Supreme Court Upholds Contractual Termination Without Notice: Rajasthan State Roadways vs. Paramjeet Singh (2019)

Date of the Judgment: May 3, 2019

Citation: 2019 INSC 455

Judges: Dr. Dhananjaya Y Chandrachud, J and Hemant Gupta, J

Can an employer terminate a contractual employee’s service without notice if the contract allows it? The Supreme Court of India addressed this issue in a case concerning a contractual employee whose services were terminated without notice. This judgment clarifies the extent to which contractual terms can override the principles of natural justice in employment matters.

The Supreme Court bench consisted of Justice Dr. Dhananjaya Y Chandrachud and Justice Hemant Gupta. The judgment was authored by Justice Dr. Dhananjaya Y Chandrachud.

Case Background

On January 21, 2006, the Rajasthan State Roadways Transport Corporation (the appellant) appointed Paramjeet Singh (the respondent) as a conductor on a contractual basis. The contract was for one year or until the shortage of drivers was met, whichever occurred earlier. The contract included specific terms, notably:

• Clause 11 stated that if a passenger was found without a ticket during an inspection, the conductor would be removed from temporary employment and would be liable to pay the determined loss. Additionally, the corporation could take action under the prevention of without ticket travel act.
• Clause 16 allowed the corporation to terminate the temporary appointment at any time without notice.

The corporation terminated the respondent’s services on March 21, 2007.

Timeline

Course of Proceedings

The respondent challenged the termination by filing a writ petition before the Rajasthan High Court. A Single Judge of the High Court allowed the petition on April 6, 2016, citing a breach of the principles of natural justice. The corporation then filed a writ appeal, which was dismissed by a Division Bench of the High Court on September 19, 2016, upholding the Single Judge’s decision.

Legal Framework

The case revolves around the interpretation of contractual terms in employment, specifically the clauses allowing termination without notice. The relevant clauses from the contract are:

• Clause 11: “While working as a conductor if on inspection of vehicle en-route if any passenger is found without a ticket then in such a situation the second party would be removed from the temporary employment and to fulfill the loss, he would also be liable to pay the amount as determined by the Head Quarter. Apart from this the first party would be at liberty to proceed against the second party under the prevention of without ticket travel act.”
• Clause 16: “The first party will have the right to terminate the temporary appointment of the first party at any time without any notice.”

Arguments

Appellant’s Arguments:

• The appellant argued that the High Court erred in its decision because the respondent’s appointment was purely contractual.
• The contract explicitly stated that the services could be terminated without notice at any time.

Respondent’s Arguments:

The respondent did not appear before the Supreme Court. However, the High Court had ruled in his favor, citing a breach of the principles of natural justice, implying that the respondent’s argument was that he should have been given a chance to be heard before termination.

Submissions Table

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the termination of a contractual employee’s service, without notice, is valid when the contract explicitly permits such termination.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authority:

Judgment

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

How each authority was viewed by the Court?

The Supreme Court distinguished the case of Hari Ram Maurya v Union of India and others, (2006) 9 SCC 167*, stating that the removal in that case was due to a charge of bribery, unlike the present case where the termination was based on a contractual term.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the explicit terms of the contractual agreement between the appellant and the respondent. The Court emphasized that when parties enter into a contract, they are bound by its terms, unless they are contrary to law or public policy. The Court noted that the contract clearly stated that the respondent’s services could be terminated at any time without notice. This contractual freedom was a key factor in the Court’s reasoning.

Logical Reasoning:

The Court also considered the principle of natural justice, which generally requires that a person be given a fair hearing before any adverse action is taken against them. However, the Court held that the principle of natural justice can be excluded by express contractual terms. In this case, the contract explicitly allowed for termination without notice, and the Court found no reason to interfere with the terms of the agreement.

The Court stated, “The terms of the appointment indicate that the respondent was on a purely contractual appointment and that the services could be dispensed with without notice at any stage.”

The Court further clarified, “Having regard to the terms of the contractual engagement, we are of the view that the action of the appellant cannot be faulted.”

The Court also noted that the case relied upon by the High Court, Hari Ram Maurya v Union of India and others, (2006) 9 SCC 167, was distinguishable because it involved a charge of bribery, while the present case involved a contractual termination.

The Supreme Court allowed the appeal, set aside the High Court’s judgment, and dismissed the respondent’s writ petition.

Key Takeaways

• Contractual terms are binding on the parties unless they are contrary to law or public policy.
• The principle of natural justice can be excluded by express contractual terms.
• In cases of purely contractual employment, termination without notice is permissible if the contract explicitly allows it.
• Courts will not interfere with contractual terms unless there is a clear legal reason to do so.

Directions

The Supreme Court did not give any specific directions other than allowing the appeal and setting aside the High Court’s judgment.

Development of Law

The ratio decidendi of the case is that when a contract of employment explicitly allows for termination without notice, such termination is valid, and the principles of natural justice may be excluded by express contractual terms. This ruling reinforces the importance of contractual freedom and the binding nature of contractual terms.

Conclusion

The Supreme Court’s decision in Rajasthan State Roadways Transport Corporation vs. Paramjeet Singh clarifies that contractual terms, especially those allowing termination without notice, are binding on the parties. The Court upheld the termination of the respondent’s services, emphasizing the contractual nature of the employment and the explicit clause allowing termination without notice. This judgment underscores the importance of carefully reviewing the terms of employment contracts and acknowledges the principle of contractual freedom in employment matters.