Legal E-Bulletin November 2021



RESEARCH WING

A. LABOUR LAWS

Labour Court’s decision should not be based on mere hypothesis: Supreme Court

The bench of Ajay Rastogi and Abhay S. Oka, JJ has held that the decision of the Labour Court should not be based on mere hypothesis and it cannot overturn the decision of the management on ipse dixit. Stating that Labour Court’s jurisdiction under Section 11-A of the Industrial Dispute Act, 1947 although is a wide one but it must be judiciously exercised, the Court said, “Judicial discretion, it is trite, cannot be exercised either whimsically or capriciously. It may scrutinize or analyze the evidence but what is important is how it does so.”

The respondent-­workman was dismissed from his services by the Standard Chartered Bank for drunkenness within the premises of the appellant-Bank and for manhandling and assaulting the senior officers and also hurling abuses at the management. The alleged delinquency had been committed on 12th January,1988. The enquiry officer after holding enquiry in terms of the Bipartite Settlement and after due compliance of the principles of natural justice held the charges proved against the delinquent respondent and the disciplinary authority after due compliance, confirmed the finding recorded by the enquiry officer and punished him with the penalty of dismissal from service by an order dated 22nd August, 1991.

The Industrial Tribunal, However, revisited the record of enquiry and apprised the statement of the management witnesses and recorded a finding that the Bank management has “miserably failed” to establish the charges levelled against the respondent-workman and hence, set aside the order of dismissal from service and directed the appellant to reinstate the respondent-workman in service with full back wages, seniority and all the consequential benefits attached to the post by its Award dated 14th September, 2006.

The High Court also upheld the said order. The respondent-workman had attained the age of superannuation on 31st January, 2012 and during the period of litigation, he has throughout been paid his last wages drawn in terms of Section 17¬B of the Act 1947. The respondent-workman had been paid around Rs. 57 Lakhs. The Supreme Court had, on 27th February, 2015, stayed the payment of back wages.

The Court noticed that once domestic enquiry was held it to be fair and proper, the Tribunal had a very limited scope to interfere in the domestic enquiry to the extent as to whether there is any apparent perversity in the finding of fact which has been recorded by the enquiry officer in his report of enquiry obviously, based on the evidence recorded during the course of enquiry and as to whether the compliance of the Bipartite Settlement which provides the procedure of holding enquiry is violated or the punishment levelled against the workman commensurate with the nature of allegation proved against him. However, if the punishment is grossly disproportionate, the tribunal will always be justified to interfere by invoking its statutory power under Section 11-A of the Act 1947.

“The scope of judicial review in the matter of domestic enquiry is to examine whether the procedure in holding domestic enquiry has been violated or the principles of natural justice has been complied with, or any perversity in the finding of guilt recorded during the course of domestic enquiry has been committed.” The Court noticed that the Tribunal has converted itself into a Court of Appeal as an appellate authority and has exceeded its jurisdiction while appreciating the finding recorded in the course of domestic enquiry and tested on the broad principles of charge to be proved beyond reasonable doubt which is a test in the criminal justice system and has completely forgotten the fact that the domestic enquiry is to be tested on the principles of preponderance of probabilities and if a piece of evidence is on record which could support the charge which has been levelled against the delinquent unless it is per se unsustainable or perverse, ordinarily is not to be interfered by the Tribunal, more so when the domestic enquiry has been held to be fair and proper.

The Court, hence, held that the Tribunal has completely overlooked and exceeded its jurisdiction while interfering with the finding recorded during the course of enquiry in furtherance of which, the respondent was dismissed from service and the High Court has also committed a manifest error while passing the judgment impugned. However, looking to the peculiar facts of this case where the respondent-workman had been paid Rs.57,16,517.72 and had attained the age of superannuation on 31st January, 2012, stay was granted by this Court in reference to back wages by order 27th February, 2015, while upholding the order of penalty of dismissal from service dated 22nd August, 1991 passed by the authority in the domestic enquiry, the Court directed that no recovery shall be made in reference to the payment which has been made over to the workman in the interregnum period. [Standard Chartered Bank v. RC Srivastava, 2021 SCC OnLine SC 830, decided on September 29,2021].


Overall activities and functions of the Irrigation Department would have to be considered while deciding the question whether it is carrying on manufacturing activities: Supreme Court

The Division Bench comprising of Ajay Rastogi and Abhay S. Oka, JJ., held that Irrigation Department was not a factory within the meaning of Factories Act, 1948 as there was no indulgence in manufacturing process in the Department. The Bench expressed, “Even assuming that some of the employees may be doing the work of pumping of water, that is not sufficient to hold that Irrigation Department of the first appellant is carrying on manufacturing process.” Originally, the State had challenged the award made by the Labour Court by which the State was directed to reinstate the respondent in Rajghat Canal Project of the Irrigation Department. The respondent was initially appointed as a daily wage employee on the post of Helper in the Irrigation Department of the first appellant. However, his employment was terminated again after reinstating him in the year 2004.

The State contended that Irrigation Department was not an Industrial Establishment within the meaning of Section 25L of the ID Act and Chapter VB would have no application. The State argued, though the Irrigation Department might have more than hundred workers, it was not a factory within the meaning Section 2(m) of the Factories Act, 1948 as it was not carrying on manufacturing process. Though there was no dispute that the Irrigation Department satisfied the test of having not less than hundred workmen employed on an average; however, the question before the Court was whether the Irrigation Department was an Industrial Establishment as defined in Section 25L of ID Act.

Section 25L of the ID Act reads as: “(a) “industrial establishment” means— (i) a factory as defined in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948);” It was the case of the respondent that the Irrigation Department of the first appellant was an Industrial Establishment as it was a Factory as defined in Section 2(m) (ii) of the Factories Act, which states, a Factory is: “ (ii) whereon 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, or is ordinarily so carried on…” However, as the definition suggested, an establishment cannot be termed as a factory unless it is carrying on manufacturing process. The manufacturing process is defined under Section 2(k)(ii) of the Factories Act, which reads thus: “‘Manufacturing process’ means any process for— (ii) pumping oil, water, sewage or any other substance;”

In the above backdrop, the Bench was of the view that even assuming that some of the employees may be doing the work of pumping of water, that was not sufficient to hold that Irrigation Department of the first appellant was carrying on manufacturing process. The Bench emphasised, “Overall activities and functions of the Irrigation Department would have to be considered while deciding the question whether it is carrying on manufacturing activities.” The Bench added, “Few employees of the Irrigation Department out of several may be incidentally operating pumps. But the test is what are the predominant functions and activities of the said Department.”

The Bench held that even if the activity of operation of pumps was carried on by few employees, the Irrigation department did not carry on manufacturing process, hence, it was not a factory within the meaning of clause (m) of section 2 of the Factories Act. Accordingly, the Bench rejected the reasoning of the High Court that the Irrigation Department was an Industrial Establishment within the meaning of Section 25L and Chapter VB would have application in the case. Hence, the appeal was allowed. The impugned judgments and orders were set aside and the termination of employment of the respondent was held to be legal and valid. [State of M.P. v. Somdutt Sharma, 2021 SCC OnLine SC 829, reported on October 02,2021].

B. COMPANY LAW


Interplay between IBC and Companies Act regarding winding up petitions; Court decides in matter of transfer of company petition to NCLT: Karnataka High Court

S. Sunil Dutt Yadav, J., decided in the matter of a petition which was filed praying to transfer a company petition on the file of the High of Karnataka to the National Company Law Tribunal, Bengaluru under the Insolvency and Bankruptcy Code, 2016. Company petition had been filed seeking an order of winding-up of the respondent-company claiming that it had committed defaults as regards the payment of; rent, interest on rent, service tax and penalty on service tax.

It was contended that the respondent company had demonstrated its inability to pay the debt and accordingly the winding up proceedings had been initiated and in between the proceeding a company application was filed by the respondent seeking transfer of the company petition to NCLT. The petitioner had opposed the application asserting that no reason was assigned in the application invoking exercise of discretion of the Court in terms of power vested under the fifth proviso to Section 434 (1) of the Companies Act, 2013. On this argument it was contended that provision of transfer of proceedings does not require any explanation.

It was further contended that transfer of proceedings to the NCLT would prejudice the interest of the petitioners’ claim insofar as IBC Code imposes rigours and the ambiguity in the orders of the NCLT and NCLAT as to whether rental dues was an operational debt would prejudice petitioners rights to realise its claims which otherwise was admissible in the present winding up proceedings pending before this court. It was contended that exercise of discretion under the fifth proviso to Section 434(1)(c) could be premised on various considerations including existence of parallel proceedings. It was also contended that exercise of judicial discretion cannot have the effect of prejudicing the rights of the petitioner nor can it be exercised in a manner so as to cause injustice.

It is further contended that transfer of proceedings to the NCLT would deny the petitioner the right to a remedy. It was specifically asserted that the court while exercising judicial discretion ought to also keep in mind as to whether provisions of the IBC in terms of which the winding up proceedings would be decided by the NCLT, would make the claim maintainable failing which the question of transferring the proceedings ought not to be considered at all. The Court after the hearing both the parties reiterated that in the present case, notice having been served and the matter was pending for admission when the application invoking the fifth proviso under Section 434 of the Companies Act, 2013 had been filed, the manner of disposal of such application was to be done in terms of the fifth proviso and plain reading of the fifth proviso as extracted hereinabove would indicate that any party or parties to any proceedings may file an application for transfer and the court may by order transfer such proceedings to the Tribunal. However, what needs to be looked into was the interpretation placed by the Apex Court relating to the exercise of power under the proviso.

The Court analyzed the judgment of Supreme Court in Action Ispat and Power (P) Ltd. v. Shyam Metalics and Energy Ltd., Civil Appeal Nos. 4042-4043 of 2020 decided on 15-12-2020 and explained that where the winding up proceedings have reached a stage where it is irreversible making it impossible to set the clock back and in such an event, the Company Court must proceed with the wind