Santosh Gupta v State Bank of Patiala (1980)

This is the judgment that buries, in terms, the argument that "retrenchment" keeps its dictionary meaning of discharging surplus labour. Employers had been running that argument on the strength of stray observations in Hariprasad Shivshankar Shukla, and several High Courts had accepted it. Santosh Gupta explains Shukla, holds that s. 2(oo) means what it plainly says, and overrules four High Court decisions — including the Kerala Full Bench in L. Robert D'Souza, which came back to the Supreme Court two years later and was reversed.

It is also the case for a practical proposition worth remembering: failing a confirmation test is not a disciplinary punishment, so a discharge on that ground is retrenchment and attracts s. 25F.

The appellant, Santosh Gupta, a woman workman, was employed in the State Bank of Patiala, The Mall, Patiala, from 13 July 1973 until 21 August 1974, when her services were terminated. There were some breaks in service of a few days, but the Court held them irrelevant to the decision: despite the breaks, she had admittedly worked for 240 days in the year preceding 21 August 1974.

Her case was that the termination was retrenchment within s. 2(oo), because it fell within none of the three excepted cases in the definition; and that being retrenchment it was bad for non-compliance with s. 25F.

The management's case was that the termination was not due to the discharge of surplus labour. It was due to her failure to pass the test which would have enabled her to be confirmed in service, and therefore was not retrenchment at all.

The Presiding Officer, Central Government Industrial Tribunal-cum-Labour Court, New Delhi, accepted the management's contention and decided against the workman by an award dated 9 July 1978. She appealed by special leave.

Section 25F prescribes that no workman employed in any industry who has been in continuous service for not less than one year shall be retrenched until — (a) he has been given one month's notice in writing indicating the reasons for retrenchment and the notice period has expired, or has been paid wages in lieu of notice; (b) he has been paid, at the time of retrenchment, compensation equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and (c) notice in the prescribed manner is served on the appropriate Government or specified authority. The proviso to clause (a) dispenses with notice where the retrenchment is under an agreement specifying the date of termination of service.

Section 2(oo) defines retrenchment as "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", excluding (a) voluntary retirement; (b) retirement on superannuation where the contract of employment so stipulates; and (c) termination on the ground of continued ill-health.

Chinnappa Reddy J's method is worth copying in an answer: read the section first, then test the reading against the precedents.

"If the definition of 'retrenchment' is looked at unaided and unhampered by precedent, one is at once struck by the remarkably wide language employed and particularly by the use of the words 'termination … for any reason whatsoever'."

The decisive point is drawn from the exclusions themselves. Voluntary retirement, and retirement on reaching superannuation, "can hardly be described as termination, by the employer, of the service of a workman" at all. Yet "the Legislature took special care to mention that they were not included". Why exclude what was never included? Because the Legislature understood the opening words to be very wide indeed. "This, in our opinion, emphasizes the broad interpretation to be given to the expression 'retrenchment'."

Hence the holding on construction: "if due weight is given to the words 'the termination by the employer of the service of a workman for any reason whatsoever' and if the words 'for any reason whatsoever' are understood to mean what they plainly say, it is difficult to escape the conclusion that the expression 'retrenchment' must include every termination of the service of a workman by an act of the employer."

There is one built-in limit, and it must be given: "The underlying assumption, of course, is that the undertaking is running as an undertaking and the employer continues as an employer, but where either on account of transfer of the undertaking or on account of the closure of the undertaking the basic assumption disappears, there can be no question of 'retrenchment' within the meaning of the definition contained in s. 2(oo)."

Hariprasad Shivshankar Shukla v A.D. Divakar held that retrenchment in s. 2(oo) did not cover the termination of the services of all workmen on a bona fide closure of an industry or on a change of ownership or management. Parliament responded by adding s. 25FF (transfer of undertakings) and s. 25FFF (closure), providing for compensation as if the workmen had been retrenched — what the Court called "deemed retrenchment".

The Court identified exactly where the misreading of Shukla comes from. There are "some observations which, if not properly understood with reference to the question at issue, seemingly support" the surplusage argument. The confusion stems from not appreciating two things: the question actually posed by that Bench, which was whether the definition extended to termination of all workmen when the industry itself ceases to exist on a bona fide closure; and that the reference to "discharge on account of surplusage" was illustrative and not exhaustive, made by way of contrast with discharge on account of transfer or closure of business.

After ss. 25FF and 25FFF, the position is settled: "Whatever doubts might have existed before Parliament enacted 25FF and 25FFF about the width of 25F, there cannot now be any doubt that the expression 'termination of service for any reason whatsoever' now covers every kind of termination of service except those not expressly included in s. 25F or not expressly provided for by other provisions of the Act such as ss. 25FF and 25FFF."

The Court insisted that ss. 25F, 25FF and 25FFF be read with their object in view: "to so compensate the workman for loss of employment as to provide him the wherewithal to subsist until he finds fresh employment." The very items excluded from the definition — voluntary retirement, superannuation, continued ill-health — confirm that object, because in none of them is the workman suddenly cast out.

Indian Hume Pipe Co. Ltd. v The Workmen was quoted for the nature of the compensation: it "is intended to give him some relief and to soften the rigour of hardship which retrenchment inevitably causes. The retrenched workman, suddenly and without his fault, thrown on the street and has to face the grim problem of unemployment … The object of retrenchment compensation is to give partial protection to the retrenched employee and his family to enable them to tide over the hard period of unemployment."

"Once the object of 25F, 25FF and 25FFF is understood and the true nature of the compensation which those provisions provide is realised, it is difficult to make any distinction between termination of service for one reason and termination of service for another."

Counsel for the Bank pressed that, notwithstanding the comprehensive language, "retrenchment" retained its original meaning of discharge on account of surplusage. The answer is short and quotable: "If the submission is right, there was no need to define the expression 'retrenchment', and in such wide terms. We cannot assume that the Parliament was undertaking an exercise in futility to give a long winded definition merely to say that the expression means what it always meant."

• State Bank of India v N. Sundaramoney — "'Termination … for any reason whatsoever' are the key words. Whatever the reasons every termination spells retrenchment." Termination "embraces not merely the act of termination by the employer but the fact of termination howsoever produced"; a composite order giving employment and simultaneously limiting it is caught, because "a preemptive provision to terminate is struck by the same vice as the post-appointment termination. Dexterity of diction cannot defeat the articulated conscience of the provision."
• Hindustan Steel Ltd v Presiding Officer, Labour Court, Orissa — held that there is nothing in Shukla inconsistent with Sundaramoney, Shukla having turned on bona fide closure of the whole business.
• Delhi Cloth and General Mills Ltd v Shambhu Nath Mukherjee — striking off the name of a workman from the rolls is termination of service and is retrenchment under s. 2(oo).
• Management of M/s Willcox Buckwell India Ltd v Jagannath and Employers in Relation to Digwadih Colliery v Their Workmen were distinguished: both were cases of termination on account of surplusage and therefore clear cases of retrenchment, throwing no light on the question at issue.

The discharge of the workman on the ground that she did not pass the test which would have enabled her to be confirmed was "retrenchment" within the meaning of s. 2(oo), and therefore the requirements of s. 25F had to be complied with.

The award of the Presiding Officer was set aside and the appellant was directed to be reinstated with full back wages, with costs.

Four High Court decisions which had followed the surplusage reading were overruled: L. Robert D'Souza v Executive Engineer, Southern Railway (Kerala Full Bench), The Managing Director, National Garage v J. Gonsalves, Goodlas Nerolac Paints v Chief Commissioner, Delhi, and Rajasthan State Electricity Board v Labour Court.

"Termination … for any reason whatsoever" in s. 2(oo) covers every termination of the service of a workman by an act of the employer, save the categories the section itself excludes and those separately provided for by ss. 25FF and 25FFF, the assumption being that the undertaking continues to run. A discharge for failure to pass a confirmation test is not a punishment inflicted by way of disciplinary action and is therefore retrenchment requiring compliance with s. 25F.