Workmen of Meenakshi Mills Ltd v Meenakshi Mills Ltd (1992)

Before 1976 an employer could retrench workmen simply by complying with s. 25-F — notice, compensation — and the workmen's only answer was to raise an industrial dispute and wait for a reference. Section 25-N changed that for large establishments: no retrenchment without the prior permission of the appropriate Government or a specified authority.

Employers attacked this as an unreasonable restriction on the right to carry on business under Article 19(1)(g), and the Madras and Rajasthan High Courts agreed, relying on Excel Wear v Union of India, where the Supreme Court had struck down the parallel closure provision, s. 25-O. This case reverses those High Courts and upholds s. 25-N. It also settles the nature of the permission power — quasi-judicial, requiring an enquiry, a hearing and a speaking order under s. 25-N(2).

The Court did not set out the facts of the individual appeals: "Since the only question required to be considered by us is with regard to the validity of section 25-N of the Act and it can be decided on the basis of the relevant provisions of the Act without going into the facts of each case, we do not consider it necessary to set out the facts."

The background it records: Chapter V-B (ss. 25-K to 25-S) was inserted by the Industrial Disputes (Amendment) Act 1976 with effect from 5 March 1976. It applied originally to establishments employing not less than 300 workmen (later reduced to 100 by the 1982 amendment). Section 25-N prescribed conditions precedent to retrenchment, including permission from the appropriate Government or authority, which could grant or refuse it "after making enquiry as such Government or authority thinks fit" and for reasons recorded in writing, with deemed permission if no order was communicated within three months.

The High Courts were divided. A Division Bench of the Andhra Pradesh High Court (I.D.L. Chemicals Ltd v T. Gattiah) upheld s. 25-N; a Division Bench of the Madras High Court (K.V. Rajendran v Deputy Commissioner of Labour, Madurai) and a majority of a Full Bench of the Rajasthan High Court (J.K. Synthetics v Union of India) struck it down. The appeals and writ petitions came before the Court on reference. The Court was concerned only with s. 25-N as originally enacted, before its substitution by the 1984 Amendment Act.

The Court framed two questions:

1. Is the right to retrench workmen an integral part of the employer's right to carry on business under Article 19(1)(g)?
2. Are the restrictions imposed by s. 25-N saved by Article 19(6) as reasonable restrictions in the interests of the general public?

Within the second, the employers pressed four contentions: (I) a judicial function had been handed to an executive authority; (II) no guidelines governed the power; (III) there was no appeal or revision; (IV) discrimination, since workmen could challenge a grant of permission by seeking a reference but employers could not challenge a refusal. The Court also considered whether the authority is a "tribunal" under Article 136.

Section 25-N, as originally enacted, was held valid. "In the result, it is held that section 25-N does not suffer from the vice of unconstitutionality on the ground that it is violative of the fundamental right guaranteed under Article 19(1)(g) of the Constitution and is not saved by Article 19(6) of the Constitution." The Madras and Rajasthan decisions were not upheld, and the matters were sent back to a Division Bench to be decided in the light of the judgment.

Excel Wear distinguished

Section 25-O (closure), struck down in Excel Wear, let the Government forbid closure on its subjective satisfaction, with no reasons required. Section 25-N, by contrast, required an enquiry, reasons in writing, and deemed permission after three months. So "the considerations which weighed with this Court in Excel Wear case (supra) to strike down section 25-O cannot be applied for judging the validity of section 25-N".

Restrictions in the public interest

The Court explained the mischief: retrenchment under s. 25-F could be questioned only by an industrial dispute and reference, a slow process during which "the affected workman was left without the source of livelihood." Drawing on the Directive Principles, the right to livelihood cases and the Statement of Objects and Reasons, it held that s. 25-N aims to prevent avoidable hardship and unemployment and to preserve industrial peace and production.

"In that sense, S.25-N seeks to give effect to the mandate contained in the Directive Principles of the Constitution referred to above." Therefore the restrictions "must, therefore, be regarded as having been imposed in the interests of general public." And: "Ordinarily any restriction so imposed which has the effect of promoting or effectuating a directive principle can be presumed to be a reasonable restriction in public interest."

Nature of the power: quasi-judicial

The authority must enquire into the correctness of the employer's facts and its bona fides, hear both employer and workmen, and pass a speaking order. "This necessarily envisages exercise of functions which are not purely administrative in character and are quasi-judicial in nature." The words "as such government or authority thinks fit" do not allow the enquiry to be dispensed with: "These words only mean that the government or authority has the discretion about the nature of enquiry which it may make."

Partial permission is allowed: "We do not find any words of limitation in sub-section (2) which preclude the appropriate government or authority to grant partial permission in respect of some of the workmen out of the workmen proposed to be retrenched and refuse the same in respect of the rest".

The Court rejected the argument that Parliament did not intend to change the existing law of retrenchment; Chapter V-B was meant to alter it for larger establishments.

Not a tribunal under Article 136

Following Jaswant Sugar Mills v Lakshmichand, the authority, though it must act judicially, "is not invested with the judicial power of the State and it cannot be regarded as a tribunal within the meaning of Article 136 of the Constitution".

The four contentions rejected

• (I) Executive, not judicial, decision-maker: given the three-month limit and the need for inter-departmental steps to remove the causes of retrenchment, this "can be better appreciated and achieved by an executive officer rather than a judicial officer." The power to specify the authority is given to the Government itself, not a subordinate officer.
• (II) No guidelines: guidelines matter chiefly for purely administrative, subjective powers; here the power is exercised on objective considerations by a speaking order after hearing the parties, and the object of the Act gives sufficient guidance. The "interests of workers" are a relevant factor: "The expression 'interests of workers', in our opinion, covers the interests of all the workers employed in the establishment, including not only the workers who are proposed to be retrenched but also the workers who ar to be retained." Unemployment in the industry or the State is not an alien consideration. Recording reasons is itself a safeguard against arbitrariness (S.N. Mukherjee v Union of India).
• (III) No appeal: "The remedy of judicial review under Article 226 is, in our view, an adequate protection against arbitrary action in the matter of exercise of power by the appropriate Government or authority under sub-section (2) of section 25- N of the Act." A refusal based on policy must be justified as consistent with the object of the Act.
• (IV) Discrimination: both sides may raise an industrial dispute and seek a reference — the employer because s. 2(k) covers a dispute about non-employment and s. 10 allows reference of an apprehended dispute. "The employer who feels aggrieved by an order refusing permission for retrenchment thus stands on the same footing as the workmen" aggrieved by a grant. The grievance of discrimination was "unfounded".

Section 25-N of the Industrial Disputes Act 1947 (as originally enacted), requiring prior permission of the appropriate Government or specified authority before retrenchment in establishments covered by Chapter V-B, is a reasonable restriction in the interests of the general public under Article 19(6) and does not violate Article 19(1)(g). The permission power is quasi-judicial: it requires an enquiry, an opportunity to employer and workmen, and a speaking order, and it may be granted in part. The absence of express guidelines or of an appeal does not make it arbitrary, because the object of the Act guides it, reasons must be recorded, and judicial review under Article 226 is available; the authority is not a tribunal under Article 136.

• Direct question: Discuss the constitutional validity of s. 25-N of the Industrial Disputes Act with reference to Article 19(1)(g). Frame both questions, distinguish Excel Wear (subjective, no reasons) from s. 25-N (enquiry, reasons, deemed permission), then the Directive Principles and the presumption of reasonableness.
• Direct question: What is the nature of the power to grant or refuse permission to retrench under Chapter V-B? Quasi-judicial; enquiry, hearing, speaking order; partial permission allowed; not a tribunal under Article 136; judicial review under Article 226.
• Problem question: an authority refuses a large mill permission to retrench, citing unemployment in the State, after hearing both sides; the employer says the power is unguided. Apply this case: unemployment and the interests of all workers are relevant; a reasoned order is reviewable under Article 226, and the employer may also seek a reference.
• Link: pair with Excel Wear (closure, s. 25-O), and read it alongside Orissa Textile and Steel Ltd v State of Orissa, which relies on this case when dealing with the closure provision.