Civil Appeal No 105 19 of 1983
From the Judgment and Order dated 1291983 of the Punjab and Haryana High Court in WP No 3798 of 1983
MS Gujral SK Bagga Ms Bagga SD Sharma BS Gupta
PC Kapur RN Mittal SD Gupta SM Ashri and KK Mohan for the Appellants
RS Sodhi and CM Nayyar for the Respondents
The Judgment of the Court was delivered by RANGANATHAN J
The appellants were in service as tube well operators in the irrigation branch of the Public Works Department of the Punjab State
The State took a decision to transfer all the tubewells in this branch to the Punjab State Tubewell Corporation hereinafter referred to as the Corporation  a company wholly owned and managed by the State of Punjab
Consequent on this decision a notification was issued on 30th November 1982 to the effect that the posts sanctioned for the Tubewell Circle Irrigation Branch Punjab are no longer needed in the public interest
 It was therefore ordered that all the permanent posts sanc tioned for the above circle be abolished with effect from 131983 and that all temporary posts be discontinued with effect from the same date
A little earlier on 31st August 1982 the petitioners were served with notices in terms of section 25 F of the hereinafter referred to as section 25F  terminating their services with effect from 30th November
These notices were however set aside as not being in consonance with clause c of section 25 F The State Government therefore issued fresh notices terminating the services of the petitioners with effect from March 1 1983
These notices were also set aside by the High Court on the ground that they did not conform to the provisions of clause b of section 25F
Thereupon the State served fresh notices on the petitioners terminating their services in terms of section 25 F with effect from August 31 1983
The appellants once again approached the High Court contending that the decision of the State Govern ment transferring the tubewells to the Corporation and terminating their services was invalid
It was contended a that the impugned notices did not fulfil the requirements of clauses b and c of section 25 F b that the notifica tion by which the tubewells were transferred was mala fide the only object of the transfer being to frustrate certain claims of the petitioners which had been judicially recog nised and c that in case the action of the State is upheld the respondent Corporation should be held to be under an obligation to employ the petitioners with conti nutiy of service and under the same terms and conditions which they were enjoying prior to their retrenchment from the service of the State
These contentions were rejected by the High Court
It held that the notices did not suffer from any defect
It was pointed out that the writ petitions had been filed before the expiry of the date from which the retrenchment notice was to be effective namely 31st August 1983
The re trenchment notice itself specifically mentioned that the retrenchment compensation as admissible under the rules will be paid before the notice of retrenchment took effect and that it could be collected personally from the respond ent s Sub DivisionalDivisional Officers
At the instance of the Court the State had filed an additional affidavit in which it was averred that drafts in respect of the amounts of compensation had been despatched to the divisional of fices in the manner following Tubewell Division Malerkotla Between 25 to 27 August 1983 Tubewell Division Hoshiarpur Between 19 to 24 August 1983 Tubewell Division Jullundur Between 19 to 24 August 1983 The relevant records showing the despatch of these drafts were also produced in the court
The High Court was satis fied that the State had despatched individual bank drafts in respect of each of the employees well in advance of the date of expiry of the notice period and that the despatch of these drafts to the divisional offices constituted a good and valid tender of the compensation amount to the appellants
The court held that this was sufficient compliance with the provisions of clause b of section 25 F So far as the provisions of clause c of section 25 F were concerned the High Court was satisfied that the requisite notice in the prescribed form P  was sent to the Secretary to Government Labour Department and the Employment Exchange concerned by personal delivery duly acknowledged in the peon book of the Department
Pointing out that the requirements of clause c of section 25 F 373 were only directory and not mandatory the High Court was of the opinion that the notices were not vitiated due to non compliance with clause c of section 25 F Turning to the allegation regarding mala fides the contention of the appellants was this
They submitted that the tubewell operators in the Irrigation Branch of the PWD had filed a writ petition being CWP 3340 of 1972 in the Punjab High Court claiming parity of pay with the tubewell operators employed in the Public Health Department of the State Government
That petition was allowed on February 5 1981
But the respondent authorities failed to implement the directions contained in that judgment thus forcing the petitioners to move a contempt application No 221 of 1981
Thereafter the State authorities gave effect to the judgment and paid arrears to the petitioners in the writ petition but did not extend the benefit thereof to the tubewell operators other than the actual petitioners in the writ petition
The other tubewell operators thus denied the benefits of the judgment were constrained to file three more writ petitions seeking the extension of same relief to them
These writ petitions were allowed on 781981 in terms of the earlier decision dated 521981
The respondent authorities chose to file SLP Nos9195 to 9197 of 198 1 in the Supreme Court but these were dismissed on 192
Still the respondent authorities showed their reluctance to implement the judgments of the High Court compelling the petitioners to file three contempt petitions Nos294 to 296 of 1981 against the defaulting authorities
However before the disposal of these writ petitions the State filed a letters patent appeal against the judgment in CWP No 3340 of 1972 and obtained an order staying the operation of the said judgment
Consequent on this the contempt applications had to be withdrawn and were dismissed as such on 84 1982
We are told that the letters patent appeals have been dismissed recently on 78 1990
Accordingly to the appellants the authorities took a decision to transfer the tubewells of the irrigation branch to the Corporation only with a view to deprive the appellants of the benefit they had gained as a result of the above litigation
It was pointed out that the Corporation had come into existence as early as 1970
Its main objects as set out in the Corporation s memorandum of association were inter alia XXX XXX XXX 2 To take over from the Government of Punjab the existing system of State owned irrigation and augmentation 374 tubewells along with connected buildings assets works and any of their projects connected with the installation maintenance and operation of the State owned tubewells with the rights and liabilities of the Government of Punjab so far as they relate to such tubewells buildings assets works or projects
These assets shall be taken over by the Punjab State Tube well Corporation Limited as contribution by the Punjab Government towards share capital
XXX XXX XXX 19 To enter into any arrangement with the Government of India Government of Punjab or any other Government or State or local authority for the purpose of carrying out the objects of the company for the furthering its interests and to obtain from such Government or Authority or person any charters subsidies loans indemnities grants contracts licences rights concessions privileges or immunities which the company may think desirable to obtain and exercise and comply with any such arrangements rights privileges and concessions
 Though the Corporation had been formed so long ago with the express object of taking over the tubewells of the irriga tion branch and though it was operating a large number of tubewells on its own account since then no efforts had been made by the Government to transfer the tubewells belonging to the State to the Corporation till 1982
Even under the impugned notification only tubewells belonging to the irri gation branch were transferred but not those which were being operated by the Public Health Department of the same State
The appellants vehemently contended that all these facts clearly showed that the sudden decision in 1982 to transfer the tubewells to the Corporation was intended as a measure of victimisation of the appellants who were only fighting for their rights of equal pay with other tubewell operators in the State
The High Court did not find any substance in this contention
It pointed out that the idea that eventually the tubewells belonging to the State should be transferred to the Corporation had germinated as early as in 1970
Though this was not implemented immediately a decision to transfer the tubewells to the Corporation had been taken in the light 375 of the recommendations of the Estimates Committee of the Punjab Vidhan Sabha made in the year 1977 78 that is about three years earlier to the decision of the High Court dated 521981 in CWP No 3340 of 1972
The authorities had placed before the Court the minutes of a meeting held under the chairmanship of the Chief Minister of Punjab on October 18 1979 wherein it had been decided that since irrigation from the State tubewells had not developed as expected and the State Government was running into a finan cial loss on account of the operation of these tubewells the same be transferred to the Corporation
It had also been decided at the meeting that the Government would meet the loss that may be suffered by the Corporation on account of the operation and maintenance of these tubewells
In the light of these facts the High Court held that there was no basis for the allegation of the petitioners that the im pugned notification had been issued mala fide solely with a view to deprive the appellants of the benefits they had obtained from the courts
It was pointed out by the High Court that the appellants had subsequently been given all the benefits which they had derived as a result of the writ petitions
That apart it was also found that the Corpora tion had made an offer of re employment to all the appel lants effective from the date of expiry of the notice of their retrenchment by the State Government
All this showed according to the learned Judges that the sole object of the issuance of the notification was to get rid of the tube wells which were the cause of a constant and ever increasing loss to the State exchequer and not any mala fide or extra neous reasons
On contention c the High Court observed as follows So far as the alternative relief of re employment with continuity of service and pensionary benefits in terms of the Punjab Civil Service Rules is concerned the petitioners cannot be granted the same in view of the provisions of section 25 FF of the  as introduced on September 4 1956
In this regard the petitioners have based their whole claim on certain observations made in two Division Bench judgments of the Bombay High Court reported as New Cotton Mills Ltd vs Labour Appellate Tribunal and Others and NJ Chavan and Others vs PD Sawarkar and Others AIR 1958 Bombay 133
Besides there being dissimilarity of facts in those cases and the instant case the same relate to a period prior to the insertion of section 25 FF
In Anakapalle Cooperative Agri cultural and Industrial Society 376 Ltd vs Workmen and Others   their Lord ships of the Supreme Court after noticing the first judgment of the Bombay High Court referred to above have held in categorical terms that such employees can make no claim against the transferee concern
Otherwise also we are of the view that the claim of the petitioners is not covered by section 25 FF of the Act as it has nowhere been pleaded or established by them that the ownership or management of the tubewells has been transferred by the State Government to the corporation either by agreement or by operation of law 
As already pointed out the transfer of the tubewells in the instant case has taken place as a result of the unilateral decision by the State Government
Even if it is to be accepted to be a case of transfer of the undertaking by agreement as is suggested by the learned counsel for the petitioners still the wording of the proviso and more particularly of clause b to section 25 FF clearly indi cate that the transfree concern of the management can change the terms and conditions of the workman
Further on the facts of the case we do not see how the petitioners can claim the benefits or rights of a civil servant while in the service of the corporation and thereby force the corporation to say good bye to its rules and regulations
 In the result the various writ petitions were dismissed and hence the present appeals
Before us practically the same arguments have been addressed as were addressed before the High Court but with slight variations
It might appear at first sight that the appellants have really no cause of grievance inasmuch as though retrenched by the State Government their services have been taken over by the Corporation
We have also been informed that the scale of pay of the tubewell operators in the Corporation is identical with that of those employed by the State Government
Though at one stage the Corporation had taken the stand that the appellants will be taken as fresh appointees in the Corporation it is now common ground that the Corporation has fixed them up at the same level of pay at which they were in Government service immediately before retrenchment and they are also being granted incre ments on that scale
Though these concessions were made during the pendency of the proceedings on interim applica tions made by the appellants the learned counsel for the State and Corporation have stated before us that these benefits would be continued 377 irrespective of the decision in these matters
Thus in the result so far as pay is concerned the petitioners have suffered no detriment whatsoever as a result of the action taken by the Government
There are however two grounds of dissatisfaction which are consequent on the appellants being treated as fresh appointees who have entered the service of the Corporation only on the dates of their respective ap pointments thereto with the result that all the appellants will be junior in service to the tubewell operators who had been engaged by the Corporation on its own account between 1970 and the dates on which the appellants joined the serv ice of the Corporation
This by itself may also not be much of a disadvantage to the appellants since many of them are senior in age the other tubewell operators and may well retire earlier and we are also told that there are no ave nues of promotion from the post of tubewell operators with the result that the question of seniority may not be very material
The apprehension of the petitioners however is that their down gradation in seniority will affect them in case the Corporation starts closing down some of the tube wells and discharging its staff an apprehension which is stated to be not purely hypothetical but quite real
The second disadvantage is that many of the appellants have put in a large number of years in the service of the Government
By being treated as retrenched Government servants they will be able to get terminal benefits and pension only on the basis of their present lengths of their service in the Government
On the other hand if they were to continue with the Corporation under the same terms and conditions which they were enjoying under the Government they would get the advantage of continuity of service and thus be entitled to substantially higher amounts of pension and other terminal benefits
On a bought calculation it is stated that some of the appellants might stand to lose about Rs600 to Rs700 per month as a result of being deprived of the benefit of their long service in Government and by being treated as new recruits in the corporation
We have heard the learned counsel for the appellants as well as the counsel for the State and the counsel for the Corporation
We entirely agree with the reasoning of the High Court on contentions a and b earlier set out
We are also of the opinion that no ulterior motives on the part of the Government have been established
It is no doubt true that there was some litigation between the appellants and the Government but this related to their pay scales and it is not common ground before us eventually the petitioners have had the benefit of the higher pay scales which were in vogue in the Public Health Department
It is no doubt true that the increased wage bill consequent on these decisions of the High Court must have made the 378 tubewells in the irrigation branch more unremunerative than before and may thus have precipitated the decision to trans fer the tubewells to the Corporation
However as pointed out by the High Court the decision that there should be a tubewell Corporation that the Corporation should in course of time acquire the tubewells belonging to the Government and that the tubewells of the irrigation branch should be made over to the Corporation had been taken quite a long time back
The fact appears to be that the tubewells were not being operated profitably by the Government and the Government seems to have taken a decision that it would be more efficient economical and prudent to have these tube wells run by the Corporation
There is no reason to doubt the bona fides or the genuineness of this arrangement It is true that the tubewells in the Public Health Department do not appear to have been transferred to the Corporation
But we have no details before us regarding the magnitude of the State s problem vis avis those tubewells and it is difficult to draw an inference merely because the tubewells of the Public Health Department were not transferred to the Corpo ration that the transfer of the tubewells in the irrigation branch was actuated by a desire to victimise the appellants
We therefore see no substance in this contention of the appellants
We do not also see any force in the contentions regard ing noncompliance with the provisions of section 25 F of the 
It is urged on behalf of the appel lants that the State has not furnished the details of the amounts of compensation determined in the case of each employee and that the State had also taken no steps to deliver the payment in respect of each employee at his door by the relevant date
It is submitted that the tender of compensation under section 25 F in order to be valid should be of the precise amount and should be made simulta neously with termination of the service
This of course is correct but the High Court has satisfied itself by looking into the original records that drafts in respect of individual employees were dispatched in time so as to reach divisionalsub divisional offices by 31st of August 1983
An attempt was made before us to suggest that there was some discrepancy between two affidavits filed by the State Gov ernment in this behalf
We have perused the said averments and we find no inconsistency as alleged
It is true that the amounts were not actually paid or tendered to the workers by the Corporation directly but the Corporation had evolved a method of disbursement of compensation in the interest of the workers  convenience
Instead of making the appellants spread out all over the State to come to the head office to collect the compensation and to avoid the inconvenience and difficulty of the Corporation making available the compensa tion 379 at the doorstep of each employee the Corporation made arrangements whereby the tubewell operators could go to the nearest divisionalsub divisional office and collect the amount of compensation due to them
It appears that the appellants were not interested in taking the compensation amount
None of them appears to have ascertained whether these amounts had reached the sub divisional office and whether they were for the correct amounts
No instance has been pointed out to us to show that they were not for the correct amounts
We do not think we need elaborate further on this aspect since the relevant records were brought before the High Court and the High Court was satisfied that the individual compensation drafts were sent to the various subordinate offices ready for distribution to the concerned workers on or before the relevant date
In the circumstances of this case we agree with the High Court that when indi vidual drafts for the amounts of compensation due to the various tubewell operators were forwarded to the divisionalsub divisional offices sufficiently in time to be available to be taken by them by 31st August 1983 there was sufficient compliance with the provisions of clause b of section 25 F The contention based on clause c of section 25 F is equally baseless
It has been verified that notices were sent to the Labour department as well as to the employment exchange through the peon book
There is no reason to doubt the entries in these books
The suggestion is that they should have been sent by registered post
As rightly pointed out by the High Court such a requirement can be treated only as directory and not mandatory and it would be errone ous to hold that unless sent by registered post the no tices cannot be treated as complying with the statute
We therefore reject this contention as well
This leaves for consideration the principal question in this case as to whether in circumstances such as these the State is under an obligation to protect the terms and condi tions of service of the tubewell operators
The State s case is that it had transferred its tubewells to the Corporation
The operators therefore became surplus and they were retrenched
Retrenchment compensation was duly paid to them
It is suggested that the State s obligation came to an end with this
It was under no obligation to find any fresh or alternative employment to the workers
However being a welfare State it did arrange for such alternative employ ment
It was obviously under the State s directions that the Corporation went out of its way to confer a favour on the appellants by agreeing to take them into its service
It is submitted that 380 the Corporation had its own terms and conditions of service for its employees and could not change those terms and conditions of service for the benefit of those few employees whose services had been taken over as an act of commiseration
It would be unfair on the part of the Corporation to give the appellants benefit of their earlier service in the Government and made them senior to other employees who had been serving in the Corporation right from the beginning
It is therefore submitted that the two chapters of service of the appellants one with the Government and the other with the Corporation are two separate and independent chapters
The first chapter has come to a close because the State Government was not able to continue to operate the tubewells by itself
The second chapter has commenced with a totally independent offer by the Corporation to the erstwhile Gov ernment servants of an employment in the Corporation
This is a fresh employment subject to the normal rules and regu lations of the Corporation
The appellants have no right to claim any continuity of service in the circumstances
Shri Gujral learned counsel for the appellants has contended before us that the approach which the State Government wants this Court to adopt is an unrealistic and purely technical approach
According to him the Corporation is realty nothing but a department of the Government
It is no doubt an independent entity in the sense that it has a separate legal existence with its own employees and its own finances to be looked after according to certain rules and regulations but says Sri Gujral in circumstances such as these the corporate veil of the Corporation has to be torn as under and the basic identity of the Corporation as a department of the Government should be recognised and given effect to
Alternatively Shri Gujral argues even if the Corpora tion be taken to be a separate legal entity it is clearly a successor to the Government department
He points out that the very memorandum of the Corporation contemplates the taking over by it of the tubewells belonging to the Govern ment together with all the rights and liabilities of the Government so far as they relate to such tubewells
The assets taken over are to be treated as contributions of capital by the Government to the Corporation
It is also common ground that in this case while transferring the tubewells to the Corporation the Government has assured the Corporation that if it suffers any loses because of the transfer the losses would be made good by the Government
The true and real essence of the transaction put through is that the tubewells along with all appurtenances rights and liabilities including the liabi 381 lity to continue the services of the tubewell operators have been taken over by the Corporation
Having regard to the virtual identity of the Corporation and the Government this is really a case of the Corporation having taken over a department of the Government though in form the Government has purported to retrench and the Corporation to re employ the appellants
Shri Gujral submitted that both the irriga tion branch of the State Government as well as the Corporation admittedly constitute an industry within the meaning of the 
Indeed retrenchment compen sation has been offered to the appellants under the Indus trial Disputes Act
In these circumstances Shri Gujral vehemently contends the problem before us should be looked at from the point of view of industrial law
One should ask oneself the question if a similar transaction had been put through in the private sector by two industrial organisa tions how would the Court could have tackled the problem This according to Shri Gujral is the proper test to be applied and if that is done he submits there can be put one answer to the question in this case
There is no dispute before us that the running of tube wells constitutes an industry  whether in the hands of the Government or in the hands of the Corporation
As pointed out by this Court in State of Bihar vs Industrial Tribunal  there is also no incompatibility in applying some of the provisions of the to persons in the service of the Government
We may therefore first examine what position would be if the principles of industrial law were to be applied to a situa tion where one person succeeds to the business which is being carried on by another
Shri Gujral contends that there is preponderant authority for holding that if those princi ples were to apply the tubewell operators should have in the Corporation the same terms and conditions of service which they enjoyed when they were in the Government
In support of this proposition Shri Gujral relies upon the decision of the Bombay High Court in New Gujarat Cotton Mills Ltd vs Labour Appellate Tribunal 1957 II LLJ 194
In that case the business and undertaking of a cotton mill was taken over as a going concern by another company
The successor company however declined to continue in its employment some of the employees of the predecessor company
Thereupon the applications were filed by them before the labour court for an order against the successor company for reinstatement or reemployment
This application was rejected by the labour court but on appeal the Labour Appellate Tribunal held that the new company could not refuse tO take them in
It observed vide Ramjilal Nathulal vs Himabhai Mills Co Ltd 1956 II LLJ 244 382 12Under the civil law a person who is a successor to a business is not bound merely because of such succession by the debts or liabilities of the old business and even if he has agreed with his transferor to be so liable third par ties in the absence of a tripartite arrangement cannot enforce such debt or liability against the transferor who alone continues to remain liable for such debts and liabili ties to third parties
13Unlike the civil law however the industrial law has naturally taken a different view with regard to the duties of a successor in business who has decided to run the same and in the case of employees of the old concern it has regarded the rights and obligations of the old concern as continuing and to be enforceable as against the new manage ment and not to be affected by the substitution of the new management for the old whenever justice of the case would require such enforcement 
The same principles have also been recognised as of general application by the Madras High Court in the case of Odeon Cinema 1954 II LLJ 314 as shown by the observations of their Lordships at p319 where they remark  The industrial tribunal has cited a number of decisions of other industrial tribunals in the course of which it has been held that where there is a transfer of business of one management to another the rights and obli gations which existed as between the old management and their workers continue to exist vis a vis the new manage ment after the date of the transfer
The learned counsel for the petitioners does not challenge the correctness of these decisions which really are in application of the principle embodied in section 18c of the underlining ours This view was approved by the Bombay High Court
Speaking for the Court Shah J observed In our view in industrial matters the Court is entitled and is indeed bound to modify contractual rights and obliga tions on considerations of equity and in the larger inter ests of the community such as promotion of industrial peace and security of employment of workmen
Merely because under the law of contracts a claim may not lie at 383 the instance of the applicants to be reemployed or reinstat ed by the new company the claim made by the applicants cannot be regarded as inadmissible
It appears to have been settled by a large number of decisions of the industrial and labour courts that the industrial law takes a different view about the duties and obligations of a successor inbusiness and if a successor decides to run the same business which was carried on by his predecessor the employees of the old concern are entitled to submit a dispute before the indus trial tribunal regarding their rights and obligations in the business of the old concern and those rights and obliga tions must be regarded as continuing and enforceable against the new management and not affected by the substitution of the new management for the old
In Odeon Cinema vs Workers of Sagar Talkies 1954 II LEJ 3 14 it was observed by the Madras High Court p 319  where there is a transfer of a business of one management to another the rights and obligations which existed as between the old management and their work ers continue to exist vis a vis the new management after the date of the transfer
It is also implicit is Ss 114 and 1 15 of the Bombay Indus trial Relations Act that the rights and obligations of a management of an industrial undertaking are enforceable in proper cases against its successor
It appears from the terms of section 18c of the that a successor to an old undertaking is liable to meet certain obligations of its predecessors
In our view therefore the absence of a direct contractual relation between the appli cants and the new company is by itself not a ground for rejecting the claim made by the applicants 
Shri Nayar submits that the Bombay case was one in which the employees of the old concern had only sought re employment in the successor concern a concept quite different from the concept of continuity in service on the same terms and conditions and invited our attention to section 25H of the Act and to the decision in Indian Hume Pipe Co Ltd vs Bhima rao It is true that the claim in the Bombay case appears to have been one for re employment but the principle laid down in these decisions is in wider terms as the passages 384 underlined in the above excerpts will show
We may also refer in this context to the brief decision of this Court in Ban Nigam Karamchari Kalyan Sangh  Anr vs Divisional Logging Manager  Ors JT In this case the petitioners were in the employment of UP Forest Corpora tion which was appointed agent for collecting tendu leaves
The Ban Nigam was appointed in place of the Corporation
Thereupon the Corporation terminated the services of the workmen
This Court passed a brief order to the following effect In the proceeding before the High Court as also here the State and the Nigam have not been impleaded as parties but learned counsel for the Corporation tells us that it was the understanding that the Nigam would takeover these 149 work men on the same terms and conditions as were applicable when they were working under the Corporation
Since both the Corporation and the Nigam are Government concerns as learned counsel for the Corporation tell us that this was the under standing we direct the Nigam to continue the 149 workmen in employment on the same terms and conditions as were applica ble to them when the Corporation was the agent for collection of tendu leaves
The list of the 149 workmen is not on record
Learned counsel for the applicants has undertaken to provide the list within 24 hours
 There was no doubt an understanding in this case but even without this counsel says the position would be the same
It appears that the broad issue as to the rights of such workmen against a successor inbusiness was raised but not decided in Workmen vs Dahingeapara Tea Estate 1958 II LLJ 498 a case which came up before a five judge Bench of this Court
The High Court has however referred to decision of this Court in Anakapala Coop Agricultural and Industrial Society Ltd vs Its Workmen 1963 Supp 1 SCR 730 and taken the view that the principle enunciated in the judgments quoted earlier is not valid after the enactment of section 25FF of the Act
This section provides that where there is a transfer of an undertaking by agreement or operation of law an employee who loses his job because of such transfer will have a right to compensation from the predecessor except where he gets the benefit of uninter rupted service with the new employer on no less favorable terms than before and will be entitled to compensation in case he should be retrenched later by the new employer
It has been construed in the Anakapalla Society case to say that in such a situation the employee can at best claim retrenchment compensation from the predecessor on the basis of a notional 385 retrenchment but will have no right to claim re employment much less on the same conditions as before from the successor
It is necessary to extract here certain observations from judgment in the Anakapalla case supra which if we may say so with respect clinch the issue
Gajendragadkar J speaking for a five Judge Bench of the Court summed up the earlier legal position thus That takes us to the question as to what would be the nature of the appellant s liability to the employees of the Company
Before section 25 FF was introduced in the Act in 1956 this question was considered by industrial adjudication on general considerations of fair play and social justice
In all cases where the employees of the transferor concern claimed re employment at the hands of the transferee con cern industrial adjudication first enquired into the ques tion as to whether the transferee concern could be said to be a successor in interest of the transferor concern
If the answer was that the transferee was a successor in interest in business then industrial adjudication considered the question of re employment in the light of broad principles
It enquired whether the refusal of the successor to give re employment to the employees of his predecessor was capri cious and unjustified or whether it was based on some reasonable and bona fide grounds
In some cases it appeared that there was not enough amount of work to justify the absorption of all the previous employees sometimes the purchaser concern needed bona fide the assistance of better qualified and different type of workers conceivably in some cases the purchaser has previous commitments for which he is answerable in the matter of employment of labour and so the claim of re employment made by the employees of the vendor concern had to be weighed against the pleas made by the purchaser concern for not employing the said employees and the problem had to be resolved on general grounds of fairplay and social justice
In such a case it was obvious ly impossible to lay down any hard and fast rules
Indeed experience of industrial adjudication shows that in resolv ing industrial disputes from case to case and from time to time industrial adjudication generally avoids as it should to lay down inflexible rules because it is of the essence of industrial adjudication that the problem should be resolved by reference to the facts in each case so as to do justice to both the parties
386 It was in this spirit that industrial adjudication ap proached this problem until 1956 when section 25 FF was intro duced in the Act
Sometimes the claim for re employment was allowed or sometimes the claim for compensation was considered
But it is significant that no industrial decision has been cited before us prior to 1956 under which the employees were held entitled to compensation against the vendor em ployer as well as re employment at the hands of the purchas er on the ground that it was a successor ininterest of the vendor
 The Court then referred to the insertion of section 25 FF in 1956 the inadequacy of its language in view of Hariprasad vs Divikar 1957 SCR 121 the effect of its retrospective amendment in 1957 and then concluded   and therefore in all cases to which section 25FF applies the only claim which the employees of the transferred concern can legitimately make is a claim for compensation against their employers
No claim can be made against the transferee of the said concern
By amending section 25FF the legislature has made it clear that if industrial undertakings are trans ferred the employees of such transferred undertakings should be entitled to compensation unless of course the continuity of their service or employment is not disturbed and that can happen if the transfer satisfies the three requirements of the proviso
 The Supreme Court was dealing with a case of genuine transfer between two parties a predecessor and a successor at arms  length where the principles of the law of contracts clearly held the field
The employees of the predecessor had no privity of contract with the successor and could make no claims against him
The industrial law however safeguarded his interests by inserting section 25FF and giving him a right to compensation against his former employer on the basis of a notional retrenchment except in cases where the successor under the contract of transfer itself adequately safeguard ed them by assuring them of continuity of service and of employment terms and conditions
In the result he can get compensation or continuity but not both
The present case before us raises an allied but sometimes more important issues as to whether there cannot be situations in which the court or 387 industrial adjudicator should in the interests of justice fairplay and industrial peace hold the employee entitled to continuity with the successor without being compelled to be satisfied with compensation from the predecessor
The Supreme Court itself has visualised such a case and made it clear that if a transfer is fictitious or benami section 25FF has no application at all
Of course in such a case there has been no change of ownership or management and despite an apparent transfer the transferor employer continues to be the real employer and there has to be continuity of service under the same terms and conditions of service as before and there can be no question of compensation
A second type of cases which comes to mind is one in which there is form and perhaps also in law a succession but the management contin ues to be in the hands of the same set of persons organised differently such as in Bombay Garage Ltd vs Industrial Tribunal and Artisan Press vs LAT 1954 II LLJ 424
In such cases the transferee and transferor are virtually the same and the over riding prin ciple should be that no one should be able to frustrate the intent and purpose of the law by drawing a corporate veil across the eyes of the court
see Palmer Company Law 23rd Edn pages 200 201 paras 8 and 10 and the decision in Kapur vs Shields  cited therein
These exceptions to the above rules we think would still be operative
But it is not necessary here to decide whether this principle will help us to identify the corporation with the State Government in the present case for the present purposes particularly as there is a catena of cases which do not approve of such identification see Accountant and Secretarial Services P Lid vs Union  and the cases cited therein
Leaving this out of account then we may turn to a third category of cases which we think would also fail as an exception to the principle behind section 25FF
This is where as here the transferor andor transferee is a State or a State instrumentality which is required to act fairly and not arbitrarily see the recent pronouncement in Mahabir Auto Stores vs Indian Oil Corporation 1990 3 SCC 752 and the Court has a say as to whether the terms and conditions on which it proposes to hand over or take over an industrial undertaking embody the requisite of fairness inaction and could be upheld
We think that certainly in such circumstances it will be open to this Court to review the arrangement between the State Government and the Corporation and issue appropriate directions
Indeed such directions could be issued even if the elements of the transfer in the present case fall short of a complete succession to the business or undertaking of the State by the Corporation as the principle sought to be applied is a constitutional principle flowing from the contours of article 14 of the Constitution which the State and Corpora 388 tion are obliged to adhere to
We are making this observa tion because it was attempted to be argued on behalf of the State and the Corporation that only certain assets of the State industry  viz the tubewells were taken over by the latter and nothing more
We do not quite agree with this contention but in view of the approach we propose to adopt this aspect is not very material and need not be further discussed
Looking at the facts of this case in the above perspec tive it appears to us that the State Government has acted arbitrarily towards the appellants
It is true that the State Government was incurring losses and decided to trans fer the tubewells to the Corporation
This decision would have been the most unexceptionable prudent and perhaps the only decision that the Government could have taken if it had decided to completely cut itself off thereafter from any responsibility or liability arising out of the operation of the tubewells
But that the Government did not do
As point ed out earlier the State Government although transferring the tubewells undertook to recoup any losses that the Corporation might incur as a result of the transfer
The result therefore was that despite the transfer of tube wells to the Corporation the Government continues to bear the losses arising from this activity
But while doing so it has abridged the rights of the appellants by purporting to transfer only the tubewells and retrenched the appellants from service as a consequences
A grievance has been made that while several other members of staff belonging to the irrigation department such as engineers clerks etc have been sent on deputation to the Corporation the State has only chosen to retrench the service of as many as 498 tube well operators
This differential treatment may not amount to discrimination as contended by the appellants because those others belonged to categories of Government staff which could come back to Government service in the event of the Corporation finding their services unnecessary at a future date for one reason or another as they were persons with general qualifications who could be fitted into the other work of the irrigation branch
The tubewell operators however could not have been sent on deputation because there was no possibility at all of their being fitted into the irrigation branch later in case the Corporation could find no use for them because once the tubewells had been transferred for good to the Corporation the Government could find no openings for them in the service
While therefore we do not agree with the appellant that the State Government discriminated against the appellants as compared with the other members of the staff by sending them on deputation but not the appellants we think that this treat ment meted but to the other staff shows that the Government did not hesitate to burden the Corpo 389 ration with the liability of their salary etc
while serving on deputation which would only augment the losses if any that the Corporation would incur by operating the tubewells
But when it came to the case of the appellants the Govern ment has considered it fit to retrench their services simultaneously making some arrangement or issuing some directions enabling the Corporation to absorb them as if they were fresh recruits
The assurance that they would be paid according to their original scales of pay and at their original leaves of pay came as a later development only because of the pending litigation
It was very fair on the part of the State Government to decide that as the tube wells would be operated by the Corporation it would be prudent to run them with the help of the appellants rather than recruit new staff therefore and that the Government should bear the burden of any losses which the Corporation might incur as a result of running the tubewells But having gone thus far we are unable to see why the Government stopped short of giving the appellants the benefit of their past services with the Government when thus absorbed by the Corporation
Such a step would have preserved to the appel lants their rightful dues and retirement benefits
The conduct of the Government in depriving the appellants of substantial benefits which have accrued to them as a result of their long service with the Government although the tubewells continue to be run at its cost by a Corporation wholly owned by it is something which is grossly unfair and inequitable
This type of attitude designed to achieve nothing more than to deprive the employees of some benefits which they had earned can be understood in the case of a private employer but comes ill from a State Government and smacks of arbitrariness
Acting as a model employer which the State ought to be and having regard to the long length of service of most of the appellants the state in our opinion should have agreed to bear the burden of giving the appellants credit for their past service with the Government
That would not have affected the Corporation or its employees in any way except to a limited extent indicated below and at the same time it would have done justice to the appellants
We think therefore that this is something which the State ought to be directed to do
We would however like to clarify that the sole purpose and object of our above direction is that the appellants should be entitled to count their past service with the Government for the purpose of computation of their salary length of service and retirement benefits with the Corporation
This however should not result in the appellants  claiming any seniority over the staff which the Corporation has otherwise engage right from its commencement in 1970
To permit 390 such a claim would result in injustice to those employees whose seniority is based on their terms and conditions of service with the Corporation which had been entered into a long time before the present transfer proposal came to be implemented
Though as we have mentioned earlier seniority in service is not of much importance in this case as there is no avenue of promotion to tubewell operators the ques tion of seniority still becomes crucial in case the Corpora tion should close down any of the tubewells or decide on the retrenchment of its staff by reorganising the operation of tubewells in such a way that some of the staff may become surplus
In such an event if the appellants are given the benefit of their length of service with the Government for all purposes some of the present employees of the Corpora tion may become liable to be retrenched as junior in length of service to some of the appellants
Clearly this should not be allowed to happen and the Corporation staff should not suffer merely because the appellants who have been subsequently inducted into the Corporation are given all the benefits of the length of their service with the Govern ment
There can be no question of any of the appellants being considered senior to such operators on the Corpora tion s establishment
In fact we cannot give such a direc tion without giving such operators an opportunity of being heard
We would therefore like to make it clear that while the appellants will have for purposes of computation of their salary length of service and retirement benefits the advantage of counting the period of their service with the Government this will not enable them to claim any seniority over the former employees of the Corporation
At the same time there is the apprehension of the appel lants that if they are treated as juniors to all the Corpo ration s employees they may be sent out first in case there is any retrenchment
It is prayed that it should be ensured that such an eventuality does not affect the present appel lants as a result of their being treated as juniors to the former employees of the Corporation
We are told that this eventuality is not merely hypothetical but real
This is a situation that cannot be helped being one in which the equities in favour of the appellants will be counter weighed by those in favour of the Corporation s direct employees The only solution to this difficulty which we can see in for the Corporation not to retrench the services of any of the appellants as far as possible whether due to the closure of some of the tubewells or otherwise
We are informed that a circular was issued by the Corporation on 13787 and 19887 directing inter alia that no fresh appointments of tubewell operators will be made in the Corporation against vacancies caused due to retrenchment resignation or death of an exist 391 ing incumbent
Such a direction became necessary because many of the tubewells of the Corporation had been installed in the fifties and they had out lived their optimum lives and it became necessary to cut down on the staff
The continued adoption of this policy for some more time will help the appellants tide over the crisis envisaged above
We have already pointed out that most of the appellants who have now joined the Corporation have rendered long years of service with the Government and will be retiring from serv ice in the next few years
The Corporation can perhaps manage to continue them i service without retrenching any of them on the ground that some of the tubewells have to be closed down or that some of these operators for some other reason have become surplus for its needs
If this could be done it will be most equitable as it will achieve the following ends 1 it will enable the present appellants to continue in service till they retire in normal course 2 it will protect the interests of the erstwhile operators of the Corporation who have been serving in the Corporation from the beginning 3 it will not cause any financial prejudice to the Corpo ration because of the assurance already given that any losses incurred by running the tubewells would be borne by the Government itself and it will ensure that the Government acts fairly and equitably fulfilling the legitimate expectations of its employees
For the reasons discussed above we declare that the appellants will be entitled to add their service in the Government to their length of service in the Corporation for purposes of computation of their salary length of service and retirement benefits
The Corporation is also directed to ensure as far as possible that none of the appellants are retrenched as surplus on account of any closure of tubewells or other like reason until they retire or leave the service of the Corporation voluntarily for any reason
To sum up even before the insertion of section 25FF in the Act the employees of a predecessor had no right to claim re employment by the successor in business save in excep tional circumstances
Even where available that claim was not a matter of absolute right but of discretion to be judicially exercised having regard to all the 392 circumstances
An industrial tribunal while investigating such a claim had to carefully consider all the aspects of the matter
It had to examine whether the refusal to give re employment was capricious and industrially unjustified on the part of successor in business or whether he could show cause for such refusal on reasonable and bona fide grounds such as want of work inability of the applicant to carry out the available work efficiently late receipt of the application for re employment in view of prior commitments or any other cause which in the opinion of the tribunal made it unreasonable to force the successor in interest to give re employment to all or any of the employees of the old concern
This discretion given to industrial courts is no longer generally available because of the insertion of section 25 FF
But in a case where one or both of the par ties is a State instrumentality having obligations under the Constitution the Court has a right of judicial review over all aspects of transfer of the undertaking
It is open to a court in such a situation to give appropriate direc tions to ensure that no injustice results from the change over
In the present case the parties to the transfer are a State on the one hand and a fully owned State Corporation on the other
That is why we have examined the terms and condi tions of the transfer and given appropriate directions to meet the needs of the situation
We therefore direct the State Government and the Corporation which is but a wholly owned State instrumentality bound to act at the behest of the State to carry out our directions above the Corpora tion being at liberty to amend its rules and regulations if necessary to give effect to the same
We have been given to understand that none of the appel lants has taken the compensation amounts tendered by the State and that the monies are now in deposit with the Corporation
We have already pointed out that the appellants can claim either compensation or continuity of service but not both
We should therefore like to make it clear that in case any of the appellants have been paid any compensation that amount will have to be refunded by them before this order can be given effect to qua them
The appeals stand disposed of accordingly
There will be no order regarding costs
RSS Appeals disposed of


Summary:
The appellant company a member of Cooperative Society respondent No 2 was having its office premises in a build ing owned by respondent No 2
It entered into an agreement to sell the said premises to respondent No 1 a non member subject to the approval of the Cooperative Society
The Cooperative Society declined to grant permission for trans fer of the premises
Respondent No 1 filed a dispute against the appellant and respondent No 2 Cooperative Society in the Cooperative Court under section 91 of the Maharashtra Cooperative Societies Act 1960 praying for a decree of specific performance of the contract and a direc tion to the Cooperative Society to approve the said agree ment
The Cooperative Court dismissed the dispute for want of jurisdiction
On appeal by respondent No 1 the Maharashtra Cooperative Appellate Court set aside the order of the Cooperative Court
Against the order of the Cooperative Appellate Court the appellant filed a writ petition in the High Court which was dismissed by holding that the dispute was governed by Section 91 of the Act
In the appeal to this Court against the Judgment of the High Court it was contended on behalf of the appellant that the dispute between the parties was not governed by Section 91 since it was neither a dispute touching the business of the society nor was it a dispute between a person claiming through a member against the society
467 Allowing the appeal and setting aside the judgment of the High Court this Court HELD 1
Before a dispute can be referred to a Coopera tive Court under the provision of section 911 of the said Act it is not only essential that the dispute should be of a kind described in sub section 1 of section 91 but it is also essential that the parties to the said dispute must belong to any of the categories specified in clauses a to e of subsection 1 of the said section
473B 2
In the instant case the main claim of Respondent No 1 a nonmember was for a decree for specific performance of the agreement
The prayer for an order that respondent No 2 Society should be directed to give their approval to the said agreement was merely an ancillary prayer made with a view to complete the relief of specific performance
The main claim to have the agreement specifically performed cannot be said to be a claim made by a person non member against the Society
The claim against the society cannot be said to be made through a member the appellant because it is only when a decree for performance of the said agreement is passed against the appellant that it could be contended that the other relief namely for an order directing re spondent No 2 to approve the said agreement is claimed against the society through a member
Consequently the dispute cannot be said to fall within the scope of section 911b of the Act
Therefore the High Court committed an error in coming to the conclusion that both the parties to the dispute belonged to the categories covered under section 911b of the Act
473E H 474A Deccan Merchants Cooperative Bank Ltd vs Ms Dalichand Jugraj Jain and Ors 1969 1 SCR 887 Ms Leong and Anr
vs Smt
Jinabhai G Gulrajami and Ors AIR 1981 Bom
244 and Sanwarmal Kejriwal vs Vishwa Cooperative Hous ing Society Ltd and Ors 1990 2 SCC 288 distinguished
ON Bhatnagar vs Smt
Rukibai Narsindas  Ors   referred to