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Maharashtra Genaral ... v. All India Handloom F...

Bombay High Court

Jun 11, 1991

Judgment

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Factual and Procedural Background

The petition under Article 326 challenges the second respondent's dismissal of a complaint brought under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 (PULP Act). The first respondent (the "society" or "employer") is a Government of India sponsored body marketing handloom fabrics; it operated a depot at Dadabhai Nawroji Road (D.N. Road) in Bombay which was gutted by fire on 16 October 1982. After the fire the society was left with a depot at Mahim and 155 employees of the D.N. Road depot were left without work. For a period there was lay-off; sixty-two employees were transferred to depots outside Bombay. The society converted space at Janmabhoomi Chambers into a sales depot and some laid-off employees were shifted there.

On 10 March 1985 the petitioner-union applied to the society for recognition as sole representative of employees, claiming majority support. On 10 April 1985 the society issued a circular inviting volunteers for transfers to Coimbatore, Jaipur and Surat for new depots. Transfer orders were issued to seven workmen (three to Jaipur and four to Coimbatore). The union complained that the transfers were unfair labour practices; the Industrial Court (second respondent) dismissed the complaint. The union obtained interim relief from a Division Bench staying the transfers and subsequently appealed to this Court. Appeal No. 21 of 1987 was allowed on 19 February 1987. The present petition challenges the Industrial Court's verdict under Article 326.

Legal Issues Presented

Whether the society had the contractual or statutory right to transfer its employees (i.e., whether the staff regulations applied and empowered transfers).
Whether the staff regulations' transfer clause constituted a standing order beyond the scope of the Model Standing Orders under the Industrial Employment (Standing Orders) Act and therefore was ultra vires, in view of S. 2A(1) of the Standing Orders Act and S. 38B of the Bombay Shops and Establishments Act, 1948.
Whether the impugned transfers were actuated by mala fide motives (vengeance for union activity) or were penal in nature, and thus amounted to an unfair labour practice under item (3) of Schedule IV to the PULP Act.
Whether the transfer clause in the staff regulations was vitiated by undue influence such that it should be declared void.

Arguments of the Parties

Petitioner-Union's Arguments

The transfers were motivated by vengeance against employees who shifted allegiance to the petitioner-union and were intended to ensure loss of the union's majority support.
The Depot Manager (Vimal Raut) favoured other employees and sought to displace those listed for transfer; her letter (exhibit C) was relied upon as evidence of mala fides and proximity in time showed causation.
The selection of the employees for transfer lacked any rational criterion and was arbitrary and whimsical.
No rule or contractual term permitted compulsory transfers contrary to an employee's wishes; alternatively the staff regulations were void or in conflict with the Model for Standing Orders under the Standing Orders Act.
The transfers amounted to an unfair labour practice under item (3) of Schedule IV to the PULP Act: "transferring an employee mala fide from one place to another, under the guise of following management policy."

Society (Employer)'s Arguments

The D.N. Road depot fire caused a sizable decline in business in Bombay; after exhausting alternatives to prevent unemployment, the society legitimately transferred certain employees to where their services were required (new depots in Coimbatore, Jaipur, Surat).
The transfers were not related to the union's rise to power; petitioner’s predecessors and other unions had been similarly present and the petitioner’s coming into power did not motivate transfers.
The society asserted it had power to transfer employees and denied irrationality or arbitrariness in choosing those transferred.
The society argued the staff regulations occupy a different area from the Model Standing Orders and claimed that regulations not inconsistent with the Model may be framed by the employer.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Workmen of Lakheri Cement Works, Ltd. v. Associated Cement Companies Ltd., 1970 (20) F.L.R. 243	Authority for expunging clauses in standing orders that relate to topics not included in the schedule to the Standing Orders Act; such inclusions are "entirely without jurisdiction."	The court relied on the principle in Lakheri to support the conclusion that clauses (such as an unfettered transfer clause) beyond the Model Standing Orders are not permissible; this informed the finding that the impugned transfer clause was ultra vires and transfers were illegal where staff regulations were not certified as standing orders under S. 2A(1).
Automotive Manufacturers v. Nanalal Panachand, 1977 L. & I.C. 1185	Authority concerning undue influence in relation to an implied transfer clause in a contract of service.	The court distinguished this authority: it observed that Automotive Manufacturers concerned an implied transfer clause, whereas in the present case an express transfer clause exists in the staff regulations; accordingly, the court rejected the union's undue-influence argument based on that precedent.

Court's Reasoning and Analysis

The court's analysis proceeded in discrete steps, each linked to material in the record and to statutory provisions cited in the opinion.

Applicability of staff regulations: The court found the staff regulations applicable to the employees. The regulations were framed before the employees joined service; Regulation 56 required a copy be given and a declaration obtained, and Regulation 2 made the staff regulations applicable to all employees "unless otherwise specifically stated." At least one affected employee (Kapri) signed the declaration. The court held that signing the declaration was not essential to the efficacy of the regulations and that adherence to prevailing service regulations is an implied term of employment. The employees had in fact availed themselves of the staff regulations for leave and overtime.
Standing Orders Act interplay: The court examined S. 2A(1) of the Industrial Employment (Standing Orders) Act and S. 38B of the Bombay Shops and Establishments Act and related definitions (including references to the Payment of Wages Act and Factories Act definitions). It explained that the Model for Standing Orders prescribes the matters that must be covered and that item (11) of the schedule is residuary ("any other matter which may be prescribed"). The Industrial Court's view that the Standing Orders Act does not prohibit employer-framed regulations not inconsistent with the Model was contrasted with the Lakheri authority which struck down clauses beyond the schedule. Because the staff regulations had not been certified under the proviso to S. 2A(1), they did not receive protection and the transfer clause was treated as illegal to the extent it purported to permit unilateral transfers beyond the Model's scope.
Ultra vires and illegality of transfer clause: Given the staff regulations were not certified under S. 2A(1), the transfer power contained in the regulations (Regulation 17) offended the statutory scheme and was thereby illegal. The court concluded the impugned transfers were therefore without legal validity on this basis.
Undue influence argument: The union argued the transfer clause should be void for undue influence, relying on Automotive Manufacturers. The court distinguished that authority (which concerned an implied clause) from the present case (where the transfer clause was express) and found no evidence that low pay or lower rank by itself proved undue influence. The court also found nothing oppressive about the society retaining the right to transfer within its national area of operation.
Allegations of mala fides and arbitrariness: The court examined allegations that the transfers were vindictive or arbitrary. It found the letter of Vimal Raut showed only comparative superiority of certain employees and did not prove that transfers were penal. The court accepted the society's factual position that the D.N. Road fire curtailed Bombay business and left certain employees surplus; other Bombay depots did not require them but new depots elsewhere could use their services. The court held an employer is not required to provide a detailed reasoned order explaining why particular employees were chosen and noted the union failed when asked to submit names of those willing to transfer.
Relation to unfair labour practice provision: Although the court rejected the union's mala fides contention on evidentiary grounds, it found success on the legal ground that the transfer power violated S. 2A(1) of the Standing Orders Act. The court connected lack of legality in the employer's act (the transfers) with the notion of legal mala fides under item (3) of Schedule IV of the PULP Act, observing that illegality amounts to legal mala fides and thus falls within item (3)'s ambit.

Holding and Implications

The court held that the impugned transfer orders (as to those transfers stayed by the Division Bench in Appeal No. 21 of 1987) amount to an unfair labour practice and are illegal because the transfer power in the staff regulations was inconsistent with S. 2A(1) of the Industrial Employment (Standing Orders) Act and the regulations were not certified under that provision.

Implications and direct effects:

The transfer orders in respect of those employees whose transfers had been stayed by the Division Bench are declared to be unfair labour practices; the society is directed to cease and desist from enforcing those transfer orders.
The Industrial Court's dismissal of the union's complaint is set aside and the rule made absolute in the terms stated by this Court.
Parties were directed to bear their own costs throughout.

The opinion does not discuss any broader prospective change to legal precedent beyond applying existing authorities and statutory provisions; the decision's principal legal effect is the invalidation of the particular transfers and the setting aside of the Industrial Court's dismissal in this dispute.

Show all summary ...

1. This petition under Art. 326 of the Constitution impugns the second respondent's verdict upon a complaint under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 (PULP Act).

2. The first respondent — hereinafter referred to as the “employer” or “society” — is a Government of India sponsored body to arrange for the more advantageous marketing of fabrics manufactured by handloom weavers scattered all over the country. It has established sales depots at various places and those in Bombay included the one located at the Dadabhai Nawroji Road. This depot was gutted in a fire that broke out on 16 October, 1982. The fire left the employer with a depot at Mahim in Bombay. The 155 employees working in the D.N Road depot were without work. For some time there was a lay-off. Sixty-two employees were transferred to depots outside Bombay. The society converted an office at the Janmabhoomi Chambers into a sales depot and some of the laid-off employees were shifted thereto. The petitioner-union on 10 March, 1985 applied to the society to accord recognition to it as the sole representative of the employees claiming that it had the support of the majority of the workers. The society on 10 April, 1985 issued a circular inviting applications from its employees at all depots for voluntary transfers to Coimbatore, Jaipur and Surat where it proposed to open new depots. Transfer orders impugned in the petition were issued to seven workmen —three being transferred to Jaipur and four to Coimbatore. The orders explained the transfers as being necessitated by the curtailment of the society's business at Bombay, making the staff here surplus and the employer's desire to utilise their experience in the new sales depots in the above cities. The union's complaint impugning the transfers as an unfair labour practice having been dismissed, it approached: this Court. After the rejection of interim relief, petitioner moved a Division Bench in appeal and secured an interim injunction staying the operation of the transfer orders.

3. The union assails the transfers as being actuated by a desire to wreak vengeance upon the workmen for having shifted their allegiance to it and also ensuring that of the majority of their colleagues. Next was the desire of the Depot Manager (Vimal Raut) at Bombay, to have her own favourites here by displacing the persons figuring in the transfer list. This was made clear in her letter at exhibit C. The proximity in time between the two events and the transfer orders established a clear case of mala fides. Therefore, the transfers were not a legitimate exercise of the employer's power to deploy personnel. This apart, the selection of those transferred showed no rationale at work. The same was haphazard and whimsical. No rule or term of contract permitted the society to transfer any worker contrary to his wishes. The so-called need to curtail the staff at Bombay, was a myth and in any case a short-term reduction in the business did not empower the society to effect transfers. The transfers were an unfair labour practice (ULP) under item (3) of Sch. IV to the PULP Act. The society denied the contentions summarised above. It maintained that the gutting of the D.N Road depot had brought about a sizable decline in its business at Bombay. It had tried alternatives to prevent the employees from facing unemployment. Having exhausted all alternatives, it had to take recourse to the solution of transferring a few employees. The coming into power of the petitioner-union bad nothing to do with the making of the transfer orders. The society had to contend with trade unions since long and petitioner's predecessors were as devoted to the workers' cause as was the petitioner. It had the power to effect transfers and there was no irrationality vitiating the transfer of the employees represented by the petitioner.

4. The second respondent negatived the petitioner's case on all counts and dismissed its complaint. No interim relief having been granted petitioner went in appeal to a Division Bench vide Appeal No. 21 of 1987. That appeal was allowed on 19 February, 1987.

5. Counsel for parties reiterate the stands taken by their clients in the Industrial Court. The first question is whether the society had the right to transfer its employees. Sri Pai asserts the negative basing his stand on the absence of any of the six workmen having signed the appointment letter subjecting them to staff regulations. The alternatives pleaded are that the said staff regulations are void as the result of undue influence and being in conflict with the schedule “Model for Standing Orders” framed under the Industrial Employment (Standing Orders) Act, 1946.

6. In so far as the applicability of staff regulations to the employees is concerned, these were framed prior to the joining of the society's service by the workmen figuring in this case. Regulation 56 says that every employee joining the employment shall be given a copy thereof and a declaration subscribing to them being obtained from him. Of the six employees figuring in this case, at least one— Kapri—is proved to have signed the prescribed declaration. The argument that those not giving such a declaration would not be bound, does not merit acceptance. Regulation 2 makes the staff regulations applicable to all employees of the society “unless otherwise specifically stated. “The signing or otherwise of the declaration is of no consequence to their efficacy vis-a-vis the service conditions of the workmen. In fact, the employees have availed of the staff regulations in the matter of leave, overtime, etc. Within certain limits an employer is entitled to frame rules to regulate the services of its employees. When an employee joins the employment, he subjects himself to prevailing regulations and this is an implied term of the contract of employment. It is not the employees' case that they were specifically excluded from the operation of the staff regulations and, therefore, that aspect does not arise for consideration.

7. Sri Pai then argues that the staff regulations are in the nature of a standing order. The schedule to the Standing Orders Act enumerates matters on which standing orders can be made. Transfer of employees from one establishment to another is not provided for. Therefore, the staff regulation is ultra vires to the extent it provides for the society to unilaterally transfer any employee. The power to transfer employees throughout the country and even abroad is to be found in regulation 17. In support of his submission Sri Pai relies on Workmen of Lakheri Cement Works, Ltd. v. Associated Cement Companies, Ltd. [1970 (20) F.L.R 243]. That decision directed the expunging of new clauses in a standing order because the clauses concerned topics which were not included in the schedule to the Standing Orders Act. The inclusion of such clauses was stamped as being “entirely without jurisdiction.” Section 38B of the Bombay Shops and Establishments Act, 1948 (Shops Act), makes the Standing Orders Act together with rules and Model for Standing Orders applicable to the establishment run by the society.

8. The society contends that Model for Standing Orders cover an area entirely different than that in which the staff regulations operate. The schedule to the Standing Orders Act specifies matters to be provided by Model for Standing Orders. Items (1) to (10) do not cover the subject of transfer of employees. Item (11) is in the nature of a residuary for it deals with “any other matter which may be prescribed.” The combined effect of S. 2A (1) of the Standing Orders Act and S. 38B of the Shops Act compels the acceptance of the union's contention. These provisions together with definition clauses from the first enactment and those referred to therein read as under:

“Section 2A(1) of Standing Orders Act.— Where this Act applies to an industrial establishment, the model standing orders for every matter set out in the schedule applicable to such establishment shall apply to such establishment from such date as the State Government may by notification in the Official Gazette appoint in this behalf:

Provided that nothing in this section shall be deemed to affect any standing orders which are finally certified under this Act and have come into operation under this Act in respect of any industrial establishment before the date of the coming into force of the Industrial Employment (Standing Orders) (Bombay Amendment) Act, 1957.”

“Section 2(e)(i) of Standing Orders Act.— ‘industrial establishment’ means—

(i) an industrial establishment as defined in Cl. (ii) of S. 2 of the Payment of Wages Act, 1936: or”

“Section 2 (ii) of the Payment of Wages Act, 1936.— ‘Industrial or other establishment’ means any—

(a) tramway service, or motor transport service engaged in carrying passengers or goods or both by road, for hire or reward;

(aa) air transport service other than such service belonging to, or exclusively employed in the military, naval or air forces of the Union or the Civil Aviation Department of the Government of India;

(b) dock, wharf or jetty;

(d) mine, quarry or oilfield;

(e) plantation;

(f) workshop or other establishment in which articles are produced, adapted or manufactured with a view to their use, transport or sale;

(g) establishment in which any work relating to the construction, development or maintenance of buildings, roads, bridges or canals, or relating to operations connected with navigation, irrigation or the supply of water, or relating to the generation, transmission and distribution of electricity or any other form of power is being carried on;

(h) any other establishment or class of establishments which the Central Government or a State Government may, having regard to the nature thereof, the need for protection of persons employed therein and other relevant circumstances, specify, by notification in the Official Gazette.”

“Section 2 (e)(ii) of Standing Orders Act.— ‘industrial establishment’ means—

(ii) a factory as defined in Cl. (m) of S. 2 of the Factories Act, 1948; or”

“Section 2(m) of the Factories Act, 1948.— ‘factory’ means any premises including the precincts thereof—

(i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on; or

(ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on,—

but does not include a mine subject to the operation of the Mines Act, 1952, a mobile unit belonging to the armed forces of the Union, a railway running shed or a hotel, restaurant or eating place;

Explanation.— For computing the number of workers for the purposes of this clause all the workers in different relays in a day shall be taken into account.”

“Section 38B of the Shops Act.— The provisions of the Industrial Employment (Standing Orders) Act, 194S, in its application to the State of Maharashtra (hereinafter in this section referred to as the said Act), and the rules and standing orders (including model standing orders), made thereunder from time to time, shall, mutatis mutandis, apply to all establishments to which this Act applies as if they were industrial establishments within the meaning of the said Act.”

According to the Industrial Court the Standing Orders Act doss not prohibit the framing of regulations not inconsistent with Model for Standing Orders. This is an indirect way of saying that the residuary clause covers employer-framed standing orders, unless these entrench upon topics prohibited by the Model for Standing Orders, Such a contention raised in Lakheri Cement case [1970 (20) F.L.R 243] (vide supra), was negatived in no uncertain terms. It is not disputed that the staff regulations have not been got certified so as to avail for them the protection given by the proviso to S. 2A(1) of the Standing Orders Act. Therefore, the impugned transfers are illegal.

9. Sri Pai also submits that the transfer clause in the staff regulation should be voided as vitiated by undue influence. Counsel seeks sustenance for this argument from Automotive Manufacturers v. Nanalal Panachand [1977 L. & I.C 1185]. That authority is predicated on the transfer clause being implied in a contract of service. In the instant case the staff regulations contain an express clause of transfer. The employees affected being lowly paid or in minor positions is not proof of their succumbing to the staff regulations because of undue influence. Having regard to the country as whole being the society's area of operation there would be nothing unnatural or oppressive about the society wanting to have the right to transfer its employees to any part of the country.

10. The union attacks the transfers as being devoid of any principle. Those picked upon for a transfer do not answer any particular criterion. They have been picked out at random. It is difficult to understand, much less uphold this contention. The society says its business in Bombay has been curtailed because of the gutting of the D.N Road branch. Other depots in the city do not require those rendered superfluous by the lire. Depots elsewhere can do with the services of those rendered redundant in Bombay. For that reason a certain number of employees have been transferred. Being an employer the society is not required to give a reasoned order as to why it has chosen the petition-covered employees and not others. In fact the union was asked to submit a list of those employees who were willing to be transferred. Put to this test, the union funked and could not come out with an answer.

11. Equally unsubstantiated is the ground of the society resorting to transfers as a penal measure. Vimal Raut's letter proves no more than the superiority of certain employees vis-a-vis those working at the D.N Road depot at the time the letter was written. That there were better employees does not mean that the union's backers were worthless. Exception is taken to the society utilising a temporary set-back in its Bombay business to reduce the work force here. I should say that is the most natural way of tackling the problem. One cannot expect the society to continue with a bloated labour force in Bombay depite its receding business here. Profit of other depots is not to be utilised for wiping out the year-after-year deficits in Bombay. Feather bedding is a sure path to economic ruination. It was argued that the society has a centralised system of accounting and, therefore, should not be heard to plead sectional losses as a justification for deployment of personnel. The manner of maintenance of accounts is irrelevant vis-a-vis positioning of employees. The elementary precaution of reduction in work requiring a reduction in the numbers of those working, is not denied to those who have a centralised system of accounting.

12. The union pleads that its entry into the realm of those in the employ of the society is the real reason for the impugned transfers. A surmise and no more, the plea has to be rejected.

13. To recapitulate, the petitioner succeeds on only one ground, to wit, the power of transfer being violative of S. 2A(1) of the Standing Orders Act. In terms, item (3) of Sch. IV of the PULP Act may not apply for it pertains to—

“transferring an employee mala fide from one place to another, under the guise of following management policy.”

Lack of legality to an act or omission amounts to legal mala fides and that would be covered by item (3) supra. On this short ground, petitioner was entitled to the relief claimed. Hence the order.

14. Declared that the impugned transfer orders vis-a-vis those whose transfers were stayed vide the judgment in Appeal No. 21 of 1987 amount to an unfair labour practice. The society is directed to cease and desist from enforcing the same. The dismissal of the complaint is set aside and the rule is made absolute in the terms. Parties left to bear their own costs throughout.