Assam Oil Company vs Its Workmen

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 24 of 1959

Decision Date: 04 April 1960

Coram: P.B. Gajendragadkar, K.C. Das Gupta

The case was titled Assam Oil Company versus its Workmen and was decided on 4 April 1960 by the Supreme Court of India. The judgment was authored by Justice P B Gajendragadkar, with Justice K C Das Gupta sitting on the bench. The petitioner was Assam Oil Company and the respondent was its workmen. The official citations are 1960 AIR 1264 and 1960 SCR (3) 457. The decision also appears in several later reports, including R 1963 SC 411 (3) and subsequent citations listed in the record. The dispute involved the application of the Industrial Dispute Act, specifically the provisions relating to termination of service in accordance with a contract, the question of whether such termination could be questioned before an industrial tribunal, termination on the ground of misconduct, the requirement of an enquiry, and the appropriate remedy of reinstatement or compensation.

According to the headnote, the employee identified only as “S” had been engaged by the appellant as a secretary, and her contract expressly provided that either party could terminate the appointment on one month’s notice. The appellant became thoroughly dissatisfied with S’s performance and disapproved of her participation in a trade union. Acting under the contractual notice clause, the appellant terminated S’s services and paid her one month’s salary in lieu of notice, without conducting any enquiry. The industrial tribunal held that the termination amounted to a dismissal for misconduct and, because no enquiry was held, was illegal and unjustified, consequently ordering S’s reinstatement. The appellant argued that the termination was strictly within the terms of the contract and therefore not subject to tribunal scrutiny; it further contended that, even if no enquiry had been held, the evidence before the tribunal established S’s misconduct, making the discharge justified and that the appropriate relief was compensation, not reinstatement. The Court held that the discharge was a punitive measure for alleged misconduct and was unjustified in the absence of a proper enquiry. The Court affirmed that even when dismissal is exercised under contractual powers, the industrial tribunal is competent to inquire whether the dismissal was made in good faith. If the tribunal finds that the alleged misconduct truly motivated the discharge, the dismissal may be treated as a genuine dismissal. The Court followed the precedent set in Western India Automobile Association v. Industrial Tribunal, Bombay, [1949] F.C.R. 321. The Court further held that, in the facts of the present case, compensation rather than reinstatement was the appropriate relief. While the normal rule is that a wrongfully dismissed employee is entitled to reinstatement, the Court recognized that circumstances may arise where reinstatement would not be expedient, particularly where the employer’s office was small and S occupied a position of confidence, and the employer had lost confidence in her performance. Consequently, the Court concluded that compensation was the proper remedy.

In this case the Court observed that the employee identified only as S held a position of considerable confidence within the organization. The appellant had become dissatisfied with S’s performance and had lost confidence in her ability to discharge her duties satisfactorily. The Court held that, under such circumstances, it would be inequitable to both the employer and the employee to order her reinstatement. The matter was placed before the Civil Appellate jurisdiction as Civil Appeal No 24 of 1959, arising by special leave from an award dated 18 September 1957 issued by the Industrial Tribunal, Delhi, in D No 3 of 1957. Counsel for the appellant comprised H N Sanyal, Additional Solicitor‑General of India, together with Vidya Sagar and B N Ghosh, while the respondents were represented by Frank Anthony and Janardan Sharma. The judgment was delivered on 4 April 1960 by Justice Gajendragadkar.

This appeal by special leave concerned an industrial dispute between Assam Oil Company Ltd. (the appellant) and its workmen (the respondents). The dispute centered on the termination of Miss P Scott’s services, one of the appellant’s employees, and on the claim that her dismissal was illegal, a question that had been referred to the Industrial Tribunal, New Delhi, for adjudication. A second point of contention involved the amount and conditions of the bonus payable for the year 1955‑56 to the appellant’s workmen. The Industrial Tribunal had ordered the appellant to reinstate Miss Scott and to pay her all back wages from the date of her dismissal up to the date of reinstatement. The Tribunal also directed that Miss Scott receive the bonus for the two years specified in the award. While the appellant did not contest the direction concerning the payment of the bonus, it challenged the validity of the order requiring reinstatement and the payment of full back wages. Consequently, the principal issue before this Court was whether the appellant was justified in terminating Miss Scott’s services, and if not, whether reinstatement was an appropriate remedy in the circumstances of the case.

The appellant company’s principal business involved the search for and refinement of crude oil, with a refinery located at Digboi in Assam. In New Delhi the appellant maintained a small office staffed by three or four employees. Miss Scott had initially been employed by M/s Burmah‑Shell, New Delhi, as a lady secretary. In January 1954 her services were temporarily assigned to the Delhi representative of the appellant. When the appellant established its own office in New Delhi in September 1954, it offered Miss Scott direct employment on the same terms and conditions that had governed her service with M/s Burmah‑Shell. She consequently resigned from M/s Burmah‑Shell and joined the appellant as a regular employee in October 1954. Her appointment was formally confirmed on 1 September 1955, on terms and conditions that were communicated to her and which she accepted. One of the conditions of her appointment was that either party could terminate the employment by giving one month’s notice.

One of the conditions of Miss Scott’s employment was that either party could end the appointment by giving one month’s notice. During the period of her service the appellant was dissatisfied with her performance and on several occasions warned her verbally to improve and to avoid repeating the same mistakes. On 26 February 1957 the Delhi representative of the appellant, Mr Gowan, issued a written warning to Miss Scott indicating that her work was unsatisfactory, urging her to correct the deficiencies and informing her that failure to do so would lead the appellant to consider whether she was suitable to remain employed. Two days later, on 28 February 1957, Mr Gowan terminated Miss Scott’s employment, stating that the shortcomings he had identified had not been remedied and that her overall performance did not meet the standards required by the appellant. The appellant paid Miss Scott a sum equivalent to one month’s salary in lieu of notice, which she accepted. At the time of termination her total monthly remuneration was Rs 535. On 13 March 1957 Miss Scott lodged a representation with the Conciliation Officer in New Delhi contesting the termination of her services. The Conciliation Officer’s proceedings gave rise to a reference of the dispute to the industrial tribunal for adjudication. The appellant’s workmen’s union, which had sponsored Miss Scott’s case, alleged before the tribunal that the termination was wrongful and illegal and that she should be reinstated. The union further claimed that the appellant had dismissed her without conducting any enquiry, rendering the termination unlawful, and also sought payment of a bonus for the years 1955 and 1956 on her behalf. The appellant opposed these claims, contending that the dispute was an individual matter and therefore the tribunal lacked jurisdiction. It argued that Miss Scott was not a “workman” within the meaning of section 2(s) of the Industrial Disputes Act, 1947, and consequently the tribunal could not entertain the case. On the merits, the appellant maintained that it had effected the termination in accordance with the contractual terms, having paid the stipulated one month’s wages in lieu of notice, and asserted that the tribunal had no authority to interfere with a valid contractual discharge. The tribunal, however, found that Miss Scott qualified as a workman under section 2(s) and, because the union had sponsored her, the matter constituted an industrial dispute within the scope of section 2(k) of the Act. The tribunal held that the termination effectively amounted to dismissal for misconduct, that no enquiry had been held, and therefore the dismissal was illegal and unjustified. On the merits, the tribunal further expressed the view that even if Miss Scott had been

The tribunal found that, even assuming Miss Scott was negligent, dismissing her amounted to an excessively harsh penalty. It further observed that Mr Gowan’s decision to dismiss her was substantially influenced by the fact that she had become a member of the union, and that this consideration was a principal reason for her termination. On the basis of these findings, the tribunal ordered that Miss Scott be reinstated. In the present appeal, the learned Additional Solicitor‑General raised two principal submissions. First, he argued that the appellant had lawfully terminated Miss Scott’s services in accordance with the contractual terms, and therefore an order of discharge that was strictly consistent with the contract could not be questioned before the industrial tribunal. Second, he contended that even if the discharge were found to be unjustified because no enquiry had been conducted, the full body of evidence relating to the alleged misconduct of Miss Scott had already been presented before the tribunal; consequently, in light of that evidence the tribunal should not have interfered with the discharge and should not have ordered reinstatement, and at most the matter might merit an award of compensation and nothing further. The appeal did not challenge any of the other findings recorded by the tribunal against the appellant. The Court noted that the extensive jurisdiction of industrial tribunals is now well established. As early as 1949, the Federal Court in Western India Automobile Association v Industrial Tribunal, Bombay (1) held that an argument based solely on the sanctity and validity of contracts between employer and employee overlooks the circumstance where a dispute arises concerning the employment of a person at the instance of a trade union or where a trade union objects to that person’s employment; in such situations the definition of an industrial dispute encompasses both cases. The Court further explained that, even if an employer is reluctant, the tribunal possesses jurisdiction to direct either the employment or the non‑employment of the individual by the employer, which is effectively equivalent to making a contract of employment when the employer is unwilling to enter into such a contract with that particular person. The tribunal was also observed to have stated that it “can direct in the case of dismissal that an employer or employee shall have the relation of employment with the other party, although one of them is unwilling to have such relation” (p 337). In other words, the power of an industrial tribunal to order reinstatement of a discharged or dismissed employee is no longer in doubt. Given this scope and the nature of the tribunal’s jurisdiction, it is now too late to argue that the contractual power of an employer to discharge an employee under the terms of a contract cannot be examined in any case. If a contract provides the employer with the authority to terminate services after a month’s notice or subject to other conditions, the validity of such termination may still be subject to scrutiny by the industrial tribunal.

When a contract contained a term or condition that allowed the employer to terminate the employee’s services, the employer could rely on that term to end the employment. However, if the legality of such termination was contested before an industrial tribunal, the tribunal was authorized to examine whether the termination had been carried out in a bona fide exercise of the contractual power. The tribunal could not intervene if it found that the employer had acted in good faith under the authority granted by the contract. Nevertheless, the wording of the discharge order and its formal appearance were not decisive; the tribunal was entitled to look beyond the language and form of the order to determine whether the discharge was a simple termination or something else. If the tribunal concluded that the purported exercise of the power to terminate was actually based on the misconduct alleged against the employee, it was justified in treating the case as a dismissal, despite any outward appearance to the contrary. The power to terminate had to be exercised honestly; if the employer’s good faith was successfully challenged, the tribunal could interfere with the discharge order. In exercising this oversight, the tribunal had to consider whether the discharge was conducted in mala fide, whether it amounted to victimisation, an unfair labour practice, or was so capricious or unreasonable that it suggested ulterior motives rather than a genuine exercise of contractual authority. In instances where an employer disapproved of an employee’s trade‑union activities and attempted to dismiss the employee under the contract’s terms, the tribunal could determine that the real motive was the union activity and therefore deem the discharge unjustified and mala fide. Likewise, the tribunal could encounter situations where the discharge order was phrased in neutral terms that did not expressly accuse the employee of misconduct, yet the substance of the decision was rooted in alleged misconduct. Such a scenario would constitute a punitive dismissal. In those circumstances, principles of fairness and justice required that the employee be afforded an opportunity to respond to the allegations that influenced the employer’s decision, necessitating a proper enquiry. Consequently, the tribunal had to assess, in each case, whether the termination resulted from a bona fide exercise of the contractual power or, in substance, represented an improper or punitive act.

The Court observed that whether a punishment for alleged misconduct is appropriate must be determined on the facts and circumstances of each individual case. It emphasized that the employer’s contractual right to terminate employment must be balanced against the employee’s legitimate expectation of security of tenure. These principles have been consistently applied by industrial tribunals, as illustrated in the decision of Buckingham and Carnatic Company Ltd. v. Workers of the Company (2). Accordingly, the Court declined to accept the contention advanced by the learned Additional Solicitor‑General that a tribunal is powerless to examine the validity, propriety, or legality of a dismissal when the employer relies on a contractual power to terminate. In the present matter, the Court found that the order of discharge issued against Miss Scott was predicated on allegations of misconduct. It noted that Mr Gowan had communicated to Miss Scott what he considered serious defects in her work, and that the same accusations were reiterated in the discharge letter. Therefore, the Court held that the dismissal was punitive in nature, amounting to a punishment for alleged misconduct, and that the tribunal was correct in concluding that the employer was not justified in terminating Miss Scott’s services without conducting a proper enquiry.

The Court further examined the evidence adduced by the appellant before the tribunal. Mr Gowan testified that he had observed a series of instances in which Miss Scott’s work was substandard, that she repeatedly failed to carry out orders, displayed insolence, and was untruthful. He recounted a specific incident in which a letter typed from a draft was incorrectly reproduced, resulting in the omission of an entire paragraph, yet Miss Scott asserted that she had checked the document. Mr Gowan also stated that he had warned her verbally on several occasions and that he disapproved of her decision to join a trade union, believing that a person holding a confidential position in his office should not be a union member. The Court found that Mr Gowan’s evidence was straightforward and led to two conclusions: first, that he was thoroughly dissatisfied with Miss Scott’s performance; and second, that he objected to her union membership. Because the latter factor appears to have influenced his decision to dismiss her, the Court concluded that the termination could not be justified. Consequently, the Court affirmed the tribunal’s finding that the dismissal of Miss Scott was not justified.

The Court concluded that the termination of Miss Scott’s employment was not justified. It held that an employer could not dismiss an employee solely or principally because the employee had joined a trade union, since the right to associate in a trade union is a fundamental constitutional right guaranteed to every citizen. Accordingly, the Court accepted the tribunal’s finding that Miss Scott’s dismissal was unlawful. The next issue before the Court was whether the employee should be reinstated. While the general rule in cases of wrongful dismissal is that the dismissed employee is entitled to reinstatement, the Court recognized that there are exceptional circumstances where reinstatement would not be appropriate. In the present case, the appellant’s office was very small and Miss Scott occupied a position of confidence with Mr Gowan. The record showed that Mr Gowan had repeatedly warned Miss Scott about her performance, indicating his dissatisfaction with her work. Even if Mr Gowan claimed he had lost confidence in her, the Court found it unreasonable to attribute that loss of confidence solely or substantially to Miss Scott’s union membership. The Court also noted that an employer’s assertion of loss of confidence cannot ordinarily be exaggerated, but considering the particular facts, it would be unfair to both parties to order reinstatement. After her dismissal, Miss Scott secured employment with Parry & Company from 19 May 1958 to 31 October 1958 and with Nestles Products (India) Ltd. from 1 December 1958 to 30 November 1959. The first employer paid her a salary of Rs 500 per month, increasing to Rs 525 in October, while the second employer paid Rs 500 per month, with Rs 525 in November and a daily rate of Rs 15 in December and January. In addition, the appellant had paid Miss Scott a subsistence allowance of Rs 2,700 during the pendency of the appeal. On the basis of these facts, the Court was satisfied that it would be fair and just to order the appellant to pay compensation. The learned Additional Solicitor‑General agreed to pay an additional sum of Rs 12,500, to be added to the Rs 2,700 already paid. The Court deemed the amount of Rs 12,500 to be an appropriate compensation, and therefore set aside the tribunal’s order of reinstatement, replacing it with the award of the specified compensation.

The court directed that the appellant be ordered to pay Rs. 12,500 to Miss Scott as monetary compensation for the claims established in the case. This payment was to be made directly to Miss Scott and was intended to compensate her for the losses she had suffered. The order concerning the award of a bonus was not contested by either party during the appeal proceedings. Because the bonus order was unchallenged, the court affirmed that order and left it in effect without alteration. No order regarding costs was made, meaning that each party would bear its own legal expenses incurred during the proceedings. Consequently, the court did not award any costs against either the appellant or the respondent in this matter. The appeal was allowed in part, indicating that the relief concerning compensation was granted while other contested issues remained unchanged. By confirming the bonus order and refusing to award costs, the court left those aspects of the dispute as they stood before the appeal. Thus, the final order provided Miss Scott with the specified compensation, upheld the unchallenged bonus entitlement, and concluded the proceedings without any cost liability for either side. The decision thereby resolved the matters raised in the appeal and brought the case to final closure with.