Invalid Settlement Cannot Override Statutory Benefits Under ID Act Section 25-O(6) Or Confirmed Award: Madras HC - 2025-04-26

Workers Entitled to Full Back Wages Despite Union's Purported Settlement, Rules Madras High Court

Chennai: In a significant ruling for workers affected by illegal closures, the Madras High Court has held that a purported settlement entered into by a trade union cannot override a worker's statutory entitlement to benefits under Section 25-O(6) of the Industrial Disputes Act, 1947, or a confirmed award by an Industrial Tribunal.

Justice Dr. A.D. MariaClete , presiding over the Special Original Jurisdiction, delivered a common judgment on April 24, 2025, disposing of two writ petitions (W.P.No. 25467 of 2019 and W.P.No. 3528 of 2020). The first petition was filed by 40 workers challenging a Labour Court order that denied them full benefits. The second was filed by the Tamil Nadu Khadi and Village Industries Board (Khadi Board) challenging the Labour Court's direction to pay interest on a partial payment.

The case stemmed from the Khadi Board's closure of 15 handmade paper units in 1999 without obtaining prior government permission, a requirement under Section 25-O of the ID Act. The Industrial Tribunal, in its award dated May 10, 2006 (I.D. No. 100 of 2000), found the closure illegal and deemed it non est in law, entitling the workers to all benefits as if the units had not been closed, in accordance with Section 25-O(6) of the Act.

The Khadi Board's subsequent challenges to the award, including appeals up to the Supreme Court, were unsuccessful. However, the CITU union, representing the workers, entered into a Minutes of Understanding dated September 17, 2013, agreeing to accept only 35% of the total dues payable under the award, effectively relinquishing the balance. Based on this understanding, the Khadi Board obtained government sanction for ₹85,06,020, representing 35% of the calculated liability.

Aggrieved by the Khadi Board's disbursement of only a fraction of their dues, 51 workers filed claim petitions under Section 33C(2) of the ID Act before the III Additional Labour Court, Chennai, seeking recovery of the full amount due, including revised wages, leave encashment, and bonus, totaling approximately ₹45,61,970 per worker.

The Labour Court, in a common order dated April 30, 2019, dismissed the workers' claims for the full amount. It held that the Minutes of Understanding constituted a binding settlement under the ID Act, restricting the workers' entitlement to the 35% already sanctioned and disbursed. However, the Labour Court directed the Khadi Board to pay 9% interest per annum on this 35% amount from the date of filing the claim petitions.

Challenging this decision, 40 workers approached the High Court seeking the full benefits, while the Khadi Board filed a separate petition challenging the imposition of interest.

The High Court, after hearing arguments from both sides, including Senior Counsel V. Prakash for the workers, found fundamental flaws in the Labour Court's reasoning.

Justice Clete observed that the Minutes of Understanding did not qualify as a valid "settlement" under Section 2(p) read with Section 18(1) of the Industrial Disputes Act. The court noted that the statutory requirement of signing the agreement in the prescribed manner (Rule 25 of Tamil Nadu Industrial Disputes Rules, Form B) and sending a copy to the appropriate government and conciliation officer had not been followed.

Citing the Supreme Court judgment in Jhagarkhand Collieries (P) Ltd. v. Central Government Industrial Tribunal , the High Court emphasized the necessity of adhering to procedural requirements for a settlement to be binding under the Act.

More importantly, the court held that even if the minutes were considered a settlement, they could not override the workers' statutory entitlement under Section 25-O(6) of the ID Act. Section 25-O(6) explicitly states that if a closure is illegal (effected without permission), the workmen are entitled to all benefits under any law as if the undertaking had not been closed down.

The High Court highlighted Section 25-J of the ID Act, which gives provisions under Chapter V-B (like Section 25-O) overriding effect over other laws inconsistent therewith, unless the other law provides more favourable benefits. Relying on past judgments, including Sree Rajendra Mills Ltd. , Salem v. Labour Court, Coimbatore , the court reiterated that statutory rights under Chapter V-B cannot be curtailed by private settlements.

The court dismissed the Khadi Board's arguments that the workers were bound by the union's agreement or that they were approbating and reprobating. It noted that the workers had consistently sought their full entitlement and had not accepted the 35% payment.

The High Court concluded that the workers had a clear pre-existing right to the full benefits, both under the statutory provision of Section 25-O(6) and the confirmed award. This right made their applications under Section 33C(2) for computation and recovery of money fully maintainable.

Consequently, the Madras High Court set aside the Labour Court's common order dated April 30, 2019. The court remanded all 51 claim petitions back to the Labour Court for fresh adjudication on all issues, including claims for back wages, leave encashment, and bonus.

Crucially, the High Court directed the Khadi Board to immediately pay each worker (or their legal representative) the sum of ₹1,26,242/-, the amount acknowledged in the Khadi Board's own proposal to the government as the entitlement based on minimum wages for 85 months.

The court dismissed the Khadi Board's writ petition challenging the interest, upholding the Labour Court's direction that the payable amount shall carry interest at 9% per annum from the date of filing of the respective claim petitions until the date of realisation.

The judgment underscores the principle that statutory rights conferred upon workmen, particularly under Chapters V-A and V-B of the Industrial Disputes Act, are paramount and cannot be defeated by settlements that do not comply with the law or offer less favourable terms.

W.P. No. 25467 of 2019 filed by the workers was allowed to the extent of setting aside the Labour Court order and remanding the matter, while W.P. No. 3528 of 2020 filed by the Khadi Board challenging the interest was dismissed.