Claim for retrenchment compensation on transfer of business.

Ramachandra Iyer, C.J.-

The appeal and the writ petition referred to above arise out of applications filed under section 33-C (2) of the Industrial Disputes Act, 1947 by Elumalai and Mahomed Khan respectively who were originally employed by the South Arcot Electricity Distribution Co., Ltd. to be referred to hereafter as the Company. The questions that fall to be considered in the two cases are common and it will be convenient to deal with them together. The Company was incorporated in 1943, and having secured a licence from the Government for the purpose, it was doing business in distributing electric energy in the South Arcot District. The undertaking was taken over by the State Government with effect from 1st June, 1957, under section 4 (1) of the Madras Electricity Supply Undertakings (Acquisition) Act, 1954. The Act enables the Government to declare any undertaking not previously taken over by them to vest in itself. On such acquisition, the licensee becomes entitled to compensation. There are three alternative modes for computing the compensation payable, referred to in section 5 of the Act as Basis A, B and C, it being left to the option of the licensee to choose on which Basis he should be paid. Basis A fixes the compensation payable at twenty times the average net annual profit of the undertaking, the average being arrived at by taking the profits of five years immediately preceding the date of vesting. In this method of awarding compensation, the value of the assets owned by the undertaking and transferred to the Government do not enter into the account; nor does its existing or future liabilities affect the compensation thus calculated.

Section 6 of the Act provides inter alia that if compensation were to be paid on Basis A, the property belonging to the undertaking including fixed assets, cash, securities, investments, documents and the like and all its rights and liabilities (liability not incurred bona fide being excepted) and obligations, as on the vesting Hate shall vest in the Government. The Company chose that it should be paid compensation under Basis A. There is, however, a different provision with respect to the company's employees. The statute itself has made provision in regard to the tenure of service of the persons till then employed by the undertaking. Generally stated the Government is under no obligation to employ all or any of the persons till then in service of the licensee. Section 15 of the Act states that the Government have the power to terminate the services of any person after giving him three months’ notice in writing or paying him three months’ pay in lieu of such notice. But the services of those whom the Government thinks fit to retain will be governed by such rules as may be framed from time to time by it. In accordance with the powers given under the section, rules have been framed. We will have to refer to the relevant rule at a later stage of this judgment. Suffice to say for the present that in the first instance all the former employees of the Company were taken over by the Government on a provisional basis.

Meanwhile the Madras Electricity Board was constituted under the Central Electricity Supply Act of 1948. The Board came into existence on 1st July, 1957. The Government duly directed the personnel who were till then in the Electricity Department of the Government (certain categories of them being excepted) to serve under the Madras State Electricity Board. The Board was authorised to-frame regulations relating to its staff in such a way as not to prejudicially affect their interests. As a consequence of these proceedings the employees of the South Arcot Electricity Distribution Corporation, Ltd., became the employees under the State Electricity Board.

Very soon thereafter, three hundred and fifty-three employees who were then only entertained on a provisional basis as aforesaid, filed applications before the: Labour Court at Madras claiming that the transfer of ownership of