SEELAN RAJ AND ORS. versus THE PRESIDING OFFICER 1ST ADDITIONAL LABOUR COURT, CHENNAI AND ORS.

Citation: [2001] 2 S.C.R. 462 · Decided: 16-03-2001 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Matter referred to larger bench

Judgment (excerpt)

A 
SEELAN RAJ AND ORS. 
v. 
THE PRESIDING OFFICER !ST ADDITIONAL LABOUR COURT, 
_, 
' 
CHENNAI AND ORS. 
MARCH 16, 2001 
B 
[S. RAJENDRABABU AND Y.K. SABHARWAL, JJ.] 
Factories Act, 1948: Section 2(k), and Section 2(m), Explanation II. 
c 
lndust,.ial Disputes Act, 1947: Sections 2(a), 25L, 25FFA, 25 0. 
Factory-Manufacturing p1vcess-Wha1 is-Company-Formed for the 
object of rendering computer se1vices-Setting up of a data processing divi-
sion-Said data processing division subsequently became non viable-Clos WP 
of said division-Notice under Section 25FFA sent to State Government-
D 
Termination of services of workmen on account of elosure-lnduslrial dis-
pule-Labour Court directed reinstatement of workers and held that unit of 
second respondent was a factory-Single Judge of High Court set aside the 
award made by Labour Couit-lt held that an establishm~nt solely engaged as 
electronic dala p1vcessing unit or computer unit, though may be a factory, yet 
would be exempted from the application of labourlaws by virtue of Explanation 
E 
II and such establishment cannot be held as a factory-Division Bench held 
that an elecl1vnic ·data processing unit or a computer unit installed in any 
• 
premises or pm1 thereof and such activities, though may amount to manufac-
tu ring p1vcess, bringing within the ambit of the word 'factory' as defined under 
-
Section 2 (m) of the Act, would get out oft lie same because of Explanation II 
F 
theieto-Appeal before Supreme Court-Question whether the activity carried 
on by the second resfJondent in its activities of data processing and preparation 
of software would constitute a manufacturing process-Malter referred to a 
Larger Bench. 
~ 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1300-1301 
.. 
G 
of 1998. 
From the Judgment and Order dated 14.8.97 of the Madras High Court 
in W.A. Nos. 806/95 and 117 of 1997. 
S. Murlidhar, V. Balaji, Ravi, A.T.M. Sarnpath and Hari Shankar K. for 
,. 
H 
the appearing parties. 
462 
... 
\ 
i 
•• 
SEEIAN RAh PRESIDING OFFICER !ST ADDL LABOUR COURT [RAJENDRA BABU, I.] 463 
The following Order of the Court was delivered : 
RAJENDRA BABU, J. The facts arising in the case which led to the 
· present dispute are in brief as follows : 
The respondent company [respondent No.2 herein] was formed in the 
year 1982 with the object of rendering compnter services to its customers 
relating to collection and maintenance of information and to develop company 
software application to suit the special requirements of the customers; that 
in March 1983, the second respondent set up a data processing division which 
undertook data processing services such as preparation of pay rolls, financial 
accounting and inventory control related statements; that subsequently there 
was a decline in the demand for the services of the data processing division 
of the second respondent on account of availability of indigenously manu-
factured computer and in the year 1989, the division became non-viable and, 
therefore, the second respondent was forced to close down the same. As on 
4.1.1989, 46 persons were employed in the data processing division and they 
were informed of the decision to close down the unit. On 30.1.1989, a notice 
under Section 25 fFA of the Industrial Disputes Act, 1947 (hereinafter 
referred to as 'the ID Act') was sent to the State Government intimating the 
Government that the data processing operations would be closed down with 
effect from 3.4.1989. The services of the workmen in the data processing 
division were terminated on account of closure of the unit and by October, 
1989, the software division of the second respondent also was closed and the 
services of 71 workmen had been terminated after paying the closure com-
pensation in terms of the provisions of the ID Act. 
Disputes were raised which were referred to the Labour Cotnt on the 
question whether the closure of the data processing division rendering the 
appellants unemployed is justified or not. Before the Labour Cotnt, three 
issues were raised, viz. 
(i) 
whether the second respondent establishment is a factory; 
(ii) 
whether on the date of closure of the establishment, the second 
respondent was employing more than I 00 workmen requiring 
protection from the specified authority for closure of the 
establishment; and 
(iii) to what relief the workmen are entitled 
A 
B 
c 
D 
E 
F 
G 
H 
464 
SUPREME COURT REPORTS 
[2001] 2 S.C.R. 
A 
Before the Labour Court, it was contended on 

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