The factory that made Moti and Hamam closed in 2004. Bombay High Court ends the dispute 22 years later with a Rs 5 crore direction

Justice Sandeep V. Marne rejects the workmen's case on functional integrality and Section 25-FFA, but extends 1999 voluntary retirement benefits to all 85 of them without adjustment.

The judgment opens, unusually for an industrial dispute, with the soap. Moti was India's luxury soap, tied to the Diwali ritual of the holy dawn bath, and Hamam built its reputation as an honest, no-nonsense family soap long before anyone marketed anything as herbal. Both were developed by the Tata Oil Mills Company and made at its factory at Sewree in Mumbai. TOMCO merged into Hindustan Unilever in 1993-94, the new management closed Sewree in October 2004, and a hundred-odd workmen who had refused voluntary retirement have been litigating ever since. Justice Sandeep V. Marne has now disposed of all four petitions — upholding the closure, and directing payment of about Rs 5 crore.

How 918 became 85

Hindustan Unilever implemented two voluntary retirement schemes, in 1996 and 1999, and about 918 workers of the Sewree factory took them. A handful refused. Roughly 113 were left; 33 were transferred to other units; and the company shut down operations at Sewree with effect from 8 October 2004 and effected its closure.

At the instance of the unions of the retrenched workers, three references were registered with the Industrial Tribunal at Mumbai, seeking withdrawal of the closure and reinstatement with back wages. In April 2008 the Tribunal made a common award in two of them, directing the company to consider the workmen's cases under the 1999 scheme and to pay them the difference of wages offered to those who had opted for it. The third reference was decided later, in April 2012, with a direction to pay retrenchment compensation after adjusting the closure compensation already paid.

Four petitions followed, running in both directions. The workers and their unions challenged the common award to the extent it refused reinstatement with back wages. The company challenged the same award to the extent it directed that voluntary retirement benefits be given at all.

The two legal attacks on the closure

The workmen's case against the closure rested on two provisions of the Industrial Disputes Act, and both failed.

The first was Chapter V-B, which requires prior government permission before an industrial establishment above a threshold size may close. Sewree on its own did not meet the threshold, so the unions argued that the strength of workers at HUL's other units should be combined with Sewree's — the doctrine of functional integrality, which treats separate premises as one establishment where their operations are genuinely interdependent. The Court held that the workmen and their unions had thoroughly failed to establish functional integrality between the Sewree factory and HUL's other units, so the headcounts could not be combined and Chapter V-B did not apply.

The second was Section 25-FFA, which applies to closures outside Chapter V-B and requires sixty days' notice to the appropriate government, stating clearly the reasons for the intended closure, before the closure takes effect. The workmen's point was stark: the closure notice was dated 8 October 2004 and the closure was effected the same day, with counsel contending it was effected a day earlier still.

The Court dealt with that on two levels. On pleading, it accepted the company's objection that the point had never been raised before the Industrial Tribunal — it appears in none of the statements of claim and in none of the reference orders. Relying on Ram Sarup Gupta and Bachhaj Nahar, the Court held that what is not pleaded cannot be argued; the workmen's answer, drawn from Ariane Orgachem, that a pure question of law need not be pleaded, was rejected on the footing that a violation of Section 25-FFA is not a pure question of law but also involves questions of fact. It was therefore impermissible to urge it for the first time in a petition under Article 227.

And on merits, even ignoring that objection, the Court held that the closure notice is not rendered invalid merely because sixty days' prior notice under Section 25-FFA was not given.

Where the Tribunal went wrong, in the workers' favour

Having upheld the closure, the judgment turns to what the Tribunal had given and did not give.

The Court recorded that the Tribunal had not left the workers high and dry: in two of the three references it granted partial relief by directing payment of the difference of wages arising out of the 1999 scheme. Its error was in not extending the same benefit to the workers covered by the third reference. To that extent the 2012 award deserved modification, and all the workers across all three references needed to receive the same benefit under the 1999 scheme.

HUL's own challenge to the direction to pay those benefits was dismissed. The Court declined to interfere, observing that through that direction the workmen would receive the difference between the voluntary retirement compensation and the closure compensation.

There remained an ambiguity in the Tribunal's operative direction, and it is the kind of drafting problem that generates a further decade of execution litigation if left alone. The award spoke of calculating legal dues and paying “the difference of wages if any” offered to other workmen who had opted for the 1999 scheme. Read strictly, that would confine the workmen to a wage differential and deny them the other benefits the scheme carried.

What the 1999 scheme held, and what the Court did with it

A copy of the scheme was on record. It provided a maximum lump sum of Rs 5,00,000 based on provident fund salary multiplied by the balance months of service, an early bird incentive, a group incentive payment of Rs 75,000 depending on service left, and pension up to retirement age.

Before hearing the petitions on merits the Court made repeated attempts to settle. Although its own challenge to the VRS direction was pending, HUL fairly agreed to extend the benefits to all the workers in the three references, offering a uniform lump sum of Rs 5,00,000 after deducting closure compensation. Out of deference to the Court's suggestion it also agreed — the judgment says unwillingly — to pay six per cent interest on the lump sum, the Rs 75,000 early bird incentive, and wages under settlement from January 1990 to March 1999. A chart of the exact amounts payable to each of the 85 workers was produced. The workers wanted interest on the entire amounts.

The Court's solution was to take the chart on record, mark it ‘X’ for identification, and direct payment of the figures in its last column without any adjustments — in full and final settlement of all the workers' demands. Fixing ascertained sums, rather than a formula, is what prevents the next round of disputes about computation.

The judgment is candid about the balance it is striking, and the candour runs both ways. It records that these workers are getting higher benefits than their counterparts who accepted voluntary retirement in 1996 and 1999: by not opting for the 1999 scheme they drew idle wages for about five more years, they have had the closure compensation and two months' wages, and they are now receiving the full compensation and incentive irrespective of the applicable formula, where those who took the scheme received amounts scaled to their remaining service. The Court says in terms that these amounts are not lawfully due to the workers, that they continued to bleed the employer by drawing idle wages for five long years, and that the arrangement puts a financial burden of approximately Rs 5 crore on HUL.

It nonetheless made the direction, because the company had shown willingness to pay and because the Tribunal's award already envisaged VRS benefits for some of the workers — balancing the equities, avoiding disputes about exact figures, and bringing an end to a dispute that has been pending over the closure of the old TOMCO factory for two decades.

Order

The April 2008 award was upheld, modified only so that the amounts payable under the 1999 scheme are those in the last column of the chart taken on record. All four petitions were disposed of: the rule was partly made absolute in the three workers' petitions and discharged in HUL's petition, the interim application was allowed as directed, and the notice of motion stood disposed of. The judgment also contains directions about the treatment of the payments for income tax purposes.

For industrial law the holdings of general application are the two rejections. Functional integrality has to be proved, not asserted from common ownership — a union that wants to aggregate headcounts across a company's units must establish genuine interdependence of operations, and failing to do so is fatal to a Chapter V-B case. And a Section 25-FFA challenge is not a pure question of law that can be sprung on a writ court; it carries factual content, and must be pleaded and tried before the Tribunal.

What the case shows about delay is harder to file under a heading. The closure was in 2004, the first award in 2008, the second in 2012, and the final word in 2026. The men who refused voluntary retirement in 1999 have spent twenty-seven years on this, and what they have at the end is the scheme they turned down, paid in full and without adjustment, plus six per cent. Whether that vindicates the refusal or not, it is the arithmetic the Court chose to end the matter on rather than send anyone back to the Tribunal.