2006 Supreme(SC) 400

2006(4) Supreme 714
SUPREME COURT OF INDIA
(From Madras High Court)
Arijit Pasayat & Tarun Chatterjee, JJ.
Management, Mettur Beardsell Ltd.—Appellant
versus
Workmen of Mettur Beardsell Ltd. & Anr.—Respondents
Civil Appeal Nos. 7150-7151 of 2003
With
Civil Appeal Nos. 2258 of 2006
(Arising out of SLP (C) No. 22724 of 2004)
And
Civil Appeal No. 2259 of 2006
(Arising out of SLP (C) No. 5071 of 2005)
And
Civil Appeal No. 7152 of 2003
All Decided on 26-4-2006
Counsel for the Parties :
For the Appellant : Rajeev Dhawan, T.S. Gopala, Sr. Advocates, Mahesh Agarwala, Rishi Agarwala and E.C. Agrawala, Advocates.
For the Respondents : Ambrish Kumar, Advocate.

IMPORTANT POINTS
1. Section 25FF of the Industrial Disputes Act would not apply if a transfer is made in regard to a department or branch of the business run by the undertaking and the workmen would be entitled to contend that such a partial transfer is outside the scope of Section 25FF of the Act.
2. A sham transaction is one which was always intended and devised to be a fraud of a provision of the concerned statute in relation to which it is alleged to be a fraud.

Headnote:(i) Industrial Disputes Act, 1947—Sections 25FF, 25FFF—Retrenchment on transfer of an undertaking—Entitlement to compensation—Scope and ambit of Section 25FF—Whether an employee’s consent is a must under Section 25FF of the Act—(No)—Common law rule that an employee cannot be transferred without consent, applies in master-servant relationship and not to statutory transfer.

       Held : Section 25FF of the Act provides, inter-alia, that where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, from the employer in relation to that undertaking to a new employer, every workman who satisfies the test prescribed in that section shall be entitled to notice and compensation in accordance with the provisions of Section 25FF as if the workmen had been retrenched. This provision shows that workmen falling under the category contemplated by it, are entitled to claim retrenchment compensation in case the undertaking which they were serving and by which they were employed is transferred. Such a transfer, in law, is regarded as amounting to retrenchment of the said workmen and on that basis Section 25FF gives the workmen the right to claim compensation.(Para 15)

       There is, however, a proviso to this section which excludes its operation in respect of cases falling under the proviso. In substance, the proviso lays down that the provision as to the payment of compensation on transfer will not be applicable where, in spite of the transfer, the service of the workmen has not been interrupted, the terms and conditions of service are not less favourable after transfer than they were before such transfer, and the transferee is bound under the terms of the transfer to pay to the workmen, in the event of their retrenchment compensation on the basis that their service had been continuous and had not been interrupted by the transfer. The proviso, therefore, shows that where the transfer does not affect the terms and conditions of the employees, does not interrupt the length of their service and guarantees to them payment of compensation, if retrenchment were made, on the basis of their continuous employment, then S. 25FF of the Act would not apply and the workmen concerned would not be entitled to claim compensation merely by reason of the transfer. It is common ground that the three conditions prescribed by Cls. (a), (b) and (c) of the proviso are satisfied in this case, and so, if Section 25FF were to apply, there can be little doubt that the appellant would be justified in contending that the transfer was valid and the 57 employees can make no grievance of the said transfer.(Para 16)

       (ii) Industrial Disputes Act, 1947—Section 25FF—Retrenchment on transfer of an undertaking—Partial transfer—Appellant Management started business in 1936—In 1977 when it faced financial problems, a Resolution was passed to hive off its textile operation by entrusting it to its fully owned subsidiary which was to be formed—Workers were informed about the transfer—Information about integrated Textile Division was given—Employees claim that they were employees of and paid by Mettur Textile Industries Ltd.—A letter sent by Mettur Textile Industries intimating each workman that he was being retrenched—No dispute regarding genuineness of the transfer —Whether Section 25FF of the Act is applicable—Employees were informed of the transactions at all relevant points of time.

       Held : It would be noticed that the first and foremost condition for the application of Section 25FF is that the ownership or management of an undertaking is transferred from the employer in relation to that undertaking to a new employer. What the section contemplates is that either the ownership or the management of an undertaking should be transferred; normally this would mean that the ownership or the management of the entire undertaking should be transferred before Section 25FF comes into operation. If an undertaking conducts one business, it would normally be difficult to imagine that its ownership or management can be partially transferred to invoke the application of Section 25FF. A business conducted by an industries undertaking would ordinarily be an integrated business and though it may consist of different branches or departments they would generally be interrelated with each other so as to constitute one whole business. In such a case, Section 25FF would not apply if a transfer is made in regard to a department or branch of the business run by the undertaking and the workmen would be entitled to contend that such a partial transfer is outside the scope of Section 25FF of the Act.(Para 17)

       It may be that one undertaking may run several industries or businesses which are distinct and separate. In such a case, the transfer of one distinct and separate business may involve the application of Section 25FF. The fact that one undertaking runs these businesses could not necessarily exclude the application of Section 25FF solely on the ground that all the businesses or industries run by the said undertaking have not been transferred. It would be clear that in all cases of this character the distinct and separate businesses would normally be run on the basis that they are distinct and separate, employees would be separately employed in respect of all the said businesses and their terms and conditions of service may vary according to the character of the business in question. In such a case it would not be usual to have one muster-roll for all the employees and the organization of employment would indicate clearly the distinctive and separate character of the different businesses. If that be so, then the transfer by the undertaking of one of its businesses may attract the application of Section 25FF of the Act. (Para 18)

       The conclusions of the learned Single Judge and the Division Bench proceeded on the premises as if the 27 employees in question were targeted. In order to establish fraud there has to be specific averments or materials adduced to establish the same. In the instant case there was no specific averment in that regard and in any event no evidence was led. The High Court seems to have lost sight of the fact that huge amount of money had already been paid. It has not established that the purpose was to target the 27 employees and for that purpose the appellant spent huge amount of money. Undisputedly the employees were informed of the transactions at all relevant points of time. It is also not disputed by learned counsel for the respondent that nearly 2500 employees have accepted that the transfer is genuineness and out of 27 employees who originally pressed their grievances, nine are not pursuing it. The Tribunal had rightly noted these aspects. Unfortunately learned Single Judge and the Division Bench made out a new case of fraud and the transaction to be “sham”. The solitary material on which decisions of learned Single Judge and the Division Bench was founded is one receipt showing payment for one month. The explanation given in that regard does not appear to have been considered in its proper perspective by the High Court. (Para 19)