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The Managing Director, The National Garage, Nagpur v. J. Gonsalves

Bombay High Court

Sep 18, 1961

Judgment

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Factual and Procedural Background

This opinion arises from a challenge by the petitioner (represented by Mr. D.B. Padhye) to the view taken by respondents that termination of respondent No.1's services amounted to "retrenchment" attracting compensation under section 25F of the Industrial Disputes Act. The petitioner argued that a termination carried out in accordance with the provisions of a standing order does not amount to retrenchment and that respondent No.1 was not entitled to retrenchment compensation. Conflicting Division Bench decisions of this Court and a Supreme Court decision were identified as creating a divergence of opinion. Consequently, the question whether a termination simpliciter (including termination on notice under a standing order) amounts to retrenchment under s.25F was referred to a Full Bench. The papers were laid before the Chief Justice and the matter was considered by a bench composed of Chainani, C.J., and Kotval and Shikhare, JJ.

Legal Issues Presented

Whether termination of service simpliciter, whether on giving one month's notice under the provisions of a standing order or otherwise, amounts to retrenchment attracting the provisions of section 25F of the Industrial Disputes Act.

Arguments of the Parties

Petitioner's Arguments (Mr. D.B. Padhye and colleagues)

Termination of services effected under a standing order does not amount to retrenchment, and hence respondent No.1 was not entitled to retrenchment compensation under s.25F.
Relied on two decisions of this Court (Municipal Corp. B'bay v. Labour App. Trib. and Central Potteries Ltd. v. Kalidas Ganpat) which, according to counsel, supported the petitioner's contention.

Respondent / Workmen's Arguments (Mr. V.P. Sathe, Mr. C.S. Dharmadhikari, Mr. B.A. Masodkar, Mr. Dhabe)

Mr. Sathe argued that the Industrial Disputes (Amendment) Act, 1957 (which added s.25FFF) showed a legislative intention to enlarge the scope of "retrenchment" by providing that closures should be treated as if retrenchment had occurred; he urged that this indicated that termination should be regarded broadly.
Mr. Sathe further argued that when an employer gives no reasons for terminating services, a presumption should be drawn that the worker was discharged as surplusage and that a discharge simpliciter should therefore be held to constitute retrenchment.
Mr. Dhabe referred to Chaganlal Textile Mills v. Girni Kamgar Union and other authorities but was constrained by the Court's view that those authorities did not directly address the specific question whether a termination simpliciter amounts to retrenchment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hariprasad Shivshankar Shukla v. A.D. Divikar ([1957] S.C.R. 121)	Holds that termination of services due to closure of a business does not constitute "retrenchment"; defines "retrenchment" as discharge of surplus labour or staff in a continuing/running industry.	The Court treated this Supreme Court decision as binding and central: it adopts the conclusion that "retrenchment" has no wider meaning than the ordinary accepted connotation — i.e., discharge of surplus labour in a continuing business — and is bound by it.
Municipal Corp. B'bay v. Labour App. Trib. (1957 59 Bom. L.R. 413)	Considered the Supreme Court's observations and noted that "retrenchment" meant discharge of surplus labour or staff and did not mean termination of contract for other causes.	The Court cited this Division Bench decision as consistent with the Supreme Court's view and as support for limiting "retrenchment" to discharge of surplus labour in a continuing business.
Central Potteries Ltd. v. Kalidas Ganpat (1958, Unreported)	Cited by petitioner as supporting the contention that termination under a standing order is not retrenchment.	The opinion notes this decision as one of the authorities relied upon by the petitioner, indicating it supports the petitioner's position, but the Court relied on the Supreme Court authority as binding.
M.P. Gokhale v. The Narsinggirji Manufacturing Co. Ltd.	Holds that if a workman's services were not terminated because he was in excess of requirements, the termination would not amount to retrenchment.	Referred to by the Court as being in harmony with the Supreme Court's interpretation that retrenchment means discharge of surplus labour; used as supporting authority that non-surplus terminations are not retrenchment.
Moti Gangaram Vazirani v. General Manager, Western Railway, Bombay	Adopted a similar view that termination not due to surplus does not amount to retrenchment.	Noted by the Court as another decision consistent with the narrower meaning of retrenchment adopted by the Supreme Court.
Devidayal v. State Industrial Court (1958 60 Bom. L.R. 1253)	Represents a contrary view in which conclusions differed from the Supreme Court's interpretation (details not expanded in the opinion).	The Court observed this was a contrary Division Bench decision decided after other cases and likely taken without awareness of the Supreme Court decision; the divergence of opinion is noted as part of reason for Full Bench consideration.
Dewli v. State Industrial Court (1958 60 Bom. L.R. 1427)	Another Division Bench decision taking a view contrary to the decisions that followed the Supreme Court precedent (specific rule not detailed in the opinion).	Noted as a contrary decision decided after the earlier cases and potentially without having the Supreme Court decision placed before the learned Judges; used to illustrate the divergence of opinion in this Court.
State of Bombay v. Hospital Mazdoor (1960 62 Bom. L.R. 553)	In that case it was conceded that the workmen had been retrenched; therefore, the extent or meaning of "retrenchment" was not in issue there.	The Court stated this authority was not helpful to decide the present question because the question whether termination amounted to retrenchment did not arise in that case.
Chaganlal Textile Mills v. Girni Kamgar Union ([1959] A.I.R. S.C. 722)	Involved workmen who had been found surplus and who had been paid retrenchment compensation; addressed legality of change, not the core definitional question.	The Court found this decision inapposite to the specific question before it (whether termination simpliciter equals retrenchment) because the issue of retrenchment's definition did not arise in that case.

Court's Reasoning and Analysis

The Court proceeded by reference to the statutory definition of "retrenchment" in clause (oo) of section 2 of the Industrial Disputes Act and the entitlement to compensation under section 25F. The central analytical steps recorded in the opinion are:

The Court first posed the definitional question: whether termination of service simpliciter (including termination on notice under a standing order) falls within the statutory definition of "retrenchment."
The Court examined the binding Supreme Court decision in Hariprasad Shivshankar Shukla v. A.D. Divikar, which interpreted "retrenchment" as having no wider meaning than its ordinary connotation — namely the discharge of surplus labour or staff in a continuing (running) industry — and held that termination due to closure of a business was not retrenchment.
The Court explained the Supreme Court's reasoning that the expression "for any reason whatsoever" within the definition does not expand "retrenchment" beyond the ordinary meaning when read in context; rather, it indicates that where discharge of surplus takes place for any reason (economy, rationalisation, etc.), it will be retrenchment.
The Court reviewed several Division Bench decisions of this Court: some (Municipal Corporation, M.P. Gokhale, Moti Gangaram Vazirani) followed the Supreme Court approach, while others (Devidayal, Dewli) reached a contrary view, possibly because the Supreme Court decision had not been placed before those Courts. This divergence justified Full Bench consideration initially.
The Court addressed arguments based on the 1957 amendment (introduction of s.25FFF) which provides that closure of an undertaking should be treated "as if" retrenchment had occurred. The Court rejected the contention that the amendment altered the statutory definition of retrenchment, noting that the definition itself was not amended and that s.25FFF operates to confer compensation "as if" retrenchment had occurred in closure situations.
The Court rejected the submission that a failure by an employer to give reasons for termination should give rise to a presumption that the dismissed worker was surplus. Instead, the Court held that the factual question of surplusage must be determined on the facts of each case; the presumption urged by counsel was not consistent with the binding Supreme Court interpretation.
Concluding that it was bound by the Supreme Court's decision, the Court articulated the legal rule: retrenchment means discharge of surplus labour or staff in a continuing or running industry; whether any particular termination amounts to retrenchment depends on the facts and circumstances of that case.

Holding and Implications

HOLDING: The Full Bench held that retrenchment within the meaning of the Industrial Disputes Act means discharge of surplus labour or staff in a continuing or running industry. Whether a termination of services amounts to retrenchment must be determined on the facts and circumstances of each case: if the termination is because the workman was surplus (i.e., in excess of requirements), it is retrenchment; if the termination is for other reasons, it is not retrenchment.

Implications:

The decision applies the Supreme Court's interpretation as binding: the statutory definition of "retrenchment" is not to be given a broader meaning merely because of the phrase "for any reason whatsoever."
The Industrial Disputes (Amendment) Act, 1957 (adding s.25FFF) does not alter the definition of "retrenchment"; it merely provides that closure of an undertaking gives rise to compensation "as if" retrenchment had occurred.
There is no automatic rule that a termination simpliciter, or a termination without stated reasons, constitutes retrenchment; the presence or absence of surplusage must be established on the facts.
The direct effect on the parties: a workman is entitled to retrenchment compensation under s.25F only if the termination on the facts amounts to discharge as surplus labour in a continuing business. The opinion does not purport to set a new expansive precedent beyond applying the Supreme Court's established meaning; rather it confirms and follows that interpretation.

Show all summary ...

Tambe, J.:— Mr. D.B Padhye, learned counsel for the petitioner, contends that both the second and third respondents were in error in holding that termination of respondent No. 1's services amounted to retrenchment. According to Mr. Padhye, a termination of service brought about in accordance with the provisions of a standing order does not amount to retrenchment and, therefore, respondent No. 1 was not entitled to get any retrenchment compensation as a condition precedent to the termination of his services under s. 25F of the Industrial Disputes Act. He places reliance on two decisions of this Court, one reported in Municipal Corp. B'bay v. Labour App. Trib. . 1957 59 Bom. L.R 413., and another in Central Potteries Ltd. v. Kalidas Ganpat . 1958 Special Civil Applications Nag. 347, 348 and 349 of 1957, decided by Chainani C.J and Badkas J., on February 5, 1958 Unrep... These two decisions no doubt support the contention of Mr. Padhye, but, however, the decision to which reference has been made by respondent No. 3 and another decision of this Court reported in Dewli v. State Ind. Court . 1958 60 Bom. L.R 1427, F.B, S.C 1958 N.L.J 474. support the view taken by respondents Nos. 2 and 3 in this case. In view of this divergence of opinion in this Court, the question that arises for consideration in this case will have to be referred to a larger Bench. The question that arises is:—

“Whether termination of service simpliciter, whether on giving one month's notice under the provisions of a standing order or otherwise, amounts to retrenchment attracting the provisions of section 25F of the Industrial Disputes Act.”

2. The papers be laid before the Hon'ble the Chief Justice for necessary order.

3. The question was considered by a bench composed of Chainani, C.J and Kotval and Shikhare, JJ. D.B Padhye, V.R Padhye and N.D Patel, for the petitioner.

4. V.P Sathe, C.S Dharmadhikari and B.A Masodkar, for respondent No. 1.

5. Chainani, C.J:— The question referred to the Full Bench is:

6. Clause (oo) in s. 2 of the Industrial Disputes Act, 1947, defines the word “retrenchment” to mean as follows:

“‘retrenchment’ means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include—

(a) voluntary retirement of the workman; or

(b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or

7. Section 25F provides for payment of compensation when a workman is retrenched. The question, which we have to determine, is whether the termination of services simpliciter, that is, without disclosing to the workman the reasons for his discharge, amounts to retrenchment within the meaning of the above definition, so as to entitle the workman to compensation under the provisions of s. 25F of the Act.

8. The above definition has been considered by the Supreme Court in Hariprasad Shivshankar Shukla v. A.D Divikar . [1957] S.C.R 121, S.C 59 Bom. L.R 384.. In that case, the undertaking of a Railway Company was taken over by Government, in consequence of which the company had to dispense with the services of all its employees. This was, therefore, a case in which the entire business was closed. The Supreme Court held that the termination of services of the workmen as a result of the closure of the business did not constitute retrenchment. Their Lordships examined the definition of “retrenchment” given in cl. (oo) of s. 2 of the Act and came to the conclusion that the definition does no more than give effect to the ordinary meaning of this word. It was pointed out at p. 131 that

“…retrenchment connotes in its ordinary acceptation that the business itself is being continued but that a portion of the staff or the labour force is discharged as surplusage.”

9. It was contended in the course of arguments that by so construing the word “retrenchment”, the amplitude of the expression “for any reason whatsoever” contained in the definition was being narrowed down. The Supreme Court dealt with this argument as follows (p. 132):

“…We agree that the adoption of the ordinary meaning gives to the expression ‘for any reason whatsoever’ a somewhat narrower scope; one may say that it gets a colour from the context in which the expression occurs; but we do not agree that it amounts to importing new words in the definition. What after all is the meaning of the expression ‘for any reason whatsoever’? When a portion of the staff or labour force is discharged as surplusage in a running or continuing business, the termination of service which follows may be due to a variety of reasons; e.g, for economy, rationalisation in industry, installation of a new labour-saving machinery, etc. The legislature in using the expression ‘for any reason whatsoever’ says in effect: ‘It does not matter why you are discharging the surplus; if the other requirements of the definition are fulfilled, then it is retrenchment.’… What is being defined is retrenchment, and that is the context of the definition. It is true that an artificial definition may include a meaning different from or in excess of the ordinary acceptation of the word which is the subject of definition; but there must then be compelling words to show that such a meaning different from or in excess of the ordinary meaning is intended. Where, within the framework of the ordinary acceptation of the word, every single requirement of the definition clause is fulfilled, it would be wrong to take the definition as destroying the essential meaning of the word defined.”

10. After considering the various arguments, the Supreme Court recorded its conclusions in the following words (p. 141):

“For the reasons given above, we hold, contrary to the view expressed by the Bombay High Court, that retrenchment as defined in s. 2(OO) and as used in s. 25F has no wider meaning than the ordinary, accepted connotation of the word: it means the discharge of surplus labour or staff by the employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action…”

11. On the same page, it was further observed:

“… On our interpretation, in no case is there any retrenchment, unless there is discharge of surplus labour or staff in a continuing or running industry.”

12. In this case, therefore, the Supreme Court held that the word “retrenchment” as defined in cl. (oo) of s. 2 and as used in s. 25P of the Act has no wider meaning than the ordinary accepted connotation of the word, and that it means the discharge of surplus labour or staff by the employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action.

13. This decision of the Supreme Court was considered by a Division Bench of this Court in the Municipal Corp. B'bay v. Labour App. Trib.. In this case it was observed (p. 420):

“…It is clear from these observations that in their Lordships' view the expression ‘retrenchment’ meant discharge of surplus labour or staff and did not mean termination of the contract of employment for other causes.”

14. The same decision was again considered by another Division Bench of this Court in M.P Gokhale v. The Narsinggirji Manufacturing Co., Ltd. In that case, the decision of the Supreme Court was considered at length and it was held that if the services of a workman “were not terminated because he was in excess of what was needed for the industry,” the termination would not amount to retrenchment. The same view was taken in Moti Gangaram Vazirani v. General Manager, Western Railway, Bombay. A contrary view was taken by another Division Bench of this Court in Devidayal v. State Industrial Court . 1958 60 Bom. L.R 1253, S.C 1958 N.J.L 499. and Dewli v. State Ind. Court . 1958 60 Bom. L.R 1427, F.B, S.C 1958 N.L.J 474.. The last two cases were decided on June 20, 1958, and July 10, 1958, respectively, i.e long after the other cases, in which the Supreme Court decision was considered, had been decided. These earlier decisions were not brought to the notice of the learned Judges. The Supreme Court decision also does not appear to have been brought to their notice. If the Supreme Court decision and the earlier decisions of this Court had been pointed out to the learned Judges, it is quite likely that they would have taken a different view.

15. Mr. Sathe, who appears on behalf of the workmen, has referred to the observation of the Supreme Court that in order to give a wider meaning to a word, there must be compelling words to show that a meaning different from or in excess of the ordinary meaning was intended by the Legislature. He has invited our attention to the amendments made in the Act by the Industrial Disputes (Amendment) Act, 1957 (No. XVIII of 1957), by which, a new section, s. 25FFF, was added, so as to provide for payment of compensation when an undertaking is closed down. sub-section (1) of this section states that when an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall be entitled to compensation in accordance with the provisions of s. 25F, as if the workman had been retrenched. Mr. Sathe has contended that this new section, which, according to s. 1(2) of the amending Act, took effect on November 28, 1956, the day following the one on which the Supreme Court gave its judgment, shows a clear intention on the part of the Legislature to enlarge the scope of the definition of “retrenchment” and that “retrenchment” can no longer be held to include only those cases in which there is discharge of surplus labour or staff. He has argued that in view of these amendments made in the Act, we must hold that every termination of service, otherwise than by way of punishment, or on account of voluntary retirement of the workman, or on account of his retirement on reaching the age of superannuation, or on account of his ill health, constitutes “retrenchment.” There is no force in these arguments. It is significant that although the Act was amended in order to get over the effect of the Supreme Court decision, the definition of the word “retrenchment” was not altered. The new s. 25FFF contains the words “as if” and provides that when a business is closed down, the workmen should be paid compensation as if they had been retrenched; in other words, even though the termination of their services does not amount to retrenchment within the meaning of the Act, they will be entitled to claim benefits as if there had been retrenchment.

16. Mr. Sathe referred to the decision of the Supreme Court in State of Bombay v. Hospital Mazdoor . 1960 62 Bom. L.R 553, S.C. This decision is, however, not of any assistance in this case. In that case, it was conceded that the workmen concerned had been retrenched. The question whether the termination of their services amounted to retrenchment did not, therefore, arise for decision.

17. Mr. Sathe also contended that when an employer does not give any reasons for terminating the services of an employee, it must be assumed that the workman was discharged as surplusage. He has contended that in such cases, a presumption should be drawn that the services were terminated on the ground of the workman being surplus. He has argued that a discharge simpliciter, i.e where an employer has not given any reasons for the discharge, should, therefore, be held to constitute retrenchment. It is not possible to accept these arguments, having regard to the decision of the Supreme Court that retrenchment both in its ordinary meaning and according to the meaning given to it by the definition in s. 2(oo) means discharge of surplus labour or staff in a continuing or running industry.

18. Mr. Dhabe, who also appears for the workmen, referred to the decision of the Supreme Court in Chaganlal Textile Mills v. Girni Kamgar Union . [1959] A.I.R S.C 722.. In that case, the services of some workmen had been dispensed with, because they were found to be surplus and retrenchment compensation had also been paid to them. The question when a worker can be said to have been retrenched within the meaning of the Industrial Disputes Act did not, therefore, arise for consideration. The question, which the Supreme Court had to decide, was quite different, whether the change made was legal or not. The decision in this case has, therefore, no bearing on the question, which we have to determine.

19. Mr. Dhabe has also argued that even if, as held by the Supreme Court, we give to the word “retrenchment” its ordinary meaning, it should not be construed so as to mean discharge as surplusage, as, according to its dictionary meaning, retrenchment would also include termination of services for other reasons. This argument cannot be accepted, as in Hariprasad's case, the Supreme Court has also mentioned what the ordinary meaning of the word “retrenchment” is. At page 131, it has been observed that retrenchment connotes in its ordinary acceptation that a portion of the labour or staff is discharged as surplusage. A similar observation has been made at page 141, where it is also stated:

“On our interpretation, in no case is there any retrenchment, unless there is discharge of surplus labour or staff in a continuing or running industry.”

20. We are bound by the above decision of the Supreme Court.

21. We accordingly hold that retrenchment within the meaning of the Industrial Disputes Act means discharge of surplus labour or staff in a continuing or running industry. The reply to the question referred to us, therefore, will be that the question whether the termination of services amounts to retrenchment must be determined in each case on the facts and circumstances of that case. If the termination of services is found to be due to the reason that the workman discharged was surplus, i.e in excess of the requirements of the business or the industry concerned, it will amount to retrenchment within the meaning of the Act. If the termination of services is due to any other reason, it will not constitute retrenchment.

22. Answer accordingly.