The Legal Impediments: Conspiracy and Restraint of Trade

The answer is section 17 of the Code, which provides that no office-bearer or member of a registered Trade Union shall be liable to punishment under section 120B(2) of the Indian Penal Code in respect of any agreement made between the members for the purpose of furthering any object of the Trade Union specified in section 15, unless the agreement is an agreement to commit an offence.

And the limits of that answer were settled in the leading Indian case.

Jay Engineering Works Ltd. v. State of West Bengal, AIR 1968 Cal 407, a Full Bench of the Calcutta High Court.

Facts. Workers of the company's Calcutta sales office, together with retrenched employees, repeatedly surrounded the manager and other officers and confined them in the office: for thirty-three hours from 2 to 3 March 1967, again on 17 April 1967 until they were rescued on a magistrate's order, and again for over five hours on 29 May 1967. Food was allowed in only in nominal quantity, property was damaged, and slogans were shouted at the confined men. The police, acting on two State Government circulars, took no action. The company moved the High Court under Article 226.

Held. The Court defined gherao as a physical blockade of a target, by encirclement or forcible occupation, the target being a place or persons, usually the managerial or supervisory staff, invariably accompanied by wrongful restraint or wrongful confinement and often by assault, criminal trespass, mischief and unlawful assembly, its object being to compel those who control industry to submit without recourse to the machinery provided by law. On the immunity, the Court held that the protection in section 17 of the Trade Unions Act 1926 is of a limited nature: it provides only that an agreement to do things in furtherance of the objects in section 15 shall not amount to criminal conspiracy, and there is nothing in the Act which, apart from immunity from criminal conspiracy, gives immunity from any criminal offence. Wrongful restraint and wrongful confinement are not saved by it. Workers may strike peacefully, but have no right to resort to wrongful restraint, wrongful confinement or criminal trespass, all of which are cognizable offences.

Why it matters. It is the case that fixes the boundary. The immunity covers the agreement, not the acts. A union that agrees to stop work is protected; a union whose members lock a manager in a room is not, and the section it would have to rely on has nothing to say about wrongful confinement.

Impediment two: the civil action in tort

The criminal law was only half the employer's armoury, and in practice the smaller half. The larger threat was a civil suit, because a civil suit reaches the union's money.

Two torts were available.

Inducing a breach of contract. Every striking worker is, in the ordinary way, breaking his own contract of employment. Anyone who persuades him to do so, that is the union and its officers, commits the tort of inducing a breach of contract and is liable to the employer for the resulting loss. This was the standard weapon, and it was devastating, because the loss claimed was the whole value of the production lost.

Conspiracy. A combination of persons whose purpose is to injure another, causing damage, is actionable as a tort independently of whether the acts done would have been wrongful if done by one person alone.

The answer is section 16 of the Code, and it is drawn to meet those two torts precisely. Section 16(1) provides that no suit or other legal proceeding shall be maintainable in any civil court against a registered Trade Union or any office-bearer or member of it, in respect of any act done in contemplation or furtherance of an industrial dispute to which a member of the Trade Union is a party, on the ground only that such act induces some other person to break a contract of employment, or that it is an interference with the trade, business or employment of some other person, or with the right of some other person to dispose of his capital or of his labour as he wills.

How narrow that protection actually is was settled by the Supreme Court.

Rohtas Industries Ltd. v. Rohtas Industries Staff Union, AIR 1976 SC 425, (1976) 2 SCC 82.

Facts. In 1948 the workmen of Rohtas Industries went on a strike that was illegal under sections 23 and 24 of the Industrial Disputes Act 1947, the strike arising out of rivalry between unions. The workmen were not paid wages for the strike period and the employers lost profit. During conciliation the parties agreed to refer both claims, the workmen's claim for wages for the strike period and the employers' claim for compensation for the loss the strike caused, to the joint arbitration of two retired High Court judges and a retired member of a Labour Appellate Tribunal under section 10A of the 1947 Act. The arbitrators awarded the employers compensation. The union moved the High Court under Article 226.

Held. The employers' claim failed. The tort of conspiracy necessarily involves that the object of the combination be the infliction of damage on the plaintiff. A strike may be illegal, but if its object is to bring the employer to terms or to bully a rival union into submission, there is no actionable combination in tort; here the conceded object was inter-union rivalry, and the arbitrators had simply assumed that an illegal strike made the tort out. Further, an illegal strike is the creation of the statute, and the remedy for it must be sought within the statute; the employers' claim for compensation for loss of business is not an industrial dispute within section 2(k), so the arbitrators had no jurisdiction, and the consent of the parties could not create it. The Court also held the High Court wrong in supposing that section 18 of the Trade Unions Act 1926 gave strikers an implied immunity from all legal proceedings. Sabotage is expressly outside any protection: individuals who wilfully destroy plant and machinery are liable for the injury they cause.

Why it matters. It does three jobs at once. It shows how narrow the tort of conspiracy is when the defendants are workers pursuing their own interests. It shows that the statutory civil immunity is not a blanket one, which is the error the High Court had made. And it disposes of the employer's instinctive remedy, a suit for the profits an illegal strike cost him.

Impediment three: restraint of trade

The third impediment is the one students forget, and it is the most elegant of the three, because it did not attack the union from outside. It attacked the union from inside.

The doctrine. An agreement by which a person is restrained from exercising a lawful profession, trade or business is void. In India this is section 27 of the Indian Contract Act 1872.

Why it bit a trade union. A union's rules are an agreement among its members that they will not work below an agreed rate, or will not work on terms the union has not approved, or will stop work when the union decides. Every one of those is, on its face, a restraint on the members' freedom to dispose of their own labour. If section 27 applied, the union's rules were void, and a member who took work at a lower rate could not be held to anything he had agreed.

Notice what that does. It does not fine the union or imprison its officers. It quietly removes the union's ability to hold its own members together, which is the only thing that makes a combination work at all. A union whose rules are unenforceable is a debating society.

The answer is section 18 of the Code, which provides that notwithstanding anything contained in any other law for the time being in force, an agreement between the members of a registered Trade Union shall not be void or voidable merely by reason of the fact that any of the objects of the agreement are in restraint of trade. A proviso keeps the courts out of enforcing certain of those agreements, which is a different matter and belongs to that chapter.

The three impediments and the three answers

Read that table as the plan of the next three chapters, because it is. Sections 16, 17 and 18 sit together in the Code in that order for exactly this reason: they are three answers to three different attacks, and none of them would work without the other two.

What the Constitution did not do

It is natural to think that all of this was settled in 1950 by Article 19(1)(c), which guarantees to all citizens the right to form associations or unions. It was not, and this is where the previous chapter's case does its second job.

In All India Bank Employees' Association v. National Industrial Tribunal, AIR 1962 SC 171, the Supreme Court held that the right guaranteed by Article 19(1)(c) extends only to the formation of an association or union, and does not carry with it a concomitant right that the union shall achieve its objects; the union's activities, and the steps it may take to achieve its objects, are subject to such laws as may be framed, and such laws are not tested against Article 19(4).

So the Constitution removed none of the three impediments. It guarantees that the two hundred workers may form their union. It says nothing about whether their agreement is a conspiracy, whether their officers may be sued, or whether their rules are void. Those questions are answered by sections 16, 17 and 18 of this Code and by nothing else, which is why a subject that looks like background history is in fact the foundation of the statute.

A worked example

The facts. The two hundred garment workers of the previous chapter form the Bhiwandi Garment Workers' Union and register it under Chapter III. They serve notice, and after the notice period expires they stop work over the wage rate. Production halts for nine days. The employer, Shalini, takes advice.

Shalini's first idea: prosecute the office-bearers for criminal conspiracy. They agreed together to stop the work; that is an agreement to cause loss. Answer: section 17. No office-bearer or member of a registered Trade Union is liable to punishment under section 120B(2) of the penal law for an agreement made between the members to further an object of the union specified in section 15. Regulating relations with the employer over wages is such an object. The prosecution fails, and it fails because the union is registered.

Shalini's second idea: sue the union for the nine days' lost production. Every striker broke his contract of employment and the union induced them to. Answer: section 16(1). No suit lies against a registered Trade Union or its office-bearers or members in respect of an act done in contemplation or furtherance of an industrial dispute to which a member is a party, on the ground only that the act induces another to break a contract of employment or interferes with the employer's trade or business. And on the tort of conspiracy, Rohtas Industries answers her directly: the object of the combination must be the infliction of damage on the plaintiff, and the object here is a wage increase.

Shalini's third idea: persuade forty workers to come back at the old rate, and rely on section 27 of the Contract Act to say the union cannot hold them. Answer: section 18. An agreement between the members of a registered Trade Union is not void or voidable merely because some of its objects are in restraint of trade.

But now change the facts. On the sixth day thirty members lock the supervisor in the store room for eleven hours, and two of them break the cutting machines. Section 17 does not help, because on Jay Engineering Works the immunity is from the charge of conspiracy and gives no immunity from any substantive offence; wrongful confinement is an offence and the section says nothing about it. Section 16 does not help those two, because on Rohtas Industries sabotage is outside the protection and individuals who wilfully destroy plant and machinery are liable for the injury caused. The union's protection is a protection of the strike, not of everything done during it.

What this does NOT mean

It does not mean the immunities protect an unregistered combination. Every one of sections 16, 17 and 18 speaks of a registered Trade Union. That is what registration is worth, and it is why the registration chapters follow this one.

It does not mean the immunities are three ways of saying the same thing. They answer three different attacks and are drawn differently: section 16 is about civil suits, section 17 about a criminal charge, and section 18 about the validity of the union's own agreements. An answer that treats them as interchangeable will lose marks on any question that asks about one of them.

It does not mean the impediments were unreasonable when they arose. The doctrine of conspiracy, the tort of inducing a breach of contract and the rule against restraints of trade are all sensible rules of general application. They caused harm here because they were applied to a relationship that was not the arm's length bargain they assumed.

Limits, criticism and amendments

The immunities are narrow, and deliberately so. Nothing in them protects violence, wrongful confinement, trespass, damage to property or defamation, and both leading cases in this chapter say so.

Section 17 of the Code still cites the Indian Penal Code 1860. The Code was passed in 2020 and the penal law has since been replaced by the Bharatiya Nyaya Sanhita 2023, but the text of section 17 continues to refer to "sub-section (2) of section 120B of the Indian Penal Code (45 of 1860)". The reference is read, in the ordinary way, as a reference to the corresponding provision of the law now in force, but a student should quote the section as it stands rather than silently modernising it.

The criticism most often made is that the protections stop where they are most needed. An immunity that covers the agreement to strike but not the acts by which a strike is made effective leaves a great deal to the discretion of the police and the criminal courts, which is exactly the complaint made in Jay Engineering Works about the State circulars there.

Quick revision

• Three impediments, and the whole of Chapter III's protective sections answer them.
• Criminal conspiracy, section 120A and section 120B of the penal law: the agreement to act together was itself an offence. Answered by section 17.
• Tort, inducing breach of the contract of employment and conspiracy: the employer sued the union for the production lost. Answered by section 16.
• Restraint of trade, section 27 of the Indian Contract Act 1872: the union's own rules were void, so it could not hold its members. Answered by section 18.
• Jay Engineering Works, AIR 1968 Cal 407: the immunity is "of a limited nature"; it covers the agreement, and gives no immunity from any substantive offence. Definition of gherao.
• Rohtas Industries, AIR 1976 SC 425: the tort of conspiracy needs the object of the combination to be the infliction of damage; an employer's claim for loss of business is not an industrial dispute; the civil immunity is not a blanket immunity from all legal proceedings; sabotage is outside it.
• All India Bank Employees' Association, AIR 1962 SC 171: Article 19(1)(c) covers only formation, so the Constitution removed none of the three impediments.
• All three immunities are given to a registered Trade Union.

Test yourself

1. Name the three legal impediments to combinations of workers and the section of the Code that answers each. Criminal conspiracy, answered by section 17; the civil action in tort for inducing a breach of the contract of employment and for conspiracy, answered by section 16; and the rule that an agreement in restraint of trade is void, section 27 of the Indian Contract Act 1872, answered by section 18.

2. Why was the restraint of trade doctrine more dangerous to a union than it first appears? Because it did not attack the union from outside but from within. A union's rules are an agreement among members not to work below an agreed rate or otherwise than as the union directs, which is on its face a restraint on their freedom to dispose of their own labour. If those rules were void, the union could not hold its own members together, and a combination that cannot hold its members is of no use at all.

3. Workers gherao the manager for twenty hours during a lawful strike. Can they claim the immunity in section 17? No, so far as the confinement is concerned. On Jay Engineering Works Ltd. v. State of West Bengal, AIR 1968 Cal 407, the immunity is of a limited nature: it provides only that an agreement to further the union's objects shall not amount to criminal conspiracy, and there is nothing in the statute which, apart from immunity from criminal conspiracy, gives immunity from any criminal offence. Wrongful restraint and wrongful confinement are offences and are not saved.

4. An employer sues a registered union for the profits lost during an illegal strike. Advise him, with authority. The claim will fail. On Rohtas Industries Ltd. v. Rohtas Industries Staff Union, AIR 1976 SC 425, the tort of conspiracy requires that the object of the combination be the infliction of damage on the plaintiff, and where the object is to bring the employer to terms or to overcome a rival union there is no actionable combination. An illegal strike is the creation of the statute and the remedy must be sought within the statute; a claim for compensation for loss of business is not an industrial dispute, so it cannot be referred to adjudication or arbitration under the industrial law, and consent cannot create that jurisdiction. Section 16 of the Code separately bars a civil suit against a registered union on the ground only that the act induced a breach of a contract of employment or interfered with the employer's business.

5. Does registration matter to the immunities? Say why. Yes, decisively. Sections 16, 17 and 18 each confer their protection on a registered Trade Union and its office-bearers and members. An unregistered combination has none of them, and is exposed to prosecution for conspiracy, to a suit in tort, and to the argument that its own rules are void. Registration is the price of the protection.

6. "Article 19(1)(c) makes the immunities unnecessary." Comment. The statement is wrong. In All India Bank Employees' Association v. National Industrial Tribunal, AIR 1962 SC 171, the Supreme Court held that Article 19(1)(c) extends only to the formation of a union and carries no concomitant right that it shall achieve its objects; its activities and the steps it takes are subject to such laws as may be framed. The Constitution therefore guarantees that the union may exist and says nothing about whether its agreement is a conspiracy, whether its officers may be sued, or whether its rules are void. Those questions are answered only by sections 16, 17 and 18.