Case Note & Summary
The dispute concerned the liability for gratuity of an employee who resigned from a textile mill before the Central Government took over its management. Mohan Sambhaji Parab was employed with M/s Finlay Mills Ltd from January 1, 1954 until March 22, 1983, when he resigned. He claimed Rs. 16,730 as gratuity under the Payment of Gratuity Act, 1972 and submitted the required form to the employer. The employer failed to pay, so he approached the Controlling Authority. On October 18, 1983, the President promulgated the Textile Undertakings (Taking Over of Management) Ordinance, 1983, taking over the management of the cotton textile undertaking of Finlay Mills. The Ordinance was replaced by the Textile Undertakings (Take Over of Management) Act, 1983, and the management was vested in the National Textile Corporation (South Maharashtra) Ltd. (NTC) with effect from October 18, 1983. NTC was impleaded in the gratuity proceedings before the Controlling Authority. The Controlling Authority, by order dated October 31, 1984, held that the gratuity was payable by the erstwhile employer, not NTC, and directed the employer to deposit Rs. 16,730. The employee appealed to the Industrial Court, Maharashtra, which, by order dated August 7, 1985, directed that if the employer failed to deposit, the amount could be recovered from NTC to the extent of assets taken over. NTC challenged this before the Bombay High Court in Writ Petition No. 8 of 1986. The High Court dismissed the writ petition by judgment dated October 4, 1990, but held that NTC was not liable under Section 3(7) of the Take Over Act. The trade union Rashtriya Mill Mazdoor Sangh, which had been impleaded, appealed to the Supreme Court by special leave. The Supreme Court examined Section 3 of the Take Over Act, especially sub-section (7), which declared that any liability incurred by a textile company before the appointed day was enforceable against that company, not against the Central Government or Custodian. The Court noted that under Section 4 of the Payment of Gratuity Act, gratuity becomes payable on resignation, so the liability arose on March 23, 1983, before the takeover. It rejected the argument that because the quantum was determined later, the liability shifted to NTC. The Court also considered the appellant's reference to Section 6 of the Take Over Act concerning suspension of obligations, but did not find it applicable to shift liability. The Court agreed with the High Court that the pre-takeover gratuity liability was exclusively that of the erstwhile employer, Finlay Mills Ltd., and not NTC. Accordingly, the decision upheld non-liability of NTC.
Headnote
A) Labour Law - Gratuity - Pre-Takeover Liability - Textile Undertakings (Take Over of Management) Act, 1983, Section 3(7); Payment of Gratuity Act, 1972, Section 4 - Gratuity became payable to employee on resignation on 22-03-1983, before appointed day 18-10-1983 - Held that liability incurred by textile company before appointed day is enforceable only against that company, not against Central Government or Custodian, and NTC was not liable for gratuity of employee who resigned before takeover (Paras not mentioned).
Issue of Consideration
Whether the National Textile Corporation (South Maharashtra) Ltd. is liable for gratuity payable to an employee who had ceased to be in employment prior to the takeover of management of a textile undertaking under the Textile Undertakings (Take Over of Management) Act, 1983.
Final Decision
The Supreme Court held that any liability incurred by a textile company before the appointed day is enforceable against the concerned textile company and not against the Central Government or the Custodian under Section 3(7) of the Textile Undertakings (Take Over of Management) Act, 1983. Gratuity became payable on the employee's resignation on March 22, 1983, before the takeover on October 18, 1983, so NTC was not liable for the gratuity amount.
Law Points
- Pre-takeover liabilities incurred by textile company are enforceable only against that company
- not against Central Government or Custodian under Section 3(7)
- gratuity becomes payable on resignation under Section 4 of Payment of Gratuity Act
- 1972
- liability arises on date of resignation
- not on later determination by authority
- takeover of management does not transfer past liabilities to NTC.
Case Details
1995 LawText (SC) (11) 56
S.C. Agrawal, G.B. Pattanaik
1996 AIR 710, 1996 SCC (1) 313, JT 1995 (9) 186, 1995 SCALE (6) 609
Rashtriya Mill Mazdoor Sangh
National Textile Corporation (South Maharashtra) Ltd., Mohan Sambhaji Parab, M/s Finlay Mills Ltd.
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Appeal by special leave against Bombay High Court judgment dismissing writ petition, concerning liability for gratuity payable to employee who resigned before takeover of textile undertaking management.
Remedy Sought
The appellant union sought to hold National Textile Corporation liable for gratuity payable to respondent No.2 after takeover of management of respondent No.3's textile undertaking.
Filing Reason
Controlling Authority held erstwhile employer liable; Industrial Court directed recovery from NTC; NTC's writ petition dismissed; union appealed to Supreme Court challenging NTC's non-liability.
Previous Decisions
Controlling Authority order dated 31-10-1984 held respondent No.3 liable, not NTC; Industrial Court order dated 07-08-1985 allowed employee's appeal and directed recovery from NTC if respondent No.3 failed; Bombay High Court judgment dated 04-10-1990 dismissed NTC's writ petition, holding NTC not liable under Section 3(7).
Issues
Whether the National Textile Corporation is liable for gratuity payable to an employee who ceased to be in employment prior to the takeover of management of a textile undertaking under the Textile Undertakings (Take Over of Management) Act, 1983.
Submissions/Arguments
Appellant union argued that NTC was liable for gratuity because the matter was pending before the Controlling Authority when management was taken over and the amount was determined later, so liability attached to NTC.
Appellant's counsel referred to Section 6 of the Take Over Act and submitted that liabilities accruing or arising under the enactments referred to in the Second Schedule alone could be suspended.
NTC contended that Section 3(7) expressly stated pre-takeover liabilities were enforceable only against the textile company, not against NTC or Central Government/Custodian.
Respondent No.3 did not appear before the Controlling Authority.
Ratio Decidendi
Under Section 3(7) of the Textile Undertakings (Take Over of Management) Act, 1983, any liability incurred by a textile company in relation to the textile undertaking before the appointed day is enforceable only against that textile company, not against the Central Government or the Custodian. Gratuity becomes payable under Section 4 of the Payment of Gratuity Act, 1972 on resignation; since the employee resigned before the takeover, the liability arose before the appointed day and did not transfer to NTC.
Judgment Excerpts
any liability incurred by a textile company in relation to the textile undertaking before the appointed day shall be enforceable against the concerned textile company and not against the Central Government or the Custodian.
gratuity becomes payable to an employee on the termination of his employment, on his retirement or resignation
Since the liability in the present case has arisen prior to the date of take over, this liability is the exclusive liability of the 2nd respondent
Procedural History
Employee resigned on March 22, 1983 and claimed gratuity; employer failed to pay; employee filed before Controlling Authority; on October 18, 1983, Textile Undertakings (Taking Over of Management) Ordinance promulgated and management taken over; Ordinance replaced by Act with effect from October 18, 1983; management vested with NTC; NTC impleaded; Controlling Authority by order dated October 31, 1984 held respondent No.3 liable, not NTC; employee appealed to Industrial Court, Maharashtra; Industrial Court by order dated August 7, 1985 directed recovery from NTC contingently; NTC filed Writ Petition No. 8 of 1986 in Bombay High Court; High Court dismissed writ petition on October 4, 1990, holding NTC not liable under Section 3(7); union appealed to Supreme Court by special leave.
Acts & Sections
- Textile Undertakings (Take Over of Management) Act, 1983: Section 2(a), Section 2(d), Section 3, Section 3(1), Section 3(2), Section 3(3), Section 3(4), Section 3(5), Section 3(6), Section 3(7), Section 6, Section 6(1), Section 6(1)(a), Section 6(1)(b)
- Payment of Gratuity Act, 1972: Section 4
