1 hvn IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1310 OF 2008 WRIT PETITION NO. 1310 OF 2008 WRIT PETITION NO. 1310 OF 2008 The Associated Cement Staff Union, Cement House, 121, Maharshi Karve Road, Churchgate, Mumbai 400 021 ... Petitioner Versus 1. The State of Maharashtra, (Notice to be served o the Government Pleader, High Court, Original Side, Mumbai 400 032). 2. The Asstt. Commissioner of Labour, Mumbai, having his office at Commerce Centre, 6th Floor, Tardeo, Mumbai 400 034. 3. ACC Limited, "Cement House", 121, Maharshi Karve Road, Churchgate, Mumbai 400 034. ... Respondents Mr. P.M. Patel for the Petitioner. Mr. A.B. Ketkar, A.G.P. for R. Nos. 1 and 2. Mr. J.P. Cama, Sr. Counsel with Ms. Neha Mehta i/by Harsh Mehta & Co. for R. No. 3. CORAM: F.I. REBELLO, & CORAM: F.I. REBELLO, & CORAM: F.I. REBELLO, & R.S. MOHITE, JJ. R.S. MOHITE, JJ. R.S. MOHITE, JJ. DATED: DECEMBER 15, 2008 DATED: DECEMBER 15, 2008 DATED: DECEMBER 15, 2008 ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): . Rule. By consent heard forthwith. 2. The Petitioner is a registered union which is also a recognized Union of employees, working at Cement House of their employer A.C.C. Limited, Respondent No. 3 herein. Various categories of staff are employed at the Cement House and amongst these categories are the bargainable staff who are workmen. This petition is filed by the Union on behalf of its members, who are the bargainable staff 2 and who are falling within the meaning of Workman as set out in a Section 2(s) of the Industrial Disputes Act, 1947. 3. The Petitioner in a brief history of labour legislation, has pointed out that the workers after they started organizing themselves started raising various demands such as fixing age of superannuation, wages linked to cost of living index, gratuity, pension, provident fund, bonus, gratuity, maternity leave and recently paternity leave. With social changes in the society, several demands raised on behalf of the workmen were adjudicated and granted as service conditions which were not service conditions earlier. Some of the service conditions subsequently were recognised by legislatures and laws were enacted such as The Payment of Bonus Act, The Payment of Gratuity Act, Maternity Benefits Act. etc. All these legislations/service conditions, it is stated are in relation to and arising out of employment. 4. According to the Petitioner, they raised a demand on the employer for the benefit of workmen, which was not going to financially burden the employer. The demand was that the worker should be made a stock holder in the company. By their demand as raised, it was contended that workers should be given an option to subscribe to equity shares in the company at 10% discount of the average weighted price of the equity share of ACC Ltd. on BSE OR NSE 3 in the preceding six months. The entitlement to exercise an option to subscribe to equity shares may vary depending on the number of years the worker has worked. The option to subscribe to equity share is already prevailing in the 3rd respondent company for one set of employees who are not bargainable staff. According to Petitioner, the 3rd Respondent by letter dated 12.11.2007 replied to them contending that they had to comply with various guide-lines as the employees stock option scheme is governed by the SEBI guide-lines. This includes approval of the Compensation committee, Board of Directors, as also approval of the share holders. The provision did not provide for grant of option of entitlement to employees on recurring or retrospective basis. 5. The Petitioners by their justification letter dated 3rd December, 2007, served on the second respondent tried to resolve the dispute under the mechanism of Industrial Disputes Act. The second respondent Assistant Commissioner of Labour, according to Petitioners instead of initiating conciliation proceedings, started preliminary discussions. This procedure is unknown to the provisions of the Industrial Disputes Act. The 3rd respondent by letter dated 3.1.2008 contended that the demands cannot be made as it is not a part of remuneration. Preliminary discussions took place and ultimately the second respondent by his letter dated 18.1.2008 refused to intervene in the matter as in his opinion the demand had nothing to do with 4 the conditions of service or co-related to it and the same is governed by the SEBI (Employee Stock Option Scheme) Guide-lines, 1999 and the provisions of the Companies Act, 1956. The second respondent thus came to the conclusion that it is not connected with terms of employment or non-employment. According to Petitioner, the second respondent contradicted itself by giving a finding that the ESOP cannot be a service condition as it is not part of remuneration. Then it means that it is a service conditions in case of one set of employees. An inference therefore, it is submitted arises that it is a service condition in case of a set of employees. However, 3rd respondent has hesitation in extending the same to the workmen represented by the Petitioner. According to Petitioner, the second respondent had no power to decide the issue as there is no defined matter which can be termed as service conditions. The conditions of service are liable to change by passage of time. The guide-lines of the security and exchange Board of India are only regulatory and in any case what should be terms of the employment and or non-employment can be decided under the mechanism of Industrial Disputes Act. 6. In terms of the guide-lines framed under the SEBI the word "employee" is defined which reads as under : a. a permanent employee of the company working in India or out of India ; or 5 b. a director of the company, whether a whole time director or not; or c. an employee as defined in sub clause (a) or (b) of a subsidiary, in India or out of India or of a holding company of the company. . A plain reading therefore of the definition "employee" it is submitted makes it clear that the demand raised by the Petitioner Union was not in breach of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guide-lines, 1999, as the demands raised are for the permanent employee of the 3rd respondent and therefore, the same cannot be a ground for non entertaining the dispute as made out by the respondents. In any case the same will have to be decided by the Industrial Tribunal upon reference of dispute made to it. The second respondent exceeded his powers by going into the demand and adjudicating the same by holding that ESOP cannot be a service condition and the demand does not partake of an Industrial Dispute. 7. A reply has been filed on behalf of Respondent No. 3. It is set out, that during the year 1999-2000, respondent No. 3 had introduced employees Stock Option Scheme.The said ESOS was introduced by the Respondent No. 3 for the purpose 6 of securing and sustaining its competitive advantage and in motivating and retaining talented employees in the managerial cadre by providing an opportunity to identify their own interest with that of the Respondent No.3. Consequently the said scheme was made applicable only to the permanent employees in the management cadre. The purpose of this scheme was to motivate the management staff to improve their individual performance and to retain high performers. Through this scheme, it was hoped that a substantial improvement in performance would result in securing a sustained competitive advantage and lead to an enhancement of shareholder value. The scheme was to reward and encourage managerial performance which had contributed towards fulfilment of organisational objectives. The scheme was purely merit based and the grant of the stock options was not in the nature of bonus or an entitlement. Through this scheme, select permanent employees of the company in Management cadre had been rewarded on the basis of their performance evaluated as per the criteria laid down by the Compensation Committee of Directors. It was not a matter of right. Indeed some of the employees in the management cadre did not get benefits under the scheme due to their lack of performance. While introducing the scheme in 1999-2000, applicable to the management cadre, Respondent No. 3 had sought approval of the same from the shareholders’ at the Annual General Meeting. Perusal of the 64th Annual General Report would evidence the same.The employees employed in 7 the bargainable cadre/unionised cadre were not entitled to the benefits of the said ESOS. The ESOS continued to be applicable to the Management Cadre Employees for the years 2000-2001, 2001-2002, 2002-2003 and 2003-2004. . While introducing the ESOS for the management cadre employees, Part-C of the Disclosure Document issued pursuant to Securities and Exchange Board of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guide-lines, 1999 clearly provided that only those employees in the permanent employment in the management cadre, including Managing Director/ Wholetime Directors would be eligible for ESOP. Moreover, the grant of ESOP was strictly based on performance of an individual employee in the management cadre displayed in the preceding year. The ESOS came to be discontinued by the Respondent No. 3 in the year 2005 in respect of permanent employees of the management cadre. . The service conditions of employees in non-management staff cadre are governed by the settlement/agreement entered into between the union and the management from time to time and are currently governed by the Award of the industrial Tribunal. The grant of ESOPS was never a service condition of employees in Non-Management Cadre. Though the Union had made a demand, respondent No. 3 had informed the Union that grant of stock option scheme is not the part of remuneration and subject 8 to strict legal and regulatory compliances. The Respondent No. 2 after hearing both the parties, was pleased to pass the order as demands raised do not constitute Industrial Dispute within the meaning of Section 2(k) of the Industrial Disputes Act, 1947. The Appropriate Government can only refer the dispute for adjudication when it is of the opinion that the Industrial Dispute exists or is apprehended. Unless the opinion is arbitrary, the same cannot be set aside merely because one part does not agree with the opinion. 8. The provisions of the Industrial Disputes Act, provide the mechanism for consideration of demands that are raised by a Union representing workmen or by the workmen themselves on failure by the parties to arrive at a negotiable settlement. Section 10 of the Industrial Disputes Act confers power on the Appropriate Government to refer a dispute for adjudication only when it is of the opinion that an industrial dispute exists or is apprehended. On a demand being made by an Union representing the workmen if the employer does not concede the demand of the Union or workmen then can take up the matter for conciliation before the Conciliation Officer appointed for the purpose. The Conciliation Officer has then to initiate conciliation proceedings with the avowed object to resolve the dispute. It is true that the power conferred on the Conciliation Officer is the power to conciliate. His jurisdiction does not extend to any other matter 9 except to take up the matter in conciliation. The so called preparatory meeting or initial meeting before initiation of conciliation proceedings are strictly not governed by the provision of Section 12 of the Industrial Disputes Act, 1947. The Conciliation Officer is a creature of Statute and being a creature of Statute, his jurisdiction ad or powers are limited to those conferred upon him by the Statute. Under Section 12(2) of the Industrial Disputes Act, the Conciliation Officer for the purpose of brining about a settlement of the dispute, can, without delay investigate the dispute and all matters affecting the merits and bring settlement thereof and may do all such things as he thinks fit for the purpose of inducing the parties to come to a fair and amicable settlement of the dispute. If there be no settlement, the Conciliation Officer after the closure of the investigation under Section 12(4), has to send to the appropriate Government, a full report setting forth the steps taken for ascertaining the facts and circumstances relating to the dispute and for bringing about a settlement thereof, together with a full statement of such facts and circumstances, and the reasons shown on account of which, in his opinion, a settlement could not be arrived at. Under Section 12(5) of the Industrial Disputes Act, if on a consideration of the report referred to in sub section (4), the appropriate Government is satisfied that there is a case for reference to Labour Court or Tribunal, it may make such 10 reference. Where the appropriate Government does not make such a reference it shall record and communicate to the parties concerned the reasons therefor. 9. In the instant case, the Conciliation Officer did not forward any failure report as in his opinion, the demands raised by the Petitioner on Respondent No. 3 would not ordinarily fall within the expression "Industrial Dispute". 10. The questions therefore, that we are called upon to answer are "(a) whether on a demand being made by the Union representing the workmen or substantial number of workmen working in the company and on failure by the company to accept the demand, is the Conciliation Officer bound to take the matter in conciliation? (b) Is a demand which has to have the statutory sanction of the general body of the shareholders of a company and beyond the powers of the Board of Directors partake of an industrial dispute?" 11. Section 2(k) of the Industrial Disputes Act for the purpose of discussion may be reproduced : 11 ""Industrial dispute" means any dispute or difference between employers and employers or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any persons" . The expression "Industrial Dispute" thus is a dispute or difference amongst others, between the employer and workmen and must be connected amongst others with the terms of employment and or the conditions of service of labour. If the demand raised falls within those predicates, then considering Section 11, the Conciliation Officer can enter into an enquiry or investigation for the purpose of trying to arrive at the settlement. The exercise of power to enter into conciliation is the prima facie existence of an industrial dispute between Employer and workman. Considering the terminology used in Section 12, prima facie existence of an Industrial dispute which exists or is apprehended is the principal requirement before the Conciliation Officer holds conciliation proceedings. 12. Before we answer the issue, we may examine the position in law for exercise of power of reference of an industrial dispute to an industrial Tribunal. We are not considering a case where the appropriate Government on receipt of the failure report has for 12 the reasons recorded considering section 12(5) declined to make the reference. The issue for consideration before us is whether it was open to the Conciliation officer at the threshold itself, not to initiate conciliation proceedings. In so far as the power of the appropriate Government to make reference, the law is well settled. In Bombay Union of Journalists and Others Vs. State of Bombay and another, 1964 1 LLJ 351, the Supreme Court has held that when the appropriate Government considers the question as to whether any Industrial Dispute should be referred for adjudication or not, it may consider prima facie the merits of the dispute and take into account other relevant considerations which would help it to decide whether making a reference would be expedient or not. If the dispute in question raises questions of law, the appropriate Government should not purport to reach a final decision on the said questions of law, because that would normally lie within the jurisdiction of the Industrial Tribunal. Similarly on disputed questions of fact, the appropriate Government cannot purport to reach the conclusions, for that again would be in the province of the Industrial tribunal. The law laid down there is that even at the stage of taking a decision whether not to make reference, the appropriate government is not precluded from considering the prima facie existence of the dispute. If the claim made is frivolous or belated, the appropriate Government may refuse to make reference. If the impact of the claim on the 13 general relations between the employer and the employees in the region is likely to be adverse, the appropriate Government may take that into account in deciding whether a reference should be made or not. It must therefore, he held that a prima facie examination of the matter cannot be said to be foreign to the enquiry which the appropriate Government is entitled to make in dealing with a dispute under Section 10(1). The law has been summarized in the judgment of the Supreme Court in the Secretary, Indian Tea Association Vs. Ajit Kumar Barat and Others, AIR 2000 SC 915. The appropriate Government thus must satisfy itself on the facts and circumstances, brought to its notice that an Industrial Dispute exists or is apprehended. When to make a reference, it is desirable wherever possible for the Government to enter the nature of dispute in the order of reference. 13. In order to appreciate the matter whether there was prima facie existence of industrial dispute, we may consider the guide-lines framed by the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guide-lines, 1999. In the scheme, an employee has been defined to include permanent employee of the company. In other words, at least the stock option scheme by itself does not preclude an employer under the employee stock option scheme to provide to an employee shares under the stock option scheme. It is however, permissible for the 14 employer to decide whether the scheme can be availed of by all its employees including those in the category of workmen or on those working in the "supervisory and or management cadre" and who do not form part of bargainable staff. One of the requirements for existence of an industrial dispute between workmen and the employer is that it must relate to the conditions of service or terms of employment. As noted earlier, the stock option scheme has to be approved by the share holders of the company. It is not purely a managerial function which can bind the company. 14. Can then a company which has an Employee Stock Option Scheme (E.S.O.P.), sanctioned by its General Body of share holders for certain managerial staff be called upon by an award of Industrial Tribunal to provide an ESOP for its bargainable staff or include them in an existing E.S.O.P. Rule 6(1) of E.S.O.P. guidelines is relevant and which reads as under : "No ESOS can be offered to employees of a company unless the shareholders of the company approve ESOS by passing a special resolution in the general meeting. " . An award must be binding on the company and be enforceable against the company. An award considering Section 18 of the Industrial Disputes Act, which has become enforceable would be biding on the parties. The consequence of an award not being 15 enforced would visit the persons on breach to imprisonment for the term which may extend to six months or with fine or with both, considering Section 29 of the Industrial Disputes Act. Under Section 32 if the person who commits an offence, is a company, then the officers mentioned therein would be deemed to be guilty of such offence. In the issue before us if the matter was referred to an Industrial Tribunal for adjudication on the basis that prima facie it was an industrial dispute and if the award is passed in favour of the workmen, such an award by itself would not be enforceable, unless it had shareholders approval. There is clear distinction between the Directors of the company who constitute the management and its share holders. The Board of Directors may propose for consideration of the general body of the share holders proposal to introduce ESOS scheme. The decision ultimately is of the share holders. A Director or Manager even though may be share holder while exercising their rights as a share holder will be acting in a capacity different than as an officer of the company. Such an award if passed, cannot be enforced as it is dependent on the approval of third parties, here the share holders. A Civil court will not pass judgment which it cannot enforce. Similarly an Industrial tribunal will not pass an award which is not capable of enforcement. The award must bind the management. In other words must be a managerial function. In our opinion, therefore, for a dispute to partake of an Industrial 16 Dispute, one of its incidents would be that the dispute on adjudication must culminate into an award which can be enforced against the company. If the award cannot be enforced against the company, then it cannot be said to be an industrial dispute between the workmen and the employer. The dispute raised may still partake of conditions of service and or falling within the conditions of service. But that would not be the dispute between the employer and workmen as contemplated by Section 2(k) of the Industrial Disputes Act. The reason being that the demand cannot be satisfied by the company or its management. Such a dispute which does not partake of an Industrial Dispute, cannot be the subject matter of an Industrial Reference. The appropriate Government even if failure report had been submitted to it, considering Section 12 read with Section 2(k) of the Industrial Disputes Act could not have referred such dispute for adjudication to the Labour Court or Industrial Tribunal, for even if an award was passed, it would be incapable of being performed by the Management on its own. A demand which the management of the company can implement only if it has the sanction of the shareholders, would be beyond the definition of industrial dispute as defined under section 2(k) of the Industrial Disputes Act, 1947. There is a clear distinction in exercising the powers of management and the powers of the General Body of shareholders which is regulated by the provisions of the Companies Act and other rules and regulation. 17 12. Having said so, and considering the provisions of Section 12, the power conferred on the Conciliation Officer is limited to initiation of conciliation proceedings and submitting a failure report to the appropriate government. It is not for the Conciliation Officer to enter into the merits of the industrial dispute. The decision whether to make reference or not to make reference,if prima facie industrial dispute exists is within the exclusive jurisdiction of the appropriate Government. The formation of opinion whether an industrial dispute exists is of the appropriate Government. . A Conciliation Officer can initiate conciliation proceeding only when prima facie an industrial dispute exists or is apprehended pertaining to terms of employment and conditions of service. The Conciliation Officer cannot enter into the merits of the dispute. What is relevant to note is that if ex facie on the consideration of the demands, they do not partake or have the character of conditions of service or terms of employment, the Conciliation Officer cannot be called upon to enter into conciliation proceedings as prima facie demands would not fall within the definition of an industrial dispute. If he cannot enter into conciliation proceedings, the question of submitting a failure report would not arise. The failure report is a consequence