1. Retrenchment of employees under Section 25F, Industrial Disputes Act, following a government ban on business activities — dispute over violation of the first come, last go rule. (Para 1 )
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1966 Supreme(SC) 117
SUPREME COURT OF INDIA
K.N. WANCHOO, J.C. SHAH AND S.M. SIKRI, JJ.
M/s. Om Oil and Oil Seeds exchange, Ltd., Delhi, Appellant
Versus
Their Workmen, Respondents.
Civil Appeal No. 131 of 1966.
Advocates appeared
Mr. M. C. Setalvad, Senior Advocate, (M/s. B. P. Maheswari and M. S. Narasimhan, Advocates, with him), for Appellant; Mr. Madan Mohan, Advocate, for Respondents.
Advocates:
M.C.SETALVAD, MADAN MOHAN DAS
M.C.SETALVAD, MADAN MOHAN DAS
The "first come, last go" rule in retrenchment is not absolute; management may validly depart from it to retain employees with special aptitude or skills necessary for business interests. Such departure does not automatically imply mala fides, and statutory compensation precludes additional unemployment awards if retrenchment is proper.
Headnote:(A) Industrial Disputes Act, 1947 - Section 25F - Retrenchment of employees - Principle of "first come, last go" - Departure from the rule based on special aptitude and skill - Whether such departure amounts to mala fides or unfair labour practice - The ordinary industrial rule of retrenchment is "first come, last go", but this rule is not immutable and may be departed from for valid reasons. The Tribunal cannot assume mala fides or unfair labour practice from mere departure from the rule if the management bona fide retains staff possessing special aptitude in the interests of the business. (Paras 3, 4, 5)
(B) Retrenchment compensation - Payment of statutory compensation under Section 25F - Award of additional compensation for the period of unemployment - Where retrenchment is properly made and statutory compensation is paid, there is no principle justifying an order for additional compensation to employees. Such remuneration is only appropriate if the retrenchment was improper and the employee was wrongly kept out of employment. (Para 10)
Facts of the case:
An exchange engaged in regulating forward trade retrenched a majority of its employees following a government ban on trading in certain commodities. The management paid statutory retrenchment compensation but departed from the "first come, last go" rule by retaining certain junior employees. The workmen challenged the retrenchment as mala fide and illegal, seeking reinstatement and back wages. The Labour Court held the retrenchment of several employees illegal due to the departure from the seniority rule and ordered reinstatement and additional compensation of 50 per cent of wages for others.
Findings of Court:
The court found that the management was justified in retaining junior employees who possessed special aptitude, skills (such as typing and record-keeping), or specific roles (such as security guards) necessary for the business. The departure from the seniority rule was not actuated by mala fides. Furthermore, since statutory retrenchment compensation was paid and the retrenchment was held to be proper, the award of additional compensation for the period of unemployment was unsustainable.
Issues: Whether the departure from the "first come, last go" rule in retrenchment automatically renders the action illegal or mala fide, and whether additional compensation can be awarded beyond the statutory retrenchment compensation when the retrenchment is otherwise proper.
Ratio Decidendi: The rule of "first come, last go" is intended to ensure equitable treatment but must be applied where other things are equal; it cannot override the interests of the business. Management may validly retain a junior employee over a senior one if the junior possesses a special aptitude or skill required for the business. Mala fides cannot be inferred solely from the departure from the seniority rule. Additionally, statutory retrenchment compensation serves as solarium for termination, and no further compensation for unemployment is payable if the retrenchment is lawful. (Paras 4, 5, 10)
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Workmen alleged illegal retrenchment due to violation of seniority rules; management contended valid business reasons and special aptitudes justified departing from the first come, last go principle. (Para 1 , 2 )
3. Management may depart from seniority rules if employees possess special aptitude or skills necessary for business interests, provided the action is bona fide and not mala fide. (Para 3 , 4 , 5 , 6 , 7 , 8 , 9 )
4. The first come, last go rule is not immutable and may be departed from for valid, bona fide reasons based on special aptitude or business exigencies. (Para 3 , 4 , 8 )
5. Appeal allowed — Labour Court award set aside — retrenchment held justified and legal — all reliefs to workmen denied. (Para 10 , 11 )
6. Is the first come, last go rule absolute in retrenchment?
No, while it is the ordinary industrial rule, it is not immutable. An employer may depart from it for valid and justifiable reasons, provided the action is not actuated by mala fides or unfair labour practices. (Para 3 , 4 )
7. When can a junior employee be retained over a senior employee during retrenchment?
A junior employee may be retained if they possess special aptitude, skill, or experience necessary for the interests of the business that senior employees do not possess, provided the management acts bona fide. (Para 5 , 6 , 8 )
8. Can mala fides be inferred solely from a departure from the seniority rule?
No, a tribunal cannot assume improper motives or unfair labour practices based merely on the departure from the first come, last go rule; it must determine if the management acted fairly and properly. (Para 4 , 8 )
9. Is additional compensation payable beyond statutory retrenchment compensation if the retrenchment is legal?
No, if retrenchment is properly made and statutory compensation is paid, there is no legal principle justifying additional compensation for the period of unemployment. (Para 10 )
Judgement
SHAH, J. : The appellant is engaged in carrying on the business of regulating forward trade in groundnut oil and mustard seed, and is recognised as an Exchange under the provisions of the Forward Contracts Act, 1952. On June 1, 1964 the Government of India issued an order prohibiting trading in diverse commodities including groundnut oil and mustard-seed, and in consequence thereof no further business could be carried on through the appellant Exchange. On July 17, 1965 the appellant served notices of retrenchment upon 30 out of its 37 employees and paid them salary for the period of notice and retrenchment compensation under S. 25F of the Industrial Disputes Act, 14 of 1947. The Workmen then raised an industrial dispute. Conciliation proceedings to solve the dispute having failed, the Delhi Administration referred to the Labour Court the dispute whether retrenchment of the workmen by the appellant was unjustified and illegal. The workmen pleaded that retrenchment "on the ground of the ban imposed on forward trading in groundnut oil and mustard-seed was male fide" and that in retaining seven workmen the appellant did not follow, without any adequate ground, "the first come last go rule, and on that account all the workmen were entitled to be reinstated with full wages from the date of determination of employment and with continuity of service. The appellant denied that in retrenching the workmen the management had acted mala fide, or that retrenchment amounted to an unfair labour practice. The appellant further submitted that retrenchment of the workmen was not liable to be challenged, because some junior members of the staff were retained, since the Company had recorded in the resolution its reasons for departing from the rule "first come, last go , and had "adhered to the principles contained in S. 25F of the Industrial Disputes Act as far as possible .
2. At the hearing of the reference before the Labour Court, Delhi, counsel for the workmen conceded that the appellant was justified in retrenching its employees and that the number of employees required to carry on the work after the imposition of a ban against the business of the appellant could not exceed the number retained by the appellant. Counsel, however, contended that since the appellant failed in effecting retrenchment of the workmen to observe the principle of "first come, last go , the order in its entirety was illegal. The Labour Court accepted the contention of the workmen and held that departure from a principle which was part of the law relating to industrial employment rendered the retrenchment of all workmen unjustified and improper and on that account retrenchment of clerks and peons who were affected by the departure from the rule was "illegal and mala fide . In the view of the Labour Court, workmen Nos. 1 to 14 and 16 to 23 in Ex. W-1-the List of Seniority-were so affected. The Labour Court ordered that as the appellant required only four clerks including the Accountant R. N. Seth, the Accountant and three senior clerks Shiv Das Sharma, Kishan Lal Grover and Surinder Singh be retained, and that the senior clerks named be reinstated with full back wages , subject as to adjustment of compensation money paid to them against their salary. The Court also directed that clerks Nos. 4 to 14 be paid, in addition to the retrenchment compensation received by them 50 per cent of the wages "as compensation for the period they remained in unemployment uptil the date when the award became enforceable , but they may not be reinstated, and the peons Tara Shankar and Om Prakash be reinstated with full wages and peons Nos. 18 to 23 in Ex. W-1 be paid in addition to the retrenchment compensation, "50 per cent of the wages they would have been entitled to . With special leave, the Company has appealed to this Court.
3. It is an accepted principle of industrial law that in ordering retrenchment ordinarily the management should commence with the latest recruit, an
