http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: UPTRON INDIA LIMITED

       Vs.

RESPONDENT: SHAMMI BHAN & ANR.

DATE OF JUDGMENT:       06/02/1998

BENCH: S. SAGHIR AHMAD, M. JAGANNADHA RAO

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S. SAGHIR AHMAD, J      Respondent 1  was appointed as an operator (Trainee) on 13.6.1980 in  the petitioner’s  establishment. On completion of training,  she was absorbed on that post with effect from 13.7.1981 and  was confirmed on 13.7.1982. She thus acquired the status of a permanent employee. 2.   With effect  from 7th  of November,  1984, respondent 1 proceeded,  and   remained  till   29th  January,  1985,  on maternity leave.  Thereafter, she  allegedly remained absent with  effect   from  30.1.1985   to  12.4.1985  without  any application for  leave and consequently, by order dated 12th April, 1985,  the petitioner  informed respondent 1 that her services stood  automatically terminated  in terms of Clause 17 (g) of the Certified standing Orders. Respondent 1 raised an  Industrial   Dispute  and   made  prayer  to  the  State Government in  1985 that  her case  may be  referred to  the Industrial Tribunal for adjudication. Her application, filed before  the   Deputy  Labour   Commissioner,  Lucknow,   was registered as  C.B. Case No. 310-1985. The State Government, by  its   order  dated  18.7.1990,  referred  the  following question  for   adjudication  to  the  Industrial  Tribunal, Lucknow:      "Whether  the  termination  of  the      services  of   female  Smt.  Shammi      Bhan, operator,  daughter  of  C.N.      Kaul,  by  the  management  by  its      letter dated  12.4.1985  is  proper      and legal. If not, the relief which      the employee will be entitled to?"      (Translated from Hindi) 3.   The Tribunal,  by its Award dated 21st July, 1992, held that the termination of services of respondent 1 amounted to "Retrenchment" within  the meaning  of Section  2(00) of the Industrial  Disputed   Act  and   since  all   other   legal requirements had  not been followed, the termination was bad and consequently  she was  entitled to reinstatement as also fifty per  cent of  back wages  from the date of termination till reinstatement. 4.   This Award  was challenged  by the petitioner through a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

Writ Petition  in the  Allahabad High  Court (Lucknow Bench) and  the   High  Court,   by  the  impugned  judgment  dated 28.10.1997,  dismissed   the  writ  petition  upholding  the findings of  the Tribunal  that termination  of respondent’s services was  "retrenchment". The  High Court  further  held that while  invoking the  provisions of  Clause 17(g) of the Certified Standing Orders, the petitioner ought to have been given an opportunity of hearing to respondent. 5.   Mr. Manoj  Swarup, learned  counsel appearing  for  the petitioner in  this Special  Leave Petition,  has  contented that since  there was a specific provision contained in Para 17(g) of  the Certified Standing Orders that if the employee overstays the  leave without  permission for more than seven days his  services would be liable to automatic termination, the Industrial Tribunal as also the High Court were wrong in holding that the termination of her services was bad. He has also contented that the termination of respondent’s services on account  of her  continued absence  would not  amount  to "retrenchment" as defined in Section 2(00) of the Industrial Disputes Act  (for short, ‘the Act 6’) and, therefore, there was no  occasion  for  the  High  Court  or  the  Industrial Tribunal to  grant reinstatement  or direct  payment of back wages. 6.   The Tribunal  as also  the High  Court have  recorded a categorical finding  of  fact  that  the  respondent  was  a permanent employee in the petitioner’s establishment. 7.   We have  to see whether the services of the respondent, who had  acquired the  status of a permanent employee, could be  terminated  in  the  mode  and  manner  adopted  by  the petitioner, who  maintains that  it was  done in  accordance with Clause  17 (g)  of the Certified Standing Orders and no grievance can,  therefore, be  raised by  the respondent  on that account. 8.   Before examining Clause 17(g) of the Certified Standing Orders, we  may point  out that  the concept  of  employment under industrial  law involves,  like any  other employment, three ingredients:      (i) management/industry/factory/           employer, who employs or, to           put it differently, engages           the services of the workman;      (ii) employee/workman,  that is  to           say, a  person who  works  for           the  employer   for  wages  or           monetary compensation; and      (iii) contract of employment or the           agreement between the employer           and  the  employee  whereunder           the employee/workman agrees to           render   services    to    the           employer, in  consideration of           wages,    subject    to    the           supervision and control of the           employer. 9.   The general  principles of  the Contract Act applicable to an  agreement between  two  persons  having  capacity  to contract, are  also applicable  to a  contract of industrial employment,  but  the  relationship  so  created  is  partly contractual, in  the sense that the agreement of service may give rise to mutual obligations, for example, the obligation of  the   employer  to   pay  wages  and  the  corresponding obligation of  the workman  to render  services, and  partly non-contractual, as the States have already, by legislation, prescribed positive obligations for the employer towards his workmen, as,  for example, terms, conditions and obligations

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

prescribed by  the Payment  of Wages  Act, 1936;  Industrial Employment (Standing  Orders) Act,  1946; Minimum Wages Act, 1948; Payment  of Bonus  Act, 1965; Payment of Gratuity Act, 1972 etc. 10.  Prior to the enactment of these laws, the situation, as it prevailed  in many  industrial establishments,  was  that even terms  and conditions of service were often not reduced into  writing  nor  were  they  uniform  in  nature,  though applicable to  a set of similar employees. This position was wholly  incompatible  to  the  notions  of  social  justice, inasmuch as there being no statutory protection available to the workmen, the contract of service was often so unilateral in  character   that  it   could  be   described   as   mere manifestation of  subdued wish  of the  workmen  to  sustain their living at any cost. An agreement of this nature was an agreement between  two unequals,  namely those  who invested their labour and toil, flesh and blood, as against those who brought in  Capital. The  necessary  corollary  of  such  an agreement was  the generation of conflicts at various levels disturbing industrial  peace and  resulting  necessarily  in loss of production and sometimes even closure or lock out of the industrial  establishment. In  order  to  overcome  this difficulty and  achieve industrial  harmony and  peace,  the Industrial  Employment   (Standing  Orders)  Act,  1946  was enacted requiring  the management to define, with sufficient precision and  clarity, the  conditions of  employment under which the  workmen were working in their establishments. The underlying object  of the Act was to introduce uniformity in conditions of  employment  of  workmen  discharging  similar functions in  the same  industrial establishment  under  the same management  and to  make  those  terms  and  conditions widely known  to all  the workmen  they could  be  asked  to express their willingness to accept the employment. 11.  The Act  also aimed at achieving a transition from mere contact between  unequals to  the conferment  of "Status" on workmen through  conditions  statutorily  imposed  upon  the employers by  requiring every  industrial  establishment  to frame "Standing  Orders" in  respect of matter enumerated in the Schedule  appended to  the Act.  The standing  Orders so made are  to be  submitted to  the certifying officer who is required to make an enquiry whether they have been framed in accordance with the Act and on being satisfied that they are in consonance  with provisions  of the Act, to certify them. Once the  standing orders  are  so  certified,  they  become binding upon  both the parties, namely, the employer and the employees. The  certified Standing  Orders are also required to be  published in  the manner  indicated by  the Act which also sets  out the  Model Standing  Orders. Originally,  the jurisdiction  of  the  Certifying  Officer  was  limited  to examine the  draft Standing Orders and compare them with the model Standing  Orders. But  in 1956,  the Act was radically amended and  Section 4  gave jurisdiction  to the Certifying Officer, as  also the Appellate Authority, to adjudicate and decide the questions, if raised, relating to the fairness or reasonableness of any provision of the Standing Orders. 12.  In pursuance of the above powers, the petitioner framed its own  Standing Orders  which have  been  duly  certified. Clause  17(g)   of  the  Certified  Standing  Orders,  which constitutes the  bone of  contention between the parties, is quoted below:      "The  services  of  a  workman  are      liable to  automatic termination if      he  overstays   on  leave   without      permission  for   more  than  seven      days.  In  case  of  sickness,  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

    medical   certificate    must    be      submitted within a week." 13.  It was  in pursuance  of the  above provision  that the services of the respondent were terminated by the petitioner by observing in its letter dated 12th April, 1985, as under:      "The services  of Mrs. Shammi Bhan,      Token  No.   158,  Operator  ceased      automatically      from      Uptron      Capacitors   Ltd.,   Lucknow   with      immediate  effect,   in  accordance      with  the   clause  17(g)   of  the      Certified Standing orders of Uptron      Capacitors Limited." 14.  Respondent No.1, admittedly, was a permanent employee. 15.  Conferment  of   ‘permanent’  status   on  an  employee guarantees security  of tenure.  It is now well settled that the services  of a  permanent employee,  whether employed by the Government, or Govt. company or Govt. instrumentality or Statutory Corporations  or any  other "Authority" within the meaning of  Article 12,  cannot be  terminated abruptly  and arbitrarily, either by giving him a month’s or three months’ notice or  pay in  lieu  thereof  or  even  without  notice, notwithstanding that  there may  be a  stipulation  to  that effect either in the contract of service or in the Certified Standing Orders. 16.  This Court  in West  Bengal State  Electricity Board  & Ors. vs.  Desh Bandhu  Ghosh &  Ors. (1985)  3 SCC 116. held that any provision in the Regulation enabling the management to terminate  the services of a permanent employee by giving three months’ notice or pay in lieu thereof, would be bad as violative  of   Article  14  of  the  Constitution.  Such  a Regulation was  held to be capable of vicious discrimination and was  also held  to be  naked ‘hire  and fire’ rule. This view  was  reiterated  in  Central  Inland  Water  Transport Corporation Limited  & Anr.  vs. Brojo  Nath Ganguly  & Anr. (1986) 3 SCC 156. 17.  Again in  O.P. Bhandari  vs. Indian Tourism Development Corporation Ltd.  & Ors.  (1986) 4  SCC 337, this Court held that  Rule  31  (v)    of  the  Indian  Tourism  Development Corporation (Conduct.  Discipline  &  Appeal)  Rules,  1978, which provided  that the  services of  a permanent  employee could be  terminated by giving him 90 days’ notice or pay in lieu thereof,  would be  violative of  Articles 14 and 16 of the Constitution. 18.  The whole  case law  was reviewed  by the  Constitution Bench in  Delhi Transport  Corporation  vs.  D.T.C.  Mazdoor Congress &  Ors. 1991  Supp (1) SCC 600, and except the than Chief Justice  Sabyasachi Mukharji, who dissented, the other 4 judges  reiterated the earlier view that the services of a confirmed employee  could not  be legally  terminated  by  a simple notice. 19.  This being the legal position, the action taken against the respondent, who, as pointed out earlier, was a permanent employee, was wholly illegal. 20.  There is  another angle  of  looking  at  the  problem. Clause 17(g),  which has been extracted above, significantly does not  say that  the services  of a workman who overstays the leave for more than seven days shall stand automatically terminated. What it says is that "the services are liable to automatic termination." This provision, therefore, confers a discretion upon  the  management  to  terminate  or  not  to terminate the  services of  an employee  who  overstays  the leave.  It   is  obvious  that  this  discretion  cannot  be exercised, or  permitted to  be exercised, capriciously. The discretion has  to be based on an objective consideration of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

all the circumstances and material which may be available on record. What  are  the  circumstances  which  compelled  the employee to  proceed on  leave; why he overstayed the leave; was there  any just and reasonable cause for overstaying the leave; whether he gave any further application for extension of leave;  whether any  medical certificate  was sent  if he had, in  the meantime, fallen ill? These are questions which would  naturally  arise  while  deciding  to  terminate  the services of  the employee  for overstaying  the  leave.  Who would answer  these questions  and  who  would  furnish  the material to  enable the  management  to  decide  whether  to terminate  or  not  to  terminate  the  services  are  again questions which  have an  answer inherent  in the  provision itself, namely, that the employee against whom action on the basis of  this provision  is proposed  to be  taken must  be given an  opportunity of  hearing. The principles of natural justice, which  have to  be read  into the offending clause, must be  complied with  and the employee must be informed of the grounds  for which  action  was  proposed  to  be  taken against him for overstaying the leave. 21.  This Court  in D.K.  Yadav vs.  J.M.A  Industries  Ltd. (1993) 3  SCC 259 has laid down that where the Rule provided that the  services of  an employee  who overstays  the leave would be  treated to  have  been  automatically  terminated, would be  bad as  violative of Articles 14, 16 and 21 of the Constitution. It  was further  held that  if any  action was taken on  the basic  of  such  a  rule  without  giving  any opportunity of  hearing to the employees, it would be wholly unjust, arbitrary  and  unfair.  The  Court  reiterated  and emphasised in  no uncertain terms that principles of natural justice would have to be read into the provision relating to automatic termination of services. 22.  Learned counsel  for the  petitioner has  placed strong reliance upon  a decision  of this Court in Civil Appeal No. 3486 of  1992, Scooters  India & Ors. vs. Vijay E.V. Eldred, decided on  10.301996, in support of his contention that any stipulation for  automatic termination  of services  made in the Standing  Orders could  not have  been  declared  to  be invalid. We  have been  referred to a stray sentence in that judgment, which is to the following effect:      "It is  also extraordinary  for the      High  Court  to  have  held  clause      9.3.12 of  the standing  orders  as      invalid." This sentence  in the  judgment cannot  be read in isolation and we  must refer  to the subsequent sentences which run as under:      "Learned counsel for the respondent      rightly made  no attempt to support      this  part   of  the  High  Court’s      order. In  view of the fact that we      are setting  aside the High Court’s      judgment, we  need  not  deal  with      this aspect in detail." 23.  In view  of this  observation, the question whether the stipulation  for   automatic  termination  of  services  for overstaying the  leave would  be legally bad or not, was not decided by  this Court  in the  judgment relied  upon by Mr. Manoj Swarup.  In that  judgment the  grounds on  which  the interference was  made were  different. The  judgment of the High Court  was set  aside on  the ground  that it could not decide the  disputed question of fact in a writ petition and the matter should have been better left to be decided by the Industrial Tribunal.  Further, the High Court was approached after more  than six years of the date on which the cause of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

action had arisen without there being any cogent explanation for the  delay. Mr.  Manoj  Swarup  contended  that  it  was conceded by  the counsel appearing on behalf of the employee that  the   provision  in   the  Standing  Orders  regarding automatic termination  of services  is  not  bad.  This  was endorsed by  this Court  by observing  that "Learned counsel for the  respondent rightly  made no attempt to support this part of  the High  Court’s  order."  This  again  cannot  be treated  to  be  a  finding  that  provision  for  automatic termination of services can be validly made in the Certified Standing Orders.  Even otherwise,  a wrong  concession on  a question of  law, made  by a  counsel, is not binding on his client. Such  concession cannot constitute a just ground for a binding  precedent. The  reliance placed  by Mr.  Manoj on this judgment, therefore, is wholly out of place. 24.  It will also be significant to note that in the instant case the High Court did not hold that Clause 17(g) was ultra vires but  it is  did hold that the action taken against the respondent to  whom an  opportunity of hearing was not given was bad. 25.  In view  of the  above, we  are of the positive opinion that any  clause in  the Certified Standing Orders providing for  automatic   termination  of   service  of  a  permanent employee, not  directly related to "production" in a Factory or Industrial  Establishment, would  be bad  if it  does not purport to provide an opportunity of hearing to the employee whose  services   are  treated   to  have  come  to  an  end automatically. 26.  We may  now consider  the  question  of  "Retrenchment" which is defined in Section 2(00) as under:-      "2(00)  ‘retrenchment’   means  the      termination by  the employer of the      service of a workman 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      a 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." 27.  The definition  of "Retrenchment" was introduced in the Act by  Act 43  of 1953  with effect  from 24th  of October, 1953, Clause  (bb) was  inserted in the definition by Act 49 of 1984 with effect from 18.8.1984. 28.  The  definition   is  conclusive   in  the  sense  that "retrenchment" has  been defined  to mean the termination of the service  of a  workman by  the employer  for any  reason whatsoever. If the termination was by way of punishment as a consequence of  disciplinary action,  it would not amount to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

"Retrenchment". Originally, there were two other exceptions, namely, (i)  voluntary retirement of the workman and (ii) retirement  of the  workman  on  reaching  the  age  of      superannuation if  the contract of employment contained      a stipulation to the effect. 29.  By the  Amending Act 49 of 1984, two further exceptions were introduced  in the  definition by  inserting (bb)  with effect from  18.8.84; one  was the termination of service on the ground  of continued  ill-health of  the workman and the other was  termination of  service on account of non-renewal of the  contract of  employment on the expiry of the term of that contract.  If such  contract of  employment contained a stipulation for  termination of  service and the services of the  workman   are  terminated   in  accordance   with  that stipulation, such  termination, according  to  Clause  (bb), would also not amount to "Retrenchment". 30.  What was  contended before  the Tribunal as also before the High  Court was  that the termination of the services of respondent was  covered by Clause (bb) of Section 2(00) and, therefore, it  could not  be treated  as "Retrenchment" with the result  that other statutory provisions, specially those contained in  Section 25F of the Act were not required to be complied with.  This argument  which was not accepted by the Tribunal and  the High  Court has  been stressed us also and here also  it must  meet the  same fate as it is without any substance or merit. 31.  From the facts set out above, it would be seen that the respondent was a permanent employee of the petitioner. There was no  fixed-term contract  of service  between them. There was, therefore,  no question of services being terminated on the expiry  of that contract. In the absence of a fixed-term contract between  the parties,  the question relating to the second contingency,  namely, that  the  termination  was  in pursuance of a stipulation to that effect in the contract of employment, does not arise. 32.  The contract  of employment  referred to in the earlier part of  Clause (bb) has to be the same as is referred to in the latter  part. This  is clear  by the  use of words "such contract" in  the earlier  part of  this  Clause.  What  the clause, therefore,  means is  that there  should have been a contract of employment for a fixed-term between the employer and the  workman containing  a stipulation that the services could be  terminated even before the expiry of the period of contract. If  such contract,  on the  expiry of its original period, is  not renewed and the services are terminated as a consequence  of   that  period,   it  would  not  amount  to "Retrenchment". Similarly,  if the  services are  terminated even before  the expiry  of the  period of  contract but  in pursuance of  a stipulation  contained in that contract that the services could be so terminated, then in that case also, the termination  would not  amount to  "retrenchment".  This view finds  support from a decision of this Court in Escorts Ltd. vs. Presiding Officer, (1997) 11 scc 521. 33.  This case does not fall in either of the two situations contemplated  by  Clause  (bb).  The  ‘Rule  of  exception’, therefore,  is  not  applicable  in  the  instant  case  and consequently  the   finding  recorded  by  the  Tribunal  on "retrenchment" cannot be disturbed. 34.  For the  reasons stated above, we find no merit in this petition which is dismissed at the SLP stage.