Holding

The Board is not liable to pay retrenchment compensation to the employees because the purchase price paid under the Indian Electricity Act, 1910 is sufficient to satisfy the employees’ dues and the employees’ service was interrupted, disqualifying them from protection under Section 25FF.

Summary

The Asansol Electricity Supply Co. Ltd., a licensee under the Indian Electricity Act, 1910, had its licence revoked and was compelled to sell its undertaking to the West Bengal State Electricity Board (the Board). The Board paid a purchase price and continued the employees, but offered them fresh, temporary appointments, effectively interrupting their service. The employees filed a writ petition seeking continuity of service and related benefits; the Calcutta High Court ordered continuity and directed payment of retrenchment compensation. On appeal, the High Court held that there was no continuity of service but directed the Board to pay retrenchment compensation under Section 25FF of the Industrial Disputes Act, 1947. The Supreme Court examined the effect of Sections 7 and 7B of the Indian Electricity Act, concluding that the purchase price, being sufficient, satisfied the Board’s liability for employee dues, and that the employees’ service was interrupted, disqualifying them from claiming compensation under Section 25FF. Consequently, the Court allowed the Board’s appeal and dismissed the employees’ appeal, holding that the Board had no further liability for retrenchment compensation.

Issues considered

Whether the purchase price paid by the Board under the Indian Electricity Act, 1910 discharges the Board’s liability to pay retrenchment compensation to the employees of the transferred undertaking.
Whether the employees’ service was uninterrupted and thus they are entitled to compensation under Section 25FF of the Industrial Disputes Act, 1947.
Whether the Board is liable to pay retrenchment compensation despite having paid a purchase price deemed sufficient to cover employee dues.

Legislation cited

Indian Electricity Act, 1910s. 3, s. 4, s. 5, s. 6, s. 7A, s. 7B
Industrial Disputes Act, 1947s. 25FF

Subjects

transfer of undertakingretrenchment compensationIndian Electricity ActIndustrial Disputes ActSection 25FFSection 7Bcontinuous servicepurchase price liabilityemployee rights

Judgment

•

A BHOLA NATH MUKHERJEE AND ORS. ...
v.
GOVERNMENT OF WEST BENGAL AND ORS.

NOVEMBER 22, 1996

B
[J.S. VERMA AND S.C. SEN, JJ.]

Indian Electricity Act, 19 JIJ-Sections 3, 4, 5, 6, 7-A and 7- 13-Com-
pani es Licence revoked-taken over by Board-Purchase price
C paid--Employees continued ill se1vice--Fresh terms and conditions of
Employmenr-High Court directing the Board to pay retrenchment compe11-
sation to the Employees-Whether Board is liable to pay retrenchment com-
pensation? Held-No, if the purchase price paid by the Board is sufficiently
large to pay the claims of the workmen, then the dues of the workman should
be paid out of the purchase money.
D •
Industrial Disputes Act, 1947-Section 25-FF, Held, Employees of
private company purchased by Electricity Board-Purchased money
paid-Such employees have no right to claim any compensation from the
Board nor any right to claim continuous employment on same temis and
conditions.
E
The Asansol Electricity Company's licence was revoked and the
nndertaking was taken over by the West Bengal State Electricity Board.
The Employees of the Company were allowed to continue in the service of
the Board. The Board asked the Employees to execnte fresh terms and
f conditions of service. The Employees challenged the decisions of the Board
by filling a writ petition in the High Court. The High Court held that the
Employees were entitled to continne in service. The writ petition was
disposed of certain directions to the Board. The Board preferred an
appeal. The appeal was allo:wed holding that there would be no continuity
in service but employees were entitled to retrenchment compensation in
G accordance with the provisions or Section 25-FF of the Industrial Disputes
Act, 1947. Aggrieved by the said order of the High Court, the Board as well
as the employees have come up in appeal before this Court.

Allowing the appeal or the Board and dismissing the appeal or the
H employees, this Court
116
B.N. MUKHERJEE v. GOVf. OF W.B. 117

HELD: 1. Where an undertaking is sold, upon completion of the sale A
or on the date on which the undertaking is delivered to the purchaser, the
undertaking shall vest in the purchaser free any debt, mortgage or similar
\ybligation of licencee. The debt shall be attached to the purchase money
which was paid by the Board for the undertaking of the company. If the
purchase price paid by the Board is sufficiently large to pay the claims of B
the workmen, then the dues of the workmen should be paid out of the
purchase money. It is not the case of the workmen that the money paid by
the board was not sullicient to pay the erstwhile Employees of the com-
pany. It cannot be said that the board bas any liability to pay the workmen
any amount on account of retrenchment compensation.
c
[120-D-E; 122-A-B]

2. The services of the workmen have been interrupted. Fresh Employ-
ment has been offered by the transferee. The workmen, who had previously
been permanently employed, were offered temporary employment by the
Board. The workmen accepted the offer. There is no legal obligation cast D
upon the Board under the terms of the transfer or otherwise to pay any .
retrenchment compensation to the workmen. The employees have no right
under Sec. 25-FF to claim any compensation from the Board. Nor do they
have any right to claim to be in continuous employment on the same terms
and conditions even after the purchase of the undertaking by the Board.
The High Court in appeal was right in holding that the employees were E
entitled to retrenchment compensation under the provisions of Section
25-FF. But the High Court was in error in holding that Board even after
payment of the purchase price to the transferor-company was liable to pay
retrenchment compensation to the employees. [123-FH; 124-A-B]
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10219 of
1995.

From the Judgment and Order dated 27.2.91 of the Calcutta High
Court in R.M.A.T. No. 1382 of 1988.
G
V.R. Reddy, Additional Solicitor General, S. Hegde, (Dr. Surnant
Bharadwaj for Ms. Mridula Ray Bharadwaj, H.K. Puri, Rajesh Srivastava,
Ujjwal Banerjee, Dilip Sinha, D. Krishnan for the the appearing parties.

The Judgment of the Court was delivered by\ H
118 SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A SEN, J. Asansol Electricity Supply Co. Ltd. (hereinafter described
as 'the Company') was a licensee under the Indian Electricity Act, 1910
and was engaged in the business of generation and distribution of
electricity. On 5th April, 1979 West Bengal Government, in exercise of its
powers under Section4(1) of the Indian Electricity Act, 1910 (hereinafter
described as 'the Act'), revoked the licence of the Company and directed
B
the Company to sell the undertaking to the West Bengal State Electricity
Board (hereinafter described as 'the Board') on 16th April, 1979. Pursuant
to the said order, the Deputy Chief Engineer (Commercial) took over the
said undertaking on behalf of the Board on 16th April, 1979. The
employees of the Comp.any were allowed to continue in the service of the
C Board.

After an interval of about twenty days, on 5th May, 1979 the Board
asked the employees to execute a form containing fresh terms and condi-
tions of service which, according to the employees, amounted to fresh
appointments under the Board. Such appointments were to be temporary
D and/or provisional appointments, initially for a period of three months. The
further continuance of the writ petitioners in the service of the Board was
to depend on their suitability for appointment under the Board. It was
further stipulated that the employees would not be entitled to the benefit
of their p~st service under the Company. For all practical purposes, the
E employees were to be treated as fresh appointees on and from 16th April,
1979, that is, from the date of take over of the undertaking by the Board.

The employees challenged the decision of the Board to treat the
employees as fresh appointees by a writ petition to the High Court. By
judgment and order dated 12th April, 1988 Justice Ajit Kumar Sengupta
F held that the employees were entitled to continue in their service despite
the change in ownership of the undertaking. The employees could not be
deprived of the benefits which they had been enjoying before the under-
taking was taken over by the Board. The writ petition was disposed of by
giving, inter alia, the following directions :
G
"(a) The respondent shall treat the petitioners to be in continuous
service for the purpose of assigning seniority with effect from
16th April, 1979.

(b) The basic pay of the petitioners and other admissible allowan-
H ces shall be fixed taking into account the total length of service
B.N. MUKHERJEE v. GOVT. OFW.B. [SEN.J.) 119

under the erstwhile Company as well as under the Board. A
(c) Certified Standing Order of the erstwhile Company shall
remain in force so far as the petitioners are concerned.

( d) Amount of gratuity shall be calculated for the petitioners who
have already retired or would be retiring taking into account B
their entire period of service i.e. from the date of initial
appointment under the Company.

(e) If any of the petitioners was entitled lo bonus for the period
1978-79 such bonus shall be awarded to the petitioners.
c
(f) Retrenchment benefit shall be given to the petitioners as
admissible if the petitioners are treated as retrenched.

(g) The respondents shall pay the petitioners the arrears of pay
and allowances after fixation of pay and allowances taking
into account their entire service period. 11 D

Sengupta, J. however, directed that this order would not be treated as a
precedent.

The Board preferred an appeal against the decision of Sengupta, J.
The Appeal Court allowed the appeal and held that there could be no E
continuity of service after the taking over of the management. The services
of the employees were terminated by operation of Section 25FF of the
Industrial Disputes Act, 1947.

The Appeal Court, however, directed that employees entitled to F
retrenchment compensation in accordance with the provisions of Section
25FF of the Industrial Disputes Act, 1947. The Board was directed to pay
such compensation to the employees within a period of eight weeks from
the date of communication of the order passed by the Court. Aggrieved by
the said order of the High Court, the Board as well as the employees have G
come up in appeal before this Court.

So far as the Board is concerned, it is their case that the company
had gone into liquidation and the Board had paid to the Official Liquidator
Rs. 54,50,350, Rs. 8,00,000 and Rs. 46,50,350 during the period 1.9.83 to
6.5.88. According to the Board, the burden of payment of amount of H
120 SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A compensation under Section 25FF of the Industrial Disputes Act, 1947 will .
be on the Company. The purchase price paid by the Board was more than
adequate for making full payment of compensation to the employees. The
Board had given fresh employment to the employees after taking over of
the undertaking and, thereafter, has been regularly paying salaries and
B other benefits to the employees from the date of their appointment under
the Board. Neither in fact nor in law, the employees could be treated as in
continuous service in spite of the change in management.

In our view, the contention of the Board must be upheld in the facts
of this case.
c
Under Section 3 of the Indian Electricity .Act, 1910, the State
Government may grant licence to any person to supply energy in a specified
area. Such licence can be revoked under Section 4 in publish interest in
certain specified cases. Clause (c) of sub-section (1) of Section 5 enables
D the State Government, after revocation of licence under Section 4, to
require the licensee to sell the undertaking to the State Electricity Board,
if the State Electricity Board is willing to purchase the undertaking. Section
7 provides that where an undertaking is sold under Section 5 or Section 6,
then upon the completion of the sale or on the date on which the under-
E taking is delivered to the purchaser, the undertaking shall vest in the
purchaser free from any debt, mortgage or similar obligation of the licensee
or attaching to the undertaking. There is a proviso to sub-section (i) of
Section 7 which lays down that "any such debt, mortgage or similar obliga-
tion shall attach to the purchase money in substitution for the undertaking".
Likewise, under sub-section (ii) the rights, powers, authorities, duties and
F
obligations of the licensee under his licence shall stand transferred to the
purchaser and such purchaser shall be deemed to be the licensee. Section
7A deals with determination of purchase price. Section 7B was inserted by
West Bengal Act 39 of 1984 to safeguard the interest of the employee of
an undertaking which is being sold. Section 7B lays down :
G
"7B. Special provision for safeguarding the interest of the employee.
- (1) Notwithstanding anything to the contrary contained elsewhere
in this Act or in any other law for the time being in force, where
an undertaking is sold under Section 5 or Section 6, any amount
H that may be due on account of salary or wages, leave-salary or
B.N. MUKHERJEE v. GOVf. OFW.B. (SEN,J.] 121
leave wages, bonus, gratuity, retrenchment comp1>nsation, con- A
tribution to provident fund or on similar or other amount from the
licensee to the employee in the affairs of the undertaking on the
date of completion of the sale or on the date on which the .
undertaking is delivered to the intending purchaser under sub-sec-
tion (3) of Section 5 or sub-section (6) of Section 6, as the case B
may be, whichever is earlier, shall be deemed to be a debt due to
the employee.

(2) The debt referred to in sub-section (1) shall, on adjustment
of the amount, if any, due from the employee to the licensee on
the date referred to in sub-section (1), have preference to all other C
debts and obligations except mortgage, and shall be payable out
of the purchase· price after deduction therefrom of the amount that
may be due from the licensee under mortgage, if any.

(3) If, however, the purchase price, after deduction therefrom
of the amount that may be due under mortgage, if any, falls short, D
wholly or in part, of the debt due on adjustment to the employee,
the purchaser or the intending purchaser, as the case may be, shall
be liable to pay such debt due to the employee to the extent of
such shortage.
E

( 11) The provisions of this section shall also apply to an
undertaking which has been sold under Section 5 or Section 6 but
the sale has not been completed prior to the date of commence-
ment of the Indian Electricity (West Bengal Amendment) Act, F
1980.

Provided that the sale of the undertaking shall not be deemed
to be completed if the purchase price, if payable after deducting
the claim of the employees of the licensee from the consideration G
money, has not been paid to the licensee in full and final settlement
of the claim."

The effect of sub-section (1) of Section 7B is to protect the dues on
account of salary, wages, leave-salary or leave wages, bonus, gratuity,
retrenchment compensation, contribution to general provident fund, etc. to H
122 SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R.

A be a debt due to the employee. That means such debt shall attach to the
purchase money which was paid by the Board for the undertaking of the
Company. But the undertaking shall vest in the Board free from any debt,
mortgage or similar obligation under Section 7 of the Act. In other words,
if the purchase price paid by the Board is sufficiently large to pay the
B claims of the workmen, then the dues of the workmen should be paid out
of the purchase money. It is not the case of the workmen here that money
paid by the Board was not sufficient to pay the erstwhile employees of the
Company. Therefore, in the facts of this case, it cannot be said that the
Board has any liability to pay the workmen any amount on account of
C retrenchment compensation.

On behalf of the employees, our attention was drawn to Section 25FF
of the Industrial Disputes Act, which provides :

"25FF. Compensation to w01*men in case of transfer of undertakings.
- Where the ownership or management of an undertaking is trans-
D
ferred, whether by agreement or by operation of law, from the
employer in relation to or that undertaking to a ne\v employer,
every workman who has been in continuous service for not less
than one year in that undertaking immediately before such transfer
shall be entitled to notice and compensation in accordance with
E the provisions of section 25F, as if the workman had been
retrenched:

Provided that nothing in this section shall apply to a workman
in any case where there has been a change of employers by reason
of the transfer, if -
F
(a) the service of the workman has not been interrupted by
such transfer :

(b) the terms and conditions of service applicable to the
workman after such transfer are not in any way less
G favourable to the workman than those applicable to him
immediately before the transfer; and

(c) the new employer is, under the terms of such transfer
or otherwise, legally liable to pay to the workman, in
H the event of his retrenchment, compensation on the
B.N. MUKHERJEE v. GOVT. OFW.B. [SEN,J.] 123
basis that his service has been continuous and has been A
interrupted by the transfer."

This section declares the right of the workman, who has been in
continuous service for not less than one year in an undertaking, to notice
and compensation in accordance with the provisions of Section 25F in a
case where the ownership and management of an undertaking is trans- B
ferred by agreement or operation of law to a new employer. In such a case,
by legal fiction, the workman is treated as if he had been retrenched. The
proviso to Section 25FF lays down that nothing in Section 25FF will apply
to a workman where there has been a change of employer by reason of the
transfer of the undertaking if three conditions laid down in the proviso are c
fulfilled. The three conditions are :

(a) the service of the workman has not been interrupted by such
transfer;

(b) the terms and conditions of service applicable to the workman D
after such transfer are not in any way less favourable to the
workman than those applicable to him immediately before the
transfer; and

(c) the new employer 1s, under the terms of such transfer or E
otherwise legally liable to pay to the workman, in the event of his
retrenchment, compensation on the basis that his service has been
continuous and has been interrupted by the transfer."

None of these conditions has been fulfilled in this case. The service
of the workmen has been interrupted. Fresh employment has been offered F
by the transferee. The workmen, who had previously been permanently
employed, were offered temporary employment by the Board. The
workman accepted the offer. There is no legal obligation cast upon the
Board under the terms of the transfer or otherwise to pay any retrenchment
compensation to the workmen. Therefore, the employees have no right G
under Section 25FF to claim any compensation from the Board. Nor do
they have any right to claim to be in continuous employment on same terms
and conditions, even after the purchase of the undertaking by the Board.
The High Court in appeal was right in holding that the employees were
entitled to retrenchment compensation under the provisions of Section H
124 SUl'REME COURT REPORTS [1996] SUPP. 9 S.C.R.

A 25FF. But the High Court was in error in holding that the Board even after
payment of the purchase price to the transferor-Company was liable to pay
retrenchment compensation to the employees. The assertion of the Board
that the purchase money was more than adequate to pay retrenchment
compensation to the employees has not been denied.
B In view of the aforesaid, we allow Civil Appeal No. 10220 of 1995,
preferred by the Board, and dismiss Civil Appeal No. 10219 of 1995,
preferre4by the employees. There will be no order as to costs in both these
appeals:

S.V.K.I. Appeal No. 10220/95 allowed
and C.A. No. 10219/95 dismissed.