Supreme Court of India
M/S. OSWAL AGRO FURANE LTD. AND ANR.versusOSWAL AGRO FURANE WORKERS UNION AND ORS.
- Citation
- 2005 INSC 78
- Decided
- 14 February 2005
- Disposal
- Dismissed
- Bench
- N SANTOSH HEGDE
Holding
Prior permission under Sections 25‑N and 25‑0 is a mandatory condition precedent and a settlement cannot override these statutory requirements; the appeal is dismissed.
Summary
The Supreme Court examined whether an employer could close an industrial undertaking and retrench workmen without obtaining prior permission from the appropriate Government, and whether a settlement reached between the parties could override the statutory requirements of Sections 25‑N and 25‑0 of the Industrial Disputes Act, 1947. The appellant, Oswal Agro Furane Ltd., had closed its unit and entered into a settlement with the workers' union without seeking the mandatory permission. The Court held that the provisions of Sections 25‑N and 25‑0 are imperative conditions precedent; a settlement is only valid if the closure or retrenchment complies with these statutory requirements. Any agreement contrary to public policy under the Act is void under the maxim ex turpi causa non oritur actio and the Contract Act, 1872. Consequently, the appeal was dismissed.
Issues considered
- Whether prior permission of the appropriate Government is mandatory before closing an industrial undertaking or retrenching workmen under Sections 25‑N and 25‑0 of the Industrial Disputes Act, 1947.
- Whether a settlement arrived at between employer and workmen can prevail over the mandatory statutory requirements of Sections 25‑N and 25‑0.
Legislation cited
- Constitution of Indias. Article 254
- Indian Contract Act, 1872s. 23
- Industrial Disputes Act, 1947s. 12(3), s. 18(3), s. 25(0), s. 25(1), s. 25(C), s. 25(F), s. 25(J), s. 25(N), s. 25(S), s. 2(p), s. 2(s)
Subjects
closure of industrial undertakingretrenchmentprior permissionIndustrial Disputes Actsettlementpublic policystatutory requirementvoid agreementlabour law
Judgment
A 'M/S. OSWAL AGRO FURANE LTD. AND ANR.
• t I • ~
v.
OSWAL AGRO FURANE WORKERS uNiON AND ORS.
FEBRUARY'l4, 2005 ..
. [N. SANTOSH HEGDE AND S.B. SINHA, JJ.] ·
Labour Laws :
Industrial Disputes Act, 1947; Ss. 2(P), 2(S), 12(3), 18(3), 25(1), 25(0)
C and 25(N):
Closure of an industrial undertaking and retrenchment of workmen-
Requirements of-Held: Employer bound to seek prior permission from
appropriate Government before effecting closure of Undertaking-Interest of
D workmen has to be taken into consideration by the appropriate Government
before granting/refusing such permission-Since 'statutory requirements are
imperative in character, they prevail over right of parties to arrive at a
settlement-Settlement arrived at between employer and workmen did not
conform to statutory conditions and public policy in terms ofrelevant mandatory
provisions of the Act-Hence void-Contract Act, 1872-Section 23.
l
E
Legal Maxims :
Maxim "ex turpi causa non oritur action"-Applicability of
The questions which arose for determination in this appeal were as
F to whether in case of closure of an Industrial Undertaking, prior
permission of the appropriate Government is imperative and as to whether
a settlement arrived at between the employer and the workmen would
prevail over the statutory requirements as contained in Section 25-N and
Section 25-0 of the Industrial Disputes Act.
G It was contended by the appellant-Undertaking that having regard
to the purport and object of the Industrial Disputes Act, a settlement
arrived at in the course of conciliation proceedings within the meaning of
sub-section (3) of Section 12 of the Act is binding on all workmen in terms
of Section 18 of the Act; that in view of such a settlement, the writ petition
H 94
OS WAL AGRO FURANE LTD. 1·. OS WAL AGRO FURANE WORKERS UNION 95
~ filed by the Respondents was not maintainable; and that the 11011-obstante A
clause contained in Section 25-J occurring in Chapter V-A will have no
application to a proceeding contained in Chapter V-B thereof.
Respondent-workmen's Union submitted that the provisions of
Section 25-N and 25-0 of the Act are imperative in character.
B
Dismissing the appeal, the Court
JM-
HELD : 1. The provisions contained in Sections 25-N and 25-0 of
the Industrial Disputes Act leaves no manner of doubt that the employer
who intends to close down the undertaking and/or effect retrenchment of
workmen working in such industrial establishment, is bound to apply for c
prior permission at least ninety days before the date on which the intended
closure is to take place. They constitute conditions precedent for effecting
a valid closure. Obtaining a prior permission form the appropriate
Government, thus, must be held to be imperative in character. {101-G-H)
2.1. A settlement can be arrived at between the employer and D
workmen in case of an industrial dispute. An industrial dispute may arise
as regard the validity of a retrenchment or a closure or otherwise. Such a
settlement, however, as regard retrenchment or closure can be arrived at
.I-
provided such retrenchment or closure has been effected in accordance
with law. One of the factors which is required to be taken into E
consideration by the appropriate Government before grant or refusal of
such permission is the interest of the workmen. 1102-C, El
2.2. Requirements of issuance of a notice in terms of Section 25-N
and 25-Q of the Act, and/or a decision thereupon by the appropriate
Government are clearly suggestive of the fact that thereby a public policy F
has been laid down. These provisions being imperative in character would
prevail over the right of the parties to arrive at a settlement. Such a
settlement must conform to the statutory conditions laying down a public
policy. A contract which may otherwise be valid, however, must 11atisfy
the tests of public policy not only in terms of the provisions of the
I Industrial Disputes Act but also in terms of Section 23 of the Contract
G
Act. 1102-D-E-Fl
,..-
2.3. It is trite that having regard to the maxim ''ex turpi causa non
oritur action", an agreement which opposes public policy as laid down in
terms of Section 25-N and 25-0 of the Act would be void and of no effect. H
96 SUPREME COURT REPORTS [2005] 2 S.C.R.
A The Parliament has acknowledged the governing factors of such public
policy. Furthermore, the imperative character of the statutory
requirements would also be borne out from the fact that in terms of sub-
section (7) of Section 25-N and sub-section (6) of Section 25-0 of the Act,
a legal fiction has been created. (102-GI '
B P. Virudhachalam and Ors. v. Management of Lotus Mills and Anr.,
(1998( 1SCC650 and Engineering Kamgar Union v. Electro Steels Castings
ltd. & Anr., (2004) 6 SCC 36, disti!'guished.
Om Hemrajani v. State of U.P. and Anr., (20051 1 SCC 617 and Mis.
C Maruti Udyog Ltd. v. Ram Lal and Ors., (2005) 1 SCALE 585, referred to.
East End Dwellings Co. Ltd. v. Finsbury Borough Council, (1951) 2 All
ER 587, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1469of1999.
D From the Judgment and Order dated 10.7.98 of the Punjab and Haryana
High Court in C.W.P. No. 8214of1997. :· .
,,
P.N. Puri and Alok Aggarwal fo~ the Appellants.
Himinder Lal for the' Respondents.
E ·'
The Judgment of the Court was delivered by 1
.,
S.8. SINHA, J. INTRODUCTION :
Whether in a case of closure of an industrial undertaking, prior
F permission of the appropriate Government is imperative and whether a
settlement arrived at by and between the employer and the workmen would
prevail over·the statutory requirements as contained in Section ·25-N and
Section 25-0 of the Industrial Disputes Act, 1947 ('the Act', for short) are
the primal questions involved in this appeal which arises from a judgment
and order passed by a Division Bench of the Punjab and Haryana High Court
G dated 10.7:1998 in CWP No. 8214 of 1997 allowing the writ petition filed
by the Respondents herein.
BACKGROUND FACTS: ..
The Appellant's. industrial undertaking was set up as. a I 00% Export
H
OSWAL AGRO FURANE LTD. 1·. OSWAL AGRO FURANE WORKERS UNION (SINHA, J.) 97
Oriented Unit for Paddy Processing, Furfural and Rice Bran Extraction. A
Allegedly, in view of lack of demand in the international market of its product,
Rice Bran Oil was sold by it in the local market, wherefor no .Registration-
cum-Allocation Certificate below the minimum price was obtained. The said
purported statutory violation was the subject-matter of a writ petition filed by
the Appellant herein before the Delhi High Court which was allowed.
B
The matter came up for consideration before this Court and in its
judgment rendered in Agricultural and Processed Food Products etc. v. Oswal
Agro Furane and Ors. etc., [ 1996] 4 SCC 297 this Court held that the Appellant
is liable to pay a sum of Rs. fifty crores under different heads to the State.
- Allegedly, on the ground such a huge liability had been incurred, a notice
dated 29.5.1996 was issued to the State Government in terms of Section 25-
0 of the Act. Notices were also issued to the workmen on 12.6.1996 whereupon
C
a purported settlement was arrived at on or about 14.6.1996 in terms of
Section 12(3) of the Act. The Respondents herein questioned the said settlement
by filing a writ petition which, as noticed hereinbefore, was allowed.
D
HIGH COURT:
The High Court in its impugned judgment arrived at the following
findings :
l. As the Management had not applied for prior permission to close E
down the industrial undertaking as is mandatorily required under Section 25-
0 of the Act, the purported notice dated 29 .5 .1996 was illegal.
2. The closure of the industrial undertaking of the Appellant being
illegal, the workmen were entitled to all the benefits in terms of sub-section
(6) of Section 25-0 of the Act. Although the settlement dated 14.6.1996 took F
place as a result of the purported closing down of the industry, a valid closure
itself being a foundation of such settlement and it being illegal and void and,
thus, cannot be sustained in law.
3. Closure of the industrial undertaking resulting in retrenchment as
contained in Section 25-N of the Act envisages fulfillment of two conditions G
precedent therefor, namely, (I) three months' notice/notice pay in lieu thereof;
.- and (2) prior permission of the appropriate Government and both being
mandatory in nature; the retrenchment of the workmen was illegal as prior
permission therefor had not been sought from the State.
H
98 SUPREME COURT REPORTS [2005] 2 S.C.R.
A 4. The provisions of Sections 25-J, 25-N and 25-F should be read
conjointly with Section 25-N of the Act.
5. Although Section 18 of the Act makes a settlement binding on all
workmen but such settlement cannot be entered into in contravention of the
provisions of Chapters VA and VB of the Act.
B
SUBMISSIONS :
Mr. P.N. Puri, the learned counsel appearing oil behalf of the Appellant
would ·submit that having regard to the purport and object of the Industrial
Disputes Act , a settlement arrived at in course of conciliation proceedings
C within the meaning of sub-section (3) of Section 12 of the Act being binding
on all workmen in terms of Section 18 thereof; the High Court committed ari
error in passing the impugned judgment. The learned counsel would contend
that in view of such a settlement, the writ petition filed by the Respondents
was not maintainable. Strong reliance in this behalf has been placed on P.
D Virudhacha/am and Ors. v. Management of Lotus Mills and Anr., [1998] l
sec 650. The learned counsel would further urge that the non-obstante clause
contained in Section 25-J occurring in Chapter V-A will have no ·application
in relation to a proceedings contained in Chapter V-B thereof. Reliance in
this behalf was placed on Engineering Kamgar Union v. Electro Steels Castings
Ltd. and Anr., [2004] 6 SCC 36.
E
Mr. Himinder Lal, the learned counsel appearing on behalf of the
Respondents, on the other hand, would submit that the provisions of Sections
25-N and 25-0 are imperative in character.
THE RELEVANT PROVISIONS OF THE ACT :
F
Section 2(p) defines. a settlement as one arrived at in the course of
conciliation proceedings and includes a written agreement by and between
the employer and workmen entered into otherwise than in the course of
conciliation proceeding where such agreement has been signed by the parties
thereto in such manner as may be prescribed and a copy thereof has been sent
G to an officer authorized in this behalf by the.appropriate Government and the
conciliation officer. Section I 2 of the Act provides for duties of conciHation
officers. Sub-section (3) thereof provides that if a settlement of the dispute
or of any of the matters in dispute is arrived at in the course of the conciliation
proceedings the conciliation officer shall .send a report t_hereof to the
'H .appropriate Government together with a memorandum of the settlement signed
OSWAL AGRO FU RANE LTD. 1·. OSWAL AGRO FURANE WORKERS UNION [SINHA, J.] 99
by the parties to the dispute. Section 18 of the Act provides for the binding A
nature of such settlement, sub-section (3) whereof reads as under :
"(3) A settlement arrived at in the course of conciliation
proceedings under this Act or an arbitration award in a case where a
notification has been issued under sub-section (3A) of section I OA or
an award of a Labour Court, Tribunal or Nati._na: Tribunal which has B
become enforceable shall be binding on
(a) all parties to the industrial dispute;
(b) all other parties summoned to appear in the proceedings as parties
to the dispute, unless the Board, arbitrator, Labour Court, Tribunal C
or National Tribunal, as the case may be, records the opinion
that they were so summoned without proper cause;
(c) where a party referred to in clause (a) or clause (b) is an employer,
his heirs, successors or assigns in respect of the establishment to
which the dispute relates;
D
(d) where a party referred to in clause (a) or clause (b) is composed
of workmen, all persons who were employed in the establishment
or part of the establishment, as the case may be, to which the
dispute relates on the date of the dispute and all persons who
subsequently become employed in that establishment or part."
E
Section 25-N of the Act lays down conditions precedent to retrenchment
of workmen whereas Section 25-0 provides for the procedure for closing
down an undertaking of an industrial establishment. Section 25-N of the Act
·fays down two conditions before a retrenchment of workman can be effected
which are : (a) the workman has been given three months' notice in writing
indicating the reasons for retrenchment or paid in lieu such notice wages for
F
the said period; and (b) the prior permission of the appropriate Government
has been obtained by the employer on an application made in thi.s behalf.
Sub-section (2) of Section 25-N provides for the manner in which the
application for permission under sub-section (I) is required to be made. Sub-
section (3) of Section 25-N postulates grant or refusal of such permission by G
the appropriate Government upon making such enquiry as it may think fit
after giving a reasonable opportunity of being heard to the employer, the
workmen concerned and the persons interested in such retrenchment, and
also having regard to the genuineness and adequacy of the reasons stated by
the employer, the interests of the workmen and all other relevant factors. H
100 SUPREME COURT REPORTS (2005) 2 S.C.R.
A Sub-section (4) of Section 25-N provides that when an order passed by the
appropriate Government is not communicated within a period of sixty days
from the date on which such application is made, the permission applied for
shall be deemed to have been granted on the expiration of the said period.
Sub-section (7) of Section 25-N provides for the consequences emanating
B from non-making of application for permission under sub-section (l) or where
such permission has been refused, stating the retrenchment of the workman
shall be deemed to be illegal from the date on which the notice of retrenchment
was given to the workman and the workman shall be entitled to all the
benefits under any law for the time being in force as if no notice had been
given to him .. The only exception provided for as regard grant of exemption
C from the operation thereof is contained in sub-section (8) thereof i.e. in a case
where the appropriate Government is satisfied that owing to such exceptional
• circumstances as accident in the establishment or death of the employer or
the like, it may by order direct that the provisions of sub-section (l) shall not
apply in relation to such establishment.
D Section 25-0 of the Act contains similar provisions as regard issuance
of such notice and passing of an order by the appropriate Government.
DETERMINATION :
It is ~ot in dispute that the Appellant herein did not ask for grant of
E such prior permission before the appropriate Government disclosing its
intention to effect closure of the said unit and such question of grant of prior
permission .by the State did not arise.
Constitutionality of Section 25-N of the Act came up for consideration
before a Constitution Bench of this Court in Workmen of Meenakshi Mills
F Ltd and Ors. etc. V. Meenakshi Mills Ltd and Anr. etc. [1992] 3 sec 336,
wherein inter a/ia, a contention was raised that Section 25-0 as it originally
stood having been declared unconstitutional by this Court in Excel Wear etc.
v. Union of India and Ors. etc., [1978] 4 SCC 224 holding that an employer
has a fundamental right not to carry on any business, Section 25-N on the
G same analogy should be held to be ultra vires. In Meenakshi Mills (supra)
this Court noticed the distinguishing features between Sections 25-N and 25-
0 as originally enacted and the amendments effected therein in terms of the
Industrial Disputes (Amendment) Act, 1984.
The following contentions rai_sed therein by the learned counsel appearing
H on behalf of the employer were noticed by this Court :
OSWAL AGRO FURANE LTD. 1·. OSWAL AGRO FURANE WORKERS UNION [SINHA,J.] J Q)
"(!) Adjudication by a judicial body available in the case of A
retrenchment under Section 25-F has been substituted by an
administrative order passed by an executive authority in the case of
retrenchment under Section 25-N and thereby a function which was
traditionally performed by Industrial Tribunafs/Labour Courts has been
conferred on an executive authority.
B
(II) No guidelines have been prescribed for the exercise of the
power by the appropriate Government or authority under sub-section
(2) of Section 25-N and it would be permissible for the authority to
pass its order on policy considerations which may have nothing to do
with an individual employer's legitimate need to reorganize its C
business. The requirement that reasons must be recorded by the
appropriate Government or authority for its order under sub-section
(2) of Section 25-N is not a sufficient safeguard against arbitrary
action since no yardstick is laid down for judging the validity of
those reasons.
D
(III) There is no provision for appeal or revision against the order
passed by the appropriate Government or authority refusing to grant
permission to retrench under sub-section (2) of Section 25-N Judicial
review under Article 226 of the Constitution is not an adequate remedy.
(IV) The provisions are ex facie arbitrary and discriminatory E
inasmuch as while the workmen have a right to challenge, on facts,
the correctness of an order passed under sub-section (2) granting
permission for retrenchment before the Industrial Tribunal by seeking
a reference under Section I 0 of the Act, the management does not
·have a similar right to challenge the validity of an order passed under
sub-section (2) refusing to grant permission for retrenchment." F
This Court rejected all the aforementioned contentions and upheld the
constitutionality of the said Act.
A bare perusal of the provisions contained in Sections 25-N and 25-0
oftht· Act leaves no manner of doubt that the employer who intends to close G
down the undertaking and/or effect retrenchment of workmen working in
such in•iustrial establishment, is bound to apply for prior permission at least
ninety days before the date on which the intended closure is to take place.
They co~stitute conditions precedent for effecting a valid closure, whereas
the provis:ons· of Section 25-N of the Act provides for conditions precedent H
102 SUPREME COURT REPORTS [2005) 2 S.C.R.
A to retrenchment; Section 25-0 speaks of procedure for .closing down an
undertaking. Obtaining a prior permission from the appropriate Government,
thus, must be held to be imperative in character.
A settlement within the meaning of Section i(p) read with sub-section
(3) of Section 18 of the Act undoubted.ly binds the workmen but the question
B which would arise is, would it mean that thereby the provisions contained in
Sections 25-N and 25-0 are not required to be complied with? The answer
to the said question must be rendered in the negative. A settlement can be
arrived at between the employer and workmen in case of an industrial dispute.
An industrial dispute may arise as regard the validity of a retrenchment or a
C closure or otherwise. Such a settlement, however, as regard retrenchment or
closure can be arrived at provided such retrenchment or closure has been
effected in accordance with law. Requirements of issuance of a notice in
terms of Sections 25-N and 25-0, as the case may, and/or a decision thereupon
by the.appropriate Government are clearly suggestive of the fact that thereby
a public policy has been laid down. The State Government before granting
D or refusing such permission is not only required to comply with the principles
of natural justice by giving an opportunity of hearing both to 'the employer
and the workmen but also is required to assign reasons in support thereof and
is also required to pass an ·order having regard to the several factors laid
down therein. One of the factors besides others which is required to be taken
E into consideration by the appropriate Government before grant or refusal of
such permission is the inte.,rest of the workmen. The aforementioned provisions
being imperative in character would prevail over the right of the parties to
arrive at a settlement. Such a settlement must conform to the statutory
conditions laying down a public policy. A contract which may otherwise be
valid, however, must satisfy the tests of public policy not only in terms of the
F aforementioned provisions but also in terms of. Section 23 of the Indian
Contract Act.
It is trite that having regard to the maxim "ex turpi causa non or{tur
actio ", an agreement which opposes public policy as laid down in terms of
Sections 25-N -and 25-0 of the Act would be void and of no effect. The
G Parliament has acknowledged the governing factors of such public ri'olicy.
Furthermore, the imperative character of the statutory requirements would
also be borne out from the fact that in terms of sub-section (7) of Section 25-
N and sub-section (6) of Section 25-0, a legal fiction has been crerlted, The
effect of such a legal fiction is now well-known. [See East End tJwel/ings
H Co. Ltd. v. Finsbury Borough Council, [1951] 2 All ER 587, Om:Hemrajani
OSWAL AGRO FURANE LTD. r. OSWAL AGRO FURANE WORKERS UNION [SINHA. J.] ] 03
v. State of U.P. and Anr., [2005] I SCC 617 and Mis Maruti Udyog ltd. v. A
Ram Lal and Ors., (2005) I SCALE 585].
The consequences flowing from such a mandatory requirements as
contained in Sections 25-N and 25-0 must, therefore, be given full effect.
The decision of this Court in P. Virudhachalam (supra) relied upon by Mr.
Puri does not advance the case of the Appellant herein. In that case, this B
Court was concerned with a settlement arrived at in terms of Section 25-C of
the Act. The validity of such a settlement was upheld in view of the first
proviso to Section 25-C of the Act. Having regard to the provisions contained
in the first proviso appended to Se11tion 25-C of the Act, this Court observed
that Section 25-J thereof would not come in the way of giving effect to such C
settlement. However, the provisions contained in Sections 25-N and 25-0 do
not contain any such provision in terms whereof the employer and employees
can arrive at a settlement.
In Engineering Kamgar Union (supra), the question which fell for
consideration of this Court was as to whether in relation to an industry which D
was governed by the State Act, the provisions of Section 25-0 would be
attracted. This Court held that having· regard to the provisions contained in
Article 254 of the Constitution of India, the provisions of the State Act shall
prevail over the Parliamentary Act as the former received the assent of the
President of India stating :
E
"The contention of Mr. Banerjee to the effect that Section 25J of
the Central Act has been incorporated by reference in Section 25S
cannot be accepted. Section 25S does not introduce a non-obstante
clause as regard Chapter V-A. Furthennore, Section 25J is not a part
of Chapter V-B. By reason of Section 25S, the provisions of Chapter F
V-A were made applicable only in relation to certain establishments
referred to in Chapter V-B. The Parliament has deliberately used the
words "so far as may be" which would also indicate that provisions
of Chapter V-A were to apply to the industrial establishments
mentioned in Chapter V-B. The non-obstante clause contained in
Section 25J does not apply to the entire Chapter V-8. Applicability G
of Chapter V-A in relation to the industrial establishments covered by
Chapter V-B in terms of Section 25J vis-a-vis Section 25S is
pennissible but the contention cannot be taken any further so as to
make Section 250 of the Central Act prevail over the State Act by
taking recourse to the non-obstante clause. Non-obstante clause
H
104 SUPREME COURT REPORTS {2005] 2 S.C.R.
A contained in Section 251 is, thus, required to be kept confined to
Chapter V-A only and in that view of the matter we have no hesitation
in holding that Chapter V-B does not have an overriding effect over
•
I
the State Act."
Indisputably, in this case, the industrial undertaking belonging to the
B Appellant herein attracts the provisions of Chapter VB of the Act and
consequently the provisions referred to in Section 2(s) including Section 25J
shall apply in relation thereto.
!he decision of this Court in Engineering Kamgar Union (supra) thus,
must be understood to have been rendered in the fact situation obtaining
c therein.
CONCLUSION :
For the reasons aforementioned, we do not find any merit in this appeal
which is accordingly dismissed. However, in the facts and circumstances of
D the case, there shall be no order as to costs.
S.K.S. Appeal dismissed.
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