Workmen Of Dahingeapar Tea Estate vs Dahingeapar Tea Estate

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Appeal (civil) 32 of 1957

Decision Date: 21 May 1958

Coram: N.H. Bhagwati, S.K. Das, S.R. Das, K. Subbarao, V. Bose

In the appeal titled Workmen of Dahingeapar Tea Estate versus Dahingeapar Tea Estate, decided on 21 May 1958, the Supreme Court of India recorded the case as Appeal (Civil) 32 of 1957. The petitioner was the workmen of the Dahingeapar Tea Estate and the respondent was the Dahingeapar Tea Estate itself. The judgment, reported as AIR 1958 SC 1026, was delivered by S. K. Das, J. The bench for the hearing comprised Chief Justice S. R. Das, followed by Justices N. H. Bhagwati, S. K. Das, K. Subbarao and V. Bose. S. K. Das, J. observed that the special leave appeal could be disposed of on a narrow ground after setting out the material facts of the dispute.

Dahingeapar Tea Company, Ltd., a corporation incorporated under the English Companies Act and having its registered office in the City of London, owned an extensive tea garden known as Dahingeapar Tea Estate. The estate comprised approximately 522 acres of planted land located in the Jorhat subdivision of Assam. At the relevant time the company employed more than 800 manual labourers together with about nineteen or twenty clerical staff members. On 7 November 1953 the vendor entered into a memorandum of agreement with Nikhli Jute Baling Company, Ltd., a corporation incorporated under the Indian Companies Act with its registered office in Calcutta, hereinafter referred to as the purchaser. The agreement stipulated that, effective from 1 January 1954, the vendor would sell absolutely and the purchaser would buy the entire Dahingeapar Tea Estate, including the lands described in the schedule, all tea gardens, bushes, seedlings, plants, crops, and all appurtenances such as machinery, electrical installations, water‑supply fittings, hospital equipment, carts, tools, utensils, as well as export quota rights, internal rights relating to tea production, insurance benefits and tea‑sale contracts. The agreed purchase price was nine lakh fifty thousand rupees, subject to the terms and conditions thereafter specified.

Clause 8 of the agreement provided that, upon payment of the purchase price in the manner described and upon payment for the estate, stores and stock, possession of the Dahingeapar Tea Estate would pass to the purchaser. Until possession was transferred, the vendor, through its manager and agents, was required to work and maintain the planted area as effectively as it had previously been cultivated, and it was expressly prohibited from removing or causing wilful damage to any furniture, fixtures, fittings, machinery or hospital equipment located on the estate at the date of the agreement.

The Court observed that Clause 9 of the sale agreement, which the respondent relied upon, provided that the purchaser could, at its absolute discretion, select any members of the tea‑estate staff whom it considered useful and sufficient for operating the estate. Those selected staff members were to receive fresh appointments effective from 1 January 1954. The clause further stipulated that any liability for the staff’s past services—including bonuses, gratuity, leave pay, dearness allowances and similar benefits—would be borne entirely by the vendor. In addition, the vendor was required to discharge all claims of staff members who were not retained by the purchaser, covering matters such as discharge of service, salary, bonuses, gratuity, leave pay and dearness allowances. Clause 20 of the same agreement required the vendor, upon completion of the conveyance, to deliver to the purchaser all title‑deeds and related papers in the vendor’s possession concerning the tea estate. Clause 21 complemented this requirement by obligating the vendor to hand over all garden books of account and other documents necessary for the purchaser to continue the operation of the estate, provided those documents were not needed by the vendor. The Court noted that the existence of this agreement became known to the Jorhat Jila Chah Mazdoor Sangha, an organisation affiliated with the Indian National Trade Union Congress, Assam Branch. The trade‑union federation is reported to have made a representation to the conciliation officer, and on 21 December 1953 the officer issued a notice fixing 30 December 1953 as the date for conciliation proceedings and directing the parties to maintain the status quo under Section 33 of the Industrial Disputes Act. On 22 December 1953 the purchaser issued a notice addressed “to whom it may concern.” That notice referred to the sale agreement and reiterated that the purchaser had an absolute right to give fresh appointments to any staff member it deemed fit and proper, and that the vendor had undertaken all liabilities for any claims of the staff, including discharge of service, salary, bonus, gratuity, leave pay and dearness allowance, arising from their past services. By means of the notice the purchaser invited applications for various posts and informed that any current staff member wishing to apply could do so for a fresh appointment with the purchaser. The notice made it clear that the purchaser would accord no preference to any existing staff member, would not give any understanding or assurance of appointment to any staff member, and that the staff would have to compete on an equal footing with external candidates applying for the same positions. The purchaser further stated that it would retain the discretion to leave certain posts vacant or to abolish them altogether.

In the sale agreement the vendor expressly retained the right to decide at its sole discretion which persons it considered suitable for appointment and also kept the authority to eliminate certain posts or to leave any vacancy unfilled. On 23 December 1953 the sangha, through its secretary, addressed a letter to the manager of the purchaser urging him to preserve the employment of all workmen, to deny them no benefits to which they were reasonably entitled, and to maintain the continuity of their service. The correspondence specifically asked the manager to give sympathetic consideration to this request and to refrain from altering the existing wages and conditions of service of the staff members. In concluding the letter the sangha pointed to other recent sales in the locality where the purchasers had “inherited all liabilities for past services and retained all staff on their then existing wages and amenities.” Subsequently, on 26 December 1953 the conciliation officer issued a fresh notice stating that conciliation proceedings would be held on 30 December 1953 as previously announced. The conciliation officer indeed conducted the proceedings on that date, but the matter was then adjourned to 4 January 1954. Later on the evening of 30 December 1953, while the conciliation proceedings were still pending, the vendor served the workmen with a notice of termination of their service effective from 31 December 1953. The termination notice informed the workmen that they would receive all pay and allowances due up to the end of December 1953, together with one month’s salary in lieu of notice, any leave salary due, and all provident‑fund dues. Because this notice was given during the pendency of the conciliation process, it fell within the ambit of Section 33 of the Industrial Disputes Act, 1947. The issues then presented to the court were framed as follows: (1) whether the transfer of management of Dahingeapar Tea Estate, resulting from the sale of the estate by the vendor, Dahingeapar Tea Company, Ltd., to the purchaser, Nikhli Jute Baling Company, Ltd., could lawfully terminate the services of the estate’s staff, and whether any agreement between buyer and seller could deprive the staff of their rights under the original service contracts and the continuity of their employment; and (2) if such termination were not permissible, whether (a) the outgoing management, Dahingeapar Tea Company, Ltd., was justified in proposing to terminate the staff’s services at the moment the garden’s management changed hands, and (b) the incoming management, Nikhli Jute Baling Company, Ltd., was justified in refusing to uphold the continuity of service and the original terms and conditions of the staff of Dahingeapar Tea Estate. While this reference was pending, a formal indenture dated 29 January 1954 was executed, wherein the vendor granted, conveyed and transferred to the purchaser, free from all encumbrances and liabilities, the lands, buildings, plant, machinery, tea plants, export quota rights, and all other assets and business of Dahingeapar Tea Estate, together with covenants that the purchaser would hold and enjoy the property peacefully from 1 January 1954 and that the vendor would discharge its debts and indemnify the purchaser accordingly.

In this case, the parties executed an indenture on 29 January 1954 in which the vendor transferred to the purchaser, free of all encumbrances, a comprehensive list of assets including all lands and hereditaments forming the Dahingeapar Tea Estate, all buildings, factories, godowns, offices, bungalows and labour quarters, all machinery, electric installations, fittings, water‑supply appliances, hospital equipment, carts, tools, utensils, implements, both live and dead stock, and furniture. The transfer also comprised all tea plants, bushes, seedlings and the current tea crop; all export‑quota rights and internal rights relating to the sale or production of tea; and the benefits and advantages of contracts for the sale of tea produced on the estate, all effective from 1 January 1954. Finally, the vendor conveyed the entire business carried on in connection with the estate as of that date, granting the purchaser full ownership of all premises and properties therein.

By virtue of the covenant in the indenture, the vendor promised that the purchaser, from 1 January 1954 onward, would hold, possess and enjoy the transferred properties peacefully and quietly, free from any encumbrances, and that the vendor would discharge its debts and liabilities and adequately indemnify the purchaser against any claims or demands arising out of those liabilities.

Subsequently, on 29 June 1954, the Labour Tribunal rendered its award. The Tribunal held that: (1) the garden had been sold as a going concern; (2) the staff’s services continued up to 4 January 1954; (3) no retrenchment was justified on grounds of trade because the number of staff had actually increased from about nineteen or twenty to twenty‑three or twenty‑four; and (4) the transfer could not alter the staff’s terms of service and the contract between vendor and purchaser was not binding upon the staff. As a result, the Tribunal concluded that the purchaser was not entitled to refuse to maintain continuity of service for the staff of the Dahingeapar Tea Estate.

Accordingly, the award directed that any former staff members who had been excluded from service after the new management took charge, but who were willing to resume their former positions on the same terms and conditions, be reinstated. It further ordered that former staff who had remained unemployed and had not taken other employment be paid salaries for the period of forced unemployment caused by the purchaser’s actions.

On 15 July 1954, the Government issued a notification under Section 17 of the Industrial Disputes Act, mandating that the award be published and become enforceable thirty days after publication. The purchaser then filed an appeal before the Labour Appellate Tribunal. The appellate Tribunal pronounced its judgment on 21 September 1955, setting aside the original award, albeit on different grounds.

In 1956 the Labour Appellate Tribunal, which was composed of two members, allowed the appeal filed by the purchaser and set aside the award that had been made by the lower tribunal, although the reasons for setting it aside were somewhat different from those given by the lower tribunal. The workmen, dissatisfied with that decision, filed a further appeal before this Court, for which special leave was granted on 6 April 1956. The workmen, who are the appellants in this proceeding, argued that when the tea estate was sold as a going concern, the purchaser could not unilaterally alter the terms and conditions of service that applied to the existing members of staff, and that the contractual agreement between the vendor and the purchaser, as set out in Clause 9 of the sale agreement, did not bind the workmen. The respondents, who are the tea company that purchased the estate, strongly contended that there was no employment contract between the discharged members of staff and the purchaser, and that any claim the former might have in respect of retrenchment or similar matters must be directed against the vendor, not against the purchaser, and that they could not be regarded as workmen of the respondent. The Court observed that it was not necessary for the purpose of disposing of the present appeal to decide the broader question of whether a transfer of a business as a going concern necessarily obliges the new management to retain the services of the existing workmen on the basis of the original contracts and with continuity of service. That broader issue was therefore left for determination in a more appropriate case.

The first issue that the Court needed to consider was whether the Government of Assam was competent to refer the dispute that had arisen between the workmen of Dahingeapar Tea Estate, represented by the Assam Chhah Karmachari Sangha, and the incoming management of the estate, represented by Nikhli Jute Baling Company, Ltd., as an industrial dispute within the meaning of section 2(k) of the Industrial Disputes Act. On this point, the industrial tribunal had found in favour of the workmen, a finding that was affirmed by the President of the Appellate Tribunal, although the other member, Sri P. R. Mukherjee, expressed a contrary view. The President stated: “The dispute which gives rise to this reference is actually between workmen employed in the tea estate on the one hand and their employers, both the outgoing and incoming managements of the estate on the other … In my view, the definition of industrial dispute, as also the meaning of employer, are wide enough to cover the point under consideration in this appeal, not only between the workers and the outgoing management, but also the workers and the incoming management and between two managements themselves. Accordingly, the reference cannot be said to be invalid, or ultra vires of the Industrial Disputes Act.” Relying on the majority decision of this Court in Workmen of Dimakuchi Tea Estate v. Management of Dimakuchi Tea Estate, 1958 (1) LLJ 500, the Court held that the present controversy unquestionably qualified as an industrial dispute within the meaning of the Act, and accordingly the reference made by the Government of Assam was deemed competent.

In the present case the Court explained that when workmen bring a dispute against their employer, the individual or individuals whose employment or non‑employment is the subject of the dispute need not be strictly classified as “workmen” under the Act. Rather, they must be persons in whose employment or non‑employment the class of workmen has a direct or substantial interest. Accordingly, the dispute between the vendor and the workmen who were discharged fell within the definition of “workmen” because those workmen lost their positions while conciliation proceedings were still pending. That circumstance did not, however, convert them into workmen of the purchaser. Even so, the discharged employees were persons whose employment status directly affected the actual workmen employed at Dahingeapar Tea Estate. The Court therefore applied the principle laid down in Western India Automobile Association v. Industrial Tribunal, Bombay 1949 LLJ 245, as well as the later decision in Workmen of the Dimakuchi Tea Estate, and concluded that the dispute unquestionably qualified as an industrial dispute within the meaning of the Industrial Disputes Act. Because a competent reference had been made by the Government of Assam to a tribunal created under section 7 of the Act, the tribunal possessed the full authority conferred by the statute. Under section 10(1)(c) the Act provides that an industrial dispute may be referred to a tribunal for adjudication, and section 10(4), as it stood at the relevant time, required the tribunal to limit its adjudication to the points of dispute specified by the appropriate Government and to matters incidental thereto. The Court also recalled the observation in Niemla Textile Finishing Mills, Ltd. v. Second Punjab Industrial Tribunal 1957 (1) LLJ 460, noting that the functions of industrial tribunals in adjudicating referred disputes differ fundamentally from the functions of arbitration tribunals in commercial matters, and the overall scheme of the Act defines those distinct functions.

The principal issue before the Court was whether the industrial tribunal had exercised its functions in compliance with the provisions of the Industrial Disputes Act, 1947. A particular difficulty in the present matter stemmed from the broad and general wording of “question 1,” which was bifurcated into two parts. The first part asked whether the transfer of management of Dahingeapar Tea Estate, consequent upon its sale as a going concern to the respondent, automatically terminated the services of the staff members. The second part inquired whether any agreement between the buyer and the seller could deprive the staff members of the rights they enjoyed under their original contracts and disrupt the continuity of their service. The Court expressed the view that industrial tribunals were not empowered to consider such matters as abstract questions of law. Moreover, the Court doubted that the tribunal could answer those inquiries merely as legal abstractions without examining the specific contractual and factual circumstances surrounding the parties’ relationship.

Much of the controversy in this case, and perhaps a large part of the disagreement between the industrial tribunal and the Labour Appellate Tribunal, arose from the different perspectives from which question 1 was approached. The disagreement also existed between the two members of the latter body, each of whom expressed differing views on the matter. The Court expressed the view that it was not necessary, and doubted, that the industrial tribunal should decide the legal question of whether a transfer of management resulting from a sale automatically terminates workmen's services. The workmen, whether they were members of the staff or ordinary labourers, could be affected by the outcome of the dispute. The answer to such an abstract question, the Court noted, must depend on the varied circumstances that arise from the contractual relationship between the parties. It may even be doubted whether, in a contract between two employers—vendor and purchaser—concerning a going concern, the future services of employees, apart from accrued rights such as gratuity and bonus, can be legally transferred. Such a transfer would then be binding on the employees, affecting their legal rights and obligations under the new employer. Similarly, regarding the second part of the question, no abstract answer could be given unless the rights and obligations under the original contracts of service and under the sale agreement were known. What the industrial tribunal actually did in the present case was to combine the two questions based on the facts that were admitted or proved. It did so in order to answer the principal issue of whether the respondent, Nikhli Jute Baling Company, Ltd., was justified in refusing to maintain the continuity of service. The question also concerned the original terms and conditions of service of certain members of the staff of Dahingeapar Tea Estate. The industrial tribunal answered this issue in favour of the workmen, and it issued directions for their reinstatement and for payment of salary for the period of forced unemployment. The tribunal based its decision on several findings that emerged from the evidence presented during the proceedings in this case. First, it found that the tea estate had been sold as a going concern with a reservation regarding the employment of members of the staff. Second, it held that all manual labourers, as distinguished from staff members, were retained on their previous terms with continuity of service. Third, it observed that three staff members were retained but as new recruits, thereby lacking continuity of service. Fourth, it concluded that there were no trade or efficiency reasons for the exclusion of the remaining eighteen or nineteen staff members. The tribunal quoted that no one alleged that those staff members had committed any breach of service conditions, rules or misconduct that would justify immediate termination of their services. It further stated that no one claimed they could be deprived of their right to service and continuity of.

The Court observed that the staff members had served the estate for a long period without any fault in their conduct. During the conciliation proceedings the respondent clearly stated that it was prepared to retain twelve of the sixteen existing staff members on their former pay scales, but only if those employees applied anew as fresh entrants through formal petitions for appointment. In effect, the respondent imposed two conditions: first, that the incumbent staff members submit fresh applications, and second, that they be appointed as newcomers, thereby forfeiting any continuity of service and the ancillary rights they might have accrued such as gratuity and bonus. The industrial tribunal held that these conditions were unreasonable. It further remarked that the incoming management intended to disturb only the staff members and not the garden’s labour force, and that such discrimination was likely to generate unrest.

The tribunal concluded that, based on its findings, it possessed the jurisdiction to issue the order it did, regardless of any purely legal question concerning whether a contractual relationship existed between the respondent and the discharged staff members. The Appellate Tribunal did not overturn any of the industrial tribunal’s findings; however, it framed the two issues as abstract questions of law, a methodological approach the Court deemed fundamentally incorrect. Although the President of the Appellate Tribunal noted that an industrial tribunal does not decide abstract legal questions, he nonetheless proceeded on the premise that the workmen’s services had been terminated by the previous management through proper notice and that, because most of the staff did not submit fresh applications under the new terms, no enforceable contract of service existed between the workmen and either the outgoing or incoming management. The Court identified that this reasoning ignored three critical circumstances. First, the notice of discharge issued by the outgoing management occurred during an industrial dispute and while conciliation proceedings were pending, thereby invoking the protection of Section 33 of the relevant Act. Second, despite the issuance of notice, all staff members were allowed to continue in their positions until 4 January 1954. Third, the industrial tribunal had found that the conditions sought by the incoming management were intended to create discrimination between “workmen” and other employees, a step likely to provoke industrial unrest. Furthermore, the clause in the memorandum of agreement and the sale deed that granted the respondent discretion to employ or not employ members of the staff, or to re‑engage them, was recognized by the Appellate Tribunal as a genuine provision between the vendor and purchaser. Nevertheless, the pivotal question before the industrial tribunal was how that clause would operate in relation to the workmen within the context of the industrial dispute that had been referred for adjudication. In light of these considerations, the Court affirmed that the industrial tribunal’s findings warranted respect and that the Appellate Tribunal had not provided sufficient justification for departing from those findings.

In the present matter the industrial tribunal concluded that the clause in question operated to the disadvantage of the workmen, and the Court expressed that it was not convinced that the Labour Appellate Tribunal had provided sufficient reasons for departing from that conclusion. The Court noted that the two members of the Appellate Tribunal were divided on the issue of whether the staff who had been discharged were entitled to receive retrenchment compensation from the outgoing management; however, the Court held that this particular dispute was no longer material to the resolution of the present case. A variety of points were examined, and numerous authorities of High Courts and Labour Courts were cited during the arguments concerning the legal effect of a transfer of a business as a going concern. The cited decisions addressed the question of whether the incoming management becomes a legal successor to the outgoing management, and, if so, to what extent the incoming management must honour the labour rights that had already accrued, such as gratuity, bonus and the continuity of service of employees previously engaged by the outgoing management. After considering the factual matrix of the case, the Court decided that it was unnecessary to render an opinion on those broader questions or to evaluate the correctness of the cited authorities. Instead, the Court based its judgment on a concise ground: an industrial dispute had been referred to the industrial tribunal for adjudication; that reference was proper, giving the tribunal jurisdiction to decide the dispute and to exercise all powers conferred on it by the relevant enactment; in exercising those powers the tribunal arrived at factual findings on which it was competent to pass its award; the Labour Appellate Tribunal had not overturned those findings. Accordingly, the Court allowed the appeal, set aside the decision of the Labour Appellate Tribunal and restored the award made by the industrial tribunal. The Court also directed that the appellants be awarded the costs of this appeal.