the S. Mill for a
little over five years. But we have to consider the correctness of the
conclusion of the Tribunal on the date it passed the award when the closure was
only for about ten months. That, however, will, in our view, make no difference
The reason for closure of the S. Mill is
non-availability of Bagasse, which is the raw material needed for keeping it
going. It is clear from the finding of the Tribunal that there is no other
oblique reason at all established in the evidence in respect of the closure.
The workmen cannot question the motive of the closure once closure has taken
place in fact. The matter may be different if under the guise of closure the
establishment is being carried on in some shape or form or at a different place
and the closure is only a ruse or pretence. Once the Court comes to the
conclusion that there is closure of an undertaking, the motive of the employer
ordinarily ceases to be relevant. No employer can be compelled to carry on his
business if he chooses to close it in truth and reality for reasons of his own.
It is because of this that section 25FFF has been inserted by an amendment of
the Industrial Disputes Act by Act IS of 1957 and it is not necessary for us to
trace the history of the insertion of Chapter V-A in the Central Act by
Amendment Act 47 of 1953 and later on of section 25FFF with other provisions.
We may only note in passing that the legislature had to introduce these
beneficial provisions in the interest of labour on account of the
interpretation by this Court of the earlier relevant provisions of the Central Act
on the subject.
After giving due consideration to all the
aspects pointed out by the learned counsel for the appellants, we are unable to
hold that R. Mill is not an independently functioning unit and that there is
any functional integrality as such between the R, Mill and the S. Mill. The
fact of the unity of ownership, supervision and control and some other common
features, which we have noticed above, do not justify a contrary conclusion on
this aspect in the present case.
There is considerable force in the submission
of Mr. Chitaley that the R. Mill is a different line of business and the
closure of the S. Mill has nothing to do with the functioning of the R. Mill.
The matter may be absolutely different when 714 in an otherwise going concern
or a functioning unit-some workmen's ,services are terminated as being
redundant or surplus to requirements. That most of the conditions of service of
the two Mills were- substantially identical can be easily explained by the fact
that, being owned by the same employer and the two- units being situated in
close proximity, it will not be in the interest of the management and peace and
wellbeing of the Company to treat the employees differently creating heart
burning and discrimination. For the same reason, there is no particular
significance in this, case even in the application of the standing ,orders of
the Company to the employees of the R. Mill which, because of the non-requisite
number of employees employed in the latter, is not even required under the law
to have separate standing orders. It is, in our opinion, a clear case of
closure of an independent unit of a Company and not a closure of a part of an
establishment. Even so, this kind of closure cannot be treated as lay-off or
lock- out under the U.P. Act. The S. Mill was intended to be closed and was in
fact closed and, therefore, the question of lay-off under section 2-N of the
U.P. Act does not arise.
Similarly it is also not a case of lock-out
within out the unit is- not closed completely and there is also no intention of
the employer to close the concern.
The learned counsel drew our attention to the
fact that the Tribunal did not consider the effect of certain awards and of
some material evidence. We have examined all the materials which according to the
counsel. were not taken note of by the Tribunal. We are, however, not impressed
by the argument that the Tribunal committed any Manifest error of law by any
significant omission to consider relevant materials in this case. To cite one
or two instances, the appellants drew our attention to Exhibit E-69 which is a
letter to the Chief Controller of Imports and Exports with an application dated
4th June 1962. addressed by the Manager of the Company. We have gone through
this document. We find that against item A, while giving particulars of the
applicant under column 1, the name of ,he applicant. "the Straw Board
Manufacturing Company Ltd, (Abrasives Department) Saharanpur" is
mentioned. Again against item B therein, regarding particulars of the industrial
unit, the name of the industry has been given as "Coated Abrasives
Industry". Against item D, under column 1 in the said form viz., Date of
establishment of business in India. what is mentioned is "Abrasives
Department started production in the year 1940". It is true that the
application has been put in for and on behalf of the Company but that, by
itself, does not at all assist the appellants and this document would not help
in coming to a contrary conclusion that the R. Mill is not an independent unit.
Similarly, the learned counsel was referring to mis-reading ' of the evidence
of the only witness, Raja Ram, on behalf of the workmen, with regard to the
inter-transferability of the employees between the two units. dear evidence has
been given by the Director (B.W. 1) that the four cases of transfer within the
last eleven years were "done with their consent". Besides, as noted
earlier, even the standing orders relied upon by the appellants do not provide
for transfer from one unit to the other. There is, therefore, no merit in the
submission- of the appellants.
715 We may now consider whether the employer
after he had decided to close down a particular unit is entitled to close the
same by stages. We have seen in this case that a decision to close the S. Mill was
taken by the Company sometime in March, 1967 and the Secretary to Government of
Industries Department was informed about it
on 7th March, 1967. Even the Union had been informed about it earlier on 21st
February, 1967. Communication of the decision was also made to various
authorities of the Government and other concerned. Finally on 5th April, 1967,
notice of closure of the factory was published stating that the first batch of
98 workmen will be discharged on 7th May, 1967. Notices of termination of
service were also served on these workmen individually on the same day. In
pursuance of this notice, services of these workmen were terminated, with
effect from 7th May, 1967.
It may not always be possible to immediately
shut down a mill or a,. concern even though a decision to close the same may at
any rate at the time have irrevocably been taken.
There is, therefore, nothing wrong in the
employer arranging closure of the S. Mill in such a way as to guard against
unnecessary inconvenience to both the management as well as to the labour and
against possible avoidable wastage or loss to the concern, say, for not being
able to complete some processes which have ultimately to be finished. Having
decided to close down a unit on account of non-availability of raw materials
the supply of which had stopped, it was necessary to go on with the unused
stock of raw materials for some, time for which a lesser number of workers
would be necessary who would then naturally constitute the next batch or
batches to go. We do not see anything wrong in law in electing a step or mode
in finally closing a unit or a concern. It may be in the nature of a business
to take recourse to such a mode which cannot ordinarily and per se be
considered as unfair or illegitimate. In the, circumstances of this case we are
unable to hold that the termination of the services of the 98 workmen, on
account of closure, as held by us, is unjustified having been the first batch
selected to go while others were retained until the final closure of the S.
Mill on 28th July, 1967. The counsel for the appellants very strenuously
submits that there was no closure on. 7th May, 1967, since the Mill had been
functioning till 28th July, 1967 and, therefore, contends that the first batch
of work,men must be held to have been retrenched on 7th May, 1967 and paid
compensation as on retrenchment under section 6-N of the U.P. Act. We are
unable to accede to this submission. The timing of the termination of the 98
workmen which was about three months earlier is not at all relevant in the
context of the present case which is one of closure of an independent unit with
different processes of work for its end-product. What compensation they will
get under the circumstances is of course a different matter to which we will
We will now take up the submission of the
learned counsel for the appellants with regard to res judicata. It is contended
by him that in previous awards between the same parties the Tribunals have held
both R. Mill and S. Mill to be one establishment and, therefore, the principles
of res judicata will apply and the employer is not entitled to reagitate the
same question here in this case. Counsel has referred to 716 award (Ext. E-105)
which is an award of the Regional Conciliation Officer, Meerut, in case No. 8
Adj. of 1957 dated July 12, 1957. The reference in this case was with regard to
whether a worker named Sri Santoo "be made a permanent sweeper?" In
considering this question the Union claimed that although Santoo was employed
in the R. Mill, he. was entitled to be made a permanent sweeper under the
standing orders of the Company. It is true that the Adjudicator held in favour
of the workman repelling the contention of the management that he was only
employed in a temporary capacity in part-time work and he was not a suitable
worker to be absorbed as a permanent workman. The Adjudicator, of course,
observed that the management "further added that the Regmal Mill is
entirely a separate factory than (sic) the Straw Board factory and as such the
standing orders of the Straw Board factory would not apply in this
concern". This decision on the facts of the particular case where
incidentally the Company's standing orders were also taken note of-by the
Adjudicator, cannot be considered to be res judicata in this case, for the
particular purpose for which that doctrine is invoked here.
The next award to which reference has been
made by the appellants is the award in Adjudication Case No. 65 of 1963 dated
2nd November, 1964 (Ex.W-11). The issue in that case was in the following terms
"Should the employers be required to introduce the Provident Fund Scheme
for the workmen employed in their Regmal Mills.... ?" The dispute in that
case was between the Company and the workmen of the R. Mill as such and not
that of the S. Mill.
The Tribunal, guardedly enough, framed an
additional issue (Issue No. 4) in these terms "Has the Regmal Mills to be
considered for the purposes of the present claim to be an independent and
separate unit. .?" (emphasis added).
The Tribunal finally allowed the provident
fund facility to the workers of the Regmal Mill. The decision again cannot be
invoked as res judicata for the purpose of dealing with the case of closure of
one of the units of the Company. The nature of the subject matter of the
Industrial dispute and the purpose of an enquiry in such an adjudication are
always material in considering the question of res judicata in a later
proceeding between the same parties.
The next award to which reference, has been
made by the appellants is in Adjudication Case No. 53 of 1965 dated October 23,
1965 (Ex. W-2). The subject mattter of the dispute in that case was
"whether the employers have retired the workmen, Shri Punnu Ram, son of
Ganga Ram, peon, Regmal Mills, with effect from the March 1, 1964, legally
and/or justifiably..... ?" Here again on the pleadings one of the issues
framed by the Labour Court was "whether the certified standing orders are
or are not applicable to the employees of the 717 Regmal Mills?" The
Labour Court in its award gave the benefit of the superannuation age of 61
years provided under the standing orders to this workman. This again cannot be
considered as helping the submission on the score of res judicata made in this
case in respect of the particular dispute which is involved between the parties
Another award relied upon by the appellants
is in Adjudication Case No. 10 of 1967 dated 22nd August, 1967 (Ex. W-4). The
issue in this case was "should the employers be required to grant 12 days'
casual leave with wages in a year to the workmen employed in Regmal section ...
?" The Tribunal in that case allowed 12 days' casual leave to the
employees of the Regmal unit. This case also cannot be considered as res
judicata for the purpose of the present controversy between the parties in this
It is the matter directly and substantially
in issue in each case which is of material relevance in determining the
question of res judicata in an industrial matter.
It is now well established that, although the
entire Civil Procedure Code is not applicable to industrial adjudication, the
principles of res judicata laid down under section 11 of the Code of Civil
Procedure, however, are applicable, wherever possible, for very good reasons.
This is so since multiplicity of litigation and agitation and re-agitation of
the same dispute at issue between the same employer and his employees will not
be conducive to industrial peace which is the principal object of all labour
legislation bearing on industrial adjudication. But whether a matter in dispute
in a subsequent case had earlier been directly and substantially in issue
between the same parties and the same had been heard and finally decided by the
Tribunal will be of pertinent consideration and will have to be determined
before holding in a particular case that the principles of res judicata are
The learned counsel faced with the problem
drew our attention to rule 18 of the U.P. Industrial Tribunal and Labour Courts
Rules of Procedure, 1967, which provides that after the written statements and
rejoinders, if any, of both the parties are filed and after examination of
parties, if any, the Industrial Tribunal or Labour Court may frame such other
issues, if any, as may arise from the pleadings. It is clear that these issues
are framed by the Tribunal to assist in adjudication. While it cannot be
absolutely ruled out that in a given cases judicata, the heart of the matter
will always be : What was the substantial question that came up for decision in
the earlier proceedings ? Some additional issues may be framed in order to
assist the Tribunal to better appreciate the case of the parties with reference
to the principal issue which has been referred to far adjudication and on the
basis of which, for example, as to whether it is an industrial dispute or not,
the jurisdiction of'-the_ Tribunal will have to be determined.
The reasons for the decision in connection
with the adjudication of the principal issue which has been referred to for
adjudication and on the basis of res judicata. The earlier question at issue
must be, relevant and germane in determining the question of res judicata in
the subsequent proceedings. The real character of the controversy between the
parties 718 is the determining factor and in complex and manifold human
relations between labour and capital giving rise to diverse kinds of ruptures
of varying nuances no castiron rule can be laid down.
Some distinction, of whatever shade or
magnitude, may have to be borne in mind in application of the principles of res
judicata in industrial adjudication in contradistinction to Civil proceeding.
Extremely technical considerations, usually invoked in civil proceedings, may
not be allowed to outweigh substantial justice to the parties in an industrial adjudication.
We have already held on the facts established
in this case that the S. Mill, which was an independent unit and a separate
line of business, had been closed in fact and, therefore, it was not a case of
lay-off or lock-out. It is also not a case of retrenchment, as it is ordinarily
understood, and even within the meaning of section 2(s) of the U.P. Act which
is substantially identical with. section 200 of the Central Act as interpreted
by this Court. The Tribunal is, therefore, right in answering the first issue
in the reference in favour of the respondent.
The next crucial question that will then
arise for consideration is whether the concerned employees are entitled to
relief under section 25FFF of the Central Act since there is no similar provision
in the U.P. Act. Mr. Chitalfy, as stated earlier, at first disputed that the
employees can invoke the provisions of section 25FFF, although, finally
abandoned that position. Since the U.P.
Act does not make any provision for
compensation in the case of closure and the Central Act has supplied the
lacuna, there is no repugnancy between the U.P. Act and the Central Act and the
beneficent provisions of the latter Act can be availed of by labour even in
their absence in the U.P. Act.
the Central Act applies to the whole of
India, including U.P. Even if there may be the slightest doubt in the matter,
section 25J of the Central Act advisedly leaves no scope for controversy in the
matter. We will, therefore, read section 25FFF of the Central Act which clearly
applies in the present case :
25FFF (1): "Where an undertaking is
closed down for any reason whatsoever, every workman who has been in continuous
service for not less than one year in that undertaking immediately before such
closure shall, subject to the provisions of sub-section (2), be entitled to
notice and compensation in accordance with the provisions of section 25F, as if
the workman had been retrenched Provided that where the undertaking is closed
down on account of unavoidable circumstances beyond the control of the
employer, the compensation to be paid to the workman under clause (b) of
section 2.5F shall not exceed his average pay for three months.
Explanation.-An undertaking which is closed
down by reason merely of- (i) financial difficulties (including financial
losses); or (ii) accumulation of un disposed of stocks; or 719 (iii) the,
expiry of the period of the lease or licence granted t* it; or (iv) in a case
Where the undertaking. is engaged in mining, operations, exhaustion of the
minerals in the area in which such operations are carried on;
shall not be deemed to be closed down oft
account of unavoidable circumstances beyond the control of the, employer within
the meaning of the proviso of this sub-section.
Section 6-N of. the U.P. Act is identical
with section 25F of the Central Act except for some consequential additions in
section 25F(c) in view of the scheme of the latter Act, which are not material
for our purpose. It is, therefore, clear that on the finding that the S. Mal
was closed as an independent unit it will fall for consideration whether the
employees of the said Mill are entitled to compensation under section 25F which
is the counterpart of section 6-N of the U.P. Act by virtue of the provisions
of section 25FFF(l) of the Central Act. The Tribunal was, therefore, not
correct in holding that section 25FFF did not apply to the employees concerned.
Indeed the management has paid, as already noted, compensation to their
employees under section 25FFF(l) of the Act.
some controversy was raised at the bar with
regard to the meaning of the word 'undertaking' in section 25FFF. Without going
into the question in detail we may only refer to a decision of this Court 'in
Management of Hindustan Steel Lid. v. The Workmen and Others(1), where the
following observation appears :
"The word undertaking as used in s.
25FFF seems to us to have been used in its ordinary sense connoting thereby any
work, enterprise, project or business undertaking. It is not intended to cover
the entire industry or business of the employer as was suggested on behalf of
the respondents. Even closure or stoppage of a part of the business or
activities of the employer would seem in law to be covered by this sub-section
We may now deal with another submission of Mr. Chitaley.
According to the learned counsel, the
question of compensation cannot be gone into by the Tribunal on account of
closure of the Mill as found by the Tribunal. We are not impressed by this
In the course of gradual development of the
industrial law the legislature, by engrafting a provision like section 25FF in
the Central Act, has sought to wipe out the deleterious distinction in the
consequential effect on labour upon retrenchment and upon closure except that
in the latter case a restricted compensation under very specified circumstances
is provided for under the proviso to section 25FFF(l) itself. It is no longer
open to the employer to plead that there can be no industrial dispute with
regard to the eligibility of workmen to compensation ox, to its quantum on
closure of an establishment although the factum of a (1) AIR 1973 S.C. 878/882.
720 real and, genuine or legitimate closure,
admitted or proved, is outside the pale of industrial adjudication not
partaking of or fulfilling the content of an industrial dispute within the
meaning of section 2(k) of the Central Act. If, however, the closure is a
masquerade, the matter will stand on a different footing. That is not the case
before us here.
Besides, the reference has not been challenged
as incompetent either before the Tribunal or in this appeal.
Indeed on the explicit terms of the
reference, it is not possible to contend that the subject matter referred to is
not an industrial dispute. Apart from that there is no legal bar to refer to
the Tribunal to determine the compensation on closure of an undertaking. The
scheme of Chapter V-A or even the language of section 25 FFF, does not
necessarily indicate that claim under the said section can be made only under
section 33-C of the Central Act and that the Industrial Tribunal, in a
reference, has no jurisdiction to grant appropriate relief in that behalf, as
urged by the learned counsel. The submission of the learned counsel is devoid
The claim, however, of the respondent-company
before us is that the proviso to section 25FFF(l) is attracted in this case and
the employees are not entitled to any compensation exceeding their average pay
for three months as provided therein. The Tribunal, however, did not address
itself to this aspect of the matter as according to it "since it was a
legitimate closure the question of compensation could not be determined by
it". The matter, therefore, was not at all considered by the Tribunal and
the parties were also not allowed to adduce any evidence with regard to the
applicability or otherwise of the said proviso before the Tribunal. Even after
decision of the first issue in the reference holding that the closure of the S.
Miff was legitimate, it was incumbent upon the Tribunal to adjudicate upon the
second issue of ,the reference for granting appropriate relief as a necessary
corollary to the result of the first issue. The Tribunal committed a clear
error of jurisdiction in not undertaking that enquiry. Once it is found, as in
this case, that there is a closure, the question of applicability of sub section
(1) of section 25FFF or the proviso thereto will automatically arise for
consideration in determining the quantum of compensation.
The proviso to section 25FFF(l) which limits
the quantum of compensation under the conditions specified therein, will have
to be carefully considered in order to arrive at a conclusion whether the onus
in that behalf to justify a lesser amount of compensation has been discharged
by the employer or not. A decision against the employer after considering all
aspects of the matter in relation to the said proviso read with the Explanation
will lead to granting of a higher compensation under sub-section (1) of section
25FFF by reason of the legal fiction contained therein for payment in
accordance with section 25F of the Central Act.
It will now, therefore, be the duty of the
Tribunal to afford adequate opportunity to the parties to establish their
respective pleas on the point which appertains to the domain of the second issue
in the reference.
In the result the appeal is partly allowed
and that part of the Award of the Tribunal with regard to the non-
applicability of section 721 25FFF is set aside. The reference stands restored
to the, file of the Tribunal for adjudicating only the question of
applicability or non applicability of the proviso to section 25FFF(l) of the
Central Act. It will be open to the parties to adduce oral and documentary
evidence before the Tribunal with respect to this limited enquiry. In the
circumstances of the case the parties will bear their own costs.
V.P.S. Appeal allowed in part.