Holding

Section 25FF does not require employee consent, no fraud was established, and the transfer does not attract the provisions of Section 25FF as the proviso conditions are satisfied.

Summary

Mettur Beardsell Ltd, facing financial difficulties, transferred its textile operations to its wholly‑owned subsidiary Mettur Textile Pvt. Ltd. The workers were individually notified and several unions entered into settlements under Section 12(3) of the Industrial Disputes Act, agreeing to become employees of the subsidiary. The workmen contended that they remained employees of the original company and filed claims before the Industrial Tribunal, which rejected them. The Madras High Court reversed, holding the workers were still employees of Beardsell and that the transfer was fraudulent. The Supreme Court held that Section 25FF does not require employee consent, that no specific averments of fraud were made, and that the proviso to Section 25FF applied because service was uninterrupted, terms were unchanged, and compensation was guaranteed. Consequently, the transfer was valid, the High Court’s findings were set aside, and the appeals were allowed with directions for payment of entitlements.

Issues considered

Whether a transfer of undertaking under Section 25FF of the Industrial Disputes Act, 1947, occurred in the present facts.
Whether the alleged transfer was vitiated by fraud.
Whether the consent of the employees is a prerequisite for a transfer of undertaking under Section 25FF.

Legislation cited

Industrial Disputes Act, 1947s. 12(3), s. 25FF, s. 33(C)(2)

Subjects

Transfer of undertakingSection 25FFEmployee consentFraudIndustrial disputeRetrenchment compensationLabour law

Judgment

MANAGEMENT, METIUR BEARDSELL LTD. A
v.
WORKMEN OF METTUR BEARDSELL. LTD. & ANR.
: ·~ ; : .
APRIL 26, 2006

[ARIJIT PASAYAT AND TARUN CHATIERJEE, JJ.] B

Labour Laws:

Industrial Disputes Act, I 947:
c
Section 25FF-Transfer of undertaking-Consent of employees-
Requirement of-Plea offraud-Specific averments-Adducing of-Company
after successfully conducting operations faced financial problems-A resolution
was, therefore, passed to hive off its textile operation by entrusting it to its
wholly owned subsidiary Textile Company-The workers were informed about D
the transfer-The employees of the Integrated Textile Division were informed
individually about the arrangement and their absorption without c.hange in
the conditions of service-Several unions entered into a settlement under S
12(3) agreeing to continue as employees of subsidiary Textile Company and
not of the Company-The workmen filed a case before the Industrial Tribunal
asserting that they continued to be the workmen of the Company-Industrial E
Tribunal rejected the claims of the workmen-However, High Court held that
the workmen should be treated as employees of the Company with all
consequential benefits and that the entire! arrangement of transfer was with
oblique motives-Correctness of-Held: The underlying purpose of S. 25FF
is to establish a continuity of service and to secure benefits otherwise not p
available to a workman if a break in service to another employer was
accepted-Therefore, consent of employees is not a pre-requisite of transfer
of undertaking-In order to establish fraud there has to be specific averments
or materials adduced to establish the same-In the instant case there was no
specific averment in that regard and in any event no evidence was led--
Hence, transfer is not vitiated hy fraud. G
Words & Phrases:

"Transfer of undertaking"-Meaning of-In the context of S 25FF of
the Industrial Disputes Act, 1947.
359
H
360 SUPREME COURT REPORTS (2006] SUPP. I S.C.R.

A The appellant started business in 1936 and conducted operations
successfully till 1970, when it faced financial problems. A resolution was,
therefore, passed to hive off its textile operation by entrusting it to its
wholly owned subsidiary Textile Company. The workers were informed
about the transfer. An agreement was entered into amongst the appellant,
B Textile and one investment company. The employees of the Integrated
Textile Division were informed individually about the arrangement and
their absorption without change in the conditions of service. Several unions
entered into a settlement under Section 12(3) of the Industrial Disputes
Act, 1947 agreeing to continue as employees of Textile and not of the
appellant.
c
The respondents-workmen filed a case before the Industrial Tribunal
asserting that they continued to be the workmen of the appellant. The
Tribunal rejected the claims of the workmen. The High Court held that
the respondents-workmen should be treated as employees of the appellant
with all consequential benefits. However, a letter was sent by Textile
D Company intimating each respondent-workman that he was being
retrenched. The respondents-workmen challenged the retrenchment before
the Industrial Tribunal, which was rejected. However, the High Court
allowed the writ petition holding that the respondents-workmen continued
to be the employees of the appellant and that the entire arrangement of
E transfer was with oblique motives. Hence the appeal.

The following questions arose before the Court:-

(1) Whether was there a transfer of undertaking under Section 25FF
of the Industrial Disputes Act, 1947?
F
(2) Whether this transfer was vitiated by fraud?

(3) Whether consent of the employees was required in a case of
transfer of undertaking under Section 25FF of the Industrial Disputes Act,
1947?
G
Disposing of the appeal, the Court

HELD: t. There is nothing in the wordings of Section 25FF of the
Industrial Disputes Act, 1947 even remotely to suggest that the consent
of the employees is a pre-requisite for transfer. The underlying purpose
H of Section 25FF is to establish a continuity of service and to secure benefits
MANAG., METrtJR BEARDSELLLID. 1•. WORKMEN OFMETIUR BEARDSELL LID. J 61
otherwise not available to a workman if a break in service to another A
employer was accepted. Therefore, absence of the letter of consent of the
individual employee cannot be a ground to invalidate the action.
(368-A-BI

Jawahar/al Nehru University v. Dr. K.S. Jawatkar, (19891 Supp. I SCC
679, referred to. B

2. I. Section 25FF of the Act shows that workmen falling under the
category contemplated by it are entitled to claim retrenchment
compensation in case the undertaking which they were serving and by
which they were employed is transferred. Such a transfer, in law, is C
regarded as amounting to retrenchment of the said workmen and on that
basis Section 25FF gives the workmen the right to claim compensation.
(372-F-G)

Maruti Udyog Limited v. Ram Lal, (20051 2 SCC 638, D.R.
Gurushanatappa v. A.K. Anwar, (19691 I SCC 466 and Management of R.S. D
Madhoram and Sons Agencies (P) ltd v. Its Workmen, (19631 5 SCR 377,
relied on.

2.2. However, the proviso to Section 25FF shows that where the
transfer does not affect the terms and conditions of the employees, does
not interrupt the length of their service and guarantees to them payment E
of compensation, if retrenchment were made, on the basis of their
continuous employment, then Section 25FF of the Act would not apply and
the workmen concerned would not be entitled to claim compensation
merely by reason of the transfer. It is common ground that the three
conditions prescribed by Clauses (a), (b) and (c) of the proviso are satisfied F
in this case, and so, .if Section 25FF were to apply, there can be little doubt
that the appellant would be justified in contending that the transfer was
valid and the employees can make no grievance of the said transfer.
[373-B-DI

2.3. What Section 25FF contemplates is that either the ownership G
or the management of an undertaking should be transferred; normally
this would mean that the ownership or the management of the entire
undertaking should be transferred before Section 25FF comes into
operation. If an undertaking conducts one business, it would normally be
difficult to imagine that its ownership or management can be partially H
transferred to invoke the application of Section 25FF. A business
362 SUPREME COURT REPORTS (2006] SUPP. I S.C.R.

A conducted by an industrial undertaking would ordinarily be an integrated
business and though it may consist of different branches or departments
they would generally be interrelated with each other so as to constitute
one whole business. In such a case, Section 25FF would not apply if a
transfer is made in regard to a department or branch of the business run
B by the undertaking and the workmen would be entitled to contend that
such a partial transfer is outside the scope of Section 25FF of the Act.
(373-D-G[

3. It maybe that one undertaking may run several industries or
businesses which are distinct and separate. In such a case, the transfer of
C one distinct and separate business may involve the application of Section
25FF. The fact that one undertaking runs these businesses could not
necessarily exclude the application of Section 25FF solely on the ground
that all the businesses or industries run by the said undertaking have not
been transferred. It would be clear that in all cases of this character the
distinct and separate businesses would normally be run on the basis that
D they are distinct and separate, employees would be separately employed
in respect of all the said businesses and their terms and conditions of
service may vary according to the character of the business in question.
In such a case it would not be usual to have one muster-roll for all the
employees and the organization of employment would indicate clearly the
E distinctive and separate character of the different businesses. If that be
so, then the transfer by the undertaking of one of its businesses may attract
the application of Section 25FF of the Act. [373-G; 374-A-C[

4.1. In order to establish fraud there has to be specific averments or
materials adduced to establish the same. In the instant case there was no
F specific averment in that regard and in any event no evidence was led.
The High Court seems to have lost sight of the fact that huge amount of
money had already been paid. It has not been established that the purpose
was to target some of the employees and for that purpose the appellant
spent huge amount of money. Undisputedly, the employees were informed
G of the transactions at all relevant points of time. It is also not disputed by
the respondent that nearly 2500 employees have accepted that the transfer
is genuine and out of some employees who originally pressed their
grievances, nine are not pursuing it. The Tribunal had rightly noted these
aspects. Unfortunately, the High Court made out a new case of fraud and
the transaction to be "sham". The solitary material on which the decisions
H of the High Court were founded is one receipt showing payment for one
MANAG.,METIURBEARDSELLLID. "· WORKMENOFMETI1JRBEARDSELLL1D.[PASAYAT, J.] 363

month. The explanation given in that regard does not appear to have been 'A
considered in its proper perspective by the High Court. (374-D-G)

Shrisht Dhawan v. Mis. Shaw Brothers, (1992) 1 SCC 534 and G.B.
Mahajan v. Jalgaon Municipal Council, (1991 ( 3 SCC 91, relied on.
Tiller v. Atlantic Coast, (1942) 3189 US 54, referred to.
B
4.2. A sham transaction is one which was always intended and
devised to be a fraud of a provision of the concerned statute in relation to
which it is alleged to be a fraud. (375-G; 376-A)

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7I.50-7I51
of 2003. C
From the Final Judgment and Order dated 22.4.2003 of the High Court
of judicature at Madras in W.A. No. 761 of 1992 and W.A. No. 760of1997.
WITH
C.A. Nos. 7152 of 2003, 2258 and 2259 of 2006. D
Rajeev Dhawan, T.S. Gopala, Mahesh Agarwala, Rishi Agarwala and
E.C. Agrawala for the Appellant.

Ambrish Kumar for the Respondents.

. The Judgment of the Court was delivered by E
ARIJIT PASAYAT, J. Leave granted in SLP (C) Nos. 22724 of2004
and 5071 of 2005.

These· appeals have a common matrix. By the impugned judgment
rendered by a Division Bench of the Madras High Court three appeals were F
disposed of. Writ Appeal No.761 of 1992 was against order dated 22.7.91
passed in Writ Petition No.11956 of 1987 passed by a learned Single Judge,
while Writ Appeal No. 760 of 1997 was against the order dated 24.2.1997 in
Writ Petition No.1063' of 1988 passed by a learned Single Judge. The third
appeal before th.e Division Bench was Contempt Appeal No.13 of 1992 G
directed against order dated 11.12.1992 in Contempt Application No.336 of
1992 passed by learned Single Judge.

Factual background as highlighted by the appellant-Management of
Mattur Beardsell. Ltd. is as follows :
H
. Mettur Beardsell Ltd. started business in 1936 and conducted operations
364 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A successfully till 1970, when it faced financial problems. On 19.5.1977 a
Resolution was passed to hive off its textile operation by entrusting it to its
wholly owned subsidiary which was to be formed. In fact on 19.12.1981,
Mettur Textile Pvt. Ltd. was formed. On 21.6.1982 at the Annual General
Meeting of Mettur Beardsell Ltd. shareholders authorized entering into of an
B arrangement on behalf of Mettur Beardsell Ltd. and Mettur Textile Pvt. Ltd.
For the sake of convenience they are described as Beardsell and Textile
hereinafter.

The workers were informed about the transfer. On 9.2.1982 information
about Integrated Textile Division consisting of manufacturing and marketing
C divisions of the Textile Division in all locations including Madras with
necessary support staff was given. On 22.9.1982 notice to workers was given
that E.D.P. Department will also be treated as a part of the Integrated Textile
Division. The E.D.P. Department was to continue to operate from 49, Rajaji
Road where the Integrated Division was situated. The office of Beardsell was
on 47 Bose Road which is different address. On 29. I 1.1982 individual letters/
D notices were sent to employees, who have been in the Textile Division, that
they were being treated as part of the Integrated Textile Division with unaltered
terms and conditions of work. On 30.11. I 982 circular was sent to the
employees that employees' allocation has been completed, Beardsell was to
become a partner of new formed subsidiary "Textile" to ensure that Textile
E Division could be treated separately. On 14.12.1982 a partnership firm called
"Mettur Textiles" was formed between the Textile and Beardsell evidenced
by a partnership deed. On 3.3.1983 an agreement was entered into amongst
Beardsell, Textile and one Rukmini Investments Pvt. Ltd. (in short 'Rukmini').
Beardsell was paid Rs.1,74,00,000/- by Rukmini Investments for divesting
F all rights and assets in the Integrated Textile Division. Later Rukmini took
over entire partnership business and incorporated it as Mettur Textile Industries
Ltd. On 25.1.1983 employees of the Integrated Division were informed
individually about the arrangement and their absorption with effect from
01.01.1983 without change in the conditions of service. On 3 1.1.1983
employees were informed that their services would be absorbed by Textile
G and that terms and conditions which would be uninterrupted would cover
salary, wages, benefits, retrenchm~nt and retirement. On 24.3.1983 notices
were sent to the workmen informing them that Beardsell had retired from
partnership and that the terms and conditions of work would not be any way
less favourable than the prevailing situation. On 13.5.1983 letters were written
H by the respondent-Employees Association to Beardsell admitting the transfer
MANAG.,METIURBEARDSELLLID.1•. WORKMENOFMETIURBEARDSELLLID. [PASAYAT, J.) 365

to Mettur Textile and requested for an option for retention/retransfer to the A
rolls of Beardsell. Their claim was that they ought to have been a Memorandum
of Settlement under Section 12(3) of the Industrial Disputes Act, 194 7 (in
short the 'Act'). On 17.6.1983 the re_spondent-workmen through their
Association wrote a letter to the Labour Officer that they may be taken back
as on the date of transfer of the partnership by Beardsell. On 22.6.1983 B
several unions entered into settlement under Section 12(3) of the Act agreeing
to continue as employees of Textile and not of Beardsell. On 16.7.1983
Beardsell wrote a letter to the Labour Officer informing him that all the
employees working in the Integrated Textile and Thread Division had become
employees of Textile and indicated that the said employees have left its
service on 31.12.1982. Thereafter certain letters appear to have been written C
to the Provident Fund Commissioner. The workmen have objected to
consideration of these documents on the ground that they were not before the
Labour Court or the High Court. On 6.4.1984 Mettur Beardsell Employees
Association. wrote to Labour officer contending that they were employees of
and paid by Mettur Textile Industries ltd. from July, 1983. l.D. Case No.8 of
1984 was registered on the basis of grievance by the respondent-workmen D
asserting that they continued to be workmen of Beardsell. By an Award dated
5.12.1986 Industrial Tribunal rejected the claims of the workmen. A Writ
Petition No.11956 of 1987 was filed by the respondents-workmen against the
Award in l.D. No.8of1984. By judgment dated 22.7.1991, the Writ Petition
was allowed holding that the workmen should be treated as employees of E
Beardsell with all consequential benefits. Writ Appeal No. 761 of 1992 was
filed by the appellant which has been dismissed by the impugned judgment.
In the meantime the Contempt Petition No.366 of 1992 was filed by
respondent-workmen alleging that the direction by the learned Single Judge
on 22. 7 .1991 to the effect that the workers should be treated as employees
with all consequential benefits had not been complied with. By order dated F
11.12.1992 learned single judge hold that there was contempt and sentenced
the Managing Director of Beardsell to two weeks' imprisonment and fine of
Rs.2,000/-. Contempt Appeal No.13 of 1992 was filed against the order of
learned single judge and the contempt matter was stayed. However, by the
impugned judgment the Contempt Appeal was dismissed. On 12.4.1984 a G
letter was sent by Mettur Textile Industries Ltd. intimating each workman
-- that he was being retrenched. On 23.4.1984 employees replied that they may
be continued in service of Mettur Textile Industries Ltd. On 14.11.1984
respondents raised l.D. 89of1984 challenging the retrenchment. By its award
dated 19.6.1987 Industrial Tribunal rejected the claim. Respondent-workman
filed writ petition No.1063 of 1988 against the said Award. By order dated H
366 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A 24.2.1997 learned Single Judge dismissed the writ petition. Writ Appeal
No.760 of 1997 was filed by the respondent-workmen. By the impugned
judgment the High Court allowed the Writ Appeal. It appears that a claim
petition under Section 33 (C)(2) of the Act for the period 1984 to 1992 was
filed which was numbered as C.P. No.2242 of 1991. The Labour Court
B directed payment of Rs.44.5 lacks. By order of this Court dated 16.11.2004
the direction of the Labour Court for payment was stayed. The sole basis of
learned Single Judge coming to the conclusion that the workmen continued
to be the employees of Beardsell is founded on Ex.22 i.e. voucher of Beardsell
used for payment subsequent to the claim of transfer of employees. The
explanation offered by Beardsell as to why the same cannot be utilized for
C forming any opinion has been discarded by learned Single Judge and the
Division Bench without indicating any reason affirmed the findings
overlooking evidence led by the Beardsell to show that there was nothing
illegal in the transfer. Learned Single Judge and the Division Bench proceeded
as if the ultimate objective of the transfer was to target the concerned 27
workmen out of whom 9 have withdrawn from the dispute and was confined
D to only 18 workmen. Both learned Single Judge and the High Court lost sight
of the fact that more than 2500 workmen were involved and all of them
accepted transfer and did not raise any dispute. It was, therefore, utterly
fallacious on the part of the learned Single Judge and the Division Bench to
hold that the entire arrangement of transfer was with oblique motives. Further
E claim petition under Section 33(C)(2) of the Act has been adjourned by the
Labour Court notwithstanding pendency of these cases.

According to learned counsel for the Beardsell, both learned Single
Judge and the Division Bench completely misconceived the scope of the
dispute raised. There was no dispute regarding the genuineness of the transfer.
F However, learned Single Judge as well as the Division Bench proceeded on
the basis as if there was a dispute as regards genuineness of the transfer. A
bare reading of the reference made to the Industrial Tribunal makes the
position clear that there was no such dispute. Additionally, learned Single
Judge introduced a concept of consent which is foreign to Section 25FF of
G the Act. The Division Bench not only erred in affirming the conclusions of
the learned Single Judge, but also without any challenge before the Tribunal
or before learned Single Judge referred to certain materials which were not
brought on record by the workmen and Beardsell had no opportunity to meet
..
those materials. Conclusions of fraud were arrived at when the workmen
have not established and mala-fides and fraud.
H
MANAG.,MEIWRBEARDSELLLID.1•. WORKMENOFMETTIJRBEARDSELLLID.(PASAYAT, l.] 367

Learned counsel for the respondents-workmen on the other hand A
submitted that though the plea of illegality of transfer was not spelt out in so
many words in the reference that was the core issue; and, therefore, no
infirmity can be attached to judgment of the learned Single Judge and the
Division Bench. Reference was made to several decisions to contend that
consent is inbuilt in any transfer in service jurisprudence.
B
At this juncture, in view of rival contentions it is to be noted that the
reference itself did not relate to legality of transfer. The reference as was
made by the Government of Tamil Nadu under Section IO(l)(b) of the Act
in its G.O. Ms. No.202 dated 19.1.1984 of the Labour Department reads as
follows :
c
"The dispute coming on for final hearing on Wednesday, the 29th
day of October, 1986 upon perusing the reference, claim and counter
statements and all other material papers on record and upon hearing
the arguments of Thim A.L. Som-ayaji for Thiruvalargal Aiyar and
Dolia and Miss G. Devi, Advocate appearing for the workmen and of D
Thim S. Jayaraman, Advocate for management No.2 and this dispute
having stood over till this day for consideration.

The basic issues involved in the cases are as follows:

I. Was there a transfer of undertaking under Section 25FF of the E
Act?

2. Was this transfer vitiated by fraud?

3. Is consent of the employees required in a case of transfer of
undertaking under Section 25FF?
F
The second and third issues are being considered on the basis of stands
presently raised, though there was no such plea forming foundation of the
reference made to the Industrial Tribunal.

Elaborate arguments were advanced on the question as to whether an
employee's consent is a must under Section 25FF of the Act. The common G
law rule that an employee cannot be transferred without consent, applies in
master-servant relationship and not to statutory transfers. Though great
emphasis was laid by learned counsel for the respondent on Jawaharlal Nehru
University v. Dr. K.S. Jawatkar and Ors., [1989] Supp. I SCC 679, a close
reading of the judgment makes it clear that the common law rule was applied.
H
368 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A But there is not any specific reference to Section 25FF or its implication.
There is nothing in the wording of Section 25FF even remotely to suggest
that consent is a pre-requisite for transfer. The underlying purpose of Section
25FF is to establish a continuity of service and to secure benefits otherwise
not available to a workman if a break in service to another employer was
B accepted. Therefore, the letter of consent of the individual employee cannot
be a ground to invalidate the action.

The scope and ambit of Section 25FF of the Act needs to be delineated.

In Maruii Udyog Limited v. Ram Lal And Ors., (2005] 2 SCC 638 it
was observed as follows:
c
"How far and to what extent the provisions of Section 25F of the
1947 Act would apply in case of transfer of undertaking or closure
thereof is the question involved in this appeal. A plain reading of the
provisions contained in Section 25FF and Section 25FFF of the 1947
Act leaves no manner of doubt that Section 25F thereof is to apply
D
only for the purpose of computation of compensation and for no
other. The expression "as if' used in Section 25FF and Section 25FFF
of the 194 7 Act is of great significance. The said term merely envisages
computation of compensation in terms of Section 25F of the 194 7
Act and not the other consequences flowing therefrom. Both Section
E 25FF and Section 25FFF provide for payment of co!P.pensation only,
in case of transfer or closure of the undertaking. Once a valid transfer
or a valid closure comes into effect, the relationship of employer and
employee takes effect. Compensation is required to be paid to the
workman as a c.onsequence thereof and for no other purpose".

F In D.R. Gurushantappa v. A.K. Anwar & Ors.. (1969] I SCC 466 this
Court noted as follows:

"So far as the first point is concerned, reliance is placed primarily on
the circumstances that, when the concern was taken over by the
Company from the Government there were no specific agreements
G terminating the Government service of Respondent No. I or bringing
into existence a relationship of master and servant between the
Company and respondent No. I. That circumstance, by itself, cannot
lead to the conclusion that Respondent No. I continued to be in
Government service. When the undertaking was taken over by the
H Company as a going concern, the employees working in the
MANAG.,MITIURBEARDSELLLID.'·· WORKMENOFMETIURBEARDSELLLID.[PASAYAT, J.) 369

undertaking were also taken over and since, in law the Company has A
to be treated as an entity distinct and separate from the Government,
the employees, as a result of the transfer of the undertaking, became

-
employees of the company and ceased to be employees of the
Government. This position is very clear at least in the case of those
employees who were covered by the definition of workmen under the
Industrial Disputes Act in whose cases, on the transfer of the
B
undertaking, the provisions of Section 25-FF of that Act would apply.
Respondent No. I was a workman at the time of the transfer of the
undertaking in the year 1962, because he was holding the post of an
~- Assistant Superintendent and was drawing a salary below Rs.500 per
mensem. As a workman, he would, under Section 25-FF of the c
Industrial Disputes Act, become an employees of the new employer,
viz., the Company which took over the undertaking from the Mysore
Government which was the previous employer. In view of this
provision of Law, there was in fact, no need for any specific contract
being entered into between the Mysore Government and respondent
No. I in terminating his Government service, nor was there any need D
for a fresh contract being entered into between the Company and
Respondent No. I to make him an employee of the Company''.

Again in Management of R.S. Madhoram And Sons Agencies (P) Ltd v. Its'
Workmen., [1963] 5 SCR 377, the position was highlighted as follows:-
E
"Section 25FF of the Act provides, inter alia, that where the ownership
or management of an undertaking is transferred, whether by agreement
or by operation of law, from the employer in relation to that
undertaking to a new employer, every workman who satisfies the test
prescribed in that section shall be entitled to n.otice and compensation
F
in accordance with the provisions of S. 25FF as if the workmen had
been retrenched. This provision shows that workmen falling under
the category contemplated by it, are entitled to claim retrenchment
compensation in case the undertaking which they were serving and
by which they were employed is transferred. Such a transfer, in law,
is regarded as amounting to retrenchment of the said workmen and G
on that basis S. 25FF gives the workmen the right to claim
compensation.

There is, however, a proviso to this section which excludes its
operation in respect of cases falling under the proviso. In substance,
,., .. the proviso lays down that the provision as to the payment of H
370 SUPREME COURT REPORTS (20061 SUPP. I S.C.R.

A compensation on transfer will not be applicable where, in spite of the
transfer, the service of the workmen has not been interrupted, the
terms and conditions of service are not less favourable after transfer
than they were before such transfer, and the transferee is bound under

B
the terms of the transfer to pay to the workmen, in the event of their
retrenchment compensation on the basis that their service had been
continuous and had not been interrupted by the transfer. The proviso,
-
therefore, shows that where the transfer does not affect the terms and
conditions of the employees, does not interrupt the length of their
service and guarantees to them payment of compensation, if
retrenchment were made, on the basis of their continuous employment,
c then S. 25FF of the Act would not apply and the workmen concerned
would not be entitled to claim compensation merely by reason of the
transfer. It is common ground that the three conditions prescribed by
Cls. (a),(b) and (c) of the proviso are satisfied in this case, and so, if
S. 25FF were to apply, there can be little doubt that the appellant
would be justified in contending that the transfer was valid and the
D 57 employees can make no grievance of the said transfer. The question,
however, is : Does Section 25FF apply at all?

It would be noticed that the first and foremost condition for the
application of S. 25FF is that the ownership or management of an
undertaking is transferred from the employer in relation to that
E undertaking to a new employer. What the section contemplates is that
either the ownership or the management of an undertaking should be
transferred; normally this would mean that the ownership or the
management of the entire undertaking sho~ld be transferred before S.
25FF comes into operation. If an undertaking conducts one business,
F it would normally be difficult to imagine that its ownership or
management can be partially transferred to invoke the application of
S. 25FF. A business conducted by an industries undertaking would
ordinarily be an integrated business and though it may consist of
different branches or departments they would generally be interrelated
with each other so as to constitute one whole business. In such a case,
G S. 25FF would not apply if a transfer is made in regard to a department
or branch of the business run by the undertaking and the workmen
would be entitled to contend that such a partial transfer is outside the
scope of S. 25FF of the Act.

It may be that one undertaking may run several industries or
H
MANAG.,MEJ1URBEARDSELLL1D.1•. WORKMENOFMEJ1URBEARDSELLL1D. [PASAYAT, J.] J 7J

business which are distinct and separate. In such a case, the transfer A
of one distinct and separate business may involve the application of
S. 25FF. The fact that one undertaking runs these business could not
necessarily exclude the application of S. 25FF solely on the ground
that all the business or industries run by the said undertaking have
not been transferred. It would be clear that in all cases of this character B
the distinct and separate businesses would normally be run on the
basis that they are distinct and separate, employees would be separately
employed in respect of all the said businesses and their terms and
· conditions of service may vary according to the character of the
business in question. Jn such a case it would not be usual to have one
muster-roll for all the employees· and the organization of employment C
would indicate clearly the distinctive and separate charncter of the
different businesses. lfthat be so, then the transfer by the undertaking
of one of its businesses may attract the application ofS. 25FF of the
Act.

But where the undertaking runs several allied business in the D
same place or places, different considerations would come into play.
In the present case, the muster-roll showing the list of employees was
common ·in regard to all the departments of business run by the
transferor~firm. It is not disputed that the terms and conditions of
service were the same for all the employees and what is most
significant is the fact that employees could be transferred from the E
department run by the transferor-firm to another department, though
the transfer conducted several branches of business which are more
or less allied, the services of the employees were not confined to any
one _business, but were liable to be transferred from one branch to
another. In the payment of bonus all the employees were treated as F
cm:istituting one unit and there was thus both the unity of employment
and the identity of the terms and conditions of service. In fact, it is
purely a matter of accident that the 57 workmen with those transfer
we are concerned in the present appeal happened to be engaged in
retail business which was the subject-matter of the transfer between
the firm and the company. These 57 employees had not been appointed G
solely for the purpose of the retail business but were in charge of the
retail bu_siness as a mere matter of accident. Under these circumstances,
it appears to us to be very difficult to accept Sri Setalvad' s argument
. _that because the retail business has an identity of its own it should be
treated as an ind~pendent and distinct business run by the firm and H
372 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A as such, the transfer should be deemed to have constituted the company
into a successor-in-interest of the transferor firm for the purpose of
S. 25FF. As in other industrial matters, so on this question too, it
would be difficult to lay down any categorical or general proposition.
Whether or not the transfer in question attracts the provision of S.
25FF must be determined in the light of the circumstances of each
B case. It is hardly necessary to emphasize that in dealing with the
problem, what industrial adjudication should consider is the matter of
substance and not of form. As has been observed by this Court in
Anakapalle Co-operative Agricullural and Industrial Society v. Its
workmen and Ors., ( 1962) - II L.L.J. 621 the question as to whether
c a transfer has been effected so as to attract S. 25FF must ultimately
depend upon the evaluation of all the relevant factors and it cannot
be answered by treating any one of them as of overriding or conclusive
significance. Having regard to the facts which are relevant in the
present case, we are satisfied that the appellant cannot claim to be a
successor-in-interest of the finn so as to attract the provisions of S.
D 25 FF of che Act.

The transfer which has been effected by the finn in favour of the
appellant does not, in our opinion, amount to the transfer of the
ownership or management of an undertaking and so, the tribunal was
right in holding that S. 25FF and the proviso to it did not apply to the
E present case".

The views according to us reflect the correct position in law.

Section 25FF of the Act provides, inter-alia, that where the ownership
F or management of an undertaking is transferred, whether by agreement or by
operation of law, from the employer in relation to that undertaking to a new
employer, every workman who satisfies the test prescribed in that section
shall be entitled to notice and compensation in accordance with the provisions
of Section 25FF as if the workmen had been retrenched. This provision
shows that workmen falling under the category contemplated by it, are entitled
G to claim retrenchment compensation in case the undertaking which they were
serving and by which they were employed is transferred. Such a transfer, in
law, is regarded as amounting to retrenchment of the said workmen and on
that basis Section 25 FF gives the workmen the right to claim compensation.

There is, however, a proviso to this section which excludes its operation
H in respect of cases falling under the proviso. In substance, the proviso lays
MANAG.,METIURBEARDSELLLID.1•. WORKMENOFMETIURBEARDSELLLID. [PASAYAT, J.] J 73

down that the provision as to the payment of compensation on transfer will A
not be applicable where, in spite of the transfer, the service of the workmen
has not been interrupted, the terms and conditions of service are not less
favourable after transfer than they were before such transfer, and the transferee
is bound under the terms of the transfer to pay to the workmen, in the event
of their retrenchment compensation on the basis that their service had been
continuous and had not been interrupted by the transfer. The proviso, therefore, B
shows that where the transfer does not affect the terms and conditions of the
employees, does not interrupt the length of their service and guarantees to
them payment of compensation, if retrenchment were made, on the basis of
their continuous employment, then S. 25FF of the Act would not apply and
the workmen concerned would not be entitled to claim compensation merely C
by reason of the transfer. It is common ground that the three conditions
prescribed by Cls. (a), (b) and (c) of the proviso are satisfied in this case, and
so, if Section 25FF were to apply, there can be little doubt that the appellant
would be justified in contending that the transfer was valid and the 57
employees can make no grieva'lce of the said transfer. The question, however,
is : Does Section 25FF apply at all ? D
It would be noticed that the first and foremost condition for the
application of Section 25FF is that the ownership or management of an
undertaking is transferred from the employer in relation to that undertaking
to a new employer. What the section contemplates is that either the ownership E
or the management of an undertaking should be transferred; normally this
would mean that the ownership or the management of the entire undertaking
should be transferred before Section 25FF comes into operation. If an
undertaking conducts one business, it would normally be difficult to imagine
that its ownership or management can be partially transferred to invoke the
application of Section 25FF. A business conducted by an industrial undertaking F
would ordinarily be an integrated business and though it may consist of
different branches or departments they would generally be interrelated with
each other so as to constitute one whole business. In such a case, Section
25FF would not apply if a transfer is made in regard to a department or
branch of the business run by the undertaking and the workmen would be
entitled to contend that such a partial transfer is outside the scope of Section G
25FF of the Act.

It may be that one undertaking may run several industries or businesses
which are distinct and separate. In such a case, the transfer of one distinct
and separate business may involve the application of Section 25FF. The fact H
374 SUPREME COURT REPORTS [20061 SUPP. I S.C.R.

A that one undertaking runs these businesses could not necessarily exclude the
application of Section 25FF solely on the ground that all the businesses or
industries run by the said undertaking have not been transferred. It would be
clear that in all cases of this character the distinct and separate businesses
would normally be run on the basis that they are distinct and separate,
employees would be separately employed in respect of all the said businesses
B and their terms and conditions of service may vary according to the character
of the business in question. In such a case it would not be usual to have one
muster-roll for all the employees and the organization of employment would
indicate clearly the distinctive and separate character of the different
businesses. If that be so, then the transfer by the undertaking of one of its
C businesses may attract the application of Section 25FF of the Act.

It was submitted by the learned counsel for the respondent that fraud
was involved. The conclusions of the learned Single Judge and the Division
Bench proceeded on the premises as if the 27 employees in question were
targeted. In order to establish fraud there has to be specific averments or
D materials adduced to establish the same. In the instant case there was no
specific averment in that regard and in any event no evidence was led. The
High Court seems to have lost sight of the fact that huge amount of money
had already been paid. It has not established that the purpose was to target
the 27 employees and for that purpose the appellant spent huge amount of
E money. Undisputedly the employees were informed of the transactions at all
relevant points of time. It is also not disputed by learned counsel for the
respondent that nearly 2500 employees have accepted that the transfer is
genuine and out of 27 employees who originally pressed their grievances,
nine are not pursuing it. The Tribunal had rightly noted these aspects.
Unfortunately learned Single Judge and the Division Bench made out a new
F case of fraud and the transaction to be "sham". The solitary material on
which decisions of learned Single Judge and the Division Bench was founded
is one receipt showing payment for one month. The explanation given in that
regard does not appear to have been considered in its proper perspective by
the High Court.

G On the question of fraud few decisions need to be noted. In Shrisht
Dhawan (Smt.) v. Mis Shaw Brothers, [1992] I SCC 534, it was noted as
follows:

"20. But fraud in public law is not the same as fraud in private
law. Nor can the ingredients which establish fraud in commercial
H
MANAG.;MEllURBEARDSELLLTD. 1•. WORKMENOFMETIURBEARDSELLLTD.(PASAYAT, J.] J 75

transaction be of assistance in determining fraud in Administrative A
Law. It has been aptly observed by Lord Bridge in Khawaja that it
is dangerous to introduce maxims· of common law as to effect of
fraud while detennining fraud in relation to statutory law."

The wami.ng by Venkatachaliah Jin G.B. Mahajan and Ors. v. Jalgaon
Municipal Council and Ors., (1991] 3 sec 91 on the use of concept of B
reasonableness was· founded on the following passage quoted from Tiller v. ·
Atlantic Coast, (1942) 3189 US 54.

"A phrase begins life as a literary expression; its felicity leads to
its lazy repetition; and repetition soon establishes it as a legal formula,
undiscriminatingly used to express different and sometimes C
contradictory ideas."

In Shrisht Dhawan 's case (supra) it was further observed as follows:-

"xx xx xx xx xx
D
If a statute has been passed for some one particular purpose, a
court of law will not countenance any attempt which may be made
to extend the operation of the Act to something else which is quite
foreign to its object and beyond its cope. Present day concept of
fraud on statute has veered round abuse of power or malajide exercise
of power. It may arise due to overstepping the limits of power or E
defeating the provision of statute by adopting subterfuge or the power
may be exercised for extraneous or irrelevant considerations. The
colour of fraud in public law or administrative law, as it is developing,
is assuming different shades. It arises from a deception committed by
disclosure of incorrect facts knowingly and deliberately to invoke p
exercise of power and procure an order from an authority or tribunal.
It must result in exercise of jurisdiction which otherwise would not
have been exercised. That is misrepresentation must be in relation the
conditions provided in a section on existence or non-existence of
which power can be exercised. But non-disclosure of a fact not required
by a statute to be disclosed may not amount to fraud. Even in G
commercial transactions non-disclosure of every fact does not vitiate
the agreement."

A sham transaction is one which was always intended and devised to
be a fraud of a provision of the concerned statute in relation to which it is H
376 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A alleged to be a fraud.
That being so the orders of the learned Single Judge and the Divi5ion
Bench cannot be maintained and are, therefore, set aside.

It appears that taking serious note of the fact that the orders were not
B complied with, contempt proceedings were initiated and orders have been
passed. It is not in dispute that a part of the amount payable was deposited
in this court and has been disbursed. In view of the fact that the orders of
learned Single Judge and the Division Bench are being set aside, the question
of consequential action under Section 33(C)(2) of the Act does not arise. At
C the same time it cannot be lost sight of the fact that orders of the learned
Single Judge and the Division Bench were not complied with. Since a sum
of Rs. I 0 lakhs has already been deposited and Rs.5 lakhs have also been
disbursed, in the peculiar circumstances of the case, we direct that the balance
money be disbursed to the employees on the basis of their entitlements. This
exercise shall be done by the Tribunal. Appeals are accordingly disposed of.
D No costs.

v.s.s. Appeal disposed of.