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Labour Laws in India
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Lecture I (12 – Nov – 2006)
Industrial Dispute Act 1947
This act aims at preventing and settling of industrial disputes. It is in the interest of
employees and employer and also the government. It enables peaceful settlement of
disputes.
Rights of Laborers according to this Act are:
1. To go on strike,
2. If dismissed, justice can be seeked in labor and other courts,
3. Retrenchment – compensation rights if employee is surplus,
4. If there is no work, lay off compensation can be seeked.
This act is applicable to workmen as per classification in Sec 2(S) and who are employed
in an industry.
Industry Act – Section 2 (J)
Industry means any business, trade, occupation, manufacturing, vocation and calling
of employees.
In case of Bombay Hospital Majdoor Sabha - Supreme Court said that activities of a
hospital constitutes that of an industry. To prevent strike, cases etc. from hospital; the
SC had to change decision in 1970.
In 1970, Safdarjung hospital vs Kuldeep Singh Sethi – SC held that activities of a
hospital doesn’t constitute an industry.
Case: Bangalore Water Supply & Sewage Board (BWSSB) vs IA Rajappa & others, 1978,
SC
CJI constituted a bench to define the definition of an Industry. 3 different
judgments were given by the Chief Justice and the other individual judges (Justice
Krishna Iyer, Justice Chandrachur, Justice Desai & Justice Bhagwati).
These judges laid down the Triple Test.
What is the Triple Test?
It was stated that if any activity falls under the 3 tests it is an industry. An activity:
• Should be systematic.
• Should lead to prosecution, distribution or rendering of services to fulfil human
wants and wishes and not spiritual wants.
• Should be carried with the help of labour and capital, i.e. employee and
employer relationship should exist.
Further the judgment states:
1. It is immaterial if the activity is carried out with a profit motive or not.
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2. It is also immaterial, if the activity is carried out by public, private or joint
sector.
E.g. the Prasad making ceremony at the Balaji temple is also considered as an
activity.
In 1982, an attempt was made to remove hospitals, charitable institutions, and
educational institutions from the definition of an industry. A bill was prepared called
Hospitals, Charitable Institutions, and Educational Institutions (Conditions of
Services) Bill, 1982 and was brought in to handle the grievances of the employees in
this area. This bill has lost its importance as the then government collapsed and even
the amended definition has not come into force. So, till date the Triple Test applicable.
Case: Balaji Temple – The laddu preparing workers organised themselves as union, to put
heavy demand for hike as they had no legal rights. SC applied Triple test and they won
the case.
Case: Asian Games, 1980 – Construction workers did not have any legal rights as they
were temporary workers. An NGO appealed in SC, which declared that it was an industry
and labour laws were applicable.
LECTURE – II: ( 01-Dec-2006)
Section 2(S): Defintion of Workman
Workman means any person (including an apprentice) who does skilled, unskilled,
manual, technical, clerical, supervisory or operational work for hire or reward if the
terms and conditions of employment implied or expressed were fulfilled.
But, does not include:
(a) persons who are employed in army, navy and air-force
(b) persons employed in the police or in the prison
(c) persons employed in a supervisory capacity and drawing wages exceeding Rs.
1,600 per month. In Maharashtra, there is an amendment, which has raised
this limit to Rs. 6,500.
(d) persons employed mainly in an administrative or managerial capacity
Case: Burmah Shell Oil Storage and distribution company v/s Burmah Shell Oil Storage
and Distribution Company’s Employees and Staff Association
There are many people with different designations. Employer said that they are
not workmen as they are working in a supervisory capacity. The issue was presented
before SC.
The SC laid down that mere designation is not sufficient to determine whether a person s
a workman or not. What has to be seen is the nature of duties of the person.
The SC laid down the supervisory functions:
(a) The person should supervise the work of others reporting to him
(b) This person should distribute work to people under him.
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(c) The supervisor would have the right to accept or reject the jobs produced by
people working under him.
(d) He should have a right to recommend leave in respect of the people working
under him
(e) He should have a right to recommend increments
(f) He should have the right to initiate disciplinary action against workmen who
indulge in misconducts.
If a person is assigned at least some of the above functions then they can be regarded
as supervisors.
Air India and Indian Airlines pilots are regarded as a workman. They are doing the work
of a highly sophisticated driver although they are not supervising the work of some
others. The pilots capitalized on this – formed unions and are putting their demands
before the govt.
What is the difference between a workman and non-workman?
A person who is a workman under the act has all the rights under the act. If he
is terminated, he can seek justice at the court but a non-workman cannot approach the
court. The latter can however go to the civil court for justice. Civil court has the powers
only to grant damages or compensation. The person also has to pay the stamp the duty
for the case whereas the labor court has no stamp duty.
Labor court has the powers to grant re-instatement (take the person back into
same position) with full back-wages and continuity of service. This can backfire on the
company because the employee has to be paid lakhs of rupees. A person under the
Industrial Dispute Act can go on a strike. If a person is a surplus, the company has to
pay retrenchment compensation if that person is laid off.
If there is a union leader who gives troubles to the company, then the company can get
rid of him by excluding him under the Act. The moment he is exempted, he has to
behave as a normal person as his powers are removed.
Secttion 2(K): Definition of Industrial Dispute:
Defined under Sec 2(K), it means “a dispute or difference between an employer and a
workman or between a workman and a workman or between an employer and employer
regarding employment, non-employment and other terms and conditions of
employment”.
E.g. Disputes regarding wages (underpayment, not paid bonus, transfer, no promotion),
rude language. In non-employment – dismissal, retrenchment, termination, lay-off,
discharge. Other terms – bad working conditions, poor ventilation, excessive
temperatures, poor lighting, high level of noise, lot of pollution, etc
The interpretation given by the SC to the definition of Industrial Dispute is that if an
Industrial Dispute is to be raised, there has to be a community of interest and an
individual workman cannot raise a dispute. At least 15% of the workmen have to raise
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the dispute for it to become an Industrial Dispute. This interpretation has been misused
by unions and there are many unions behaved in away to get rid of employees who were
against the views of the union. This was the situation until 1965. Until that time, SC
said that it did not intend to exclude such people and unions are misusing such
clauses. The SC gave directives to the govt to bring in suitable legislations to make
better the state of the employees.
In 1965, a new section was inserted into the Industrial Dispute Act and that
section is Sec 2(A). The section says, “the individual dispute is deemed to be an
industrial dispute, where the services of a workman are dismissed, discharged,
retrenched, or terminated, such a workman can raise a dispute and even though the
dispute is of an individual nature, yet it shall be deemed to be an industrial dispute.”
With this section, a workman need not get the support of the union to raise a dispute.
Dismissal is a form of extreme punishment – equal to death punishment. Sometimes,
the terminal benefits can be forfeited. If the services of a workman are dismissed for
indulgence in a misconduct of violent or riotous behavior, the whole of the gratuity can
be forfeited or some terminal benefits can be forfeited. The Employers’ Provident Fund
share can also be forfeited.
Discharge: It is also a form of termination but it may not be for misconduct. It can be
for a loss of confidence. In discharge, 1-month wage has to be paid to the employee. If
the crime is proved, it results in dismissal and not discharge.
Retrenchment is termination of surplus labor. It is a wider term when compared to the
above two. E.g. VRS
Layoff is a temporary form of retrenchment. The employee is asked to stay at home.
The employee-employer relation still exists and the employee is still paid compensation.
Case: Atlas Copco v/s Mrs Kher
This is a case decided by Bombay High Court. In the company, Mrs Kher was
working for a long time in a clerical post. Since she was outspoken, the management did
not like her and for years, she stayed in the same post. Usually, every 3 years a
settlement is signed for improved working conditions, etc between management and
employees. When this was executed, Kher informed the management that she has been
ill-treated. The negotiations concluded and a settlement was signed. However, nothing
was done for her betterment. When she asked the unions, they said that the management
refused to appraise her. She started abusing her and later she resigned from the
membership of the union. The supervisors were a part of the union. One person defying
the union is not a good sign and hence the union decided to bring her back. They started
harassing her because they thought that she would react when spoken to. Not all the
harassment yielded any result. On a particular day, the employees harassed her so much
that she was not able to hold it any more. She asked the manager to give her a ‘gate-
pass’. She went to the police station and filed a complaint against the employees. The
police registered a non-cognizable offense – they cannot arrest a person without a
warrant. They called the union leaders and told them to take appropriate actions such
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that such incidents do not happen in the future. The union took it seriously. The union
leaders met the factory workers. The factory workers said that they could not increase the
productivity because the atmosphere in the factory is tense – because of Mrs Kher’s
complaint. Then the union said to remove Kher and told that they would not take the case
of her. The personnel manager agreed to it. A simple termination letter was given to Kher,
which said, “Because of you, there is breach of peace and the production is suffering.
Therefore, you are discharged”. The personnel manager did not know about Sec 2(A). The
lady then went to court and the court said that she has to be taken back into the post
with full back-wages. The personnel manager resigned from the company. Management
challenged the decision of the labor court before the high court. When the case came up
for hearing, there was only 6 months of service remaining for Kher. Even then, the court
said that the company has to pay 8 lacs as compensation to her and that she need not be
taken back into service. 8 lacs was a huge amount at that time.
Authorities under the act:
For prevention and settlement of Industrial Disputes, many authorities have been
reinstated.
(i) Section 3 – Works committee:
It has to be constituted in establishments where the number of employees is
100 or more. It consists of equal number of representatives representing
employer and workers. The employee representatives are to be elected and
management representatives are nominative. The whole establishment is divided
into constituencies and regular election is carried out to elect the works
committee members. The election is held if there is more than one candidate in a
particular constituency. The works committee is elected for a period of 2 years
and the max members cannot be more than 20 (10 each from employer and
employees). One of the management team is appointed the chairman and the
workers representative as the vice-chairman. The committee has to meet quite
often and whatever frictions arise in the day to day working of the establishment
has to be removed. The working of the committee is not intelligent because the
unions do not like this committee because they may lose their power. In private
sector, the works committee is given insignificant work. In govt institutions,
these committees are working well. This is because the unions play little role –
for eg the pay is fixed by the pay commission.
(ii) Section 4 - Conciliation officer:
He is appointed by the appropriate govt (state or central as applicable) by
notification in the official gazette. He can be assistant commissioner of labor (for
an area or areas within a district), deputy commissioner of labor (for a district),
additional commissioner of labor (for a division), commissioner of labor (for a
state) or labor officer. The job the officer is that of a mediator between the
dispute workman and the employer and bring them to a settlement. He is
supposed to hold conciliation process and bring about a reapproachment
between the two parties. If a workman has been dismissal, the workman (i) has
to raise a demand to the employer saying that he opposes the layoff, (ii) wants
reinstatement and (iii) continuity of service. The management may reject this.
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The workman has to approach the conciliation officer. The latter will not admit
the matter immediately because some preliminaries have to be held. He
conducts a pre-conciliation process. He labor officer has to ascertain that the
person is a workman who is employed in a factory. The officer then writes a
letter to the employer to send some info like (i) what work, (ii) what salary (iii)
reasons for termination (iv) designation (v) whether an enquiry was conducted
(vi) if yes, then a copy of the findings is to be submitted. After it is made sure
that the person is a workman, then he would admit the matter in conciliation.
Then, he acts a conciliation officer. He asks the workman to give a justification
statement as to his claims. A copy of the justification is given to employer and
asked to reply to the justification statement. After receiving both the letters, he
will come to know the stand of the respective parties. Now, he will make a try.
He speaks to the employee about factors like his justification, whether he wants
to go to the court, sustain the charges, sustain the payment, etc. The employee’s
requests or negotiations are put forth to the employer’s personnel manager. Say
the employee wants 1.5 lacs and management agrees to pay 60,000. The
conciliation officer has to bargain with the employer and employee and finally
the deal may be settled at say 1 lac. A stamp paper is prepared and signed by all
three parties and the money is paid to the employee. This settlement is signed
under Section 12(3) of the Industrial Dispute Act. Even after the efforts of the
conciliation officer, if both parties do not strike a deal, the officer can prepare a
failure report under Sec 12(5) and submits this report to the appropriate govt.
That govt now based on the report, refers the case to the labor court for
adjudication.
(iii) Section 5 – Board of conciliation:
Board of conciliation is constituted by the appropriate govt when it is of the
opinion that a particular dispute should be referred to board of conciliation. The
Board consists of an independent person who is appointed as the Chairman of
the Board and equal number of members representing the employers and the
employees. The job of the Board is to mediate into the dispute and bring about a
settlement of the dispute. If the Board succeeds in persuading the parties to
arrive at a settlement, then a settlement is signed under Section 12(3) of the Act
and the dispute is resolved. But, if both the parties are not in a mood to
compromise, then the Board of conciliation closes the proceeding and sends a
failure report to the govt. And the govt then will refer the dispute to the
adjudication of labor court or industrial tribunal.
(iv) Section 6 – Court of Enquiry: The Court of Enquiry is constituted by the
appropriate govt when it is of the opinion that a particular dispute needs to
be enquired by a court of enquiry. The Court consists of one person but the
govt may appoint one or two persons possessing technical and legal
knowledge to assist the enquiry officer as assessors. The enquiry officer will
investigate into the dispute and submit the report to the appropriate govt.
The govt will then decide the next course of action.
(v) Section 7 – Labor Court: The Labor court is constituted by the appropriate
govt by notification in the official gazette. The person who presides the Labor
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Court is called the Presiding Officer of the court. The presiding officer has to
possess one of the following qualifications:
a. He should have been a judge of the High Court or should have been
eligible for being appointed as the judge of the High Court (if he has
practiced for at least 10 years).
b. He should have worked as a District Judge or an Additional District
Judge for a period of 3 years.
c. He should have been in judicial service for at least 7 years.
Jurisdiction of the Labor Court: The Labor Court can decide matters which are specified
in Schedule-II of the Act. Some of the matters are:
a. Cases of dismissal, discharge or termination
b. The interpretation or application of standing orders
c. The proprietary or legality of an order passed by the employer under the
standing orders
d. Withdrawal of any customary concession
(vi) Section 7(A) – Industrial Tribunal: The Industrial Tribunal is constituted
by the appropriate govt by notification in the official gazette. In order to be
eligible to be appointed as a member of the Industrial Tribunal, a person
should possess one of the following qualifications:
a. He should have been a judge of the high court or should have been
eligible for being appointed as the judge of the high court
b. He should have been a district judge or an additional district judge for a
period of not less than 5 years
c. He should be a judge of the Labor Court for a period of not less than 5
years
One member of the Industrial Tribunal may not possess any of the above
qualifications if the appropriate govt is of the opinion that such person is
possessing expert knowledge on labor and industrial matters.
Jurisdiction of Industrial Tribunal: It is to decide matters specified in
Schedule(3) of the Act. Some matter are:
a. Wages including the date and mode of payment
b. Bonus
c. Paid holidays
d. Leave with wages
e. Rationalization
f. Retrenchment
These are matters where are large number of people are affected. Therefore,
these disputes are called Interest Disputes.
Note: A govt can refer matters from Schedule(2) to the Industrial Tribunal if it
wants to. If the number of workmen in an establishment is less than 100, then
matters from Schedule(3) can be referred to the Labor Court.
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(vii) Section 7(B) – National Tribunal: National Tribunal is constituted by the
Central Govt when two or more states are interested in a particular dispute
or two or more states are likely to be affected by a particular dispute.
Who can preside over the National Tribunal? A judge of the Supreme Court
or a person who can be appointed as a judge of the Supreme Court can
preside over the Industrial Tribunal
Jurisdiction: Matters from both Schedule (2) and Schedule(3) can be referred
to the National Tribunal.
(viii) Section 11(A) – Powers of Labor Court and Industrial Tribunal to grant
appropriate relief in case of dismissal, discharge or termination of
service: This section was inserted in the year 1971, it was not there in the
year 1947. In 1971, the Supreme Court has decided a very important case.
Case: Firestone Tyre and Rubber Company v/s workmen
In this case, the Supreme Court was called upon to decide as to what are the powers of
the Labor Court. The SC in this case has laid down that the powers of the Labor Court to
interfere with the punishment awarded by the employer is restricted. But Labor Court
could interfere in only certain specific matters:
a. When the dismissal is by way of victimization
b. When the dismissal is by way of unfair labor practices
c. When the principles of natural justice are not followed
d. When the findings of the enquiry officer are perverse.
The enquiry officer is supposed to base his report on the basis of evidence of record. If he
has submitted a report that is not based on such evidence, then such a report is called
‘perverse’.
The above are made clear in the decision of the SC. After this decision, the Parliament
felt that the labor must be given more powers. Therefore, they decided to add the
Section 11(A) to the Act.
This section says that when the services of a workman are terminated, such a workman
can raise a dispute and if the Labor Court comes to the conclusion that the punishment
is disproportionate, then the Labor Court can reduce the quantum of punishment and
award reinstatement to the workman with or without back-wages or award
compensation in lieu of reinstatement. This Section has tried to take away the absolute
powers that were available to the employer with regard to punishment. The punishment
of the employer came under the judicial scanner with this section. Immediately after
this section, the following case came-up.
Case: Air Lanka v/s workmen
Air Lanka has newly started services in India and appointed a lot of cabin boys.
At that time, to promote the business Air Lanka gave the passengers a complementary air
bag. One of the cabin boys found one bag when he entered the plane. He was caught by
the security when he was going home. The airline issued him a charge-sheet, conducted
an enquiry and ultimately dismissed him. The boy raised a dispute under the Industrial
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Dispute Act. The matter was submitted to the court and the court started asked the
employer what the value of the bag was. The employer said that the value was 100/-.
The employer was questioned as to why the boy was dismissed due to such a reason.
The employer said that the integrity of the boy was doubtful and hence could not employ
him further. The employer was asked to pay 1 lac rupees to the boy as compensation (the
employer refused to take the boy into service again).
The court started easing the section with each case. With that, the employees started
taking liberties and indiscipline started in the organizations. The people knew that even
they are at fault, the court was there to help them to get back into the job. This was the
trend of the court from 1971. The employers had to think twice before firing an employee.
Then, there was a change in the behavior of court in the year 2005. One such case
changed the scenario.
Case: Bharat Forge v/s Nalawade
This case was decide in 2005 and was cited in CLR (Current Law R…). In Bharat
Forge, the workman was found missing from his place at around 11:00 in the morning.
The supervisor tried to locate him and did not find him and after a long search, the
workman was found sleeping at 11:40 a.m. The employee was issued a charge-sheet and
a disciplinary action was initiated against him. This person was caught three times
earlier for the same reason. The management gave him minor punishments on those
occasions. A lighter punishment was given with the hope that the person would change.
The enquiry officer conducted the enquiry ex-parte (in the absence of the employee). The
witness of the management was examined and ultimately he was dismissed. The
employee raised a dispute and the matter was sent to Labor Court. The court said that
the punishment was shockingly disproportionate and the employer was asked to take
back the employee with 50% back wages. The company went to the Industrial Court. This
court found that the employee was given 3 chances but still he did not change and found
that the dismissal was justified and the court aside the orders of the Labor Court. The
employee went to the High Court. The single judge of the High Court also felt that the
dismissal was justified. The employee went to a Divisional Bench (2 judges). This bench
felt that the punishment was too harsh and the person had also come to the verge of
retirement. So, it felt that there is no need to fire him and pay him the compensation – 2.5
lacs. The company went to SC. One of the judge was Justice Santhosh Hegde. His
judgments are in favor of the employers. He said that it is wrong on the part of the
employees to sleep during the working hours. They also felt that Section 11(A) should be
used only in rarest of rarest cases. They said that the dismissal was fully justified as the
employee was given enough chance to change.
After 1-2 months, another case came before SC. This was a case from 1983.
Case: Mahindra & Mahindra v/s Narwade
Narwade was a person who had the abusing the superiors. He used to insult the
superiors with a bad and filthy language. Earlier he was let off with minor punishments
of 4 days. One day, this person refused to do a work given to him by his superior. The
superior, afraid of the language of the person, complained to the dept. The dept head
asked the person to do the work. The head was also abused by this employee. The dept
head felt humiliated and insulted. He told the management and complained about the
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employee. The management took action by conducting an enquiry and ultimately
dismissed him. The employee raised a dispute, which was submitted to the Labor Court.
The court said that the person is from a poor background, his behavior stems that
background and asked the employer was asked to take him back with 50% back wages.
The employer went to High Court. They said to take him back with 40% back-wages. The
employer went to SC. SC felt that using filthy language against the superiors in front of
the other employees is wrong and upheld the decision of dismissing the employee. Again
the court said that the section 11(A) has to be used very sparingly, only when the
punishment is shockingly disproportionate.
[Questions:
1. Explain the concept of triple-test.
2. When does an individual dispute become an industrial dispute?
3. What are the powers of the Labor Court under Section 11(A)?
4. What are the prerequisites for referring a dispute to voluntary arbitration?
5. Explain the provisions of notice of change.
6. What are the matters for which notice of change has to be given?
7. When is a notice of change not to be given?
8. What are the matters for which notice of change need not be given?
Read: Lay of retrenchment and closure. (Chapter 5(A) of Industrial Dispute Act). Go
through the definitions of lay-off (in Sec 2(AAA)), retrenchment (Sec 2(OO)).]
Section 9(A): Notice of Change
This section says that whenever an employer wants to bring any change which is
enumerated in Schedule IV, the employer needs to give 21 days notice to the workmen
of the intended change. However, no notice is required where the change is brought
about through a settlement (an agreement between the management and the workmen)
Matters in Schedule 4:
1. Wages including mode and time of payment of wage
Say the company as paying on 4th of each month. Now DA is introduced and computation of DA
comes only on 1st of the month. So calculation of total wages by 4
th was difficult. therefore watns to
change date of payment.others companies were paying by 7th
. ( as per payment of wages act, if
there are less than 1000 workers, wages can be payed on or before 7th
).so they want to change
mode – payment was made by cash so far and now want to be paid by cheque.
2. Hours of work and paid holidays :
When companies were initially started, it was customary to give half day on Saturdays. New
factories which came up worked full day on Saturdays. So the company which was working 45 hrs
( half day) wanted to change it as the productivity was down coz of this. So wanted to make
Saturday full day. Notice of change was given and objection was raised.
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3. Intervals of rest
lunch break was 1 hour and the company was working for 2 shifts. Now the company wants to
work for 3 shifts. As per companies act, overlapping of shifts is prohibited. Coz of that lunch break
has to be reduced now to half an hour as factory hour says, rest interval can be for half an hour.
As per factory act syas, maximum work hours is 9 hrs a day or 48 hrs a week.
4. Leave with wage
30 days leave was given and wants to be reduced to 15 days.
5. Withdrawal of customary concession. Eg: to celebrate Dusshera, all the three
shift workers were called together for a celebration. If the company wants to
change this schedule, a notice of change must be given
6. Introduction of automation which is likely to lead to retrenchment of workmen
Exception to this section:-
If the change is brought about through a settlement, then there is no need to give a
notice of change.
Settlement – workers and employers discuss their demands.
There can be a clause in the settlement - Eg) the management shall have a right to
introduce new machines, machine tools and methods of production in order to
compete in the market and maintain its position in the competitive market. In this
endaevour, the union and the labour fully agree with the management.
Therefore nay time in future, if the management wants to introduce new machine in
future, a notice need not been given. Bajaj auto had done this. In 1993, they had a
setltemtn clause syaign, if there is recession and work load is less, the management
can opt for reduced working hours in a week for which the workers will be paid 50%
of basic and DA. They used this clause in 1998-99 when there was recession, they
started working only 4-5 days a week and gave the workers off for rest of the days
with 50% of the wages. Union protested. LC said the management has a right to do
that. The labour went to the high court. There was also a clause in the same
settlement, in case of dispute, HC decision will eb final and labour cannot go to any
othe court. Always, in a new settlement, conditions which are nto discussed would
continue to be the same.
Section 10(A): Voluntary Arbitration
If the parties wish to arbitrate, the parties have to make an agreement on stamp paper.
They have to mention the dispute on the stamp paper. The parties will have to agree on
a common arbitrator and provide the dispute details. If the parties cannot agree on the
arbitrators, both arbitrators are appointed. There is an umpire decided. In case both
arbitrators do not agree, the umpire will decide the case.
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This agreement has to be signed and forwarded to the appropriate government. The
government has to notify this agreement in the Gazette. Only after the agreement has
been notified in the Gazette can the arbitrator begin with his proceedings. The
arbitrator has to hear both parties, look at evidence, etc and then give decision. The
decision of the arbitrator is called an award. It has the same force as a decision passed
by the Industrial Tribunal or Court. The decision is not given to the parties but to the
Government. The award is notified in the Gazette, and after 30 days, the award
becomes enforceable.
Case: Philips India Ltd Arbitration case
In Philips, they had employed a local man, Mr Hadke. Once he was confirmed, he became
a trouble-maker. He became a union committee member and started troubling the
management. The management has taken disciplinary action against him, but to no avail.
When he was caught in a case of misconduct, the management charge-sheeted him,
conducted an enquiry and dismissed him. By this time, he had become a popular person.
The moment he was dismissed, the union started creating problems for the management.
They started a slow-down, they started demonstrating. When their activities did not have
any effect on the management, the slow down was intensified and the productivity almost
came to a stand-still. Management wanted to declare a lock-out. But this being a Dutch
company, they had to contact their principal company in Holland. They were told to hold
the lock-out by the principal. The only way to solve the problem was the through
arbitration. The union was in favour of Mr. S. N. Joshi being the arbitrator. He was a
renounced socialist. His award was that Mr Hadke should be re-instated with full wages
and back-pay. The moment he came back to work, he became the uncrowned king of the
company. The management could not perform any action without taking his consent. Mr
Hadke removed all workers who he did not like. Over time he created more trouble for his
opponents and the women workers.
A post of a lady supervisor was filled up by a person from another dept. The dept. ladies
got upset on this. On complaining with the authorities, they were told that is was their
union leaders decision. They got upset and resigned from the union. Mr. Hadke, on
hearing this, started harassing the women’s at workplace. To the extend that, he started
torturing their children who were at crèche.
The women workers took up the matter with the personnel department. Hadke was
dismissed again without enquiry. The company reserved the right to produce evidence
when asked for. The matter went to the Labor Court. The court held that the dismissal of
Hadke was justified, given his actions.
Moral of the case: When appointing an arbitrator, make sure that the arbitrator is a
neutral person.
Case: Indian Card Clothing
Two of the VPs man-handled a workman; the management removed both of the VPs.
There was a drop in productivity, etc…When the management decided to opt for
arbitration, Mr Manik Gagar was appointed as the arbitrator. He was known to the union
leader. He awarded that the dismissal was justified, but on humanitarian grounds, the
management should pay both the VPs one lakh of rupees each (which in 1984 was a
13
huge amount). The arbitrator was balanced and even the management and the union
were satisfied with the award.
Case: Rotas Industries vs. Rotas Industries Staff Association
This case went from the Patna high court to the Supreme Court.
There was a strike by the workmen. The strike was because, according to the union, the
management had not implemented the Jijabhai award. They had implemented the
recommendations is part only. According to the union, the management had not
implemented the wage board in to-to. During the strike, there were some negotiations,
during which they referred the dispute to arbitration. The arbitrator said that the Union
had said that the Union had to pay a sum of money to the management due to loss
caused by the strike. The arbitrator did not concentrator on the job at hand. The union,
furious at this went to the Patna HC and it set aside the decision of the arbitrator saying
that he disregarded the provision of law and that he has crossed his jurisdiction. When
the matter went to the supreme court, the decision of the HC was upheld.
14
Provisions of lay-off, retrenchment and closure of undertaking
In the Industrial Act of 1947, there was no provision for the above. In 1951-52, due to
recession in Bombay textile Industry, employers had started laying off people
arbitrarily. In 1953, a new chapter was introduced in the Act – CHAPTER V A ->
Provision for retrenchment & Layoff.
Layoff is defined in Section 2(KKK). Layoff means failure, refusal oar inability on the
part of the employer to provide employment to his workers on account of shortage of
coal, oil power, accumulation of stock, breakdown of machinery, natural calamities or
any other reason beyond the control of the employer. The employer – employee
relationship is not terminated.
Retrenchment is defined in Section 2 (OO). It means termination of by the employer of
the service of the worker for any reason whatsoever, other than by way of punishment
inflicted by way of disciplinary action, but it does not include:
1. Voluntary retirement
2. Retirement on reaching the age of super-annuation
3. Clause BB: non-renewal of contract of employment
4. Clause C: Termination on grounds of continuity
In retrenchment, the employer-employee relation comes to an end where as on layoff,
the relation still exists,
The provisions of layout and retrenchment are applicable to workmen who have been in
service for not less than one year, which is 240 days approx.
Compensation for layoff: 50% of basic wage and dearness allowance.
In the case of retrenchment, 15 days average pay for every completed years of service or
part thereof in excess of 6 months.
08-Dec - 2006
Section 25 F, tells us about conditions precedent for valid retrenchment.
If the employer wants to retrench his workmen:
1. He shall have to give 1 month notice to the workmen to pay wages in lieu of
notice.
2. At the time of retrenchment the employer shall pay compensation which is
equivalent to, 15 days average pay for every completed years of service or part
thereof in excess of 6 months.
3. Give notice about the retrenchment to the appropriate govt.
If there is a layoff for more than 45 days, then the employer can retrench the workman.
Whatever compensation paid for layoff can be set off against the compensation payable
15
for retrenchment. If there is an agreement after first 45 days of the layoff no
compensation will be payable, the workman will be laid off without compensation.
Under Section 25 E, in certain circumstances, layoff compensation is not payable. They
are:
a) If the workman does not report for duty at the appointed hour, and sign the
muster roll for the day. The employer can wait for hours beyond which he can be
laid off. Alternately, he cannot detain him for more than 2 hours, if he reports to
work.
b) If the employer has offered alternate work (similar work) to the worker in the
same or another establishment, belonging to the employer, which is situated
within 5 mile from the establishment in which he works. If the worker refuses to
take up the work, then the employer can retrench the workman without any
compensation.
Case: Indian Iron & Still vs Workmen – 1958 – Supreme Court
A highly skilled workman was asked to do a job of a coolie. He refused to do it.
The employer laid him off without compensation. The SC held that alternate employment
means more of less similar employment, it can be a step or two higher or lower than the
present job. But asking a highly skilled workman to do a job of a coolie can’t be alternate
employment.
c) In case of a strike, in one part of the establishment as a result of which there is no
work, in the other part of the establishment, then the workman of the other part of the
establishment can be laid of without compensation.
Case: ACC vs Workman – Supreme Court – 1963
ACC (Tata Sons), adjacent to the factory was the limestone quarries. The workers
of the quarry went on a strike, which resulted in no raw material in the cement plant.
Therefore the employer gave layoff to the workers of the cement plant without
compensation. The workers, claimed compensation as they were not part of the same
establishment. The quarries are governed under the Mines Act (1952), the Cement
factories are governed under the Factories act, making them two diff establishments. The
SC held that they can’t be taken to be part of the same establishment. Therefore, the
workers need to be paid compensation.
RETRENCHMENT
Case: Barsi Light Railway Vs K N Joglekar – 1955 - Supreme Court ( 5 Judge
Bench)
Barsi Light Railway was suffering heavy losses, and wanted to sell off. But there
were no buyers. One individual showed interest, on condition that he would not take any
employees as part of the deal. He would buy only land, plant & machinery. The employer
now terminated the service of all the workers, telling that they were selling off the plant,
& the new owner did not want them. They pleaded for a retrenchment compensation. The
employer said, this is not a question of surplus, but of transfer of ownership. The SC
16
decided, that retrenchment meant termination of surplus labor and does not attract
transfer or closure of establishment. This decision was critised by people.
In 1956, another case was decided – Hari Prasad Shiv Shankar Shukla Vs A D
Divekar : The SC was to decide as to what is retrenchment. The SC once again said,
that retrenchment meant pure and simple – termination of surplus labor and will not
attract any other cases.
The parliament stepped in and introduced two new sections in the Industrial Act.
1. Section 25 FF – Regarding transfer of ownership of undertaking.
a. Where as a result of transfer of ownership of undertakings the
services of workmen are terminated such workmen are to be paid
compensation under Section 25F as if they are retrenched.
2. Section 25 FFF – Regarding closure of undertaking.
a. If as a result of closure of an undertaking, the services of a workman
are terminated, such workmen are to be paid, compensation under
section 25F, as if they are retrenched.
Case: JK Iron & Steel vs Workmen – 1960
The company introduced automation, resulting in surplus labor. Therefore, the
surplus labors were terminated. The profits of the co. were intact. the worker challenged
the retrenchment on the ground, that when the co. is making huge profit, they should be
allowed to retrench the worker. The SC held that retrenchment, can be effected at any
level of profits. And it is not necessary that there should be losses to effect retrenchment.
In 1976, the SC gave a decision by which the employers were shocked, and were asked
to seek the asst. of the govt.
Case: Sudramoni vs State Bank of India – 1976
Sudramoni was appt. on a contract with the bank for a specific period. And In the
contract of employment there was a clause, there was an automatic termination clause. (
at the end of the period of contract.) When his period came to an end, he was notified. He
now decided to challenge his termination. His contention was, he was appt for a
particular no. of year’s, but why did the bank not renew his contract b’coz there is no
work, implying he was a surplus -> the bank should have applied Sec 25F -> his
termination was invalid retrenchment .The SC in this case gave a very broad
interpretation to the clause ( any other reason) and directed the bank to reinstate him with
full back wages. The industry took it up with the govt. The govt. then in 1984 bought a
amendment, by inclusion of clause BB – Non renewable of contract of employment.
Now a person appt. with automatic termination clause, the workman now cannot
challenge the termination.
Such clauses can be placed in the appt letter, but it should not happen, that he is replaced
at the end of the contract period, by someone else. He should be reinstated if the work is
still there and his period of employment extended.
Case: Santosh Gupta vs State Bank of Patiala – Supreme Court – 1980
S Gupta (Female) was appt on probation by the bank for a period of 1 year. In the
probation letter it was clearly mentioned that at the end of the probation period, she
17
would have to appear for a test of confirmation. She would be confirmed, if she passes
the test, else her services would be terminated. She appeared for the test and she failed.
She was dismissed, and raised a dispute. Her contention was, that she was removed coz
the bank doesn’t have work. Hence, it came under Sec 25. She worked for more that 240
days. So all clauses were applicable. The SC interpreted the clause any reason
whatsoever, and asked the bank to reinstate her.
The banks thereafter, changed the probation period to 6 months from 1 year.
Case: Robert D’ Souza vs General Manager, S.E. Railways – 1984, Supreme Court
Mr D’Souza was a casual employee to the railways, and had been working for a
no. of years. The railways decided to scrap the casual labor force. The railway admin
informed Mr. D’Souza, that he should not come for work anymore. He then contacted a
lawyer, the lawyer suggested and asked him to find our exactly how many days he had
worked in the preceding 12 months how many days had he worked. He had worked for
more that 240days, and he filed a case. The railways contented that retrenchment was
applicable only to permanent labor and not to casual labor. The SC held that the
provisions of retrenchment are applicable to all categories of employees. The SC ordered
that the case of Mr. D’Souza was of invalid retrenchment and therefore he should be
reinstated with full back wages and continuity of service.
THE PRINCIPLE OF LAST COME FIRST GO (SECTION 25 G & 25 H)
Section 25 G is applicable to Indian nationals only. If the employer wants to
retrench the workmen, he has to prepare a list category wise and seniority wise of the
employees. The person, who was recruited last, has to be retrenched first. But, if the
employer wants to retain a junior person in preference, to a senior person, in the
category then the employer will have to record the reasons, as to why he is retaining a
junior person in favor of senior person. If a senior person raises a dispute, the employer
will have to justify before the court as to why he has retained a junior person, in
preference to a senior person.
Section 25 H – After retrenchment, if the employers situation improves, and the
employer want to recruit new persons, the employer will have to give preference in
employment to the person, who were retrenched last.
Section 5 B – 1976, taken rights of employer to run factory at his will.
In 1976, Emergency was on, on people were against policies of Mrs. Indira Gandhi. She
wanted to show, that she was working for the poor, hence Sec 5B was introduced. In
1976, it was applicable to mines, plantations and factories, employing 300 or more
workers. In this chapter they introduced :
• Sec 25 M, to take care of layoff,
• Sec 25 N – retrenchment, &
• Sec 25 O – closure of undertaking.
Lecture – 15 – Dec – 2006
18
Teacher :
Case: Ms. Sunadaram bal bs Govt of Goa , Daman & Diu
SC passed - Job of teacher noble profession. It can’t be compared to clerical class.
Hence, he is not a workman. He can go to educational tribunal for redressal.
Medical Rep : He is not a workman.
Case: May & Baker vs Workman
Sales Exec – job – sales promotion – Cant be skilled unskilled work- hence not a
workman.
Parliament passed a new law – Sales Representative (Conditions for Service) Act,
1976 to protect the Sales Rep’s.
Chapter VB
This section introduced to give relief to workman laid off. In 1976 many labour laws
bought in against the interest of the employer. It was duration of Emergency. The elite
class abolished the govt. as Indira Gandhi was passing many employer unfriendly laws.
Introduced to protect the working class. This law was applicable to Plantations Mines &
Factory only ( employing 300+ workers).
Sec 25 M – Regarding Layoff.
Sec 25 N – regarding retrenchment.
Sec 25 O – Regarding closure.
Sec 25 M : Layoff
If the employer wants to give layoff, he has to take permission from the satate govt. for
laying off the workers.
He will have to make a appln to the state govt in the prescribed form. Provide all the
details as to how the establishment has been working for the last 3 years – profit figure,
consumption of material, order position, etc. to the govt. This appln is to seek
permission to give layoff to the workman. After appln, the employer has to wait for 60
days for reply from the govt.
The reply may in form of permission granted or not granted.
If within the 60days period the employer doesn’t receive the permission, then it can be
presumed that the permission is granted and the employer can proceed to give layoff to
the workers.
In case the govt. refuses to give the permission in the public interest. The employer then
can make review petition\ appn to the govt, asking the govt to reconsider its decision.
The govt can either go thru the appln. & if it finds that the reasons given by the
employer are genuine it may grant the appln. In such a case the working class may go
against the govt. The govt can go then to the Industrial tribunal.
It take months in reality to decide on the appln. It becomes a futile exercise for the
employer if he loses the appln.
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No permission reqd when from govt.
1. There is no power.
2. There is natural calamity.
Sec 25 N : Retrenchment
The employer has to give 90days notice to the workman about retrenchement. After the
notice, he will have to make an appln to the govt in the prescribed form. Give all the
necessary details about the establishement. He would have to wait for a period of 60
days for intimation from the govt. If within 60days there is no intimation, the employer
can presume that the permission is granted and the employer can go ahead.
If he receives intimation that permission is not granted, then he can make a review
appln. Rest of the procedure is same as layoff.
Alternately, he can file a writ petition in the high court.
The workers can also go to the hight court against any decision.
Sec 25 O: Closure
90days notice to the workman – Appln to the govt for permission to close down the
appn. ( Details to be provided abt the establishment.)
If no reply within 60 days, it is presumed permission is granted. If permission not
granted – review petition can be filed. Even in review he might not get the permission.
Case: ACC, Porbandar vs Govt. Of Gujrat
ACC Porbandar one of the first co. to manf white cement. It started having problem
in 1985. In 1985, white cement from korea was easily available in the market. Another
co. JK White cement.. setup during same time. ACC started making losses. JK White
cement had the latest technology, the limestone used was of a very high qlty. ACC
Cement was slightly grayish, whereas JK Cement was pure white.
ACC started losing market share. It started trying for various promotion schemes. A time
came when the manufacturing cost was more than sales realization. Therefore the co.
decided to close the establishment. They made an application. To the govt of Gujrat. For
permission to close down the factory. The govt. declined to give permission on grounds
that the establishment profitably till 1985, hence continue to use the same means and
achieve profitably. In the meantime the pollution board asked ACC to put up a Effluent
Treatment Plant - additional expenditure for the govt. The co. went to Gujrat High Court
and filed a petition. Challenging govt’s order.
The high court came heavily on the govt. and directed to reconsider the appln. In the line
of all the facts and reasons. The govt reconsidered, and accepted that the reasons given
were genuine and granted ACC permission to close down.
In 1984, by an amendment chapter 5B has been made applicable to establishment
employing 100 or more workers.
This is the reason, why VRS schemes were introduced.
20
Voluntary Retirement Schemes:
It was first introduced in the public sector undertaking s by the govt. The govt has
created a national renewal fund. Money was made available from this fund, to the PSU’s
whenever they wanted to reduce their excess manpower. After the advent of
globalization & liberalization – the private limited cos. Started facing competition. It was
so rampant that they had to change the strategies, methods of production, technology.
And in order to survive in the emerging market they started trimming the workforce.
IT Act 1961, gives certain concessions to the employers and the employees, in case they
frame schemes, as per section 10 (10C) of the income tax act 1961. VRS Compensation
is treated as a revenue expenditure & the employee who opts for VRS, the amt of VRS to
a certain extend is exempted under the Income tax act.
As per the section, the VRS scheme should aim at overall reduction of the existing man
power.
The scheme can be made applicable to all employees of the organization, including VP’s
& president, except the paid directors of the co.
The vacancies that arise, due to VRS can’t be filled up, for a min period of two years.
But, the manpower can be rearranged. The concession under the VRS is available to an
employee only once during his lifetime.
Eligibility: An employee who has worked for at least 10 years or should have completed
the sage of 40yrs.
Compensation: The compensation payable is 3 months basic wage and dearness
allowance, for ever completed year of service or wages for the balanced months of
service left till super annuation. Whichever is less will be paid. The max’m amount
payable is 5 lacs (exempted amount). The co. can pay more, the amount will be taxable.
The acceptance or rejection of the application, for VRS shall be at the discretion of the
management.
National Commission of Labour – review laws. – 2nd commission
Chap 5B should be applicable to establishment above size of 300 or more, but should
give higher compensation.
Non profit making co. ant to go for retrenchment, they should give 30days notice, rest
60 days.
45days wages, for no profit no loss establishment.
It was submitted in 2001, but is lying in the govt. since then. Because no political party
wants to take responsibility of the same.
Layoff at Bajaj Auto in its settlement with the union in 1993, had inserted a clause in
the settlement stating that, in case there is less workload, the co, can switchover to 5
days or 4 days working in a week. In which case they will be paid 50% if the wages.
In recession, they made use of this clause, by first resorting to 5 days working. In
further recession, they switched to 4 days a week. The worker started pressurizing the
union. The union then challenged the provision. The industrial court held that the
provision in the settlement is valid, and the management has the right to effectively
make use of the provision.
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Transfer of Undertaking Sec 25 FF
This is only under Chapter 5A. This section was effectively used in the Hotel Blue
Diamond Case.
Case : Hotel Blue Diamond.
This hotel was to be taken over by Taj Group. They agreed for a particular price
and only the managerial staff of Hotel Blue diamond were to be send home. During the
transition, Taj group found that the jr. staff were highly unionized. Hence is would be very
difficult for them to provide effective service, if union exists. They met Hotel Mgmt and
asked them to relieve all the jr staff also. Kirloskar’s oweners of Blue Diamond hotel and
consulted legal authorities. He came up with the proposal, that they would get rid of all
the bargainable employees, but this would cost additional 1cr. They terminated the
services of all the bargainable staff under Sec 25FF. Gave 1 months notice period, and
15days avg pay for every year of service.
The union asked the worker not to encash the cheque and wait. The employees went to
the court challenging the termination. Stating that permission was required to do so.
But court stated, that under transfer of ownership, there is no need of permission from the
govt. Coz Sec 25FF is only under 5B but 5A.
The union started hunger strike. Taj went to Industrial Court and got a injunction order.
They met taj management, and request them to take back. They asked them to reapply
and appear for entrance test. Those who pass will be employed. Out of 400 odd ppl only
40 were selected in the process. Kirloskar’s benefited as they had to pay the workers
only 40lacs. 60 Lacs was their profit.
Date: 24 Dec 2006.
Section 17 B.
This section was inserted in 1974 and bought into force in 1984. It was inserted
because, employers were abusing the legal machinery, to take cases where the courts
had given favorable decisions, in favor of workmen from court to court. Employer had
the money and resources to go from court to court, but the workmen didn’t have such
resources. This resulted in the workmen suffering.
This section says if a workmen, who has been dismissed, is reinstated, by the order of a
labor court, and the employer wants to prefer an appeal, be a superior court, the
employer is free to do so. But, the he shall have to pay the last drawn wage to the
workman, till the decision of the superior court. However, the workman will have to file
an affidavit, stating that, he is not gainfully employed (not employed for wages).
This provision, was challenged in the Bombay High Court, in the case of Elpro Intl. vs.
Mrs. Joshi. Sec 17 B was challenged on the ground, that it violates Article 14 of the
constitution & Article 19 (1)(G).
Article 14 – Equality before law and equal protection of law. The state will endeavor to
ensure that all people in India are treated equally.
22
Article 19 (1)(G) – Every person in India shall have a right, to carry on any business
trade or occupation.
Case : Elpro Intl vs. Mrs Joshi
Mrs. Joshi was employed initially as a temp workman for a period of 6 months. In
her temp’ appt. letter there was a clause, stating that at the end of the 6 months, her
services would be automatically come to an end. At the end of 6 months, she was
informed that she need not come to work from the next day. She pleaded wioth the
Personal Manager, that there was no working member in her family, and she be given
some allowance to sustain her life. The manager took pity on her and offered her some job
work. Work – Heap of worker from manf’ process, she had to cut rubber as per size.
And she had to do the job work inside the premise of the factory premise. But, officially
she was not on rolls. She signed visitors register to enter the premise. She was able to
work for most of the next 6 months. After 6 months her role got over and the manager
asked her to leave. She returned and informed that she is getting a permanent job in
Morris Electronics – but the co. wants an experience certificate of at least 1 year. He
issued the certificate, which stated that it was to certify that Mrs. Joshi was employed in
that organization from Date: …. To Date: …. intermittently. She now went of to Labor
Court and made a complaint that she had been employed in the co. for a period of 12
months (> 240 Days) and is deemed to be permanent. She could not be terminated now, if
Surplus employer should have taken record to Chapter 5 B. The labor officer called and
said that just giving her the certificate on sympathetic ground. And it does not state that
she has worked for 240 days. All the registers were bought and attendance was
tabulated. The total was coming to 225 days. But one months register was missing. So
the labor officer asked the co. to produce the months register, and if it would add up to
more than 15 days, only then would they admit the matter. In case it is not produced, the
labor office would take an adverse inference that she has worked for all the days in that
month. The co. could not locate the register, and hence the labor officer admitted the
matter and called the employer for discussions. In the mean while the personal manager
resigned and took up a job in Bangalore. The conciliation officer gave a failure to the govt.
and passed it to the labor court. The labor court awarded a decision after 5-6 years of re
instating her and giving full back wages. It had given opportunity to produce the register,
but they failed.
The co. now challenged the decision, and filed a petition in the High court.
High court appt. 2 member bench – Justice Dharmadikari, The award of the labor court
was challenged- judges gave a stay on the same. But, they did not give a stay on Sec
17B, i.e. she be paid the last drawn wage.
The company advocate Mr. Shree Krishna, challenged the constitutional validity of Sec
17B, stating that it is violation of Article 14 and Article 19 (1)(G) of the constitution. Any
law which takes away the fundamental rights of citizen, it is declared as ultravires of
the constitution. (ultravires - null & void).
The violation was that the employer was asked to pay the wages, while the case is
pending in the Higher court. Now if the higher court awards the judgment in favor of them,
23
how would they recover this amount. Their money is blocked due to it. Justice
Dharmadikari drew attention of Shree Krishna to Sec 10 (A) of the Industrial Employment
(standing orders) Act 1946. This section states that when a workmen is suspended
pending enquiry, he has to be paid subsistence allowance. For the first 90 days of
suspension, he should be paid 50% of the wage and thereafter 75% of the wage. A person
can be suspended pending enquiry, when he has committed a grave misconduct, as a
result of which, his presence, becomes detrimental to the very discipline of the
organization. When section 10(A) was introduced, it was challenged on similar grounds as
Sec 17B. The Supreme court held that it does not violate either Article 14 or Article 19
(1)(G). Justice D said that he does not find any distinction between Sec 10 (A) of the
Industrial Employment (standing orders) Act 1946 and Sec 17 B of Industrial Disputes
ACT, because the purpose of both is that a person out of employment should be given
some sustenance.
Mr. Shree Krishna wanted to appeal to the Supreme Court, but the co. decided to take
Mrs. Joshi back on work.
24
Employees Provident Fund and Miscellaneous Provisions Act, 1952
Object of the Act
The object is two-fold.
1. To provide relief to the family members in case of premature death of the
employee
2. When the employee retires, he needs to get some substantial amount with which
he can plan his life
The Act is applicable to establishments employing 20 or more employees on any one day
of the preceding 12 months. The Act is applicable throughout India.
There is a provision for voluntary application of this Act. If the number of employees are
less than 20, then the employer and the employees can make a joint application to the
provident fund commissioner for voluntary application of this Act.
Employee: Employee is a person who is drawing wages less than Rs. 6,500/- per
month. This wage is basic wage and dearness allowance only.
Contribution: The present contribution is 12% of basic wage & DA from the employee’s
and the employer’s end.
Infancy Period:
No. of Employees: > 20 and < 50 5 years.
No. of Employees > 50 3 years.
This was in 1952. In 1988, there was only one infancy period of 3 years. Now there is no
infancy period.
When the Act was enacted, the employee had to work for 240 days. Later it was
reduced to 120 days and thereafter 60 days. From 1990, it was made applicable from
day 1. This provision for providing PF from day 1 was challenged in courts. It became
difficult for companies because some people just worked for one day. The matter went
to SC.
In the SC, in the case of J P Products vs. Union of India (1995), the SC has held that
the amended para 26 is valid. From 1 May 1995, employees have to be covered from
day 1.
There are certain establishments which can contribute 10% to PF.
• Establishments which have voluntarily applied the act to their establishments.
• Thos establishments which have been declared as Sick Undertaking Act, 1985
and had been referred to BIFR (Board of Industrial Financial Reconstruction)
• Those establishments whose accumulated losses are more than their net assets.
• Those establishments which are engaged in the manufacture of bricks, gum,
jute, bidis
25
In 1971, a new scheme was introduced in the PF act called Employees Family Pension
Scheme. Family pension was meant only for the immediate family (spouse and 2 minor
children upto the age of 21 yrs.) This pension is given only when the PF member dies
only when he is in service. It is not given if he retires. The minor child would get PF
benefit only till the age of 21 yrs, and the spouse would receive the benefit till death or
remarriage. If the employee has more than 2 children, then only the elder 2 are given
pension. The spouse gets 3/5th of the total amount earmarked for the pension every
year and 1/5th each to the child . Once the elder child completes 21, then the next child
starts getting pension. Once in 6 months she has to give a declaration that she is alive
and not remarried.
In 1989, an idea was conceived based on a survey that pension should be given to all
(not restricted to the family) i.e. payable also to the employee on his retirement. Earlier
for family pension, the contribution was 1 1/6th from employee and 1 1/6th from
employer and the government was also contributing 1 1/6th. However, this was not
additional. It is 1 1/6th of the 8% PF contribution (8% at that time). But this 1 1/6th
amount would not be adequate to pay pension to all. Therefore it was decided to take a
major amount from the PF and put in pension. But this aroused a lot of controversy for
directing funds from PF to pension. It was suggested that let pension be given in
addition to PF and gratuity by making the employer pay separately. But employers did
not agree. The government wanted to take 8.33% out of employer’s contribution to PF
and direct it to pension fund.
A new pension scheme was brought into force from 16th November 1995 – ‘New Pension
Scheme’. Under this scheme, out of the employer’s contribution of 10%, 8.33% would go
to Pension Scheme (maximum of Rs.6500). & 1.66% to PF, with no contribution from
the Govt.
The New Pension Scheme provides for 3 types of pensions
• Superannuation pension – payable to an employee who has been a member of
the pension scheme for a period of 20 or more years and has superannuated on
completion of 58 years of age. (For PF there is no age limit, but for pension
scheme the age should be 58 years.)
• Retirement pension – an employee has been a member of the pension scheme
for 20 years or more and has retired from the services of the organization before
completion of 58 years.
• Short Service pension – payable where the employee is a member of the
pension scheme for a period of minimum 10 years.
Those who have been in the pension scheme for 20 yrs or more have an added
weightage of 2 yrs ( i.e. if they have been in service for 20 yrs, for computation of
pension, it will be taken as 22 years)
26
Amount of pension = (Pensionable salary * pensionable service)/ 70
Pensionable salary = average salary of last 12 months
Pensionable service = from the day the employer has joined service (only full years
are counted) and 2 years weightage for service more than 20 yrs
However, maximum salary for pensionable salary is Rs. 6,500/-
Pension can be received by a person only if he completes 50 yrs. For every year short of
58 yrs (but more than 50) the pension will be reduced by 3% (if he is 55yrs, pension will
be reduced by 9%)
The member employee should have contributed under the pension scheme for atleast 1
month and thereafter if he dies, spouse and children will get full pension. If he dies
while in service, spouse will get full pension. Under the new pension scheme, children
will get pension till the age of 25. Spouse will get 100% and each child will get 50%
(max of 2 children) – if person dies while in service. If the person dies after retirement,
spouse gets 50% of what actual member would get and each child gets 25% of what
spouse gets. In case of more then 2 children, the 3rd child would get pension benefit,
only after his elder siblings cross the age of 25 years.
If the spouse also dies, the children will get ‘Orphans pension’ which is 25% extra of the
earlier amount received.
An employee can also receive pension if he contributes for 1 month under the scheme
and thereafter meets with an accident and is permanently disabled.
Commutation:
Once he is entitled to pension, he is eligible to commute a part of the pension. The
maximum amount that can be commuted is 1/3rd of the amount. He would gets 100
times the commuted amount and thereafter receives the reduced amount every month.
The commutation is to the Govt. If the person is alive for more than 15years, original
pension (100%) is restored.
A person was drawing Rs. 1200. He commutes Rs. 400. Immediately he will get Rs.
40,000 and thereafter every month he commutes Rs. 800.
Return on Capital :
In case an employee’s spouse has died & children have come to the age of 25years & he
is due to get pension, i.e. he has no beneficiary, he has 3 options available
• He will opt for reduced pension during his lifetime, then he gets 90% of pension,
i.e. he will have to forego 10% of his pension. If he dies, his nominee will get 100
times the original pension. Suppose a person gets a pension of Rs. 1,000, and
thus under this scheme gets Rs. 900 until he is alive. After he dies, nominee
gets a one time payment of Rs. 100,000.
• Reduced pension to the member during this life time (will get 10% less) and after
his death, further reduced pension to the spouse (thus spouse will get only 80%
27
of the pension), and after the spouse dies or remarries, the nominee will get 90%
of reduced pension for employee.
• Pension for a fixed period of 20 years after retirement. And he will get a reduced
pension of 87.5% for those 20 years. After 20 years, the pension stops and he
will get a lump sum of 100 times the original pension. But in this case, if the
person dies within the 20 yrs, the nominee will still get the lump sum only after
the 20th year and not immediately while the spouse may continue to get the
pension until the 20th year.
Pension is paid through : Panjab National Bank, Bank of India.
If the employer hadn’t cut PF contribution from employee and hadn’t paid to the PF
account inspite of employing more than 20 employees, then the PF authorities will ask
the company to pay both employer and employee’s contribution along with interest at
12% and damages of 25 % per annum. But the damages cannot exceed 100% of the
original sum.
There is a PF Recovery Officer who inspects establishments for enforcement &
contribution to PF & checks for any elusion. If the employer doesn’t pay, the recovery
officer can seize the current account of the company. If the company has stopped
conducting business, he can sell the movable property of the company without even a
court order. If the movable property is not adequate, then he can sell the immovable
property. He can also seize the current account of the co. under Sec 7(A).
Note: If an employee has contributed for 1 month to the pension fund & dies
natural/accident or suffers permanent disability then, his family is entitled for pension.
For pension scheme, the contribution stops after the age of 58. For PF, there is not age
limit. So under pension scheme, if the employee continues service after 58, he will get
pension and his wages.
Employee Deposit Linked Insurance (EDLI)
Introduced in 1976, under this scheme, there is not contribution from the employee,
but only from employer and govt. . Employer has to contribute 0.5% on basic + DA +
Retaining allowance (Max Rs. 6,500) and Government will contribute 0.25%. The whole
PF amount is insured and in case of premature death of an employee, if the average
balance of the member for the past 3 years is Rs. 60,000, a maximum amount of Rs.
60,000 is paid to the PF nominees of the member.
But there is an exemption from EDLI. The subscribed can get exemption if the scheme
provided by the employer is more beneficial. Like, EDLI scheme introduced by LIC
which is more beneficial than Govt. EDLI, where the premium is a little higher. The
benefit available under LIC is Rs.62,000 irrespective of the balance amount in the fund.
The employee has to contribute for atleast one month and the Govt. does not contribute
anything in this scheme, i.e. 100% contribution from the employer.
28
How PF is run?
Certain administrative charges are to be paid. Out of the total amount, employer has to
pay 1.1% on the salary and 0.09% on the wages,
The PF subscriber has been considered a consumer under Consumer Protection Act.
(case: S P Joshi v/s Regional Providend Fund Commissioner (1989 – 90) by SC).
Under the PF scheme once a person makes an appln. For withdrawl of amt. the amt.
has to be processed within 30 days & amt. is paid via cheque. If the amt. is not settled
then an interest has to be paid from the salary of the commissioner & not the
government at the rate of 12% p.a.
29
Employee State Insurance Act, 1948
It is a social security legislation providing for integrated social security to the employees
and their family members.
The coverage under the act is all
• establishments which fall under the adjudication of a factory. Factory means
premises including precincts (surrounding area) where a manufacturing process is
carried on, if with the aid of power, 10 or more persons are employed, and if
without the aid of power, 20 or more persons are employed.
• And all other establishments engaged in 20 or more employees.
Although the act is applicable to India, in reality it is not done so.
Under the ESI there are 2 zones called
• Implemented zone
• Non-implemented zone
In pune hinjewade is under the coverage of act while nagur road is not under the
coverage.
Under ESI the medical benefit is administered by the stage governemtn while other
benefits are administered by ESI corporation (disablement benefits, sickness benefits, etc)
The medical benefits are entrusted to the state government as per the constitution of India
where responsibility of health and medical services vests with the state government.
When the state government is equipped to provide medical benefits under ESI, it notifies
under the official gazette and brings the area under the Implemented zone
Medical benefits consist of
• Domiciliary treatment (OPT)
• Diaganostic tests
• Hospitalization(includes all types of operation)
Therefore, only when all types of facilities are available; it is given in the official gazette
and brought under implemented zone.
For providing the facilities, whatever expenses are incurred by the state governemtn, of
that 7/8th amount is reimbursed by the ESI Corporation to the government and thus the
state government spends only 1/8th of the amount. The central government doesn’t spend
anything for ESI.
As per the act, an employee is a person who is drawing wages upto Rs.7500 per month.
The moment he draws more than Rs7500, he is not covered by the act. Rs.7500 salary
includes all allowances except washing allowance (given for washing uniforms) and
overtime wages.
30
On this, employee contribution is 1.75% of the wage and the employer’s contribution is
4.75% of the wage. Therefore total contribution is 6.5%. contribution only on the coverage
amount, but also has to be paid on the Overtime wage (need not be paid on washing
allowance).
This contribution has to be deposited in the account of ESI with SBI within 21 days of the
end of the wage period (which ends on 31st of the month). Therefore has to be paid on or
before 21st of the subsequent month. If it is paid late, it will attract penal interest.
Daily wage employees are also covered by the act.
Under the ESI, there are 2 contribution periods. The first contribution period starts on the
April 1st and ends on 30th of September. The 2nd contribution period starts from 1st of
October and ends on 31st of March. At the beginning of the contribution period the
employer has to review the salary fo the employee and if it is less than 7500, has to pay
ESI. Suppose within a contribution period, the salary of the employee exceeds due to an
increment given, the employee will continue to eb covered by the ESI act until the end of
the respective contribution period.
Note:- there might be sums from this
1st benefit period starts from January 1st and ends on June 30th. 2nd benfit period starts
on july1st and ends on 31st December. This benefit period is there coz certain benefits can
be availed only during a specific period
Employee has to get a declaration form, and checked by the employer and employer has
to certify it. This declaration form ahs to be sent by employer to the local office. Each
establishment is attached to a local ESI office. Local office will scrutinize the form and will
allot insurance number to each employee covered by the act. The local office will give
temporary identification certificate to each employee and a ‘Medical Health Card’ will be
given.
The employer will have to give this identification card and the certificate to the employees.
The employee will then have to register himself with the medical counter. Under ESI there
are 2 kinds of for availing domiciliary treatment:-
• The ESI itself has got its service dispensaries. The medicines will be with the
service dispensary.
• The state government will invite medical practitioners to be on the panel called
‘ESI panel doctors’. These doctors can have both private practice and practice
under ESI. In this case, the patient has to go to the ESI approved chemist to buy
medicines after meeting the doctor.
Disablement benefit:- benefit which the insured person is entitled to receive when he
meets with an accident and is unable to attend duties for more than 3 days. The
disablement benefit is disbursed by the ESI. Disablement benefits are of 3 types
• Temporary disablement benefit: - disabled temporarily. This benefit is paid at a
rate which is 40% of standard benefit in addition to the standard benefit given.
The standard benefit rate is 50% of the average wage. For computation of average
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wage, the last 6 months is taken. However, to qualify for this, there should be no
loss of earning capacity. The period of disablement can even be for 6 months to 1
year.
• Permanent Partial disablement:- partially disabled permanently. Once the
employee meets with accident, he will initially receive temporary disablement
benefit, and once the Board decides that he is partially disabled permanently,
after that he will receive this benefit. The Medical Board will determine the loss of
earning capacity due to disablement. The compensation is in the form of a pension
which si worked on a daily basis but paid on monthly basis. his average daily
wage is taken and standard benefit is calculated. To this an additional 40%
disablement benefit is added and out of the amount arrived, a specific percentage
to be paid will be decided as per the Medical board. This benefit will be paid on a
monthly basis over and above his basic wages and the employee will get this
benefit throughout his lifetime. However, the employee has to give a certificate
once in 6 months from a competent authority to certify his existence.
• Permanent total disablement:- applicable where loss of earning capacity is 100%.
For this the employee will get 100% of the amount of (50% standard benefit + 40%
additional benefit). The employee will get the benefit for lifetime
• E.g. employee withdraws Rs.100 as wage
o Temporary benefit
� Benefit = 70
� Total wage until recovered = 170
o Partial disablement (10%)
� Benefit = Rs.7
� Total wage = 107
o Permanent total
� Benefit = 70
� Total wage for lifetime (even after retirement) = 170
Dependent’s Benefit: - payable to the spouse and for 2 minor children upto the age of 18
years. In case of a 3rd, child, will be paid only after 1st child completes 18 yrs. This benefit
is paid after the employee has died. Out of the compensation to be paid, 3/5th will go to
the spouse and 1/5th to each child. The spouse has to produce a certificate that she is
alive and not remarried. This benefit is available fro Day 1 the employee joins the
organization.
Case:- Trinity Engineers.
Sickness Benefit: - not a medical benefit. This is available when the IP is sick and unable
to attend duties. This benefit is paid to compensate for his leave of absence. This benefit
is available only during the benefit period Therefore, the IP should have contributed for
atleast for 78 days during the contribution period (i.e. 78 days of every 6 months). To
claim this benefit, he should fall sick for minimum 3 days. The first 2 days is called
waiting period and the benefit is paid from the 3rd days onwards. The rate at which the
benefit is paid is the standard benefit rate (50% of average wage). This benefit is
available for 91 days in 2 consecutive benefit periods.
32
• Enhanced Sickness benefit: - is available to benefit family planning operations.
There are 2 diff types of family planning operation
o For one type the benefit is available for 6 days
o For the other it is available for 12 days.
This benefit is paid double the standard benefit rate (full wages in addition to the normal
wages)
• Extended sickness benefit: - available to the IP who has been a member of the ESI
for a minimum period of 2 years and he should contract any of the 22 specified
diseases which has been specified as malignant (list is given by ESI). Then the IP
gets additional benefit for 309 days and that amount is paid at a rate of 40%
above the standard benefit. After the initial 309 days, if the person further
requires additional benefit, he can approach the Specialist Team and get a
certification and this period of 309 days can be further extended to even another
309 days or till the time the age of superannuation. The moment he completes the
age of 60, the benefit is stopped.
Maternity Benefit: - This benefit is available to insured female employee. Wherever a
female employee is covered under the ESI act, she will not be eligible to claim benefit
under the Maternity benefit Act, 1965. The IP should have contributed for atleast 70 days
prior to her pregnancy. To claim the benefit, she has to get certificate from the ESI
gynecologist that she is entitled fro ESI benefit and also give a copy of the certificate to the
employer. The benefit is for 12 weeks – 6 weeks before confinement and 6 weeks after
confinement. This benefit is paid at double the standard rate (full wage in addition to
normal wage). Additional 1 month benefit is available for sickness arising out of
pregnancy or miscarriage, abortion, or medical termination of pregnancy.
Funeral Benefit: - is paid when the IP dies. The death could be by any manner. It is given
to cover the funeral expenses. The amount available is Rs.2500 and the same is payable
to the eldest surviving member of the family or if the person was not staying with the
family at the time of his death, then this amount is paid to the person who has spent
money for performing the funeral rights of the diseased member.
Things to be noted:-
• Once the establishment is in the implemented zone and 20 or more employees in
case of factory and 10 in case of other, the employer ahs to take steps to cover the
establishemnet under the eSi act. If the employer does not do so, the ESI will
investigate and suppose if the company has not complied for the aleast 10 years,
the ESI will now prosecute the employer and inquiry will eb held and thereafter a
show cause notice will be sent. Then the company will be asked to pay the
employer and the employee contribution from the time the company has to be
covered. In addition, the employer shall have to pay penal interest at the rate of
15% per annum and damages at the rate of 25% (but damages cannot exceed
100% of contribution).
• All contract and casual labourers have to be covered.
• The employer can go for appeal to the ESI court. While making the appeal,
whatever has been demanded as contributions, 50% has to be deposited in the
court before the appeal is heard and the court will pass a stay order on the ESI.
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ESI Act: Employee State Insurance Act. :
It has an integrated scheme of social security. The benefits available are from cradle to
grave. It is applied to factories covered under the factories act and to any other estb.
Employing 20 or more workers. But some areas are not covered under it. This scheme
provides for medical benefits like hospitalization, diagnostic test and OPD. Under the
constitution of India, health & med services come under the state govt.
When the state govt is in a position to provide these med benefits, it will bring the
particular area in the implemented zone of ESI. 7/8th of the amount spent by state govt in
ESI is reimbursed to the State Govt by the ESI.
Coverage: those emp who are drawing wages upto Rs 7500 have to be covered under
this scheme. 7500 does not include washing allowance and overtime.
Rate of contribution: the emp has to contribute 1.75% of basic including overtime. The
emp has to contribute 4.75% on basic including overtime.
There are two contribution periods. The first starts from 1 April and ends on 30 sept.
second starts from 1 oct and ends on 31 march. They are important because at the
beginning of the contribution period, you have to find the wage of the emp.
Corresponding benefit period starts from 1 jan and ends on 30 june. Second benefit
period starts from 1 july and ends on 31 dec. there are additional benefits under this
scheme, like sickness benefit.
The entire contribution has to be deposited in the account of the ESI with the SBI before
21 of the subsequent month.
Benefit:
1. med benefit . it starts the moment the person is allotted the insurance no. a
declaration form has to be filled up which has various details. Employer has
to ensure that this form is submitted in the local office. The local office will
allot the insurance no. the local office will also issue a temporary identification
certificate and a medical health card. The employer has to give it to the
employee. The employee has to go and register himself with the ESI doctor.
The certificate has the no. of dependent family members. From the day of
registration, med benefits starts. The OPD treatment is available by way of
private medical practitioners authorized by govt or by service dispensary.
2. Diagnostic Test: the doctor will refer the patient to the diagnostic centre. The
medicines prescribed would be more sophisticated and are available with the
diagnostic centre.
3. ESI has made arrangements with large hospitals for more sophisticated
services where patients are referred.
4. hospitalization: certain no of beds are reserved only for ESI patients. Only if
blood is needed the patient has to make arrangement.
Sometimes the OT at ESI hospital is booked. Then, the patient will be sent to those
hospitals with which the ESI has a tie-up.
6 Benefits under ESI
Funeral Benefit
34
If an IP dies, the eldest surviving member of the family, or the person who has actually
spent the money for performing the last rites can claim an amount of Rs. 2,500 from the
ESI
These are the 6 benefits under the ESI.
Employer has to ensure that every employee (casual, temporary, permanent,
contractual…) has to be covered under the Act, provided the establishment is in the
implementation zone. The consequences of neglect are severe.
There are inspectors who assess whether the provisions of the Act are complied with. He
will inspect the following documents:
1. He will inspect the Wage Roll to find out if the persons who are drawing less than
Rs 10,000 per month are covered.
2. He will inspect the list of contractors and ask the organization to show
compliance with this rule.
3. He will inspect the ledger books, to find the names from those who have been
deducted TDS.
If there is any discrepancy, the inspector will note this and report to the Regional Officer.
In case of absence of records
If you do not have the records for the ESI, 25% of the contract value will be considered as
labour charges. Out of that, 6.5% of this amount will have to be paid as ESI.
Appeal
If you want to appeal against the penalty, you will have to go to a specific labour court
which has been designated as the one which will handle the ESI case. However, to
launch the case, you will have to pay to the court 50% of the amount demanded by the
ESI.
If you lose the case, you pay the balance 50% of the amount. If you win the case, you get
the amount paid to the court.
Penalty on Non-Payment after Appeal
If, after the appeal is in favour of the Government and you have not paid the amount, the
inspector can attach your property.
If the payment is delayed, interest is payable @ 15% per annum. In addition, you also
have to pay 25% as damages. The condition is that the damages cannot be more than the
total amount of the contribution.
Filing of Return of Contribution
35
This has to be filed by the employer within 42 days of the end of the Contribution Period.
This is Form # 6, Return of Contribution.
Failure to deposit contribution
If contribution has been deducted but not paid to the ESI, and uses the amount for
himself, it amounts to criminal breach of trust for which the employer can be punished
with imprisonment. They might also attach your property, your current account and
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16-01-07
Gratuity
Payment of Gratuity Act 1972
Prior to 1972, there was no act covering the payment of gratuity. But some cos. were
paying gratuity to its employees for settlement ( & not for long association).
Case: L B Singh v/s DCM Mills.
One such firm was DCM Mills, In this scheme, if the services of the workmen are
terminated for indulgence in act of violence disorderly or riotous behavior, then whole of
the gratuity can be forfeited.
Ludh Bugh Singh at DCM Mills, was a old employee, but at the fag end of the career he
had indulged in an act of disorderly behavior, and the co. declined to pay him any
gratuity. He now approached the court, and ultimately the matter landed in the SC. His
contention was that he has worked for the last 20 years unblemished, and only now at
the fag end of his career this has happened, so don’t pay him gratuity for the 21st yr. but
pay for the rest of the years. And, hence the clause in the scheme was wrong.
The SC ruled that the clause is perfectly valid, because gratuity is to be paid not only for
long service, but for long and meritorious service, which should be till the very end.
This act was enacted in 1972 and clause was inserted in the Payment of Gratuity Act
(1972). This act is applicable to all factories, plantations, mines and shops employing
10 or more employees. Employee is a person
In 1995, there was an amendment and anyone working under these industries are
covered, no matter what post.
Eligibility: He should have put in 5 years of continuous service. He will get gratuity if
he leaves after 5 year. Only exception is death or disablement due to accident (at
workplace).
Rate: The rate is 15 days of last drawn basic & DA for every completed year of service.
Or, part thereof in excess of 6 months. The max gratuity cannot exceed 3.5 Lac. The
employer is free to pay any amount exceeding 3.5 Lac, but the employee will be taxed
on the additional amount.
Forfeiture:
The complete amount can be forfeited, If the services of the workmen are
terminated on account theft, misappropriation or fraud.
It can be forfeited in part or whole, if an employee has willfully damaged the
property of the company. The forfeiture would be to the extent of damage done to the
property.
It can be forfeited in part or whole, if the services of the employee is terminated
for his indulgence in acts of violence, disorderly or riotous behavior.
37
It can be forfeited in full or in part, if the employee has been convicted by a court
in India, for an offence involving moral turpitude (offence against the society).
Definition of continuous service:
Case: Lingappa Ladappa vs. Laxmi Vishnu Textile Mills, Sholapur, 1983 SC
Lingappa, had worked for a no. of years, but not continuously. He appealed, in the
courts, and the SC held that the employee should have worked to 5 years and 240 days
in each year.
There ware lot of protest from unions against this judgment. This sentence
redefined continuous service. In 1983, new section was introduced Section 2a in the
Act.
Sec 2A defined Continuous Service as service, which includes paid holidays, absence
due to leave with wages, lay-off, illegal lockout, legal strike, absence due to accidents.
Also, if the establishment is working for less than 6 days a week, then 190 days would
constitute a continuous service for 1 year.
Calculation of Gratuity:
For daily waged workmen, it is not a problem. But problem is in case of a monthly
waged workmen.
15 days wages for every completed year of service or part thereof in excess of 6 months.
Wage = Basic + DA
Max. gratuity allowed is 3.5 lac. This income is tax exempted.
Case: Maharana Pratap Mills & Digvijay Cotton & Woolen mills, used to calculate
the monthly salary by 30 days. The workers said that they worked only for 26 days. And
hence daily wages should be calc by dividing the monthly wages by 26 days. This was
upheld by the SC.
The act contains this formula for calculation of gratuity.
If a co. goes Bankrupt, there is an authority under Payment of Gratuity Act, where you
can appeal. But if the employer is bankrupt, he will not be in a position to pay. So this
authority will release a Recovery Certificate, which can be redeemed against the asset of
the company. The money will come in from the proceeds of the liquidity of the
company’s property. This is done under direction of the collector.
In order to ensure that the workers are not deprived of gratuity, in 1995 Sec 4a was
inserted, which tells us about insurance. The employer is supposed to cover his liability
by insurance with LIC, India. LIC in turn came out with scheme – Group Gratuity
Insurance Scheme – Give details of scheme, all employees, salary, age & no. of years of
service. LIC will workout the liability, & inform the employer the premium to be paid.
LIC will give refund, for employee who have not completed for 5 years of service, this
will get adjusted against new employees.
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LIC scheme is advantageous, as it also covers the future gratuity, i.e. in case an
employee dies prematurely.
[missed 2 classes]
Date: 13 Feb 2007
Payment of Bonus Act, 1965
Initially, not all companies paid bonus. Some employees of companies which did not
pay bonus used to strike.
A high powered commission was appointed in 1961 to look into this issue. Chairman:
Mehr
Terms of reference of the commission: Whether terms of bonus could be prescribed by
law.
Commission submitted recommendation after 3 ½ years. The Government did a
payment of bonus bill in 1967. The Government brought an ordinance. Bonus was first
made applicable for the accounting year 1963-64.
The commission said that a law could be made by which bonus is compulsory. The Act
should be applicable to those who are drawing a salary of Rs 1000. Payment to be made
on Rs 750. The rest would be minimum bonus. Min Bonus: 4%, max bonus: 20%.
Bonus to be paid after the infancy period of 5 years, or after the firm makes profits,
whichever is earlier.
Applicable to all establishments which have at least 10 people employed.
They laid down a formula for bonus. From the Gross Profit, deduct certain prior
charges, these are:
1. Return on capital
2. Depreciation, as specified by the Income Tax Act
3. Research & Development
4. Investment Allowance: for investments for further expansion/ diversification
After these deductions, the remaining is called available surplus. In case of an Indian
company, 60% of the available surplus has to be kept aside as allowable surplus. In
case of a foreign company, 67% of the available surplus has to be kept aside as
allowable surplus. From this allocable surplus, the amount has to be paid as bonus.
Set-off & Set-on
39
If there is no allocable surplus, they have to borrow money from the Return on Capital
to pay the bonus. This money is kept in an account called set-off. In a year of profits,
the money borrowed from the capital will be paid back.
If there is excess money available after the payment of bonus, the excess has to go to an
account called set-on, for payment of future bonus.
Set-on and Set-off can be kept only for a period of 3 years
Present Position
In 1976, there was an amendment, where it said, if there was no allocable surplus,
there was no need to pay bonus. There was a new section 31A, which talks about
productivity linked bonus.
Min bonus: 8.33%
Max bonus: 20%
Section 31A – Productivity linked bonus
If the employer and the employee enter into an agreement that bonus will be paid based
on productivity, then it is allowed. However, this agreement was to be based within the
provisions of the act.
However, when the Janata Party came to power, they restored the minimum bonus.
Establishment should have greater than 10 people.
Employee for the purspose of this act is a person whose basic and dearness allowance
is upto 3500 p.m. Min bonus 8.33% Max 20% of Rs. 2500 p.m.
It is paid for allowable surplus. It
An employee is entitled to receive bonus if he has worked for more than 30 days in the
acct year. It is to be paid within 8 months after the acct year.
Establishments not covered under the Payment of Bonus Act :
LIC, RBI, IDBI, PSU ( which are not competing with the private sector).
The bonus cab be forfeited when the employee has indulged in theft, terminated for
misconduct, dishonesty or for willful damage of the property of the employee.
Infancy period 5 years, after which it has to pay bonus even if the establishment is
under loss. The moment the establishment starts earning profit it has to pay bonus.
The employer has to maintain 3 registers :
1. Calculate other bonuses.
2. List of employees to whim the bonus has been paid.
40
3.
Case: Empro International
The union felt that the workers might join some other place.They felt that the
establishement had surplus cash, and hence they should receive more that 20% bonus.
They immediately called for a strike. They went on strike withint 14 days of the notice
period. The management approached the labour court, who declared the strike illegal.
They were given 48hours to return to work. The workers did not do what to do, and
approached the management to bail out. The management decided to pay Rs 800
additional. The union celebrated this as a victory, but inturn they lost 3 months slalary.
How discipline must be given in industry
Discipline is given based on the principles of natural justice.
These are:
1. Every employee must be given a fair hearing
2. Mat
What are the considered to be misconducts?
1. Willful insubordination: Not adhering to the lawful and reasonable instructions
of the superior
2. Willful slowing down in performance of work
3. Going on a illegal strike
4. Instigating or assistance the commencement or continuation of an illegal strike
5. Habitual absence without leave; it is habitual if a person remains away from
work for more than 3 times in a year
6. Absence without leave for more than 10 days
7. Overstaying the sanctioned leave without proper or satisfactory explanation
8. Theft or dishonesty in connection with the employer’s property / business
9. Theft of property of another workman within the work premises
10. Habitual negligence in work
11. Engaging in trade or business within the premises of the business
12. Collection of money within premises without the permission of the employer
13. Canvassing for union membership within the working premises
14. Collection of union subscription within the premises without the permission of
the manager, except in accordance with any law, for the time being in force (eg:
If a union is recognized at the Maharashtra Recognition of Trade Unions, a
recognized union can collect subscription at the time of disbursement of wages)
15. Carrying of lethal weapons
16. Holding union meetings within the premises except in accordance with any law
(eg: Under MRTU, a union which is recognized by this act can hold meetings for
the prevention or settlement of disputes, without permission of manager, but
without disturbing the work)
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17. Not following safety instructions / using safety gear
18. Commission of an Act subversive of discipline or good behaviour on the premises
19. Drunkenness or indulging in violent or riotous behaviour in the premises
The law expects the employee to know which acts constitute misconduct.
If action has to be taken against the employee, follow this process:
1. Conduct a preliminary enquiry: To find out whether the misconduct actually
happened. This enquiry will be based on the reports of other employees and
managers.
2. Give workman a show-cause notice: The notice will mention the workman’s
name, id number, describe the misconduct. It asks the workman to submit
written explanation as to why disciplinary action should not be taken against
him. It will also state that if no explanation is tendered within the given period,
the management can initiate disciplinary action against them.
3. If the worker admits misconduct: Give a written warning letter, or give a
suspension for a certain period, for which he will not get wages for the days of
suspension. You can do this if the misconduct is the first time around.
4. If worker does not admit misconduct: Punishment by way of suspension, or
issue a charge-sheet and conduct a domestic enquiry. Name the person who will
conduct the enquiry, date, time and place of the enquiry. He has the opportunity
to defend himself. He can cross examine the management witnesses and also
with his witnesses. He can defend himself with a co-worker, or an office bearer
of the union of which he is a member.
If he does not attend the examination on the stated date, the meeting will be
held ex-parte. So whatever decision is taken on that day will stand.
5. Punishments: Punishments can be either:
a. Fines. Fine cannot exceed 3% of the wage. The fines to be charged are to
be ok-d by the Government.
b. Suspension for a period of 4 days
c. Demotion
d. ???
6. Conduct domestic enquiry: The enquiry officer, an independent person, is the
one who conducts the enquiry. At the enquiry, the enquiry officer, an officer of
the company who will represent the management, and a defense representative
of the employee.
On the first day of the enquiry, the employee has to first explain to the workman
the procedure of the working. The employee is asked by the employee officer if
the employee has received the charge sheet and understood the provisions of the
charge sheet. All documents have to be produced by the management
representative to the enquiry officer. A copy of the documents has to be given to
the employee.
The management has to employ the enquiry officer.
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Arbitration and the Industrial Disputes Act will come into force only at a later
stage, after the employee is dismissed.