Public Sector Undertakings are not bound to absorb the employees of a company taken over by them, the Supreme Court has ruled.
A Bench of Justice BP Singh and Justice RV Raveendran said “the natural consequence of a transfer of an undertaking, unless there is a specific provision for continuation of service of the workmen, is termination of employment of its employees…”
Dismissing an appeal by workers of Patna-based Futwah Phulwarisharif Gramya Vidyut Sahakari Samiti, which had been taken over by Bihar State Electricity Board, the Bench said that a statutory body taking over a company did not have any liability towards the employees of the previous owner of the undertaking.
The workers had challenged a Patna High Court order dismissing their plea for absorption in the Board, which took over the assets and liabilities of the Samiti in 1997.
The HC held that there was no contractual, equitable or statutory obligation on the Board to absorb the employees. In view of the precarious financial position of the Board, particularly after the bifurcation of the state, it could not be directed to take over the services of the employees of the Samiti in the absence of any legal right, the HC noted.
Upholding the HC order, the SC said that the employees neither had any right to claim retrenchment compensation from the Board nor employment on the same terms and conditions.
The liability under the Industrial Disputes Act, 1947 to pay retrenchment compensation after the transfer of ownership was on the transferor and not on the company taking over the undertaking, the court clarified.
Over 225 employees of the Samiti, which was engaged in rural electrification, were rendered jobless after the State Government revoked its licence in 1995 and then transferred its assets and liabilities to the Board, which refused to absorb them.