Duration of the closure not decisive in determining whether it is Bonafide: Bombay High Court

 on 04 05 2021 on 22 03 sg wp6940 03.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.6940 OF 2003 Meltron Engineering Industries...Petitioner vsPune Labour Union & Anr....Respondents..…Mr. Jay Vora i b. Mr. Piyush Shah for the Petitioner. CORAM : S.C. GUPTE J. DATED: 3 MAY 2021(JUDGEMENT) :.This petition challenges an award passed by the LabourCourt at Pune in a reference made to it under Section 12(5) of theIndustrial Disputes Act 1947demand for reinstatement with continuity of service andfull back wages to ten workmen represented by it. The Petitioner whowas the first party to the reference opposed it. Its case before thereference court was that the unit was closed down and in accordancewith negotiations with the representative union closure compensationwas paid to all workmen. The reference court did not accept the case ofthe first party that all ten employees having entered into an agreementthrough their representative unionwith thefirst party for accepting such payment vide receipts dated 9 August 1997 Pg on 04 05 2021 on 22 03 sg wp6940 03.docwhich were on record gave up their right to reinstatement or re employment and that they were no longer workmen within the meaningof Section 2(s) of the Act having given up their lien over employment.The court noted that in the first place the first party had not producedany agreement entered into by these ten employees through MaharashtraLabour Union with the first party the first party had also not led any oralevidence to prove this fact. Though the first party produced purportedreceiptsthe employees’ denial of suchpayment was supported by certified true copies of cheques which hadbeen brought on record by the Manager of Oriental Bank Ltd. The courtheld that the first party accordingly had not proved that the workmenhad been paid ex gratia amounts for overriding their rights ofreinstatement or re employment. The court further observed that evenassuming that the employees had accepted ex gratia payments as perthe alleged receipts such acceptance could not deny the benefit of law tothese workmen. The court observed that the parties could not enter intoany agreement contrary to the provisions of law. The court observedthat the employees had the right of re employment under Section 25 Hof the Act when the unit was restarted by the first party. On the questionas to whether the first party had restarted its unit and whether by not re employing these workmen it had violated the provisions of Section 25 H of the Act the court held that in the first place the first party had notshown that it had bonafide closed down its business or undertaking. Thecourt observed that even if there were to be a legally admissible closure it was valid upto the date of restarting of the factory by the first party.The court observed that the first party had started its factory includingmanufacturing activity on 1 November 1997. The court noted that after Pg on 04 05 2021 on 22 03 sg wp6940 03.docrestarting of the factory the first party was duty bound to give notice tothese employees to provide an opportunity for re employment.Inasmuch as it had deprived the employees of such opportunity byrecruiting other workmen for manufacturing activities the aggrievedemployees deserved to be granted benefits under Section 25 H of theAct. The court found that the first party had not complied with theprovisions of Section 25 H and accordingly the ten employees represented by the second party were entitled to reinstatement withcontinuity of service and full back wages from the date of restarting ofthe factory by the first party.3.If one has regard to the statement of claim filed by thesecond party union in coming to its conclusion as above the LabourCourt has clearly misdirected itself and the proceedings. Section 25 Htalks of re employment of retrenched workmen. It provides for aneventuality where workmen are retrenched and the employer proposes totake into his employment persons other than the retrenched workmen.The section requires the employer to give an opportunity to theretrenched workmen in such manner as may be prescribed to offerthemselves for re employment. It provides that such retrenchedworkmen who offer themselves for re employment would havepreference over other persons. The Labour Court appears to haveconfused here retrenchment of workmen with closure. The case here ofthe second party union was that from 8 August 1997 the first party hadclosed its factory and the workers were terminated after payment oftheir dues. It was submitted that with effect from 1 November 1997 thework was again restarted but these ten workmen were not called. The Pg on 04 05 2021 on 22 03 sg wp6940 03.docsecretary of the second party union who deposed on behalf of theseworkmen accepted in his examination in chief that on 6 August 1997 the first party closed its business with effect from 9 August 1997 andpaid legal dues of all workmen. He deposed that so far as the tenworkmen were concerned though receipts produced by the first partyshowed that amounts were paid by cheques no such cheques were givento them. Since the union’s case was that the unit had closed and legaldues were paid to workmen save and except the ten workmen on whosebehalf the reference was made the most that it could have asked forthese ten workmen was closure compensation payable in accordancewith law to these workmen. There was no case for treating the cessationof the employments of these ten workmen as a result of the closure asretrenchment so as to entitle the concerned workmen to the benefit ofSection 25 H of the Act.4.In fact if one has regard to the narration in the impugnedaward of how the dispute was referred to the Labour Court the claim ofthe second party workmen in the demand notice clearly implied that thework in the factory was stopped with effect from 8 August 1997 and thelegal dues were given to them. It was the workmen’s case that thefactory was restarted on 1 November 1997 but the old employees werenot called. Even the statement of claim of the second party unionaverred that the factory was closed and the workmen were paid full andfinal settlement amount. Even in the present petition the secretary of theoriginal representative union which arrived at the settlement with thefirst party employer has filed an affidavit affirming declaration ofclosure of the factory through a closure notice and payment of all legal Pg on 04 05 2021 on 22 03 sg wp6940 03.docdues to the workmen arising out of that closure. There is thus no caseof non payment of compensation to the workmen on whose behalf thepresent dispute has been raised.5.The Labour Court has accordingly misdirected itself. Itwrongly invoked Section 25 H of the Act treating the cessation of theemployment of the concerned workman upon closure of the unit asretrenchment. As for the closure itself the Labour Court noted that sincethe Petitioner had restarted manufacturing activity at the factory theclosure was not bonafide. As noted above it is not the union’s case thatthe closure was not bonafide but that the unit having restarted itself theworkmen were entitled to re employment. Though the unit wasrestarted as noted above there was no entitlement on the part of theworkmen represented by the union to re employment after the closurewas duly effected and closure compensation was duly accepted by theworkmen of the first party.6.The conclusion of the Labour Court that the closure was notbonafide appears to be based solely on the fact that within a few monthsof such closure the unit was restarted. The duration of closure thoughrelevant for determining the intention and bonafides of the employer atthe time of closure is not decisive. As the Supreme Court observed inthe case of General Labour UnionBombay vs. B.V. Chavan1 the true test is to consider “whether the closure was a device or pretenceto terminate services of workmen or whether it was bonafide and forreasons beyond the control of the employer at the time of closure.” Thecourt must in such case keep in view all relevant circumstances at the11985 AIR SC page 297 Pg on 04 05 2021 on 22 03 sg wp6940 03.doctime of closure. That does not appear to be the case here. The LabourCourt has in the impugned award at best only cursorily referred to theaspect of bonafides of the closure on a one line observation that “whenthe first party on 1.11.97 or thereafter at any time started its factorymanufacturing activity then this clearly proves that the closure was notbonafide.” This was followed by another startling observation by thecourt that “after restarting of the factory by the first party thetermination of these 10 employees converted into retrenchment.” TheLabour Court in other words treated the closure in its own words as“valid upto the date of restarting of the factory of the first party”. This isclearly fallacious and has no basis in law.7.The impugned order accordingly cannot be sustained. Ruleis accordingly made absolute and the petition is allowed by quashing andsetting aside the impugned award and answering the reference in thenegative.( S.C. GUPTE J. ) Pg 

Summary: The court must keep in view all the relevant circumstances at the time of closure in order to determine whether the closure is bonafide or if it was done to terminate the services of workmen. The duration of the closure and restart date of the undertaking doesn’t determine the bonafide nature. The judgment was passed by the Bombay High Court in the case of Meltron Engineering Industries vs. Pune Labour Union &amp; Anr. [WP/6940/2003] by Single Bench consisting of Hon’ble Shri Justice S.C. Gupte. The writ petition was filed by the petitioner to challenge the award passed by the Labour Court at Pune under Section 12(5) of the Industrial disputes act, 1947. The facts of the case are that the respondent’s labour union demanded reinstatement and continuity of services and full back wages to the ten workmen represented under it. The petitioner opposed the same since after the close down and with negotiations with the union, closure compensation was paid to all of them. The labour court did not accept the argument that the workmen no longer fell under section 2(s) of the Act. The same was held because the petitioner failed to support the same with documents and witnesses. The labour court held that the workmen had the right to reemployment under section 25H of the Act as the undertaking of the petitioners had reopened. Since the petitioner failed to produce any document in support of a bonafide closed down of its undertaking, the labour court held the same was only valid up to the date of restarting of the factory by the petitioners. The Hon’ble High Court of Bombay interpreted section 25H of the Act to be one that provides a preference for re-trenched workmen who offer themselves for re-employment over other persons. It stated that the Labour Court confused the retrenchment of workmen with closure. As per the facts only these 10 workmen were not called after the undertaking reopened after the Close down. The statement of the secretary of the respondent’s union depicts the same. It was held by the Hon’ble Bombay High Court that there stands no case of treating the cessation of employment of workmen due to closure as retrenchment and enjoy the benefit under section 25H of the Act. Furthermore, the Labour Court had also misdirected itself to understand the closure as not a bonafide one. The Labour Court invoked section 25H of the Act and referred to the closure as retrenchment. It was not the case of the respondent’s union as to whether the closure was bonafide. It was held by the High Court that the workmen absolved their right to re-employment after the closure when they had accepted the closure compensation from the petitioner and the closure had been duly affected. The Court relied on the case of General Labour Union (Red Flag), Bombay vs. B.V. Chavan [1985 AIR SC page 297] to reiterate that the test that should be conducted is “whether the closure was a device of pretence to terminate the services of workmen or whether it was bonafide and for reasons beyond the control of the employer at the time of closure.”