Appeal No 395 of 1959
Appeal by special leave from the Award dated November 25 1957 of the Industrial Tribunal Bombay in Reference I T No 24 of 1956
N C Chatterjee D H Buch and K L Hathi for the appellants
M C Setalvad Attorney General for India J B Dadachanji and section N Andley for the respondent Nos 1 and 2
M C Setalvad Attorney General for India Dewan Chaman Lal Pandhi and I N Shroff for the respondent No 3 1960
November 30
The Judgment of the Court was delivered by WANCHOO J
This is an appeal by special leave in an industrial matter
It appears that the appellants were originally in the service of the Scindia Steam Navigation Co Ltd hereinafter called the Scindias
Their services were transferred by way of loan to the Air Services of India Limited hereinafter referred to as the ASI
The ASI was formed in 1937 and was 813 purchased by the Scindias in 1943 and by 1946 was a full subsidiary of the Scindias
Therefore from 1946 to about 1951 a large number of employees of the Scindias were transferred to the ASI for indefinite periods
The Scindias had a number of subsidiaries and it was usual for the Scindias to transfer their employees to their subsidiary companies and take them back whenever they found necessary to do so
The  appellants who were thus transferred to the ASI were to get the same scale of pay as the employees of the Scindias and the same terms and conditions of service including bonus whenever the Scindias paid it were to apply
The Scindias retained the right to recall these loaned employees and it is the case of the appellants that they were entitled to go back to the Scindias if they so desired
Thus the terms and conditions of service of these loaned employees of the ASI were different from those employees of the ASI who were recruited by the ASI itself
This state of affairs continued till 1952 when the Government of India contemplated nationalisation of the existing air lines operating in India with effect from June 1953 or thereabouts
When legislation for this purpose was on the anvil the appellants felt perturbed about their status in the ASI which was going to be taken over by the Indian Air Lines Corporation hereinafter called the Corporation which was expected to be established after the  No XXVII of 1953 hereinafter called the Act came into force
They therefore addressed a letter to the Scindias on April 6 1953 requesting that as the Government of India intended to nationalise all the air lines in India with effect from 1 June 1953 or subsequent thereto they wanted to be taken back by the Scindias
On April 24 the Scindias sent a reply to this letter in which they pointed out that all persons working in the ASI would be governed by cl 20 of the Air Corporation Bill of 1953 when the Bill was enacted into law
It was also pointed out that this clause would apply to all those actually working with the ASI on 103 814 the appointed day irrespective of whether they were recruited by the ASI directly or transferred to the ASI from the Scindias or other associated concerns
It was further pointed out that if the loaned employees or others employed under the ASI did not want to join the proposed Corporation they would have the option not to do so under the proviso to cl
201 of the Bill but in case any employee of the ASI whether loaned or otherwise made the option not to join the proposed Corporation the Scindias would treat them as having resigned from service as the Scindias could not absorb them
In that case such employees would be entitled only to the usual retirement benefits and would not be entitled to retrenchment compensation
Finally it was hoped that all those in the employ of the ASI whether loaned or otherwise having been guaranteed continuity of employment in the new set up would see that the Scindias would not be burdened with surplus staff requiring consequential retrenchment of the same or more junior personnel by the Scindias
On April 29 1953 a reply was sent by the union on behalf of the appellants to the Scindias
It was pointed out that the loaned staff should not be forced to go to the proposed Corporation without any consideration of their claim for re absorption into the Scindias
It was suggested that the matter might be taken up with the Government of India and the persons directly recruited by the ASI who were with other subsidiary companies might be taken by the proposed Corporation in place of the appellants
It seems that this suggestion was taken up with the Government of India but nothing came out of it particularly because the persons directly recruited by the ASI
who were employed in other subsidiary companies did not want to go back to the ASI
In the meantime the Scindias issued a circular on May 61953 to all the employees under the ASI including the loaned employees in which they pointed out that all the persons working with the ASI would be governed by cl
201 when the Bill became law and would be absorbed in the proposed Corporation unless 815 they took advantage of the proviso to cl
201
It was also pointed out that such employees as took advantage of the proviso to el
201 would be treated as having resigned from service and would be entitled to usual retirement benefits as on voluntary retirement and to nothing more
It was also said that their conditions of service would be the same until duly altered or amended by the proposed Corporation
The circular then dealt with certain matters relating to provident fund with which we are however not concerned
It appears that the Act was passed on May 28 1953
201 of the Act with which we are concerned is in these terms 1 Every officer or other employee of an existing air company except a director managing agent manager or any other person entitled to manage the whole or a substantial part of the business and affairs of the company under a special agreement employed by that company prior to the first day of July 1952 and still in its employment immediately before the appointed day shall in so far as such officer or other employee is employed in connection with the undertaking which has vested in either of the Corporations by virtue of this Act become as from the appointed date an officer or other employee as the case may be of the Corporation in which the undertaking has vested and shall hold his office or service therein by the same tenure at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters as he would have held the same under the existing air company if its undertaking had not vested in the Corporation and shall continue to do so unless and until his employment in the Corporation is terminated or until his remuneration terms or conditions are duly altered by the Corporation  Provided nothing contained in this section shall apply to any officer or other employee who has by notice in writing given to the Corporation concerned prior to such date as may be fixed by the Central Government by notification in the official gazette 816 intimated his intention of not becoming an officer or other employee of the Corporation After the Act was passed notice was sent on June 17 1953 to each employee of all the air companies which were being taken over by the proposed Corporation m and he was asked to inform the officer on special duty by July 10 1953 if he desired to give the notice contemplated by the proviso to section 201
A form was sent in which the notice was to be given and it was ordered that it should reach the Chairman of the Corporation by registered post by July 10
The appellants admittedly did not give this notice as required by the proviso to section 201
In the meantime on June 8 1953 a demand was made on behalf of the appellants in which the Scindias were asked to give an assurance to them that in the event of retrenchment of any loaned staff by the proposed Corporation within the first five years without any fault the said staff would be taken back by the Scindias
Certain other demands were also made
The Scindias replied to this letter on July 3 and pointed out that they could not agree to give an assurance to take back the loaned staff in case it was retrenched by the proposed Corporation within the next five years
We are not concerned with the other demands and the replies thereto
On July 8 a letter was written on behalf of the appellants to the Scindias in which it was said that the appellants could not accept the contention contained in the circular of May 6 1953
Though the appellants were carrying on this correspondence with the Scindias they did not exercise the option which was given to them under the proviso to section 201 of the Act
by July 10 1953
First of August 1953 was notified the appointed day under section 16 of the Act and from that date the undertakings of the existing air companies vested in the Corporation established under the Act except the Air India International
So on August1 1953 the ASI vested in the Corporation and section 201 of the Act came into force
Hence as none of the appellants had exercised the option given to them under the proviso they would also be governed by the said provision 817 unless the contention
raised on their behalf that they could in no case be governed by section 201 is accepted
The tribunal came to the conclusion that whatever the position of the appellants as loaned staff from the Scindias to the ASI as they were informed on May 6 1953 of the exact position by the Scindias and they did not ask for a reference of an industrial dispute immediately thereafter with the Scindias and as they  did not exercise the option given to them by the proviso to section 201 before July 10 1953 they would be governed by section 201 of the Act
In consequence they became the employees
of the Corporation as from August 1 1953 and would thus have no right there after to claim that they were still the employees of the Scindias and had a right to revert to them
The consequence of all this was that they were held not to be entitled to any of the benefits which they claimed in the alternative according to the order of reference
It is this order of the tribunal rejecting the reference which has been impugned before us in the present appeal
The main contention of Mr Chatterjee on behalf of the appellants is that they are not governed by section 20 1 of the Act and in any case the contract of service between the appellants and the Scindias was not assignable and transferable even by law and finally that even if section 201 applied the Scindias were bound to take back the appellants
We are of opinion that there is no force in any of these contentions
201 lays down that every officer or employee of the existing air companies employed by them prior to the first day of July 1952 and still in their employment immediately before the appointed day shall become as I from the appointed day an officer or employee as the case may be of the Corporation in which the undertakings are vested
The object of this provision was to ensure continuity of service to the employees of the existing air companies which were being taken over by the Corporation and was thus for the benefit of the officers and employees concerned
It is further provided in section 201 that the terms of service etc would be the same until they are duly altered by the Corporation
One should have thought that the employees of the air 818 companies would welcome this provision as it ensured them continuity of service on the same terms till they were duly altered
Further there was no compulsion on the employees or the officers of the existing air companies to serve the Corporation if they did not want to do so
The proviso laid down that any officer or other employee who did not want to go into the service of the Corporation could get out of service by notice in writing given to the Corporation before the date fixed which was in this case July 10 1953
Therefore even if the argument of Mr Chatterjee that the contract of service between the appellants and their employers had been transferred or assigned by this section and that this could not be done be correct it loses all its force for the proviso made it clear that any one who did not want to join the Corporation was free not to do so after giving notice upto a certain date
Mr Chatterjee in this connection relied on Nokes vs Doncaster Amalgamated Collieries Ltd where it was observed at p 1018 It is of course indisputable that apart from statutory provision to the contrary the benefit of a contract entered into by A to render personal service to X cannot be transferred by X to Y without A s consent which is the same thing as saying that in order to produce the desired result the old contract between A and X would have to be terminated by notice or by mutual consent and a new contract of service entered into by agreement between A and Y This observation itself shows that a contract of service may be transferred by a statutory provision but in the present case as we have already said there was no compulsory transfer of the contract of service between the existing air companies and their officers and employees to the Corporation for each of them was given the option not to join the Corporation if he gave notice to that effect
The provision of section 201 read with the proviso is a perfectly reasonable provision and as a matter of fact in the interest of employees themselves
But Mr Chatterjee argues that section 201 will only apply to those who were in the employ of the existing air companies it would not 1  819 apply to those who might be working for the existing air companies on being loaned from some other company
In other words the argument is that the appellants were in the employ not of the ASI but of the Scinaias and therefore section 201 would not apply to them and they would not become the employees of the Corporation by virtue of that provision when they failed to exercise the option given to them by the proviso
According to him only those employees of the ASI who were directly recruited by it would be covered by section 201
We are of opinion that this argument is fallacious
It is true that the appellants were not originally recruited by the ASI
They were recruited by the Scindias and were transferred on loan to the ASI on various dates from 1946 to 1951
But for the purposes of section 201 we have to see two things namely i whether the officer or employee was employed by the existing air company on July 1 1952 and ii whether he was still in its employment on the appointed day namely August 11953
Now it is not disputed that the appellants were working in fact for the ASI on July 1 1952 and were also working for it on August 1 1953
But it is contended that though they were working for the ASI they were still not in its employment in law and were in the employment of the Scindias because at one time they had been loaned by the Scindias to the ASI
Let us examine the exact position of the appellants in order to determine whether they were in the employ of the ASI or not
It is not disputed that they were working for the ASI and were being paid by it their hours of work as well as control over their work was all by the ASI
From this it would naturally follow that they were the employees of the ASI even though they might not have been directly recruited by it
It is true that there were certain special features of their employment with the ASI
These special features were that they were on the same terms and conditions of service as were enjoyed by the employees of the Scindias in the matter of remuneration leave bonus etc
It may also be that they could not be dismissed by the ASI and the Scindias may have had to take action in case it was 820 desired to dismiss them
Further it may be that they could be recalled by the Scindias and it may even be that they might have the option to go back to the Scindias
But these are only three special terms of their employment with the ASI
Subject to these special terms they would for all purposes be the employees of the ASI and thus would in law be in the employment of the ASI both on July 1 1952 and on August 1 1953
The existence of these special terms in the case of these appellants would not in law make them any the less employees of the ASI for whom they were working and who were paying them who had power of control and direction over them who would grant them leave fix their hours of work and so on
There can in our opinion be no doubt that subject to these special terms the appellants were in the employ of the ASI in law
They would therefore be in the employ of the ASI prior to July 1 1952 and would still be in its employ immediately before August 1 1953
Consequently they would clearly be governed by section 201
As they did not exercise the option given to them by the proviso to section 201 they became the employees of the Corporation from August 1 1953 by the terms of the statute
The last point that has been urged is that even if section 201 applies the Scindias are bound to take back the appellants
Suffice it to say that there is no force in this contention either
As soon as the appellants became by force of law the employees of the Corporation as they did so become on August 1 1953 in the circumstances of this case they had no further right against the Scindias and could not claim to be taken back in their employment on the ground that they were still their employees in spite of the operation of section 201 of the Act
Nor could they claim any of the alternative benefits specified in the order of reference as from August 1 1953 they are by operation of law only the employees of the Corporation and can have no rights whatsoever against the Scindias
We are therefore of opinion that the tribunal s decision is correct
The appeal fails and is thereby dismissed
There will be no order as to costs
Appeal dismissed


Summary:
Section 201 of the XXVII of 1953 read with the proviso is a perfectly reasonable provision and in the interest of the employees and it is not correct to say that it can apply only to the direct recruits of the existing air 812 companies and not at all to loaned employees working under them
The two conditions of its applications are i that the officer or employee was employed by the existing air company on July 1 1952 and ii that he was still in its employment on August 1 1953 the appointed day
In the instant case where the appellants who had been recruited by the Scindia Steam Navigation Co Ltd and on purchase by it of the Air Services of India Ltd loaned to the latter and were working under its direction and control on and between the said dates and being paid by it Held that in law they were the employees of the Air Ser vices of India from the appointed day notwithstanding the existence of certain special features of their employment and as such governed by section 201 of the Act and since they did not exercise the option given to them under the proviso they became employees of the Corporation established under the Act and ceased to have any rights against the original employers
Nokes vs Doncaster Amalgamated Collieries Ltd 1940 AC 1014 considered