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Emerging Industrial Relations*
by Justice S.B. Sinha

Cite as : (2004) 6 SCC (Jour) 1

An understanding of the complexities of industrial relations must always begin with an appreciation of what the Constitution of India and our laws require us to do. Fortunately, we have a dynamic and beautiful Constitution, which promises equality and justice — social, economic and political. These principles were valid when the Constitution was framed over five decades ago and they are still valid today.

Some important constitutional provisions

In the context of industrial relations, our Constitution is quite straightforward and simple. Part III of the Constitution guarantees to us certain fundamental rights. For example, Article 14 of the Constitution grants to all persons equality before law and equal protection of the laws. Similarly, Article 19 confers certain fundamental freedoms, including the freedom to form any association or union. But this freedom is not unlimited and is subject to some reasonable restrictions laid down by law. Article 21 of the Constitution guarantees the protection of life and personal liberty to all persons.

Part IV of the Constitution contains the directive principles of State policy. These principles are not justiciable but are nevertheless fundamental in the governance of the country. The directive principles are enacted with the intention applying them in enacting laws and, amongst other things, they are intended for the general betterment of the people, including workers. For example, Article 38 requires that it shall be the responsibility of the State to ensure a proper social order for the promotion and welfare of the citizens and the State shall ensure social, economic and political justice. Similarly, Article 39 provides for certain policies and basic principles to be followed by the State which includes elimination of gender inequality, just and fair distribution of wealth, ownership and control of material resources, effective management of the economy, principle of equal pay for equal work, health and strength of workers and tender age of the children should not be abused. Article 42 requires that “the State shall make provision for securing just and humane conditions of work”, while Article 43 provides that

“the State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities”.

Part IV-A of the Constitution lays down certain fundamental duties, which include the duty of every citizen of India to strive towards excellence in all spheres of individual and collective activity so that the nation constantly rises to higher levels of endeavour and achievement.

Overview of industrial relations

More than 54 years have passed since the enforcement of our Constitution. Unfortunately, despite the above provisions, the manifesto of the people of India provided in the preamble of the Constitution, justice — social, economic, political — still remains a distant dream. During the last half a century, India has seen many shifts in its policies. In the 1950s and 1960s, the Government had an important role to play and it undertook activities that would compensate for market failure. The role of the State was thus not only as a regulator and an arbitrator of public goods but also as an entrepreneur. The process of industrialisation and economic development in India during the first 40 years was governed mainly by two considerations — import substitution and industrial licensing. For some years, the industrialisation process resulted in high rates of industrial growth, but it also manifested its weakness, as the system became an increasingly high cost one. Discussions took place in the early 1980s about the foreign trade policies. The concept that a liberal policy of imports of capital goods and technology would be more beneficial to India, had gained ground.

Then came the thoughts of liberalisation of economy and opening India up to the world. Fundamentally, liberalisation is essentially a laissez faire policy, which seeks to reduce the government interference to the minimum. Its primary aim is privatisation and its ultimate aim is a capitalist economy. A question arises as to how far socialism, which our Constitution strives for, has suffered a setback.

To catch the international bus of industrial production and compete globally, a complete change in the mindset of all concerned is required. We cannot achieve our desired economic aims, unless changes are made in our labour policy. On account of globalisation, there is an increase in demand to rectify the distortions in our labour laws. A plethora of labour laws have been passed to achieve the goal of socio-economic justice enshrined in our Constitution. In India, we have about 50 labour legislations in force. With the changing times, these laws need a constant review and monitoring process and consolidation.

How far liberalisation would hit our industry is a matter that requires close watch. Debate on the feasibility of existing labour laws in the context of changing economic scenario is hotting up. With opening up of the economy, capital investment from other countries is coming into India. Multinationals are entering the field. The policy of the Government appears to be to encourage foreign investment. However, fact remains that the pace of foreign investment is not as fast as it was expected or intended.

In spite of these changes, the State is expected to continue to act as a model employer and provide employment. The State ordinarily carries on its business activities through corporations or societies. However, in the changed economic scenario towards liberalisation, the public sector undertakings are now being compelled to compete with the private sector but their social accountability and the claims of instrumentality have bestowed upon them a difficult task.

We must also not forget that any discussion on industrial relations will have to take into consideration the fact that today the unorganised sector contributes 93% of our workforce. This is something we tend to ignore and, therefore, we usually confine our discussions to problems relating to the balance 7% of the workforce. Realising the problems faced by the unorganised sector, the new Government has declared in its Common Minimum Programme that the blanket of social security and the network of other schemes, including health insurance will be expanded to cover workers from the unorganised sector such as, weavers, handloom workers, plantation labour, beedi workers etc. This is one emerging trend that must be taken note of, because now the focus on industrialisation is likely to take into account the aspirations of the unorganised sector also.

Some other problems faced by industry

The time has come when Indian industry would have to compare itself with China and other Asian countries. For a few years now, foreign investment in China was about 13 times higher than in India. One of the reasons as to why India is lagging behind is said to be of obsolete labour laws in this country. It is a matter of debate as to whether a drastic change in the labour laws is required. Such changes, if any, should take into consideration problems faced by both workmen and industries.

However, the problems which are being faced by the industry are:

(i) absenteeism;

(ii) indiscipline; and

(iii) go-slow/strike.

The blame must be shared both by the management and the workers; management for exploitation of workers and workers for misuse of labour laws and lack of work culture.

In a laissez faire economy, which was predominant from the 18th and 19th centuries, the governmental interference in commercial affairs was negligible or rather non-existent. However, with the advent of socialism, the Government started assuming an active role in these fields. Even in a capitalist country where it was felt that in order to give the workers their due share and save the labour from exploitation of the capitalists/management such interference was needed. During the Second World War when almost all industries worldwide and even India were busy in producing goods for the army, were earning huge profits, it was felt that the working force was not given their legitimate dues although it played an important role in the production of goods. This and other reasons led to the passing of various legislations for the benefit of workers. Industrial Disputes Act, Factories Act, Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, Payment of Gratuity Act, Trade Unions Act are a few such examples. It is not necessary to go into the provisions of these Acts in detail. Suffice it to point out that all these Acts were aimed at providing better service conditions to the workers.

We know that the first legislative exercise taken under the First Five Year Plan was the passage of the Industrial Disputes Act, 1947 which came into effect on 1-4-1947. At that time colonial India had just finished its part of the struggle and was still reeling under the upheaval caused by the Second World War. Of course, today the Act has undergone several amendments and has been given a more dynamic and positive Indian look by the Supreme Court, but the basic philosophy has remained unchanged, that is, a need for industrial discipline and harmony. That the Act has been able to achieve considerable success is evident from the figures given by the Second National Labour Commission. But this does not mean that the Act does not need any fine-tuning with the changing times. In fact, a review of this legislation, like all legislations, is necessary from time to time. There is a lot of discussion about introducing the concept of hire and fire. It necessitates a discussion on this subject — do we really need such a policy directed against only 7% of the total workforce in the country; or is it not possible to innovate and try out fresh ideas to bring in more discipline in the labour class?

Consideration of the Report of the Second National Labour Commission

In our existing labour laws, the emphasis is more on rights, but there is no reference whatsoever on obligations. This has led to trade unions merely increasing their demands without taking into account any kind of financial and economic implications. In order to harmonise industrial relations and provide a healthy environment, where industry would thrive, the Second National Commission on Labour, after prodigious efforts has made certain suggestions:

(i) formation of a Grievance Redressal Committee;

(ii) providing of legal aid;

(iii) social security package;

(iv) withdrawal of the Essential Services Maintenance Act. It has worked out a formula whereby in the matter relating to essential services like water supply, sanitation, electricity and transport, the dispute between an employer and an employee be referred to compulsory arbitration to a person agreed to by the parties and failing which the arbitrator selected from the panel with the Labour Relations Commission. Such reference, however, is to be made only to avoid a lot of hassles for the common man. 51% of the workers need not go on strike, in such an event, it would be assumed that the strike had taken place;

(v) closure of industry.

Grievance Redressal Committee

It is said that a feeling of mistrust has bogged down industrial relations for too long. The managements and the workers are said to represent two opposite points of view. This is not correct — they are really two sides of the same coin and must work together for the economic growth of the country. There has to be a greater degree of understanding between labour, represented by trade unions and the management. The time has come to talk of harmony and consensus between the various players involved in industrial activity. This will also mean a complete dismantling of Inspector Raj, which in turn will necessitate a review of labour laws. The existing legislations will have to be reviewed dispassionately and assessed to see whether they actually create roadblocks in industrial activity or they seek to harmonise competing interests.

In order to improve industrial relations and increase workers’ participation in achieving good industrial relations, the Labour Commission has recommended the formation of a Grievance Redressal Committee consisting of equal number of workers as well as employer representatives.

This Committee shall within a given time frame resolve the grievance of the worker with respect to his employment including his non-employment. Such a Committee would pave a new way, a new path towards better industrial relations. Although the “Industrial Employment (Standing Orders) Act of 1946” provides for the settlement of day-to-day grievances, but it did not receive the required amount of attention. But, new and effective legislation involving workers in the grievance-settlement machinery is necessary and there is undoubtedly scope for such a cell.

Legal aid

In order to avoid undue exploitation of workers, the Labour Commission has recommended a system of legal aid to the workers so that they are not handicapped due to their inability in affording lawyer’s fee. The Commission has also been of the view that arbitration is a good system for determining labour disputes between management and labour. According to the recommendations of the Labour Commission, a clause naming an arbitrator or a panel of arbitrators may be added in every settlement so that any dispute arising out of interpretation of a settlement or any other dispute can be referred to arbitration immediately without delay.

Social security package

One of the most important observations of the Labour Commission is that the changes in the labour laws be accompanied by a well-defined social package that will benefit all workers whether employed in the organised or unorganised sector including those in administrative, managerial and other categories, which have been excluded from the purview of the term “workers”. This would provide great sense of security into the simplification of various terms such as “workers”, “wages” and “establishments”, which would help in rationalising and simplifying labour laws.


Although the Labour Commission has recommended the withdrawal of “ESMA” it has worked out a formula in case of essential services, which could influence the life of the common man who suffer great inconvenience and disturbed public life due to strikes by workers employed in essential services. Essential services like water supply, sanitation, electricity and transport if disrupted due to strike affect the smooth functioning of day-to-day life. Therefore, in case of a dispute between an employer and an employee in an enterprise involved in providing essential services, which cannot be settled through mutual negotiations and joint consultations, there may be a strike ballot and if the strike ballot shows 51% of the workers in favour of the strike, it would be assumed that the strike has taken place and the dispute be referred to compulsory arbitration as agreed by both the parties or if the parties are not agreeable, the arbitrators could be selected from the panel with the Labour Relations Commissioner. This recommendation could avoid a lot of hassles for the common man.

Closure of industry

In the recent era of rising global competition, it may not be economically viable to certain industries to function as a result of competition. In such cases, one cannot compel a loss-making undertaking to bear the burden without having the option of closing down. The Labour Commission has, therefore, recommended that such industries must be given the option to close. The Commission has also said that it would be good, if prior scrutiny was done on the ground of closure. For this reason, the concept of prior permission before closing down of the industry was incorporated. But experience has shown that the Governments are not inclined to give quick decisions for closure and such delay in giving permission only adds to the financial burden of the industry, which was forced to carry on despite making losses. Sometimes due to utter frustration the management closes down the industry and disappears without paying any kind of compensation to the workers who in turn have to suffer. It is for this reason that the Commission has recommended that the best course of action would be to allow closure, provide compensation to workers and in the event of an appeal leave it to the Labour Relations Commission to find ways of redressal through arbitration or adjudication.

We may say that these are the steps indicative of apathy to initiative. It has to be accepted that law has to change with the changing society and law is the instrument of social change. We only hope that notwithstanding so many stumbling blocks put by politicians, trade unions etc. the initiative taken in thinking about the aforesaid measures would be taken to its logical conclusion and necessary changes in the labour law would see the light of day.

Impact of globalisation

Owing to liberalisation, there will be entry of multinational companies (MNCs) into the market. The impact of such entry on the disadvantaged will be in two forms. They are—

With the increase in companies there will be a cut-throat competition to produce the maximum by using minimum inputs. Technology will be given preference over the labour force. This ultimate goal of maximum production with minimum input will result in implementation of capital-intensive mode of production where automation will be given preference as a result of which a large section of the labour force will be rendered jobless either through lay-off or retrenchment.

The Industrial Disputes Act, 1947 deals with lay-off or retrenchment where certain basic formalities have to be complied with for termination of services, which affords some measures of social guarantee to the labourer. But these MNCs can relieve themselves of such formalities by making an application under Section 36-B of the Industrial Disputes Act, which empowers the Government concerned to exempt them from the operation of the Industrial Disputes Act, 1947. Thus, it becomes easy for them to indirectly follow an exit policy of hire and fire, thereby resulting in displacement of labour.

The above is not a mere hypothetical hyperbole. In India, the share of unemployed within the labour force is gradually on the rise from 4.3% in 1991 to 5.5% in 1995. The nationwide workforce is estimated to be about 363 million, out of which about 35 million or roughly 10% are said to be employed. Rural poverty has increased from 32% to 40% and States like Bihar, Maharashtra, Karnataka and U.P. have suffered immensely. The ranks of the unemployed are likely to grow by about 20 million every year. Therefore, a huge number of jobs will have to be created over the next several years, so as to ensure that the unemployment rate remains stable and does not spiral out of control. There is so much talk about India being one of the leaders in information technology worldwide. This is generally true, but so far as our country is concerned, the IT industry provides employment to hardly 8 lakh persons, all of them belonging to the class of educated people. We also need to think of the illiterate unemployed.

There is no doubt that our economy is booming. The last quarter of 2003 saw it grow by a spectacular 10.4%. But this is difficult to sustain for any length of time. Although some economists forecast a growth rate of 8%, others peg it down to 6% per annum. Whatever may be the correct assessment, industry managers over the next couple of years will have to take a look at new paradigms and problems after considering the ground realities and the aspirations of the workforce.

The study commissioned by the United Kingdom’s Department for International Development for the World Development Report, 2000-01, said that liberalisation could not be termed as “unconditional success” as only garment, footwear, gems, jewellery, telecom and software sector saw tremendous growth. Thus, the sectors which saw growth, were well beyond the reach of backward classes.

The Second National Commission on Labour in its report noticed:

“The context makes a special mention of the need to attain and retain the degree of ‘international competitiveness’ that our economy needs in the era of globalisation. Competitiveness should not be regarded as the need of any single sector of our society or economy.

Competitiveness depends not merely on technology, credit, inputs and managerial skills, but also on the contribution that labour makes. The commitment of the workforce to quality and productivity must be high. This commitment and the new work culture that it calls for, can be created only when workers feel that they are receiving fair wages, a fair share of profits and incentives, and the respect or consideration due to partners.

The crucial link between productivity and industrial efficiency cannot be denied. The level of wages depends on the economic efficiency of an undertaking or industry. Workers have to be as interested in productivity as the management is.”

Infrastructure development

Infrastructure development shall not be neglected, particularly in crucial areas such as irrigation, power and roads. Unless we can devote all our working time to actually working without interruptions due to shortage of electricity or lack of adequate transportation facilities for movement of goods, our productivity cannot improve. It is only when trade and commerce can freely flourish that we can hope to improve our standard of living. Modernisation and expansion is the need of the hour. This will, in turn, bring within its ambit new aspects of industrial relations, some of which were hitherto not even thought of. These changes will also throw up new dimensions of growth and new challenges in lifestyle and thereby in various aspects of industrial relations. Today, the industrial climate is conducive to an improved relationship between the workforce and the management, but we have to be ready to meet unexplored avenues. We will need to foresee new trends and devise new strategies.

Indeed, the Second National Labour Commission has expressed the view that,

“... changes in labour laws are only one of the issues involved, and that these have to be visualised and effected in a broader perspective of infrastructural facilities, social security and government policies. We, therefore, suggest that these changes be accompanied by a well-defined social security packet that will benefit all workers, be they in the ‘organised’ or ‘unorganised’ sector and should also cover those in the administrative, managerial and other categories which have been excluded from the purview of the term ‘worker’. In evolving such a social security system, it is necessary to provide for both protective and promotional measures, the latter being particularly relevant for the workers in the unorganised sector.”

Emerging trends in the Supreme Court

In the last about a decade or so, the Supreme Court has also been reconsidering certain aspects of labour jurisprudence. Earlier when an order of dismissal was set aside, reinstatement with full back wages was the usual result. Now, with the passage of time, it has come to be realised that industry is being compelled to pay the workman for a period during which he apparently contributed little or nothing at all, for a period that was spent unproductively, while the workman is being compelled to go back to a situation which prevailed many years ago when he was dismissed. A recent jurisprudential contribution of the Supreme Court has been to evolve a via media whereby the workman is paid compensation in lieu of reinstatement. The Supreme Court has shown that what is eventually required is a pragmatic approach to problems dogging industrial relations. However, we must appreciate that no solution, even if it is offered by the Supreme Court, can be perfect but eventually a golden mean will be arrived at.

Another area where the Supreme Court has charted a new course is with regard to contract labour.1 The Constitution Bench has given a dynamic thrust to contract labour relations, which will benefit not only the employers but also the workmen. Earlier, steps to ameliorate the hardships of contract labour were being taken in a more or less ad hoc manner. Now, after the intervention of the Supreme Court, the Advisory Board dealing with contract labour will have to make their recommendations on the basis of an empirical analysis of the data available. Whether the Government accepts the recommendations of the Advisory Board is a different matter altogether, but the important point is that the existing ad hocism has been made to give way to a more scientific understanding of the problem.

A third area where the Supreme Court has had to intervene, and it has done so rather strongly, is in its opposition to strikes.2 The context in which the judgment was delivered last year cannot be lost sight of, but it must also not be forgotten that we have suffered terrible losses due to wildcat strikes and disruption of our daily regimen due to blockades and other coercive methods of enforcing what are perceived to be inalienable rights. It is difficult to assess whether the workers have truly achieved what they wanted to by going on strike and whether their gains are more than the losses suffered by industry as a whole. The fact, however, remains that the silent majority, which has little or nothing to do with the differences of opinion between workers and management, is the one that directly suffers.

Recently, the Supreme Court had to deal with a PIL which raised a rather disturbing question, namely, if at all and to what extent the Government of a State is vicariously liable for payment of arrears of salaries to the employees of the State-owned corporations, public sector undertakings or the statutory bodies.3 A large number of employees of these corporations were not paid their salaries for years together. The Supreme Court noticed the provisions of Part III and Part IV of the Constitution as well as the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights. The Supreme Court issued a series of directions and also directed the State Government to deposit a sum of Rs 50 crores in the High Court for disbursement of salaries to the employees of the corporations. The High Court was directed to see to it that the sum so deposited and/or otherwise received from any source including by way of sale of assets of the government companies/public sector undertakings, be paid proportionately to the employees concerned.

Such a mockery of the rights of citizens, be they workers or other employees, must be eschewed at all costs.

International view

Workers undoubtedly have certain fundamental rights. This is not only recognised by our Constitution and the international covenants referred to above, but also through the ILO Declaration on Fundamental Principles and Rights at Work adopted by the International Labour Conference in June 1998. These include:

Freedom of association and the effective recognition of the right to collective bargaining.

The elimination of all forms of forced or compulsory labour.

The effective abolition of child labour.

The elimination of discrimination in respect of employment and occupation.

The recognition of these rights, combined with an effective dispute-resolution mechanism, would be key factors in ensuring industrial harmony.

Today, all this has become necessary with the opening up of our economy, a step from which there is no going back. We are now facing competition from unexpected quarters; a country like China has slowly but surely taken over the mantle of the Asian tiger. We are also facing stiff competition in areas that have traditionally been our strength, such as textiles, tea, steel etc. It is for this reason that our business class has diversified into other sectors such as information technology but it is doubtful how long the service industry can sustain our economic growth. It is estimated that our country can absorb almost three times the existing level of foreign direct investment, but we would still need to improve our industrial base for the benefit of our teeming millions and increase our capacity for manufacturing capital goods of good quality and at a cheap price.

The Second National Labour Commission has recommended the adoption of the following as inalienable rights of workers:

Right to works of one’s choice.

Right against discrimination.

Prohibition of child labour.

Just and humane conditions of work.

Right to social security.

Protection of wages, including right to guaranteed wages.

Right to redress grievances.

Right to organise and form trade unions.

Right to collective bargaining.

Right to participation in management.

Surely, no one would grudge these and more rights to labour, but at the same time, it has to be appreciated that society should benefit from changes that will take place with the passage of time. These possible changes need to be discussed at institutes such as this one and in gatherings like this. Only then can we arrive at a consensus that will be to the advantage of all of us.


In the light of various factors, some of which have been mentioned above, it has become necessary to have a review of the industrial relations climate, keeping in mind the changing scenario and emerging trends in law and society. Industrial peace is important not only for the growth of industry but also for India to be a competitive force that should be reckoned with. We have a vast reservoir of manpower and talent and it must be exploited to the maximum so that as Article 51-A of the Constitution enjoins us, we may strive towards excellence in all spheres of individual and collective activity so that the nation constantly rises to higher levels of endeavour and achievement.



* Lecture delivered at Indian Institute of Coal Management at Ranchi on 26-6-2004. Return to Text

Judge, Supreme Court of India. Return to Text

1. Steel Authority of India Ltd. v. National Union Waterfront Workers, (2001) 7 SCC 1 Return to Text

2. T.K. Rangarajan v. Govt. of T.N., (2003) 6 SCC 581 : 2003 SCC (L&S) 970 Return to Text

3. Kapila Hingorani v. State of Bihar, (2003) 6 SCC 1 Return to Text

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