Shri Avineshwar Sawhney vs M/S.J.K.Industries Ltd.
2008 Latest Caselaw 1136 Del

                            Reportable
             IN THE HIGH COURT OF DELHI AT NEW DELHI

                           +RFA(OS)No.27 of 1986

                                            Date of Hearing: 10.07.2008
                                            Date of Decision: 25.07.2008


#Shri Avineshwar Sawhney            ....                       Appellant

!                                   Through: Mr. S.C.Dhanda,Advocate


                       Versus


$M/s.J.K.Industries Ltd.            .....                   Respondent

^                               Through Mr.Anoop Bagai with Mr.Devendra
                                                    Nautiyal,Advocates.




CORAM :-
*THE HON'BLE MR.JUSTICE A.K.SIKRI
THE HON'BLE MR. JUSTICE MANMOHAN SINGH

       1.Whether Reporters of Local papers may be allowed to
         see the Judgment?
       2.To be referred to the Reporter or not?
       3.Whether the judgment should be reported in the Digest?


A.K. SIKRI, J.

:

1. The appellant herein (plaintiff in the Suit) was an employee of

the respondent J.K.Industries Ltd. He was employed as

Production Manager in the Tyres and Tubes Division of the

respondent vide appointment letter dated 4.9.1975. A service

agreement was also executed between the appellant and the

respondent on 24.10.1975. After few months the respondent

sent the appellant to America for training at the plant of the

General Tyres International at Akron-OHIO and Waco-Texas. An

agreement for training abroad was also executed in this behalf

on 6.1.1976. After completion of the training course in the

United States of America the appellant returned to India and

rejoined his duties on 5.4.1977 as a Production Manager.

2. Five months after resumption of duties, his services were

terminated vide letter dated 6.9.1977 and he was asked to

settle his dues at the Head Office at New Delhi. The appellant

challenged his termination by filing Suit No.746/1978 in this

Court. The case put up by him was that as per the terms and

conditions of the appellant, he was entitled to serve for a

minimum period of 5 years from the date of joining and he had

a right to continue till 31.5.1981. He thus sought damages on

the plea that termination of his services was wrongful and

contrary to his terms and conditions of his appointment. He

claimed damages in the form of arrears of salary from 6.9.1977

to 31.5.1981. In addition he also claimed employer's

contribution to the provident fund, damages on account of loss

of perquisites, refund of security deposit, interest and pay in

lieu of privilege leave earned upto the termination of the

services. He also sought declaration to the effect that he was

entitled to retain the car on payment of Rs.5,460/- payable

under subsidized car purchase scheme in force in the

respondent company.

3. By the impugned judgment and decree dated 19.9.1985 the suit

of the appellant is partly decreed. It is held that he is entitled to

six days salary of September,1977, three months notice pay,

arrears of salary due to increment for the period July and

August,1977. He is also given privilege leave earned pay to the

tune of Rs.4,224.70p. The learned Single Judge has held that

the appellant is also entitled to security deposit of Rs.2,804/-

besides interest of Rs.167.44p thereupon. In this manner, a

decree in the sum of Rs.18,355.61p is passed in his favour.

Insofar retention of Fiat car by the appellant is concerned,

declaration to that effect is also granted in his favour on

payment of Rs.5,460/-. The ultimate relief granted on this basis

is that out of 18,355.61p, Rs.5,460/- would be deducted as

balance price of the car and decree for net amount of

Rs.12,895.61p with proportionate costs of the suit is passed in

his favour and against the respondent. Pendente lite interest

@ 6% p.a. is also granted. Insofar as issue of the validity of the

termination is concerned, that is decided against the appellant

and, therefore, holding the termination to be valid and lawful,

no damages on this account are granted in his favour. Suit to

that extent is dismissed.

4. The appellant has filed this appeal challenging the findings on

this aspect as his grievance is that his services were wrongfully

terminated and he is entitled to damages. Since the

respondents have accepted these findings which have gone

against them on the basis of which decree in the sum of

Rs.18,355.61p minus Rs.5,460/- passed and decretal amount

also stands paid to the appellant herein, in this appeal we are

concerned only with the issue relating to the termination of the

appellant's services.

5. On this aspect, following two issues were framed by the Trial

Court:

1. Whether the defendant was obliged under the terms of employment to retain the plaintiff in service for a minimum period of five years and the

termination of the employment of the plaintiff was contrary thereto? O.P.P.

2. In case the issue No. 1 is decided in favour of the plaintiff, whether the defendant lost confidence in the capacity of the plaintiff as production manager? If so, could the defendant terminate the services of the plaintiff as was done? O.P.D.

6. The two issues, as framed above, give an indication about the

nature of dispute. It was the case of the appellant that the

terms of the conditions of the employment provided that the

appellant would have right to serve for a minimum period of 5

years with the respondent and, therefore, his services could not

be terminated before the expiry of the said 5 years. The

respondent on the other hand contended that there was no

absolute embargo cast upon the respondent which obliged the

respondent to retain the services of the appellant for a

minimum period of 5 years and his services could be terminated

before the expiry of said 5 years also. It was also pleaded that

as the respondent lost confidence in the appellant, his services

had to be terminated before the said period of 5 years lapsed.

7. On issue no.1 the learned Single Judge held that though

ordinarily security of tenure of 5 years is assured to the

appellant by the respondent in the terms of contract of

employment, at the same time it was not made an impregnable

tenure service contract. There was no absolute obligation to

keep in service for a minimum period of 5 years and in

exceptional extra-ordinary circumstances the tenure could be

put to an end. In view of aforesaid finding on issue no.1, the

learned Single Judge was of the opinion that issue no.2 would

not even arise. However, he still proceeded to hold that reason

given by the respondent, namely, services of the appellant were

dispensed with as he had become ineffective as Production

Manager and could not bring up production, improve the quality

and productivity was a justifiable reason and once that was the

reason assigned for terminating the services, it was not

necessary for the respondent to produce other evidence for its

subjective satisfaction to terminate the services of the appellant

under the terms of the contract. On this premise both the

issues have been decided against the appellant and in favour of

the respondent.

8. Before we proceed to take note of the arguments advanced by

learned counsel for the parties, it would be necessary to glance

through the relevant Clauses of different agreements executed

between the parties. In the Appointment Letter dated 4.9.1975,

Clauses 1 and 2 are material which read as under:

"1. That you agree to serve the Company for a minimum period of five years with effect from the date of your joining duties and you shall execute a service agreement to this effect.

2(a) That during the subsistence of the service agreement referred to in Clause 1 above, your services shall be terminable as per terms of the said agreement.

(b) That on completion of agreed tenure of five years from the date of your joining, your services can be terminated by giving three months' notice or pay in lieu thereof from either side........."

9. Service Agreement which was executed between the parties on

24.10.1975 contain Clauses 10 and 11 which are necessary for

our purposes and the same are reproduced below:

"10. That if at any time during his employment the said employee shall be guilty of misconduct or any willful breach or continuous negligence of the terms of this agreement or dereliction of the duties and/or instructions given to him from time to time by the Company, the Company may, without any notice or payment in lieu of any notice, put an end to and determine the employment of the said employee with the Company. The employee shall be deemed to have brought about such a situation by his misconduct compelling the Company, to put an end to his services and the employee shall, therefore, continues to be liable for all losses/damages to the Company.

11. That the employer shall not ordinarily terminate the services of the employee during the agreed tenure of five years, but if it becomes necessary to dispense with the services of the employee for any reason other than those mentioned in Clause 10

thereof, the employer shall give three months notice or pay in lieu thereof to the Company."

10. Likewise in the Agreement dated 6.1.1976 which was

executed at the time when the appellant was sent for training

abroad, relevant Clauses are Clauses 4 and 5 which make the

following reading:

"4. That if at any time during his employment the said employee shall be guilty of misconduct or any willful breach or continuous negligence of the terms of this agreement or dereliction of the duties and/or instructions given to him from time to time by the Company, the Company may, without any notice, put an end to and determine the employment of the said employee with the Company. The employee shall be deemed to have brought about such a situation by his misconduct compelling the Company to put an end to his services and the employee shall, therefore, continue to be liable for all losses/damages to the Company.

5. The company shall not ordinarily terminate the services of the employee during the continuance of the agreed tenure of five years except for the reasons mentioned in Clause 4 above, but if it becomes necessary to dispense with the services of the employee, the Company shall give three months' notice or pay in lieu thereof to the employee and the Company shall not claim any refund of the amount which it has spent or travel and training. "

11. The submission of learned counsel for the appellant on the

basis of aforesaid Clauses in different Agreements was that a

minimum tenure of 5 years of service was ensured to the

appellant as Clause 2(b) provided that service could be

terminated by giving three months' notice or pay in lieu thereof

from either side only on completion of agreed tenure of 5 years.

Otherwise before the expiry of 5 years the services of the

appellant could be terminated only if he was found guilty of

misconduct or any wilful breach of continuous negligence or

dereliction of the duties or instructions given to him from time

to time in view of Clause 10 of Service Agreement dated

24.10.1975. Otherwise Clause 11 mandated, argued the

learned counsel, that his services were not to be terminated

during the agreed tenure of 5 years. He submitted that this

very position was reinforced and reinstated in Service

Agreement dated 6.1.1976.

12. The learned counsel for the respondent on the other hand

supported the judgment of learned Single Judge on the basis of

reasoning contained therein.

13. We have considered these submissions and have also gone

through the material on record including the evidence led by

the parties. We may say at the outset that it was a common

case of the parties that the outcome of Issue No.1 depends

upon the Clauses of the appointment letters/service agreements

already extracted above. We may also at this stage remark that

we agree with the observations of the learned Single Judge to

the effect that the termination of the services of the appellant

would give him by itself no cause of action if it was in terms of

the contract. The learned Single Judge has remarked that the

appellant was neither the civil servant nor the `workman' within

the meaning of Industrial Disputes Act,1947 and therefore, he

was not entitled to any Constitutional or statutory protection.

It is also remarked that order of termination as imparted does

not cast any stigma and is innocuous in nature. Vide termination

letter dated 6.9.1977 the appellant was informed that `you are

hereby relieved of your appointment as Production Manager'.

At the same time if it is found that the termination is not in

accordance with the terms and conditions of the contract of

employment, the Civil Court is empowered to give a declaration

to this effect. In that eventuality the person like the appellant,

who is not under any protective umbrella insofar as continuity of

service is concerned, would be entitled to damages. There is no

quarrel about this statement of law. In fact the appellant

knowing fully well this limitation and position in law did not ask

for reinstatement of service but claimed damages only.

14. The question, therefore, is as to whether the appellant had

any contractual right to serve for a minimum period of five

years and whether his services could be terminated before the

time of expiry of five years? If so, on what grounds?

15. Conjoint reading of Clauses 1 and 2 of the Appointment

Letter dated 4.9.1975 would make it clear that the appellant

had agreed to serve the respondent for a minimum of five years

for which he had executed Service Agreement. During the

subsistence of this Agreement i.e. during the period of five

years his services could be terminated as per the terms of the

said Service Agreement. On the completion of five years, it

could be terminated by either side giving three months notice.

Services have been terminated before five years as per Clause

2(a) of the terms and conditions mentioned in the Appointment

Letter. This premature termination is permissible under two

Clauses viz. Clause 10 and Clause 11. Clause 10 of the Service

Agreement dated 24.10.1975 stipulates that service can be

terminated during his employment on the following grounds:

       (a)    If he is guilty of misconduct or

       (b)    if he is guilty of willful breach or

       (c)    if he is guilty of continuous negligence of the terms of the

              Service Agreement or


        (d)    if he is guilty of dereliction of the duties and/or instructions

given to him from time to time by the respondent.

Admittedly, the provisions of Clause 10 were not invoked.

16. Clause 11, which is positioned in the Service Agreement

immediately after Clause 10, stipulates that the employer shall

not ordinarily terminate the services of the employee (i.e. the

appellant) during the agreed tenure of five years. At the same

time, it is also added that if it becomes necessary to dispense

with the services of the appellant for any reason other than

those mentioned in Clause 10, the employer i.e. the respondent

shall give three months notice or pay in lieu thereof to the

appellant. Justifiability of the action of the respondent is to be

judged under this Clause. Clause-4 of Training Agreement

dated 6.1.1976 is pari materia of Clause 10 of Service

Agreement and Clause-5 of the Training Agreement is re-

production of Clause-11 of the Service Agreement. Thus the

position contained in Service Agreement is reiterated in the

Training Agreement also.

17. It is clear from the reading of the Clause 11 that in addition

to the circumstances mentioned in Clause 10, there can be

other reason for which the services of the appellant could be

terminated. Clause 11 opens with stipulation that the

respondent would not "ordinarily terminate the services of the

employee during the agreed tenure of five years". However,

the word `ordinarily' mentioned in the opening sentence itself

indicates that though normally services are not to be

terminated before the agreed tenure of five years, there can be

occasion when services could be terminated even before the

expiry of the said period. This power is specifically given in

Clause-11. In view of our aforesaid interpretation of these two

Clauses, we hold that the learned Single Judge is right in

commenting that though it was agreed that the respondent

would not ordinarily terminate the services of the appellant

during the five years period but that was not made an

impregnable tenure service contract. Interpreting Clauses 10

and 11 of the Service Agreement, the learned Single Judge has

made following remarks:

"Clause 10 of Ex. P-1 reserved the right in the defendant to terminate forthwith the employment in case the plaintiff was guilty of misconduct or any willful breach or continuous negligence or dereliction of the duties. In that case, the plaintiff was liable for losses/damages to the defendant as stipulated therein. Similar is the stipulation for termination on account of misconduct in Clause 4 of Ex. P-2, the

agreement for training abroad. Clause 4 of Ex. P-2 cast a liability on the plaintiff to pay the defendant as and by way of liquidated damages a sum of Rs. 71,000/-, if the plaintiff left the services of the defendant before the completion of the service period of five years or brought about a situation by misconduct compelling the defendant to terminate the plaintiff's services. If the services were terminated by reason of misconduct contained in Clause 4 Ex. P-2 , then there was further undertaking of the plaintiff in operation that he would not carry on either alone or in partnership or be employed with any concern or be interested directly or indirectly in any capacity in the business of tyre and tubes. There are other restrictive clauses but they also become operative only if the termination was on account of misconduct under Clause 10 of Ex. P-1 and under Clause 4 of Ex.P-2 . The two agreements, Exs. P-1 and p-2 specifically empower the defendant to terminate the services of the plaintiff on account of his misconduct and in that case the plaintiff would have been liable for damages.

There is also another power reserved by the defendant for termination of the services simplicitor in Exs.P-1 and P-2 . The security of tenure of five years is assured to the plaintiff by the defendant when it is agreed that the defendant would not ordinarily terminate the services of the plaintiff during that period. At the same time it is not made an impregnable tenure service contract. There is no absolute obligation to keep the plaintiff in service for a minimum period of five years. The word "ordinarily" has been devisedly used that in normal situations the security of tenure would be respected. In exceptional or extraordinary circumstances the tenure could be put to an end. This is further made clear by the use of the words "if it becomes necessary to dispense with the service". It becomes inevitable. Situations or circumstances may arise when it becomes indispensable. In that case the agreements specifically empowered the termination by giving three months' notice or pay in lieu thereof and the defendant could not claim any refund of the

amount which it had spent on travel abroad and training."

We are in agreement with the aforesaid reasons given by

the learned Single Judge in support of his findings on Issue No.1.

Accordingly, we affirm the same. Having held that the tenure of

the appellant's service could be put to an end even before the

expiry of five years period, the next question would be as to

under what circumstances that could be done. For this, we will

have to consider the impact of the above discussion under Issue

No.1.

18. We initiate this discussion by commenting that we do not

agree with the observations of the learned Single Judge that in

view of findings on Issue No.1, Issue No.2 does not arise. The

learned Single Judge has accepted that the word `ordinarily'

occurring in Clause-11 would indicate that in normal situation

the security of tenure is to be respected and the tenure can be

put to an end prematurely only in extra-ordinary circumstances.

Then, onus is upon the respondent to show that there were

justifiable reasons and circumstances for terminating the

services of the appellant before the expiry of five years period.

Therefore, the issue No.2 would still survive and will have to be

considered on merits. This is more so when the plea is taken by

the respondent that the services of the appellant were

terminated as it had allegedly lost confidence in him and the

issue is worded accordingly which revolves on this aspect.

Whether this issue is decided properly by the learned Single

Judge, is the question for consideration.

19. As pointed out above, it was pleaded that the respondent

company has lost confidence in the appellant and in his

capacity to discharge his duties and also that the appellant had

become ineffective Production Manager and could not bring up

production, improve the quality and productivity and learned

Single Judge accepted the statement of the respondent witness

Shri P.R.Surana, Personnel Officer to this effect and observed

that it was necessary for the respondent to produce any

evidence for its subjective satisfaction. The entire discussion on

this is contained in the following words:

"In this case, however, it is pleaded that the defendant-company lost confidence in the plaintiff and in his capacity to discharge his duties and that the plaintiff became ineffective as Production Manager and could not bring up production, improve the quality and productivity. Shri P.R. Surana, Personnel Officer of the defendant deposed that Brig. Sawhney called upon the witness and told him that the services of the plaintiff be terminated as Production Manager as he was ineffective and that

the quality of the production was not up to the mark. It was necessary for the defendant to produce other evidence for its subjective satisfaction to terminate the services of the plaintiff under the terms of the contract. The termination of the employment of the plaintiff is thus not open to challenge. I hold issue No. 2 in favour of the defendants".

20. We are unable to agree with the aforesaid approach

adopted by the learned Single Judge. Once the learned Single

Judge has himself recorded his finding while deciding Issue No.1

that in exceptional or extra-ordinary circumstances the tenure

of the appellant can be put to an end before the expiry of five

years "if it becomes necessary to dispense with the services" it

was for the respondent to prove that such circumstances did

exist. Reason given is that the appellant had become

ineffective as the Production Manager, inasmuch as he could

not bring up production and improve the quality and

productivity. It was necessary for the respondent to support

this reason by adequate material. It was not done. Mere

statement of the witness of the respondent is treated as gospel

truth by the learned Single Judge with the remarks that it was

the "subjective satisfaction" of the respondent. Such subjective

satisfaction had to be on objective considerations. This is

because of the reason that in normal circumstances the

appellant was given the security of tenure of five years which

tenure, even according to the learned Single Judge himself, was

to be respected "in normal situation". We may point out at this

stage that the appellant had specifically refuted this averment

of the respondent by putting specific question in the cross-

examination that during his period not only the quantity but the

quality of production had improved. In view of this stand of the

appellant and onus of the issue upon the respondent, the

burden lay on the respondent to place on record necessary

material to show that quality as well as quantity of production

had gone down during the period when the appellant was in

charge of the production on the basis of which opinion was

formed that he had become ineffective as Production Manager.

Mere ipse dixit of the respondent in this behalf would not

suffice. If such a statement is to be treated as gospel truth, it

would have the effect of taking away the security of tenure

otherwise provided to the appellant, ordinarily such carte

blanche power is not bestowed on the employer under the

contract of employment. We, therefore, do not subscribe the

view of the learned Single Judge and are of the opinion that the

respondent could not produce any material to show that it had

lost confidence in the capacity of the plaintiff/appellant as

Production Manager.

21. At this stage it would be necessary to advert to the

meaning of expression "loss of confidence" as judicially

interpreted. This exercise is necessary because of the reason

that the respondent had taken the plea that services of the

appellant herein were terminated for "loss of confidence".

Issue no.2 as framed by the Trial Court also specifically

encompasses within its scope, the question as to whether the

defendant/respondent lost confidence in the capacity of the

plaintiff/appellant as Production Manager and could terminate

the services of the plaintiff as was done. The expression "loss

of confidence" has come up for consideration before the

Supreme Court time and again though in a case under Industrial

Disputes Act. However, whether the principle is applied in case

of industrial workman or a non-workman employee who is

managerial cadre, the contours and ramification of the

expression "loss of confidence" would remain unaltered. With

this introduction, we may first take note of the judgment of the

Supreme Court in the case of L.Michael and another Vs.

M/s.Johnson Pumps Ltd. AIR 1975 SC 661 and the observations

made in para-22 of the said judgment would sub-serve our

purpose.

"22. Before we conclude we would like to add that an employer who believes or suspects that his employee, particularly one holding a position of confidence, has betrayed that confidence, can, if the conditions and terms of the employment permit, terminate his employment and discharge him without any stigma attaching to the discharge. But such belief or suspicion of the employer should not be a mere whim or fancy. It should be bona fide and reasonable. It must rest on some tangible basis and the power has to be exercised by the employer objectively, in good faith, which means honestly with due care and prudence. If the exercise of such power is challenged on the ground of being colourable or mala fide or an act of victimization or unfair labour practice, the employer must disclose to the Court the grounds of his impugned action so that the same may be tested judicially. In the instant case this has not been done. There is only the ipse dixit of the employer that he was suspecting since 1968 that the appellant was divulging secrets relating to his business. The employer has not disclosed the grounds on which this suspicion arose in 1968. Further, after 1968, the appellant was given two extra increments, in addition to his normal increments, as stated already, in appreciation of his hard work. This circumstance completely demolishes even the whimsical and tenuous stand taken by the employer. It was manifest therefore that the impugned action was not bona fide."

22. In the very first sentence the expression `employee' is

used in contradistinction to the word `workman' which lends

credence to our opinion that principle laid down would not be

limited to workman under the Industrial Disputes Act. It is of

general nature and the principle would be applicable in every

situation of employer-employee, in cases where employer wants

to terminate the services of his employee on the ground of loss

of confidence. This becomes further manifest from the reading

of the first sentence, once again, where it refers to an employee

"particularly one holding a position of confidence". Therefore,

the focus is on an employee that too holding a position of

confidence. It is for this reason that we are of the opinion that

principle laid down in para-22 would be applicable in the instant

case also. Once we remove this fog and apply the principle laid

down, the conclusion is inescapable. It is clear that the

employer has to prove its bona fide and reasonableness in

arriving at a belief or suspicion that it has lost confidence in the

concerned employee. Such an opinion is not to be mere whim

or fancy of the employer. In order to prove that it is a bona fide

action, the onus is upon the employer to prove that its belief or

suspicion rests on some tangible basis. In the present case, we

say at the cost of repetition, no such onus is discharged. We

are, therefore, of the opinion that the learned Single Judge

committed an error in holding that the subjective satisfaction of

the employer is sufficient even if it is not supported by any

evidence.

23. We, therefore, reverse the findings of learned Single Judge

on this issue and hold that the defendant/respondent could not

terminate the services of the plaintiff/appellant as was done.

Consequently, we are of the opinion that the termination of

services of the appellant before the expiry of five years was

unjustifiable in the facts and circumstances of the present case.

The findings on the aforesaid issue would mean that the

plaintiff/appellant is entitled to further relief of damages for

wrongful termination of services.

24. We may note at this stage that though the appellant had

claimed the damages in the form of salary from

September,1977 to May,1981 after the filing of the suit, the

appellant got employment with M/s.Dunlop India Limited w.e.f.

November,1978. In view thereof, Mr. Dhanda, learned

counsel appearing for the appellant fairly conceded that in

case the appellant succeeds, he shall be entitled to salary

from 6.9.1977 to October,1978 i.e. for a period of 14 months.

At the time of his termination the appellant was drawing a

salary of Rs.3,425/- per month. The appellant, therefore, shall

be entitled to salary for the aforesaid period at the rate of

Rs.3,425/- per month. The decree of this amount is also passed

in favour of the appellant and against the respondent herein.

The appellant shall be entitled to interest @ 6% per annum.

Having regard to the facts and circumstances of this case, we

are of the opinion that this interest shall be calculated w.e.f. the

date of the decree i.e. 19.9.1985 till its payment. The decree

shall stand amended accordingly. The Registry is directed to

prepare amended decree. The appellant shall also be entitled

to proportionate cost as well as counsel fee.

                                                        (A.K. SIKRI)
                                                          JUDGE




July 27, 2008                                     (MANMOHAN SINGH)
skk.                                                   JUDGE