[Cites 10, Cited by 0]
Bombay High Court
Mang.Dir.-M/S.Jolly Steel Industries ... vs Sarva Sramik Sanghatana And Ors. on 10 April, 2026
Author: Amit Borkar
Bench: Amit Borkar
2026:BHC-AS:17136
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AGK
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.9470 OF 2003
WITH
CIVIL APPLICATION NO.2599 OF 2005
1. The Managing Director,
M/s. Jolly Steel Industries Pvt. Ltd.,
23, Band Garden Road, Pune 411 001
ATUL 2. The Managing Director,
GANESH
KULKARNI M/s. Jolly Toresteel Private Ltd.,
Digitally signed
by ATUL GANESH
KULKARNI 23, Band Garden Road, Pune 411 001 ... Petitioners
Date: 2026.04.10
12:29:59 +0530
Vs.
1. Sarva Shramik Sanghatana,
through it's Joint Secretary,
101, Shivaji Nagar, Pune 411 005
2. The Partner, M/s. Gupta Steel Ind.,
979, Laxmi Bazar Bhavani Peth,
Pune 411 002
3. J.L. Deshpande,
Member, Industrial Court, Pune
having his office at PMT Building,
Swar Gate, Pune ... Respondents
Mr. Rutwij Bapat for the petitioner.
Mr. Nitin A. Kulkarni for respondent Nos.1 & 2
CORAM : AMIT BORKAR, J.
RESERVED ON : APRIL 9, 2026.
PRONOUNCED ON : APRIL 10, 2026
1
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JUDGMENT:
1. By the present writ petition instituted under Articles 226 and
227 of the Constitution of India, the petitioners have called in
question the legality and correctness of the Judgment and Order
dated 24 October 2002 passed by the Industrial Court, Pune in
Complaint (ULP) No. 107 of 1997, whereby the said complaint
came to be partly allowed.
2. The facts and circumstances giving rise to the present writ
petition, as set out by the petitioners, are stated thus. A Lease
Agreement dated 9 April 1980 was executed between petitioner
No.1 and respondent No.2 in respect of the lease of premises and
machinery for a period of three years. In terms of clause 5(i)
thereof, respondent No.2 was conferred a right to requisition
employees from petitioner No.1, and upon such requisition, the
obligation to pay regular wages to such employees was cast upon
respondent No.2. Further, under clause 5(j), petitioner No.1
undertook liability to pay transfer compensation to such
requisitioned employees, in the event such liability arose at the
time of severance of their employment with petitioner No.1.
3. It is the case of the petitioners that, pursuant to the said
arrangement, certain employees were transferred from the
petitioners to respondent No.2. Thereafter, respondent No.2
entered into a settlement with respondent No.1 in the year 1980,
and also independently recruited certain employees. It is further
contended that respondent No.2 failed to hand over possession of
the premises to petitioner No.1 upon expiry of the lease, which
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necessitated the institution of Civil Suit No. 446 of 1987 before the
competent Civil Court. The said suit was decreed in favour of
petitioner No.1. An appeal preferred by respondent No.2 before
this Court came to be disposed of in terms of consent terms dated
9 April 1991, whereunder respondent No.2 agreed to continue in
possession as an agent of the Court Receiver and further agreed to
hand over possession to the Court Receiver on or before 31 March
1992. Respondent No.2 also undertook to discharge all liabilities
pertaining to the running of the business prior to handing over
possession. It is further the case of the petitioners that respondent
No.2 failed to hand over possession even within the stipulated
period in the year 1992, as a result of which disputes between the
parties continued. It is stated that with effect from 6 March 1993,
respondent No.2 completely ceased its manufacturing activities. In
the meanwhile, respondent No.1 instituted Complaint (ULP) No.
150 of 1993 against respondent No.2 claiming wages from
February 1993 onwards.
4. The record further discloses that the Court Receiver
ultimately handed over possession of the premises to petitioner
No.1 on 7 September 1996. It is reiterated that respondent No.2
had agreed to clear all liabilities incurred prior to such handing
over of possession. Thereafter, respondent No.1 preferred an
application at Exhibit U-20 in Complaint (ULP) No. 150 of 1993 on
18 February 1997 seeking impleadment of the present petitioners
as parties to the said proceedings. Subsequently, on 20 March
1997, respondent No.1 instituted Complaint (ULP) No. 107 of
1997 against the present petitioners as well as respondent No.2. In
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the said complaint, respondent No.1 claimed lockout wages from 6
March 1993 onwards against both the petitioners and respondent
No.2, without raising any claim for transfer compensation. It is
pertinent to note that by order dated 19 July 2000 passed in
Complaint (ULP) No. 150 of 1993, the Industrial Court rejected
the application at Exhibit U-20 filed by respondent No.1 seeking
impleadment of the petitioners.
5. Thereafter, by Judgment dated 29 July 2002 delivered in
Complaint (ULP) No. 150 of 1993, the Industrial Court directed
respondent No.2 to pay retrenchment compensation to those
employees who had been independently recruited by it subsequent
to the transfer. Further, by the impugned Judgment dated 24
October 2002 passed in Complaint (ULP) No. 107 of 1997, the
Industrial Court directed the present petitioners to pay
retrenchment compensation to the employees who had been
requisitioned from petitioner No.1 by respondent No.2. Being
aggrieved thereby, the petitioners have preferred the present writ
petition.
6. Learned Advocate Mr. Bapat appearing for the petitioners
submitted that upon transfer of the undertaking, respondent No.2
assumed the status of employer in respect of the transferred
employees. It is his submission that the evidence on record clearly
indicates that the employees were transferred from the petitioners
to respondent No.2 and their services continued without
interruption. According to him, once such transfer took place, the
employer employee relationship between the petitioners and the
concerned employees stood terminated, and a fresh employer
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employee relationship came into existence between respondent
No.2 and the said employees. He submits that respondent No.2
continued to engage the transferred employees, paid them regular
wages, and also entered into a settlement with respondent No.1,
which is an act falling within the prerogative of an employer under
Section 2(p) of the Industrial Disputes Act.
7. It is further submitted that respondent No.2 consistently
treated itself as the employer within the meaning of the Industrial
Disputes Act and regarded the transferred employees as its own
workforce. Placing reliance on the decision of the Supreme Court
in Workmen of Subong Tea Estate v. Outgoing Management of
Subong Tea Estate 1963 SCC OnLine SC 269 , learned counsel
contended that once respondent No.2 took over possession of the
undertaking and continued its management in the capacity of
employer, it cannot subsequently deny the existence of employer
employee relationship with the transferred employees. It is his
submission that any claim, if at all, against the petitioners could
only relate to liabilities arising at the time of transfer, namely 9
April 1980. However, since the services of the employees
continued thereafter, any subsequent claims would lie only against
respondent No.2, being the employer under the Industrial Disputes
Act.
8. Learned counsel further submitted that clause 5(j) of the
Lease Agreement is in the nature of the provisions contained in
Section 25-FF of the Industrial Disputes Act. According to him, the
said clause contemplates liability only in respect of severance of
employment at the stage of transfer. He submits that such
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severance occurred when the employees were transferred from the
petitioners to respondent No.2. However, since their services
continued uninterrupted under respondent No.2, no liability arose
in respect of such severance. It is contended that the learned Judge
has erred in construing clause 5(i) to fasten liability for wages
upon respondent No.2, while simultaneously interpreting clause
5(j) to impose liability for retrenchment compensation upon the
petitioners, even during the period when the employees were
under the employment of respondent No.2. According to him, such
interpretation results in treating two distinct entities as employers
for the same set of employees, which is contrary to the scheme of
the Industrial Disputes Act and opposed to public policy. It is
further submitted that respondent No.2 had entered into a
settlement with the employees, which is an exclusive function of
an employer, and therefore, the relationship between the
petitioners and the employees stood conclusively severed. He
submits that such an interpretation also offends Sections 23 and
24 of the Contract Act. Without prejudice, it is contended that the
Lease Agreement is inter se between the petitioners and
respondent No.2, and respondent No.1 is not a party thereto.
Hence, adjudication of contractual obligations arising therefrom
falls outside the jurisdiction of the Industrial Court under Section
28 of the MRTU Act read with Items 9 and 10 of Schedule IV.
9. It is further submitted that any ambiguity in the Lease
Agreement stands clarified by the Consent Terms recorded in the
appeal proceedings. According to the learned counsel, the parties
expressly agreed therein that all liabilities pertaining to the
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running of the business shall be borne by respondent No.2. He
submits that the learned Judge has erred in holding that such
liabilities would not include retrenchment compensation payable
to employees. It is contended that payment of statutory dues to
employees engaged in the manufacturing activity forms an integral
part of the business expenditure. Reliance is placed on the
judgment of this Court in State of Goa v. Placido Braganza 2002
(1) Mh.L.J. 370 to contend that no relief can be granted beyond
the terms of a consent decree. It is thus submitted that once the
Consent Terms clearly cast liability upon respondent No.2, the
learned Judge could not have directed the petitioners to bear such
liability.
10. Learned counsel further submitted that the petitioners are
not liable to pay any transfer compensation under Section 25-FF of
the Industrial Disputes Act. According to him, the learned Judge
has committed an error in holding the petitioners liable for such
compensation and further in directing payment of closure
compensation. He submits that under Section 25-FF, the liability of
the transferor does not arise where the conditions stipulated in the
proviso are satisfied, namely that the service of the workmen
remains uninterrupted, the terms and conditions of service are not
less favourable, and the transferee employer is legally liable to pay
retrenchment compensation. It is his submission that all these
conditions stand fulfilled in the present case, as borne out from the
evidence on record.
11. It is further submitted that in view of the satisfaction of all
conditions under the proviso to Section 25-FF, no liability can be
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fastened upon the petitioners either for transfer compensation or
otherwise. According to him, the closure of the undertaking was
effected by respondent No.2, and therefore, the liability to pay
closure compensation rests solely upon respondent No.2. He points
out that the evidence indicates that when employees reported for
duty on 6 March 1993, they were prevented from entering the
premises by the watchman acting on the instructions of respondent
No.2. The allegation sought to be raised by respondent No.2 that
the petitioners had locked the premises is, according to him,
unsupported by any legal action, as respondent No.2 admittedly
did not initiate any civil or criminal proceedings in that regard. It
is also submitted that respondent No.2 admitted non payment of
electricity dues, resulting in disconnection of power supply. The
learned Judge has also recorded a finding that manufacturing
activities had permanently ceased from 6 March 1993. In such
circumstances, it is contended that the liability for closure
compensation cannot be imposed upon the petitioners.
12. Learned counsel further submitted that the complaint filed
by respondent No.1 is barred by limitation. According to him, the
claim made in the complaint pertains to lockout wages from the
year 1993, and therefore, the cause of action arose in that year. He
submits that under the MRTU Act, a complaint alleging unfair
labour practice is required to be filed within 90 days from the date
of occurrence. However, the present complaint came to be filed
only on 20 March 1997 without any application for condonation of
delay. It is contended that the Industrial Court erred in
entertaining the complaint despite such delay.
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13. It is further submitted that in view of the law laid down by
the Supreme Court in Sarva Shramik Sangh v. Indian Smelting &
Refining Co. Ltd.(2003) 10 SCC 455, where the existence of
employer employee relationship is disputed, the same must first be
established by raising an industrial dispute. According to him, only
upon adjudication and proof of such relationship can proceedings
under the MRTU Act be maintained. It is submitted that in the
present case, since the petitioners have disputed the existence of
such relationship, the complaint itself was not maintainable. On
the aforesaid grounds, it is submitted that the impugned Judgment
and Order dated 24 October 2002 passed by the Industrial Court is
unsustainable in law and deserves to be quashed and set aside.
14. Per contra, Mr. Kulkarni learned Advocate appearing for
respondent Nos.1 and 2 submitted that under the Lease Agreement
dated 9 April 1980, particularly clause 5(j), the liability to pay
retrenchment compensation was placed upon the lessor. It is
submitted that there was no subsequent agreement altering this
position when possession was restored through the Court Receiver.
Though Consent Terms were recorded before this Court, it is
contended that the same did not override the specific stipulation
contained in clause 5(j) of the Lease Agreement. According to him,
the said clause is consistent with the scheme of Section 25-FF of
the Industrial Disputes Act, which entitles workmen to
compensation upon transfer in accordance with Section 25-F. He
submits that, in the absence of any express provision making the
transferee liable, the liability would continue to rest with the
transferor. Reliance is also placed on clause (c) of the proviso to
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Section 25-FF to contend that unless the terms of transfer
specifically fasten liability upon the new employer, the original
employer remains liable to pay retrenchment compensation. It is
further submitted that for the sake of clarity and effective
implementation, the statement at Exhibit U-17-A(1) ought to be
treated as forming part of the order, and respondent No.2 be
directed to pay the legal dues as specified against the name of each
employee therein. It is submitted that the amounts reflected in
column Nos. 4, 5, and 6 against each employee represent the legal
dues payable by respondent Nos.2 and 3.
REASONS AND ANALYSIS:
15. I have considered the material on record and the rival
submissions made by the learned Advocates. The real controversy
in this matter turns upon the effect of the lease agreement dated 9
April 1980, the conduct of the parties after transfer of the
undertaking, the consent terms recorded in the appeal, and the
true liability for the dues claimed by the workmen. The question is
whether the petitioners, after transfer of the undertaking and after
severance of their direct control, can still be made liable for
retrenchment compensation or closure compensation in respect of
the employees who were working under respondent No.2.
16. The factual position, when carefully seen from record, is
largely not in dispute between the parties, though each side is
trying to give different meaning to same facts. It is clear that under
the lease agreement, respondent No.2 had taken over not only the
premises but also the machinery required for running the
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undertaking. This is important because possession of machinery
along with premises shows actual control of business activity.
Clause 5(i) of the agreement specifically permitted respondent
No.2 to requisition employees from the petitioners. At the same
time, it placed responsibility upon respondent No.2 to pay regular
wages to such employees. This part is very material, because
payment of wages is one of the strongest indicators of employer
status. Clause 5(j), on the other hand, made the petitioners liable
only in case transfer compensation becomes payable at the time
when the employees are severed from their employment with the
petitioners. Therefore, the two clauses operate in different fields.
One deals with continuation of service under new arrangement,
and the other deals with consequences at the moment of transfer.
17. The evidence on record further makes the situation more
clear. It shows that the employees were in fact transferred. The
employees actually went and worked under respondent No.2.
Their services were continued without any break. Their wages
were paid by respondent No.2. Even more respondent No.2
entered into a settlement with respondent No.1 union. This act of
entering settlement is not ordinary. It is something which only an
employer does in law, because settlement binds employer and
employees. Therefore, these facts when read together lead to only
one natural conclusion that respondent No.2 was not merely
holding the premises for some limited purpose, but was running
the establishment as employer in full sense. It cannot be said that
it was only caretaker or agent in a loose manner. Its conduct shows
active and complete control over employment.
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18. Once this position is accepted, then the argument advanced
by the petitioners starts appearing reasonable and having legal
force. In law, the relationship of employer and employee is not
something which can exist in confusion or in overlapping manner
for same period and same work. There cannot be two masters for
one servant at same time, unless there is clear statutory provision
or clear contract saying so. In the present case, nothing is shown
which creates such dual control. On the contrary, all acts of
respondent No.2 show that it treated the transferred employees as
its own workers. It paid them. It dealt with them. It carried on
business with their labour. Therefore, the earlier relationship
between petitioners and those employees cannot be said to
continue in same form after transfer. At the highest, some limited
liability may remain if law so provides, but the main employer
employee bond had shifted.
19. In this background, the approach of the Industrial Court
appears to be not properly aligned with the material on record.
The Court seems to have treated the petitioners as continuing
employer even after transfer in respect of certain liabilities, while
at the same time accepting that respondent No.2 was paying wages
and managing the workmen. If respondent No.2 was employer for
purpose of wages and settlement, then logically it must also bear
consequences arising out of that employment, unless there is very
clear clause shifting such burden. This aspect, in my view, has not
been properly appreciated.
20. Coming to clause 5(j), the same must be read in a reasonable
manner. It cannot be stretched beyond its purpose. The clause
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speaks of liability arising at the time of severance of employees
from petitioners. This means the point when the employees cease
to be in service of petitioners and are transferred. It does not mean
that petitioners will remain liable for all future events happening
years after transfer, even when they have no control over
employment. If such interpretation is accepted, then it will lead to
an abnormal situation. It will mean that for same employees, one
party will pay wages and control work, and another party will
keep liability for termination or closure. This division is not
recognised in ordinary labour law scheme.
21. Further, if clause 5(j) is read in such extended manner, then
clause 5(i) loses its meaning. Because clause 5(i) clearly puts
responsibility of wages and working employment on respondent
No.2. If one party takes benefit of labour and controls business,
but another party bears all risks of termination, then the
agreement becomes one-sided in a manner which does not appear
intended. Contract must be read as whole. Each clause must
support other. Therefore, clause 5(j) should be confined to liability
arising at point of transfer, and not for indefinite future.
22. The conduct of respondent No.2 also supports this reading. It
accepted employees, continued them, and treated them as its own.
In such situation, it cannot later be said that for retrenchment or
closure also petitioners must pay. That would amount to separating
benefit and burden in an artificial way, which law does not favour.
The reliance placed by the petitioners on the consent terms also
has weight. The consent terms were entered into after dispute had
already arisen and therefore they reflect clear understanding
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between parties at that stage. It is seen that respondent No.2
agreed to continue in possession as agent of Court Receiver and
also agreed to hand over possession within specified time. More
importantly, it agreed to clear liabilities relating to running of the
business. This expression is wide. Running of business includes
paying workers, maintaining operations, and also bearing
consequences if business stops.
23. When this is read with evidence on record, the picture
becomes more clear. The manufacturing activity stopped from 6
March 1993. The workmen were not allowed to enter. The
explanation given by respondent No.2 about locking of gate by
petitioners does not stand supported by any action taken
thereafter. If really petitioners had wrongfully stopped operations,
respondent No.2 would have taken some legal step. No such step is
shown. On the other hand, it is admitted that electricity supply
was disconnected because bills were not paid. This shows lack of
operation from respondent No.2 side. The learned Judge has also
recorded that manufacturing activities had stopped from that date.
Therefore, closure is not a sudden external act but a result of
circumstances within control of respondent No.2 while it was in
possession and managing affairs. In such situation, the liability
arising out of closure, including payment to employees, naturally
follows the person who was running the undertaking at that time.
24. Therefore, when all these circumstances are seen together, it
becomes difficult to accept that such liability can be shifted to
petitioners who were no longer in actual control of business or
employment. The burden of closure related dues must follow
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control and management. Since both were with respondent No.2
at the relevant time, the liability also must rest there.
25. The objection raised by the petitioners on the point of
maintainability, in my view, cannot be lightly ignored or pushed
aside without proper examination. It is correct that respondent
No.1, in its complaint, has asserted that employer employee
relationship continued with the petitioners. But mere assertion is
not enough in law. When such relationship is specifically denied by
the opposite side, then it becomes necessary for the Court to
carefully see whether the material on record actually supports such
claim. In the present case, the petitioners have consistently taken a
stand that after transfer, they were no longer employer of the
concerned employees. This stand is supported by surrounding facts
and conduct.
26. In such situation, the duty of the Court was first to examine
whether there existed any real and subsisting employer employee
relationship between the petitioners and the transferred employees
during the relevant period. This examination goes to the root of
jurisdiction. Because unless such relationship is shown, liability
under labour law cannot be imposed. When the evidence is looked
into, it shows that the employees were working under respondent
No.2, their wages were paid by respondent No.2, and even
settlement was entered into by respondent No.2 with the union.
These are strong indicators. They do not support the case that
petitioners continued as employer in any legal sense.
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27. Therefore, the conclusion drawn by the Industrial Court that
both petitioners and respondent No.2 can be treated as employers
for same employees, at same time, does not appear to be
supported by the record. Such approach creates confusion in legal
responsibility. It also goes against the basic understanding of
employment relationship, which requires clarity as to who
controls, who pays, and who is answerable. In present case, all
these factors point towards respondent No.2. The workmen may
certainly have a valid claim for their dues. There is no dispute
about their entitlement in proper case. But such claim must be
directed against the correct employer. If liability is fastened on a
wrong party, then it results in legal error. The Industrial Court, by
not addressing this foundational issue properly, has adopted an
approach which cannot be sustained.
28. Coming to the submission of respondent Nos.1 and 2
regarding clause 5(j), I am unable to accept the manner in which
the said clause is sought to be interpreted. The argument is that
clause 5(j) keeps the petitioners liable for retrenchment
compensation even after the transfer is complete. However, such
reading ignores the surrounding facts and the conduct of parties
after execution of the agreement. A contractual clause cannot be
read in isolation, as if it exists separately from how parties acted
upon it. The actual working of arrangement must be seen. Here, it
is admitted position that the transfer was acted upon. The
employees were taken over by respondent No.2. Their employment
continued under it without interruption. Respondent No.2 dealt
with them as employer and even entered into settlement. It also
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continued the business activity using their services. These facts
show that respondent No.2 stepped fully into the role of employer.
Once this is accepted, then responsibility which follows
employment must also follow the same party.
29. If the argument of respondent Nos.1 and 2 is accepted, it will
mean that even though respondent No.2 enjoyed benefit of labour,
controlled the work, and conducted the business, the financial
burden arising from termination or closure would still go back to
petitioners. Such division of responsibility is not supported either
by the scheme of law or by fair reading of contract. It would result
in separating benefit from burden, which is not a sound legal
position.
30. Further, the liability in question here arises from events
which took place much after the transfer, particularly the stoppage
of manufacturing activities and closure like situation in 1993. At
that time, the petitioners were not in possession, not running the
factory, and not supervising the employees. The workmen were
functioning under respondent No.2 alone. Therefore, to impose
liability on petitioners for such later events would be to disconnect
liability from actual control and conduct.
31. For these reasons, the impugned judgment, in so far as it
holds the petitioners liable, shows clear error in understanding
both the contractual clauses and the evidence on record. The
interpretation given to clause 5(j) is stretched beyond its
reasonable scope. The findings ignore the admitted conduct of
respondent No.2 as employer. Thus, the conclusion reached by the
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Industrial Court cannot be sustained, as it is not supported either
by proper reading of agreement or by the factual position
emerging from the record.
32. For these reasons, I am of the view that the impugned
Judgment and Order dated 24 October 2002 passed by the
Industrial Court, Pune in Complaint (ULP) No. 107 of 1997,
cannot be sustained insofar as it directs the petitioners to pay
retrenchment compensation or other like dues to the transferred
employees. The writ petition deserves to be allowed. The
impugned order, to the extent it operates against the petitioners, is
quashed and set aside. The liability, if any, shall remain to be
worked out against the party on whom the law and the evidence
place it, namely respondent No.2, in accordance with law.
33. In the result, the writ petition succeeds and is allowed.
(i) The Judgment and Order dated 24 October 2002
passed by the Industrial Court, Pune in Complaint (ULP)
No.107 of 1997, in so far as it fastens liability upon the
present petitioners, is quashed and set aside;
(ii) It is held that the petitioners are not liable to pay
retrenchment compensation, closure compensation, or any
other consequential monetary dues to the concerned
employees arising after transfer of the undertaking;
(iii) Respondent No.2 is held solely responsible and liable
to pay all legal dues, including retrenchment compensation,
closure compensation, and all consequential benefits,
payable to the concerned employees in accordance with law;
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(iv) Respondent No.2 shall compute and pay the said
amounts to the eligible employees within a period of twelve
weeks from the date of this order, failing which the said
amounts shall carry interest at the rate of 9 percent per
annum from the date they became due till realization;
(v) It is clarified that the quantification of dues, if not
already determined, shall be carried out by the appropriate
authority in accordance with law, and the employees shall be
at liberty to take appropriate steps for enforcement of this
order;
(vi) Rule is made absolute in the aforesaid terms. No order
as to costs.
34. In view of disposal of the writ petition, all pending interim
applications stand disposed of accordingly.
(AMIT BORKAR, J.)
