India: Re-Visiting Chapter VB Of ID Act With Special Reference To The Retrenchment and Approach

Last Updated: 5 March 2003
Article by G Shivaji Rao


Chapter VB of the Industrial Disputes Act, 1947 (Sec.25K) denotes that the Provisions of this Chapter shall apply to an industrial establishment in which not less than 100 workmen were employed on an average per working day for the preceding 12 months. Sec. 25N of the I.D. Act falls under the said Chapter VB which denotes about condition precedent to retrenchment of workmen. Before actually getting into the conditions precedents and condition subsequent for retrenchment of workmen, let us discuss the very important aspect i.e. procedure for retrenchment as laid down under Sec.25G of the I.D. Act, 1947.

Sec.25G PROCEDURE FOR RETRENCHMENT : Where any workmen in any industrial establishment who is a citizen of India is to be retrenched and he belongs to a particular category of a workmen in that establishment, in the absence of any agreement between the employer and workman in this behalf, employer shall ordinarily retrench the workman who was the last person to be employed in that category, unless for the reasons to be recorded, the employer retrenches any other workman.

The above Section states about the rule of Last Come First Go - the Act permits an employer to affect retrenchment of workman in his industrial establishment but there are certain condition precedent which he has to comply while affecting such retrenchment.

The above section also prescribe certain conditions to be satisfied by an employee before he can claim protection given there-under which are :

  1. the person claiming protection of this Section should be a workman within the meaning of Sec.2(s) of the Act.
  2. He should be citizen of India;
  3. The Industrial establishment employing such workman should be an industry within the meaning of Sec.2(j) of the Act.
  4. The workman should belong to a particular category of workmen in that industrial establishment and
  5. There should be no agreement between the employer and the workman contrary to the procedure of "Last come First go".

These conditions should be cumulatively satisfied i.e. even of any one of these requirements is lacking, the provisions of this Section will be of no avail. The procedure, therefore, has been hedged with several cautions and safe guards. The procedure of first come last go or last come first go denoted under Sec.25(G) should normally be adhered to, where the exigencies of an industry so demand, the procedure can be departed from. The only requirement the Sec., requires is that in case of departure from this procedure is that the employer should record reasons for the departure.

The doctrine of last come first go has to be borne in mind with respect to different categories of workmen working in an industrial establishment and not to the whole of the industrial establishment. There is, however, a clear distinction between a class or category and grade. The class or category is a group in which posts of particular description are included and the grade as referred exclusively to scales of pay. The word 'category' as mentioned in Sec.25G is therefore not synonymous with grade. The category means a class or trade such as turner, motor-mechanic, electrician, driver etc.

Departure from the rule of Last come First Go : In case an employer wants to depart from this rule, he is bound to record valid and sufficient reasons for the same. In other words, this rule is not inflexible and extraordinary situations may justify variations. For instance, "a junior recruitee who has a special qualification needed by the employer may be retained even though another who is one up is retrenched."

Industrial Establishment : Categories of workmen : From the Scheme of the Act, it is clear that it envisages each of the following expression as a distinct concept :

  1. an industry
  2. an industrial concern with an industry
  3. an industrial establishment which may itself be the whole of industrial concern or which may be part of a larger industrial concern
  4. a section of industrial establishment and;
  5. categories of workmen in an industrial establishment or in Section thereof.

For our consumption, Item Nos.4 & 5 are of relevance. Sec.25G makes it clear that the Unit of an industry to which the statutory principle governing retrenchment applies is an 'industrial establishment'. The provision insist on the rule being applied category-wise that is to say, those who fall in the same category shall suffer retrenchment only in accordance with the principle of last come first go. The obligation of the section will operate not only within the limitation of the establishment in which retrenchment is to be made but also within the added limitation of the category to which the retrenched workmen belong.

However, the Hon'ble High Court of Bombay in the case of Tulsidas Khimji V/s. F. Jeejeebhoy (1961) I LLJ 42 has laid down the test to determine whether in a given case there is a 'single establishment' or 'different establishments' or 'single category' or 'different category' as follows :

i) Have the employers recruited the workmen on the basis that they belong to one particular category of the various departments, branches or units taken as an integrated whole, or is the recruitment made on the basis of that particular category belonging to each of the different departments separately ?

ii) Can the employment of a clerk be regarded as employment in a single category of clerks by reason of the unity of ownership of the different departments or by reason of -

a) geographical proximity of different departments ; or

b) the fact that there is a Head Office supervision of different departments and ultimate amalgamation of the accounts?

iii) Are the different departments functionally integrated or by reasons of the condition of transferability or seniority amongst the clerical cadre, can the departments be treated as forming a single integrated industrial establishment?

Therefore, it is mandatory on the part of the employer that the procedure indicated in Sec.25G shall be adhered to while effecting retrenchment.

Sec. 25N : Conditions precedent to retrenchment of workman :

1) No workman employed in any industrial establishment to which this Chapter applies, who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until;

a) the workman has been given three months notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of notice and

b) the prior permission of the appropriate government or such authority as may be specified by that government by notification in the official gazette has been obtained on an application made in this behalf

2) An application for permission under Sub-sec. (1) shall be made by the employer in the prescribed manner stating clearly the reasons for the intended retrenchment and a copy of such application shall also be served simultaneously on the workman concerned in the prescribed manner.

3) Where an application for permission under sub-sec. (1) has been made, the appropriate government or the specified authority, after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workman concerned and the persons interested in such retrenchment, may, having regard to the genuineness and adequacy of the reasons stated by the employer, in the interest of workman and all other relevant factors, by order and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen.

4) Where an application for permission has been made under Sub-sec.(1) and the appropriate government or the specified authority does not communicate the order granting or refusing to grant permission to the employer within a period of 60 days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of 60 days.

5) An order of the appropriate government or the specified authority granting or refusing to grant permission shall, subject to the provisions of sub-section (6), be final and binding on all the parties concerned and shall remain in force for one year from the date of such order.

6) The appropriate government or the specified authority may, either on its own motion or on the application made by the employer or any workman, revive its order granting or refusing to grant permission under sub-sec.(3) or refer the matter or, as the case may be, cause it to be referred, to a Tribunal for adjudication;

Provided that where a reference has been made to a Tribunal under this Sub-section, it shall pass an award within a period of 30 days from the date of such reference.

7) Where no application for permission under sub-sec.(1) is made, or where the permission for any retrenchment has been refused, such retrenchment shall be deemed to be illegal from the date on which the notice of retrenchment was given to the workman and the workman shall be entitled to all the benefits under any law for the time being in force as if no notice had been given to them.

8) Notwithstanding anything contained in the foregoing provisions of this Section, the appropriate government may, if it is satisfied that owing to such exceptional circumstances as accident in the establishment or death of the employer or the like, it is necessary so to do, by order direct, that the provisions of sub-section (1) shall not apply in relation to such establishment for such period as may be specified in the order.

9) Where permission for retrenchment has been granted under sub-sec.(3) or where permission for retrenchment is deemed to be granted under sub-sec.(4), every workman who is employed in that establishment immediately before the date of application for permission under this Sec., shall be entitled to receive at the time of retrenchment, compensation which shall be equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of six months.

The aforementioned Section mandates the following :

  1. The employer has to decide and identify to retrench the workmen in various categories / sections in his establishment.
  2. Secondly, the employer is required by law to make an application to obtain permission of the appropriate government or the specified authority as the case may be. The notice for permission for retrenchment to be given by an employer under Clause (b) of sub-section (1) of Sec.25N of the Act is to be given in form P-A prescribed by Rule 76A of the Industrial Disputes (Central) Rules, 1957.
  3. Once the application is made for permission, employer should wait till the permission is given or the period of 60 days from the date of making the application has expired when the permission will be deemed to have been granted.
  4. In so far as requirement of giving notice to the workmen is concerned, it is open to the employer to give such notice to the workmen, after taking the decision to retrench them, at any time, before or after obtaining the permission. OR retrench them forthwith on obtaining the permission by giving 3 months wages in lieu of the notice.
  5. Apart from giving such notice or paying wages in lieu of the notice, the employer is also required by sub-section (9) to pay compensation to the workmen proposed to be retrenched "at the time of retrenchment".

These are the mandatory conditions precedent to a valid retrenchment. In other words, non-compliance of these requirements will render the retrenchment illegal and in-operative in law and the workmen shall be entitled to all the benefits which they are entitled to for the time being.

Grant or refusal of permission by the Appropriate Govt. : The appropriate Government or the specified authority is vested with the power to grant or refuse to grant the permission to the employer to retrench the workman. But before granting or refusing to grant permission these authorities are required to :-

1) make an inquiry into the question of retrenchment as it may think fit;

2) give a reasonable opportunity of being heard to -

i) the employer;

ii) the workman concerned; and

iii) all the persons interested in such retrenchment;

3) consider -

i) the genuiness and adequacy of reasons stated by the employer,

ii) the interest of the workman, and

iii) other relevant factors; and

4) pass an order granting or refusing to grant the permission.

5) Such order should -

i) state reasons in writing for the decision; and

ii) communicate such reasons to the employer as well as to the workmen.

The powers vested in the appropriate Government by this sub-section are not purely administrative but are quasi-judicial in nature(k). This power has to be exercised on an objective consideration of the relevant facts after affording an opportunity to the parties concerned (I).

Suggestions :

Series of steps to be resorted in the matter, priority-wise are given below :

  1. Identify the workmen proposed to be retrenched in the respective category / divisions.
  2. Preparation of seniority list of employees category-wise / division-wise and publish the same for calling objections if any from the employees by setting time frame and thereafter make the list absolute.
  3. Fill up the application form and submit to the Appropriate Government for approval to retrench the intended number of workmen in the respective category / division mentioning the reasons (genuine) for retrenchment.
  4. As stated in sub-clause (3) of Sec.25N, on submission of the said form to the Appropriate Government it will call objections if any from the concerned workmen and from the interested parties before granting or refusal of such permission. In other words, there will be a quasi-judicial proceedings before the Appropriate Government in the matter of granting / refusing permission.
  5. Once the application is made for permission, employer should wait till the permission is given or the period of 60 days from the date of making the application has expired when the permission will be deemed to have been granted.
  6. In so far as requirement of giving notice to the workmen is concerned, it is open to the employer to give such notice to the workmen, after taking the decision to retrench them, at any time, before or after obtaining the permission. OR retrench them forthwith on obtaining the permission by giving 3 months wages in lieu of the notice.
  7. Apart from giving such notice or paying wages in lieu of the notice, the employer is also required by sub-section (9) of Sec. 25N to pay compensation to the workmen proposed to be retrenched "at the time of retrenchment".
  8. As stated hereinabove, the proceedings of approval for retrenchment is long drawn process and the establishment has to put forth, defend its reasons for retrenchment and successfully convince the Appropriate Government about the genuineness of its proposed actions and to deal with the objectives, if any, from the worker segment against the said application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific

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