Supreme Court modifies reinstatement order for contractual employee: Divisional Controller, MSRTC vs. Kalawati Pandurang Fulzele (2022)

Introduction

Date of the Judgment: 31 January 2022
Citation: 2022 INSC 125
Judges: M.R. Shah, J. and B.V. Nagarathna, J.
Can a contractual employee, who has worked for a significant period, be automatically entitled to reinstatement with back wages upon termination? The Supreme Court of India addressed this question in a recent case involving a sweeper employed by the Maharashtra State Road Transport Corporation (MSRTC). The court considered whether the termination of a contractual employee, without following the procedures outlined in the Industrial Disputes Act, warrants reinstatement or if a lump sum compensation would be more appropriate. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice B.V. Nagarathna.

Case Background

Kalawati Pandurang Fulzele, the respondent, was initially appointed as a sweeper by the MSRTC on a contractual basis on 8 June 1989, and subsequently on 1 April 1991, with a consolidated honorarium of Rs. 500 per month. Her honorarium was later increased by Rs. 50 per month. She continued to work as a sweeper until her services were terminated on 1 August 1994. Her husband, who was a coolie at the MSRTC Chandrapur Depot, had become blind, leading to the family’s financial difficulties. Consequently, she was employed on a contractual basis. She filed a complaint with the Labour Court, Chandrapur, under Section 28 of the Maharashtra Recognition of Trade Unions & Prevention of Unfair Labour Practices Act, 1971, challenging her termination. She contended that she was terminated without notice, retrenchment compensation, or consideration of seniority, violating Section 25-G and Rule 81 of the Industrial Disputes Act (Bombay) Rules, 1957.

Timeline

Course of Proceedings

The Labour Court, on 20 June 2002, ruled in favor of the respondent, directing her reinstatement with back wages. The court found that her termination was in violation of Sections 25-F and 25-G of the Industrial Disputes Act. The Labour Court also held that the provision of Section 2(oo)(bb) of the Industrial Disputes Act shall be applicable.

The MSRTC then filed a revision petition before the Industrial Court, which on 1 July 2003, set aside the Labour Court’s order. The Industrial Court held that the Labour Court erred in ordering reinstatement and back wages.

Aggrieved by the Industrial Court’s decision, the respondent filed a writ petition before the High Court. The Single Judge of the High Court, on 4 June 2007, allowed the writ petition, setting aside the Industrial Court’s order and restoring the Labour Court’s award of reinstatement with back wages.

The MSRTC then appealed to the Division Bench of the High Court, which dismissed the appeal on 30 January 2020, upholding the Single Judge’s decision and confirming the order of reinstatement with back wages.

Legal Framework

The case primarily revolves around the interpretation and application of the following sections of the Industrial Disputes Act, 1947:

• Section 2(oo) defines “retrenchment” as the termination of the service of a workman by the employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include:
  • (a) voluntary retirement of the workman; or
  • (b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or
  • (bb) termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or
  • (c) termination of the service of a workman on the ground of continued ill-health.
• Section 25-F specifies the conditions precedent to retrenchment of workmen. It states that no workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until:
  • (a) the workman has been given one month’s notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice;
  • (b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months;
  • (c) notice in the prescribed manner is served on the appropriate Government.
• Section 25-G mandates the procedure for retrenchment, stating that where any workman in an industrial establishment is to be retrenched and he belongs to a particular category of workmen in that establishment, the employer shall ordinarily retrench the workman who was the last person to be employed in that category, unless there is a valid reason to retrench a different person.

These provisions are designed to protect the rights of workmen against arbitrary termination of employment.

Arguments

Appellant (MSRTC) Arguments:

• The High Court erred in ordering reinstatement with back wages.
• The Labour Court’s finding of breach of Sections 25-F and 25-G of the Industrial Disputes Act was incorrect.
• The respondent’s appointment was purely contractual and for a fixed period.
• Upon completion of the contractual period, her services were terminated.
• Section 2(oo)(bb) of the Industrial Disputes Act applies to contractual appointments, thus there was no breach of Sections 25-F and 25-G.

Respondent (Workman) Arguments:

• There are concurrent findings by three courts (Labour Court, Single Judge of High Court, Division Bench of High Court) that the termination was in breach of Sections 25-F and 25-G of the Industrial Disputes Act.
• Reinstatement with back wages was rightly ordered by the Labour Court.
• The respondent was appointed in place of her husband, who became blind.
• She worked continuously until her services were terminated.
• There was no break in her service, so the termination was a violation of Sections 25-F and 25-G of the Industrial Disputes Act.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

• Whether the High Court was correct in upholding the Labour Court’s order of reinstatement with back wages, given that the respondent was a contractual employee.

Treatment of the Issue by the Court

Authorities

The judgment does not explicitly cite any case laws or books. The Court primarily relied on the interpretation of the Industrial Disputes Act, 1947, specifically:

• Section 2(oo) of the Industrial Disputes Act, 1947: Defining retrenchment.
• Section 25-F of the Industrial Disputes Act, 1947: Conditions precedent to retrenchment.
• Section 25-G of the Industrial Disputes Act, 1947: Procedure for retrenchment.

Judgment

How each authority was viewed by the Court?

• The Court considered Section 2(oo) of the Industrial Disputes Act, 1947* to understand the definition of retrenchment.
• The Court considered Section 25-F of the Industrial Disputes Act, 1947* to determine the conditions precedent to retrenchment and found that these were not strictly followed.
• The Court considered Section 25-G of the Industrial Disputes Act, 1947* to determine the procedure for retrenchment and found that these were not strictly followed.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The contractual nature of the respondent’s employment.
• The fixed honorarium of Rs. 500 per month.
• The fact that the respondent had worked for approximately four years.
• The lack of specific allegations or findings of unfair labor practices.
• The need to balance the interests of the employee with the nature of the employment.

The Court’s reasoning was a mix of factual considerations (contractual nature, fixed honorarium) and legal considerations (interpretation of the Industrial Disputes Act). The Court leaned more towards the factual aspects of the case.

Logical Reasoning:

The Court considered the contractual nature of the employment and the fixed honorarium, and decided that a lump sum compensation was more appropriate than reinstatement with back wages. The Court did not find any specific unfair labor practice adopted by the MSRTC.

The Court stated, “Having heard the learned counsel for the respective parties and considering the nature of appointment of the respondent namely as contractual appointment on a fixed salary/honorarium of Rs.500/- per month and she worked for approximately four years, we are of the opinion that in lieu of reinstatement and back wages, if a lumpsum compensation of Rs.3,00,000/- (Rupees Three Lakhs only) is awarded, it will meet the ends of justice.”

The Court further noted, “In the peculiar facts and circumstances of the case, when the appointment was purely on contractual basis and on a fixed salary/honorarium of Rs.500/- per month, the order of reinstatement with back wages was not warranted and instead if the lumpsum compensation is awarded in lieu of reinstatement and back wages as observed hereinabove, it will meet the ends of justice.”

The Court concluded, “In view of the above and for the reasons stated above, present appeal succeeds in part. The impugned judgment and order passed by the Division Bench of the High Court and the judgment and award passed by the Labour Court ordering reinstatement with back wages is hereby modified…”

Key Takeaways

• Contractual employees are not automatically entitled to reinstatement with back wages upon termination.
• The nature of the employment (contractual, fixed honorarium) is a significant factor in determining the appropriate remedy.
• A lump sum compensation may be awarded in lieu of reinstatement and back wages in certain cases.
• The court will consider the duration of employment when deciding the remedy.

Directions

The Supreme Court directed the appellant (MSRTC) to pay a lump sum compensation of Rs. 3,00,000 (Rupees Three Lakhs only) to the respondent within four weeks from the date of the judgment.

Development of Law

The ratio decidendi of this case is that in cases of contractual employment with a fixed honorarium, the court may award a lump sum compensation in lieu of reinstatement and back wages. This decision clarifies that the remedy of reinstatement is not automatic, especially in cases of contractual employment. This judgment does not overrule any previous position of law but clarifies the application of the existing law in specific factual scenarios.

Conclusion

The Supreme Court partly allowed the appeal filed by the MSRTC, modifying the High Court’s order. Instead of reinstatement with back wages, the Court directed MSRTC to pay a lump sum compensation of Rs. 3,00,000 to the respondent. The Court considered the contractual nature of the respondent’s employment and the fact that she was working on a fixed honorarium. This judgment highlights the importance of considering the specific facts and circumstances of each case when determining the appropriate remedy in labor disputes.