KANDIVALI EDUCATION SOCIETYS

M.H SHROFF COLLEGE OF COMMERCE

Name Amanat Sethi

FY BMS C Roll No 31
Subject -: INDUSTRIAL LAW
Submitted to: Dr. Devnani
 RETRENCHMENT
Interpretation of court:
In the case of Piparaich Sugar Mills Ltd. Vs Piparaich Sugar Mazdoor Union (1957): It
was held. Retrenchment connotes in its ordinary acceptation that the business itself is being continues but
that a portion of the staff of labour force is discharged as surplusage.
The order of termination must be actuated with a motive of economy.
[S.2.(00)] says retrenchment means the termination by the employer if 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 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 m and the workman concerned contains a stipulation in that behalf; or
(c) termination of the service of the workman as a result of the non-renewal of the contract of the
employment between the employer, and the workman concerned contains a stipulation in that behalf; or
(d) Termination of the service of a workman on the ground of continued ill health
This definition of retrenchment gives us the following ingredients.
i. Retrenchment means the termination by the employer of the service of a workman;
ii. The termination maybe for any reason whatsoever;
iii. The termination should not be as punishment or disciplinary action
The following are not retrenchment:
(a) Voluntary retirement of a workman; or
(b) Retirement on reaching the age of superannuation;
(c) Termination of service as a result of non-renewal of the contract of employment on its expiry or
termination of the contract under a stipulation in it.
(d) Termination of the service of a workman on the ground of continued ill health.
Explanation: A plain reading of the definition of retrenchment makes it clear that it consist of
two parts. The first part is the inclusive part which defines retrenchment. The second part is an
exception which excludes certain types of cases from the ambit of definition.
Retrenchment means discharge of surplus labour. It is not necessary that removal must be only when
the establishment is in a loss.

The Supreme Court has in Sunder Manis case interpreted that the term retrenchment in a strict sense
of it, that is to say, it means termination of the service of any reason whatsoever.

HARIPRASAD SHIVSHANKAR vs. A.D. DIVELKAR (1957)

The legislature has used the expression for any reason whatsover which means it does not matter
why you are discharging the surplus, if the other requirements of the definition are fulfilled, then it is
retrenchment.

The definition does not make any difference between regular and temporary
appointment or on daily wages or not taking possessing required qualifications.

SHRIANGAM CO-OPERATIVE URBAN BANK LTD. vs.

PRESIDING OFFICER LABOUR COURT, MADURAI (1996):
 All terminations are retrenchment unless they fall within any of the exceptions.

MORINDA CO-OP. SUGAR MILLS LTD. vs. RAMKRISHNAN

(1996)
Where a seasonal worker ceases to do work due to closure of the season it is not retrenchment.
Termination of service can be brought about in many ways by an employer, but every termination is
not retrenchment. For example, termination of service by way of punishment for proved
misconduct.

What is not retrenchment?

i. Termination of service as a punishment inflicted by way of disciplinary action for example:
inefficiency, suspension, dishonesty etc.
ii. Voluntary retirement
iii. Terminations given in contracts
iv. Non-renewal of contract of employment on expiry
v. Retirement on reaching superannuation age.
vi. Termination of service on the ground of continued ill health, for example: cataract, physical
unfitness, infirmity due to old age incapacity to work, etc.

RANASWAMY MURUGESH vs. S.G. BHONSALE (2005)

The expression continued ill health does not mean uninterrupted continued ill health. It
means ill health for considerable period and long-time affection normal discharge of duties.
What is to be seen is whether the workman does not possess good health for a considerable
long time and has affected him from active duties.

Where a worker suffers an accident during the course of employment making him unfit for
the job, termination on the ground is illegal.

Termination of service under standing orders without a domestic inquiry or without giving
the workman an opportunity to set out his case will be illegal

ENAMALLOR SERVICE CO-OP. BANK vs. LABOUR COURT

(1998)
Where termination results on account of the order passed by superior authorities which are
constituted under some law, under which the employer functions, such termination would not
amount to retrenchment under (S.2)

LEAVE VACANCY: When a workman is appointed on leave vacancy, termination of his service after the
return of permanent workman is not retrenchment unless he has completed 240 days in 12 months.

PROJECT: Likely to be finished after sometime, giving postings, is not covered under S.2 (00)

CLOSURE: Discharge on account of closure is not retrenchment.

CASUAL WORKMAN: A casual worker employed for a long period does not become permanent. Even
for lay-off he is excluded. Under standing orders also they are a separate category.
In case of casual workman, there is the possibility of a break in employment and non- provision of work.
However, In S.2 (00) there is nothing to show that temporary workers are
Powers of the management to retrench workmen
In constructing the powers of the management to retrench workmen the Supreme Court in many cases
including the cases of D.MACROPOLO and Co. VS. THEIR EMPLOYEES UNION and PARRY
AND VO. VS. PCL (1969: has held that it was the discretion of the employer to organise and arrange his
business in the manner he thought best. If termination of services of some workers became necessary the
adjudicator could not interfere, if the action of management was bonafide.

E.RULES RELATING TO RETRENCHMENT

Like provisions about Lay-off, the provision regarding retrenchment should also be understood with
reference to-:
(a) Type of service: i.e. continuous service or not
(b) Number of workmen employed in any industry 2 groups of workman employed:
(i) Number of workmen employed is less than 100
(ii) Number of workmen employed is 100 or more.
(a) Number of workmen employed less than 100:
The employer should strictly observe the procedure and conditions laid down i n [S .25F] and [S . 25G]
of t hi s act . These co ndi t i ons are as unde r:

[S.25F] says, No workman employed in any industry who is in continuous service for not
less than 1 year under an employer shall retrenched until -
(a)The workman is given one month's notice in writing indicating reasons for retrenchment and the period
of notice has expired; or

(b) In case one month's notice is not given workman is paid wages for period of notice, in lieu of the notice
period.

(c) The workman is paid at the time of retrenchment, compensation who shall be equal to 15 days average pay for
every completed year of continuous service or any part thereof in excess of 6 months;

(d) Notice in the prescribed manner is served on the appropriate Government or such authority as may be
specified by the appropriate Government

(Meaning of Average Pay [S.2 (aaa)] "average pay" means the average of the wages
payable to a workman -

(i) In the case of a monthly paid workman, in the 3 complete calendar months.
(ii) in the case of weekly paid workman, in the 4 complete weeks
(iii) in the case of daily paid workman, in the 12 full working days , preceding
the date on which the average pay becomes payable if the workman had worked
for 3 complete calendar months or 4 complete weeks or 12 full working days, as
the case may be, and where such calculation cannot be made - the average
pay shall be calculated a s the average of the wages payable to a
workman during the period he actually worked
 Wages [S.2(rr)]: Means all remuneration capable of being expressed in terms of money,
which would, if the terms of employment expressed or implied, were fulfilled, be payable to a
workman in respect of his employment, or of work done in such employment, and includes-:

(i) Such allowances (including dearness allowance) as the workman is for the time entitled to;
(ii) The value of any house accommodation, or of supply of any service or of any concessional
supply of food grains or other article;
(iii) Any travelling concessions;
(iv) Any commission payable on the promotion of sales or business or both;

But does not include-:

(i) any bonus;

(ii)Any contribution paid or payable by the employer to any pension ' fund or provident fund or for
the benefit of the workman under any law for the time being in force
(iii)Any gratuity payable on the termination of his service.

Anusuyabai vs. Mehta (1959)

Held-during the period of lay-off contract of service is suspended. Layoff compensation is not
wages.
Explanation: The employer should take precautions that he pays the retrenchment. In case that
he pays the retrenchments compensation at the time of the retrenchment. In case the workman
refuses to accept the retrenchment compensation he should have with him enough proof that the
retrenchment compensation was offered to the workman at the time of retrenchment.
.Subject of retrenchment is as follows:
(1) The Notice must specify certain date for retrenchment otherwise mere writing is not a notice. [in re
B.C. Swami 1973]

(2) Having accepted the notice pay and compensation, the workman cannot recede from
his position.
(3) Where the workman after getting the cheque did not encash it and protested
immediately. Held-no estoppel would operate [Film Distributors Employees Association
vs. Metro Goldwyn (1959)].

(4) Notice and payment must be part of the same transaction.

(5) Where workman was asked to collect dues on the same day it was held to be
sufficient compliance [in re Davangere Cotton Mills (1973))
(6) The employer must serve notice on the appropriate Government in the prescribed
form by Registered Post ND.
(7) The requirements given in [S.25F] are of a mandatory nature, and if the
requirements are not complied with, the retrenchment may become invalid,
illegal and inoperative. The workman will be deemed to be in employment.
(8) Standing Orders: There might be standing orders, mentioning the service
conditions including termination but the requirements of [S.25F] are mandatory.
Therefore, the contents of standing orders and this section should be complied with
before discharging a workman from service [Goverhari Patra Vs. Presiding
Officer Industrial Tribunal (1973)]
(9) Time for retrenchment Compensation: In o r d e r t o c o m p l y w i t h
[S.2511, it is important that the compensation should be given at the moment
workman is retrenched. It will not be a compliance if a workman is retrenched on
one day and asked to receive compensation on some other day [Tamil Nadu
Transport Vs. M. Mariappan (1970)]

10) Refusing to accept retrenchment notice: If a workman refuses to accept the

retrenchment notice which is afterwards sent by post saying he would be relieved from the
next day of receiving the notice, in place of taking the dues, the workman demands re-
instatement through the union, in such a case the employer will be justified. That is to say, a
bonafide and genuine offer of the employer to the workman will be held in full compliance of
the requirements of this Act. [Sureshkurnar- Vs. Mgrnt. of Metal Box Put. Ltd. (1981)]
(11) Continuous Service: A workman for obtaining the retrenchment benefits must be in
continuous service for not less than 1 year according to [S.2513] [SBI vs. Central Govt.
Industrial Tribunal (1991)]
(12) Removal of name from the muster-roll: Where a name of a workman has been
removed from the muster roll, it would amount to termination of service and for that reason
retrenchment. [S.25F] being mandatory in nature must be complied with and retrenchment in
violation of [S.25F] is invalid [DCM vs. Shambhunath Mukerji (1979)]
(13) Less retrenchment Compensation: The amount of retrenchment compensation must
be according to [S.25F]. Where the amount is short to which the retrenched workman is
entitled that would be contravention of [S.25F]. [Hanuman Singh Vs. Municipal Council
Jaipur (1989)]
(14) Entitlement to retrenchment Compensation: The workman in order to avail of
benefits under [S.25F] should establish he has a right to continue in service and that this
service is terminated without complying with [S.25 F]. [Enamellor Service Co-Op. Bank Ltd.
Vs. Labour Court 1987]
(15) Not collecting retrenchment Compensation: Where the workman does not meet the
cashier to collect the amount, it cannot be said that workman was not offered dues at the time
of retrenchment notice and the provisions of [S.25F] are not complied with [Oriental Metal
Pressing Works P Ltd. vs. M.M. Kendrekar (1981)]
(16) Reduction in volume of work: Termination due to reduction in volume of work amount
to retrenchment. [Gammon India Ltd. Vs Niranjan Dass (1984)]
(17) Probationers: Provisions of [S.25F] apply to probationers also [Zilla Sahakari Bank
Ltd. Vs. Presiding Officer Labour Court (1994)]
(18) Trainees: Employees appointed as trainees for 1 year, continued as trainees and allowed
to work with regular employees for 2 years or so -their termination amounts to retrenchment
and also violates principles of natural justice. [Vinoba Vs. Mg. Director Hindustan Photo
Films (1998)
(19) Illegal appointment: Where the services of the workman were terminated, giving the
ground of illegal appointment, the termination would amount to retrenchment.
Mithileshkumar Singh Vs. State of Bihar (1995))
(20) Notice of retrenchment: An offer to the workman to collect his dues without specifying
the amount of Retrenchment Compensation under [S.2511 was held invalid. [Sain Steel
Products Vs. Naipal .Singh (2000)]
(21) Effect of Take-over on right of re-employment: Workmen Vs. Employers, Industry
Colliery of Bharat Coking Coal Ltd. (2001) the employees of a colliery were retrenched and
paid compensation under [S.25F). Subsequently, the colliery was taken over by a
Government Company. It was held - the retrenched employees were entitled to claim re-
employment under (S.25H].
[S.25J] says where under the provisions of (a) any other Act or Rule (b) orders or
notification (c) Standing Orders (d) Award (e) Contract of Service (f) otherwise a
workman is entitled to more favourable benefits, he must be entitled to them.
(e) LIFO [S.25G]: The normal *rule is to retrench first of all -147- most workman. If the
employer, has sufficient reasons to depart from this rule, only then he can do that and the
reasons for the same should be recorded. This principle o "Last in first out" is provided in
[S.25G] which says a workman w o is the last person to be employed in the category in
which he is employed shall be retrenched first is to say, the principle of 'Last come first go
shall be observed. In case the employer desires to retrench any other workman than the junior
one, he shall record the reasons for the departure from observing this rule. Secondly, there
should not be an agreement between the employer and workman to the contrary. LIFO is a
redundancy policy, where the workers who have been most recently appointed are the first to
be made redundant.
(f) Re-employment [S.25H]: This section gives a statutory right of re-employment to
retrenched workmen. If the employer wants to take workmen in future, the retrenched
workman has a right of preference over others. This right is given to citizens of India only.
This section says in case in future an opportunity arises to re-employ any person in the
category from which the workman was retrenched, the employer shall in such manner as may
be prescribed give an opportunity to the retrenched workman and such retrenched workman
shall have preference over other persons. These workmen should be citizens of India. This
section provides for preferential re-employment of retrenched workmen.
This section applies when there is a proposal to employ any person after retrenchment.
The employer has to give an opportunity in the prescribed manner to such of retrenched
workmen who are citizens of India
This is done in order to enable the workmen to offer themselves for re-employment
Those workmen who offer should be taken in preference to other persons
(Rule 77 and 78] of the Central Rules prescribe the mode of re-employment.
(Rule77 speaks about maintaining seniority list & Rule 78 speaks about the procedure.)
(b) Retrenchment of workmen where the number of workmen employed is 100 or more.
[Chapter V-13]:
This chapter V-B speaks about special provisions relating to Lay-off, Retrenchment and
Closure in certain establishments. Brief outline is being discussed as follows:
(1) [S.25K] says provisions of this chapter shall apply to industrial establishments employing
100 or more workmen on an average per working day for the preceding 12 months. This
establishment should not be of a seasonal character or in which work is performed only
intermittently.
(2) [S.25N] says no workman who is in continuous service for not less than 1 year under an
employer shall be retrenched until -(a) The workman has been given 3months notice in
writing indicating the reasons for retrenchment and notice period has expired or the workman
has been paid in lieu of such notice, wages for the period of notice.
(b) The workman has been paid at the time of retrenchment compensation which shall be
equal to 15 days average pay for every Completed year of continuous service or any part
thereof in excess of 6 months.
(c) Notice in the prescribed manner is served on the appropriate Government or such
authority as may be specified and the permission' of such authority is obtained.
(d) The remaining provisions speak about making an inquiry by the appropriate Government
or specified authority and granting or refusing permission for reasons to be recorded in
writing or the appropriate Government can either on its own motion or on the application
made by the employer or any workman, review its order or refer the matter to the Tribunal for
adjudication. Further, subject to these provisions the order of the appropriate Government is
final and binding.
e) In case retrenchment is effected without making an application or where the permission for
retrenchment is refused, retrenchment shall be deemed to be illegal from the date on which it
is effected and the workman shall be entitled to all the benefits that are available to him under
the law.
(3) [S.25Q]: says any employer who contravenes the provisions of [S.25 NJ shall be
punishable with imprisonment maximum 1 month, or with fine maximum Rs. 1000, or with
both.

F. DIFFERENCE BETWEEN RETRENCHMENT AND OTHER

CONCEPTS
(a) Retrenchment and closure: In retrenchment the business continued and only a group of
workers is discharged. In closure there discharge of all the workmen. In retrenchment the
business continues but in closure business does not continue.
(b) Retrenchment and Strikes and Lock-outs: In retrenchment no employment
relationship remains. In strikes and lock-outs the relationship continues.
(c) Retrenchment and Lay-off: In retrenchment the relationship is terminated. In lay-off the
employment relationship is not terminated, it is suspended for some time.
(d) Retrenchment and Gratuity & other retirement benefits: Gratuity or pension or
provident fund is a retrial benefit given to an employee by the length of his service.
Retrenchment is not a retrial benefit, it is a compensation payable for termination of
employment.

CLOSURE
Any employer who starts an industrial activity has a right to close the industry started by him.
However, the closure of an undertaking is subject to the restrictions imposed by the statutory
provisions.

A. CLOSURE [S.2(cc)]
Closure means the permanent closing down of the place of employment or part thereof.

B. RULES RELATING TO CLOSURE

Like provisions about lay-off and retrenchment, the provisions regarding closure should also
be understood with reference to-
(a) Type of service: i.e., continuous service or not
(b) Number of workmen employed:
(i)Number of workmen employed is less than 50
(ii)Number of workmen employed is 50 or more but less than 100
(iii)Number of workmen employed is 100 or more
(a)Number of workmen less than 50: [S.25 FFA & S.25 FFF]
In case an undertaking is closed down for any reason whatsoever every workmen who has
been in continuous service for not less than 1 year in that undertaking immediately before
such closure shall be entitled to notice and compensation as if the workman has been
retrenched.
In case the undertaking has been closed down on account of unavoidable circumstances
beyond the control of the employer, the compensation payable to the workman shall not
exceed his average pay for 3 months.
Explanation: If an undertaking is closed down by reason merely of:
(a) Financial difficulties including financial losses; or
(b) Accumulation of undisposed stocks; or
(c) The expiry of the period of the lease or license granted to it; or
(d) In case of mining operation-exhaustion of minerals in the area in which mining
operations are carried on;

Shall not be considered as to circumstance beyond the control of the employer.

In case of mines if after the exhaustion of minerals the mining operations are closed down
and the employer further provides to the workman:
(i) An alternate employment with effect from the date of closure on the same remuneration
and terms and conditions of service;
(ii) The service of the workman has not been interrupted by such alternate employment; and
(Iii) The employer has undertaken to pay to the workman in the event of retrenchment,
compensation on the basis of continuity of service;
Then the workman is not entitled to any compensation towards the closure of an
undertaking.
Construction of buildings, bridges, roads, canals, dams or other construction work [S.25
FFF (2)]: If an undertaking is set up for the construction of buildings, bridges, roads, canals,
dams or other construction works and it is closed down on account of completion of the
work within 2 years from the date on which the undertaking is set up then no workmen
employed by the undertaking shall be entitled to any compensation.
In case the construction work takes more than 2 years for its completion after it is set up
then the workman will be entitled to both notice and compensation for every completed
year of continuous service or any part thereof in excess of 6 months.
(b)Number of workmen 50 or more but less than 100 [S.25 FFA]:
(a)60 days notice: An employer who employs more than 50 but less than 100 workmen and
who intends to close down his undertaking shall have to serve at least 60 days before the date
on which the intended closure is to become effective a notice in the prescribed manner on
the appropriate Government. This notice has to state clearly the reasons for the intended
closure of the undertaking.
(b)No notice is required when:
(i)The number of workmen employed is less than 50, or
(ii) An undertaking is set up for construction of buildings, bridges, roads, canals, dams
or for other construction work or project.
(iii)The appropriate Government is satisfied that owing to exceptional circumstances
like accident in the undertaking, death of the employer or similar reasons, no notice is
required, this can be done by the appropriate government by an order.
(c) The compensation payable is the same as if applicable to an undertaking employing less
than 50 workmen.
(d)The notice to be given is only an information to the appropriate Government. This notice
does not mean that any previous sanction of the appropriate Government is required for the
closure of an undertaking.

(c)Number of workmen 100 or more [S.25-0]

[S.25-0] may be summarized as follows:
(i) An employer who intends to close down his undertaking shall apply to the appropriate
Government for prior permission 90 days before the intended date of closure.
(ii) Copy of this application should also be served on the representatives of the workmen in
the prescribed manner.
(iii) This application should be in the prescribed manner and should state clearly the reason
for the intended closure.
(iv) After making the enquiry if the appropriate Government is satisfied that the reasons for
the intended closure are not adequate or sufficient or such closure is prejudicial to the
public interests then it may by an order direct the employer not to close down the
undertaking.
(v) In case the appropriate Government does not communicate its decision about either
granting or refusing the permission within a period of 60 days from the date on which the
application is made, the permission applied shall be deemed to have been granted.
(vi) If the undertaking is closed down without obtaining the permission or where the
permission to close down is refused the closure shall be deemed to be illegal and the
workmen shall be entitled to all the benefits under the laws applicable to them
(vii) If the appropriate Government is satisfied that there are exceptional circumstances
such as accident in the undertaking or the death of the employer or some similar reason, it
may direct in writing that in relation to such an undertaking no application shall be
required.
(viii) No application for closure to the appropriate is required if the undertaking is set up for
the construction of buildings, bridges, roads, canals, dams or for other construction work or
project.
(ix) In case the permission to close down is granted the workmen shall be entitled to notice
and compensation as if such workmen are retrenched from an undertaking employing 100 or
more workmen, that is to say, 3 months notice and compensation at the rate of 15 days wages
for each completed year of continuous service.

Hindustan Lever Employees Union Vs State of

Maharashtra(1989)
Held the act of an employer shifting the manufacture of one of its products from one
location to another location is not a closure.
(x) Penalty for closure [S.25 R]: Any employer who closes down an undertaking without
complying with the provisions of [S.25-0] shall be punishable with imprisonment
maximum 6 months or with fine maximum up to Rs.5000, or both.
(xi) Penalty for closure without notice [S.30A]: An employer who closes down any
undertaking without complying with the provisions of [S.25 FFA] shall be punishable with
imprisonment maximum 6 months, or with fine maximum Rs.5000 or both.
[S.25 R(2)]: Any employer who contravenes an order refusing to grant permission to close
down an undertaking under [S.25-0(2)] shall be punishable with imprisonment maximum
6 months, or with fine maximum Rs.5000 or both.
Where the contravention is continuing one then, with a further fine maximum Rs.2000 for
everyday during which the contravention continues after conviction.

C. OFFENCES BY COMPANIES ETC. [S.32]

Where a person committing an offence under this act is a company, or other body corporate,
or an association of persons (whether incorporated or not), every director, manager, secretary,
agent, or other officer or person concerned with the management thereof shall, unless he
proves that the offence was committed without his knowledge or consent, be deemed to be
guilty of such offence.

D. DIFFERENCE BETWEEN CLOSURE AND OTHER

CONCEPTS
A. Closure and lock-out:
(i) In closure the employer closes the place of business and also the business itself.
(ii) In lock-out the employer closes only the place of business.
(iii) Closure is the severance of employment relationship. In lock-out there is no
severance of relationship, it is only suspension of relationship.
(iv) Lock out is done because of industrial dispute. Closure can be done for any
reason.
(v) Lock out is done to compel the workers to accept the terms and conditions of the
employer.
(vi) Closure is shutting the business and employment itself, therefore, there is no
question of bargaining between the employer and workmen.
B. Closure and Discharge:
(i) In closure there is severance of relationship of employer and workmen, which
may not be connected with the conduct of the workmen.
(ii) In discharge the severance of employment is connected with the conduct of the
workmen and it is due to
(a) Punishment or
(b) Disciplinary proceedings.