GURU GHASIDAS UNIVERSITY, BILASPUR

SCHOOL OF LAW

PROJECT ON

“Retrenchment: Conceptual Analysis”

SUBMITTED TO

Mr. Nitin Toppo

Assistant Professor
Labour Law

SUBMITTED BY

NIKHIL SAHU
ROLL NO: - 16001131

6th SEMESTER

Year- 2018-2019
 DECLARATION

I, NIKHIL SAHU, Roll No- 16001131 BA-LLB 6th Semester of

The GURU GHASIDAS UNIVERSITY do hereby declare that,

This project is my original work and I have not copied this project or any part
thereof from any source without acknowledgement.

I am highly indebted to the authors of the books that I have referred in my project
as well as all the writers of all the articles and the owners of the information taken
from the website for it.

It is only because of their contribution and proper guidance of my faculty advisor

Mr. Nitin Toppo that I was able to gather light on the subject.

NIKHIL SAHU
Roll. No. - 16001131
B.A.-LL.B.
SEMESTER- 6th
 CERTIFICATE

I am glad to submit this project report Retrenchment:

Conceptual Analysis of Labour Law as a part of my
academic assignment.

The project is based on Research methodology and further

discusses the interview method.

I think this would be significant for academic purposes as well

as prove
Information to all the readers.

Here though I declare that this paper is an original piece of

research and
The borrowed text and ideas have been duly acknowledged.

Faculty Signature

________
________
 ACKNOWLEDGEMENT

I would like to express my deepest and earnest gratitude to Mr. Nitin Toppo
faculty for Labour Law, School of Law

For giving me this opportunity to do a project on such a valuable topic

Retrenchment: Conceptual Analysis of Labour Law

I am grateful for the assistance, guidance, and support that were extended during
the course of excellent research.

I am also thankful to the college administration for providing

The resources necessary for thee research work. I thank my parents and
Friends their moral support and love throughout my research work and
Project preparation.

Above all I thank the almighty God for blessing me with the health and the
vitality to complete this project.

NIKHIL SAHU
ROLL NO - 16001131
BA.-LL.B.
SEMESTER- 6th
 INDEX

PAGE
NO. TOPIC- RETRENCHMENT
NO.

1. Retrenchment, Definition, for any reason whatsoever, cases 3

2. Impact of 1984 amendment, termination of casual workers 5

3. Retrenchment can be only in a live industry, closure should be real 6

4. Termination not as punishment, Exclusion from the definition of retrenchment 6

5. Condition for valid retrenchment, notice mandatory, retrenchment compensation 7

6. Rate of compensation, Notice to appropriate Government 9

7. Remedy - violation of sec 25-F, Impact of 1976 & 1984 amendment 10

8. Retrenchment procedure, last come first go, 12

9. Departure from the rule ‘last come first go’ 13

10. Re-employment of retrenched workman – Section 25-H & Conditions 14

11. Sec 25-H only prospective, not applicable for closure or transfer 15

12. Retrenchment compensation on transfer of undertaking- scope, background 16

13. Condition to be fulfilled to be entitled for compensation, 17

14. Obligation to pay compensation, 18

15. When Sec 25-FF right are not available, Retrenchment attracts Sec 25-F , 19

16. Closure Notice, Compensation in case of closure of undertaking – Sec 25-FFF 20

17. Sec 25-FFF Infringes Art 14 And 19(1)(g), Closure differs from retrenchment, 21

18. Distinction between lay-off and retrenchment 23

19. Conclusion and Suggestions 24

20. Bibliography 25

2
 RETRENCHMENT

Retrenchment is a permanent measure to remove surplus staff because of some

basic change in the nature of the business. It results in a complete severance of employer-

employee relationship. It is a case of involuntary unemployment to the workman. Until

1953 there was no statutory provision in India to give immunity or protection from the

risk of such involuntary unemployment. In 1953 some provisions were incorporated in

the Industrial Disputes Act and in 1976 some more amendments were introduced.

Definition-section 2(OO) of the Act defines retrenchment as termination by the employer

of the service of a workman for any reason whatsoever, otherwise than as punishment

inflicted by way of disciplinary action. But it does not include (a) voluntary retirement of

1
the workman; (b) retirement on reaching the age of superannuation; (bb) termination of

the service of the workman as a result of the non-renewal of the contract of employment

between the employer and the workman concerned on the expiry of the contract being

terminated under a stipulation contained therein; or (c) termination of services on ground

2
of continued ill health .

3
“For any reasons whatsoever”: In Sundarmany’s case the bank, employed respondent

as a temporary employee because the permanent cashier was away. When the permanent

cashier joined duty, Sundarmany’s services were dispensed with. The High Court held

this was nothing but discharge of Sundarmany as surplus employee. The bank appealed

before the Supreme Court and Justice Krishna Iyer gave a very wide content to the

definition of retrenchment. The words “for any reason whatsoever” was interpreted to

mean whatsoever be the reason every termination spells retrenchment. The Court

1 Added by the 1984 amendment.

2 K.M. Pillai – Labour and Industrial Laws 11th Edition 2007 pg 164
3 State Bank of India v Sundarmany AIR 1976 SC III;

3
observed that had the bank known the laws, half a month’s pay would have concluded the

story and the bank was ordered to reinstatement the employee.

In Hindustan Steel case, the workmen were timekeepers for a number of years on the

fixed term. Their services have been extended from time to time. Later, consistent with

the economic policy, the employer chose not to renew the contract. The Supreme Court

held that such termination is retrenchment falling within Sundarmany’s case. The Court

discussed the impact of a composite order which implied the single order covering an

appointment and termination of services. In cases of composite order the absence of an

independent order terminating the services will not affect the coverage of retrenchment.

4
Above decisions were reiterated in Delhi Cloth & General Mills v Sambu Nath , which

held that striking off the name of a workman from the rolls amounted to retrenchment.

5
In Santosh Gupta v State Bank of India 1980 , the appointment of an employee of the

Bank in 1973 was terminated after a year in 1974 on the ground that she did not pass the

test which would have enabled her to be confirmed in the service. The Supreme Court

held this as retrenchment under section 25-F. The management contended that the

termination was not due to discharge of surplus labour and therefore, section 25-F and

section 2(OO) would not attract. Rejecting this argument the court observed that section

2(OO) is so comprehensive to cover termination for any reason whatsoever except those

not expressly included in section 25-F or not expressly approved for by other provisions

of the Act such as section 25-FFF. The object of the above provisions is to compensate

6
the workman for loss of employment, until he finds alternate employment .

4 AIR 1978 SC 8
5 Santosh Gupta v State Bank of India 1980, Lab IC 87 (SC)
6 Indian Hume Pipe Co v Workmen, AIR 1960 SC 251

4
Impact of 1984 amendment : However, after the insertion of section 2(OO) (bb) in

1984, the above position substantially changed. Hence, when the employment was for a

stipulated time period under a contract then the non-renewal of the contract of

employment on the expiry of the stipulated period would not amount to retrenchment.

Probationer entitled to benefit- In Karnataka S.R.T Corpn. V. Sheikh Abdul

7
Khaddar , the Supreme Court held that discharge from employment or termination of

service of a probationer also amount to retrenchment. As such while discharging a

probationer if the requirements of section 25-F had not been complied with, the same is

void. Workers engaged only during crushing season in a sugar factory were ceased to

work subsequent to closure of the season will not attract retrenchment.

Termination of casual worker’s service is not retrenchment -Termination of casual

worker engaged for particular urgent work on completion of such work will not amount to

retrenchment. Where the workman was engaged on casual basis without a written service

contract or letter of appointment, for doing a particular urgent work, his service

automatically came to an end when the work was over and there was no retrenchment.

Therefore, the question of complying with the procedure for retrenchment does not arise

in such case. Further, in such a case merely because the workman was required repeatedly

for doing the urgent work and thus had to work for considerable time, the termination of

8
service would not amount to retrenchment . Unlike in Sundarmany’s case or in the

Hindustan Steel Ltd case where the contract of employment was for a specific period that

came to an end by efflux of time in terms of the agreement between the parties, the

context and facts in the instant case are quite different.

7 AIR 1983 SC 1320

8 Marinda Cooperative Sugar Mills v Ramkishen AIR 1996 SC 332

5
Retrenchment can be only in a live industry - Since the termination of the services of a

workman who is employed in an industry constitutes retrenchment, it clearly indicates,

that there must be an “industry” which must be running or in existence. It required an

industry which is alive and not closed. As in the case of strike, lock-out or lay-off there

9
cannot be a retrenchment in a closed or dead industry .

Closure should be real- Closure should not be mere pretence or cloak to avoid the

liability of a retrenchment. “If there is no real closure, but a mere pretence of a closure or

it is a mala fide one there is no closure in the eye of law and the workmen can raise an

industrial dispute”. Where there has been closure or not is a question of fact and once it is

proved that there is real and factual closure the bona fide or mala fides behind it is

immaterial to the fact of closure.

Termination not as punishment- Termination of the services of a workman as

punishment inflicted by way of disciplinary action will not be a retrenchment. The facts

of the case are to be considered whether a particular termination is a retrenchment or by

10
way of disciplinary action. Hence, the termination of services on ground of misconduct ,

ill health and inefficiency of the workmen are declared to be not retrenchment.

Exclusion from the definition of retrenchment-

a) Voluntary retirement- Being an act of the employee in terminating the services by

abandoning or resigning from the service such as voluntary retirement will not be

covered by the definition.

b) Superannuation-To attract termination of service on superannuation it is necessary

that:-

9 Union of India v Pitu Kishu (1977) I Lab IC 1236 (Cal)

10 Imperial Tobacco Co. v Ethiraj (1954) II LLJ 637 (Lat)

6
 i) There must be stipulation on the point of retrenchment in the contract of

employment between the employer and employee; and

ii) The stipulation must be with regard to the age of superannuation.

Termination of service on satisfaction of these two conditions will not constitute

retrenchment. But if such age of superannuation is not mentioned either in the

contract of employment or invalid standing orders, it will not be treated as

11
termination on superannuation under this clause .

c) Termination on non-renewal of service contract or on expiry of fixed term

contract- When the employment was for a stipulated time period under a contract

then the non-renewal of the contract of employment on the expiry of the stipulated

12
period would not amount to retrenchment .

13
d) Continued ill health -Termination owing to the continued ill health of the workman is

not covered in retrenchment. Ill health contemplated not only physical but mental

ill health as well. ‘Continued ill health’ includes any physical defect or infirmity

incapacitating a workman for future work for an indefinite period. The question

whether a workman is suffering continued ill health is a question of fact which may

be proved or disproved on either side.

Condition for valid retrenchment- of a workman in an industry having continuous

service of not less than one year

i) He is given one month’s notice of it with reasons, or one month wages in lieu of

such notice. Provided no such notice is necessary if it is under an agreement

specifying the date of termination of service;

11 J.K.Cotton Spinning Mills & Co v State of UP AIR 1990 SC 1808

12 Harmohinder Singh v Kharga Canteen (2001) 5 SCC 540
13 Anand Bihari v Rajasthan St Rd Corpn 1991 Lab IC 494 (SC)

7
 ii) He is paid compensation equivalent to 15 days average pay for every completed

year of company’s service or any part of it exceeding six months; and

iii) Notice is served on the appropriate government or on such notified authority.

14
In Vishwamitra Press v Workmen , it was held that mere receipt of notice or wages in

lieu of notice period does not mean that the workers voluntarily gave up their service and

so cannot be precluded from questioning the propriety of their discharge.

Notice Mandatory- Notice or wages in lieu of notice under section 25(a) is mandatory.

Failure to give notice or wages in lieu of notice will vitiate the retrenchment.

Retrenchment Compensation - Under Section 25-F(b), payment of compensation is a

mandatory condition precedent for the validity and operative effect of the retrenchment. If

the compensation under Section 25-F(b) is not offered within the notice period under Sec

25-F(a), such notice though initially valid would become inoperative and void and no

effect could be given to the notice. Notice or wages in lieu of notice under clause (a) of

Sec 25-F and payment of retrenchment compensation calculated in the manner set out in

clause (b) of Section 25-F are conditions precedent for retrenchment. Hence, these

clauses operate as a prohibition against retrenchment until those conditions are fulfilled.

15
In Pramod Jha v. Bihar , the Supreme Court highlighted two fold object to Sec 25-F-

(1) a retrenched employee must have one month time to search for alternate job;
(2) the workman must be paid retrenchment compensation at the time of retrenchment so
that once he is retrenched there is no need for him to go to his employer demanding
retrenchment compensation.
In order to be entitled to the compensation, the workmen should have put in minimum of

one year continuous service during a period of twelve calendar months; 190 days work in

the underground mine or 240 days work in other cases.

14 (1952) I LLJ 181

15 (2003) 3 ACE 167

8
Rate of compensation. - Under Section 25-F (b), the workman is entitled to 15 days

average pay for every completed year of continuous service, or any part thereof in excess

of six months continuous service. Under the second proviso to Section 25-C the employer

has right to set off any amount paid to be workman as lay-off compensation during the

preceding twelve months as against the compensation payable for retrenchment. In case

of death of the workman, his legal heirs are entitled to the retrenchment compensation.

Compensation by Money Order- Sending the retrenchment compensation by Money

Order when the workman refused to accept the payment of compensation is sufficient

16
compliance of Sec 25-B .

Payment of Cheque- Payment of compensation by cheque will be sufficient provided the

cheque could be cashed before the retrenchment is effected. But when the cheque towards

the retrenchment compensation was given after the banking hours and thus the cheque

would be cashed only on the next day, it was held that the retrenchment order issued on

the day when the cheque was given cannot be valid.

Notice to the appropriate Government- Sec 25-F (c) lays down the third condition

namely, to give notice of the retrenchment to the Government. However, previous notice

to the government under section 25-F(C) is only directory and not mandatory. In Bombay

17
Union of Journalists v State of Bombay , the Supreme Court held that sec 27-F(a) and

(b) are mandatory whereas under section 25-F(e) previous notice to the government will

not render the retrenchment invalid. Notice under Section 25-F(e) was only to give

information to the Government so as to keep informed about the conditions of

employment of different industries within its region.

16 Management of India Compressors Makers Corpn v D D Gupta (1997) Lab IC 694 (Delhi)
17 1964 I LLJ 351 (SC)

9
Remedy against violation of Section 25-F: As the right or obligation dispute pertaining

to Section 25-F cannot be raised straight away in writ proceedings. The Supreme Court

laid down that the remedy provided by way of making a reference under Section 10 of the

Industrial Disputes Act is the exclusive remedy which should be availed of in respect of

rights and obligations which are the creation of the Industrial Disputes Act itself.

Retrenchment compensation differs from Gratuity- The device of gratuity is a retiral

benefit to an employee for his long, continuous service. But retrenchment compensation

is intended to give relief for the sudden and unexpected termination of employment.

Since the contexts and purposes of both of them are not the same, a workman can claim

both gratuity benefit and retrenchment compensation, provided the gratuity scheme

18
framed in the establishment concerned does not prevent him for such double benefit .

On termination of the services of a temporary employee on ground of surplusage it was

held that he is entitled to both gratuity and retrenchment compensation.

The Impact of 1976 and 1984 amendment on Retrenchment- Under Section 25-N

inserted by the 1976 amendment the following conditions are required for valid

retrenchment, an establishment employing 100 or more workers on an average per

working day in the preceding 12 months.

(i) No workman employed in such establishment shall be retrenched who has been in the

company’s continuous service for not less than one year until:-

(a) The workman has been given three months notice in writing stating reasons for

retrenchment and the period of notice has expired or the workman has been paid

wages for that notice period;

(b) No such notice is required if the retrenchment is under an agreement which specify

the date of termination of service;

18 Indian Hume Pipe Co Ltd v Workmen AIR 1960 SC 251

10
(c) The workman has been paid compensation equivalent to 15 days average pay for

every completed year of service or any part thereof in excess of six months; and

(d) Notice in the prescribed manner has been served on the appropriate Government

(ii) The appropriate Government on receipt of notice should hold an enquiry after which

19
it may grant or refuse in writing the permission for retrenchment .

In case the appropriate Government does not communicate the permission or the refusal

within three months from the date of service of notice seeking permission, the workman

is deemed to be validly retrenched after expiry of three months.

Section 25-N(7) further empowers the appropriate Government to withdraw by order of a

dispute involving questions of retrenchment as well in an establishment covered by

Chapter VB pending before a Conciliate officer or the Central or State Government, if the

appropriate Government is of opinion that such retrenchment is not in the interest of

industrial peace or that such retrenchment is by way of victimization. The Government

has to transfer such dispute to an authority specified by that Government by notification

in the official Gazette. The order passed by such authority is final and binding on the

employer and the workman. Sec 25N(b) being mandatory, if the compensation is found to

be insufficient, the retrenchment would be void ab initio in the absence of bona fide

action of the employer or waiver of the workman.

20
Penalty. - Sec 25-Q provides punishment of imprisonment to an extent of one month, or

fine up to Rs. 1,000/-, or with both for violation of the requirement of giving notice to

Government and the permission thereafter under Section 25N (1)(c) or for the violation of

sub-section (4) of Section 25-N of the Act.

19 P.L. Malik- Industrial Law

20 S.M. Chaturvedi- Labour and Industrial laws 13 th Edition
11
RETRENCHMENT PROCEDURE -

Section 25-G incorporates the well recognised principle of retrenchment in industrial law,

namely, the “last come first go” or “first come last go.” The Section becomes applicable

only if all the conditions laid down herein are fully and cumulatively satisfied they are:-

(i) The person claiming protection should be a workman as defined in section 2(s);

(ii) He should be a citizen of India;

(iii) The “industrial establishment” employing such workman must be an “industy”

under sec 2(j)

(iv) He should belong to a particular category of workmen in that establishment; and

(v) There should not be an agreement between the employer and the workman contrary

to the procedure of “last come first go.”

Given all the above conditions, the employer shall “ordinarily” retrench the workman

who was the last person in that category. However, the employer can deviate from this

procedure on justifiable reasons which should be recorded.

Last come first go- The principle of “last come first go” is statutorily incorporated in

Section 25-G. If a case for retrenchment is made out, it would normally be for the

employer to decide which of the employees should be retrenched. However, this rule is

not intended to deny the freedom of the employer to depart from it for sufficient and valid

reasons. The rule “last come first go” is intended to afford a very healthy safeguard

discrimination of workmen in regard to retrenchment. The departure from the ordinary

industrial rule of retrenchment without any justification, may itself, in a proper case, lead

to the inference that the impugned retrenchment is the result of ulterior consideration and

hence it is mala fide and may amount to unfair labour practice and victimization. The rule

of ‘last come first go’ has to be complied with for the validity of the retrenchment.

12
Departure from the rule “last come first go”.-The rule is that the employers shall

retrench the workman who came last, first, popularly as ‘last come first go’. It is not

inflexible rule and extraordinary situations may justify variations. For instance, a junior

recruit who has a special qualification needed by the employer may be retained even

though another who is one up is retrenched. But there must be valid reason for this

deviation. The burden is on the management to substantiate the special ground for

departure from the rule. Section 25-G insists on the rule “last come first go” being applied

category wise. This is to say, those who fall in the same category shall suffer

retrenchment only in accordance with the principle of ‘last come first go’. Where the

seniority list of particular workmen is the same, there is a telling circumstance to show

that they fall in the same category. Grading for purposes of scales of pay and like

considerations will not create new categorisation. If grades for scales of pay, based on

length of service, etc. are evolved, that process amounts to creation of separate categories.

In the 1980 Supreme Court Jorehaut Tea Co. case, out of 23 workmen 16 were

retrenched in accordance with Section 25-G, but the remaining 7 workmen’s

retrenchment deviated from Section 25-G. Supreme Court observed that grading for the

21
purposes of scales of pay and like considerations will not create new categorisation .

However, it is incumbent upon the employer to record the relevant circumstances and the

reasons for deviation from the rule like the efficiency, unreliability, or habitual

irregularity of the workmen who is retrenched, so that the tribunal to which the dispute is

taken will be able to ascertain whether the departure is justified by sound and valid

reasons. Therefore, employer’s order of retrenchment deviating the ‘last come first go’

rule must be a ‘speaking order’ otherwise it will be treated as mala fide or amounting to

unfair labour practice and victimization.

21 Om Oil & Oil Seeds Exchange Ltd v Workmen (1966) I LLJ 324 SC

13
 22
Effect of departure from ‘last come first go’ rule - A retrenchment violating the ‘last

come first go’ rule will be declared invalid unless such deviation is supported by valid

and justifiable reasons. Normally the workman so improperly and illegally detained is

entitled to reinstatement and also for payment of remuneration for the period during

which the workman remained unemployed.

Re-employment of retrenched workman-Section 25-H- The rule under section 25-H

provides that after effecting retrenchment, if the employer proposes to take into his

employment any person.

i) He shall give an opportunity to the retrenched workmen who offer themselves for
re-employment; and
ii) These retrenched workmen have preference over the new applicants. Thus, Section
25-H imposes a statutory obligation on the employer to give preference to
retrenched workmen when he subsequently employs any person.

Conditions to apply Section 25-H The preferential right of employment secured by

Section 25-H to a retrenched workman will be available only if the following conditions

are satisfied:-

(i) The workman should have been ‘retrenched’ prior to the re-employment in question.
In other words, if that workman’s termination of employment was not due to
retrenchment, but due to some other eventualities like dismissal, discharge or
superannuation, etc., he cannot claim the preferential right of re-employment under
this section.
(ii) He should be a citizen of India.
(iii) He should offer himself for re-employment failing which he will forfeit the right.
The offer is made in response to the notice given by the employer under Rule 76 of
the Industrial Disputes (Central) Rules, 1957 or corresponding State Rules.

22 Dr Avtar Singh – Introduction to labour and Industrial laws 2

nd
editon

14
(iv) The workman should have been retrenched from the same category of service in the
industrial establishment in which the re-employment is proposed.
It is not the designation, but the nature of the work that will decide the category of the

post. Thus, a workman who was designated as assistant storekeeper, but who was

substantially doing clerical work was retrenched. Subsequently, the management

employed three persons as clerks in that establishment. It was held that Section 25-H is

violated as the retrenched workman is not given preferential re-employment.

Section 25-H only prospective in effect- not retrospective in application.

Section 25-H not applicable - if closure or transfer of undertaking- Section 25-H

when it gives preference to retrenched workmen indicates that the preference will be

available to those workmen who were retrenched individually. It will not apply to a case

where either because of transfer of business or closure, the services of all workmen are

terminated. This can be only possible view because the definition of retrenchment under

Section 2(00) of the Act does not specifically include the case either of transfer of

business or of a closure of an industry.

Terms and conditions of service when re-employed.- There is difference of opinion by

the various courts as to whether re-employment connotes taking back into employment or

service on the same terms and conditions to which the employee was entitled previously.

The Bombay High Court holding that there is nothing in the section or any other

provision in the Act which gives the workman a right to secure re-employment on his

previous terms and conditions of service.

Back Wages : Retrenched employees later reinstated in service pursuant to the orders of

a tribunal or courts are not entitled to back wages as a matter of right for the period when

they were out of employment.

15
RETRENCHMENT COMPENSATION ON TRANSFER OF UNDERTAKING

Section 25-FF-Scope of - Under Section 25-FF of the Industrial Disputes Act, 1947,

where the ownership or management of an undertaking is transferred by agreement or by

operation of law to a new employer, the workmen are entitled to notice and compensation

as contemplated in Section 25-F, as if they had been retrenched. But this is not applicable

to such transfer if:-

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

(b) The terms and conditions of services of the workmen after such transfer are not

less favourable than those before the transfer;

(c) The new employer is legally liable to pay compensation in case of retrenchment

on the basis of continuous service as if there was no break in service by the

transfer.

Legislative background.- Section 25-FF was originally introduced in Chapter VA by

Industrial Dispute (Amendment) Act, 1956. The Supreme Court in Hari Prasad

23
Shivashankar Shukla v. A.P. Divelkar , and Barsi Light Railway Co.Ltd. v. K.N.
24
Jogalkar , held that no retrenchment compensation under Section 25-F was payable to

workmen whose services were terminated by the employer on a real and bona fide closure

of business or when termination occurred as a result to transfer of ownership from one

employer to another. The original Section 25-FF was negative in nature. The above

decision of the Supreme Court demanded amendment to Section 25-FF hence, Section

25-FF was recast to its present form by the Industrial Disputes (Amendment) Act,

1957.The amended Section has made it clear that the employer is liable to give notice and

pay compensation in case of transfer of undertaking to workmen.

23 AIR 1957 SC 121

24 (1957) I LLJ 243 (SC)

16
Conditions to be fulfilled to be entitled for compensation- the notice and compensation

as in retrenchment are available only on satisfaction of the following conditions: -

(i) There should be a transfer of ownership or management of an undertaking from

employment to another by agreement or by operation law; and

(ii) Such undertaking must be an ‘industry’ within the meaning of Section 2(j); and

(iii) The workmen claiming the rights should be one coming within the definition of

‘workmen’ under Section 2(s); and

(iv) Such workmen should have put in a minimum one year’s continuous service

immediately before the transfer of management or ownership.

Transfer of Management or ownership - the primary condition to attract Section 25-FF

is that the ownership or management of an undertaking is transferred from the employer

in relation to that undertaking to a new employer. If the transfer is fictitious or benami,

the section has no application. The transfer of the ownership or management of the entire

undertaking must take place. Any partial transfer like transferring a branch or department

of an undertaking will not attract Section 25-FF.

25
In R.S Madho Ram & Sons Agencies v. Workmen , a partnership firm dealing in

varied allied lines of business transferred one of its businesses, namely, retail business to

a newly incorporated private company. The Supreme Court held that this transfer was not

covered by Section 25-FF for the following reasons. There was a common muster roll for

all the employees, the same set of conditions governed them, they were subject to inter-

department transfers, they were treated as one unit for the purpose of bonus and they were

not employed for any particular branch or line of business. Further, it was manifest that

the retail business department could not be considered to be a separate undertaking or

25 (1964) I LLJ 366 (SC)

17
establishment for the purpose of Section 25-FF of the Act. The transfer of the undertaking

under Section 25-FF does not necessarily include the transfer of employees as well.

26
In Ambala Cantonment Electrical Supply Corporation v. Workmen , the

Corporation was taken over by the Punjab State Electricity Board as per the provisions of

the Indian Electricity Act, 1910. Some of the old corporation workers were recruited to

the new Board as fresh entrants. Consequently, the workers claimed retrenchment

compensation under Section 25-FF from the company. It was held that the compulsory

purchase of the Corporation by the Board amounted to a transfer of the management of

the undertaking from one employer to another employer even though it did not involve

the transfer of the employees. Hence, the workmen were entitled to compensation under

Section 25-FF in such transfer, court can review and issue appropriate directions as to

service, benefits, re-employment of employee, etc. Similarly, when a government

undertaking is taken over by the Company along with the employees for the continued

working of the undertaking, it was held that the employees ceased to be employees of the

government but became employees of the Company.

The Obligation to pay Compensation: becomes definite only when : (a) there is

retrenchment to the employee, or (b) the ownership or management of the undertaking is

except in cases mentioned in the proviso to Section 25-FF, transferring to a new

employer. Hence, the right under Section 25-FF does not arise either before the

27
determination of employment or before the transfer of the undertaking .

26 AIR 1971 Punj & Har 274

27 Comm of Income Tax, Kerala v Gemini Cashew Sales Corporation , Quilon AIR 1967 SC 1559

18
When Section 25-FF right are not available.-

(i) The service of the workmen has not been interrupted by such transfer;

(ii) The terms and conditions of service applicable to the workmen after such transfer are

not in any way less favourable to the workmen than those applicable to him

immediately before the transfer; and

(iii) The new employer is, under the term of such transfer or otherwise, legally liable to

pay to the workman, in the event of his retrenchment, compensation on the basis that

his service has been continuous de has not been interrupted by the transfer.

Retrenchment by transferee attracts Section 25-F and not Section 25-FF. --- In

28
Workmen of Subong Tea Estate v. Subong Tea Estate , the estate was transferred to

Hindustan Tea Company and possession was handed over. All its employees got

instructions about their work and received their salaries from the Hindustan Tea Company

on 17-2-1959. The manager of the vendor with permission of the vendee retrenched 8

workers after payment of retrenchment compensation on 31-8-1959. The workers

challenged the validity of the retrenchment on the ground that it contravened Section 25-F

and 25-G. the Supreme Court found that the facts in this case proved that the vendee took

charge of the estate on 17-2-1959 and so became the employer of the employees who

were working in the estate. Therefore, Section 25-FF is not applicable to the impugned

retrenchment. It is retrenchment effected by the transferee and who in the meanwhile had

become the employer of the retrenched workmen. In that case Section 25-F and 25-G will

be applicable. Since Section 25-F and 25-G are not complied with, the retrenched so

declared is invalid and the workmen are entitled to reinstatement with full back wages.

28 SC (1964) I LLJ 33

19
Closure Notice.- Section 25-FFA inserted by the 1972 amendment requires an employer

who intends to close down an undertaking to give at least sixty days advance notice in the

prescribe manner to the appropriate Government. The notice shall clearly state the reason

for the intends closure of the undertaking. The following establishments are exempted

from this requirement:

(i) Undertaking in which less than fifty workmen are employed ;

(ii) Undertaking in which less than fifty workmen were employed on an

average per working day in the preceding 12 months ;

(iii) Undertaking set up for the construction of building, bridges, roads, canals,

dams or for other construction work or project. The appropriate

Government is invested with the power to give exemption from this

provision to any undertaking for such specified period, if the Government

is satisfied that owing to such exceptional circumstances as accident to the

undertaking or death of the employer or the like it is necessary to do so.

Compensation in case of Closure of undertaking--Section 25-FFF: Scope of the

29
Section -Section 25-FFF was substitute in 1957 by the Industrial Disputes (Amendment)

Act, 1957 to override the decision of the Supreme Court. The Section is focused to provide

some relief to the workmen whose services stand terminated consequent to the closing down

of an undertaking except on certain situations. Under the section, where an undertaking is

closed down, every workman, who has not less than one year’s continuous service in that

undertaking before the closure, is entitled to notice and compensation as provided in Section

25-F. however, the proviso to Section 25-FFF(i) says that if the closing down of the

undertaking is on account of unavoidable circumstances beyond the

29 th
S.N. Mishra- Labour and Industrial Laws 24 Edition Central law Publication

20
control of the employer, then the compensation under Section 25-F (2) shall not exceed

the workmen’s average pay for three months.

Explanation to the above proviso says that a closure of the undertaking due to any of the

following reasons shall not be deemed to be closure on account of unavoidable

circumstances beyond the control of the employer. The reasons are:

(i) Financial difficulties or financial losses of the employer ; or

(ii) Accumulation of indisposed stocks ;or

(iii) Expiry of the period of lease or licence.

Sub-section (2) of section 25-FFF exempted the employer from the liability to give notice

and pay compensation on the closing down of an undertaking in the following situation;-

(a) The undertaking is set up for the construction of buildings, bridges, roads,

canals, dams or other construction work, and

(b) The undertaking is closed down within two years from the date on which it

was set up ;

(c) The closure is due to the completing of the work.

(i) To provide relief in the event of any involuntary unemployment in case of

closure of an undertaking;

(ii) To infuse a sense of security in the worker in relation to his job from the

absolute will and pleasure of the employer ;

(iii) To raise the position and status of labour and to standardizes its rights in relation

30
to industry.

30 O.P.Malhotra- Labour and Industrial Law

21
Whether Section 25-FFF infringes Articles 14 and 19 (i)(g) of the Constitution.- the

Supreme Court in many cases had held that Section 25-FFF does not violate the equal

protection clause of Article 14 as the impugned Section 25-FFF applied to all the

industrial which fall within a certain group ad that the classification made therein is

reasonable because it is not arbitrary and that it is related with the object sought to be

achieved by the Act. Similarly, the fundamental right under Article 19(i)(g) to carry on

trade or occupation which included to close down the business is also not violated by

Section 25-FFF in view of the reasonable restrictions attached to the right.

Closure differs from Retrenchment-

(i) In the case of closure the undertaking is closed or permanently discontinued,

whereas in retrenchment the business continues its operation even though the

services of some of the workers are terminated due to surplusage or due to any

other reason.

(ii) Notice or wages in lieu of notice and payment of compensation under section 25-F

(a) and (b) are conditions precedent for a valid retrenchment. Retrenchment is

prohibited without first satisfying those requirements. Any retrenchment before

complying with those conditions will be invalid and inoperative. But such notice

or wages in lieu of notice and compensation are only the resultant rights of the

workmen whose services are terminated consequent to the closure of the

undertaking.

(iii) The ‘last come first go’ rule under section 25-G and the duty to give preference to

the retrenched workman in case of re-employment under section 25-H which are

strictly applicable in case of closure. Section 25-H is never attracted to cases of

transfer of business or of closure of an industry.

22
Distinction between lay-off and Retrenchment

a) Term lay off has been defined in Sec 2(kkk) and the term retrenchment in Sec 2 (oo)

b) In case of lay-off there is failure, refusal or inability of the employer to give

employment to a workmen for a temporary period while in retrenchment the

workman is deprived of his employment permanently.

c) Lay-off is on account of one or more reasons mentioned in Sec 2(kkk) while in

retrenchment the termination is on the ground of service of labour.

d) The reasons of lay-off are entirely different as compared to reasons of retrenchment.

e) In lay-off the labour force is not surplus but in retrenchment it is surplus which has

to be retrenched.

f) In lay-off the relationship of employment is not terminated while in retrenchment it

is terminated.

g) In lay-off the relationship of employment is only suspended while in retrenchment it

is terminated.

h) Consequences of both are different to each other and are governed by different

norms.

23
 Conclusion

Industry must be given due emphasis, it is a fact that the development of industry is

correlated to labour contentment. Therefore to achieve this, our country aims to create

a welfare State on a socialistic pattern of society as expressly embodied in our

Constitution of India. Employers often use the weapon of retrenchment in Downsizing

Policy to lessen their workforce due to heavy expenses. Downsizing literally means to

reduce the size of the organization by cutting down the number of employees presently

working in the company. The major techniques of adopting downsizing strategy are

retrenchment, lay-off, closure and voluntary retirement.

Suggestions

1. Bringing awareness amongst the workers regarding the various benefits available to

them with regard to retrenchment compensation

2. Workmen must be encouraged to approach competitive authority to bring about

amicable solution between the management and the workmen.

3. The Charter of Demands system, which is more prevalent in recent times, must be

beneficial to both workmen and management, it shall mention the terms of

retrenchment compensation.

4. Downsizing is also aimed at increasing profitability by reducing the costs as well as

enhancing and improving the productivity of the retained employees, but the fear

arises that the performance of the retained employees might be reduced because of job

stress they experience due to additional workload on them. In order to ensure

performance the retained workers should be motivated.

5. While following the process of retrenchment the workmen must be provided with

other employment opportunities in other industries and compensated for the period of

unemployment.

24
 Bibliography

Books Referred: -

nd
1. P. L. Malik – Industrial Law – 22 Edition
th
2. Prof K.M. Pillai – Labour and Industrial Laws 11 Edition 2007
th
3. S. M Chaturvedi – Labour and Industrial laws- 13 Edition Central

Law Agency
nd
4. Dr Avtar Singh – Introduction to Labour and Industrial laws 2 Edition 2008
th
5. S.N. Mishra- Labour and Industrial Laws 24 Edition Central

Law Publication

6. O.P.Malhotra- Labour and Industrial Law – vol 2

25