The Bombay High Court has reaffirmed that a business transfer between corporate entities does not automatically terminate employment relationships, even where commercial agreements purport to shift liabilities. The judgment underscores that statutory protections under the Industrial Disputes Act, 1947, prevail over contractual arrangements, and that individual consent and procedural compliance are non-negotiable prerequisites for lawful transfer or termination of workmen.
Background & Facts
The Dispute
The petitioner, Vidyut Metallics Pvt. Ltd. (VMPL), operated two manufacturing units in Thane: one producing razor blades and another (PEECO Plant) producing wax paper. On 2 May 2020, a major fire destroyed the PEECO Plant, leading to cessation of operations. On 30 December 2020, VMPL entered into a Business Transfer Agreement (BTA) with respondent No. 2, M/s. Supermax Personal Care Pvt. Ltd. (SPCPL), effective 18 March 2021. The BTA transferred the entire business, including assets, liabilities, and employees, on a slump-sale basis, with VMPL retaining only the immovable premises.
Key Facts
- The BTA contained Clause 1.1.8 defining "Business Liabilities" to be transferred to SPCPL, and Clause 6.2.4 requiring SPCPL to comply with employment laws and discharge all employee dues.
- A Notice dated 12 January 2011 stipulated that transfer of employment was conditional upon individual written consent of each workman.
- 1117 workmen, including managerial staff and members of Maharashtra Rajya Rashtriya Kamgar Sanghatana (MRRKS), executed consent letters and joined SPCPL.
- 37 workmen, including 31 who were members of respondent No. 1 Union (Vidyut Metallics Employees Union), refused to give consent and remained on VMPL’s rolls.
- These 31 workmen were relocated to the non-functional PEECO Plant after the fire, which had no manufacturing capacity, utilities, or safe working conditions.
- VMPL terminated their services on 11 July 2013, citing absence of work, and paid retrenchment compensation via cheques drawn on SPCPL’s account.
- The termination orders were signed by Mr. Subhash D. Chaudhary, who had been removed as Director of VMPL by an extraordinary general meeting on 21 December 2012, with public notice published on 3 September 2014.
- Industrial proceedings were pending since 2011, including Complaint (ULP) No. 58 of 2011 and Complaint (ULP) No. 80 of 2013, both of which had interim orders restraining alteration of service conditions.
- SPCPL was admitted into Corporate Insolvency Resolution Process on 11 January 2024.
Procedural History
- 12 January 2011: Notice issued conditioning employment transfer on individual consent.
- 2 May 2020: Fire destroyed PEECO Plant.
- 30 December 2020: Business Transfer Agreement executed between VMPL and SPCPL.
- 18 March 2021: BTA came into effect.
- 11 July 2013: Termination orders issued against 31 workmen.
- 25 February 2014: Reference order issued under Industrial Disputes Act.
- 2014: Complaint (ULP) No. 104 of 2014 filed by four workmen for suspension wages.
- 28 April 2025: Industrial Tribunal, Thane, rendered Award holding termination illegal and directing reinstatement with back wages.
- 17 December 2025: Writ Petition No. 17274 of 2025 filed before Bombay High Court.
- 30 April 2026: Judgment reserved.
- 7 May 2026: Judgment pronounced.
The Parties' Positions
Petitioner (VMPL): Contended that the BTA and Secondment Agreement transferred all liabilities and control to SPCPL; that the 31 workmen were not employees after the transfer; that termination was lawful due to lack of work; and that SPCPL’s insolvency should bear the liability.
Respondent Union: Argued that the 31 workmen never consented to transfer; that they remained under VMPL’s control, received wages from VMPL, and were terminated during pending industrial proceedings; that the relocation to the non-functional PEECO Plant was punitive; and that termination by a removed director was void.
Relief Sought
The petitioner sought quashing of the Industrial Tribunal’s Award dated 28 April 2025, which held the termination illegal and directed reinstatement with full back wages. The Union sought confirmation of the Award and enforcement of its directions.
The Legal Issue
The central question was whether the transfer of a business under a Business Transfer Agreement, without individual consent of workmen, extinguishes the employer-employee relationship under the Industrial Disputes Act, 1947, and whether termination during pendency of industrial proceedings, without prior approval under Section 33(2), is lawful.
Arguments Presented
For the Petitioner
The petitioner relied on the BTA and Secondment Agreement to argue that all liabilities, including employment obligations, were transferred to SPCPL. It contended that Section 25FF of the Industrial Disputes Act provides only two options upon transfer: acceptance of compensation or joining the transferee, and that the 31 workmen, having not consented, were effectively terminated. It further argued that the Tribunal erred in relying on a single witness and ignored that SPCPL paid wages and that the workmen had accepted terminal dues. It cited Anakapalle Co-operative Agricultural and Industrial Society Ltd. v. Workmen and M/s. Parry and Co. Ltd. v. P.C. Pal to assert managerial discretion in restructuring.
For the Respondent
The respondent Union contended that consent was mandatory under the 12 January 2011 Notice and the BTA itself, and that absence of consent meant employment continued with VMPL. It relied on admissions by VMPL’s own witness that wages were paid by VMPL and workmen continued at the PEECO Plant. It argued that termination by a removed director was void, and that the action violated Section 33(2), which prohibits alteration of service conditions during pending proceedings. It cited N.T.C. (South Maharashtra) Ltd. v. Rashtriya Mill Mazdoor Sangh and Dyes and Chemical Workers Union v. Asian Chemical Works to affirm that an unrecognized union has locus to file a dispute. It emphasized that relocation to a non-functional plant constituted victimisation and unfair labour practice.
The Court's Analysis
The Court rejected the petitioner’s reliance on the BTA as determinative of employment status. It held that industrial jurisprudence requires examination of ground reality, not merely commercial documents. > "A document may say one thing, but if the ground reality shows another, then the Court cannot shut its eyes to such reality."
The Court emphasized that Section 25FF does not automatically terminate employment upon transfer. It clarified that the provision merely outlines consequences if termination occurs, but does not mandate it. The absence of individual consent from the 31 workmen meant their employment with VMPL continued.
The Court found the Tribunal’s conclusion that the relocation to the PEECO Plant was punitive and not bona fide to be well-supported. The plant had been rendered non-functional by fire, lacked infrastructure, and had no production activity. Transferring workmen there after they refused to join SPCPL was deemed an act of victimisation.
The Court further held that termination by Mr. Chaudhary, who had been removed as Director in December 2012, was without authority. The petitioner failed to produce documentary proof of any stay order reinstating his powers. The Court noted: > "If termination is issued by a person who does not have authority, such action becomes questionable in law."
Crucially, the Court held that Section 33(2) of the Industrial Disputes Act was violated. Interim orders from Complaints (ULP) No. 58 of 2011 and No. 80 of 2013 expressly restrained alteration of service conditions. Termination during pendency of such proceedings, without prior approval, rendered the action void.
The Court dismissed the petitioner’s argument that the Union lacked locus as it was unrecognized. It held that in the absence of a recognized union, an unrecognized union representing the affected workmen is competent to raise a dispute, citing Dyes and Chemical Workers Union v. Asian Chemical Works.
The Court also rejected the argument that acceptance of retrenchment compensation validated the termination. > "Mere encashment of cheques cannot validate an action which is otherwise not in accordance with law."
Finally, the Court held that SPCPL’s subsequent insolvency does not absolve VMPL of liability, as VMPL was the employer at the time of termination and retained control over the workmen.
The Verdict
The writ petition was dismissed. The impugned Award dated 28 April 2025 was upheld. The termination of the 31 workmen was held illegal and unsustainable in law. The petitioner was directed to comply with the directions in the Award within four weeks from the date of this order. No costs were awarded. The rule was discharged.
What This Means For Similar Cases
Consent Is Non-Negotiable in Employment Transfers
- Practitioners must now treat individual written consent as a mandatory precondition for lawful transfer of employment under Section 25FF, even where a BTA purports to transfer all employees.
- Any attempt to rely on bulk transfers or commercial agreements without consent will be struck down as violative of statutory protections.
- Employers must document consent explicitly and retain signed records for each affected workman.
Section 33(2) Is a Non-Waivable Shield
- Termination or alteration of service conditions during pendency of industrial proceedings is void ab initio, regardless of the number of employees involved.
- Employers must obtain prior approval under Section 33(2) even if the workforce is small or the reason appears commercially justified.
- Interim orders from ULPs or references operate as binding statutory injunctions.
Authority to Act Must Be Proven
- Termination orders signed by persons removed from managerial positions are void unless the employer proves continued authority through board resolutions or court orders.
- Mere assertions or unverified claims of stay orders are insufficient; documentary proof is mandatory.
- Practitioners must scrutinize corporate governance records before relying on termination actions by former directors.
Unrecognized Unions Have Standing
- An unrecognized union representing affected workmen can maintain an industrial dispute, especially where no recognized union exists.
- Technical objections based on lack of recognition will not defeat substantive rights under the Industrial Disputes Act.
- Courts will prioritize access to justice over procedural technicalities in labour matters.
Insolvency Does Not Erase Prior Liabilities
- The insolvency of a transferee does not shift liability to it if the original employer retained control and issued the termination.
- Workmen’s claims against the original employer remain enforceable even if the transferee is under CIRP.
- Practitioners must identify the true employer at the time of termination, not the current solvent entity.
