LABOUR &

EMPLOYMENT
ISSUES IN
M&A
 No Employer Employee
Relationship is
 Labour force – backbone of industrial
Employer –activity
Consultant.
 Transfer of workforce in M&A – vital Issue
 Smooth sailing necessary Design Consultant –
Engineers – Lawyers –
Charted Accountants etc.
(Professional or Technical
Employme Skills)
Consulting
nt
Contract
Contract
Contra
cts
 JV between Indian & Foreign co.
JV – foreign partner may appoint persons
from parent co. (Expatriate Employees)
May be to ensure that the
Business model of the JV is successfully
implemented in India.
To implement the best practices in the JV
Procedural Compliance –
Register with Foreigners Regional
Registration Officer (FRRO) – under -
Registration of Foreigners Act, 1939 –
Rules 1992)
Transfer & Termination of Employees in M &A?

Merging Co

Surviving Enough
Co.
Workforce?

To Continue or Not?
(If Not - Termination
of Contract?)
 Labour/Employment/Industrial Laws –
Ample Protection?
 White Collar v Blue Collar - Workman v Non
Workman (Sec 2 (s), IDA)
 Consultant may not be an Employee? Does it
depends on the Contract?
 SCHEME OF MERGER -
 Absorption of employees – with a new
appointment letter – Conditions clearly
mentioned
 Social Benefit Accounts? – Like Provident Fund
– Pension Fund, etc.
 Gets Transferred in the name of transferee Co.
 Suitable clause to be incorporated in the scheme
 Retrenchment, Closure or Transfer of any establishment
 Termination of Employees – Sec. 25 FF, IDA,
1947
 Transfer of ownership – undertaking – No
obligation to the acquirer to take employees of
the transferor?
 Only have a right to claim retrenchment
compensation?
 No right of continuing service with the successor
undertaking
 Cessation of employment – Transferee
Co/Acquirer has to comply with the
retrenchment conditions. (Sec. 25 F, IDA)
 White Collared Workman?
IDA – No Protection?
Respective Employment Contract –
regulates?
Contract not specifically enforceable?
What if Termination is Bad or illegal?
No order of reinstatement possible in
case of private sector employees
Will have relevance to claim of
damages?
 Locus Standi of Employees in M&A
 National Textile Workers Union v P R
Ramakrishnan, AIR 1983 SC 75
 JNU v J S Jawatkar, AIR 1989 SC 1577
Workmen of the Transferor Co. have
Locus Standi to object the Scheme – Court
can consider their representation – as it is
duty bound to protect the workmen
 KEC International Ltd v Kamani Employees Union,
(2000) 36 CLA 124
No right of Hearing? (HLLEU v HLL)
H L Theran v Union of India
 Acquisitions?
Locus Standi?
Process of court not involved

Purely a contract of sale of securities between

the ‘Acquirer’ & SH’s of ‘Target Co’
Employees of the ‘Target Co’ - Nowhere to
object to the proposed acquisition of the
acquirer
Acquisition to adversely affect their working
conditions – employees should be given an
opportunity of hearing their views.
 Locus Standi of Employees in a Scheme of
Amalgamation/Merger
 Although Employees are the manpower of a Co. - In a
scheme of amalgamation - They do not have any say as a
matter of right - Can Neither Object to the scheme nor
can be a Party to it & are ranked as Outsiders to it.
 U/SS 391 & 394, CA 1956 - Prima-facie - Transferor Co.,
is NOT required to hold a meeting of the
Employees/workmen for their opinion.
 Gujarat Nylon Ltd V. Gujarat State Fertilizers Co Ltd
(1992) 8 CLA 166 (Guj)
 Nor do the Employees/workmen have a Right to challenge
the amalgamation on the grounds of Retrenchment or
Low Bonus or Lesser Employment Benefits.
 Jitendra R Sukhadia v Alembic Chemical Works Co Ltd
(1988) 64 Comp Cas 206 (Guj)
 H L Theran v UOI
 Caltex Oil Refinery (India) Ltd – A govt. Co. was effected
through –
 “Acquisition of Shares of Caltex India Ltd & of the
Undertaking in India of Caltex India Ltd Act, 1977”
 Employees granted a right of hearing by extending the
principles of natural justice.
 If the workmen are satisfied that their working conditions in
the transferee co. would not be inferior to that in the
transferor co., the scheme or acquisition would sail through
 If not –
 Workmen to be compensated in accordance with the law
 Golden Hand Shake – VRS = plays a vital role to downsize
the transferor or Target Co.
 National Textile Workers Union v P R Ramakrishnan,
AIR 1983 SC 75 (Winding Up Order?)
Our Constitution has shown profound concern for the workers &
given them a pride of place in the new socio-economic order
envisaged in the Preamble & the Directive Principles of State Policy.

Article 43A states that the State shall take steps by suitable
legislation or in any other way to secure the participation of workers
in the management of undertakings, establishments or other
organisations engaged in any industry.

The constitutional mandate is therefore clear & undoubted that

the management of the enterprise should not be left entirely in the
hands of the suppliers of capital but the workers should also be
entitled to participate in it. In a socialist pattern of society the
enterprise which is a centre of economic power should be controlled
not only by capital but also by labour.
  Bhagwati, P.N. Reddy, O. Chinnappa (J) Islam, Baharul (J) (Majority)
Sen Amarendra Nath (J) Venkataramiah, E.S. (J) (Dissenting)
It cannot therefore be contended that the workers should
have no voice in the determination of the question whether
the enterprise should continue to run or be shut down
under an order of the court.
Workers who have contributed to the building of the
enterprise have every right to be heard when it is sought to
demolish that centre of economic power.
Workers therefore have a special place in a socialistic pattern of
society. They are
No more vendors of toil;
 Not a marketable commodity to be purchased by the owners of
capital.
 Producers of wealth as much as capital;
 Supply labour without which capital would be impotent.
 Bhagwati, P.N. J
Concept of a Co. has undergone radical transformation in the last
few decades. The old 19th century view which regarded a Co. merely
as a legal device adopted by SH’s for carrying on trade or business
as proprietors has been discarded & a Co. is now looked upon as
a socio - economic institution wielding economic power &
influencing the life of the people.
The view that a Co. is the property of the SH’s can no longer be
regarded as valid. Apart from capital & labour there are other
factors which contribute to the production of national wealth;
Financial institutions &
Depositors who provide - Additional finance required for
production &
Consumers & Rest of the members of the community
Who are vitally interested in the product manufactured.
 Bhagwati, P.N. J

A Co., according to the new socio-economic

thinking, is a social institution having duties &
responsibilities towards the community in which it
functions & one of its paramount objectives is to
bring about maximization of social welfare &
common good.
This necessarily involves re-orientation of
thinking in regard to the duties & obligations of the
Co. not only vis-a-vis the SH’s but also vis-a-vis the
rest of the community affected by its operations
such as workers, consumers & the Government
representing the society.
 Bhagwati, P.N. J Referring Prof. De Wool of
Belgium

The Co. has a three-fold reality

ECONOMIC - HUMAN - PUBLIC
Each with its own internal logic. The reality of
the Co. is much broader than that of an association
of capital;

It is a human working community that performs

a collective action for the common good. In recent
years a debate is going on in the world at large on
the functions & foundations of corporate
enterprise.
 Chinnappa Reddy, J
 “The Act does not prohibit a hearing to the workers. It
does not provide for all situations. The law “falls to be
applied to a growing & changing subject matter”.
 Co. Judge must acknowledge the transformation which
Corp’s are presently undergoing from capitalist
contrivances into socialist instruments & recognize the
reality of the workers interest.”
 Working classes…world over, are demanding “workers’
control” & “industrial democracy”. They want the
right to work to be secured.
 Our Constitution has accepted the workers’ entitlement
to control & it is one of the DPSP. It is in this context of
changing norms & waxing values that the workers’
demand to be heard has to be judged.
 Chinnappa Reddy, J
 After nationalisation of certain important &
crucial industries a considerable measure of
workers’ control of management of industry has
been achieved in the country. One should rather
look to the Constitution for guidance &
inspiration while interpreting the laws.
 After.. 42nd Amendment - the Constitution is
openly Socialist. The DPSP emphasize the role &
interest of the workers... There are several
provisions in the Act itself which take notice of
the element of public interest.
 There are other enactments like MRTP Act &
(now Competition Act, 2002) Industries
Regulation & Development Act under whose
provisions the activities of a Co. may be
scrutinized in public interest.
 There are legislations involving employment &
welfare of labour to which the managements of
the Co’s are subject. The problem before the
court must be considered in this context of
ferment & development.