1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. WRIT PETITION NO. 1097 OF 2004 WITH WRIT PETITION NOS.1160/04 & 1762 OF 2003 W. P. NO.1097/04 : Hindoostan Crown Mills Siddhivinayak Kamgar Karmachari Sangharsha Sanghatana & Anr. ...Petitioners. Vs. Hindoostan Spg. And Wvg. Mills Ltd. & Ors. ...Respondents. W.P. NO.1160/04 : M/s.Hindoostan Spg.& Wvg.Mills Ltd.& Ors. ...Petitioners. Vs. Hindoostan Crown Mills S.K.K.S.Sanghatana & Anr...Respondents. .... Mr.N. M. Ganguli with Ms.K. G. Poojari for the Petitioners & for Respondnet No.1 in W.P. 1160/04. Mr.Iqbal Chagla, Senior Advocate with Mr. J.P. Cama, Senior Advocate and Mr.S. H. Mehta i/b. Federal & Rashmikant for Respondent No.1 & for the Petitioner in W.P. 1160/04. Mr. N.D. Buch with Ms. Dholakia for Respondent No.2. Mr.Sia Dixit for Respondent Nos.3 and 4. ..... W. P. NO.1762/2003: M/s.Hindustan Spinning & Wvg. Mills Ltd.&Anr. ...Petitioners. Vs. Rashtriya Mill Mazdoor Sangh & Ors. ...Respondents. .... Mr.Iqbal Chagla, Senior Advocate with Mr. J.P. Cama, Senior Advocate and Mr.S. H. Mehta i/b. Federal & Rashmikant for the Petitioners. Mr. N.D. Buch with Ms. Dholakia for Respondent No.1. Mr.N. M. Ganguli with Ms.K. G. Poojari for Respondent No.2. ..... CORAM : DR.D.Y.CHANDRACHUD, J. 2 February 21, 2005. JUDGMENT: I Hindoostan Spinning and Weaving Mills Ltd. moved two applications before the Commissioner of Labour on 10th April 2003 to seek permission to close down two of its industrial establishments: (i) The Crown Mills Division situated at Gokhale Road, Prabhadevi, Mumbai and (ii) The Process House Unit at Yadav Patil Lane, Veer Savarkar Marg, Prabhadevi, Mumbai. The Commissioner of Labour granted permission, the result whereof would be to render 597 workmen destitute of work and, destitute of a gainful source of employment. An application for review of this order under Section 25-O(5) of the Industrial Disputes Act, 1947, was filed by the Siddhivinayak Kamgar Karmachari Sangharsha Sanghatana of Crown Mills and the Process House Unit. On 15th July 2003, the Commissioner of Labour made a reference to adjudication. That reference has culminated in an award of the Industrial Tribunal dated 21st February 2004 confirming the closure permission subject to (i) closure compensation being paid within 30 3 days of the publication of the award; (ii) a direction that the workmen would be paid either the closure compensation under Section 25-O or the payment due under an agreement arrived at with the Rashtriya Mill Mazdoor Sangh for offering Voluntary Retirement on 29th December 2002, whichever is more beneficial, within 30 days; and (iii) The payment to those employees who had opted for voluntary retirement, of the moneys due and payable under the agreement dated 29th December 2002 within 30 days. The Court has two proceedings – W. P. 1097 of 2004 by the Union and W. P. 1762 of 2003 by the management. The management is aggrieved by the conditions which the award imposes, while the Union is in a fundamental sense aggrieved by the grant of closure permission. When these Writ Petitions came up for hearing, there was an agreement between Learned Counsel before the Court from all sides that both in the interests of enabling the parties to understand their own positions with certainty and having regard to the seminal issues that are involved, it would be in the interests of justice that the petitions be disposed of finally at the stage of admission. Pleadings have been completed and the matters have 4 been heard, with the consent of Counsel, for hearing and final disposal at the stage of admission. Rule is accordingly issued and the petitions are, by consent taken up for hearing and final disposal, the Counsel having waived service. II 2. The history of the City of Mumbai is in a significant manner interlinked with the fortunes of textile mills which dot its landscape. Land prices increased over the last few decades, perhaps beyond the wildest expectations of the enterprenuers who set up these enterprises in the century before Independence. The lands where the Mills are situated provide a fertile avenue for commercial exploitation. The Industrial Units, or at least such of them as survive the vicissitudes of time, provide gainful employment to thousands of industrial workers. Upon the fate of these workers rest the hopes and aspirations of thousands of families whom they support here in Mumbai and in rural Maharashtra. In a fundamental sense, the social fabric of an industrial society based in middle class neighbourhoods of 5 metropolitan Mumbai, depends upon the outcome of proceedings such as the one here, under Section 25-O. Bereft of a source of gainful employment upon the closure of industrial establishments which are the source of their earnings, industrial workers are confronted with destitution and marginalization. The role of the Court is undoubtedly to interpret and apply the legal principles governing its jurisdiction under Section 25-O. The jurisdiction of the High Court is in a sense structured by restraints which we observe while discharging our obligations under Article 226 of the Constitution. Equally, and this is necessary as a prefatory comment, the jurisdiction under Article 226 is a jurisdiction in aid of justice. In an era of globalization, Courts are conscious as they must be, of the needs of industry in a competitive business environment. The Court as an expounder of constitutional precept cannot, however, lose sight of the fundamentals underlying our social order based as they are on the Directive Principles of State Policy under the Constitution and the social ethos underlying statutory provisions such as Section 25-O. So long as Section 25- O remains a part, and I may add a vibrant part, of the statute book, 6 the Court must discharge its solemn duty of enquiring as to whether genuine and adequate grounds for closure have been made out. More so, in a case such as the present, where industrial history spanning over a hundred years is sought to be substituted by the exigencies of real estate development raising fundamental questions of existence for 600 workmen and their families. III 3. The First Respondent is a business house of some antiquity belonging to the Thackersey family. The business activities were initially commenced in 1805 as a trader and were then expanded to cover the manufacture of cotton fabrics. The First Respondent was incorporated in 1882 or thereabouts as a Limited Company. The Crown Spinning and Manufacturing Company Ltd,. which had also been incorporated in 1880, was amalgamated with the First Respondent with effect from 1st April 1975 by an order passed by this Court on 23rd July 1976 in the exercise of its Company jurisdiction. After amalgamation, the First Respondent did have four manufacturing Units in Mumbai, two 7 units – Units 'A' and 'B' – at Jacob Circle, Mahalaxmi, the Processing House Division at Prabhadevi and the Crown Mills Division at Dadar. There was a general strike in the cotton textile Industry in the City of Mumbai in 1982 which substantially eroded the position of the industry. The First Respondent overcame the adverse effects of the textile strike by 1989 and between the years 1989-90 until 1997-98, a dividend of 20% was generally speaking declared by the Company. In addition to the issuance of bonus shares, the shareholders are alleged to have received a dividend of Rs.1054/- lakhs. In 1989-90, the First Respondent altered the object clause in its Memorandum of Association so as to include inter alia, the carrying on of Real Estate business. Sometime in the year 1995-96, the First Respondent set up a textile unit at Karad. In March 2002, the First Respondent is stated to have closed down two units at Mahalaxmi. Since the workers, it is alleged, were persuaded to accept voluntary retirement, no permission of the State Government under Section 25-O was sought for the closure of the two units at Mahalaxmi. The Company, it is alleged, stopped 8 giving work to the workers in the Crown Mills and Process House Divisions and wages were paid irregularly after October 2002. According to the management, the net worth of the Company was eroded on 31st March 2001 and the Company became a sick industrial undertaking under the Sick Industrial Companies (Special Provision) Act, 1985. The BIFR registered the Company's reference on 29th August 2001. On 4th December 2002, the BIFR declared the Company as a sick industrial undertaking and directed the operating agency to formulate a scheme for the rehabilitation of the Company. 4. On 29th December 2002, VRS agreements were entered into by the Company with Rashtriya Mill Mazdoor Sangh (RMMS) – the recognised Union - in respect of Crown Mills and the Process House Division. The VRS agreements inter alia brought within their coverage, employees who had not completed 60 years of age as on the date of the submission of the application for voluntary retirement and who were on the muster rolls of the Company. Clause 2 of the agreement lays down the compensation that was 9 payable and clause 3, the schedule of payment. The Company agreed to issue post-dated cheques but clause 3(g) laid down that in the event that the Company was unable to raise funds as visualized therein, due to unavoidable circumstances, after relieving the employees, the Company in consultation with RMMS would inform both RMMS and the employees individually, not to deposit the cheques in their Bank Accounts. In such cases, the employees would be paid interest at a rate 1% higher than what is payable by nationalized Banks for fixed deposits, on the delayed part of payment. The employees, it was provided, will not take recourse to any legal proceedings. Clause 4(k) of VRS Agreement is material for the present purposes, for it provided that employees who will not opt for voluntary retirement, would be redeployed by the Company, if necessary, by re-organizing and restructuring manufacturing activities in any of the Industrial Units of the Company. Clause 4(k) inter alia provided as follows : “The remaining employees who will not opt for voluntary retirement under the Scheme will be redeployed and assigned work in any section, department or units of the Company without adversely affecting their service conditions. The employees and RMMS shall fully co- operate with the Company in the implementation of the 10 Scheme and re-organizing and restructuring of its manufacturing activities in any of the Units, as per the requirement of the Company. The employees shall accept the work assigned to them and attend to it in the normal and peaceful manner and give the expected production every working day as per decision of the Company. Wherever required the employees will be given necessary training by the Company. After implementing the VRS the reorganization will be done in consultation with the RMMS.” The Company, it was recorded, would be at liberty to dispose of excess or redundant plant and machinery including land and building for the purpose of raising funds for implementation of the Voluntary Retirement Scheme and for reorganizing and rationalizing its manufacturing activities in a more economic and viable manner. Immediately after the VRS agreements came to be signed, the Company by its letter dated 30th December 2002 furnished a schedule of payment to RMMS. The schedule of payment provided that the payment on account of VRS, Ex-gratia, Encashment of Leave, Bonus for 2002 and Leave Travel Allowance would be paid in 25 installments initially between February and December 2003 when an instalment of Rs.5,000/- per month would be paid. Thereafter, between January 2004 and 11 June 2004, an installment of Rs.10,000/- per month would be paid, while the balance would be paid in equal installments between August 2004 and March 2005. In the event that the Company was unable to raise funds, it was stipulated, then in consultation with RMMS, the employees would be individually informed in which event they would be entitled to a higher rate of interest as provided in the agreement. 5. The VRS agreements were entered into on 29th December 2002. The agreements, as noted earlier, specifically provided that those employees who would not opt for voluntary retirement, would be redeployed and assigned work in any Section, Department or Unit of the Company. The employees agreed to co- operate in the re-organization and restructuring of manufacturing activities. On 30th December 2002 at a meeting of the Board of Directors, the Chairman of the Board, informed the Board of the agreements for voluntary retirement and stated that he was hopeful that all the workmen would opt for VRS “thus enabling the land development in Mumbai units as envisaged under the Draft 12 Rehabilitation Scheme submitted to IDBI, the operating agency recently.” The Chairman stated that in the event that all the workmen at the Crown Mills Unit and the Process House Division did not opt for VRS, it would not be possible to properly reorganize or restructure the working of any unit in Mumbai with the small group of workers who may not opt for VRS and it would be impossible to run such operations except at heavy cash losses. Therefore, opined the Chairman, “the Company would have no alternative but to exercise an option of closure of all units in Mumbai i.e. “A/B” Units at Mahalaxmi, “C” Unit at Dadar and Process House at Prabhadevi.” The Board thereupon passed a resolution authorising the making of an application for closure of the Mumbai Units under the Industrial Disputes Act, 1947. In the agreements for voluntary retirement that the Company entered into with the RMMS as a recognised Union, there was an express assurance that workers who would not opt for voluntary retirement would be redeployed in the reorganized and restructured manufacturing activities of the Company. Barely had the ink dried upon the VRS Agreements of 29th December 2002, that the then 13 Chairman of the Board of Directors informed the Board on the next day, 30th December 2002, that if all the workers did not opt for VRS, it would not be possible to restructure the working of any unit in Mumbai with the 'small group of workers' who may not opt for VRS and that closure should accordingly be resorted to. From the closure application filed by the Company before the Commissioner of Labour, it is apparent that immediately thereafter all activities came to a stand still on 1st January 2003. All spinning activities at the Crown Mills Unit showed zero production from January 2003 onwards. The figures on weaving between January and March 2003 have similarly been reported as nil. What, therefore, took place was that commencing from 1st January 2003, all production activities at the units were brought to a complete stand still and there was no production at the units. 6. On 10th April 2003, the Company moved applications under Section 25-O of the Industrial Disputes Act, 1947 each in respect of the Crown Mills and the Process House Units. The Company stated that it was one of the oldest textile Companies in 14 the country that had established a reputation in the domestic and export markets. The operations of the Company were stated to be profitable and satisfactory until 1995-96. The profitability is stated to have deteriorated from 1996-97 due to several factors beyond the control of the Company such as high labour costs, high cost of utilities such as power and water in Mumbai, unfair competition from small scale/power loom sectors and 'various Government Policies' favouring the de-centralised sector. The Company sustained net losses of Rs. 9.40 crores in 1997-98 which increased to Rs. 46.60 crores in 2000-01 and as of 30th September 2002, the cumulative losses were stated to be Rs. 185 crores. The Company , it was stated, had to make a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 since as of 31st March 2001 its net worth stood eroded. The BIFR had declared the Company as a Sick Industrial Undertaking on 4th December 2002. In support of its proposal to close down the undertakings, the Company claimed that many composite mills at Mumbai including the First Respondent had become sick and had closed down or were proposing closure due to the following 15 reasons: (a) Government policies: The Company claimed that the decentralized sector has been a recipient of several concessions and exemptions in fiscal, trade and labour policies. The excise duty structure and quota policy were alleged to be biased towards the small scale and decentralized sectors; (b) Attempts to rectify anomalies in Government policies were alleged not to have borne fruit. As a result, the share of fabric production of the composite mill sector was reduced to less than 4% in 2001. (c) Fiscal policies of the State Government and the Municipal Corporation were alleged to be against the interest of the Textile Industry in Mumbai and municipal charges for water, a major input for textile production, were stated to be highest in the world; (d) Unfair competition from the unorganized sector which 16 has enjoyed concessions and also resorted to evasive practices; (e) High labour cost, low level of productivity and high input cost in Mumbai Mills; (f) Constraints to modernization on account of resources; (g) Over capacities in the global market – affecting the margins for exports; (h) Increased debt burden due to interest liabilities and funding of cash losses. The Company contended that it had attempted to avoid closure during the previous two or three years by discussing and trying out various alternatives in the product-mix and marketing/supply chain. The Company, it was stated, attempted financial restructuring with the help of Financial Institutions and in order to reduce the interest burden but this could not result in improving the position. The 17 promoters were stated to have brought in funds to improve liquidity and some funds were raised by development of property in Mumbai. According to the Company, the Bombay Textile Research Association had carried out a techno-economic feasibility study and had recommended closing down of all operations of textile units in Mumbai. Finally, it was stated that following the VRS agreement dated 29th December 2002, 347 employees at the Crown Mills Unit and 242 employees at the Process House Unit had not opted for voluntary retirement and since the majority of the employees had opted for VRS, it was impossible to continue operations except at heavy cash losses. The Company claimed that with this small group of employees, it was not possible to properly reorganize or restructure the working of the unit and run the same viably. 7. Evidence was adduced before the Industrial Tribunal both on the part of the management as well as on behalf of the Union. By its Award dated 21st February 2004, the Industrial Tribunal came to the conclusion that the Company had established 18 a case for closure under Section 25-O. The Industrial Tribunal, directed that the closure compensation shall be paid within a period of 30 days and that workmen would be granted the closure compensation or payment due under the VRS agreement dated 29th December 2002, whichever was more beneficial. The Industrial Tribunal also directed that VRS payments due to employees who were still to be paid should similarly be discharged and paid within a period of 30 days. IV 8. The appropriate Government in considering the application for the grant of permission for the closure of the two industrial establishments was exercising power under Section 25- O of the Industrial Disputes Act, 1947 since the threshold requirement for the application of Chapter VB exists in the present case. Under sub-section (1), the employer, at least 90 days before the date on which the intended closure is to become effective has to apply to the appropriate Government, stating clearly the reasons for the intended closure of the undertaking. Under sub-section (2) 19 of Section 25-O, the appropriate Government is under a mandate to make such enquiry as it thinks fit, after giving a reasonable opportunity of being heard to the employer, the workmen and persons interested in the closure. In deciding whether to grant its permission, the appropriate Government has to have regard to (i) The genuineness of the reasons stated by the employer; (ii) The adequacy of those reasons; (iii) The interests of the general public; and (iv) All other relevant factors. The appropriate Government is not bound to grant its permission for, sub-section (2) empowers it to grant or refuse permission. The order of the appropriate Government granting or refusing permission is final and binding on all parties and is to remain in force for a period of one year from the date of such order. 9. The provisions of Section 25-O as they now stand, were substituted with effect from 21st August 1984 by Amending Act 46 of 1982. The provisions of the Act, as originally enacted, were held to be unconstitutional by the Supreme Court in its decision in Excel Wear v. Union of India, AIR 1979 SC 25. After the decision in 20 Excel wear, the Constitution Bench of the Supreme Court, upheld the constitutional validity of Section 25-N relating to retrenchment in Workmen, Meenakshi Mills Ltd. v. Meenakshi Mills Ltd., AIR 1994 SC 2696. After Parliament introduced a new Section 25-O by Central Act 46 of 1982, the constitutional validity of that provision was challenged before and upheld by a Constitution Bench of the Supreme Court in Orissa Textiles & Steel Ltd. v. State of Orissa, 2002-I-LLJ 858. In Orissa Textiles, the Constitution Bench held that though the decision in Meenakshi Mills dealt with retrenchment, the same principles would apply to a closure as it also had the effect of the termination of service though of all the workmen. The Constitution Bench held that the vice which was found in the provisions of Section 25-O as they were originally enacted had been cured by the amended provision. The Supreme Court held that no longer was an order under Section 25-O to be based on the subjective satisfaction of the appropriate Government but, the new provision clearly mandated (i) The holding of an enquiry; (ii) An opportunity of being heard; (iii) Consideration of the genuineness and adequacy of the reasons stated by the employer, 21 the interest of the general public and other relevant factors; (iv) A reasoned order by the appropriate Government; (v) Furnishing of precise details by the employer containing requisite information justifying closure; (vi) An enquiry into the correctness of the facts stated by the employer and all other relevant materials including bonafides of the employer; and (vii) Ascertainment by the appropriate Government of the correctness of the facts stated by the employer; of whether the proposed action was necessary and if so, to what extent. These were the fundamentals which formed the basis for the Supreme Court to uphold the constitutional validity of the new provision. The following extract from the judgment of the Supreme Court is material for the present purpose: “Now in amended Section 25-O the words used are “the appropriate Government may, after making such enquiry as it thinks fit, and after giving a reasonable opportunity of being heard to the employer, the workmen and persons interested in such closure may, having regard to the genuineness and adequacy of the reasons stated by the employer, interest of the general public and all other relevant factors by order and for reasons to be recorded in writing, grant or refuse to grant such permission.” Thus, now the appropriate Government before passing an order is bound to make an enquiry. Now the order passed by the appropriate Government has to be in writing and contain reasons. As in the case of retrenchment, so also in closure, the employer has to 22 give notice by filling up a from in which he has to give precise details and information. As held in Meenakshi Mills' case the requirement to make an enquiry postulates an enquiry into the correctness of the facts stated by the employer in the notice served by him and also all other relevant facts and circumstances including the bona fide of the employer. Now an opportunity to be heard would have to