Holding

When an undertaking is lawfully closed under Section 25 of the Industrial Disputes Act, 1947, the workmen’s only statutory entitlement is the prescribed compensation; a writ cannot compel their absorption into the parent corporation.

Summary

The workmen of Karnataka Pulpwood Ltd, a loss‑making joint‑sector subsidiary of Karnataka Forest Development Corporation Ltd (KFDC), sought compulsory absorption into KFDC after the State Government granted permission to close the undertaking under Section 25 of the Industrial Disputes Act, 1947. The Karnataka High Court had directed their absorption, but the Supreme Court held that the employer‑employee relationship ceases on closure and the only statutory right of the workmen is the closure compensation prescribed in Section 25(8). The Court noted that the earlier 1991 Government order directing absorption was superseded by the later closure order and that no valid merger under the Companies Act had occurred. Consequently, a writ directing absorption was not maintainable; the workmen may claim compensation in the appropriate forum. The Supreme Court set aside the High Court judgment and allowed the appeals filed by KFDC.

Issues considered

The legal effect of a State Government order permitting closure of an undertaking under Section 25 of the Industrial Disputes Act, 1947.
Whether workmen of a closed subsidiary are entitled to compulsory absorption in the parent corporation by virtue of a prior government order.
Whether the High Court could issue a writ of mandamus directing absorption despite the statutory scheme of the Industrial Disputes Act.

Legislation cited

Companies Act, 1956
Forest (Conservation) Act, 1980
Industrial Disputes Act, 1947s. 25, s. 25(4), s. 25(8), s. 25-B, s. 25-D, s. 25-E, s. 25-F, s. 25-G, s. 25-H, s. 25-J, s. 25-S

Subjects

Industrial closureSection 25CompensationWorkmen rightsAbsorptionJoint sector companyMergerWinding up

Judgment

t-
MANAGING DIRECTOR, KARNATAKA FOREST A
DEVELOPMENT CORPORATION LTD.
v.
WORKMEN OF KARNA TAK.A PULPWOOD LTD. AND ORS,

OCTOBER 11, 2007 B
[S.B. SINHA AND H.S. BEDI, JJ.)

Industrial Di::iputes Act, 1947:
s.25-0-Subsidiary ofAppellant-corporation running at loss-
c
Order ofState Government for its closure-Writ petition by workmen
of subsidiary-Writ Court directed their absorption in Appellant-
corporation-Correctness of-Held: Not correct-Workmen were only
entitled to receive compensation.
D
Respondents worked in a joint sector company- a subsidiary
of Appellant-corporation. The joint sector company was running at
a loss. State Government accorded permission for closure of the
company under Section 25-0 of the Industrial Disputes Act, 1947. ·
Respondents filed writ petition seeking absorption in Appellant- E
corporation. The prayer was granted by the High Court. Hence the
present appeals.
Allowing the appeals, the Court
HELD: 1.1.The relationship between the company and the F -
respondents being employer and workmen is governed by the
provisions of the Industrial Disputes Act, 1947. The Management
of an industrial undertaking is entitled to take recourse to closure
of its undertaking in terms of the provisions of the said Act itself.
Section 25-0 of the said Act lays down the procedure for closing G
down an undertaking. Once the permission had been given by the
State Government, all consequences would ensue. In terms of sub-
section (8) of Section 25-0, all the workmen would be entitled to
receive compensation which shall be equivalent to 15 days' average
1151 H
1152 SUPREME COURT REPORTS [2007] 10 S.C.R.

A pay for every completed year of continuous service or any part
thereof in excess of six months. Indisputably in the event an
undertaking is closed down, the only right which accrues in favour
of the workmen is to obtain compensation as provided for.
[Para 16] [1160-G-H; 1161-A-C]
B
1.2. Before the Division Bench of the High Court, the order of
the State Governm~nt directing prior permission for effecting closure
of the industrial undertaking has not been questioned. In fact, even
the Single Judge had made observations to the effect that the closure
may be effected. Having regard to the fact that rights of the workmen
C flow from the provisions of the Industrial Disputes Act, a writ court
could not have issued any other direction. [Para 17] [1161-D-E]
1.3. The right of the workmen, therefore, was only to receive
the amount of compensation. If the State is not in a position to take
D upon itself the financial burden of the appellant-Corporation for
,(
appointing the concerned workmen, direction to continue their
services coul~ not be iss~ed. If the workmen, therefore, think that
any other or further right has accrued tO them iii terms of the
purported assurance given by the State, it may take recourse thereto
E before an.appr~priate forum but a writ petitiqn was not maintainable.
· [Para 18] [1162-A-C]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4800 of
2007.

p From the Judgment and final Order dated 22.06.2005 of the High
Comi of Kamataka at Bangalore in Writ Appeal No: 2216/2005.

WITR
C.A. No. 4802 of 2007.

G Kailash Vasudev, GirishAnanthanmrthy, Vaijayanthi Girishand G.S.
Kaimur (for P.P. Singh) for the Appellant.
Naveen R. Nath, Sanjay R. Hegde, Amit Kr. Chawla and Raine~h
Jadhav for the Respondents. · .

H The Judgment of the Court was delivered by
MANAG.DIR.,KARNATAKAFORESTDEVE.CORPN.LTD. 1153
v.WORKMENOFKARNATAKAPULPWOODLTD. [SINHA,J.]
S.H. SINHA, J. 1. Leave granted. A
2. These appeals are directed against judgments and orders dated
22.6.20005 and 19.07.2006 passed by a Division Bench of the
Karnataka High Court whereby and whereunder the judgment and order
· dated 7.2.2005 passed by a learned Single Judge of the said High Court
dismissing writ Petition Nos. 1651-1685 of 2005 filed by the respondents B
herein claiming their absorption in the appellant-Corporation.
3. Indisputably the private-respondents herein were the workmen
of Karnataka Pulpwood Ltd. (the company). It was a Government
company. It was running at a loss. Karnataka Pulpwood Ltd. is a joint C
sector company ofKarntaka Forest Development Corporation Ltd. and
Karnataka Harihar Polyfibres Ltd., the share capital was fixed in the ratio
of 51:49.
4. The Government stood as a guarantor in respect of the loans to
be raised by the joint sector company from the commercial banks. A D
lease was granted in favour of the said company. Karnataka Pulpwood
Ltd. which is said to be a subsidiary of the appellant-Corporation faced
hostility from the local people for various reasons. A public interest litigation
was also filed before this Court against lease of forest lands, inter alia,
on the ground that the same was violative of the provisions of the Forest E
(Conservation) Act, 1980. This Court granted an order of stay regarding
possession of the said leasehold property. Protracted legal battle adversely
affected the commercial viability of KPL project. Great difficulty was also
experienced in the matter to of obtaining loans from banks for raising of
maintenance of plantations. F'

A question, therefore, arose as to whether the said company should
be wound up. By reason of a decision taken by the State of Karnataka
on or about 24.10.1991, it was, inter alia, directed :
"(a) To wind-up Karnataka Pulpwood Ltd., a Joint Sector G
Company. The company is directed to take steps in this
connection following prescribed procedure under Companies
Act, 1956.
(b) That all the Assets and Liabilities of the Karnataka Pulpwood
H
1154 SUPREME COURT REPORTS [2007] 10 S.C.R.
1
A Ltd. and any guarantee given by the Government to Karnataka )-

Pulpwood Ltd. for raising loans are transferred to Karnataka
Forest Development Corporation Ltd.
(c) Kamataka Forest Development Corporation is directed to
settle obligations contained in promoters an agreement amicably
B through the dialogue between the promoters or in terms of
arbitration clause in case of any dispute between the parties.
(d) Kamataka Forest Development Corporation is directed to
absorb the staff of Karnataka Pulpwood Ltd. in Kamataka
Forest Development Corporation.
c
(e) To return the enquiry to M/s. Harihar Polyfibers Ltd. The
question regarding payment of interest on equity has to be
negotiated and settled between the promoters viz., Karnataka
Forest Development Corporation and M/s. Harihar
D Polyfibers." j

5. An attempt was made to wind up the said industrial undertaking
in terms of the provisions of the Companies Act. On or about 16.11.1993,
the State accorded its approval for merger of the said company with the
appellant herein in place of closure of the former. It is, however, not known
E as to whether formalities required to be complied with for merger of the
said companies under the Companies Act were undertaken or not.
Apparently, such an exercise was undertaken. A proposal was also
mooted that a voluntary retirement scheme be floated in regard to the
employees of the company and in its meeting held on 27.1.2003, it was
F resolved:
"The matter was also discussed in the meeting of the High Power
Committee on Public Sector Undertakings under the chainnanship
of the Chief Secretary on 20.01.2993. It was pointed out that in
G the HPC a decision has been taken to close the KPL revising the
earlier decision of merger with KFDC."

6. Yet again, a Government order was issued on 02.01.2004
directing:
"l. Close down KPL.
H
MANAG.DIR,KARNATAKAFORESTDEVE.CORPN.LTD. 1155
v. WORKMEN OF KARN ATAKA PULPWOOD LTD. [SINHA,J.]
2. Extend financial help to KPL in order to extend VRS to all A
its employees. Those employees who do not opt for VRS
should be terminated as per Industrial Disputes Act.
3. KPL should obtain necessary permission from the
Government's Labour Dept. for closure under Section 25-0
of the Industrial Disputes Act." B
7. Pursuant thereto and in furtherance thereof, an application was
filed for closure of Karnataka Pulpwood Ltd. before the State
Government. Respondent-Union was also given an opportunity of hearing
in the proceedings initiated therefor. It was, inter alia, observed : C
"All the employees of KPL are ready and willing to accept the
VRS as proposed by the ManagementofKPL in its letter dated
14.02.2003 and the VRS scheme revised upto 31.03 .2003 as per
G.O. of DPAR (RPE) dated 10.08.2001 provided other
conditions are fulfilled" D
It was opined :
"Therefore, the union pleads to either to reject/dismiss the
application of the KPL or to defer its consideration till after the
absorption of the KPL staff in the KFDC or at least after the t'.
judgment of the Hon'ble High Court in WP No.39406-455/2003.
In the alternative, refer the application to the Tribunal for
adjudication in the interest of justice.
As against the above, objections of the unions, the advocate F
appearing for the management has stated that the majority of the
objections raised by the union are regarding absorption of the KPL
staff to that ofKFDC. These points are not relevant in the matter
of closure and the union can raise all these points before the
appropriate authority, as this authority is not concerned to the
absorption of KPL employees. Therefore, the management has G
requested to over rule the objections and to accord sanction for
closure as requested by the management as unless the closure is
decided the absorption of KPL employees cannot be decided.
The reasons advanced by the management for closure of their H
- -1
1156 SUPREME COURT REPORTS [2007] 10 S.C.R. ''

A company the objections of the union and counter objections of the ,.
management have been examined by the Government. As could
be seen from the various objections raised by the union, which are
all relating to the absorption of workers in the KFDC, voluntary
retirement etc. , the Government considers that these issues or
B objections of the union are not relevant to the request of the closure
or non-closure of the company. The union has not refuted anywhere
in their objection about the losses incurred non-functionality of the
company for the purpose, which was established. The union has .-
also not questioned the genuineness and adequacy of the reasons
c advanced by the management. Though the union has pointed out
that the closure is not justified and there is no adequacy and
genuineness in the reasons, but it has not substantiated as to how
the closure is not justified and how the reasons are not adequate
and genuine. The issues to be considered for closure of the
D company are status of the company, its viability to pursue its
)
objective etc. The union has not made out its strong case on these
issues. Therefore, Government after taking into consideration all
aspects of the matter has decided to allow the application of the
management and to grant permission for closure as required under
Section 25-0 of the Industrial Disputes Act, 1947. Accordingly
E
the following orders.
G.O. No.LD559 IDG 2004, Bangalore dated 23.11.2004
In the circumstances explained in the preamble, the permission of
the Government is hereby accorded as required under Section: 25-
F
0 of Industrial Disputes Act, 1947, to the management of Mis.
Karnataka Pulpwood Ltd., Bangalore to close down the above
industrial undertaking as proposed by them."
8. Aggrieved by and dissatisfied therewith, the respondents filed a
G writ petition before the High Court ofKarnataka which was marked as y

Writ Petition Nos.1651-1685of2005. In the said writ petitions, the
following prayers were made :
"(a) Issue a writ of certiorari or any other appropriate writ, order .
or direction quashing the order bearing reference LD559, IDG
H
MANAG.DIR.,KARNATAKAFORESTDEVE. CORPN. LTD. 1157
v.WORKMENOFKARNATAKAPULPWOODLTD. [SINHA,J.]
2004, Bangalore dated 23.11.2004 issued by the 2nd respondent, A
a true copy of which is produced and marked as Annexure-J since ·
the same is unjust, arbitrary and opposed to the scheme of the
Industrial Disputes Act, 1947.
(b) issue a writ of mandamus or any other appropriate writ, order
or direction, directing the respondents 1, 3 and 4 to immediately B
absorb the services of the petitioners 2 to 35 in KFDC pursuant
to Government Order dated 24.10.1991 vide Annexure-B and
also representations submitted by the 1st Petitioner Union vide
Annexure-E to H since non-consideration of the same by the
respondents 1, 3 and 4 is unjust, arbitrary and violative of Articles C
14 and 16 of the Constitution oflndia."
9. It appears that another writ petition was filed by another union ,
i.e., Kamataka Pulpwood Ltd. Employees Union (Regd) which was
marked as Writ Petition Nos.3520-3533 of2005. A learned Single Judge D
of the High Court of Kamataka by a judgment and order dated 28.1.2005
held as under :
"The learned counsel for the Petitioner submits that all the
employees are not interested in VRS scheme, some of them are
interested in taking closure compensation and absorpition in the E
services of the third respondent and further submits that the
petitioners have no objection for the closure, but their rights have
to be properly protected and the benefits available under law have
to be properly ensured.
f
In view of the submission made at the Bar, it is directed that the
second respondent is permitted to close the undertaking by
7.2.2005. The first respondent shall act upon the proposal ofVRS
scheme within three months from the date of closure. The
petitioners those who are willing to opt VRS can apply for VRS G
otherwise they can place the request for absorption in the services
of the third respondent and closure compensation to be payable
to the petitioners who are eligible for closure compensation in
accordance with law and to be payable as on the date of closure.
Accordingly, the writ petition is disposed of."
H
1158 SUPREME COURT REPORTS (2007] 10 S.C.R.

A 10. When the writ petition filed by the respondents herein crune up
for consideration before another Bench, it by a judgment and order dated
7.2.2005 held:
"I respectfully agree with the conclusion reached by this Court in
the aforesaid writ petitions. Hence,. these writ petitions are disposed
B of in terms of the order dated 28th Janµary, 2005 in WP
Nos.3520-3533/2005 (S-R) .
..
The petitioners herein are at liberty to opt either for VRS scheme
or for closure compensation with request for absorption in
c Kamataka Forest Development Corporation Ltd. on or before 28th
.February, 2005."
11. Both, the Management as also the workmen, preferred intra court
appeals thereagainst. A Division Bench by an order dated 22.6.2005
directed the Principal Secretary of the Government to inforn1 the Court
D as to whether the Government order dated 24.10.1991 on which reliance
had been placed by the respondent-workmen was subsisting or not. It,
ho.wever, does not appear from the records that any response thereto was
made. When the writ appeals preferred by the parties hereto came up
for consideration before the Division Bench, it allowed the appeals filed
E by the workmen and dismissed the appeals prefen-ed by the Management
stating:
"What is conterided by the learned counsel appearing for the
Corporation is that the Government order dated 24.10.1991 stands
F
superseded by the subsequent decision taken by the State
Government. He referred to the averments made in the written
statement filed by the Corporation before the learned Single Judge
and we find that the Corporation has nowhere stated that the said
order stands superseded. Be that as it may, no such order of the
State Government was pro4uced before the learned Single Judge
G
which could show that the earlier order dated 24.10.1991 stood
withdrawn or superseded. The learned State counsel, on the other
hand, on receipt of instructions from the Secretary of the
Department who is present in Court, informs us that the
Government order dated 24 .10 .1991 has not been superseded.
H
MANAG.DIR,KARNATAKAFORESTDEVE.CORPN.LTD. 1159
v.WORKMENOFKARNATAKAPULPWOODLTD. [SINHA,J.]
This obviously puts an end to the controversy. This being so, we A
are clearly of the view that the appellants are entitled to be absorbed
in the service of the Corporation and that the learned single Judge
was in error in not issuing such a direction.
It was, however, noticed:
B
We may, however, make it clear that the prayer made in the writ
petition for quashing the order of the Government granting
permission to close down the company was not pressed before
us and the same stands rejected."
12. Mr. Kailash Vasdev, learned counsel appearing on behalf of the
c
appellant, would submit that the matter in regard to closure of the company
being no longer in dispute, the High Court committed a serious error in
directing absorption of the workmen of the company by the appellant.
According to Mr. Vasdev, the financial implication of the said order comes
to about Rs.60 lac per year and the losses suffered by it would not be D
borne by the Government.
13. We may, however, place on record that during the pendency of
this SLP, a meeting was held on 21.6.2006 in regard to the claim of
absorption of the workmen concerned wherein it was resolved: E
"Agreeing with tl1e views of Sri Sogadu Shivanna MLA and others,
the Hon'ble Minister instructed tl1at the following action be taken
immediately :
(1) Necessary action to be initiated to withdraw the SLP filed F
before the Hon'ble Supreme Court on the High Court order
dated 22.6.2005 by following necessary procedure without
taking much time for the same and after this action to be
initiated to absorb these 81 employees.
Action: Managing Director, KFDC Ltd. And Principal Secretary, G
FEE"
(2) Arrears of differential salary on account of release of
increments and D.A. be released to the employees at an early
date.
H
1160 SUPREME COURT REPORTS [2007] 10 S.C.R.

A Action: Managing Director KFDC Ltd. and Principal Secretary,
FEE
(3) Any dues to be settled to VRS optees such as difference in _
ex-gratia etc. be settled without giving scope for the KPL
employees to approach Court oflaw again.
B
Action : Managing Director, KFDC Ltd. and Principal Secretary,
FEE
All the officers present in the meeting assured their full co-
operation in solving these issues in a time bound manner."
c
14. We are informed by Mr. Sanjay Hegde, the learned counsel
appearing on behalf of the Government ofKamataka that tl1e question of
absorption ofilie retrenched employees in the appellant-Corporation is·
pending before the Cabinet. We do not intend to make any observation
D as regards consequence arising therefrom.
15. Mr. Naveen R. Nath, learned counsel appearing on behalf of
the respondents would submit that the State of Karnataka as also the
appellant Corporation had all along been representing to the workmen
that services of those employees who have been working under the
E company would be absorbed by the Corporation and in that view of the
matter, this Court should not interfere with the impugned judgment. It was
furthermore contended that the State as also the Corporation had allowed
the order of the learned Single Judge dated 28.1.2005 passed in Writ
Petition No.3530-3533 of2005 to attain finality and in that view of the
F matter, there is absolutely no reason as to why the other workmen would
not be treated at par with them.
16. It is unfortunate that the State ofKamataka as also Appellant-
Corporation did not specifically take one stand or the other. It has been
G prevaricating its stand from stage to stage. The relationship between the
company and the respondents being employer and workmen is governed
by the provisions of the Industrial Disputes Act, 1947. The Management
of an industrial undertaking is entitled to take recourse to closure of its
undertaking in terms of the provisions of the said Act itself. Section
H 25-0 of the said Act lays down the procedure for closing down an
r MANAG.DIR,KARNATAKAFORESTDEVE.CORPN.LTD. 1161
v.WORKMENOFKARNATAKAPULPWOODLTD. (SINHA,J.]
undertaking. Once the permission had been given by the State A
Government, all consequences would ensue. In terms of sub-section (8)
of Section 25-0, all the workmen would be entitled to receive
compensation which shall be equivalent to 15 days' average pay for every
completed year of continuous service or any part thereof in excess of six
months. Section 25-S provides that in relation to a closure of an B
undertaking governed by Chapter V-B, the provisions of Sections 25-B,
25-D, 25-E, 25-F, 25-G, 25-H and 25 would also apply. Section 25-J
'• provides that the provisions of Chapter VA shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time being
in force. Indisputably in the event an undertaking is closed down, the only c
right which accrues in favour of the workmen is to obtain compensation
as provided for. We may notice that sub-section (4) of Section 250
provides that an order of the appropriate Government is final and binding
on the parties.
17. Before the Division Bench of the High Court, as we have noticed D.
hereinbefore, the order of the State Government directing prior permission
for effecting closure of the industrial undertaking has not been questioned.
In fact, even the learned Single Judge had made observations to the effect
that the closure may be affected. Having regard to the fact that rights of
the workmen flow from the provisions of the Industrial Disputes Act, a E
writ court could not have issued any other direction. One of the questions
which had arisen for consideration before the Division Bench was as to
whether the order of the State Government dated 24.10.1991 subsists.
For considering the said question, it was not necessary for the High Court
to ascertain the view point of the State. In the year 1991, a decision was F
taken not to close down the undertaking of the company. The 1991
decision was modified by a subsequent order that the undertakings also
as that of the company are merging with each other. No order of merger
has been passed. No decision by a competent authority under the
y Companies Act had been taken. Indisputably, the appellant and the G
company have not merged. In absence of any valid order of merger of
two different entities, evidently the relationship of employer and employee
between the respondents and the said company, as had been obtaining, I '

continued. Furthennore, as soon as the closure of an undertaking became
effective, it is trite that the said relationship ceased to exist. H
1162 SUPREME COURT REPORTS (2007] 10 S.C.R.1

A 18. The right of the workmen, therefore; was only to receive the
amount of compensation. If the State is not in a position to take upon
itself the financial burden of the appellant-Corporation for appointing the
concerned workmen; direction to continue their services could not be
issued. There cannot be any doubt whatsoever that the said order dated
B 24.10.1991 has been superseded by necessary implication. Both merger
of two undertakings and the closure of one undertaking do not stand
together. If the workmen, therefore, think that any other or further right
has accrued to them in terms of the purported assurance given by the
State, it may take recourse thereto before an appropriate forum but a
c writ petition was not maintainable.
19. For the foregoing reasons, we are of the opinion that impugned
judgment cannot be sustained. It is set aside accordingly. The appeals are
allowed. No costs.
D B.B.B. Appeals allowed.