Page 180 - DCOM207_LABOUR_LAWS

Unit 10: Trade Unions Act, 1926

Notes
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Case Study Philips India - Labor Problems at Salt Lake
he 16th day of March 1999 brought with it a shock for the management of Philips
India Limited (PIL). A judgement of the Kolkata High Court restrained the company
Tfrom giving effect to the resolution it had passed in the extraordinary general meeting
(EGM) held in December 1998. The resolution was to seek the shareholders’ permission
to sell the color television (CTV) factory to Kitchen Appliances Limited, a subsidiary of
Videocon. The judgement came after a long drawn, bitter battle between the company and
its two unions Philips Employees Union (PEU) and the Pieco Workers’ Union (PWU) over
the factory’s sale.
PEU president Kiron Mehta said, “The company’s top management should now see
reason. Ours is a good factory and the sale price agreed upon should be reasonable. Further
how come some other company is willing to take over and hopes to run the company
profitably when our own management has thrown its hands up after investing ` 70 crores
on the plant.” Philips sources on the other hand refused to accept defeat. The company
immediately revealed its plans to take further legal action and complete the sale at any
cost.

PIL’s operations dates back to 1930, when Philips Electricals Co. (India) Ltd., a subsidiary
of Holland based Philips NV was established. The company’s name was changed to Philips
India Pvt. Ltd. in September 1956 and it was converted into a public limited company
in October 1957. After being initially involved only in trading, PIL set up manufacturing
facilities in several product lines. PIL commenced lamp manufacturing in 1938 in Kolkata
and followed it up by establishing a radio manufacturing factory in 1948. An electronics
components unit was set up in Loni, near Pune, in 1959.
In 1963, the Kalwa factory in Maharashtra began to produce electronics measuring
equipment. The company subsequently started manufacturing telecommunication
equipment in Kolkata.

In the mid-1990s, Philips decided to follow Philips NV’s worldwide strategy of having a
common manufacturing and integrated technology to reduce costs. The company planned
to set up an integrated consumer electronics facility having common manufacturing
technology as well as suppliers base. Director Ramachandran stated that the company had
plans to depend on outsourcing rather than having its own manufacturing base in the
future. The company selected Pune as its manufacturing base and decided to get the Salt
Lake factory off its hands.

In tune with this decision, the employees were appraised and severance packages were
declared. Out of 750 workers in the Salt Lake division, 391 workers opted for VRS. PIL then
appointed Hong Kong and Shanghai Banking Corporation (HSBC) to scout for buyers for
the factory. Videocon was one of the companies approached.
Though initially Videocon seemed to be interested, it expressed reservations about buying
an over staffed and under utilized plant. To make it an attractive buy, PIL reduced the
workforce and modernised the unit, spending ` 7.1 crore in the process.
In September 1998, Videocon agreed to buy the factory through its nominee, Kitchen
Appliances India Ltd. The total value of the plant was ascertained to be ` 28 crore and
Videocon agreed to pay ` 9 crore in addition to taking up the liability of ` 21 crore. Videocon
agreed to take over the plant along with the employees as a going concern along with
the liabilities of VRS, provident fund etc. The factory was to continue as a manufacturing
center securing a fair value to its shareholders and employees.
Contd...

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