DEFINITION OF 'RETRENCHMENT' UNDER THE INDUSTRIAL

DISPUTES ACT, 1947 : RECENT PRONOUNCEMENTS

OF THE SUPREME COURT

TWO RECENT judgments of the Supreme Court of India, while interpret-

ing the definition of 'retrenchment' under section 2(oo) of the Industrial
Disputes Act, 1947, have created complete uncertainty and indefiniteness in
the field of industrial law, especially relating to discharges. These judgments
have been pronounced in the cases of State Bank of India v. N. Sundara-
money1 and Hindustan Steel Ltd. v. State ofOrissa.2
To appreciate the implications of these judgments and the controversy
relating to the definition of retrenchment under the Industrial Disputes Act,
1947, it is necessary to reproduce the definition of'retrenchment' under the
Act :
S. 2(oo) 'retrenchment'means the termination by the employer of the
service of a workman for any reason whatsoever, otherwise than as
a punishment inflicted by way of disciplinary action, but does not
include—
(a) voluntary retirement of the workman; or
(b) retirement of the workman on reaching the age of superannuation
if the contract of employment between the employer and the
workman concerned contains a stipulation in that behalf; or
(c) termination of the service of a workman on the ground of continued
ill-health.
If a literal meaning is given to the above definition, every case of
termination of service by the employer would amount to retrenchment
provided it is not by way of disciplinary action and/or not excluded by sub-
clauses (a), (b) and (c) of the above definition. However, courts in the
past had cut down the amplitude of the definition, so as to harmonize it
with the scheme of the Act. The definition came up for interpretation before
the Supreme Court in the cases of Pipraich Sugar Mills Ltd. v. Piprakh Sugar
Mills* Mazdoor Union9z Barsi Light Railway Company Ltd. and Another v.
K.N. Joglekar and Others41 and Banaras Ice Factory Ltd. v. Their Workmen.5
Dealing with the ordinary meaning of retrenchment, the Supreme Court in
the case of the Pipraich Sugar Mills case observed :

Retrenchment connotes in its ordinary acceptation that the business

itself is being continued but a portion of the staff or the labour force

1. (1976) I.L.LJ. 478.

2. (1977) I.L.LJ. 1.
3. (1957) I.L.LJ. 2326,
4. (1957) I.L.L.J. 247.
5. (1957) I.L.LJ. 253.

www.ili.ac.in © The Indian Law Institute

1977] RETRENCHMENT 85

i"5 discharged as surplusage and the termination of services of all the

workmen as a result of closure of the business could not therefore
be properly described as retrenchment.6

It is true that in the case of the Pipraich Sugar Mills, the Supreme Court
was concerned with the question only whether termination of service of
staff on account of closure of an undertaking would amount to retrench-
ment. The same question arose also in the cases of Barsi Light Railway
Company Ltd. and Another v. K.N. Joglekar and Others1 and Benaras Ice
Factory v. Their Workmen* referred to above. Therefore, taking a narrow
view of the question of law decided in these cases, it could be said that all
that was decided in these cases was that termination of the services of
workmen on account of closure of an undertaking does not amount to
retrenchment under section 2(oo) of the Industrial Disputes Act. However,
the Supreme Court arrived at this conclusion by not giving a literal
meaning to the definition, cut down its magnitude and gave a narrower
meaning to it. While doing so, it relied on the ordinary connotation of the
word retrenchment which is discharge of workmen as surplus.
With this background, we may now discuss the two cases under review.
From the facts of the case of State Bank v. Sundaramoney, which are
given more fully in the judgment of the Madras High Court against which
appeal was filed in the Supreme Court 9 it would appear that the bank
employed the respondent employee as a temporary employee because
the permanent cashier was away. When the permanent cashier joined, his
duties, Sundermoney's services were dispensed with. The Madras High
Court held that this was nothing but discharge of Sundermoney as surplus
labour. Not satisfied with the judgment of the Madras High Court, the
employer took the matter to the Supreme Court. The judgment in the case
was written by V. R. Krishna Iyer, J. While noting the judgment of the
Supreme Court in the Hospital Mazdoor Sabha case10 wherein Gajendra-
gadkar, J., as he then was, had held that non-compliance with section 25F
of the Industrial Disputes Act renders the retrenchment itself void and
ineffective, Krishna Iyer, J. proceeded to deal with the definition of
'retrenchment'. The learned judge gave literal meaning to the words 'for
any reason whatsoever' and stated "a break-down of Section 2(oo)
unmistakably expands the semantics of retrenchment, 'Termination...for any
reason whatsoever* are the key words. Whatsoever the reason, every
termination spells retrenchment." 11

6. Supra note 3 at 38.

1. Supra note 4.
8. Supra note 5.
9. See (1957) I.L.LJ. 453.
10. (1960) 14 at 257.
11. Supra note 1 at 482.

www.ili.ac.in © The Indian Law Institute

§6 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 1 9 : 1
The court, therefore, observed :
What follows ? Had the State Bank known the law and acted on
it, half a month's pay would have concluded the story. But that did
not happen and now, some years have passed and the Bank has to
pay, for no service rendered. Even so, hard cases cannot make bad
law. Reinstatement is the necessary relief that follows.12
On behalf of the bank, it was urged that when the services of an
employee come to an automatic end on the expiry of the period of his
service, there is no 'termination by the employer'. Thus, there is no retrench-
ment. To this the answer of the court was as follows :
[A]n employer terminates employment not merely by passing an
order as the service runs. He can do so by writing a compositive
order, one giving employment and the other ending or limiting it. A
separate, subsequent determination is not the sole magnetic pull of
the provision. A pre-emptive provision to terminate is struck by the
same vice as the post-appointment termination. Dexterity of diction
cannot defeat the articulated conscience of the provision.13
The matter of definition of 'retrenchment' again came up before the
Supreme Court in Hindustan Steel Ltd. v. State of Orissa.1* In this case the
workmen concerned were kept in employment as head time keepers/time
keepers for a number of years on fixed term appointments, their period of
service having been extended from time to time. Pursuant to an alleged
policy "to streamline the organisation and to effect economies wherever
possible", the employer chose not to renew the contracts of their service.
There was no order of termination of their services; according to the
employer, the termination was automatic on the expiry of the contractual
period of service. The head time keepers concerned raised an industrial
dispute and the question ultimately came up before the Supreme Court
whether the termination of their service amounted to retrenchment. The
Solicitor-General, appearing for the company, frankly conceded that the
appeal was covered by the decision of the Supreme Court in the case of
State Bank of India v. Sundaramoney but wanted the court to reconsider the
aforesaid decision as it was in apparent conflict with the earlier decision of
the court in Hariprasad Shivshankar Shukla v. A.D. Divelkarn (same
as the Barsi Light Railway case, referred to above). However, the
Supreme Court held that there was no such conflict. It interpreted the
earlier decision of the Supreme Court as deciding only that termination of
service of all the workmen on closure of an undertaking would not amount
to retrenchment. The court also noted with approval, some of the lines
from the judgment of Krishna Iyer J., in the State Bank of India v. Sundara-

12. Id at 483.
13. Ibid.
14. Supra note 2.
15. (1957) S.C.R. 12.

www.ili.ac.in © The Indian Law Institute

1977] RETRENCHMENT 87

money thereby putting its seal on the wider meaning given to the definition
of retrenchment under the Act.
The position in law as emerging from these decisions, therefore, appears
to be that the definition of termination is given the widest magnitude
because of the words "for any reason whatsoever".
It is submitted, however, the Supreme Court has not really adopted a
practical, or even a "teleological approach", as generally Krishna Iyer
J., has been anxious to adopt, in dealing with the above cases. As a matter
of fact, these judgments have thrown the whole concept of retrenchment
into complete turmoil and confusion. This would be clear if we analyse the
other provisions of the Act having bearing on the question of retrenchment.
Section 25G of the Act states that where any workmen in an industrial
establishment, who is a citizen of India, is to be retrenched, and if he belongs
to a particular category of workmen in that establishment, in the absence
of any agreement between the employer and the workmen in that behalf, the
employer shall ordinarily retrench the workman who is the last workman
to be employed in that category unless for reasons to be recorded, the
employer retrenches any other workman. Section 25H of the Act says that
where any workmen are retrenched and the employer proposes to take into
employment any persons, he shall, in such manner as may be prescribed, give
an opportunity to the retrenched workmen who are citizens of India to offer
themselves for re-employment, and such retrenched workmen who offer
themselves for re-employment shall have preference over other persons.
Let us suppose that a workman is a misfit in an organisation in the sense
that he cannot get along with the rest of the workmen in the establishment,
and there arc perpetual disputes between him and the rest of the workmen
due to which normal functioning of the establishment becomes difficult. Or,
let us suppose a case like that of Chartered Bank where the cashier refuses to
follow the procedure as prescribed by the treasurer for running the accounts
section, and the treasurer thereupon withdraws his surety and the employer
discharges him on that account. In the latter case, the Supreme Court held
the termination to be valid and an act of bona fide discharge.16 But if we
take the definition of retrenchment literally as the Supreme Court has done
in the two recent judgments, it could be claimed on behalf of the workmen
concerned that this was a case of retrenchment, because the action was not
by way of disciplinary action nor covered by the three other exceptions as
stated in the definition of retrenchment. Would the employer in such a case
have to pay retrenchment compensation as a condition for terminating the
service of such a workman, and would the termination be ineffective and
void because he had not done so ? Or take an instance where the employer
loses confidence in a workman, and terminates his service on that account.
In such a case also if we take the literal meaning of the word 'retrenchment'
then it would follow that he should be paid retrenchment compensation

16. Chartered Bank v. Ciartered Bank Employees' Union (1960) II L.LJ. 222.

www.ili.ac.in © The Indian Law Institute

88 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 19 :1

before his services are terminated. The matter does not stop there. How do
you apply to such a case the rule laid down in section 25G of the Act that
normally the junior most should be discharged first, and the senior most
should be discharged last. Or, the rule laid down in section 25H that when
giving re-employment, those who have been retrenched should be given
preference in employment ?
It is true, of course, that in the Hindustan Steel case, the earlier judg-
ments of the court were considered. However, in considering these judg-
ments, it is submitted, the court did not appreciate the broader aspects of the
questions raised before the Supreme Court in the judgments given by it in
the earlier cases and as set out in the preceding paragraph. For example, in
the case of Barsi Light Railway Company Ltd. and Another v. K.N* Joglekar
and Others™ the court had considered comprehensively the language of the
definition and came to the conclusion that the legislature in using the
expression "for any reason whatsoever'' says in effect "it does not matter
why you are discharging the surplus". If the other requirements of the
definitions are fulfilled, then it is retrenchment. This interpretation it is,
submitted, was more in harmony with the scheme of the Act than the inter-
pretation given to the definition under the aforesaid two judgments.
There is yet another aspect of the matter which needs to be emphasized.
Because of the observations made by the Supreme Court in its earlier
decisions, almost all the High Courts had started taking the view that
retrenchment must be understood as termination of service of staff on
account of their being surplus. Thus, retrenchment compensation was paid
by the employer when a workman was discharged as surplus, and not other-
wise. The result of adopting the broader interpretation as given to the
definition of 'retrenchment' in the aforesaid two judgments, would be that
cases which nobody previously thought to be covered by the definition of
retrenchment would now be deemed to be of retrenchment. In such cases,
claims would arise for declaring the termination itself as null and void, and
not merely for payment of retrenchment compensation. There being no
limitation for raising an industrial dispute or making a claim under section
33C(2) one could expect a plethora of cases on this point being brought up.
Would this be in the interest of industrial peace or be justified even on
broader industrial jurisprudence principles?
Anand Prakash*

17. Supra note 4.

* M.A., Ph. D. (London), Bar-at-Law, Senior Advocate, Supreme Court.

www.ili.ac.in © The Indian Law Institute