Labour Court Cannot Adjudicate Legality Of Closure Under ID Act When Reference Is Confined To Justification Of Retrenchment: Kerala High Court

The Kerala High Court has held that a Labour Court cannot adjudicate on the legality or bona fides of an alleged closure when the reference itself is confined to the justification of retrenchment.

Justice Mohammed Nias CP was delivering the judgment in petitions challenging the Labour Court Order which directed the reinstatement of workmen who claimed to have been illegally terminated under the guise of closure.

The labour Court has also ordered reinstatement of the workmen with 50% back wages and continuity of service.

The petitioners in the present petition are companies engaged in the manufacture of hawai sheets and hawai straps for the production of hawai chappals.The petitioners submitted that the total workforce initially consisted of only 27 workmen, out of whom 18 voluntarily resigned from service. With only 9 workers remaining the petitioners closed the unit with effect from 26 .04. 2016.

It was further contended that out of the nine workmen, four of the workmen accepted the closure compensation and gratuity. The closure compensation under the Industrial Dispute Act was issued to the remaining workmen by treating them as retrenched for the purpose of compensation, but the cheques were returned through the Union.

The respondents in the present case, who are the workmen, then raised an industrial dispute alleging that the petitioners had a larger workforce at the time of closure and that certain workmen were illegally terminated under the guise of closure. On failure of conciliation, the dispute was referred for adjudication, resulting in an award by the Labour Court in favour of the workmen, which was challenged in writ petition.

The respondents contended that the petitioner company is one among several interconnected establishments run by the same family members and workers were routinely transferred from one unit to another depending upon the managerial requirements.

It was also contended that they were members of a recognised trade union and that their service conditions were governed by long-term settlements. Upon the expiry of the last settlement on 31.03.2015, the Union sought revision of wages and benefits, which was rejected by the management. When conciliation proceedings were initiated before the Regional Joint Labour Commissioner, the petitioners abruptly issued closure notice.

The respondents contended that closure was never genuine or bona fide and only nine workmen, including the respondents, who were union members were selectively targeted and retrenched while the remaining were retained and transferred to the petitioner's sister concerns.

The petitioner argued that the reference under Section 10 of the Industrial Disputes Act, was made to decide on whether the retrenchment is justifiable or not, and the Tribunal thereby has no power to consider the legality of the closure.

The Court examined whether reference made under Section 10 of the Industrial Disputes Act, 1947, was properly framed with regard to the true nature of the dispute and whether the Labour Court/ Tribunal acted within the limits of the reference while passing the order.

According to Section 10, when the appropriate government is of the opinion that any industrial dispute exists or is apprehended, it may at any, by an order refer the dispute to a Board for promoting a settlement or to the relevant Court.

The Court noted that the question for reference in the matter was whether the retrenchment of the respondent was justifiable.

Relying on SKG Sugar Ltd. v Ali Hassan [1956 Supreme (Pat) 137], the Court noted that the sole statutory precondition for a valid reference is the formation of an opinion by the appropriate Government that an industrial dispute exits or is apprehended, the actual existence of such a dispute is not required to be conclusively established at that stage.

The Court noted that when workmen allege that an ostensible closure is a sham or pretence, that foundational issue must be expressly referred to.

“Where the core dispute pleaded by the workmen is that the alleged closure of the establishment is sham, colourable or illusory, but the reference is framed on a different and narrower premise, on retrenchment and its remedy, the reference fails to reflect the true lis and suffers from a jurisdictional defect going to its root. A sham closure raises serious and complex questions of fact and law, requiring adjudication by a competent Tribunal, and such questions cannot be presumed away or indirectly answered under the guise of a differently framed reference.” Court noted.

The Court observed that under Section 10(4) of the Act, the adjudicatory body should confine itself to the adjudication points referred to and it should not expand its jurisdiction.

“Once a reference is made, the jurisdiction of the Labour Court or Industrial Tribunal is strictly confined to the points of dispute specifically referred and matters incidental thereto, and the Tribunal is not free to enlarge, amend, substitute, or re-characterise the dispute on its own assessment of the pleadings or evidence.” Court observed.

The High Court found that the Labour Court had exceeded its statutory authority by adjudicating upon questions of reinstatement and continuity of service, thereby implicitly deciding issues relating to sham closure which were not referred for adjudication.

“This amounts to the Labour Court substituting its own formulation of the dispute in place of that of the appropriate Government, which is wholly impermissible.” Court added

The Court referred to Organon India Limited v State of West Bengal and Other [(2003 (99) FLR 888], in which the Calcutta High Court addressed and rejected the objection of prejudice to workmen while interfering with a fundamentally misconceived reference.

The Court thus quashed the order of references and the consequential Labour Court Orders.

The Court further directed the Government to reconsider the matter and reframe the reference to reflect the real dispute between the parties, in accordance with law within two months. It has also directed the Tribunal to proceed with the adjudication after receipt of the fresh reference.

With these directions, the writ petition was allowed.

Case Title: Lunar Rubbers v Kerala Head Load And Timber Workers And Factory Workers Union(KTUC and ors and connected matter

Case No: WP(C) 1003/ 2020

Citation: 2026 LiveLaw (Ker) 65

Counsel for Petitioner: E K Nandakumar (Sr.), K John Mathai, Joson Manavalan, Kryan Thomas, Paulose C Abraham, M Gopikrishnan Nambiar, P Ramakrishnan, Preethi Ramakrishnan, Asha K Shenoy, Pratap Abraham Barghese, C Anil Kumar

Counsel for Respondents: Tom Mathew, T P Rashmy, Sajen Thampan, Deepu Anil, Sajana P S, Joyce Paul, Mary Sweety Paiva, K N Rajani