Article (January-2022)


Implications of the Labour Codes on existing settlements under the Industrial Disputes Act, 1947

Ranjan Mukherjee

Designation : -   Head Legal

Organization : -  Defence Business of diversified Indian conglomerate L&T


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Let me start by saying that the issue of validity of the existing statutory settlement vis-à-vis the Labour Codes is a grey area. A lot will depend on if and how the Courts deal with this issue. Nevertheless, it is a subject that merits bestowing some thought to.

Before we get into the implications of the Labour Codes on existing statutory settlements, a little understanding of the relevant statutory provisions will be apposite.

Let me point out that the Industrial Relations Code ("IRC") has similar provisions compared to Industrial Disputes Act on how settlement is to be made, on whom the settlement is binding, when does a settlement take effect and for how long it remains in force, once a valid settlement agreement comes into existence.

Under the Scheme of IDA as well as the IR Code, employers and their workers are free to enter into a settlement. Such settlement can be entered into without or without involvement of any formal mechanism under the IDA/IRC.

Based on the definition of the term "Settlement" given in section 2(p) read with Section 12 of the IDA (Section 2(zi) read with the section 53 of the IRC), the following requirements can be discerned :

a) There should be a written agreement between the Parties; or, if settlement is arrived at in a conciliation proceeding, a written memorandum thereof.

b) The agreement or the memorandum should be duly signed by the Parties.

c) The Agreement or the Memorandum is sent to the authorised officer of the appropriate government and the Conciliation Officer.

Under section 18 of the IDA and likewise under section 57 of the IRC, a voluntary agreement (directly between the employer and workmen) is binding on the parties who have signed it. While an agreement that is concluded under the aegis of conciliation proceedings, is binding on the following parties :

a)  All parties to the industrial dispute.

b)  All parties summoned to appear in the proceedings as parties to the dispute.

c) In relation to employer, the legal heirs, successors or assigns of the employer, in respect of the establishment to which the dispute arises.

d) In relation to workmen, all present and future workmen who are employed in the establishment or part, in respect of the establishment to which the dispute relates to.

As per section 19 of the IDA and correspondingly, section 58 of the IRC, the settlement so arrived at, becomes binding on the relevant parties from the date of :

a) signature of the agreement/ memorandum;

b) On and from the date as is agreed to by the Parties in the agreement/ memorandum.

Once it has come into force, it remains valid for the period :

a) as agreed by the Parties in the agreement/memorandum; or,

b) at least for a period of 6 months.

A settlement, however, continues to be valid, notwithstanding the expiration of the period of six months, till one of the parties or both the parties have given a written notice of its/their intention to terminate the agreement and a period of 60 days have since elapsed.

Going by the decision of the Supreme Court in Balmer Lawrie (1984), a settlement arrived at by the parties was treated on a higher pedestal than the corresponding statutory provisions. In that case, although an express consent of the members of the non-representative union was not existing for a deduction to be made from the arrears of pay to be paid to the workers by the employer, the Court held that such consent can be implied to have been granted. So, although, in strict sense, the proposed deduction towards the Union Fund from the wages of the workmen, would not have been covered under the provisions of Payment of Wages Act, the Court held that the settlement will be binding on all workmen even if it was not authorised or legally permissible under the Payment of Wages Act, since it is the outcome of the understanding between the parties to the settlement.

In this statutory context (which is similar under both the IDA and the IRC), we need to examine the implications of the Labour Codes on the existing statutory settlements.

Section 104 is the repealing provision of the IRC and one of the laws being repealed is the IDA. Section 104 of the Code provides for what will happen to actions taken under the provisions of the existing law i.e., IDA, once the IRC comes into force.

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Ranjan Mukherjee - Head Legal of the Defence Business of diversified Indian conglomerate L&T.