Retrenchment means

A Constitution Bench of Supreme Court in Hariprasad Shivshankar Shukla vs. A.D. Divikar (1957) SCR 121 interpreted the word ‘retrenchment’ as contained in Section 2(oo) of the ID Act, holding :

“For the reasons given before, we hold, contrary to the view expressed by the Bombay High Court, that retrenchment as defined in S.2(oo) and as used in S. 25-F has no wider meaning than the ordinary, accepted connotation of the word: it means the discharge of surplus labour or staff by the employer for any reason whatsoever, otherwise than as punishment inflicted by way of disciplinary action, and it has no application where the services of all workmen have been terminated by the employer on a real and bona fide closure of business as in the case of Shri Dinesh Mills Ltd. or where the services of all workmen have been terminated by the employer on the business or undertaking being taken over by another employer in circumstances like those of the Railway Company…”

23. The history of the legislation has been noticed by a Constitution Bench of Supreme Court in Anakapalla Co-operative Agricultural and Industrial Society Ltd. (supra) and, it while holding that a company taking over the management of a closed undertaking may in a given situation become successor-in-interest but as regard the interpretation of the relevant provisions of the 1947 Act following Hariprasad Shivshankar Shukla (supra), opined :

“… The Legislature, however, wanted to provide that though such termination may not be retrenchment technically so-called, as decided by this Court, nevertheless the employees in question whose services are terminated by the transfer of the undertaking should be entitled to compensation, and so, S. 25-FF provides that on such termination compensation would be paid to them as if the said termination was retrenchment. The words “as if” bring out the legal distinction between retrenchment defined by S.2(oo) as it was interpreted by this Court and termination of services consequent upon transfer with which it deals. In other words, the section provides that though termination of services on transfer may not be retrenchment, the workmen concerned are entitled to compensation as if the said termination was retrenchment. This provision has been made for the purpose of calculating the amount of compensation payable to such workmen; rather than provide for the measure of compensation over again, S.25-FF makes a reference to S.25-F for that limited purpose, and, therefore, in all cases to which S.25-FF applies, the only claim which the employees of the transferred concern can legitimately make is a claim for compensation against their employers. No claim can be made against the transferee of the said concern.”

24. The said decision, therefore, is an authority for the proposition that the expression ‘as if’ has limited application and has been employed only for the purpose of computation of quantum of compensation and takes within its purview a case where retrenchment as contained in Section 2(oo) of the 1947 Act has taken place within the meaning of Section 25-F and not in a case falling under Sections 25-FF or 25-FFF thereof.

25. Once it is held that Section 25-F have no application in a case of transfer of an undertaking or closure thereof as contemplated in Section 25-F and 25-FFF of the 1947 Act, the logical corollary would be that in such an event Section 25-H will have no application.

26. The aforementioned provisions clearly carve out a distinction that although identical amount of compensation would be required to be paid in all situations but the consequence following retrenchment under Section 25-F of the 1947 Act would not extend further so as to envisage the benefit conferred upon a workman in a case falling under Sections 25-FF or 25-FFF thereof. The distinction is obvious inasmuch as whereas in the case of retrenchment simpliciter a person loses his job as he became surplus and, thus, in the case of revival of chance of employment, is given the preference in case new persons are proposed to be employed by the said undertaking; but in a case of transfer or closure of the undertaking the workman concerned is entitled to receive compensation only. It does not postulate a situation where a workman despite having received the amount of compensation would again have to be offered a job by a person reviving the industry.

27. Applicability of Section 25H of the 1947 Act in the case of closure of an undertaking came up also for consideration before this Court in Punjab Land Development and Reclamation Corporation Ltd., Chandigarh etc. vs. Presiding Officer, Labour Court, Chandigarh and others etc. (1990) 3 SCC 682), wherein a Constitution Bench in no uncertain terms held :

“… Very briefly stated Section 25FFF which has been already discussed lays that “where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of sub-section (2), be entitled to notice and compensation in accordance with the provisions of Section 25F, as if the workman had been retrenched” (Emphasis supplied). Section 25H provides for re-employment of retrenched workmen. In brief, it provides that where any workmen are retrenched, and the employer proposes to take into his employment any person, he shall give an opportunity to the retrenched workmen to offer themselves for re-employment as provided in the section subject to the conditions as set out in the section. In our view, the principle of harmonious construction implies that in a case where there is a genuine transfer of an undertaking or genuine closure of an undertaking as contemplated in the aforesaid sections, it would be inconsistent to read into the provisions a right given to workman ‘deemed to be retrenched” a right to claim re-employment as provided in Section 25H. In such cases, as specifically provided in the relevant sections the workmen concerned would only be entitled to notice and compensation in accordance with Section 25F. It is significant that in a case of transfer of an undertaking or closure of an undertaking in accordance with the aforesaid provisions, the benefit specifically given to the workmen is “as if the workmen had been retrenched” and this benefit is restricted to notice and compensation in accordance with the provisions of Section 25F.”

(Emphasis supplied)

28. The said dicta was reiterated by a Bench of this Court in H.P. Mineral and Industrial Development Corporation Employees’ Union vs. State of H.P. and others (1996) 7 SCC 139, stating :

“… Since Section 25-(O) was not available on account of the said provision having been struck down by this Court the only protection that was available to the workmen whose services were terminated as a result of closure was that contained in Sections 25-FFA and 25-FFF of the Act. It is not disputed that both these provisions have been complied with in the present case.”


Source: M/s. Maruti Udyog Ltd.-AIR 2005 SC 851 : (2005) 1 SCR 790 : (2005) 2 SCC 638 : JT 2005 (1) SC 449 : (2005) 1 SCALE 585