Management of Cholamandalam Software Ltd. vs Presiding Officer, I Addl. Labour Court, Madras and Others

R. Jayasimha Babu, J.—This writ petition condng on for hearing on Thursday, January 12, 1995, upon perusing the petition and the affidavit

filed in support thereof the order of the High Court, dated February 19, 1993, and made herein and the counter affidavits filed herein and the

records relating to the order in I.D. Nos. 813 to 827 of 1989 dated September 25, 1992, on the file of the 1st Respondent comprised in the return

of the respondent to the writ made by the High court, and upon bearing the arguments of Mr. P. Chidambaram, Senior Advocate for Mls. T.S.

Gopalan, P. Ibrahim Kalifulla and P. Ravindran, Advocates for the petitioner, and of Mr. T. Fenn Waiter, Advocate for the Respondents 3 to 17

and the second respondent not appearing in person or by Advocate and having stood over for consideration till this day, the Court made the

following Order :

This petition is directed against the common award dated September 25, 1992 made by the First Additional Labour Court, Madras in I. D. No.

813 to 82711989 by which the non employment of Respondents 3 to 17 by the petitioner was held to be not justified and the employer was

directed to reinstate them with continuity of service and backwages.

The case of the respondent-workmen before the Labour Court was that they had been employed by Respondent No. 2 Tiam House Services

Limited and were later transferred to the petitioner company Cholamandalam Software Limited; that to the shock and surprise of the workmen, the

management resorted to illegal lock out from April 4, 1989 and thereafter sent a letter captioned as cessation of employment was in fact, the

termination of the services of the workmen in an illegal manner. It was also alleged that persons junior to these workmen have been retained

ignoring the principle of ''last come first go'' and that the termination was without reasonable cause.

The petitioner in answer to the claims so made filed a counter statement in which it was not denied that the respondent workmen had earlier

been employed by Respondent 2 herein. Petitioner has stated that these workmen with their consent were absorbed in the services of the petitioner

company and that the petitioner had (sic.)agreed to protect their past services under Respondent 2.

The petitioner company, it was stated, was formed in the year 1982 with the object of rendering computer services to its customers relating to

collection and maintenance of information and to develop computer software application to suit the special requirements of the customers; that in

March 1983, the petitioner set up a data processing division which undertook data processing services such as preparation of pay rolls, and

preparation of financial accounting and inventory control related statements; that subsequently there was a sharp decline in demand for the services

of the data processing division of the petitioner due to the easier availability of indigenously manufactured computers and that by the year 1989, the

division became unviable and the petitioner was forced to close down the data processing operations. It was further stated by the petitioner that as

on January 4, 1989, 46 persons were employed in the data processing divisions and that on that day all these workmen were informed of the

decision to close down the data processing operations. On January 30, 1989 notice under Sec. 25FFA of the Industrial Disputes Act was sent to

the State Government intimating the Government that the data processing operations would be closed with effect from April 3, 1989.

Petitioner also averred that on April 3, 1989 the services of the workmen of the data processing unit were terminated consequent to the closure

of the data processing operations and that by October 1989, the software division of the petitioner was also closed. It was asserted that the

company was not carrying on any activity as on the date it filed the statement is as on December 18, 1989 and that prior to the said date the

services of all 71 of its employees had been terminated, after paying them closure compensation in accordance with the provisions of the Industrial

Disputes Act.

The second respondent in its statement denied any liability on the ground that the workmen had ceased to be its employees long prior to the

cessation of their employment under the petitioner by virtue of their resignation and that therefore, it was not answerable for the claims of the

petitioner.

The Labour Court after considering the evidence adduced before it by the parties, rejected the contention putforth by the petitioner in oral

argument that the petitioner was not a factory. It held that the petitioner employed more than 100 persons at the time the services of the workmen

were terminated and was therefore, required to comply with the provision of Chapter Y-B of the Industrial Disputes Act. As the prior permission

of the Government had not been obtained as required u/s 25(O) of the Act, the action of the petitioner in closing down the establishment was held

to be unjustified. It was also observed by the Labour Court that the establishment of the petitioner and that of the second respondent are inter

connected, belonging as they did, to the same group of companies.

Mr. P. Chidambaram, learned senior counsel appearing for the petitioner attacked this Award principally on three grounds:

The first submission was that the whole of Chapter Y-B of the Industrial Disputes Act is inapplicable to the.'' petitioner ,as the petitioner is not an

''Industrial Establishment'', as defined in Section 251 of the Act, the petitioner not being a ''factory'' by virtue of Explanation II to Sec. 2(m) of the

Factories Act. The petitioner having conformed to the requirements of the applicable provisions namely 25FF and 25FFA and having paid the

amounts, which it was required to pay the workmen in accordance with S. 25FF the petitioner had no further liability towards the workmen.

The Second submission was that the finding of the Labour Court that the petitioner had employed more than 100 persons is contrary to the

evidence on record and is perverse.

The last submission. was that that nature of the relief granted by the Labour Court is wholly unpragmatic and impossible of compliance as the

petitioner company has closed down its Computer Data Processing Division and also the software divisions. Even if the termination is regarded as

unjustified, the relief could only be by way of compensation in monetary terms.

If the petitioner is not an ''industrial establishment'' as it is defined in Sec. 25L of the Act, the whole basis on which the Award is made, would

become unsustainable.

It was submitted for the petitioner, that the workmen in the claim of the statements had not specifically referred to Chapter V-B of the Act, and

therefore, the respondent could not deal with the applicability or otherwise of the provisions contained in Chapter V-B in its counter statement.

Counsel contended that it was incumbent on the workmen to specifically state the reasons as to why the termination was not justified, and if non-

compliance with Chapter V-B was a ground then the same ought to have been stated in the claim petition.

In answer to this, Mr. T. Fenn Walter, learned counsel for the respondent-workmen submitted that the industrial disputes having been raised

by individual workman under S. 2A of the Act, the issue as to whether the termination was justified would cover every possible ground on which

the termination can be held to be not justified. The petitioner''s justification for the tern-d terminaion being alleged closure, it was the duty of the

petitioner to have explained as to how that closure was in accordance with the provisions of the Act.

Learned counsel for the petitioner is right in submitting that the ground on which the termination is being attacked should be set out as far as

possible with reasonable precision in the claim statement so that the employer is made aware of the case he is required to meet. However, in

matters relating to industrial adjudication, it would not be just or equitable to expect the workmen to make their claims with the same degree of

precision expected of a plaintiff in action in the Civil Court. In industrial application, the background in which the dispute is raised is normally well

known to both parties. The employer who has the requisite information relating to the employment of the workmen, under it, is also aware of the

legal frame work within which it has taken action and it is for the employer to justify its action and demonstrate that the action taken is not violative

of the applicable provisions of law.

The petitioner had taken the stand in its counter statement filed before the Labour Court that the cessation of employment was due to closure.

The petitioner was aware of the legal provisions governing closure. I am therefore unable to agree with the submission that by reason of the

worianen not having referred to Chapter V-B of the Act in the claim statement, the employer was prejudiced in its defence.

There is however no difficulty in examining the contention of the petitioner that it is not an industrial establishment as defined in Sec . 251 of the

Act, on the basis of proved or admitted facts on record. admittedly , the petitioner was carrying on business of computer data processing and had

two divisions - computer data processing division and software development division. The workmen concerned in this dispute were the employees

of the computer data processing division. It is also not in dispute that the employer was not carrying on any other activity which can be regarded as

a manufacturing process.

Section 25L of the Industrial Disputes Act in Chapter V-B reads as follows :

25L : Definitions : For the purpose of this Chapter :

(a) ""Industrial establishment"" means

(i) a factory as defined in Clause (m) of Sec. 2 of the Factories Act, 1948 (63 of 1948);

(ii) a mine as defined in Clause (f) of sub-,section (1) of Sec. 2 of the Mines Act, 1952 (35 of 1952); or

(iii) a plantation as defined in Clause (f) of Section 2 of the Plantations Labour Act, 1951 (69 of 1951);

(b) Notwithstanding anything contained in sub-clause (ii) of Clause (a) of Section 2 :

(i) In relation to any company in which not less than fifty one percent of the paid up share capital is held by the Central Government or.

(ii) in relation to any Corporation (not being a a Corporation referred to in sub-clause (i) of Clause (a) of Section 2 established by or under any

law made by Parliament.

The Central Government shall be the appropriate Government"".

The petitioner admittedly does not fall within sub-clause (ii) or (iii) of Section 25L(a) as admittedly, it is neither a mine nor a plantation. It can only

be covered by sub-clause (i) if it is a factory, as defined in S. 2(m) of the Factories Act. Sec . 2(rn) of the Factories Act reads as follows :

Factory"" means any premises including the precincts thereof :

(i) Wherein ten or more workers are working, or were working on any day of the preceding twelve months and in any part of which a

manufacturing process is being carried on with the aid or power, or is ordinarily so carried on or.

(ii) where twenty or more workers are working or were working on any day of the preceding twelve months, and in any part of which a

manufacturing process is being carried on without the aid of power, is ordinarily so carried or;

but does not include a mine subject to the operation of Mines Act, 1952 (35 of 1952), or (a mobile unit belonging to the armed forces of the

Union, a railway running shed or a hotel, restaurant or eating place);

(Explanation I : For computing the number of workers for the purpose of this clause all the workers in (different groups and relays) in a day shall

be taken into account).

(Explanation II : For the purposes of this clause, the mere fact that an electronic data processing unit or a computer unit is installed in any premises

or part thereof, shall not be construed to make it a factory if no manufacturing process is being carried on in such premises or part thereof).

Relying on Explanation H which was inserted by Act 20 of 1987, with effect from December 1, 1987, petitioner contends that it is not a

''factory'' as it was not carrying on any manufacturing process apart from the use of the electronic data processing or computer units installed in its

premises. Counsel submitted that though petitioner had obtained factory licence prior to the introduction of the Explanation II, after that

Explanation was introduced, the petitioner could no longer be regarded as factory. The authorities it is said, also accepted this position and the

petitioner did not renew its licence after the introduction of Explanation II.

Clause (i) as also clause (ii) of Section 2(i) and Explanation II refer to manufacturing process. Manufacturing process is defined in Section 2k

of the Factories Act as follows :

Manufacturing process"" means any process for :

(i) making, altering, repairing, ornamenting finishing, packing, oiling, washing, cleaning, breaking up, demolishing or otherwise treating or adapting

any article or substance with a view to its use, sale transport, delivery or disposal, or

(ii) pumping oil, water, sewage or any other substance; or

(iii) generating, transforming or transmitting power; or

(iv) composing tyres for printing, printing by letter press, lithography, photogravure, or other similar process or binding; or

(v) constructing, reconstructing, repairing refitting, finishing or breaking up ships or vessels, (or)

(vi) preserving or storing any article in cold storage.

Counsel sought to raise the larger issue as to whether electronic data processing can at all be regarded as a manufacturing process. According

to him, the article or substance must necessarily be three dimensional, and processing data within the computer and the printing of the results of the

analysis in suitable format cannot be regarded as an ''article'' or ''substance''. That question had not been raised nor was any evidence led on such

an issue before the Labour Court. The petitioner had not at any time in the past raised such a contention and had in fact obtained a factory licence,

thereby accepting the position atleast prima facie, that electronic data processing did amount to a manufacturing process.

The factory licence of the petitioner has been marked as Ex. M. 41. It shows that the licence had been renewed in November 1986 for a

period of one year from December 31, 1987 and was further renewed in November 1987 for another period of one year till December 31, 1988.

The renewal made in November 1987 was prior to the date of coming into the effect of the Act 20 of 1987, namely on December 1, 1987. The

fact that the petitioner had a factory licence earlier and that the same had been renewed periodically prior to the amendment of the Act, cannot

have the effect of depriving the petitioner of the benefits of the amended provisions which took effect after the renewal.

The position of electronic data processing units Vis-�-vis the Factories Act underwent a drastic change after the amending Act 20 of 1987

came into force. Explanation II added by that amending Act is clearly intended to exclude premises on which electronic data processing or

computer units are installed and wherein no other manufacturing process is being carried on from the scope of the definition of Factory.

Explanation II in 5. 2(m) has to be construed reasonably. The legislative intention of excluding electronic data processing units or computer

units, when such units are located in a premises where no manufacturing process is carried on, cannot be effectuated if it were to be held that a

manufacturing process is involved in the use of such computer units and therefore, the premises wherein such units is installed is a factory. The

reference to manufacturing process'' in this Explanation must necessarily be construed as referring to manufacturing process other than the use of

the computer units. Ale explanation cannot also be confined in its application to a premises wherein the computer unit is merely installed. Such

installation can only be for use and not for storage.

It was suggested by the learned counsel for the respondent that Explanation II to Section 2(n) of Factories Act would come into play only in

the computer unit referred to therein was installed in the premises by the employer for captive use, and that the Explanation would have no

application to cases where the computer unit is used for the purpose of rendering service to customers for a price. It is not possible to limit the

application of Explanation II in the manner suggested.

The Explanation does not refer to the nature, extent or purpose for which the unit is used. The only condition to be fulfilled for availing the

benefit of the Explanation II is that the computer unit should not have been installed in a premises where a manufacturing process is being carried

on. A premises wherein a manufacturing process is being carried on does not cease to be a factory by reason of the computer unit having been

installed in such premises. A computer unit installed for captive use in such premises, would thus not be covered by the Explanation. The fact that

the computer unit installed in a premises wherein no other manufacturing process is being carried on is used for a commercial purpose does not

render Explanation II in Section 2(m) inapplicable to such an unit.

As admittedly the petitioner was not carrying on any other manufacturing process in the premises wherein the petitioner had its electronic data

processing unit, and the electronic data processing units even if regarded as involving manufacturing process, having been specifically excluded

from the definition of ""factory"" when such units are installed in a premises where no other manufacturing process is taking place, the petitioner-

establishment ceased to be a factory, within the meaning of Sec. 2(m) of the Factories Act with effect from December 1, 1987.

As provided under Sec. 25K of the Industrial Disputes Act, the provisions contained in Chapter V-B can only apply to Industrial

Establishments in which not less than 100 persons were working on any day of the preceding twelve months. Industrial Establishment for the

purpose of Sec. 25K and Chapter V-B is industrial establishment 1 as defined in Sec . 25L. The provision contained in 25(O) with respect to

closure of undertakings are applicable only to industrial establishment to which Chapter V-B applies.

After the undertaking of the petitioner had ceased to be a factory, it could no longer be regarded as an industrial establishment for purpose of

S. 25L of the Act, eventhough it continued to be an ''industry'' as it is defined in Sec. 20 of the Act and even if it had employed 100 or more

workmen. Consequently, the whole of Chapter V-B of the Act was inapplicable to the petitioner on and after December 1, 1987.

The Labour Court has held that the petitioner establishment is a factory as the petitioner had been preparing pay rolls and other particulars,

data processing software and printed forms to its customers for a price on commercial basis. The processing of data and preparation of software

was regarded by the Labour Court as a manufacturing process. ne Labour Court however did not advert to Explanation II in Sec . 2(m) of the

Factories Act and did not consider the effect of that provision before holding that petitioner is a factory as defined u/s 2(m) of the Act. The finding

so recorded by the Labour Court cannot be sustained.

The fact that the petitioner had in fact closed its operations after complying with Sec . 25F and Sec . 25FFA is not in dispute. The Award has

been made against the petitioner only on the ground that the petitioner had failed to comply with S. 25(O). Once it is held that the petitioner had no

obligation to comply with Sec. 25(O) the impugned award had necessarily to be set aside.

The Labour Court has held that the petitioner had employed over 100 workmen. The petitioner has assailed that finding contending that the

evidence before the Court was not properly appreciated by the Court. The Labour Court examined this question elaborately with reference to the

documents produced by the petitioner. It is not the case of the petitioner that any material document was not considered by the Labour Court.

The Labour Court examined the register of daily workers maintained by the petitioner establishment which contained the names of 130

employees. It noticed that in several places, there was over writing. It also noticed that thought it was noted that 35 persons had resigned, the date

of resignation was not entered, and the note regarding the resignation appeared to have been written on one and the same date in the same ink.

Though the employer''s witness W.M. I stated that the employer had in its custody all the resignation letters and the same could be produced, such

letters in fact were not produced. The Labour Court therefore rightly concluded that Ex. M1 could not be relied on to hold that the number of

employees was less than 100. It has also observed that the alteration contained in M.1 must have been effected before filing of the document in the

Court.

The Labour Court also noticed numerous discrepancies - it noted that while employer claimed that only 71 persons had been employed by it,

at the time of closure. Ex. MI showed that even after excluding those shown to have resigned, atleast 94 workmen were employed. In Ex. M2

employees'' register, 123 names were found of whom 9 were said to have resigned. That register also had overwriting and alterations. Ex. M. 58

employee''s list- another document relied on by the employer - was prepared on December 10, 1990 and that would show that 79 persons were

employed for the month of March, 1989. In the letter dated July 6, 1988 sent by the employer to the Deputy Chief Inspector of Factories, it was

stated in the annexure that the strength of the workers was 99 comprising 77 men and 22 women. M.W. 2 stated in his deposition that apart from

the persons whose names are noted in the registers, a few casual workers may also be there. He was not in a position to specify the number of

such casual workmen. It was admitted by him that Exs. MI and 2 contain the names of the permanent workers alone. The finding recorded by the

Labour Court, in this background that more than 100 persons must have been employed at the time of respondent''s services were terminated,

cannot be regarded as arbitrary.

It was submitted by the learned counsel for the petitioner that the burden is on the workmen to show by positive evidence that the number of

employees. was in excess of 100 and it was for them to give the names of the persons employed. It is not possible to accept this submission as all

the registers and other records relating to the persons employed by the petitioner are in the custody of the employer and it is for the employer to

disclose all the material documents from which the Court can, after considering the same, in the light of other evidence if any before the Court

determine the number of workmen employed at the relevant time.

The Labour Court has considered of the documents produced by the parties and has found that several corrections and other entries made

therein could not he accepted as genuine and as having been made at the relevant time. It has taken note of the admitted position that some casual

workers were employed. For the purpose of 25K, it is not merely permanent workers who are to be taken into account but all the workmen

employed on an average working day in the preceding twelve months. This question being one of facts, the finding recorded by the Labour Court,

after considering the materials before it, cannot be interfered with. The finding, so recorded cannot be characterised as perverse.

The last submission of the learned counsel for the petitioner was that even if it could be held that petitioner has violated S. 25(O) the Labour

Court could not direct reinstatement of the workmen as the employer had already closed down its operations. It was submitted that the Labour

Court misdirected itself regarding the legal status of the petitioner employer which is a company registered under the Companies Act with a distinct

and legal entity. The Labour Court, it was submitted, had wrongly assumed that merely because petitioner company was one of the companies of

the group known as Murugappa Group, services of the employees were transferable from one company to another and that an award could be

made against a ''group'' which had no legal identity and which was not the employer. Counsel for the workmen however contended that the group

of companies set out in Ex. M. 70 constitute the Murugappa Group of Companies and that this group constitutes one Industrial establishment for

purpose of S. 2(ka) and S. 25L of the Act, and therefore, the petitioner had an obligation to provide employment to workmen in any of the other

companies in the group.

A company registered under the Companies Act, has a distinct legal personality of its own which is unaffected by the fact that its shareholders

or directors may also be shareholders or directors of other companies. Though such companies may be inter connected, in law they are separate

and distinct. Though the inter-connection of such companies and common managerial control may be relevant for the purpose of Companies Act

or the law governing monopolies, such inter-connections do not render them the joint employer of all the workmen employed by them separately

and do not make them jointly and severally liable for the adjudicated claims of such workmen. The reinstatement directed by the Labour Court

cannot be construed as a direction for reinstatement of the employees in the services of anyone of the companies which form part of the group of

companies under the control of the same person or group of persons.

If the termination of the petitioner''s services can be held to have been affected in breach of S. 25(O), the relief that could be granted could

only be in monetary terms, and not reinstatement in their original positions, as admittedly the petitioner closed its operations several years ago.

As the petitioners were not required to comply with Section 25(O), the termination of employment of the respondent workmen cannot be

regarded as unjustified by reason of non-compliance with S. 25(O). The petitioner has admittedly complied with Sec . 25FF and the closure

effected cannot be regarded as illegal.

In the result, this writ petition is allowed. The impugned award is set aside and the claims made by the respondent workmen are dismissed.

Petitioner however shall not be entitled to recover any amount that may have been paid to the respondents during the pendency of this petition.