Supreme Court clarifies the criteria for reinstatement and back wages in cases of termination of service: Talwara Coop. Credit vs. Sushil Kumar (2008)

Introduction

Date of the Judgment: October 1, 2008

Citation: Civil Appeal No. 5951 of 2008 [Arising out of SLP (Civil) No. 336 of 2005]

Judges: S.B. Sinha, J., Cyriac Joseph, J.

When an employee’s services are terminated, what factors should an Industrial Court consider when deciding whether to reinstate the employee with back wages? The Supreme Court addressed this question in the case of Talwara Coop. Credit & Service Society Ltd. v. Sushil Kumar, focusing on the financial health of the employer and the length of the employee’s service. The court clarified that reinstatement and back wages are not automatic remedies and that Industrial Courts must consider various factors to strike a balance between the employer’s and employee’s interests. The judgment was delivered by a two-judge bench comprising Justice S.B. Sinha and Justice Cyriac Joseph.

Case Background

The appellant, Talwara Cooperative Credit & Service Society Ltd., appointed the respondent, Sushil Kumar, as a clerk on July 1, 1987. In 1990, Sushil Kumar’s services were terminated, leading to an industrial dispute. An initial award on November 3, 1995, directed the appellant to reinstate Sushil Kumar.

However, the appellant society faced financial losses, amounting to Rs. 18.95 lakhs by 1996. On February 21, 1997, the Board of Directors resolved to dispense with the services of some employees. Consequently, Sushil Kumar’s services were again terminated, with one month’s salary paid as compensation.

This second termination led to another industrial dispute. The Industrial Tribunal-cum-Labour Court issued an award on March 14, 2002, ruling that the termination of Sushil Kumar’s services was unjustified and directed his reinstatement with full back wages and consequential service benefits.

Timeline

Course of Proceedings

The appellant initially faced an award on November 3, 1995, directing Sushil Kumar’s reinstatement. After the second termination in 1997, the Industrial Tribunal-cum-Labour Court again ruled in favor of Sushil Kumar on March 14, 2002, ordering reinstatement with full back wages and consequential benefits.

The Talwara Cooperative Credit & Service Society Ltd. then filed a writ petition before the Punjab and Haryana High Court, challenging the validity of the award. The High Court dismissed the petition on August 17, 2004, upholding the Labour Court’s decision.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 11A of the Industrial Disputes Act, 1947: This section empowers Industrial Courts to give appropriate relief in case of discharge or dismissal of workmen.
• Section 17-B of the Industrial Disputes Act: This section provides for the payment of wages to the workman during the pendency of the case in the higher courts.
• Section 25F of the Industrial Disputes Act, 1947: This section specifies the conditions precedent to the retrenchment of workmen.
• Section 106 of the Indian Evidence Act: Deals with the burden of proving facts especially within knowledge.

The court also analyzed these provisions in the context of whether the termination was justified and what remedies, such as reinstatement and back wages, were appropriate.

Arguments

Appellant’s Arguments:

• Financial Condition: The cooperative society was on the verge of closure due to significant financial losses (Rs. 18.95 lakhs until 1996).
• Short Service Period: The respondent-workman was employed for a short period (1987-1990 and 1995-1997).
• Technical Violation: Even if there was a technical violation of Section 25F of the Industrial Disputes Act, 1947, reinstatement with full back wages was not justified.

Respondent’s Arguments:

• Merger and Profit: The cooperative society had merged with an apex body that earned a huge profit.
• Junior Appointments: After the respondent’s termination, other workmen junior to him were appointed.

Issues Framed by the Supreme Court

1. Whether the Industrial Tribunal and the High Court were justified in directing reinstatement with full back wages, considering the financial condition of the appellant society and the respondent’s short service period.
2. Whether the burden of proof regarding gainful employment after termination was correctly placed by the Industrial Court.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following cases and legal provisions:

• G.M. Haryana Roadways v. Rudhan Singh, [(2005) 5 SCC 591]: This case outlined factors to consider when awarding back wages, such as the manner of appointment, nature of employment, and length of service.
• Correspondent, St. Michael’s T.T.I. v. V.N. Karpaga Mary and Ors. 2008 (6) SCALE 621: This case was cited in relation to the principles for granting back wages.
• U.P.S.R.T.C. Ltd. v. Sarada Prasad Misra and another, [(2006) 4 SCC 733]: This case clarified that there is no precise formula for determining back wages and that the approach should be flexible and realistic.
• Municipal Council, Sujanpur v. Surinder Kumar [(2006) 5 SCC 173]: This case emphasized that relief under Section 11A of the Industrial Disputes Act is discretionary and requires consideration of the facts of each case.
• U.P. State Brassware Corporation & Ors. v. Udit Narain Pandey, JT 2005 (10) SC 344: Cited regarding the burden of proof for non-completion of 240 days of work.
• State of M.P. v. Arjan Lal Rajak, (2006) 2 SCC 610: Cited regarding the burden of proof for non-completion of 240 days of work.
• Manager, Reserve Bank of India, Bangalore v. S. Mani & Ors., (2005) 5 SCC 100: Cited regarding the burden of proof that the workman was not gainfully employed.

Judgment

How each authority was viewed by the Court?

• G.M. Haryana Roadways v. Rudhan Singh, [(2005) 5 SCC 591]: The court used this authority to emphasize the factors to be considered while awarding back wages, such as the nature of appointment and length of service.
• U.P.S.R.T.C. Ltd. v. Sarada Prasad Misra and another, [(2006) 4 SCC 733]: The court cited this case to highlight that there is no fixed formula for back wages and that the approach should be flexible.
• Municipal Council, Sujanpur v. Surinder Kumar [(2006) 5 SCC 173]: The court cited this case to reinforce that relief under Section 11A is discretionary and depends on the facts of each case.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by the financial difficulties of the appellant society and the relatively short duration of the respondent’s employment. The court emphasized that the Industrial Tribunal and High Court had failed to adequately consider these factors when ordering reinstatement with full back wages.

Logical Reasoning:

The court reasoned that the Industrial Court had incorrectly placed the burden of proof on the management to show that the workman was gainfully employed after termination. Instead, the burden should have been on the workman to prove that he was not gainfully employed. The court also noted that the Industrial Court should have considered whether the industry was sick and unable to bear the financial burden of reinstatement with full back wages.

Key quotes from the judgment:

• “Grant of a relief of reinstatement, it is trite, is not automatic. Grant of back wages is also not automatic.”
• “The Industrial Courts while exercising their power under Section 11A of the Industrial Disputes Act, 1947 are required to strike a balance in a situation of this nature.”
• “When the question arises as to how and in what manner balance should be struck, it is necessary for the Industrial Courts also to consider as to whether the industry has been sick or not.”

Key Takeaways

• Reinstatement and back wages are not automatic remedies in cases of termination of service.
• Industrial Courts must consider the financial condition of the employer and the length of the employee’s service when deciding on remedies.
• The burden of proof is on the workman to show that he was not gainfully employed after termination.
• Compensation may be a more appropriate remedy than reinstatement with full back wages in certain cases.

Development of Law

The ratio decidendi of this case is that the financial condition of the employer and the length of service of the employee are critical factors to be considered when deciding on reinstatement and back wages. The judgment reinforces the principle that these remedies are not automatic and that Industrial Courts must strike a balance between the interests of the employer and the employee.

Conclusion

In Talwara Coop. Credit & Service Society Ltd. v. Sushil Kumar, the Supreme Court modified the High Court’s order, holding that reinstatement with full back wages was not justified given the financial condition of the appellant society and the respondent’s short service period. The court directed the appellant to pay a compensation of Rs. 2,00,000 to the respondent, in addition to the amount already deposited under Section 17-B of the Industrial Disputes Act. This judgment clarifies the factors to be considered when deciding on remedies in cases of termination of service.

Category:

• Industrial Disputes Act, 1947
  • Section 11A, Industrial Disputes Act, 1947
  • Section 17B, Industrial Disputes Act, 1947
  • Section 25F, Industrial Disputes Act, 1947
• Labor Law
  • Reinstatement
  • Back Wages
  • Termination of Service

FAQ

1. What factors do courts consider when deciding whether to reinstate an employee after termination?

   Courts consider the financial condition of the employer, the length of the employee’s service, and whether the employee has been gainfully employed after termination.

2. Is an employee automatically entitled to reinstatement and back wages if their termination is found to be unjustified?

   No, reinstatement and back wages are not automatic. The court will consider various factors to strike a balance between the employer’s and employee’s interests.

3. Who has the burden of proving whether an employee was gainfully employed after termination?

   The employee has the initial burden of proving that they were not gainfully employed after termination.

4. What is Section 11A of the Industrial Disputes Act, 1947?

   Section 11A empowers Industrial Courts to give appropriate relief in case of discharge or dismissal of workmen, taking into account the circumstances of the case.