Supreme Court rules on arbitrability of wage disputes under Payment of Wages Act: Dushyant Janbandhu vs. M/S Hyundai Autoever India Pvt. Ltd (2024) INSC 966 (11 December 2024)

Date of the Judgment: 11 December 2024
Citation: 2024 INSC 966
Judges: Pamidighantam Sri Narasimha, J., Sandeep Mehta, J.
Can an employer bypass statutory authorities and force an employee into arbitration for wage disputes? The Supreme Court of India recently addressed this question, ruling that disputes under the Payment of Wages Act, 1936, and the Industrial Disputes Act, 1947, are not arbitrable. This judgment clarifies that statutory remedies prevail over private arbitration agreements in specific labor disputes. The bench comprised Justices Pamidighantam Sri Narasimha and Sandeep Mehta, with the opinion authored by Justice Pamidighantam Sri Narasimha.

Case Background

The appellant, Dushyant Janbandhu, was appointed as an Assistant Manager at M/S Hyundai Autoever India Pvt. Ltd. on 15th March 2019. Due to the COVID-19 pandemic, he was asked to work from home from 22nd March 2020 to 6th January 2021. However, the company directed him to resume physical attendance in August 2020. When he refused, a show-cause notice was issued on 4th September 2020, followed by an inquiry. The inquiry concluded that there was evidence of absenteeism. A charge memo was issued on 25th November 2020 for non-cooperation and absenteeism. Subsequently, his employment was terminated on 21st January 2021.

During the disciplinary proceedings, the appellant was not paid his salary. He issued a legal notice on 29th May 2021 for payment of wages and filed a petition under Section 15(2) of the Payment of Wages Act, 1936. In response, the respondent claimed that the dispute should be settled through arbitration and unilaterally appointed an arbitrator. The appellant challenged the arbitrator’s competence under Section 16 of the Arbitration and Conciliation Act, 1996. The arbitrator closed the proceedings, acknowledging the lack of consent in his appointment. The respondent then filed an application under Section 8 of the Act seeking reference of the dispute to arbitration, which was dismissed by the Authority under the Payment of Wages Act.

The appellant also challenged the termination order before the Industrial Tribunal under Section 2(A) of the Industrial Disputes Act, 1947, which is currently pending. The respondent then filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, before the High Court of Judicature at Madras, seeking the appointment of an arbitrator. The High Court appointed an arbitrator, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The appellant initially approached the authority under the Payment of Wages Act, 1936, for non-payment of wages. The respondent, in turn, sought to refer the dispute to arbitration. The authority under the Payment of Wages Act dismissed the respondent’s application. The appellant also filed a petition before the Industrial Tribunal under Section 2(A) of the Industrial Disputes Act, 1947, challenging the termination order. Subsequently, the respondent filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, before the High Court of Judicature at Madras, seeking appointment of an arbitrator. The High Court allowed the petition, which led to the present appeal before the Supreme Court.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 11(6) of the Arbitration and Conciliation Act, 1996: This section deals with the procedure for appointing an arbitrator when parties fail to agree on the appointment process.
• Section 15(2) of the Payment of Wages Act, 1936: This section provides a mechanism for employees to claim unpaid wages before a designated authority.
• Section 22 of the Payment of Wages Act, 1936: This section bars civil courts from entertaining suits for the recovery of wages if the matter is already pending before the authority under Section 15. “22. Bar of Suits .—No Court shall entertain any suit for the recovery of wages or of any deduction from wages in so far as the sum so claimed — (a) forms the subject of an application under section 15 which has been presented by the plaintiff and which is pending before the authority appointed under that section or of an appeal under section 17; or (b) has formed the subject of a direction under section 15 in favour of the plaintiff; or (c) has been adjudged, in any proceeding under section 15, not to be owed to the plaintiff; or (d) could have been recovered by an application under section 15.”
• Section 2(A) of the Industrial Disputes Act, 1947: This section allows an individual worker to raise a dispute regarding their dismissal, discharge, retrenchment or termination of services before the Industrial Tribunal.
• Section 16 of the Arbitration and Conciliation Act, 1996: This section allows the arbitral tribunal to rule on its own jurisdiction.

The Court also referred to the principle of subject-matter arbitrability as enunciated in Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1], which states that disputes that are expressly or by necessary implication non-arbitrable as per mandatory statutes cannot be referred to arbitration.

Arguments

Appellant’s Submissions:

• The appellant contended that the dispute regarding non-payment of wages falls under the jurisdiction of the authority under the Payment of Wages Act, 1936, and is not arbitrable.
• The appellant argued that the termination order was challenged before the Industrial Tribunal under the Industrial Disputes Act, 1947, which also has exclusive jurisdiction over such disputes.
• The appellant submitted that the allegation of violating non-disclosure obligations was an afterthought and not the basis for the termination order.

Respondent’s Submissions:

• The respondent argued that there was an arbitration agreement between the parties.
• The respondent contended that the dispute included a violation of non-disclosure obligations, which should be referred to arbitration.
• The respondent sought the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the dispute regarding non-payment of wages is arbitrable, considering the provisions of the Payment of Wages Act, 1936?
2. Whether the dispute regarding the legality and validity of the termination order is arbitrable, considering the provisions of the Industrial Disputes Act, 1947?
3. Whether the allegation of violation of non-disclosure obligations is a valid ground for arbitration?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court relied on Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. [(2020) 20 SCC 760]* to highlight that the arbitrator himself closed the proceedings, acknowledging the lack of consent in his appointment.
• The Court followed Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1]* to reiterate the principle of subject-matter arbitrability, stating that disputes that are expressly or by necessary implication non-arbitrable as per mandatory statutes cannot be referred to arbitration.
• The Court interpreted Section 11(6) of the Arbitration and Conciliation Act, 1996* to hold that the appointment of an arbitrator was not valid in the present case.
• The Court relied on Section 15(2) of the Payment of Wages Act, 1936* to emphasize the mechanism for employees to claim unpaid wages.
• The Court considered Section 22 of the Payment of Wages Act, 1936* to hold that civil courts are barred from entertaining suits for the recovery of wages, and the authority under the PW Act has exclusive jurisdiction.
• The Court considered Section 2(A) of the Industrial Disputes Act, 1947* to hold that the Industrial Tribunal has exclusive jurisdiction over disputes related to termination.
• The Court considered Section 16 of the Arbitration and Conciliation Act, 1996* to highlight that the arbitral tribunal can rule on its own jurisdiction.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory framework of the Payment of Wages Act, 1936, and the Industrial Disputes Act, 1947. The Court emphasized that these Acts provide specific mechanisms for resolving disputes related to wages and termination, and these mechanisms cannot be bypassed through arbitration. The Court also noted that the respondent’s claim of violation of non-disclosure obligations was an afterthought and not a genuine basis for arbitration. The Court found that the respondent’s attempt to invoke arbitration was an abuse of process, intended to threaten the appellant for approaching statutory authorities.

Logical Reasoning:

The Court rejected the respondent’s argument that the dispute should be referred to arbitration, stating that “the Section 11 (6) petition has two facets. The first relates to disputes that were anyway pending before the statutory authorities, and they related to non-payment of wages and legality and propriety of termination which are non-arbitrable.” The Court also noted that “the second facet relates to the alleged violation of clause 19 relating to non-disclosure obligation, which was not raised in the show cause notice, inquiry report, chargesheet and termination order and as such is non-existent.” The Court concluded that “it was clearly intended to threaten the appellant for having approached the statutory authorities under the PW Act and the ID Act.”

There were no dissenting opinions in this case. The decision was unanimous.

Key Takeaways

• Statutory remedies under the Payment of Wages Act, 1936, and the Industrial Disputes Act, 1947, prevail over private arbitration agreements in disputes related to wages and termination.
• Employers cannot bypass statutory authorities by invoking arbitration clauses for disputes that fall under the jurisdiction of these authorities.
• Allegations made as an afterthought, not forming the basis of termination or disciplinary proceedings, are not valid grounds for arbitration.

Directions

The Supreme Court set aside the judgment and order passed by the High Court and dismissed the petition under Section 11(6) of the Arbitration and Conciliation Act, 1996. The appellant was awarded costs of Rs. 5 lakhs, payable within three months.

Development of Law

The ratio decidendi of this case is that disputes relating to non-payment of wages and legality of termination are not arbitrable when the Payment of Wages Act, 1936, and the Industrial Disputes Act, 1947, provide specific statutory mechanisms for their resolution. This judgment reinforces the principle that statutory remedies cannot be circumvented by private arbitration agreements, especially in cases where the statutes provide exclusive jurisdiction to specific authorities or tribunals.

Conclusion

The Supreme Court’s judgment in Dushyant Janbandhu vs. M/S Hyundai Autoever India Pvt. Ltd. clarifies that disputes under the Payment of Wages Act, 1936, and the Industrial Disputes Act, 1947, are not arbitrable. The Court held that the statutory remedies available under these Acts must be exhausted before resorting to arbitration. This decision protects employees by ensuring that they can access statutory forums for resolution of wage and termination disputes, without being forced into arbitration by their employers.