S.25FFF ID Act | Enterprise Shutting Due To Financial Difficulties Not 'Unavoidable Circumstance' To Deny Retrenchment Compensation: J&K High Court

Citing the explanation to Section 25-FFF of the Industrial Disputes Act, Justice Wasim Sadiq Nargal observed,

“..where an undertaking is closed down due to financial difficulties which is the case in the present petition, shall not be deemed to be closed down on account of unavoidable circumstances beyond control of the employer”.

The case had arisen out of petitioner's closure of business in March 2017, which lead to termination of respondent Nos.2 to 5 (its former employees). These ex-employees had approached respondent No.1/Authority under Payment of Wages Act, 1936 seeking inter-alia retrenchment compensation. Despite petitioner's objection, the Authority passed an order for payment of retrenchment compensation, which was challenged before the court.

The petitioner argued that the Authority had exceeded its jurisdiction, as claim for retrenchment compensation falls within the purview of Industrial Disputes Act, 1947 and should be adjudicated by an Industrial Tribunal. Additionally, objections were raised on the grounds that closure was due to the principal company's liquidation and that proper notice was given to employees.

As the Authority's jurisdiction itself was sought to be challenged, the petitioner contended that the alternate remedy of appeal under Section 17 of the 1936 Act was not resorted to. Citing “Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and ors” (1998), it said that the case fell within the scope of exceptions carved out by the Supreme Court. 

The respondents, on the other hand, challenged the petition's maintainability on the ground that an alternate efficacious remedy was available in the form of appeal against the impugned order. They cited Section 17 of the 1936 Act to aver that a statutory amount would have been required to be deposited to file an appeal against the impugned order, and to avoid the same, the petitioner had filed the instant petition.

Defending the legality of the impugned order, the respondents submitted that respondent No.1 was the only competent authority to decide claims of "Wages" under the 1936 Act.

Upon analyzing the legal aspects, the court held that the writ petition was maintainable. On the issue of retrenchment compensation being included in the definition of "wages," it ruled in favor of respondent-employees and said that retrenchment compensation under the Industrial Disputes Act qualified as 'wages' under the 1936 Act.

“..if a workmen is retrenched then a certain compensation has to be paid under Industrial Disputes Act. This being a compulsory payment under the statute, must be taken to be an implied term of the contract of the employment and thus, the same falls within the definition of 'wages' under the Act of 1936”, the court recorded.

Dealing with the issue of jurisdiction of the Authority/Assistant Labor Commissioner under Section 15 of the 1936 Act to award compensation for retrenchment, Justice Nargal observed,

“Where the factum of retrenchment has been admitted by the petitioner by bringing the fact of closure of the establishment on account of liquidation before this court, an order for the payment of retrenchment compensation could be made under section 15 of the Act of 1936”.

On the entitlement of the employees to retrenchment compensation after the closure of the establishment, it was held that the termination was a consequence of closure, and financial difficulties could not be considered unavoidable circumstances as mentioned in the explanation to Section 25-FFF of the Industrial Disputes Act.

Lastly, Justice Nargal addressed the petitioner's failure to comply with the procedure outlined in Section 25-O of the Industrial Disputes Act for closing down an establishment and ruled that it had not followed statutory provisions.

“The Industrial Disputes Act has provided a penal action against the employer who doesn't follow the procedure mentioned hereinabove for closing down an establishment”, the bench remarked.

In view of the observations, the court dismissed the petition.

Counsels for petitioner: Mr. S. S. Ahmed and Mr. Rahul Raina, Advocates

Counsel for respondents: Mr. Ajay Gandotra, Advocate

Case Title: Davinder Kumar Batra Vs The Authority Under Payment of Wages Act 1936 and Ors., OWP No. 338/2019

Citation: 2023 LiveLaw (JKL) 296

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