Supreme Court Clarifies Retrenchment Under Section 25F of the Industrial Disputes Act for Daily Wage Workers: K.V. Anil Mithra & Anr. vs. Sree Sankaracharya University of Sanskrit & Anr. (27 October 2021)

Introduction

Date of the Judgment: 27 October 2021
Citation: (2021) INSC 740
Judges: Justice Ajay Rastogi and Justice Abhay S. Oka

Can an employer terminate a daily wage worker without following the mandatory procedures outlined in the Industrial Disputes Act, 1947, simply because their initial appointment was irregular? The Supreme Court of India recently addressed this critical question, focusing on the rights of daily wage employees. This case clarifies that the termination of a daily wage worker, who has worked for more than 240 days, without adhering to Section 25F of the Industrial Disputes Act, 1947, is illegal, regardless of the initial appointment’s validity. The judgment was delivered by a bench of Justice Ajay Rastogi and Justice Abhay S. Oka.

Case Background

The Sree Sankaracharya University of Sanskrit (the University) appointed several non-teaching staff, including watchmen, attenders, and peons, on a daily wage basis between 1993 and 1995. These appointments were made under the orders of the then Vice-Chancellor. On 7th May 1996, the University regularized these employees, granting them the status of regular employees. However, following objections regarding the regularization process, the University de-regularized these employees on 24th March 1997, terminating their services. The order of de-regularization was challenged but was upheld by the Division Bench of the High Court of Kerala, which, however, left open the question of non-observance of the provisions of the Industrial Disputes Act, 1947.

Timeline

Course of Proceedings

The appellants raised an industrial dispute, which was referred to the Industrial Tribunal on 8th April, 2003. The Tribunal ruled on 14th November, 2005, that the termination of the appellants was illegal, as it violated Section 25F of the Industrial Disputes Act, 1947. The Tribunal ordered that the workers be deemed to be in service until their services were validly terminated, with 50% back wages. The University challenged this award before a Single Judge of the High Court of Kerala, who set aside the Tribunal’s award on 25th June, 2009, stating that Section 25F does not apply to irregularly appointed employees. This decision was upheld by the Division Bench of the High Court on 4th January, 2010.

Legal Framework

The core of this case revolves around the interpretation and application of key provisions of the Industrial Disputes Act, 1947.

• Section 2(oo) of the Industrial Disputes Act, 1947: Defines “retrenchment” as “the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action,” with certain exceptions like voluntary retirement, retirement on superannuation, etc.
• Section 25B of the Industrial Disputes Act, 1947: Defines “continuous service.” It states that a workman is in continuous service if he has uninterrupted service, including interruptions due to sickness, authorized leave, or accidents. It also specifies that a workman is deemed to be in continuous service for one year if he has worked for at least 240 days in the preceding 12 months.
• Section 25F of the Industrial Disputes Act, 1947: Lays down the “Conditions precedent to retrenchment of workmen.” It mandates that no workman who has been in continuous service for not less than one year can be retrenched without:
  • (a) giving one month’s notice or wages in lieu of notice;
  • (b) paying compensation equivalent to fifteen days’ average pay for every completed year of continuous service; and
  • (c) serving notice to the appropriate government.

These provisions ensure that workmen, especially those in continuous service, are protected from arbitrary termination. The Act aims to provide a safety net for employees who have contributed to an industry for a significant period.

Arguments

Appellants’ Arguments:

• The appellants argued that their termination was a clear violation of Section 25F of the Industrial Disputes Act, 1947, as they had worked for more than 240 days in the preceding 12 months. They contended that the nature of their initial appointment (daily wage basis) was irrelevant for the applicability of Section 25F.
• They emphasized that the High Court’s view that Section 25F does not apply to irregularly appointed employees is legally unsustainable. They cited several Supreme Court judgments, including State Bank of India vs. Shri N. Sundara Money [1976(1) SCC 822], L. Robert D’Souza vs. Executive Engineer, Southern Railway and Another [1982(1) SCC 645], Punjab Land Development and Reclamation Corporation Ltd., Chandigarh vs. Presiding Officer, Labour Court, Chandigarh and Others [1990(3) SCC 682], and Nagar Mahapalika(Now Municipal Corpn.) vs. State of U.P. and Others [2006(5) SCC 127], to support their claim that any termination of service, except those specifically excluded, constitutes retrenchment and requires compliance with Section 25F.
• The appellants submitted that the Tribunal was correct in holding that they should be deemed to be in service until their services were validly terminated, with 50% back wages.

Respondents’ Arguments:

• The respondents argued that the appellants’ appointments were conceived in fraud and deceit, and therefore, they were not entitled to the protection of Section 25F. They relied on the High Court’s earlier finding that the appointments were irregular and not made through proper channels.
• They contended that the term “retrenchment” under Section 2(oo) should not be interpreted to protect those who secured entry by backdoor and whose appointments were vitiated by fraud. They cited judgments such as R. Vishwanatha Pillai vs. State of Kerala and Others [2004(2) SCC 105], Rajasthan Tourism Development Corporation Ltd. And Another vs. Intejam Ali Zafri [2006(6) SCC 275], Satluj Jal Vidyut Nigam vs. Raj Kumar Rajinder Singh(Dead) through legal representatives and Others [2019(14) SCC 449], and Punjab Urban Planning and Development Authority and Another vs. Karamjit Singh [2019(16) SCC 782], to support their argument that employees with illegal appointments should not be protected under Section 25F.
• In the alternative, they argued that even if there was a violation of Section 25F, automatic reinstatement should not be granted. They suggested that the appellants should be given reasonable compensation instead, considering the period of service they rendered and the fact that they had already received wages under Section 17B of the Industrial Disputes Act, 1947, during the pendency of the litigation.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the termination of the appellants was in violation of Section 25F of the Industrial Disputes Act, 1947, and if so, what relief they are entitled to.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered various authorities to arrive at its decision. These authorities are categorized below:

Cases Relied Upon by the Court:

• State Bank of India vs. Shri N. Sundara Money [1976(1) SCC 822] (Supreme Court of India): This case clarified that termination of service for any reason, except those specifically excluded, constitutes retrenchment. The Court emphasized that the definition of retrenchment is broad and includes termination by efflux of time.
• L. Robert D’Souza vs. Executive Engineer, Southern Railway and Another [1982(1) SCC 645] (Supreme Court of India): This case reiterated that a daily-rated worker who has rendered continuous service for a year or more is a workman and is entitled to the protection of Section 25F.
• Punjab Land Development and Reclamation Corporation Ltd., Chandigarh vs. Presiding Officer, Labour Court, Chandigarh and Others [1990(3) SCC 682] (Supreme Court of India): A Constitution Bench decision that affirmed that “retrenchment” means termination by the employer for any reason whatsoever, except those expressly excluded in the section.
• Bharat Sanchar Nigam Limited vs. Bhurumal [2014(7) SCC 177] (Supreme Court of India): This case held that reinstatement with full back wages is not automatic in cases of daily-wage workers whose termination is found illegal due to procedural defects. Monetary compensation was deemed more appropriate.
• District Development Officer and Another vs. Satish Kantilal Amralia [2018(12) SCC 298] (Supreme Court of India): This case followed the principles laid down in Bharat Sanchar Nigam Limited vs. Bhurumal regarding compensation for daily wage workers.

Legal Provisions Considered by the Court:

• Section 2(oo) of the Industrial Disputes Act, 1947: The Court examined the definition of “retrenchment” and concluded that it includes termination for any reason, except those specifically excluded.
• Section 25B of the Industrial Disputes Act, 1947: The Court considered the definition of “continuous service” and noted that the appellants had completed more than 240 days of service.
• Section 25F of the Industrial Disputes Act, 1947: The Court emphasized the mandatory nature of the conditions precedent to retrenchment, stating that non-compliance renders the termination void ab initio.

Authorities Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on State Bank of India vs. Shri N. Sundara Money [1976(1) SCC 822]*, L. Robert D’Souza vs. Executive Engineer, Southern Railway and Another [1982(1) SCC 645]*, and Punjab Land Development and Reclamation Corporation Ltd., Chandigarh vs. Presiding Officer, Labour Court, Chandigarh and Others [1990(3) SCC 682]* to emphasize the broad definition of retrenchment and the applicability of Section 25F to all workmen, including daily wagers. It also relied on Bharat Sanchar Nigam Limited vs. Bhurumal [2014(7) SCC 177]* and District Development Officer and Another vs. Satish Kantilal Amralia [2018(12) SCC 298]* to conclude that monetary compensation is more appropriate than reinstatement for daily-wage workers.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect the rights of daily wage workers who had rendered continuous service. The Court emphasized that the definition of “retrenchment” under Section 2(oo) of the Industrial Disputes Act, 1947, is broad and covers all terminations except those specifically excluded. The Court also highlighted that the mandatory requirements of Section 25F must be complied with before terminating the services of a workman who has completed 240 days of service.

The Court’s reasoning was also influenced by the fact that the appellants had worked for a significant period and their termination was a clear violation of the law. However, the Court also considered the fact that the appellants were daily wage workers and that reinstatement would not serve any useful purpose. Therefore, the Court decided to award monetary compensation instead of reinstatement.

Fact:Law Ratio

The court’s decision was primarily driven by legal considerations, with a focus on the interpretation of the Industrial Disputes Act, 1947. However, the court also took into account the factual circumstances of the case, such as the nature of the appellants’ employment and the period of service they had rendered.

Logical Reasoning

Issue: Whether the termination of the appellants was in violation of Section 25F of the Industrial Disputes Act, 1947?

Issue: What relief the appellants are entitled to?

Judgment

The Supreme Court held that the termination of the appellants was indeed in violation of Section 25F of the Industrial Disputes Act, 1947. The Court emphasized that the definition of “retrenchment” under Section 2(oo) is broad and covers all terminations except those specifically excluded. The Court also reiterated that the mandatory conditions of Section 25F must be complied with before terminating the services of a workman who has completed 240 days of service.

The Court observed that the High Court’s view that Section 25F does not apply to irregularly appointed employees is legally unsustainable. The Court noted that the nature of employment and the manner in which the workman has been employed is not significant for consideration while invoking the mandatory compliance of Section 25F.

The Court stated: “The scheme of the Act 1947 contemplates that the workman employed even as a daily wager or in any capacity, if has worked for more than 240 days in the preceding 12 months from the alleged date of termination and if the employer wants to terminate the services of such a workman, his services could be terminated after due compliance of the twin clauses (a) and (b) of Section 25F of the Act 1947.”

However, the Court also noted that in cases of daily wage workers, reinstatement is not automatic. Considering the nature of service rendered by the appellants as daily wagers for a short period, the Court deemed it just and reasonable to award a lumpsum monetary compensation of Rs. 2,50,000 to each of the appellants in full and final satisfaction of the dispute, in lieu of the right to claim reinstatement with 50% back wages as awarded by the Tribunal.

The Court further stated: “The consistent view of this Court is that such non-observance has been termed to be void ab initio bad and consequence in the ordinary course has to follow by reinstatement with consequential benefits but it is not held to be automatic and what alternative relief the workman is entitled for on account of non-observance of mandatory requirement of Section 25F of the Act 1947 is open to be considered by the Tribunal/Courts in the facts and circumstances of each case.”

The Court set aside the High Court’s judgment and modified the Industrial Tribunal’s award to the extent of granting monetary compensation instead of reinstatement.

The Court concluded: “In the facts and circumstances of the instant cases and looking into the nature of service rendered by the appellants as daily wager for a short period, while upholding the termination of the appellants being in violation of Section 25F of the Act 1947, we consider it just and reasonable to award a lumpsum monetary compensation of Rs.2,50,000/ – (Rupees two lakh fifty thousand) to each of the appellants-workmen in full and final satisfaction of the dispute in lieu of right to claim reinstatement with 50% back wages as awarded by the Tribunal.”

Key Takeaways

• Protection for Daily Wage Workers: The judgment reaffirms that daily wage workers are entitled to the protection of Section 25F of the Industrial Disputes Act, 1947, if they have worked for more than 240 days in the preceding 12 months.
• Irregular Appointments: The Court clarified that the nature of initial appointment is irrelevant for the applicability of Section 25F. Even if the appointment was irregular, the employer must comply with Section 25F before terminating the services of a workman.
• Monetary Compensation: In cases of daily wage workers, the Court has indicated that monetary compensation is a more appropriate remedy than reinstatement. This is because daily wage workers do not have a right to regularization, and reinstatement may not serve any useful purpose.
• Compliance with Section 25F: Employers must strictly adhere to the requirements of Section 25F before retrenching a workman. Non-compliance will render the termination void ab initio.

Directions

The Supreme Court directed the respondents to pay a compensation of Rs. 2,50,000 to each of the appellants-workmen within a period of three months.

Specific Amendments Analysis

Not Applicable

Development of Law

The ratio decidendi of this case is that the termination of a daily wage worker, who has worked for more than 240 days in the preceding 12 months, without complying with Section 25F of the Industrial Disputes Act, 1947, is illegal, irrespective of the legality of their initial appointment. The judgment reinforces the protection afforded to daily wage workers under the Industrial Disputes Act and clarifies that employers cannot circumvent these protections by arguing that the initial appointments were irregular.

The case further develops the law by clarifying that in cases of daily wage workers, monetary compensation is a more appropriate remedy than reinstatement. This is a departure from the general rule that in cases of illegal termination, reinstatement with back wages is the norm. The Court has recognized that daily wage workers do not have a right to regularization and that reinstatement may not serve any useful purpose.

Conclusion

The Supreme Court’s judgment in the case of K.V. Anil Mithra & Anr. vs. Sree Sankaracharya University of Sanskrit & Anr. is a significant development in labour law, particularly concerning the rights of daily wage workers. The Court has clearly stated that the broad definition of “retrenchment” under Section 2(oo) of the Industrial Disputes Act, 1947 includes the termination of daily wage workers, and that the mandatory conditions of Section 25F must be complied with before terminating their services, irrespective of the legality of their initial appointments.

The Court’s decision to award monetary compensation instead of reinstatement for daily wage workers is a pragmatic approach, acknowledging the practical realities of their employment. This judgment provides much-needed clarity on the rights of daily wage workers and their protection under the Industrial Disputes Act, 1947.