RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB

Labour and Industrial Law

Topic – What happens in the case of Transfer

of Establishment?

SUBMITTED TO- SUBMITTED BY-

Dr. Sonika Ayush Tripathi(20173)

(Assistant Professor of Law)

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 Acknowledgement

I appreciate and thank Dr. Sonika for giving me the opportunity to work on the
project under her supervision and for providing us with all of the support and
encouragement that enabled me to complete the project successfully. Given her
hectic schedule, I am appreciative for her generous help and support.

I owe her a great deal of gratitude; she took a keen interest in our project work
and guided us all the way till the finish by providing all of the necessary
knowledge.

I would want to convey my heartfelt appreciation to my classmates for their aid

and guidance, till the finish of this project

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Table of content

INTRODUCTION………………………………………………………….…...4-8

 MEANING OF TRANSFER OF ESTABLISHMENT

 The Evolution of Labor Law in India

 Latest updates on Labour and Industrial Law

 Provisions of the Constitution relating to labour legislation

MEANING OF TRANSFER OF ESTABLISHMENT…………………………...9-11

 EXPLANATION OF SECTION 73 OF THE INDUSTRIAL RELATIONS
CODE, 2020

VALIDITY OF TRANSFER OF OWNERSHIP……………………………….12 - 14

 Is consent of workers required prior to transfer of ownership?.........................

DEMAND FOR COMPENSATION……………………………………………..13-14

 Can a claim be made on new employer?

 Is there a time limit to pay compensation?

CONCLUSION…………………………………………………………………………15
REFERENCES…………………………………………………………………….....16

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INTRODUCTION

In India, the legislation governing labour and employment falls under the wide
topic of "Industrial Law." Industrialization is regarded as one of the most
important engines for a country's economic progress. The start of an industry and
its expansion is not just the responsibility of the employer; it also requires the
hard work and dedication of all stakeholders in the industry, including labourers,
supervisors, managers, and entrepreneurs. Various legislative endeavours have
made their initial step in the direction of welfare, equitable rights, social justice,
social equity, and equitable involvement of labour as a stakeholder at parity since
the conception of the welfare state in the early realms of our country's
independence. A vast number of labour laws have been enacted to ensure
improved worker health, safety, and welfare; to protect workers from oppressive
terms because individual workers are economically weak and have little
bargaining power; to encourage and facilitate workers in the organisation; to
resolve industrial disputes; and to enforce social insurance and labour welfare
schemes, among other things.

Labour laws are those that govern employment in any organisation, whether it is
a manufacturing firm, a trade firm, or a retail store. The labour laws cover a wide
range of administrative judgments (such as employment standing orders) and
procedures that must be followed, as well as the legal rights and limits that
workers and their organizations face. Industrial relations, union certification,
labour management relations, collective bargaining, unfair labour practises, and,
most significantly, workplace health and safety with adequate environmental
conditions are all covered by labour law. In addition, labour laws address
employment standards, such as general holidays, yearly leave, working hours,
unjust dismissals, minimum wage, layoff processes, and severance
compensation, as well as a slew of other concerns between employers and
employees, as well as different compliance requirements. The provisions of the

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Indian Constitution provide the foundation, authority, and support for labour
legislation. The importance of defending and safeguarding the dignity of human
labour as human beings is incorporated in Chapter III (Articles 16, 19, 23 & 24)
and Chapter IV (Articles 39, 41, 42, 43, 43A & 54) of the Indian Constitution, in
accordance with Fundamental Rights and State Policy Directive Principles. The
government has been developing new laws and changing old ones in response
to the developing requirements of employees in a continually dynamic economic
environment, and labour law changes are a continuing and continuous process.
Labor is a Concurrent List issue that allows both the union and state
governments to pass laws, with some matters reserved for the national govt.

1.1 The Evolution of Labor Law in India

In India, the legislation governing labour and employment is referred to as

industrial law. In India, the history of labour regulation is intertwined with that of
British colonialism. The British created industrial/labor regulation largely to
defend the interests of British businesses. Some of these early rules were
inevitably shaped by considerations of British political economy. The Factories
Act was enacted as a result. It is widely known that Indian textiles competed
fiercely with British textiles in the export market, hence the Factories Act was
originally established in 1883 in response to pressure from Manchester and
Lancashire textile magnates. As a result, India obtained the first eight-hour
workday, the eradication of child labour, the prohibition of women working at
night, and the introduction of overtime pay for work beyond eight hours. While the
impact of this policy was unmistakably welfare-oriented, the true reason was
unmistakably protectionist.1

1
“Labour Laws in India - NCIB” <https://ncib.in/pdf/ncib_pdf/Labour%20Act.pdf>
accessed April 15, 2022

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The Trade Dispute Act of 1929 was the first Indian legislation to govern the
interaction between an employer and his employees (Act 7 of 1929). This Act
had provisions to limit strike and lockout powers, but there was no mechanism in
place to deal with conflicts.

Because independent India demanded a clear cooperation between labour and

capital, the original colonial legislation underwent significant changes in the post-
colonial era. The nature of this partnership was unanimously adopted in a
tripartite meeting in December 1947, when it was decided that labour would be
provided a fair salary and fair working conditions in exchange for capital receiving
the complete co-operation of labour for uninterrupted production and improved
productivity as part of the plan for national economic growth, and that all parties
involved would respect a three-year truce period free of strikes and lockouts. The
Industrial Disputes Act (the Act), which repealed the Trade Disputes Act 1929
and went into effect on April 1, 1947, has been on the books ever since.

1.2 Provisions of the Constitution relating to labour legislation

The Constitution of India recognises labour as a concurrent topic, suggesting that

both the Union and state governments have the authority to regulate and
manage labour issues. The majority of significant legislative actions have been
passed by Parliament.

The Indian Constitution gives forth explicit protections for people' rights as well as
the Directive Principles of State Policy, which provide a goal by which the state's
actions should be governed. The following are the Directive Principles:

a) to ensure the health and strength of employees, both men and women;

b) to ensure that children's tender age is not exploited;

c) to ensure that citizens are not forced by economic necessity to enter

vocations unsuited to their age or strength;

d) to ensure just and humane working conditions and maternity leave; and e.
to ensure that the government takes steps, through appropriate legislation

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 or other means, to ensure employee participation in the management of
undertakings, establishment.

1.3 The most recent developments in labour and industrial law

In a recent endeavour to combine the number of current legislations in India

pertaining to labour and industrial law, the Central government has introduced
three new labour law codes, which are as follows:

 The Industrial Relations Code, 2020;

 The Occupational Safety, Health and Working Conditions Code, 2020;

and

 The Code on Social Security, 2020

All of these codes obtained President's assent on September 28th, 2020, and the
Indian government has indicated that they would take effect in near furture.
Furthermore, the regulations governing the Codes have yet to be released. The
Codes, together with the Wages Code of 2019, which was enacted by Parliament
last year, are part of the Indian government's labour reform strategy. 2

The following acts will be subsumed and amended by these codes:

 The Trade Unions Act,1926

 The Industrial Disputes Act, 1947

 The Industrial Disputes Act, 1947

 The Employees Standing Orders Act, 1946

2
Obhan A, “The Industrial Relations Code, 2020 - Employment and HR - India”
(Welcome to MondaqOctober 15, 2020)
<https://www.mondaq.com/india/employee-benefits-compensation/994748/the-
industrial-relations-code-2020> accessed April 16, 2022

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  The Employees Compensation Act, 1923

 The Employers State Insurance Act, 1948

 The Payment of wages Act,1936

 The Factories Act, 1948

MEANING OF TRANSFER OF ESTABLISHMENT

As per Section 73 of the Industrial Relations Code, 2020 the transfer of

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 establishment is termed as “where the ownership or management of an
establishment is transferred, whether by agreement or by operation of law, from
the employer in relation to that establishment to a new employer.” 3In basic
words, an establishment is said to be transferred when the ownership or control
of that business is transferred from one employer to another by acquisition or by
the force of law. This occurs as a result of the constant mergers and acquisitions
that occur among many large corporations for a variety of reasons, but the most
important factor that causes a person to come under Section 73 is a change of
employer. This provision does not apply if the employer does not change even
after a merger or acquisition. Section 73 of the Industrial Relations Code relates
to Section 25 – FF of the Industrial Disputes Act, 1947, although there are
certain differences that will be examined later in this project.

2.1 EXPLANATION OF SECTION 73 OF THE INDUSTRIAL RELATIONS

CODE, 2020

The bare wordings of Section 73 of the Industrial Relations Code, 2020 - which
deals with the regulations of paying employees compensation in the event of a
transfer of establishment - have been constructed in such a straightforward way
that it properly describes it, as follows:

“Where the ownership or management of an establishment is transferred,

whether by agreement or by operation of law, from the employer in relation to
that establishment to a new employer, every worker who has been in
continuous service for not less than one year in that establishment immediately
before such transfer shall be entitled to notice and compensation in
accordance with the provisions of section 70 as if the worker had been
retrenched:

Provided that nothing in this section shall apply to a worker in any case where
there has been a change of employers by reason of the transfer, if –

3
Section 73, The Industrial Relations Code, 2020

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 a) the service of the worker has not been interrupted by such transfer;

b) the terms and conditions of service applicable to the worker after such
transfer are not in any way less favourable to the worker than those
applicable to them immediately before the transfer; and
c) the new employer is, under the terms of such transfer or otherwise, legally
liable to pay to the worker, in the event of his retrenchment, compensation on
the basis that his service has been continuous and has not been interrupted
by the transfer.”4

The clause clearly states that every person who has worked in the
establishment for more than a year shall be given one month's notice and
reasonable compensation in line with the standards set forth in Section 70
(which deals with circumstances prior to retrenchment of workers), and that
these workers should be treated in the same way as retrenched workers.

The second portion of the section discusses three instances or exclusions in

which the former employer is not required to provide workers with notice or
compensation. These three scenarios are as follows:

1. There has been no disruption in your service as a result of this transfer;

2. Equally or more favourable employment terms and conditions apply to

you (transferred employees) in comparison to those that applied to you
prior to the transfer of undertaking; and

3. Your new employer has become legally obligated to pay you (transferred
workers) compensation in the event of retrenchment, in a manner similar
to that in which the old employer was liable. In addition, such a time of

4
Section 73, The Industrial Relations Code, 2020

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 transfer will be considered as part of the duration of continuous service. 5

To conclude, Section 73 of the new Industrial Relations Code has outlined what
occurs with employees compensation in the case of establishment transfer, as
well as noting the three scenarios in which the previous employer would be
excused from providing any notice or compensation.

VALIDITY OF OWNERSHIP TRANSFER

5
Verma PN and others, “Compensation Payable under the Industrial Disputes Act,
1947 to Employees When an Undertaking Is Transferred” (iPleadersAugust 13,
2018) <https://blog.ipleaders.in/compensation-payable-industrial-disputes-act-
1947-employees-undertaking-transferred/> accessed April 16, 2022

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 The most essential component of Section 73 concerns the legality of a transfer
of ownership and the workers' authority or standing in relation to a transfer of an
institution. Because the new regulations have not yet taken effect in India, the
courts have no precedent or rulings in this area, however there are a number of
resolved case laws under the old Industrial Disputes Act, 1947, section 25 FF.
As a result, the next sections of the project work will focus on such landmark
case-laws and associated topics.

3.1 Is it necessary to get the workers' permission before transferring

ownership?
In Spencer Group Aeriated Water Factory Employees' Union v. Presiding
Officer6, Industrial Tribunal, it was held for the first time that the consent of the
workers is not required for the validity of a transfer of ownership or management
of an undertaking under Section 25-FF of the Industrial Disputes Act, 1947.

However, it was not until 2006, in the landmark decision of Mettur Beardsell Ltd.
v. Workmen,7 that the Supreme Court determined that the common law rule that
an employee cannot be moved without agreement only applies in master-
servant relationships, not statutory transfers. There is nothing in Section 25-FF's
phrasing that even remotely suggests approval is required for transfer. The main
goal of Section 25-FF is to ensure a worker's continuity of service and to provide
benefits that would otherwise be unavailable if a break in service to another
employer was allowed.

Taking the preceding judgments into consideration, it can be concluded that

both the old and new laws do not provide employees any say in administrative
decisions such as transfer of establishment, but they do offer enough
safeguards to protect their interests in the event of a change of employers.

6
(1997) 1 LLJ 362 (Mad)(DB).
7
(2006) 9 SCC 188 2006 SCC (L&S) 1858.

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DEMAND FOR COMPENSATION

It is important to understand the various circumstances for when and where a

compensation claim might be made against the employer. The section does not
distinguish between a previous and a new employer, but the section's wording,
combined with previous Supreme Court judgments, can help us comprehend
everything about compensation.

The main reason why Indian laws allow for compensation is to protect
employees financially from decisions made by the establishment over which
they have little influence. That is why it is critical for the previous employer not to
leave his employees unprotected during a transition of ownership.

4.1 Can a claim be filed against a new employer?

The Madras High Court ruled in the matter of Madras State Electricity Board
Union v. South Arcot Electricity Distribution Co.8 Ltd that compensation can be
obtained under this clause against the prior employer rather than the new
employer following a transfer of business or enterprise.

The case primarily concerned Section 33C of the Industrial Disputes Act of
1947, but J. Balakrishna Ayyar made an oral observation that nothing in Section
25FF requires the new employer to pay the compensation amount to the
workers; instead, it is the sole responsibility of the former employer to discharge
that compensation unless certain terms are included in the transfer agreement.

Is there a time limit for reimbursing compensation?

8
(1966) 1 LLJ 380

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There is no time restriction established by Section 25-FF or the new Section 73
of the Industrial Relations Code, 2020 in which such compensation is to be paid
to workers, but based on the sensible approach and court rulings, this
compensation must be paid within a fair length of time.

In Payment of Wages Inspector v Surajmal Mehta9, a single judge Supreme

Court bench led by Justice J.M. Shelat noted that because Section 25-FF
contains no conditions precedent and transfer and closure can take place
without notice or payment of a month's wages in lieu thereof or payment of
compensation, Section 25-FF can be said to have provided no time limit within
which such compensation must be paid.

CONCLUSION

9
AIR 1969 SC 590: (1969) 1 LLJ 762.

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The central government has expressed a strong desire to develop new labour
rules with numerous revisions in order to resolve worker-employer issues. The
creation of dispute resolution systems for resolving issues between companies
and employees without resorting to the courts was the most significant change.
There have been a number of additional changes, such as broadening the
definition of worker to include "working journalists." Aside from that, the
definitions of an industrial dispute, a strike, and an employer have been
enlarged to cover previously excluded industries.

In terms of offering a more simple procedure for conflict settlement, the

Industrial Relations Code looks to be a step in the right direction. The creation of
a bargaining union/council will also help to speed up the process of striking
acceptable agreements between employers and employees. By raising the
threshold for sectors requiring prior authorization under the Industrial Relations
Code, more enterprises will have greater flexibility in terms of worker
retrenchment and establishment closure. The impact of the Industrial Relations
Code on employees' right to strike, on the other hand, remains to be seen.
With the exception of the usage of the term 'worker' instead of 'workmen' in
Section 73 of the Industrial Relations Code, not much has changed. All other
requirements remain unchanged, however with the addition of the negotiating
council, it is intended that compensation claims in situations involving the
transfer of establishment would be addressed swiftly and without any difficulties
or delays.

REFERENCES
Books

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 1. OP Malhotra, The Law of Industrial Disputes, 7th ed.
2. K.L.E Law Academy, Study Material for Labour Law.
3. S C Srivastava, Industrial Relations and Labour Laws, 5th ed.

Case-laws
1. Spencer Group Aeriated Water Factory Employees' Union v. Presiding
Officer, Industrial Tribunal
2. Mettur Beardsell Ltd. v. Workmen
3. Madras State Electricity Board Union v. South Arcot Electricity Distribution Co.
Ltd
4. Payment of Wages Inspector v Surajmal Mehta

Articles, blogs and websites

 Labour Laws in India - NCIB” <https://ncib.in/pdf/ncib_pdf/Labour
%20Act.pdf> accessed April 15, 2022

 Obhan A, “The Industrial Relations Code, 2020 - Employment and HR - India”

(Welcome to MondaqOctober 15, 2020)
<https://www.mondaq.com/india/employee-benefits-compensation/994748/the-
industrial-relations-code-2020> accessed April 16, 2022
 Verma PN and others, “Compensation Payable under the Industrial Disputes Act,
1947 to Employees When an Undertaking Is Transferred” (iPleadersAugust 13,
2018) <https://blog.ipleaders.in/compensation-payable-industrial-disputes-act-
1947-employees-undertaking-transferred/> accessed April 16, 2022

 Indiankanoon.org
 Casemine.com
 Scconline.com

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