M J Antony: Post-amalgamation blues

OUT OF COURT

The Supreme Court wants the staff of merged firms to have a say before their service conditions are altered.

The status of employees after mergers, acquisitions or take-overs has become a contentious subject not only at the negotiating table but also in the courts. The amalgamation of the national air carriers has led to such a dispute and the matter is before the Supreme Court. The proposal to merge some of the public sector banks has provoked a strike call next week. This issue arises not only in the case of government undertakings, but also in private firms and even in small units which want to close down and turn themselves over to stronger corporations.

There is apparently no comprehensive law covering this field of conflict. The new and untested Competition Act, the weather-beaten Industrial Disputes Act or other statutes on the fringes do not throw much light on the subject. Therefore, when a specific problem arises, the courts apply the provisions of the Contract Act or the rules of interpretation to solve the issue. This is evident from some of the recent judgments delivered by the Supreme Court.

One of the major decisions discussing this topic came some weeks ago in BCPP Mazdoor Sangh vs NTPC. The employees in this case were recruited by the National Thermal Power Corporation. Later there was a move to transfer them to Bharat Aluminium Company Ltd (BALCO), which was originally a public sector company and later disinvested and vested in Sterlite. Aggrieved by this proposal, they moved the Chhattisgarh high court alleging that the agreement between the managements to transfer them was illegal and arbitrary as it unilaterally altered the service conditions of those who were not party to the settlement. According to NTPC, it was an agent of BALCO which wanted workers for the BALCO Captive Power Plant (BCCP). The recruitment was made exclusively for the power plant. The high court did not accept this contention of the management.

On appeal, the Supreme Court relied upon the appointment letters, undertakings, and terms and conditions of the agreement between the managements to decide the issue. The agreement to transfer the employees was made after the appointment letters were issued by the NTPC. Thus the terms of service were changed retrospectively. This violated Section 23 of the Contract Act which states that an agreement against public policy would not be valid. It would also violate Article 14 of the Constitution, as it would be arbitrary and discriminatory.

Emphasising the duty of the public sector undertakings to be model employers, the judgment said: "NTPC being an undertaking of the Government of India and an instrumentality of the state, is under a constitutional obligation to act fairly with its employees... It cannot alter the conditions of service of its employees and any such alteration causing prejudice cannot be effected without affording an opportunity of pre-decisional hearing." The court also emphasised that even in the field of public law, the persons affected should be taken into confidence. Moreover, the consent must be express and consciously accorded in the course of negotiations. In short, there must be a tripartite agreement.

This judgment was followed recently in UP State Electricity Board vs Pooran Chandra, in which a group of daily wage workers of the Cooperative Electricity Supply Society demanded regularisation in their job after the society was taken over by the UP State Electricity Board. The minutes of the proceedings of the board stated that daily wage employees of the society who are being taken over by the board would start working in the electricity board "in the same manner and position." When the board decided to regularise its own daily wagers, the workers of the newly merged society also demanded the same benefit. The board denied it. So they moved the Supreme Court. It decided in favour of the society's workers, even side-stepping some of the court's own earlier judgments which had ruled that the court should not order the regularisation of employees.

Another recent judgment which dealt with the transfer of employees from one unit to another is M/s Hondaram Ramachandra vs Yeshwant Mahadev. In this case, the office of a firm in Mumbai closed down and the employees were transferred to another firm in Goregaon. They did not join the new firm but instead, they demanded compensation under the Industrial Disputes Act. Though the labour court upheld the management's stand, the Bombay high court stated that staff could not be asked to join a new entity. The Supreme Court remitted the two-decade old case to the labour court to decide certain factual aspects. These cases show that the problem is recurring more often than before due to the higher frequency of mergers and take-overs. It is therefore necessary to streamline the law and issue specific guidelines to avoid further strife in this field.