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Any Reason Whatsoever In Sec 2(oo) & Judicial Interpretation

under Industrial Dispute Act, 1947


INTRODUCTION
Retrenchment is an act of cutting down or reduction, particularly of public expenditure. When a
company or government goes through retrenchment, it reduces outgoing money or expenditures
or redirects focus in an attempt to become more financially solvent. Many companies that are
being pressured by stockholders or have had flagging profit reports may resort to retrenchment to
shore up their operations and make them more profitable. Although retrenchment is most often
used in countries throughout the world to refer to layoffs, it can also label the more general tactic
of cutting back and downsizing. The word retrenchment' is an often used one in labour mattersand in the ordinary sense this term simply enough is associated with expenditure restructuring for
improving financial stability.
Retrenchment' was not defined in the original Industrial Disputes Act (I.D. Act), 1947 and
Section 2 (oo) basically tries to define retrenchment'. It does so in two parts- The first part is
widely worded and lays down that retrenchment means the termination of services of the
workman by the employer for any reason whatsoever', otherwise than in the way of punishment
meted out as disciplinary action. The second part puts forward certain conditions which will be
excluded from the definition of retrenchment'.1 The use of the abovementioned words, for any
reason whatsoever' in the definition, has caused some confusion as to its interpretation, even in
the judiciary.
The early cases, the most important of them being the Pipraich Sugar Mills case, Barsi Light
Railway Company case and Anakapalle opined that in day-to-day practice, an employee's
services come to be terminated, when his employer finds the same to be extra to his needs, in
other words, when his services become surplus' to his requirements. The words for any reason
whatsoever' came to be interpreted in the above sense, in the earlier years of the coming into
force of the I.D. Act. Later however, beginning from N. Sundara Money to Punjab Land
Development case a plethora of judgments held otherwise and opined that the words in
contention would include all cases of termination of employment by the employer. This has led
to great confusion regarding the definition of retrenchment' in the Indian judiciary. It would be
pertinent here to set out the scope of this project.
Whether the intention of the Supreme Court was to make the scope of definition of
retrenchment' really as restrictive as made out to be from the Pipraich and Barsi Light Railway
Co. Ltd. also known and referred here as the Shukla case. There was an attempt of reconciliation
between the conflicting positions in Shukla and Sundara money in a number of High Court
decisions, the most important of them being the L. Robert D'Souza case. How those decisions
were later evaluated by the Supreme Court shall be seen.

1 S.N.Mishra,Labour and Industrial Laws', Twenty-Sixth Ed., 2011 p.57

HYPOTHESIS
The researcher has made certain assumption in the beginning of the research project which is
going to be tested during the project, they are the following.
How the different courts in India has defined retrenchment' , Any Reason Whatsoever
In Sec 2(oo).
How a clear path of the evolution of the definition of retrenchment', Any Reason
Whatsoever in sec 2(oo) can be traced through such interpretations.
This project would mostly examine the important decisions by the judiciary on this
matter and trace the course of evolution of the definition of retrenchment', Any Reason
Whatsoever in sec 2(oo) with regard to these judgments.
SCOPE OF THE STUDY
The research is a doctrinal research. The researcher here would like to study though the judicial
viewpoints by its decision given in various cases. The researcher has tried to analysis the topic by
studying various authors, experts, cases of The Indian Apex Court and High courts, articles, etc.
The researcher has strictly followed the boundary and has studied only with reference to Indian
authors, experts, cases, etc.
METHODOLOGY
The present research study is mainly a doctrinal and analytical. Keeping this in view, the
researcher has gone through different books, journals, Web references, E-journal, reports etc. The
relevant material is collected from the secondary sources. Materials and information are
collected both legal sources like books.

RETRENCHMENT: THE LEGAL ASPECT


Section 2 (oo) deals with the definition of the term Retrenchment. 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
Voluntary retirement of workman
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
Termination of the service of the workman as the 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
Termination on the ground of continued ill-health.
ESSENTIALS OF RETRENCHMENT
Termination of service on the ground of surplus labour
The terminated service must have been capable of being continued for any reason but
should not be actuated by any motive of victimisation or unfair labour practice
Termination must be of surplus labour in a continuing industry; thus closure is not
retrenchment
The termination must be for proper reason such as economy, rationalisation, installation
of labour saving machinery, or any other industrial or trade reasons
Termination should not fall within the exclusion clause of the definition.
PROVISIONS RELATED TO RETRENCHMENT
Now that the law is settled on what retrenchment is, let us proceed to the provisions contained in
the Industrial Disputes Act, 1947, regarding the procedure to be followed in cases of
retrenchment.
Condition Precedent To Retrenchment:
Section 25F provides the conditions precedent to retrenchment. According to this section the
employer must satisfy the following conditions before retrenching an employee employed for a
period of continuous period of not less than one year the workman has been given one months notice in writing indicating the reasons for
retrenchment and the period of notice has expired, or the workman has been paid in lieu
of such notice, wages for the period of the notice:
the workman has been paid, at the time of retrenchment, compensation which shall be
equivalent to fifteen days average pay [for every completed year of continuous service]
or any part thereof in excess of six months and notice in the prescribed manner is served

on the appropriate Government [or such authority as may be specified by the appropriate
Government by notification in the Official Gazette].
Calculation of average pay is done by dividing the last drawn monthly salary by 25 and then
multiplying the dividend by 15 for every completed year of continuous work.
Section 25N also lays down the conditions precedent to retrenchment - No workman employed
in any industrial establishment to which this Chapter applies, who has been in continuous service
for not less than one year under an employer shall be retrenched by that employer until,-2

The workman has been given three months notice in writing indicating the reasons for
retrenchment and the period of notice has expired, or the workman has been paid in lieu
of such notice, wages for the period of the notice; and
The prior permission of the appropriate Government or such authority as may be
specified by that Government by notification in the Official Gazette (hereafter in this
section referred to as the specified authority) has been obtained on an application made in
this behalf.

Where an application for permission under sub-section (1) has been made, the appropriate
Government or the specified authority, after making such inquiry as it thinks fit and after giving
a reasonable opportunity of being heard to the employer, the workmen concerned and the persons
interested in such retrenchment, may, having regard to the genuineness and adequacy of the
reasons stated by the employer, the interests of the workmen and all other relevant factors, by
order and for reasons to be recorded in writing, grant or refuse to grant such permission and a
copy of such order shall be communicated to the employer and the workmen.
Where an application for permission has been made under sub-section (1) and the appropriate
Government or the specified authority does not communicate the order granting or refusing to
grant permission to the employer within a period of sixty days from the date on which such
application is made, the permission applied for shall be deemed to have been granted on the
expiration of the said period of sixty days.
PROCEDURE OF RETRENCHMENT
Section 25G lays down the procedure of retrenchment. Where any workman in an industrial
establishment, who is a citizen of India, is to be retrenched and he belongs to a particular
category of workmen in that establishment, in the absence of any agreement between the
employer and the workman in this behalf, the employer shall ordinarily retrench the workman
who was the last person to be employed in that category, unless for reasons to be recorded the
employer retrenches any other workman. The employer is also required to maintain a seniority
list of the workmen. The system of last in first out is to be followed in retrenching workmen.3

2 K.M Pillai, Labour and industrial laws 11 ed reprinted 2007 p.207

PROCEDURE FOR CALCULATION OF RETRENCHMENT COMPENSATION


While effecting retrenchment of the workmen, it is obligatory on the part of the employer to pay
retrenchment compensation at the rate of 15 days wages (for every completed year) to be
calculated at the last drawn salary of an employee. The calculation of compensation is to be
based from the date of appointment and in case an employee has completed 240 days, he will be
entitled to 15 days retrenchment compensation besides one months notice or salary in lieu
thereof as if he has worked for one year. 240 days includes Sundays or off days as well as
festival or national holidays. In case an employee has worked for more than one year, the
procedure is that in case the subsequent period of one year is less than six months then it will be
counted as one year for calculation of compensation. While making calculations the period of
notice is also to be taken into consideration.
ISSUES OF RETRENCHMENT

Changing market conditions


Growth beyond an entrepreneurs
Merging of two or more firms.
Economic crisis.
Change in Management.
Owners ill-health.

JUDICIAL INTERPRETATION ON SECTION 2 (OO)


Before the Supreme Court in Pipraich Sugar Mills Ltd. Vs Pipraich Sugar Mills Mazdoor
Union,4 the issue raised was whether the termination of services of workman on the ground of
closure of undertaking is retrenchment in terms of Section 2 (oo) of the Act. It was argued on
behalf of the workman that as ordinarily the term retrenchment means discharge of surplus
labour, and in the case of closure the whole work force is dispensed with and therefore, in
substance there is no difference between closure and normal retrenchment. However, the
Supreme Court did not accept this contention and held that retrenchment in ordinary parlance
means discharge of surplus labour and it cannot include discharge on closure of business5.

3 http://pdfdatabase.com/download/industrial-disputes-act-1947-pdf-9220407.html,
last visited on 03.10.2013.
4 AIR 1957 SC 95
5 S.N.Mishra,Labour and Industrial Laws', Twenty-Sixth Ed., 2011 p.73

In Hariprasad Shivshankar Shukla Vs A. D. Divikar 6, the issue raised before the Constitution
Bench of the Supreme Court was the interpretation and scope of the meaning of the term
retrenchment. The fact in this case was that the workmen were terminated due to closure of the
undertaking and they were claiming compensation under Section 25F of the Act. The SC
observed that the definition of retrenchment has four limbs7:

Termination of the service of a workman;


By the employer;
For any reason whatsoever; and
Otherwise than as punishment inflicted by way of disciplinary action.

The Supreme Court observed that the definition provided in Section 2 (oo) of the Act is
very wide but the real question is whether the term retrenchment has to be understood in its
ordinary accepted notion, i.e, discharge of surplus labour or does it even include the termination
of service of all workmen in an industry when the industry itself ceases to exist.The argument of
the workmen was that if the retrenchment is only to be understood as discharge of surplus labour
then the expression for any reason whatsoever used in Section 2 (oo) would be useless. The
SC did not agree to this contention and observed that when a portion of the staff or labour
force is discharged as surplus in a running or continuing business, the termination of
service which follows may be due to a variety of reasons.
e.g., for economy, rationalization in industry, installation of a new labour-saving machinery etc.
SC was of the view that the legislature, in using the expression 'for any reason whatsoever' in
effect states that it does not matter why you are discharging the surplus; if the other requirements
of the definition are fulfilled, it is retrenchment. In other words, the SC held that as the discharge
of surplus labour could be for a variety of reasons, the use of the expression for any reason
whatsoever has to be understood only in that context.
The SC in this case was of the view that the termination of workman due to closure of
undertaking is not retrenchment as it w would be against the entire scheme of the Act. The SC
also observed that the definition of retrenchment is discharge of surplus labour for any reason
whatsoever. It may also be important to note that the legislature introduced Section 25 FFF in the
Act after the ruling in Hariprasad which states that in case of closure of undertaking the
workman would be entitled to retrenchment benefits under Section 25 F of the Act.
This case is the same as the Barsi Light Railway Company Ltd. V. K.N. Joglekar8. In fact,
both the cases were taken together by the Court as both involved common question of law and
6 AIR 1957 SC 121
7 H.L. Kumar, Law Relating to Dismissal Discharge & Retrenchment, Third-Edition,
2010 p. 212.

were decided by a common judgment, which held up surplusage as the basis of the definition of
retrenchment. Some scholars have criticized the view that the decision in Shukla do not consider
anything other than surplusage as a basis of definition of retrenchment. According to them, this
decision cannot be analyzed without keeping the context in which it was made in mind. The
question before the Court here was whether termination of the services of workmen because of
closure or transfer of undertaking was included in the definition of retrenchment under Section
2(oo) of the I.D. Act.
The Court opined, and this is very important, that in the ordinary sense of the term'
retrenchment occurs because of labour surplusage in a continuing business. The Court examined
as to how far the ordinary meaning of retrenchment fits within the language of Sec. 2(oo), and
thus it instead of determining the full ambit of the definition in Sec. 2 (oo) was content to find
that retrenchment as defined in the Act included the ordinary meaning of retrenchment. Thus,
according to these scholars, the true scope of the term in Sec. 2(oo) was left open. It is submitted
here that this viewpoint might be correct to some extent because what the Court, according to
this author, does here is try to fit in the ordinary concept of retrenchment as the meaning
purported to the definition of retrenchment in Sec. 2(oo) instead of considering the other
meanings that can be described to it. Though it did concede that other interpretations might be
possible, the Court concluded the meaning fitting to Sec. 2 (oo) was based on surplusage.
The Court shows a tendency of presumption of accepting the ordinary meaning as the established
meaning of Sec. 2(oo). This is even clearer when we look at the following wording. When a
portion of staff or labour force is discharged as surplusage in a continuing business there are
termination of the services of a workman; by the employer; for any reason whatsoever; and
otherwise than by way of disciplinary action'.

It is clear from the above part of the judgment that the Court first presumes surplusage as a
condition precedent of retrenchment and then tries to fit it into the four essential requirements
mentioned in Sec. 2(oo). The Court also, as discussed above, modified the terms for any reason
whatsoever' according to their own need to justify any reason for surplusage instead of ascribing
to the words their natural meaning. So the Court in Shukla showed a tendency of artificially
imposing the ordinary meaning' of retrenchment on Sec.2(oo) by modifying it according to their
own needs while ignoring other possible interpretations. Soon after the decisions in Pipraich,
Shukla and a similar set of cases, where it was it was ruled that retrenchment under the I.D. Act
did not include termination of services of all workmen on a closure of the industry or change of
its management, the Act was amended to provide for the situations which these decisions held
were not covered by retrenchment'. The Parliament thus stepped in and inserted sections 25FF

8 AIR 1957 SC 121

and 25FFF providing for payment of compensation to the workmen in case of closure and
transfer of undertakings as if the workman had been retrenched'.9
In the case of Hathising Manufacturing Co. Ltd. v. Union of India 10, The Court clearly opined
that even though in these circumstances the termination of services of a workman was to be held
as deemed retrenchment' for the purposes of notice and compensation, by virtue of the earlier
Apex Court judgments, namely Pipraich and Shukla decisions, these cases still did not fall within
the definition of retrenchment in Sec. 2(oo) of the Act. Thus this was just a case of statutory
fiction'.
Following Hathising, a 5-judge bench of the Supreme Court in Anakapalle Co-Operative
Agriculture and Industrial Society v. Its Workmen 11, reconciled the old Sec. 25FF with the
amended Sec. 25FF. The decision explained that the old Sec. 25FF proceeded on assumption that
if the ownership of an undertaking was transferred, the cases of the employees affected by the
transfer would be treated as cases of retrenchment to which Sec. 25FF would apply. That is why
the section began with a non obstante clause and laid down that the change in ownership in itself
would not entitle the employees to compensation, provided the three conditions of the proviso
were satisfied. Thus, the Anakapalle decision did not change the position established by the
earlier decisions-retrenchment was to be understood in its ordinary meaning and thus as a result
of termination of surplusage, though retrenchment compensation was to be paid due to deemed
retrenchment' as envisaged by amended Sec. 25FF and 25FFF.
CONFLICTING RULING
A three judge bench of the Supreme Court again discussed this issue in the State Bank of India
Vs Shri N. Sundara Money12, The facts of this case were that the workman was hired on a fixed
term contract and on the efflux of the time the employed was to terminate. The issue before the
court was whether the termination of employment on expiry of a fixed term contract tantamount
to retrenchment. It may be noted that the exception that termination due to non-renewal of
contract is not retrenchment was only introduced on 18th August, 1984, that after the judgment
was delivered in this case. The argument on behalf of the employer was that as the termination
due to expiry of the contract was not discharge by employer and therefore the same cannot be
9 Dr.V.G.Goswami ,labour and industrial laws, central law agency 8th ed reprinted
2010 p 276
10 AIR 1960 SC 923
11 AIR 1963 SC 1489
12 AIR 1976 SC 1111

termed as retrenchment. The SC was of the view that the keywords in the definition of
retrenchment are termination for any reason whatsoever. 13 SC was of the view that a
termination takes place where a term expires either by an active step of the master or the running
out of the stipulated term. Termination embraces not merely the act of termination by the
employer, but also the fact of termination howsoever produced. The SC further held that the
courts must not consider the dictionary meaning of a term when the definition of that term in the
statute connotes a different meaning.
In effect, the SC was of the view that term retrenchment includes any termination for whatsoever
reason and the definition of the term retrenchment must not be construed by dictionary meaning
when the statute connotes a different meaning. It would be interesting to note that the ruling
delivered by the Constitution Bench of the SC in Hariprasad Shivshankar Shukla was not
referred to in this ruling of the SC14.

DECISIONS ON THE CONFLICT


This issue of contradictory rulings of SC was highlighted before a three judge bench of SC in
Hindustan Steel Ltd. Vs The Presiding Officer, Labour Court, Orissa 15, The facts of the case
were similar to the Sundra Money case as the question was whether termination of workman on
the expiry of the fixed term contract tantamount to retrenchment. The Counsel for the employer
accepted that in terms of the ruling of the SC in Sundra Money, the termination of workman on
expiry of the fixed term contract would tantamount to retrenchment. However, the Counsel
argued that the SC ruling in Sundra Money is in apparent conflict with the Constitutional bench
ruling of SC in Hariparsad, and as the Hariprasad ruling was delivered by a larger bench, the
Sundra Moneys case requires reconsideration. The SC observed that the decision in the
Hariprasad case was that the words for any reason whatsoever would not include a bonafide
closure of the whole business because it would be against the entire scheme of the Act. The SC
further observed that giving full effect to the words for any reason whatsoever would be
consistent with the scope and purpose of Section 25 F of the Act and not contrary to the scheme
of the Act. On this basis it was held that the decision in Sundra Money is not inconsistent with
Hariprasad.16
13 S.N.Mishra,Labour and Industrial Laws', Twenty-Sixth Ed., 2011 p.218.
14 , H.G, Abhayankar,Commentaries on the Industrial Disputes Act, 1947', Third
Ed., 2007,p.119.
15 AIR 1977 SC 238
16 O.P,Malhotra,The Law of Industrial Disputes', Fourth Ed., 1997, p.478.

A similar view was taken by the full bench of the Kerala High Court in L.Robert D Souza V
Executive Engineer ,Southern Railway17, wherein the Kerala High Court held that the
pronouncement by the SC in Hariprasad is a clear authority for the position that even under the
definition contained in Section 2 (oo), the expression retrenchment will take in only the cases of
termination of services of workman effected by way of discharge of surplus labour or staff. 18 The
High Court analyzed the Sundra Money and Hindustan Steel rulings and observed that the facts
of both these cases were that the employee was not required by the employer beyond the term of
the contract and therefore, they became surplus and termination on the ground of surplus is
retrenchment. On this ground High Court held that the proposition laid down in Hariprasad has
not been in any way departed from the ruling in Sundra Moneys case.
The issue of contradiction between Hariprasad and Sundra Money case once again came up for
consideration before the three judge bench of SC in Santosh Gupta Vs State Bank of
Patiala19 ,In this case, the argument forwarded was that since Hariprasad was delivered by a
larger bench therefore, it must prevail over the conflicting decision of Sundra Money. The SC
relied on Hindustan Steel ruling to hold that there was no inconsistency between Hariprasad and
Sundra Money. SC held that the Hariprasad case has been misunderstood and the Sundra Money
and Hindustan Steel laid down the correct law. The SC in this case also overruled various High
Court rulings which had relied on Hariprasad including Kerala High Court ruling in L.Robert
DSouza.
FINAL DECISION ON THE CONFLICT
It seemed that after Santosh Gupta case the issue had been finally settled as the SC in this
case had held that there was no conflict between Hariprasad and Sundra Money and therefore,
there was no question of Hariprasad having precedence over Sundra Money. However, the
dispute was far from over as the issue of contradiction between Hariprasad and Sundra Money
once again came up for consideration before the Constitutional bench of SC in Punjab
Land Development and Reclamation Corporation Limited Vs Presiding Officer,
Labour Court, Chandigarh20, The issue before the SC was whether the definition of
retrenchment in Section 2 (oo) of the Act only means discharge of surplus labour for any

17 AIR 1982 SC 854


18 H.L. Kumar, Law Relating to Dismissal Discharge & Retrenchment, Third-Edition,
2010 p. 425.
19 AIR 1980 SC 1219
20 AIR 1978 SC 78

reason whatsoever or it means termination of the workman by the employer for any reason
whatsoever other than the exception provided therein.
SC observed that the question to be determined was whether the interpretation given to Section 2
(oo) by Hariprasad is the obiter or the ratio. The SC was of the view that ratio of any ruling can
only be ascertained by an analysis of the material facts which the court whose decision is in
question itself holds to be material. The SC observed that in Hari prasad the question which the
Court put to itself for decision was whether Section 2 (oo) merely gives effect to the ordinary
accepted notion of retrenchment in an existing running industry or does it go beyond that to
include the termination of services of all workman in an industry when the industry itself ceases
to exist.21 The SC was of the view that the sole question for the decision in Hariprasad was that
the Act postulated the existence and continuance of an Industry and when the industry itself was
closed down the very substratum disappeared and the Act could not regulate the employment in
the absence of an industry. The question whether retrenchment did or did not include other
terminations was never required to be decided in Hariprasad and could not, therefore have been,
or taken to have been decided by this Court. In other words, the SC in this case held that the
interpretation of Section 2 (oo) in Hariprasad was orbiter and the benches of lower strength are
not bound to follow the obiter of a larger bench. The SC was of the view that there are apparent
incongruities in the provisions, but Section 25G and Section 25H must be read harmoniously
with Section 2 (oo).
The SC proceeded to interpret the definition provided in Section 2(oo) of the Act. The SC
observed that the legislature defined the term retrenchment to mean termination by the employer
of the service of a workman for any reason whatsoever. After defining the term retrenchment, the
legislature also provided for certain exclusions. If the intention of the parliament would have
been to restrict the meaning of retrenchment to termination of surplus labour alone, there
would have been no need to provide for specific exclusions. On the basis of this reasoning the
SC finally held that retrenchment means the termination by the employer of the service of a
workman for any reason whatsoever except those expressly excluded in the Section.
ECONOMIC REASONS FOR RETRENCHMENT
Economic reasons include reducing cost, increasing profits and changing business requirements.
In one of the first major Labour Appeal Court cases dealing with the issue of economic reasons
for retrenchment, Kotze v Rebel Discount Liquor Group (Pty) Ltd (2000) 21 ILJ 129 (LAC), the
court held that it did not have jurisdiction to determine whether or not the employer had made
the best decision by choosing to retrench, but could only evaluate whether the reasons were
based on a valid business rationale.

21 S.N.Mishra,Labour and Industrial Laws', Twenty-Sixth Ed., 2011 p.62.

The concept that a prosperous business may retrench in order to make more profit was supported
in the judgment of the Labour Appeal Court in The General Food Industries Ltd v Food & Allied
Workers Union (2004) 25 ILJ 1260 (LAC) where the court held: The act recognises an
employers right to dismiss for a reason based on its operational requirements without making
any distinction in the context of a business the survival of which is under threat and a business
which is making profit and wants to make more profit. The increased mechanisation often
results in an organisation making existing positions redundant, needing more skilled employees
or restructuring working terms and conditions.
Findings in the General Food Industries Ltd v Food & Allied Workers Union case provide a
concise description of what constitutes technological requirements as grounds for retrenchment.
Technological requirements refer to the introduction of new technology which affects work
relationships by making existing jobs redundant or by requiring employees to adapt to the new
technology or a consequential restructuring of the workplace. 22 The General Food Industries Ltd
case, also supplies a clear indication as to what constitutes structural reasons for retrenchment.
Structural reasons are reasons that relate to the redundancy of posts consequent to a
restructuring of the employers enterprise. Employers often restructure positions within their
organisation or alter the terms and conditions of employment usually to increase efficiency. An
employer may not unilaterally alter an employees terms and conditions of employment.
Employees have the option to refuse to accept the new terms and conditions and as such could
make themselves eligible for retrenchment as the position they had held would have been made
redundant through the restructuring.23
AN ANALYSIS
The industrial employer has no right to retrench his workmen if such right is not provided by
any statutory provision or standing orders or the contracts of service between the employer and
an employee, that is, the right to retrench has to be specifically provided for, so that employer
and the employee know that the employer has the right to retrenchment. The right to
retrenchment cannot be claimed as an inherent right of an employer if he cannot provide work
for his workmen for a particular day or days during the continuance of his employment. This
right has to be specifically provided for either by a statute or by the contract of service.
Business owners usually dont envision a time when they may have to downsize their companies.
However, when the economy slows down, it can become difficult for a company to maintain
business as usual. When faced with this difficult situation, a company can either decide to reduce
its workforce by laying off employees or reduce its overall spending through corporate
retrenchment.People often wrongly assume that if theyre competent and hardworking
22 O.P,Malhotra,The Law of Industrial Disputes', Fourth Ed., 1997, p.691.
23 H.L. Kumar, Law Relating to Dismissal Discharge & Retrenchment, Third-Edition,
2010 p. 362.

employees that theyre less likely to be laid off. However, are rarely related to employee job
performance. When a company temporarily or permanently terminates employees, its usually
trying to reduce its expenses. Retrenchment is not a punishment; it means discharge of surplus
labour or staff by employer. It is not by way of punishment. The retrenchment should be on basis
of last in first out basis in respect of each category, i.e. junior-most employee in the category
(where there is excess) should be retrenched first. [Section 25G].24
CONSEQUENCES OF RETRENCHMENT
Positive Effects On The Organization:

Reduction in the labour cost


Enhanced corporate image
Negative effects on the organization:
Decrease in the employee morale
Excessive pressure to perform

An Organization In Such Cases Requires Stimulus In The Following Form:

Offer workplace challenges


Build team spirit
Bring process innovation

CONSEQUENCES ON EMPLOYEES

Existing employees will feel insecure about their job


Terminated employees might spread wrong information about company in Market.25

What Happens After Retrenchment

Loss of dignity
Entrepreneurial skills
Poverty

CONCLUSION

24 O.P,Malhotra,The Law of Industrial Disputes', Fourth Ed., 1997, p.357.


25 K.M Pillai, Labour and industrial laws 11 ed reprinted 2007 p.93

Globalization induces labour market flexibility which India is yet to attain due to its unyielding
labour law system. It has started making attempts to achieve full employment of all resources
and optimal social welfare but several issues are left unanswered, including retrenchment.
Ordinarily, retrenchment is discharge of surplus labour by the employer. According to Section
2(oo) of the Industrial Disputes Act, 1947 (IDA), retrenchment is the termination of service of a
worker "for any reason whatsoever", but excludes termination by way of punishment inflicted
pursuant to disciplinary action, voluntary retirement, retirement on reaching the age of
superannuation if the contract of employment contained such stipulation, non-renewal of the
contract of employment, and continued ill health.
Retrenchment may be due to inevitable reasons including rationalization or installation of new
labour-saving machinery. An employer has a right to organize his business in any lawful manner
he considers best and courts cannot question its propriety. If re-organization results in surplus
employees, no employer is expected to carry their burden. There is consensus of judicial opinion
in deciding retrenchment on the facts and circumstances of each case. Courts have decided that
termination of services due to loss of confidence in an employee, inefficiency or misconduct
does not amount to retrenchment. Termination for unauthorized absence from duty,
discontinuance of service of casual, daily employees, invalid initial appointment, compulsory
retirement, and closure or transfer of business have been held to be retrenchment.26
The Interpretation in Pipraich and Shukla was bad or wrong in law. But it is undeniable from all
the latter trends that the line of thought in those judgments was too narrow, and a scope for much
wider interpretation was left unexplored until Justice Krishna Iyer took up the mantle in Sundara
Money. This has very logically found support in most of the later landmark cases, and it would
be perfect to conclude with the following observation of Justice Ranganath Mishra in Karnataka
S.R.T Corporation v. Boraiah, which was quoted with approval in the Punjab Land Development
case We are inclined to hold that the stage has come when the view indicated in Sundara Money
case has been absorbed into the consensus' and there is no scope for putting the clock back or
for an anti-clockwise operation'.27
Indian employers have responded to the restrictive retrenchment laws in several ways including
the greater use of contract, temporary and/or casual labour, the use of golden handshakes, and
setting up production in states where labour is not organized. The government is pursuing
privatization and disinvestment. Any anomaly in retrenchment laws, which address the basic
functioning of companies, needs the immediate attention of lawmakers.
26 H.G, Abhayankar,Commentaries on the Industrial Disputes Act, 1947', Third Ed.,
2007,p.139.
27 O.P,Malhotra,The Law of Industrial Disputes', Fourth Ed., p.539.

SUGGESTIONS
The measures to be taken by employers to avoid termination of employees
To stop recruitment of new workers except for critical areas.
To limit overtime work.
To limit work on weekly rest days and public holidays.
To reduce weekly working days or reduce the number of shifts.
To reduce daily working hours.
To conduct retraining programmes for workers.
To identify alternative jobs and to transfer workers to other
Divisions /other jobs in the same company.
Temporary shut down by offering fair salary and to assist the employees affected in
obtaining temporary employment elsewhere until normal operation resumes.
To introduce pay-cut in a fair manner at all levels and to be implemented as a last resort
after other cost cutting measures have been carried out.

The measures to be taken by employers if reduction of the workforce need to be implemented


To immediately inform and discuss with the workers or the trade unions which represent
them regarding any impending retrenchment.
To offer retrenchment/voluntary retirement scheme with the best possible compensation.
To terminate workers who have attained normal retirement age.
To assist workers in seeking alternative employment elsewhere before retrenchment with
the cooperation of Labour Department and Man power Department under the Ministry of
Human Resources.
To implement retrenchment in stages over a long period.
To terminate the foreign workers first before terminating the local workers in the same
category.
When the retrenchment involves local workers, the last-in-first-out must be practiced for
the same category of work. However, employers may carry out retrenchments in
accordance with certain criteria's after consultation and the approval of the workers and
trade unions representing them.

Bibliography
Primary Document
The Industrial Disputes Act, 1947 available at http://pdfdatabase.com/download/industrialdisputes-act-1947-pdf-9220407.html, last visited on 03.10.2013.
Secondary Documents
Books
Abhayankar, H.G., Commentaries on the Industrial Disputes Act, 1947', Third Ed., 2007,
Labour Law Agency.
Malhotra, O.P., The Law of Industrial Disputes', Fourth Ed., 1997, Lexis Nexis Butterworths.
Mishra, S.N., Labour and Industrial Laws', Twenty-Sixth Ed., 2011.
Puri, S.K., An Introduction to Labour and Industrial Laws', Ninth Edition, 2005.
Srivastava, S.C., Labour Law and Labour Relations: Cases and Materials', Fourth Ed., 1998.
Labour Adjudication in India' (Siddiqi ed.), First Ed., 2001, Indian Law Institute.
Articles
Dr. Shallu, Onus of Proof of Continuous Service in Retrenchment and the Applicability of
Evidence Act to Adjudication', p. 50 (Art.), Labour Law Journal, Vol. II, 2006.
Kesharwani, M., Retrenchment and Unemployment Problems and Prospects Under Industrial
Disputes Act, 1947', p. 6 (Art.), Labour Law Journal, Vol. II, 2009.
Panda, D., Retrenchment Continues to be a Conundrum for Indian Courts', p. 17 (Art.), Labour
Law Journal, Vol. I, 2008.