RASHTRIYA MILL MAZDOOR SANGH, NAGPUR V. THE MODEL MILLS, NAGPUR AND ANR (1984) INSC 170; AIR 1984 SC 1813; 1985 (1) SCR 751; 1984 Suppl.SCC 352; 1984 (2) SCALE 406 (18 September 1984)

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JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeals No. 1619 to 1622 of 1971.

Appeals by Special Leave from the Award dated the 27th November, 1970 of the Industrial Court, Maharashtra (Nagpur Bench) Nagpur in References (I.C.N.) Nos. 13, 14, 15, and 19 of 1969 communicated to the parties on 14-1-1971.

M.K. Ramamurthi and A.G. Ratnaparkhi for the Appellant. T.V.S.N. Chari Advocate for the Respondent The Judgment of the Court was delivered by DESAI, J. Bonus has a tantalizing influence on industrialworkers. They look forward to it with a craving, the degree of which is immeasurable. And for the employees and form of bonus has such a tremendous attraction that the time honoured concept of its being a profit sharing formula to fill in the gap between the fair wage and the living wage in the case of industrial workmen has been for all practical purposes displaced by thePayment of Bonus Actand bonus telescoping into Government service where there being no production and therefore it cannot be an incentive for higher production. And yet the management of The Model Mills, Nagpur (Employer for short) has most successfully thwarted the meagre expectation of minimum bonus to its workmen for full two decades.

Rashtriya Mill Mazdoor Sangh, appellant herein, ("Union' for short) as an approved Union made four independent references under Sec. 73A of the Bombay Industrial Relations Act, 1946 ('Act' for short) against Model Mills Nagpur for grant of bonus for the period 1964-65 to 1967-68. A separate reference was made in respect of each accounting year. The Union as representative Union of the employees served a notice of change making the demand for bonus. The matter was taken into conciliation. The Conciliation Officer recorded a failure on June 23, 1969 and issued a certificate under Sec. 73Bonus Act, and award the same to the workmen of the Employer.

The employer resisted the references on diverse grounds. It was contended that once a notified order is issued under Sec. 18A of the Industries (Development andBonus Actand the references must accordingly be rejected.

This contention found favour with the Industrial Court. The learned Member with the consent of the parties directed that the issue with regard to the application of theBonus Actand the alternative demand was not made before the Counciliator, the scope of the references cannot be extended to cover the same. Accordingly, all the four references were rejected. Hence these appeals by special leave.

On the rival contentions following questions arise in these appeals:

(1) On the appointment of an authorised controller under Sec. 18A of the IDR Act by the Central Government in respect of an industrial undertaking, does it acquire the status of an establishment engaged in an industry carried on under the authority of the Department of Central Govt.

(2) If the answer to the first question is in the affirmative, whether the employees employed in such industrial undertaking are excluded from the operation of theBonus Act.

At the outset, a few statutory provisions which will have a bearing and impact on the issues under examination may be noticed.

The Industries (Development andAmending Act72 of 1971 because a company which is being wound up under the orders of the court cannot be directly dealt with by the Central Government without the intervention of the court. Sec. 16 confers power on the Central Government to give directions on completion of an investigation under Sec. 15 to the industrial undertaking for the following purposes:

"(a) regulating the production of any article or class of articles by the industrial undertaking or undertakings and fixing the standards of production;

(b) requiring the industrial undertaking or undertakings to take such steps as the Central Government may consider necessary to stimulate the development of the industry to which the undertaking or undertakings relates or relate;

(c) prohibiting the industrial undertaking or undertakings from resorting to any act or practice which might reduce its or their production, capacity or economic value;

(d) controlling the prices, or regulating the distribution, of any article or class of articles which have been the subject matter of investigation."

Chapter III-A which was introduced byAmending Act26 of 1954 conferred power on the Central Government to assume management or control of an industrial undertaking in certain cases. Sec. 18A(1) is relevant for the present purpose and it may be extracted:

"18-A(1): If the Central Government is of opinion that:

(a) an industrial undertaking to which directions have been issued in pursuance ofSection 16has failed to comply with such directions, or

(b) an industrial undertaking in respect of which an in-

vestigation has been made underSection 16), is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest, the Central Government may by notified order authorise any person or body of persons to take over the management of the whole or any part of the undertaking or to exercise in respect of the whole or any part of the undertaking such functions, of control as may be specified in the order.

Section 18Aconfers power on the Central Government either to assume management of an industrial undertaking or to control its management. The power to assume management of an industrial undertaking can be exercised by a notified order appointing an authorised controller to take over the management of the whole or any part of the undertaking. The Central Government may exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order. Sec. 18B provides for the consequences that may ensure on the issue of a notified order under Sec. 18A authorising the taking over of the management of an industrial undertaking. Two consequences worth-noticing are those set out in sub-cl. (b) and (c) of Sec. 18B (1). They may be extracted:

"(b) any contract of management between the industrial undertaking any managing agent or any director thereof holding office as such immediately before the issue of a notified order shall be deemed to have been terminated.

(c) the persons, if any, authorised underIndian Companies Act, 1913 (7 of 1913), and shall alone be entitled to exercise all the powers of the directors of the industrial undertaking, whether such powers are derived from the said Act or from the memorandum or articles of association of the industrial undertaking or from any other source."

Companies Actthen in force to the industrial undertaking in respect of which an authorised controller is appointed under Sec. 18-A subject to the limitations therein specified as it applied prior to the notified order. Sec. 18-F conferred power on the Central Government to cancel the notified order.

Sec-32(iv) of theBonus Actreads as under:

"Nothing in this Act shall apply to .....................................

(iv) employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a local authority." The question is: whether on the issue of a notified order under Sec. 18-A appointing an authorised controller in respect of an industrial undertaking governed by the IDR Act, the employees of such undertaking are excluded from the application of theBonus Actexcluded on the ground that on the issuance of a notified order appointing an authorised controller under Sec. 18-A of the IDR Act, because the employees of the respondents can be said to have been employed by an establishment engaged in any industry carried on or by or under the authority of any department of the Central Government. Can it be said that on the appointment of an authorised controller, the industrial undertaking of the respondent acquired the status of an establishment engaged in textile industry carried on by or under the authority of a department of the Central Government ? In order to attract Sec. 32(iv) it must be shown that the employees sought to be ex-

cluded from the operation of theBonus Acthave been employed by an establishment engaged in any industry carried on by or under the authority of the department of the Central Government. It was conceded that it cannot be said that on the appointment of an authorised controller, the industrial undertaking acquired the status of an establishment engaged in textile industry carried on by the department of the Central Government It was, however, strenuously urged that it was an establishment engaged in the industry carried on under the authority of the department of the Central Government. Shorn of embellishment, the question is: whether on the appointment of an authorised controller, did the industrial undertaking acquire the status of an establishment engaged in the industry which is carried on under the authority of the department of the Central Government ?

IDR Act was enacted as its long title shows to confer power on the Central Government to provide for development and regulation of scheduled industries. The Statement of objects and Reasons shows that the object behind the enactment was to provide the Central Government with the means of implementing their industrial policy and for that purpose to extend the control of the Central Government over the development and regulation of a number of important industries the activities of which affect the country as a whole and the development of which must be governed by economic factors of all India import.Companies Actin force at the relevant time will continue to apply to such undertaking in the same manner as it applied thereto before the issue of the notified order under Sec. 18-A.

Thus the significant consequence that ensues on the issue of a notified order appointing authorised controller is to divert the management from the present managers and to vest it in the authorised controller. Undoubtedly, the heading of Chapter III-A appears to be slightly misleading when it says that the Central Government on the issue of a notified order assumes direct management of the industrial undertaking. In effect on the issuance of a notified order, only the management of the industrial undertaking undergoes a change. This change of management does not tantamount to either acquisition of the industrial undertaking or a take over of its ownership because if that was to be the intended effect of change of management, the Act would have been subjected to challenge ofPartnership Actor the relevant provisions of law applicable to a proprietary concern. The only change is the removal of managers and appointment of another manager and to safeguard his position restriction on the rights of shareholders or partners or original proprietor. This is the net effect of the appointment of an authorised controller by a notified order.

Can it then be said that on the issue of a notified order appointing an authorised controller, the industrial undertaking is engaged in the industry carried on under the authority of the department af the Central Government. The expression `under the authority of any department of the Central Government' would in ordinary parlance mean that the department is directly responsible for the management of the industrial undertaking. This responsibility may cover, amongst others, financial responsibility as well. Power to regulate management or control the management is entirely distinguishable from the power to run the industry under the authority of the department of the Central Government. The substitution of the management ordered under Sec. 18-A does not tantamount to the industrial undertaking being taken over by the department of the Central Government. Nor could it be said to be run under the authority of the department of the Central Government. In fact. as the authorised controller enjoys all the powers of directors conferred by the relevant provisions of theCompanies Act, he can exercise that power subject of course to any restriction or limitation on his power specified in the notified order or under the general supervision of the Central Government. But this power is subject to the in-built limitation that it can be exercised for regulating the management of the industrial undertaking. Neither its identity nor its ownership is affected in any manner. This change in personal of management of the industrial undertaking for a specified period can never make the industrial undertaking one engaged in an industry carried on under the authority of the Central Government. On a pure grammatical construction, of the expression 'establishment engaged in an industry carried on under the authority of the department of the Central Government' cannot take in one in respect of which the Central Government in exercise of the power conferred by IDR Act directed a change of management.

The conclusion in the preceding paragraph can be reached by a different route.

Under Sec. 16 of the IDR Act, the Central government enjoys wide powers to issue directions to the industrial undertaking as maybe appropriate in the circumstances for all or any of the purposes set out in various sub-clauses of Sec. 16(1). The scheme of the Act shows that while retaining the original management, the Central Government gives necessary directions for the aforementioned purposes to achieve a certain result. If the desired result is not achieved, the Central Government enjoys a consequential power of changing the management by appointing an authorised controller so as to achieve the same result. This power to give directions without appointing an authorised controller or to appoint an authorised controller giving him specified directions is of a regulatory nature to be exercised with a view to regulating the managerial functions of the management of an industrial undertaking so as to achieve certain objects or to rectify the mismanagement in larger national interest without in any manner affecting the identity, the status or the ownership of industrial undertaking. It could by no stretch of imagination be urged that on the exercise of the power to give directions under Sec. 16, the industrial undertaking could be said to be engaged in any industry carried on under the authority of the department of the Central Government. Ipso facto the appointment of an authorised controller would not make the industrial undertaking one run under the authority of the department of the Central Government. While exercising power of giving directions under Sec. 16 the existing management is subjected to regulatory control, failing which the management has to be replaced to carry out the directions. In either case the industrial undertaking retains its identity, personality and status unchanged. On a pure grammatical construction of sub-sec. (4) of Sec. 32, it cannot be said that on the appointment of an authorised controller the industrial undertaking acquires the status of being engaged in any industry carried on under the authority of the department of the Central Government

Viewed from a slightly different angle, it appears that the expression 'carried on by or under the authority of any department of the Central Government 'qualifies the expression 'industry' and not the expression 'establishment' as used in sub-sec. (4) of Sec. 32 of theBonus Act.

Having examined the matter on principle, let us turn to some precedents to which our attention was drawn.

Sec. 2(a) of theBonus Act, the conclusion is inescapable that the business remains that of the industrial undertaking and does not become one of the Central Government. The fact that the authorised controller is appointed by the Central Government and that he has to work subject to the directions of the Central Government does not render the industrial undertaking an agent of the Central Government and therefore, could not be said to be an establishment engaged in an industry carried on by or under the authority of the Central Government. In fact, this decision should conclude the point. However, as our attention was drawn to some recent decisions wherein the same expression came up for consideration, we may briefly refer to them.

Art. 12of the Constitution, it cannot be said that it is an industry carried on by or under the authority of the Central Government, for the purpose of determining which is the appropriate Government in respect of an industrial dispute between such instrumentality of the State and its workmen.

Industrial Disputes Act. Repelling this contention, it was held that appointment of an authorised controller under Sec. 18-A by a notified order would not make the industrial undertaking an undertaking of the Central Government because by the appointment of the authorised controller, the management of the industrial undertaking is changed to achieve a certain purpose and that too is a temporary phase. It was held that at any rate the appointment of an authorised controller does not vest the ownership of the industrial undertaking in the Central Government. Owner-

ship is something more than management. Control of the whole or of a part of the industrial undertaking by the Central Government will not make the industrial undertaking an undertaking of the Central Government itself.

In The Management of Bihar Khadi Gramodyog Sangh Mazaffarpur v. State of Bihar & Ors.(1) Patna High Court held that even though the Sangh was set up under the Khadi and Village Industries Commission, yet it is not an industry carried on under the authority of the Central Government and the appropriate Government would be the State Government. Same view was also taken by the Bombay High Court inIndian Companies Act, 1913 shall continue to apply to such undertaking in the same manner as it applied thereto before the issue of the notified order under Sec. 18 A.' This very important provisions which gives the clue to the expression `carried on under the authority of the Central Government' was not taken note of by the High Court. Therefore, the said view of the Bombay High Court does not commend to us and must be overruled.

If on the issue of a notified order appointing an authorised controller under Sec. 18-A, the management of the industrial undergoes a change, yet it does not become an establishment engaged in an industry carried by the department of the Central Government, its employees would not be excluded from the operation of theBonus Actas provided in Sec. 32(4).

The Tribunal therefore, was clearly in error in rejecting the references holding that the workmen of the respondent were excluded from the operation of theBonus Act. The Award of the Tribunal rejecting the references will have to be quashed and set asideand the matter remitted to the Industrial Tribunal for disposing of the same on merits.

An incidental argument was that the National Textile Corporation which has taken over the respondent-Company would not be liable for the period when the authorised controller was incharge of the management of the respondent company. This contention has merely to be stated to be rejected. Sec. 5(1) of theBonus Act. This liability arose for the period after the management of the undertaking had been taken over by the Central Government by appointing an authorised controller under Sec. 18-A. Therefore, the liability to pay the bonus if awarded would be of the National Textile Corporation. The contention of the National Textile Corporation that it is not liable to pay bonus must be rejected.

Accordingly, these appeals succeed and are allowed and the four awards of the Industrial Court, Maharashtra, Nagpur Bench dated 27th November, 1970 in all the four references are quashed and set aside and all the four matters are remitted to the Industrial Court for disposal according to law on merits. As the cases are very old, the Industrial Court is directed to dispose of the same within the period of four months from the receipt of this order. The respondent shall pay the costs of the appellant quantified at Rs. 2,000.

N.V.K. Appeal allowed.

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  1. https://indiankanoon.org/doc/1756398/Rashtriya Mill Mazdoor Sangh, ... vs The Model Mills, Nagpur And Anr on 18 September, 1984