The Tata Oil Mills Co., Ltd vs Workmen and Anr

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 322 of 1962

Decision Date: 15 February 1963

Coram: P.B. Gajendragadkar, M. Hidayatullah, J.C. Shah

The case of The Tata Oil Mills Co., Ltd. versus Workmen and another was decided by the Supreme Court of India on 15 February 1963. The judgment was authored by Justice P. B. Gajendragadkar, and the bench was composed of Justices P. B. Gajendragadkar, M. Hidayatullah and J. C. Shah. The petitioner in the proceeding was The Tata Oil Mills Co., Ltd., while the respondents were the workmen and an additional party. The official citation of the decision appears as 1966 AIR 1672 and 1964 SCR (2) 125, with further references recorded as R 1972 SC 136, D 1991 SC 101 and other citations. The substantive question concerned an industrial dispute relating to the termination of an employee’s service on the basis of a payment of one month’s salary in lieu of notice, and whether such termination could be characterised as a discharge under Rule 40(1) of the service rules. The central issue for the Tribunal concerned its jurisdiction to determine whether the termination amounted to a mere discharge or a dismissal in substance.

Mr. Banerjee had been employed by the petitioner and his service was terminated on the allegation that the employer had lost confidence in him; in lieu of the statutorily required notice the employer paid him one month’s salary. The trade union to which Mr. Banerjee belonged intervened on his behalf. When the parties failed to reach a settlement, the Government referred the dispute to the Industrial Tribunal. Before the Tribunal the petitioner argued that the termination was a lawful discharge as authorized by Rule 40(1) of the Service Rules. The respondent counter‑argued that the termination was not a simple discharge but, in substance, a dismissal and that the Tribunal was entitled to examine the propriety of the employer’s action. The Tribunal held that it possessed jurisdiction to scrutinise the reasons for the discharge. After examining the evidence, the Tribunal concluded that there was no proof of malice on the part of the employer and that the termination did not constitute victimisation or an unfair labour practice. Nevertheless, the Tribunal found the discharge to be unjustified and ordered the reinstatement of Mr. Banerjee. The present appeal was filed by special leave. Before the Supreme Court the petitioner reiterated that, based on the material before the Tribunal, the finding of unjustified discharge was erroneous. The Court held that the formal label of the order is not determinative; an Industrial Tribunal may examine the substantive nature of the termination to decide whether it is a genuine discharge or a dismissal dressed as a discharge. The decisive test, the Court explained, is whether the employer’s act is carried out in good faith or whether it is a mala fide, colourable exercise of the powers conferred by the contract or the standing orders. The Court referred to the earlier decision of Buckingham & Carnatic Co. Ltd. v. Workmen of the Company (1951) 95 II L.L.J. 314 and to the Chartered Bank cases for support.

The Court referred to the authorities Chartered Bank Employees Union (1960) II L. L..T. 222 and U. B. Dutt & Co. (Private) Ltd. v. Its Workmen (1962) II L.L.J. 374. It held that the reasons given by the Tribunal to support its conclusion were wholly unsatisfactory and consequently its order had to be set aside. The matter before this Court was a civil appeal, numbered 322 of 1962, filed by special leave against the award dated 13 September 1961 rendered by the Second Labour Court, West Bengal, in case VIII‑C‑40 of 1960. Counsel for the appellant comprised M. C. Setalvad, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, while the Solicitor General of India, C. K. Daphtary, appeared for the respondents, together with Janardhan. The judgment was delivered by Justice Gajendragadkar. Mr. R. K. Banerjee had been engaged by the appellant, Tata Oil Mills Co. Ltd., as a salesman on 3 April 1956 on probation and was confirmed in the position on 5 November 1956. On 5 December 1959 his employment was terminated; the appellant informed him that it had lost confidence in his performance and therefore decided to dismiss him. In lieu of the statutory notice period the appellant paid him one month’s salary and told him that his employment would cease on the day following receipt of the dismissal order. The union to which Mr. Banerjee belonged objected to his discharge and took up his case. Because the dispute could not be resolved amicably, the union persuaded the Government of West Bengal to refer the matter to the Second Labour Court on the ground that the dismissal was not justified. Thus the termination became an industrial dispute between the appellant and the respondents, the workmen represented by their union. The Labour Court examined the dispute and concluded that the appellant had failed to justify the dismissal; consequently it directed the appellant to reinstate Mr. Banerjee and to pay him full emoluments from the date of his dismissal up to the date of reinstatement. The appellant challenged that order by the present appeal granted special leave. The material facts leading to the termination were confined to a narrow set of circumstances. In November 1959 Mr. Banerjee was posted in the Assam area, where his duties required him to work as a salesman at Dhubri, Bongaigoan, Rangia and Tejpur. The appellant expected that, as its salesman, he would visit dealers in his territory and conduct diligent and intensive propaganda to promote the sale of the company’s products. The appellant maintained a sales office in Calcutta, and the manager of that office visited the assigned territories to inspect the work of the salesmen. Accordingly, Mr. Gupta, who was then the manager of the Calcutta office, visited the area allocated to Mr. Banerjee during the last week of October and made observations relevant to his performance.

The Court observed that the manager, Mr. Gupta, had found Mr. Banerjee’s performance as a salesman to be satisfactory in general, but that a specific problem arose concerning the condition of soap boxes reported by Mr. Banerjee. Mr. Banerjee had told his superiors that the stockists in Bongaigoan possessed twenty boxes of “501 Special Soap” that were dried up and deformed and therefore could not be sold. The Court noted that Mr. Banerjee had not opened any of the boxes himself and had not taken any steps to verify whether the soap was indeed dried up or deformed. When Mr. Gupta inspected the boxes, he discovered that the boxes were intact. He opened them and found that only five of the twenty boxes contained soap that had dried up and become deformed, while the remaining fifteen boxes were in good condition. On the basis of these findings, Mr. Gupta prepared a report dated 2 November 1959, in which he commented adversely on Mr. Banerjee’s work. The report was subsequently forwarded to the Head ice in Bombay. The Head ice then instructed, by telephone, the Calcutta sales ice to summon Mr. Banerjee and require an explanation. Mr. Banerjee was therefore called, and his explanation was recorded. After hearing the explanation, Mr. Gupta prepared a second report, expressing dissatisfaction with Mr. Banerjee’s response. This second report was dated 24 November 1959 and was sent to the Head ice, which accepted it. On 5 December 1959, the Head ice issued an order terminating Mr. Banerjee’s services. The Court summarized that this sequence of events formed the factual basis presented by the appellant to justify the action taken against Mr. Banerjee. The appellant contended that the termination was a “discharge simpliciter” and that it was authorized by the contractual terms embodied in Rule 40 (1) of the appellant’s Service Rules. Accordingly, the appellant argued that the Labour Court lacked jurisdiction to examine the propriety of the discharge. In contrast, the respondents argued that the termination was in substance a dismissal, and therefore the Labour Court was competent to consider whether the appellant’s action was proper. Relying on the claim that the discharge amounted to dismissal, the respondents asserted that the appellant’s failure to conduct an enquiry created a serious defect in the order and that the appellant acted in bad faith, amounting to victimisation of Mr. Banerjee. The Labour Court held that, under the contract of employment, the appellant was indeed empowered to discharge Mr. Banerjee under Rule 40 (1) of the Service Rules. However, the Court also held that the mere label of “discharge” on the notice did not remove the Labour Court’s jurisdiction to scrutinize the substance of the matter. The Court further recorded that Mr. Joshi, who appeared for the appellant, conceded before the Labour Court that an adjudicating Court could examine the reasons underlying a discharge.

The Court observed that an adjudicating Court may examine the reasons behind the discharge of an employee. Accordingly, both parties produced evidence before the Labour Court. After evaluating that evidence, the Labour Court found that the respondents’ allegation that the appellant acted with malice was not proved, and it held that the termination of Mr Banerjee’s services could not be characterised as victimisation or as an unfair labour practice. Nevertheless, the Court concluded that the discharge was not justified and, accordingly, directed the appellant to reinstate Mr Banerjee. The validity of this reinstatement order is now challenged before this Court by counsel for the appellant. The legal position concerning the jurisdiction and authority of Industrial Courts in matters of this type is now well settled. It is recognised that, in many cases, the contract of employment or the provisions of the Standing Orders give an industrial employer the power to terminate the service of an employee, provided that the employer gives one month’s notice or pays salary in lieu of that notice, and that, in a proper case, the employer may legitimately exercise that power. However, when an order of discharge issued by an employer gives rise to an industrial dispute, the mere form of the order is not decisive. The Industrial Court is entitled to examine the substance of the termination and to determine whether the dismissal is truly a simple discharge or, in reality, a dismissal concealed as a discharge. If the Industrial Court is satisfied that the discharge order is punitive, is made in bad faith, or amounts to victimisation or an unfair labour practice, the Court has the competence to set aside the order and, where appropriate, to direct reinstatement of the employee. In some situations, the termination may appear to the Industrial Court to be capricious or so unreasonably severe that a reasonable inference can be drawn that the employer was not acting in good faith. The test, therefore, is always whether the employer’s act was made in good faith. When the act is found to be in bad faith, or when it appears to be a colourable exercise of powers conferred by the contract or the standing orders, the Industrial Court may disregard the form of the order, examine its substance, and, if warranted, order reinstatement. This principle was recognised by the Labour Appellate Tribunal as early as 1951 in Buckingham and Carnatic Co. Ltd. v. Workers of the Company, and it has been consistently followed in cases such as Chartered Bank, Bombay v. Chartered Bank Employees’ Union and U. B. Dutt & Co. (Private) Ltd. v. Its Workmen. In the present matter, the Labour Court has made a definite finding.

In this case, the Labour Court had found in favour of the appellant that its termination of Mr. Banerjee was not malafide and did not amount to victimisation. Nevertheless, the Court examined the propriety of the termination and concluded that the discharge was not justified. The Court gave several reasons for that conclusion, which the present judgment regarded as unsupportable. First, the Court observed that the appellant had not produced any documentary evidence to support its allegation concerning the efficiency of Mr. Banerjee. That observation was erroneous because the two reports made by Mr. Gupta regarding Mr. Banerjee’s conduct constituted documentary evidence that could not be lightly brushed aside. Second, the Court commented that the allegations made by Mr. Gupta against Mr. Banerjee on six counts were of a general character. That comment could not be justified, because Mr. Gupta stated in clear terms the specific defects in Mr. Banerjee’s work that had come to his notice; it was idle to refuse importance to this evidence merely on the ground that no specific instances had been cited. Regarding the question whether the twenty boxes had been opened by Mr. Banerjee before he made his report to the Zonal office, the Labour Court observed that on this point there was evidence from both Mr. Banerjee and Mr. Gupta and that there was no particular reason to believe one in preference to the other. Such an observation was of little help, because the Court needed to express a conclusion on this point; by stating that there was no reason to prefer either side, the Court left that part of the dispute entirely undecided. Similarly, the Labour Court accepted that Mr. Gupta had called for and received Mr. Banerjee’s explanation and therefore rejected Mr. Banerjee’s suggestion that he had given no explanation at all; however, the Court did not consider the effect of this conclusion on the main controversy between the parties. In the view of the present judgment, the reasons given by the Labour Court in support of its finding that the discharge of Mr. Banerjee was not justified were wholly unsatisfactory, and it became necessary to examine the evidence anew. The first report by Mr. Gupta expressly set out six grounds on which Mr. Banerjee’s work was found unsatisfactory. Mr. Gupta took the view that Mr. Banerjee was very slow in his work as a salesman, that he was not able to judge the capacity of dealers and to give them sufficient stocks in time, that he took no steps to put the appellant’s products on prominent display in dealers’ shops, that he failed to ensure proper posting of posters – in one instance a poster was pasted upside down – that he did not educate stockists and dealers as he could have, and that he was reluctant to put in hard and intelligent work.

According to the report prepared by Mr Gupta, Mr Banerjee failed to maintain sufficient stocks in a timely manner, did not place the appellant’s products prominently in the dealers’ shops, neglected the proper posting of promotional posters – even allowing one poster to be affixed upside down – omitted the education of stockists and dealers, and showed reluctance to undertake diligent and intelligent work. When Mr Banerjee was questioned about this report during cross‑examination, he responded openly that Mr Gupta was not unfriendly toward him and that he could not explain why Mr Gupta had made the adverse comments about his performance. The Labour Court had previously concluded that the appellant was not motivated by any ulterior considerations in deciding to discharge Mr Banerjee. The report was drafted by Mr Gupta shortly after his inspection of Mr Banerjee’s work, and there was no reason for the Labour Court to hesitate in accepting the contents of that report.

The principal allegation against Mr Banerjee was that he had not examined even a single box before claiming that the contents of those boxes were not marketable. Mr Gupta testified that he had inspected twenty boxes that were still sealed in the company’s packaging with metal straps intact. After opening the boxes, Mr Gupta observed that five cases were indeed damaged, while the remaining cases were in good condition and could be sold at the company’s prices. In contrast, Mr Banerjee asserted in his evidence that he had opened all of the cases and had repacked them to prevent further deterioration, explaining that the metal straps had to be removed for opening and that he had arranged for them to be restrapped and nailed. The strapping of boxes, however, was normally performed in the factory by machines, and Mr Banerjee’s claim that he could manage the restrapping and nailing by hand was unreliable. Moreover, when confronted by Mr Gupta, Mr Banerjee admitted that he had opened only five or six of the twenty boxes, whereas his own report suggested that he had examined all twenty. Consequently, Mr Gupta’s statement was deemed accurate and Mr Banerjee’s report on the unsatisfactory condition of the box contents was found to have been made without opening any of the boxes. This finding made it difficult to understand how the Labour Court could have concluded that the discharge order was unjustified. The learned Solicitor‑General, however, argued that the record did not show that the twenty boxes examined by Mr Gupta were the same boxes referred to in Mr Banerjee’s report.

The Court noted that the boxes examined by Mr. Gupta were the very same twenty boxes about which Mr. Banerjee had prepared his report. In view of the testimony of both Mr. Gupta and Mr. Banerjee, and of the explanation that Mr. Banerjee gave when he was summoned to Calcutta by Mr. Gupta, the Court found no room for the inventive suggestion that the two sets of boxes could be different. Both parties were fully aware that they were referring to the identical twenty boxes, and consequently it was pointless to maintain that the boxes inspected by Mr. Gupta differed from those described in Mr. Banerjee’s report. The respondents also argued that Mr. Gupta had failed to acknowledge receipt of certain letters from Mr. Banerjee, in which the latter complained that heavy rains had rendered the conditions unsuitable for effective work in the area assigned to him. When questioned about those letters, Mr. Gupta replied that he did not recall whether he had received them. The Court held that Mr. Gupta’s uncertain answers concerning the letters could not assist the respondents in undermining his evidence in any way. After considering all the material, the Court was unhesitant in concluding that the appellant had acted in good faith when it dismissed Mr. Banerjee after accepting Mr. Gupta’s report and agreeing with the conclusion that Mr. Banerjee’s explanation was unsatisfactory. Accordingly, the appeal was allowed, the order of the Labour Court directing the reinstatement of Mr. Banerjee was set aside, and no order as to costs was made.