IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 27.09.2010 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN W.P.No. 23614 of 2006 THE MANAGEMENT TI DIAMOND CHAIN LTD. MTH ROAD AMBATTUR CHENNAI-53 .. Petitioner -vs- 1 THE PRESIDING OFFICER PRINCIPAL LABOUR COURT CHENNAI. 2 D.RAVI KUMAR 3 K.JOTHIKUMAR 4 M.DOSS 5 A.MANOHARAN 6 S.PALANI 7 K.PARAMANANDAM 8 V.PALANISWAMY 9 L.SENTHIL KUMARAN 10 Y.JOHNSON 11 N.KANDAN 12 V.BABU 13 D.MANICKAM 14 N.SUBRAMANI 15 S.RAMACHANDRAN https://hcservices.ecourts.gov.in/hcservices/ 16 S.SUNDARAJAN 17 A.JEYASEELAN 18 H.K.RAMAPRASAD 19 A.K.LOGANATHAN 20 V.GOPINATHAN 21 V.MANOHARAN 22 M.RAVI 23 R.MOOKIAH ... Respondents Petition under Article 226 of the Constitution of India praying to issue a writ of certiorari to call for the records relating to the common award dated 31.10.2005 in Industrial Disputes Nos.210 to 214, 216 to 219, 221, 225, 227, 229, 237, 257, 258, 260, 263, 265, 266 and 267 of 97 on the file of the Principal Labour Court, Chennai and quash the Award dated 31st October 2005 in so far as the Respondent workmen are concerned and in so far as the direction of reinstatement by this petitioner (MTH Factory). For Petitioner : Mr.Sanjay Mohan for M/s.S.Ramasubramaniam and Associates For Respondents: Mr.S.Kumaraswamy for RR 2 to 20, 22 and 23 No appearance for R21 ORDER The petitioner Management is before this Court under Article 226 of the Constitution of India, challenging the common award dated 31st October 2005, passed by the Principal Labour Court, Chennai. 2. The facts leading to the filing of IDOPs before the Labour Court are as follows:- The employees, the respondents herein, joined the services of the petitioner on different dates between 1990 and 1996. The petitioner herein originally put up a factory at MTH Road, Ambattur, for the manufacture of cycle chains to cater to the https://hcservices.ecourts.gov.in/hcservices/ needs of TI Cycles of India, a Unit of Tube Investment of India Ltd. The company diversified its activities to manufacture of industrial chains and automotive chains. The factory at MTH Road, Ambattur, engaged in the manufacture of cycle chains, started the manufacture of industrial chains and automotive chains only. The factory at MTH Road manufacturing cycle chains was shifted to Ambattur Industrial Estate along with the machinery. The employees engaged in cycle chain manufacturing were deployed to other Sections. The petitioner required trainees for the new factory. The company recruited trainees for the cycle chain factory. After giving necessary training, they were confirmed. It is stated that unable to meet the stiff competition from North India and despite several measures taken, the petitioner could not contain the cost of manufacture of cycle chains. Thus the steady escalation in cost of various inputs had its telling effect on the viability of the operations in the Cycle Chain Manufacturing Unit. It is stated that the Cycle Chain Unit started incurring huge loss since 1996. On and from 16.12.1996, the Unit manufacturing cycle chains was closed on account of mounting loss and the stiff competition faced by the Industry. It is stated that the workmen affected by the closure were paid notice pay and closure compensation under Section 25FFF of the Industrial Disputes Act. Thus the services of the respondents herein/workmen were terminated. This led to the filing of petitions before the Conciliation Officer. With talks on conciliation failing, the respondents raised a dispute before the Labour Court. Since the issues raised by the workers are one and the same, all the petitions were tried together and common issues were framed, which are as follows:- (i) Whether the closure of first respondent establishment with effect from 16.12.96 in accordance with law? (ii) Whether the respondents have violated the provisions of Chapter V-B of the Industrial Disputes Act? (iii) Whether the petitioners are entitled to reinstatement with continuity of service, backwages and all other attendant benefits? 3. As regards the closure of the establishment on 16.12.1996 in accordance with law, the Labour Court pointed out that admittedly, the Cycle Chain Manufacturing Unit started its factory at Ambattur to cater to the requirements of TI Cycles of India, which is a Unit of the Tube Investment of India Limited. The workers who were employed in the Cycle Chain Manufacturing Unit were deployed to manufacture exclusively cycle chains. Admittedly, the petitioner initially started manufacturing cycle chains; thereafter started manufacturing industrial chains and https://hcservices.ecourts.gov.in/hcservices/ automative chains. The Labour Court pointed out that it is not in dispute that the machinery connected with the manufacture of cycle chains were shifted from MTH Road, Ambattur to B6 Ambattur Industrial Estate for manufacturing of cycle chains exclusively. Referring to the state of affairs of the cycle industry, on account of stiff competitive nature, a fact which had not been disputed by the parties herein in all the Industrial Disputes, the Labour Court pointed out that the workers of the Ambattur Industrial Estate resorted to strike, demanding enhanced Basic Salary and Dearness Allowance. Ultimately, a settlement was reached between the Management and the representative of the workmen on 31.3.1996. After settlement, there was dispute among the Management and the workers regarding the shortage in production. In spite of letter dated 11.6.1996 from the Management requesting the labourers to increase the production to reach the normal production level, there being no further improvement, the Management issued notice dated 14.12.1996 to close down the Cycle Chain Manufacturing Unit on the ground that the functioning of the Unit had become totally unviable. 4. On behalf of the workmen, WW1 was examined, wherein, he pointed out that TI Diamond Chain Ltd., C.C. Division is an integral part of TI Diamond Chain Ltd., the second respondent in the petition before the Labour Court. WW1 had specifically stated that the machinery, the property of the Cycle Chain Unit, belonged to the Industrial Chains and Automotive Chains Unit, the second respondent herein. There is no separate property for the first respondent independent of the second respondent. The evidence of WW1 was not denied by MW1 or MW2 in their evidence. M.W.1 admitted that Officers are deputed from the Industrial Chains and Automotive Chains Unit to the Cycle Chain Unit establishment. The Tribunal pointed out that this establishes the stand of the employees that both the companies are under the control of the Industrial Chains and Automotive Chains Unit and Cycle Chain Unit was dependent on the Industrial Chains and Automotive Chains Unit not only in administrative matters, but also on the sales aspect. 5. Referring to Chapter V-B of the Industrial Disputes Act, the Tribunal considered the issue as to whether the first respondent is an undertaking of the second respondent or the first respondent was a separate legal entity. Initially, the petitioner was manufacturing only cycle chains; later on, it started manufacturing industrial chains and automative chains. WW1, in his evidence, had stated that after the closure of the Cycle Chain Manufacturing Unit, the machinery for the manufacture of cycle chains were shifted from Ambattur Industrial Estate to MTH Road, Ambattur. The Labour Court https://hcservices.ecourts.gov.in/hcservices/ pointed out that in the cross-examination, the Management witness stated that he was not aware of the shifting of machinery. The Labour Court observed that it indicated that the Management witnesses had not spoken the truth. Referring to the evidence thus let in orally, the Labour Court pointed out that the Cycle Chain Manufacturing Unit and the petitioner Unit are interdependent and an Undertaking of the petitioner establishment. The said fact had not been categorically denied by MW1 and MW2. The Labour Court further pointed out to Exs.M4 and M8, that it was evident that the petitioner Management owned several other factories including Kakkalur and Hyderabad also and separate factory licences were obtained and E.S.I. Code numbers were allotted to them. It was not disputed that the petitioner company diversified the manufacture of cycle chains to the first respondent and that there were not less than 100 workmen employed on an average per day. 6. Referring to Section 25-O of the Industrial Disputes Act, the Labour Court came to the conclusion that the closure of the Cycle Chain Unit was the closure of an Undertaking and not the closure of the Industrial Establishment. As far as the permission pertaining to the closing down of the Undertaking of an Industrial Establishment as per Section 25-O of the Industrial Disputes Act is concerned, the Labour Court pointed out that the only test that would be applicable is whether the Cycle Chain Manufacturing Unit is an Undertaking of the petitioner Industrial Establishment or both the Units are to be treated as separate establishments. The Labour Court further pointed out that the raw materials to the Cycle Chain Manufacturing Unit were supplied by the petitioner Unit and the finished products were marketed through the petitioner. Referring to the decision relied on by the workers reported in 1986-1-LLJ 490 in the case of S.G.CHEMICALS AND DYES TRADING EMPLOYEES UNION v. S.G.CHEMICALS AND DYES TRADING LIMITED AND ANOTHER, the Labour Court ultimately came to the conclusion that the petitioner company had not taken permission from the Government for closing the Cycle Chain Manufacturing Unit. The closure of the first respondent Unit was not genuine and for bona fide reasons. Further, the petitioner failed to obtain permission as required under Section 25-O of the Industrial Disputes Act from the Government, which makes the closure illegal and void ab initio. However, while so holding, the Tribunal pointed out that even though the Cycle Chain Manufacturing Unit was closed, the workers are entitled to be reinstated with continuity of services, full back-wages and all other attendant benefits and thereby allowed the Industrial Disputes filed by the employees/respondents herein. Aggrieved by this order, the Management has come on a writ petition. https://hcservices.ecourts.gov.in/hcservices/ 7. Learned counsel for the petitioner pointed out that the facts available as regards the functioning of both the factories clearly pointed out to the total absence of functional integrality between the two units. The question as to whether the two independent units, namely, the Cycle Chain Manufacturing Unit and the Industrial and Automative Chain Unit have functional integrality should have been considered from the point of interdependency of the two units to exist, for which there is hardly any material for the Labour Court to hold against the petitioner. Even though there may be commonality of the Management of these Units, yet, the Labour Court has to give a finding as to whether there is a functional integrality as laid down by the decisions reported in AIR 1960 SC 56 – THE ASSOCIATED CEMENT COMPANIES LIMITED, C HAIBASSA CEMENT WORKS, JHINKPANI v. THEIR WORKMEN; 1986-1-LLJ 490 – S.G.CHEMICALS AND DYES TRADING EMPLOYEES UNION v. S.G.CHEMICALS AND DYES TRADING LIMITED AND ANOTHER, 2010-1-LLJ 487 Mad - ALAGHU PHARMACY (B) REP. BY ITS PROPRIETRIX J.SELVARANI v. REGIONAL PROVIDENT FUND COMMISSIONER AND ASSISTANT PROVIDENT FUND COMMISSIONER ENFORCEMENT; AIR 1987 SC 1478 – ISHA STEEL TREATMENT, BOMBAY v ASSOCIATION OF ENGINEERING WORKERS, BOMBAY AND ANR. and AIR 1960 SC 1213 – MANAGEMENT OF PRATAP PRESS, NEW DELHI v. SECRETARY, DELHI PRESS WORKERS' UNION AND ITS WORKMEN. He pointed out to the difference in the products manufactured by the two Units employing different employment terms in the two Units, absence of transfer of labour from one Unit to the other Unit, etc. Further, any settlement reached under Section 18(1) of the Act by one Unit could not have a binding effect on the other Unit. 8. Learned counsel for the petitioner pointed out that there were no material for the Tribunal to come to a conclusion that there was functional integrality between these two units to hold that Section 25-O of the Industrial Disputes Act is attracted to the facts of the case. Given the fact that the Cycle Chain Manufacturing Unit was started first and later on shifted to Ambattur, learned counsel for the petitioner pointed out that the common management of two Units, would not, per se, be called as functional integrality. In support of the contention, learned counsel for the petitioner placed reliance on the following decisions: (i) AIR 1974 SC 1132 – WORKMEN OF THE STRAW BOARD MANUFACTURING CO., LTD. v. STRAW BOARD MANUFACTURING CO., LTD.; (ii) AIR 1960 SC 56 – THE ASSOCIATED CEMENT COMPANIES LIMITED, C HAIBASSA CEMENT WORKS, JHINKPANI v. THEIR WORKMEN; (iii) AIR 1987 SC 1478 – ISHA STEEL TREATMENT, BOMBAY v https://hcservices.ecourts.gov.in/hcservices/ ASSOCIATION OF ENGINEERING WORKERS, BOMBAY AND ANOTHER.; (iv) 1986-1-LLJ 490 – S.G.CHEMICALS AND DYES TRADING EMPLOYEES UNION v. S.G.CHEMICALS AND DYES TRADING LIMITED AND ANOTHER; (v) AIR 1960 SC 1213 – MANAGEMENT OF PRATAP PRESS, NEW DELHI v. SECRETARY, DELHI PRESS WORKERS' UNION AND ITS WORKMEN. (vi) 2010-1-LLJ 487 (Mad) - ALAGHU PHARMACY (B) REP. BY ITS PROPRIETRIX J.SELVARANI v. REGIONAL PROVIDENT FUND COMMISSIONER AND ASSISTANT PROVIDENT FUND COMMISSIONER ENFORCEMENT and (vii) 2003-II-LLJ 810 BOM – NANDINEE TRAVELS PVT. LTD. V REGIONAL PROVIDENT FUND COMMISSIONER. In the light of the law declared in the decisions referred to above, learned counsel for the petitioner submits that the Tribunal committed serious error in holding that Section 25-O of the Industrial Disputes Act is attracted in this case. 9. Per contra, learned counsel for the respondents drew my attention of this Court to Section 2(k) of the Industrial Disputes Act as regards the application of Chapter V-B, and submits that the decision relied on by the petitioner reported AIR 1987 SC 1478 – ISHA STEEL TREATMENT, BOMBAY Vs. ASSOCIATION OF ENGINEERING WORKERS, BOMBAY AND ANR., relates to the law that stood prior to the amendment of Act 46 of 1982 and hence, the said decision has no relevance to the case on hand. He pointed out that Ex.M19 is not related to the petitioner herein or to the Cycle Chain Manufacturing Unit. Ex.M20 is the letter from the E.S.I. Corporation to the Cycle Chain Manufacturing Unit. In the absence of any material to discredit the claim of the respondents herein as to the functional integrality existing between these two Units, the contention that there was no material to substantiate the functional integrality, has to fail. 10. Learned counsel for the respondents further drew my attention to Sections 2(n) and 4 of the Factories Act and pointed out that financial management, marketing and clerical work performed by the Ambattur Industrial Estate are dependent on the factory at MTH Road. Further, he placed reliance on the decisions reported in: (i) 1978-II LLJ 397 – HUSSAINBHAI, CALICUT v. ALATH FACTORY THOZHILALI UNION; (ii) AIR 1982 SC 78 – WORKMEN v. WILLIAMSON MAGOR AND CO., LTD AND ANOTHER; and (iii) (2010) 3 SCC 192 – HARJINDER SINGH v. PUNJAB STATE WAREHOUSING CORPORATION, to impress on the need for a liberal view as to the welfare of https://hcservices.ecourts.gov.in/hcservices/ the workmen and that the closure of one Unit need not, in any manner, result in the closure of the other Unit to draw the inference of functional integrality. In the light of the facts found by the Labour Court, the petitioner's case merits to be rejected. 11. Heard learned counsel appearing for both sides. 12. It is an admitted fact that the manufacturing of the industrial chains and automotive chains came as a diversification from the first Unit manufacturing cycle chains. It is also an admitted fact that both the units are under one Management called TI Diamond Chain Ltd; that at the managerial level, there had been inter-transfer of personnel from one Unit to other; that the workers engaged in one Unit were not transferred from one Unit to the other Unit. Whatever settlement arrived at in one Unit had no impact or a binding effect on the other Unit. It is also not denied by the respondents that the conditions of service existing among the Units are different and separate Standing Orders are applicable for the workmen in each of the two Units. Even after the closure of the Cycle Chain Manufacturing Unit from 16.12.1996, the Industrial and Automotive Chain Manufacturing Unit functions without any impact felt on account of the closure of the Cycle Chain Unit; thus, except for the commonality of the management, maintenance of accounts, balance sheet and managerial personnel, there are hardly any material to substantiate that functional integrality existed between the two Units. In this regard, the law declared by the Apex Court on the aspect of functional integrality needs immediate reference. 13. In the decision reported in AIR 1960 SC 56 – THE ASSOCIATED CEMENT COMPANIES LIMITED, C HAIBASSA CEMENT WORKS, JHINKPANI v. THEIR WORKMEN, the Supreme Court pointed out to the definition of "Industrial Establishment" in Section 25C, 25D 25E of the Industrial Disputes Act and to the explanation. The Supreme Court referred to the explanation to Section 25A of the Act, defining industrial establishment and pointed out that the Act does not lay down any specific test for determining what is an establishment. It held that the question of unity or oneness presents difficulties when the industrial establishment consists of Parts, Units, Departments, Branches etc. The question then arises is as to what test should be applied for determining what constitutes one establishment. The real purpose of this test is to find out the true relation between the Parts, Units, Departments, Branches etc. How the relation between the Units will be judged will depend on the facts proved. The difficulty of applying the test arises because of the complexities of https://hcservices.ecourts.gov.in/hcservices/ modern industrial organisations, where, in an industrial establishment, some Units may be integrated in part with other Units coming under the same management and in part with factories or plants which are independently owned. The Supreme Court held that the test of functional integrality, general unity and physical proximity should be taken into consideration in determining the ultimate question. However, no particular test can be adopted as an absolute test in all cases and the word "establishment" is not to be given a sweeping definition as one whole organisation, of which it is capable but rather is to be construed in the ordinary business or commercial sense. 14. In the decision reported in AIR 1960 SC 1213 – MANAGEMENT OF PRATAP PRESS, NEW DELHI v. SECRETARY, DELHI PRESS WORKERS' UNION AND ITS WORKMEN, the Apex Court once again pointed out that in all cases where there appears to be a functional integrality, the Court has to consider with care, how far the functional integrality, meaning thereby functional interdependence, existed, that one Unit cannot exist conveniently and reasonably without the other and on the further question whether in matters of finance and employment, the employer actually kept the two units distinct or integrated. 15. In the decision reported in AIR 1974 SC 1132 – WORKMEN OF THE STRAW BOARD MANUFACTURING CO., LTD. v. STRAW BOARD MANUFACTURING CO., LTD. referring to the judgments referred to above, the Supreme Court reiterated the above-said principles once again. Quoting from Straw Board Manufacturing Company's decision, the Apex Court, in the decision reported in AIR 1987 SC 1478 – ISHA STEEL TREATMENT, BOMBAY v ASSOCIATION OF ENGINEERING WORKERS, BOMBAY AND ANR., pointed out that the unity of ownership, supervision and control that existed in respect of the two mills involved in that case and the fact that the conditions of service of the workmen of the two mills were substantially identical, were not, by themselves, sufficient in the eye of law to hold that there was functional integrality between the two Mills. The Apex Court further pointed out that the closure of a Unit amounted to stoppage of part of the activity and it is an act of Management which is entirely in the discretion of the Management, and over this direction, no Industrial Tribunal could interfere. The Supreme Court further pointed out to the decision reported 1962-1-LLJ 409 (INDIAN CABLE CO. LTD. Vs. ITS WORKMEN) that the common balance sheet incorporating the trading results of all branches are that the employees of various branches were treated alike for the purpose of provident fund, gratuity, bonus and conditions of service in general, could not lead to the conclusion that all branches should be treated as one Unit for purposes of Section 25G of the Act. https://hcservices.ecourts.gov.in/hcservices/ 16. The decision reported in 1986-1-LLJ 490 SC – S.G.CHEMICALS AND DYES TRADING EMPLOYEES' UNION v. S.G.CHEMICALS AND DYES TRADING LIMITED AND ANR, reiterated the law declared earlier on the issue of functional integrality. Dealing with the definition of "Industrial Establishment" or "Undertaking" and to the relevancy of Section 25-O of the Industrial Disputes Act, the Supreme Court held as to what constitutes "one establishment". The Supreme Court held that the word "Undertaking" in the Industrial Disputes Act is to be understood in an ordinary meaning. The word "Undertaking" of an Industrial Establishment occurring in Section 25-O means an Undertaking in its ordinary meaning and in the sense, as defined in the case of Hindustan Steels Ltd. Vs. The Workmen and others. 17. Since Section 25-O of the Industrial Disputes Act applies to the closure of an undertaking of an industrial establishment and not the closure of an industrial establishment, it does not require that an undertaking of an industrial establishment should be an industrial establishment. On the relevancy of the Factories Act to the dispute on closure, the Apex Court pointed out that the said Act is a regulatory statute and merely because registration is required to be made under a particular statute, it did not make the business or Undertaking so registered, a separate legal entity. 18. On the aspect of functional integrality, the Supreme Court pointed out to the meaning of functional integrality. The brief facts in the decided case are that SG Chemicals and Dyes Trading Ltd. carried on business in pharmaceuticals, pigments and chemicals. The company had three Units – the Pharmaceutical Unit was functioning from Worli, Bombay, the Laboratory and Dyes Division from Trombay and the Marketing and Sales Division from Churchgate. The evidence showed that Churchgate Division and Trombay Unit were functionally integrated as the Churchgate Unit, looked after the Marketing and Sales of the goods manufactured at Trombay. By a notice dated July 16, 1984, the company signing as SG Chemicals and Dyes Trading Ltd., (Chemicals & Dyes Division), decided to close down the Unit at Churchgate and the number of workmen shown therein was 90. The SG Chemicals and Dyes Trading Employees' Union, appellant before the Supreme Court, contended that the closure of the Churchgate Unit was contrary to Section 25-O of the Industrial Disputes Act and hence, the employees continued to be in the service of the company, notwithstanding the closure notice. The Union also raised the plea of unfair labour practice by the Management. Further, the number of workmen employed in the three Divisions exceeded one hundred and having https://hcservices.ecourts.gov.in/hcservices/ regard to the functional integrality amongst all the three Units, Section 25-O of the Industrial Disputes Act applied, that the Management should have applied for prior permission 90 days before the date on which such closure was to become effective. 19. Applying the decision of the Supreme Court reported in AIR 1960 SC 56 – THE ASSOCIATED CEMENT COMPANIES LIMITED, C HAIBASSA CEMENT WORKS, JHINKPANI v. THEIR WORKMEN, the Apex Court ultimately came to the conclusion that the Unit at Trombay could not have existed and functioned without the Churchgate Division. It pointed out that the total number of workmen employed at the relevant time in the Trombay factory and the Churchgate Division was one hundred and fifty and therefore, if the Company wanted to close down its Churchgate Division, Section 25-O of the Industrial Disputes Act applied and not Section 25 FFA of the said Act. 20. The Apex Court further pointed out to the provisions of the Factories Act and held that the Factories Act have no relevance for the purpose understanding the term 'industrial establishment' as given in the Industrial Disputes Act. 21. Referring to the concept of functional integrality, the Supreme Court, as propounded in the decisions reported in AIR 1960 SC 56 – THE ASSOCIATED CEMENT COMPANIES LIMITED, C HAIBASSA CEMENT WORKS, JHINKPANI v. THEIR WORKMEN, and 1962-1-LLJ 223 (SOUTH INDIA MILL OWNERS' ASSOCIATION AND OTHERS Vs. COIMBATORE DISTRICT TEXTILE