Article (October-2020)


Discharge Simpliciter vis-a-vis Retrenchment - A perspective during Covid

Deepanjan Dey

Designation : -   General Manager-HRM

Organization : -  Tata Steel BSL Ltd., Angul, Odisha


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COVID19 has posed unprecedented challenges for industries across the world including India. The colossal impact of the pandemic is so noxious thatmany industrieswill find its survival at stake. Industries across board may be forced to take various harsh measures to tone down on its liability and costs.Though extremely painful many industries may even have to resort tomass scale termination by way of retrenchment or otherwise in order to stay afloat. In view of the stringency in Indian Labour laws for retrenchment can the employer as a substitute to retrenchment invoke discharge simpliciter in mass scale to reduce his liability in this VUCA scenario. In order to appreciate these complexities this article attempts to understand the following issues:

i) Can industries bypass the Retrenchment route and go for mass scale discharge simpliciter?

ii) Which industries will fall under the stringent provision of Retrenchment?

iii) Which categories of workmen/employees the provision of Retrenchment will apply?

To appreciate the above issues at the outset we need to comprehend the provision of retrenchment, its applicability and the condition precedent to such retrenchment under the Industrial Disputes Act 1947 (herein after referred to as the Act). We also need to understand the purport of Discharge simpliciter from judicial pronouncements.

Retrenchment is defined in section 2(oo) of the ID Act as termination of service of the workman by the employer "for any reason whatsoever" otherwise than as a punishment inflicted by a way of disciplinary action. It has four exception which does not fall under the purview of retrenchment. They are (i) voluntary retirement of the workman (ii)  retirement of the workman on reaching the age of superannuation (iii) termination of the service of the workman as a result of the non-renewal of the contract of employment (iv) termination of the service of a workman on the ground of continued ill-health.

Section 25 F of the Act provides the condition precedent to retrenchment of workman. The said provision requires that if a workman who has been in continuous service for one year he shall not be retrenched unless he has been served with a notice of one month or one-month wages has been paid in lieu of such notice. The proviso also stipulates a compensation amount equivalent to fifteen days average pay for every completed year of continuous service or any part thereof in excess of six month and notice on appropriate government to be served as may be specified. For Industrial establishment falling under the ambit of chapter VB retrenchment is dealt in section 25N of the Act. Industrial establishment (not being an establishment of a seasonal character or in which work is performed only intermittently) wherein one hundred workmen were employed on an average per working day preceding twelve months will fall under the purview of chapter VB of the Act (sec 25 K). Few states have amended this provision and has increased the numbers to three hundred workmen. The difference between 25 F and 25 N can be distinguished on three counts. One as per the provision of 25 N notice period or wages in lieu of such notice is three months instead one month which is stipulated in 25 F. Twounder 25 N the employer needs to obtain prior permission of the appropriate government before effectuating any retrenchment in his establishment which is not a requirement under 25 F. Three the proviso of section 25 N applies only to Industrial establishment covered under the chapter V B of the Act whereas section 25F applies to any industry. Industrial Establishment is defined in section 25L of the Act and includes Factories defined under the Factories Act 1948, Mine as defined under the Mines Act 1952 and a Plantation defined under the Plantation Labour Act, 1951.

The Industrial Disputes Act very clearly recognizes a various form of terminations (Ref sec 2A of the Act which deals and recognizes various forms of termination for which dispute can be raised by an individual workman). In discharge simpliciter, the termination of service is brought about by the conduct of the workman and by the operation of the Standing Orders.A Discharge Simpliciter can be non-stigmatic but the guiding principle for any termination of service, the reasons are required to be recorded by the employers and the reasons normally in dismissal simpliciter are loss of confidence, fall in efficiency, incompetence, failure to pass a qualifying test, etc. However, if the discharge simpliciter is challenged in the court of law, court can lift the veil and if the court founds that the discharge is in view of  victimisation, unfair labour practice, or punishment for any misconduct, and  the said action has been resorted to dispense with the principles of natural justice of hearing the employee concerned before punishing him, such termination can be set aside. Where the employer satisfies the court that action has been taken in good faith then the discharge will be upheld. This position is well recognised by the various judgements of the Supreme Court. (Ref: The Tata Oil Mills CoLtd. Vs. Workmen & ANR 1966 AIR 1672(SC), Air India Corporation V Rebello 1972 AIR (SC) 1343, The Workmen Of Sudder Office Cinnamara Vs Management Of Sudder Office (1972) 4 SCC 746, Gujrat Steel Tubes Ltd V Gujrat Steel Tubes Mazdoor Sabha 1980 LLJ 137 (SC)=1980 AIR 1896).

From our above exposition we can say that discharge simpliciter is, therefore, a well-established mode of termination of serviceas per the terms of the contract. On the other hand,a termination of the service of the workman by the employer for any reason (other than a disciplinary infliction) which does not fall under the four exceptions stated in section 2(oo) of the Act would be deemed to be retrenchment.Hence, seen under the spectrum of retrenchment a discharge simpliciter is also a termination of service which does not fall within the ambit of four 
exceptions and therefore discharge simpliciter can be treated as a retrenchment. In Gujarat Steel Tubes Ltd. v. Gujarat Steel Tubes Mazdoor Sabha 1980 AIR 1896 the apex court has inter-alia observedthat discharge, even where it is not occasioned by a surplus of hands, will be retrenchment, having regard to the breadth of the definition and its annotation.The Punjab and Haryana Court in case between Bhim Sen Sharma V. Presiding Officer, Labour Court, Patiala 2010 LLR (SN)327=2010(124) FLR 201) has held that discharge simpliciter will be illegal without retrenchment compensation.

The Supreme Court has in Anakappalla Co-operative Agricultural and Industrial Society v. Its Workmen (1962) II Lab. LJ. 621 has opined that retrenchment "necessarily postulates the termination of the employee's services on the ground that the employees had become surplus". Dealing with, the expression "for any reason whatsoever" in Section 2 (oo) the Division bench of the Delhi High Court in the case between The Management Of Shri Ram Institute for Industrial Research vs. N. L. Kakkar 1978 (37) FLR 1 has opined thata termination of service because the workman had become surplus either on account of the fall in the production or because of rationalisation or economies necessary to be effected etc can be the ground which will fall under the expression "for any reason whatsoever". In other words, the expression "for any reason whatsoever" in Section 2(oo) has been read down as relating to only to the termination of surplus staff of the establishment. (Also refer Barsi Light Railway Company Ltd. vs. Joglekar, 1957-1 LLJ. 243(SC) (16)). Therefore, while all retrenchment is termination of service, all termination of service is not retrenchment. Hence, every termination of service, particularlydischarge simpliciter, cannot be properly described as retrenchment. Aplain reading of section 2A of the Industrial Disputes Act would entail that the legislature itself had no intention of confusingor identifying retrenchment with other forms of termination of service. (Ref: Ramesh kumar v. Central Government, Industrial Tribunal Bombay, (1980) Lab. IC. 1116 (Bom)).

From our above discussion we can conclude the following:

i. Discharge simpliciter is a method of termination which needs to be used sparingly and for matters mostly concerned with loss of confidence, fall in efficiency, incompetence, failure to pass a qualifying test, etc.

ii. It is apparent from the judgements discussed in the foregoing paragraphs that even Discharge Simpliciter can be also held as retrenchment and will be illegal if retrenchment compensation is not paid to the workman.

iii. Courts have held retrenchment essentiallypresupposes the termination of the employee's services on the ground that the employees have become surplus.

Answer to the above issues:

Issue (i) - From the above inferences it become apparent that resorting to mass scale dismissal simpliciter will not be the proper course of action as by such action it will be difficult for the employer to withstand any judicial scrutiny in case a dispute is raised by the workman. Employer needs to remember any termination of service will likely to get challenged even in absence of a union in the establishment as the workman will be at liberty to initiate action under section 2A of the Act. We have already discussed in the foregoing paragraphs under what circumstances dischargesimpliciter is held valid by the courts. Termination of surplus manpower owing to the fall of production, demand or economies can and should only be through procedure as laid down in 25 F and 25 N of the Act. Non-compliance to the said section of 25 F and 25 N of the Act as may be applicable would render the termination illegal (ref: State of Uttar Pradesh V. Km Shashi Joshi 2015 LLR 158 (SC)).

Issue (ii)- Retrenchment in any industries other than the industrial establishment covered under chapter V B of the Act will be dealt in terms of section 25 F and will not require to obtain permission from the appropriate government (Ref: Ritz Pvt Ltd V. Lal Bavta Hotel Aur Bakery Mazdoor Union 1999 LLR 424 (Bom HC)). Hence, Retrenchment in these industries will be comparatively easy than the industries who fall under the ambit of section 25N of the Act. In other words, apart from the Factory, Mine and Plantation under the Plantation Labour Act having more than hundred workman all other industries will fall within the scope of section 25 F. Factories, Mine and Plantation falling within scope of chapter VB of the Act are the industries which will have difficulty in shedding their surplusage manpower as they are required toobtain prior permission from the appropriate government. Retrenchment in these industrial establishment without obtaining prior permission will be illegal (ref: Binny Ltd, Bangalore Vs Industrial Tribunal Bangalore 1995 LLR 597 (Kar HC), SarvaShramik Sangh V. State of Maharashtra 2005 LLR 73 (Bom HC)). History bears testimony to the fact that government have been always reluctant to provide approval for retrenchment despite valid and genuine reasons.

Issue (iii)- Any workman who has completed a continuous service of two forty days preceding the date of retrenchment will be eligible to get retrenchment compensation. The category of workman not only includes permanent workmen on rolls but all employees of the establishment which may include ad-hoc, temporary, part time, daily wager and casual provided they have worked for two hundred forty days preceding the date of retrenchment. In this connection plethora of judgements are available in the field and reference may be made to Umesh Saxena vs. Presiding Officer , Labour Court, Agra, 1993 LLR 118, Vinubhai Rameshbhai Harijan V. Industrial Training Institute, 2017 LLR (SN) 442 (Guj HC), Chairman-cum MD, Orissa Road Transport Company Ltd. Vs. Ramesh Chandra Gouda 1995 LLR 458 (Ori HC), Director Food and Supplies, Punjab V Parkash Singh 2012 LLR 440 (SN), Municipal Corporation of Delhi Vs Praveen kumar Jain AIR 1999 SC 1540. Further, before we conclude a word of caution. The Executive of an establishment can be also treated as a workman under the Act if he is not vested with administrative or decision-making powers. In Kulwant Singh V. Reliance Petrochemicals Ltd 2000 LLR 895 (Bom HC) it was held that mere nomenclature of the post is not the crucial test to decide whether the employee is a 'Workman' or not. It is a settled principle of law that unless an employer proves that the employee is employed in supervisory capacity, the employee will be treated as a 'Workman' (ref Keshod Nagar Palika Vs Pankajgiri Javergiri, 2000 LLR 416 Guj HC). Hence the provision of retrenchment willlikely to even apply to various executives of the organization to whom administrative and decision-making power are not being vested.

Deepanjan Dey, General Manager- HRM, Tata Steel BSL Ltd., Angul, Odisha