Remedy for illegal termination of an employee by Private employer [A Critical Analysis] By S. Sensharma


The terminations of employment of employees who are not workman are governed by the notice period in their employment contract. Termination rules for the employees will always be a daunting term for any employee. An employee’s lively hood is dependent upon them being in employment and earning their monthly salary and if that very livelihood is taken away, it can cast a gloom in their lives.

Having no recourse against the employer, they are bound by the rigid contract which persisted during the course of employment and in extreme cases; they knock the door of the civil Court to get a remedy which in turn take a countless number of years to be adjudicated by the Court.

When a person is employed by another, there is a mutual agreement between them to this purpose and the employee has agreed to the terms of the employment, then both the parties have said to be entered in a “Contract of Service”. It is also known as the “Employment Contract”. An Employment Contract is a legal document that outlines the terms of employment between an employer and an employee. There are no such specific guidelines which will certify the clauses in the agreement. In most cases, Employment Contracts are very specific about the process of terminating employment. This is mostly the case when the termination is by mutual agreement and in particular cases where contractual employment is set for a fixed period.

The notice period serves interests of both the employer and the employee. It gives the employee time to seek alternative employment and the employer time to substitute the employee with a new hire. In A P Flying Club vs S C Saxena reported in 1980 II LLJ 337, a Division Bench of the Andhra Pradesh High Court observed “obviously, the period of notice is generally prescribed, so that within that period the employee may be able to secure alternative employment. In some cases, even for resignation by an employee, such period is prescribed, the idea obviously being to enable the employer to secure a substitute employee within that period”.

A service of an employee may be terminated due to several factors like the closure of business; organizational re-structuring; employee’s inability to fulfill material obligations; inefficiency; misconduct; loss of confidence etc. A three-judge Bench of the Supreme Court in the matter of S S Shetty vs Bharat Nidhi Ltd reported in AIR 1958 SC 12 observed as under:

“The position as it obtains in the ordinary law of master and servant is quite clear. The master who wrongfully dismisses his servant is bound to pay him such damages as will compensate him for the wrong that he sustained. They are to be assessed by reference to the amount earned in the service wrongfully terminated and the time likely to elapse before the servant obtains another post for which he is fitted. If the contract expressly provides that it is terminable upon e.g., a month’s notice, the damages will ordinarily be a month’s wages………. No compensation can be claimed in respect of the injury done to the servant’s feelings by the circumstances of his dismissal, nor in the response of extra difficulty of finding work resulting from those circumstances.”

In Binny Ltd vs V. Sadasivan reported in 2005 (6) SCC 657, the issue arose out of the termination of the employee invoking clause 8 of the agreement dated 12.03.1991 entered into by the employees with the Company. As per clause 8 of the agreement, the Management had the right to terminate the services without assigning any reason by just giving one month’s notice or salary in lieu thereof. A Division Bench of the Supreme Court held as under:

“The decision of the employer in these two cases to terminate the services of their employees cannot be said to have an element of public policy. Their cases were purely governed by the contract of employment entered into between the employees and the employer. It is not appropriate to construe those contracts as opposed to the principles of Public policy and thus void under Section 23 of the Contract Act…… It can very well be said that a writ of mandamus can be issued against a private body which is not a State within the meaning of Article 12 of the Constitution…… But there must be a public law element and it cannot be exercised to enforce purely private contracts entered into between the parties”.

In Y K Sethi vs M/s BASF India Ltd, CS (OS) 1761/ 2006 decided on 11.08.2009, reported in 2009 VI AD (Delhi) 605 a Delhi High Court dealt with the issue “whether clause 8 of the appointment letter which related to termination by giving three months notice on either side or three month’s basic salary in lieu thereof is null and void in view of Section 23 of the Contract Act, 1872.” The Court held that for employees in the private sector when an employee comes forward to challenge a clause in the letter of appointment on the ground of it being opposed to public policy, such challenge will have to be preceded by some factual foundation. The Plaintiff has not been able to lay any such factual foundation in the instant case.”

In A. N. Shukul vs Philips India, CS (OS) 2188/ 2003 decided on 07.09.2009, the employer terminated the services of an employee on account of change in business plan. The employee was informed that the Company went through the process of re-organization and re-construction and due to such changes his services were no longer required. The Delhi High Court held that in terms of the appointment letter, the defendant had the right to terminate the employment of the plaintiff.

In Satya Narain Garg through his legal heir vs DCM Ltd, RFA No. 556/2002 decided on 05.12.2011, Delhi High Court observed as under:

“7. Merely because two views are possible, this Court will not interfere with the conclusion arrived at by the Trial Court, unless the conclusion is illegal or perverse or causes grave injustice. In the case of private employment, the employers are fully justified in taking steps for termination of services, if it finds that the employee is not upto the mark. Principles applicable in public law domain do not apply with respect to employees in private employment. Employment in private sector is governed by the terms and conditions of employment, and unless the termination is shown to be a violation of the terms and conditions of employment, it cannot be said that the termination is illegal. In the present case, in my opinion, since there was no fixed period of employment so far as the deceased plaintiff is concerned, the deceased plaintiff could have been terminated from services even by a simplicitor notice, assuming even if the services of the deceased plaintiff were upto the mark. Further, even if there is illegal termination of services, it is not possible to grant damages as claimed inasmuch as the principle of mitigation of damages squarely applies. As per this principle of mitigation of damages enshrined in Section 73 of the Contract Act, 1872 even if an employee is illegally terminated from services, he cannot sit at home and he must take sufficient steps to procure alternative employment. The law in this regard is contained in the judgment of the Supreme Court reported as S.S. Shetty v. Bharat Nidhi Ltd., AIR 1958 SC 12. Paras 12 and 13 of this judgment are relevant and the same read as under:
 
  1. The position as it obtains in the ordinary law of master and servant is quite clear. The master who wrongfully dismisses his servant is bound to pay him such damages as will compensate him for the wrong that he has sustained.
"They are to be assessed by reference to the amount earned in the service wrongfully terminated and the time likely to elapse before the servant obtains another post for which he fitted. If the contract expressly provides that it is terminable upon, e.g., a month's notice, the damages will ordinarily be a month's wages......... No compensation can be claimed in respect of the injury done to the servant's feelings by the circumstances of his dismissal, nor in respect of extra difficulty of finding work resulting from those circumstances. A servant who has been wrongfully dismissed must use diligence to seek another employment, and the fact that he has been offered a suitable post may be taken into account in assessing the damages."

  1. If the contract of employment is for a specific term, the servant would in that event be entitled to damages the amount of which would be measured prima facie and subject to the rule of mitigation in the salary of which the master had deprived him. (Vide Collier v. Sunday Referee Publishing Co. Ltd., 1940-4 ALL. E.R. 234 at p.237 (A). The servant would then be entitled to the whole of the salary, benefits, etc., which he would have earned had he continued in the employ of the master for the full term of the contract, subject of course to mitigation of damages by way of seeking alternative employment."
At this stage it would be appropriate to mention certain provisions of Specific Relief Act, 1963 which is as under:
 
Section 14(1) in the Specific Relief Act, 1963

(1) The following contracts cannot be specifically enforced, namely:—

(a) a contract for the non-performance of which compensation in money is an adequate relief;

(b) a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms;

(c) a contract which is in its nature determinable;

(d) a contract the performance of which involves the performance of a continuous duty which the court cannot supervise.

The above provisions were referred to by the Delhi High Court in the matter of GE Capital Transportation Financial Services Ltd vs Tarun Bhargava, RFA No. 294/2004 decided on 20.03.2012 wherein the Court in para 9 observed “In effect, therefore, there is sought specific performance of the contractual services and which is impermissible in law. I may note that the contracts of personal service are only enforceable where the employer is a Government Company or an arm of the State as per Article 12 of the Constitution of India. As per Section 14(1) (b) of the Specific Relief Act, 1963, a contract for personal service cannot be enforced. It held as under:
 
“11. Therefore, looking at the matter from the point of view of the contract of personal service not being enforceable under Section 14(1) (b) of the Specific Relief Act, 1963, the contract being determinable in nature and hence cannot be enforced as per Section 14(1) (c) of the Specific Relief Act, 1963 or that injunction could not be granted to prevent breach of a contract which cannot be specifically enforced, the suit was clearly barred and not maintainable. The judgment of the trial Court does not refer to the binding provisions of Sections 14(1) (b), (c) and 41(e) of the Specific Relief Act, 1963. To complete the discussion on this aspect, I would once again refer to the recent judgment of the Supreme Court in the case of Binny Ltd. (supra) and which specifically provides that in private contracts i.e. in strict contractual matters, there does not arise the issue of applicability of Administrative Law principles.”
 
It is pertinent to mention here that an S.L.P. against this judgment filed by Tarun Bhargava has been dismissed by a Division Bench of the Supreme Court on 3.8.2012 in S.L.P. No.21723/2012.
 
The Delhi High Court has decided the similar issue in the following matters based on the judgment of the Supreme Court in S S Shetty case. These are:
 
  1. Pawan Kumar Dalmia vs. M/s. HCL Infosystems Ltd. and Ors. in RFA Nos.180/2004, 235/2004 and 239/2004 decided on 13.3.2012.
  2. L M Khosla vs Thai Airways International Public Co. Ltd in CS (OS) 673/ 1997 decided on 01.08.2012.
  3. Vinod Pathak vs American Express Bank Ltd in CS (OS) 936/ 2004 decided on 23.09.2015.
  4. Naresh Kumar vs Hiroshi Maniwa in CS (OS) 393/2010 decided on 05.11.2015.
In Satpal Yadav vs M/s Cambata Aviation Pvt. Ltd. in RFA No. 622/2004 decided on 02.07.2013, Delhi High Court was called upon to decide as to whether termination of the services of the appellant was illegal, mala fide, wrongful, arbitrary, unconstitutional, unreasonable, without authority and in violation of the terms of employment and against the principles of natural justice and thus null and void; (ii) for recovery of Rs.16 lakhs as damages for wrongful termination of services of the appellant; and, (iii) for interest.  Here the employee was kept on probation and the clauses of the appointment letter stated “Your services are liable to be terminated at any time, even before the expiry of the probationary period without assigning any reason, and without giving any notice. The Management may however, extend the period of probation for a further specified period and thereby offer further opportunity of satisfy the Management as to your usefulness to the Company. On confirmation, your services can be terminated on giving one month's notice or one month's pay in lieu of notice and without assigning any reason.”

The Court held that the termination of the services of the appellant was in accordance with the contract of employment of the appellant with the respondent Company and the grounds urged to impugn the said employment are not available to the appellant. Once it is held that the termination is not illegal, the question of the appellant being entitled to any damages does not arise.
 
Conclusion:
 
In view of the aforesaid judgments, the following conclusions in law emerge:-

(i) A contract of private employment is not similar to the public employment and in such private employment there is no scope of applicability of the principles of administrative law/public law.
 
(ii) A contract of employment which provides termination of services by one month’s notice, then, at best the employee will only be entitled to one month’s pay in terms of the employment contract. An employee is not entitled to any relief of continuation in services or pay with consequential benefits for alleged remaining period of services till the date of his superannuation.
 
(iii) As per the provision of Section 14(1) (c) of the Specific Relief Act, 1963, a contract which is determinable in nature cannot be specifically enforced. Since the service contract in the present case is determinable by one month’s notice there does not arise the question of giving of any reliefs which tantamount to enforcement of a determinable contract. As per Section 14(1) (b), a contract of personal service cannot be enforced when the employer is not the Government or “State” as per Article 12 of the Constitution of India.
 
It is felt that time has come to enact legislation which will provide some protection to the employees of the private employer as the legal relationship is basically governed by the employment contract and employees are left with no bargaining power which leaves it to be decided at the complete discretion of the employer. 

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