Trade Union Closure Dispute: Supreme Court Upholds Factory Shutdown but Grants Compensation

The Supreme Court of India, in its judgment on January 5, 2018, ruled on a long-standing dispute regarding the closure of a manufacturing unit and the rights of its workers. The case, National Kamgar Union v. Kran Rader Pvt. Ltd. & Ors., involved a challenge by a trade union against the legality of a factory shutdown and the associated compensation for affected workers. The Court upheld the factory closure but ordered compensation for certain workers who had not yet received a settlement.

Background of the Case

The case revolved around a manufacturing unit originally owned by respondents 2 and 3, later transferred to respondent 4, and eventually to respondent 1, Kran Rader Pvt. Ltd. Due to financial losses, the company decided to shut down its factory in Pune, issuing a closure notice on August 29, 1990, under Section 25 FFA of the Industrial Disputes Act, 1947.

The National Kamgar Union, representing the workers, challenged the closure before the Industrial Court, Pune, alleging unfair labor practices. The Union argued that the company had employed more than 100 workers at the time of closure, making the provisions of Chapter VB of the Industrial Disputes Act applicable. The Industrial Court ruled in favor of the workers, declaring the closure illegal. However, the Bombay High Court later reversed this decision, holding that the factory had only 99 workers at the time, and therefore, the stricter closure regulations under Chapter VB did not apply.

Arguments by the Petitioner (National Kamgar Union)

The Union contended that:

The factory had 115 workers at the time of closure, which meant that Chapter VB of the Industrial Disputes Act applied.
The company failed to follow the necessary procedures for closure, rendering it illegal.
Since the closure was unlawful, the affected workers were entitled to reinstatement and full back wages.

Arguments by the Respondents (Kran Rader Pvt. Ltd. & Ors.)

The company countered that:

The total number of employees at the time of closure was 99, not 115, as claimed by the Union.
Since Chapter VB only applies to establishments with 100 or more workers, the factory closure was legally compliant.
Most of the affected workers had already accepted compensation packages, settling their claims voluntarily.

Observations of the Supreme Court

The Supreme Court examined the facts and legal provisions and made the following key observations:

“The question of how many workers were employed at the time of closure is a factual matter. The High Court’s finding that there were only 99 workers is reasonable and should not be disturbed.”
“Once it is established that the number of workers was below 100, Chapter VB of the Industrial Disputes Act does not apply, and the closure cannot be deemed illegal.”
“Although the closure was valid, fairness demands that the remaining workers who have not accepted compensation be granted financial relief.”
“The Industrial Court did not properly examine the status of certain disputed employees before concluding that they were all workers under the Act.”

Final Verdict

The Supreme Court upheld the Bombay High Court’s ruling, confirming that the closure was legal. However, the Court directed the company to pay compensation of Rs. 2,50,000 (Two Lakhs and Fifty Thousand) to each worker who had not yet accepted a settlement.

The Court instructed that:

The company must deposit the compensation with the Industrial Court, Pune.
The Industrial Court must verify the claims and ensure payment to eligible workers.
If a worker is deceased, the compensation must be paid to their legal heirs.
The entire process must be completed within three months.

Conclusion

This judgment underscores the importance of procedural compliance in factory closures while balancing the rights of workers with the realities of business operations. The Supreme Court’s decision ensures that affected employees receive fair compensation, even when the closure itself is deemed lawful.

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Download Judgment: National Kamgar Unio vs Kran Rader Pvt. Ltd. Supreme Court of India Judgment Dated 05-01-2018.pdf

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