Loss of confidence cases in employees and termination without enquiry A BRIEF REACH TO THE “LOSS OF CONFIDENCE” BASED TERMINATION ORDERS.

SUPREME COURT OF INDIA (FROM DELHI) L MICHAEL V/S JOHNSON PUMPS LTD Date of Decision: 10 February 1975 Citation: 1975 LawSuit(SC) 57

Hon'ble Judges: A Alagiriswami, V R Krishna Iyer, R S Sarkaria

Appeal Type: Civil Appeal

Appeal No: 1605 of 1972

Eq. Citations: 1975 (1) LLJ 262, 1975 (1) SCC 574, 1975 (3) SCR 489, 1975 (30) FLR 140, 1975 SLJ 369, 1975 LabIC 399, 1975 AIR(SC) 661, 1975 (47) FJR 135

Facts

[3] Michael, a permanent employee of proved efficiency and six years standing, was appreciatively given two 'merit' increments. But a letter of September 2, 1970 told him off service giving him one month's 'notice-pay' discharging him without damning, as distinguished from dismissing him for misconduct.

[4] The rival versions illumine the factual confrontation, the resolution of which is no easy legal essay. The worker, Michael, through his Union, protested against the 'sack' order as victimisation of a Trade Union activist but the Management was heedless, conciliation was fruitless and the dispute between the Union and the Management was eventually referred by the Delhi Administration to the Labour Court for adjudication. The reference ran thus:

"Whether the termination of services of Shri L. Michael is illegal and/or unjustified and, if so, to what relief is he entitled and what directions are necessary in this respect ?"

Both sides stated their cases in their pleadings and the true nature of the conflict emerges from them.

[5] The story set out by the employee in his statement before the Labour Court was that although he was efficient, appreciated and awarded merit increments, the Management was antagonised by his active part in the formation of an Employees' Union, especially because oral warnings by the Regional Manager against his Unionist proclivity was ignored. Michael became the treasurer of the Union. This Union chapter claimed its price, for the Management quietly terminated his services by a simple letter which reads:

"We are sorry to advise that your services are no longer required by the Company. As such, this letter may be treated as a notice for the termination of your services with immediate effect. As for the terms of your employment letter, on termination of services you will be paid one month's salary extra. You may please call on the undersigned and have your accounts settled."

This act, claims the worker, was in flagrant violation of elementary principles of natural justice without assigning any reason and without giving him an opportunity to defend himself. This, in his statement, he challenged the termination as 'wrongful, male fide, illegal, and an act of victimisation'. The counter case of the management set up in its statement, as is apparent from the discharge order' is that no dismissal is involved, no enquiry necessary and no illegality invalidates.

[12] Two questions, therefore, fall for decision. Can a person, reasonably instructed in the law and scrutinising with critical

faculties the facts on record, come to the conclusion that the snapping of the tie of master and servant in the present case was innocuous and bona fide or oblique circumvention of the processual protection the law provides before a workman is dismissed for misconduct ?

if the termination of service was a colourable exercise of the power or as a result of victimisation or unfair labour practice the industrial tribunal would have the jurisdiction to intervene and set aside such termination. The form of the order in such a case is not conclusive and the tribunal can go behind the order to find the reasons which led to the order and then consider for itself whether the termination was a colourable exercise of unfair labour practice. If it came to the conclusion that the termination was a colourable exercise of the Dower or was a result of victmisation or unfair labour practice, it would have the jurisdiction to intervene and set aside such termination."

if the termination of service is a colourable exercise of the power vested in the management or as a result of victimisation or unfair labour practice the Industrial Tribunal would have jurisdiction to intervene and set aside such termination. In order to find out whether the order of termination is one of termination simpliciter under the provisions of contract or of Standing Orders, the Tribunal has ample jurisdiction to go into all the circumstances which led to the termination simpliciter."

Loss of confidence is no new armour for the management; otherwise security of tenure, ensured by the new industrial jurisprudence and authenticated by a catena of cases of this Court, can be subverted by this neo-formula. Loss of confidence in the Law will be the consequence of the Loss of Confidence doctrine.

[20] In the light of what we have Indicated, it is clear that loss of confidence is often a subjective feeling or individual reaction to an objective set of facts and motivations. The Court is concerned with the latter and not with the former,

although circumstances may exist which justify a genuine exercise of the power of simple termination. In a reasonable case of a confidential or responsible post being misused or a sensitive or strategic position being abused, it may be a high risk to keep the employee, once suspicion has started ant a disciplinary enquiry cannot be forced on the master. There, a termination simpliciter maybe bona fide not colourable, and loss of confidence may be evidentiary of good faith of the employer.

this Court should not disturb the finding of fact recorded by the trial Court on this point. It is true that this Court. in appeal, as a rule of practice, is loath to interfere with a finding of fact recorded by the trial Court. But if such a finding is based on no evidence, or is the result of a misreading of the material evidence, or is so unreasonable or grossly unjust that no reasonable person would judicially arrive at that conclusion, it is the duty of this Court to interfere and set matters right.

1. HIGH COURT OF ALLAHABAD TEJ SHOE FACTORY V/S P O , INDUSTRIAL TRIBUNAL-IV, AGRA AND ANR Date of Decision: 12 February 2013 Citation: 2013 LawSuit(All) 232

Service length 3 years and judgement of High Court come after 26 years and relief of reinstatement is granted to 150,000/-

This writ petition by the employer is directed against award dated 19.02.1997 by Presiding Officer, Industrial Tribunal (IV), U.P. Agra in Adjudication Case No.15 of 1988. The matter which was referred to the labour court was as to whether action of petitioner employer terminating the services of its workman respondent No.2, Smt. Lila Devi w.e.f. 28.08.1986 was just and valid or not. The workman contended that she was continuously working from 01.05.1983 till 17.08.1986 and that since

18.08.1986 due to illness she was not going on duty after recovery, she intended to join on 25.08.1986 but she was orally told that she was no more required to work. The case of the employer petitioner was that since 18.08.1986 respondent No.2 was absent unauthorisedly and that her behaviour was unruly, she abused and threatened and levelled indecent charges against the managed and even though she was required to join the duties, however she failed to do so and her services were terminated on 29.09.1986.

The employer has pleaded that they have lost confidence in her due to using filthy and abusive language to the manager and the seniors and she did not join her duty inspite of sending repeated letters .

Admittedly no enquiry was held and charges are not proved , the matter of loss of confidence not sustained and labour court granted full back wages and reinstatement.

It is settled law the

l[7] Admittedly no inquiry was held. Some amount was sent as retrenchment compensation. There is no finding by the labour court that whether it was complete as alleged by the employers or incomplete as alleged by the respondent No.2 on the ground of which she refused to accept the same. Learned counsel for the petitioner has argued that it was a case of loss of confidence. However the said point is not fully established and in any case confidence may be lost on the ground of some proven

facts. Without inquiry it cannot be said that anything was proved.

In paragraph

[10] Even though this principle of award of consolidated damages/ compensation is mainly resorted to in case of daily wagers engaged by government or governmental agencies however there is no reason for not applying the same principle to private employers and their workmen in suitable cases like the present one. Respondent No.2 worked for only three years and for 26 years she is not working with the petitioner. In this regard reference may be made to para-5 of AIR 2008 (Supp.) SC 1885 which arose out of a dispute between private employer and its workman. Last part of the para is quoted below:

The Hon’ble Court settled the controversy that the employer consequent upon the bitter relations between the parties and as even the High Court has found the charges proved though 'trivial' and the fact that the respondent has not been on duty with the appellant-management since the year 1981, it would be inappropriate to foist a cantankerous and abrasive workman on it In view of the aforesaid legal position and the fact that the workmen were engaged as daily wagers about 25 years back and they worked hardly for 2 or 3 years, relief of reinstatement and back wages to them cannot be said to be justified

and instead monetary compensation would sub-serve the ends of justice.

The Hon’ble Court awarded 150,000/ as compensation instead of reinstatement with back wages .

In this regard, reference may be made to paragraphs 6, 7 & 8 of the Supreme Court judgment reported in AIR 2010 SC 2140, which are quoted below:

"6. In last few years it has been consistently held by this Court that relief by way of reinstatement with back wages is not automatic even if termination of an employee is found to be illegal or is in contravention of the prescribed procedure and that monetary compensation in lieu of reinstatement and back wages in cases of such nature may be appropriate,

U.P. State Brassware Corpn. Ltd. & Anr. v. Uday Narain Pandey, 2006 1 SCC 479;

Uttaranchal Forest Development Corpn. v. M.C. Joshi, 2007 9 SCC 353;

State of M.P. & Ors. v. Lalit Kumar Verma, 2007 1 SCC 575;

Madhya Pradesh Administration v. Tribhuban, 2007 9 SCC 748;

Sita Ram & Ors. v. Moti Lal Nehru Farmers Training Institute 2008 5 SCC 75; Jaipur

Development Authority v. Ramsahai & Anr., 2006 11 SCC 684;

Ghaziabad Development Authority & Anr. v. Ashok Kumar & Anr., 2008 4 SCC 261and

Mahboob Deepak v. Nagar Panchayat, Gajraula & Anr., 2008 1 SCC 575.

In a recent judgment authored by one of us (R.M. Lodha, J.) in the case of Jagbir Singh v. Haryana State Agriculture Marketing Board and Anr., 2009 15 SCC 327, "7.

Private employer may be given the same treatment Even though this principle of award of consolidated damages/ compensation is mainly resorted to in case of daily wagers engaged by government or governmental agencies however there is no reason for not applying the same principle to private employers and their workmen in suitable cases like the present one. Respondent No.2 worked for only three years and for 26 years she is not working with the petitioner. In this regard reference may be made to para-5 of AIR 2008 (Supp.) SC 1885 which arose out of a dispute between private employer and its workman. Last part of the para is quoted below:

2. HIGH COURT OF ALLAHABAD

NAGAR PALIKA PARISHAD, MUGHALSARAI V/S STATE OF U P AND OTHERS Date of Decision: 06 March 2013

Citation: 2013 LawSuit(All) 478 Appeal No: 65274 of 2012 Eq. Citations: 2013 (2) UPLBEC 1255

A Workman on daily wager and completed 9 years of service as daily wager granted relief of only compensation , no relief of reinstatement and back wages .

This is a case where the workman was caught red handed by taking Rs. 50

Bribe, that the workman was appointed as a Peon on daily wage basis

on 2nd January, 1989 and continued to work in that capacity till 4th

July, 1998 when his services was terminated on the ground that he

was caught taking a bribe of Rs.50/- for obtaining a photocopy of a

document of the Nagar Palika and, leaking an official document of

the Nagar Palika.

Before the Labour Court the workman contended that the he has

signed the blank paper in fear of FIR as threatened by the employers.

The Hon’ble court observed in para 18 and 19 as under

[18] In the instant case, the Court finds that the charge levelled against the workman was proved. The said charge is a grievous misconduct. It is irrelevant as to whether the document, which was photocopied by the workman was an official or a secret document or not. What is relevant is the action of the workman in taking illegal gratification and doing an act, which was not permissible, namely, photocopying a document without taking permission from the superior authorities. The said charge warranted the termination of the services of the workman, which in the instant case was done. The unfortunate part in this episode is, that even though the workman was a daily wager, he was entitled to be given an opportunity to defend himself in a domestic proceedings. A chargesheet ought to have been issued to him; disciplinary proceedings ought to have been taken

against him but, in the instant case, the same was not done and, under the garb that the workman was a daily wager, an order of dismissal was passed. It was not a simpliciter order of discharge but a discharge on the ground of accepting an illegal gratification.

[19] The Court is of the opinion, that an inquiry was essential in the facts and circumstances of the instant case, even for a daily wager who had worked continuously for almost 9 years. Since the same was not done nor the provision of Section 6N of the U.P. Industrial Disputes Act was complied with, the order of termination of the services of the workman was illegal and cannot be sustained.

The Hon’ble Court has observed the various case of Hon’ble Apex Court for the purpose of relief in Paragraph 15 to 17 as under

[15] The law on reinstatement of a daily wager depends on the facts and circumstances of a particular case. In State of U.P. and others Vs. Kamlesh Kumar Tripathi and others, 2013 1 ESC 94 the Court held:-

"The Apex Court in the case of U.P. State Brassware Corporation Ltd. Vs. Uday Narain Pandey, 2006 AIR(SC) 586 has held that in every case of reinstatement, entire back wages ought not to be awarded and even if the termination is in violation of Section 6N of the Act, the Court or the Tribunal ought to mould the relief and it granted 25% back wages in lieu of back wages and reinstatement. In Jaipur Development Authority Vs. Ram Sahai, 2006 11 SCC 684 it found that after long delay the relief of reinstatement was not justified and it replaced the relief by award of lump sum compensation. In U.P. State Road Transport Corporation Vs. Man Singh, 2006 7 SCC

752 it considered that the incumbent was never appointed in accordance to the rules and therefore, after lapse of considerable period he was not entitled to reinstatement but award of compensation. Similarly, in Mahboob Deepak Vs. Nagar Panchayat, Gajraula, 2008 1 SCC 575 it found that the incumbent was engaged dehors the rules which was in violation of Articles 14 and 16 of the Constitution and thus was a nullity but in view of the fact that he had worked for sometime, it granted lump sum compensation instead of reinstatement. Lastly, in the case of Senior Superintendent Telegraph (Traffic) Bhopal Vs. Santosh Kumar Seal and Ors., 2010 4 Scale 333 it reiterated that in the case of daily wager the appropriate relief is lump sum compensation. "

[16] Similar view has also been given by this Court in State of U.P. and another Vs. Hind Majdoor Sabha and others, 2011 3 UPLBEC 2568.

[17] In Mahboob Deepak Vs. Nagar Panchayat, Gajraula and another, 2008 1 SCC 575the Supreme Court held that the workman being a daily wager and having completed 240 days of continuous service in a calender year, whose services were terminated on the ground of financial irregularities without complying with the provision of Section 6N of the U.P. Industrial Disputes Act was entitled only for compensation, notice and notice pay instead of reinstatement.

The relief granted in lieu of reinstatement and back wages is only compensation of Rs. 75000/- as observed as follows

[23] The Supreme Court in Mahboob Deepak's case has held that on account of violation of the provision of Section 6N of the U.P. Industrial Disputes Act, the workman

at best could be granted compensation as per the provision of Section 6N of the U.P. Industrial Disputes Act. In this regard, the Court is of the opinion that calculation of retrenchment compensation under Section 6N of the Act at this stage would not be an adequate relief, since the rates of wages existing at the stage of termination of the services and today have increased by leaps and bounds. The inflation will make the retrenchment compensation a meagre amount. Further, the Court is not aware as to what was the wages paid to the workman at the time of his alleged termination. The Court further finds that no useful purpose would be served in remitting the matter back to the Labour Court for the calculation of retrenchment compensation. The Court is of the opinion that the dispute, which was raised in the year 1998 should come to an end. The Labour Court has awarded Rs.25,000/- as compensation in lieu of back wages. Taking a clue from this, the Court is of the opinion that instead of reinstatement and for violation of the provision of Section 6N of the U.P. Industrial Disputes Act, the employer should pay in addition to the amount awarded by the Labour Court, an additional sum of Rs.50,000/- in lieu of reinstatement i.e. to say the employers should pay a total sum of Rs.75,000/- to the workman concerned.

3. HIGH COURT OF ALLAHABAD

HINDUSTAN AERONAUTICS LIMITED V/S PRESIDING OFFICER Date of Decision: 23 January 2009 Citation: 2009 LawSuit(All) 1514 Appeal No: 16654 of 1989; 6136 of 1991

The relief of 50% of Back wages granted to the petitioner workman from 1981 when charges were

not proved against the workman there is no case of loss of confidence.

where the termination was found to be illegal, the workman was entitled to back wages. The departure from the principle of payment of full back wages as consequence to reinstatement has not been overruled

M/s. Hindustan Aeronautics Limited, Chakeri, Kanpur is a company registered under the Companies Act, 1956 and is engaged in the manufacture of aircrafts, avionics, aircraft accessories, instruments/components etc. The company mainly caters to the requirement of the defence and is wholly owned and controlled by the Central Government.

By this writ petition the petitioner has prayed for quashing the award dated 31.3.1989 passed by the Labour Court-V, U.P. Kanpur in Adjudication Case No. 28 of 1983 decided on 31.1.1989. The Labour Court found that the domestic enquiry was not just and fair and allowed the employer to lead evidence. It, thereafter, found that the charges for which the respondent workman was terminated on 7.5.1981 were not established and that the workman is entitled to reinstatement with full back wages. The Labour Court did not agree with the objections that the employer has lost confidence in the employee and directed reinstatement with full back wages w.e.f. 7.5.1981. The Labour Court has thereafter given an option that if the employer do not wish to reinstatement the workman, it will give him full back wages w.e.f. 7.5.1981 and thereafter terminate his services after giving him one month notice following the provisions under Section 6-N of the U.P. Industrial Disputes Act, 1947. The workman was also made entitled to Rs.500/- as costs

[10] It is submitted that when the confidence was lost by an establishment dealing in production of

defence equipments, the order of reinstatement should have been avoided. IT is further submitted that in O.P. Bhandari v. Indian Tourism Development Corporation Ltd. and others, 1987 AIR(SC) 111 it was held by the Supreme Court in the judgment delivered by Justice M.P. Thakkar that compensation in lieu of reinstatement is not reasonable. In this case the argument of loss of confidence, in case of reinstatement may not be examined as the respondent workman was 59 years old on 24.9.2006, when he affirmed the counter affidavit to the recall application. The respondent workman was 62 years old and thereafter superannuated. There is as such no question of reinstatement of the workman to consider the question of loss of confidence.

Shri B.N. Sihg, learned counsel for the respondent workman has relied upon the judgment in Shambhu Nath Goyal v. Bank of Baroda and others, 1983 4 SCC 491; M/s. Hindustan Tin Works Pvt. Ltd. v. The Employees of M/s Hindustan Tin Works Pvt. Ltd. and others, 1978 LabIC 1667; Jaipur Zila Sahakari Bhoomi Vikas Bank Ltd. v. Ram Gopal Sharma and others, 2002 SCC(L&S) 279 and Divisional Manager, New India Assurance Co. Ltd. v. A. Sankaralingam, 2008 119 FLR 398, in submitting that where the termination of service is found to be on the charges, which could not be proved and was consequently illegal, the workman deprived of working should be provided with full back wages.

He submits that the Supreme Court has held that where the termination was found to be illegal, the workman was entitled to back wages. The departure from the principle of payment of full back wages as consequence to reinstatement has not been overruled nor any different view has been expressed in the decision cited by Shri B.N. Singh.

3. HIGH COURT OF ALLAHABAD

KARAN SINGH SON OF SHRI MADHO SINGH V/S PRESIDING OFFICER, LABOUR COURT; DIRECTOR NAUJHIL INTEGRATED RURAL PROJECT FOR HEALTH AND DEVELOPMENT (NIRPHAD), THE INCHARGE/MANAGER NIRPHAD GROWTH CENTRE Date of Decision: 15 November 2007 Citation: 2007 LawSuit(All) 591 Eq. Citations: 2008 LLR 402, 2008 (116) FLR 596

Since the petitioner was working against the interest of the project and as a result faith of patient in the project eroded the doctors in turn made complaints against the workman. Not only this it was also found that expensive medicines meant for the patients were being stolen by the petitioner. He was also given warning on aforesaid charges in writing on 5.1.1994, 8.2.1995 and 11.3.1995 etc but the workman neither disputed the complaints nor replied to the charges. He also did not improve his working. The services of the petitioner were dispensed with on 27.7.1995 for all the aforesaid reasons. It is urged by the counsel for the respondent that when the order of termination was served upon the petitioner, he refused to accept notice and retrenchment compensation etc alongwith letter of termination as such it was sent to him alongwith full

details of the payments by two cheques amounting to Rs. 23395/-, which had been offered to him before termination of service under registered letter dated 10.3.1996.

[7] The Labour Court after appreciation of oral and documentary evidence on record found that the employer had proved their case held that petitioner has been disengaged on 27.7.1995 and not on 29.7.1995 as claimed by the workman and referred under the order of reference. A find of fact was also recorded that case. The payment of notice pay retrench was offered by the employer to the petitioner/workman by two cheques, which was refused by the petitioner.

IN THIS MATTER UPON THE CHARGES WHICH WERE SHOWN NO DOMESTIC ENQUIRY WAS DONE BUT THE RETRENCHMENT COMPENSATION WAS SENT BUT NOT RECEIVED BY THE WORKMAN. NO AWARD OF BACK WAGES AND COMPENSATION WAS GIVEN.

HIGH COURT DISMISSED THE WRIT PETITION OF WORKMAN AND UPHELD THE AWARD IN FAVOUR OF THE EMPLOYER.

5. HIGH COURT OF ALLAHABAD

SADHAN SAHAKARI SAMITI BASANTPUR LIMITEDV/SPRESIDING OFFICER, LABOUR COURT Date of Decision: 02 February 1993 Citation: 1993 LawSuit(All) 19 Appeal No: 11420 and 1984 Eq. Citations: 1993 (2) LLJ 468

DOCTRINE OF LOSS OF CONFIDENCE The material facts and particulars in this regard will, inter alia, include the role of confidence in the business of the employer, nature of the job performed by the workman and the specification of confidentiality involved therein.

It is well settled that, ordinarily, where the termination of the workman is declared to be illegal his reinstatement must follow. However, the Labour Court has discretion to decline to grant the

relief of reinstatement and may award compensation in lieu thereof, if it is satisfied that, on the facts and circumstances of the case, reinstatement will be inexpedient or improper. Loss of confidence of the employer in a workman may be a circumstance justifying denial of the relief of reinstatement but the plea of loss of confidence can be entertained only if it is founded on material facts and particulars specifically pleaded and proved. The material facts and particulars in this regard will, inter alia, include the role of confidence in the business of the employer, nature of the job performed by the workman and the specification of confidentiality involved therein. In the instant case neither there was requisite pleading with regard to loss of confidence nor any evidence in support thereof before the respondent No. 1. It is, therefore, difficult to hold that the respondent No. 1 committed any error in denying the benefit of doctrine of loss of confidence to the petitioner and directing the reinstatement of the respondent No. 2.

6. HIGH COURT OF ALLAHABAD IN TARANG THEATRE V/S STATE OF UTTAR PRADESH AND ORS

Date of Decision: 10 September 1991 Citation: 1991 LawSuit(All) 682 Appeal Type: Civil Miscellaneous Writ Petition Appeal No: 2708 of 1979 Eq. Citations: 1991 (2) AWC 377

Loss of confidence is no new armour for the management

[20] The Supreme Court in L. Michael v. Johnson Pumps Ltd., 1975 AIR(SC) 661, has sounded a note of caution as regards what is called by it as neo-formula. It says--

Loss of confidence is no new armour for the management, otherwise security of tenure, ensured by the new industrial jurisprudence and authenticated by a catena of cases of the Supreme Court can be subverted by this neo-formula.

[21] Loss of confidence is often a subjective feeling. If an employer suspects that his employee has betrayed his confidence it can terminate his employment and discharge him without any stigma but such belief or suspicion of the employer should not be a mere whim or fancy. It should be bonafide and reasonable. It must rest on some tangible basis and the power has to be exercised by the employer in good faith objectively, which would mean, honestly with due care and prudence. If the termination on account of loss of confidence in the employee is challenged before the labour court on the ground of being colourable or mala fide or an act of victimisation or unfair labour practice, the burden is on the employer to disclose to the labour court that grounds of his impugned action are bonafide and the Court has to test the matter judicially and objectively, in view of new industrial jurisprudence which guarantees security of tenure to an employee.