RETRENCHMENT

AND
THE PROCEDURE OF
RETRENCHMENT OF WORKMEN
UNDER
CHAPTER VB OF THE
INDUSTRIAL DISPUTES ACT, 1947.
 MEANING
• Retrenchment is a permanent measure to remove surplus
staff because of some basic change in the nature of
the business.
• It results in a complete severance of employer-
employee relationship.
• It is a case of involuntary unemployment to the
workman.
• Until 1953 there was no statutory provision in India to
give immunity or protection from the risk of such
involuntary unemployment. In 1953 some provisions
were incorporated in the Industrial Disputes Act and in
1976 some more amendments were introduced.
 DEFINITION- Section 2(oo)
• Termination by the employer of the service of a
workman for any reason whatsoever, otherwise
than as punishment inflicted by way of
disciplinary action. But it does not include
– (a) voluntary retirement of the workman;
(b) retirement on reaching the age of superannuation;
(bb) termination of the service of the workman as a
result of the non-renewal of the contract of
employment between the employer and the workman
concerned on the expiry of the contract being
terminated under a stipulation contained therein; or
– (c) termination of services on ground of continued ill
health
 “For any reasons whatsoever”- Wide
interpretation
• CASES:

1. Sundarmany’s case
2. Hindustan Steel case
3. Delhi Cloth & General Mills v Sambu Nath
4. Santosh Gupta v State Bank of India
 Sundarmany’s case
(F): the bank, employed respondent as a temporary employee
because the permanent cashier was away. When the permanent
cashier joined duty, Sundarmany’s services were dispensed with. He
approached the court claiming that the retrenchment is void.

(I): Whether the removal of Sundarmany amounts to

retrenchment?

(H) It amounts to retrenchment

(R):Justice Krishna Iyer gave a very wide content to the definition

of retrenchment. The words “for any reason whatsoever” was
interpreted to mean whatsoever be the reason every termination
spells retrenchment. The Court observed that had the bank known
the laws, half a month’s pay would have concluded the story and
the bank was ordered to reinstatement the employee.
 Hindustan Steel case
• (F): The workmen were timekeepers for a number
of years on the fixed term. Their services have been
extended from time to time. Later, consistent with
the economic policy, the employer chose not to
renew the contract.
• (H): The Supreme Court held that such termination
is retrenchment falling within Sundarmany’s case
Delhi Cloth & General Mills v Sambu
Nath :
Above decisions were reiterated which held that
striking off the name of a workman from the rolls
amounted to retrenchment.
 Santosh Gupta v State Bank of India
1980
• (F): the appointment of an employee of the Bank in 1973 was
terminated after a year in 1974 on the ground that she did not
pass the test which would have enabled her to be confirmed in
the service.
• (H): The Supreme Court held this as retrenchment under
section 25-F.
• (R): The management contended that the termination was not
due to discharge of surplus labour and therefore, section 25-F
and section 2(oo) would not attract. Rejecting this argument
the court observed that section 2(oo) is so comprehensive
to cover termination for any reason whatsoever except
those not expressly included in section 25-F or not
expressly approved for by other provisions of the Act
such as section 25-FFF.
 Exclusion from the definition of
retrenchment
1. Voluntary retirement-
– Being an act of the employee in terminating the services by
abandoning or resigning from the service such as voluntary
retirement will not be covered by the definition.
2. Superannuation-
– To attract termination of service on superannuation it is
necessary that:-
– There must be stipulation on the point of retrenchment in the
contract of employment between the employer and employee;
and
– The stipulation must be with regard to the age of
superannuation. Termination of service on satisfaction of
these two conditions will not constitute retrenchment. But if
such age of superannuation is not mentioned either in the
contract of employment or invalid standing orders, it will not
be treated as termination on superannuation under this clause
 Exclusion from the definition of
retrenchment
3. Termination on non-renewal of service contract or on
expiry of fixed term contract-
– When the employment was for a stipulated time period under a
contract then the non-renewal of the contract of employment on
the expiry of the stipulated period would not amount to
retrenchment.
4. Continued ill health-
– Termination owing to the continued ill health of the workman is
not covered in retrenchment. Ill health contemplated not only
physical but mental ill health as well. ‘Continued ill health’
includes any physical defect or infirmity incapacitating a workman
for future work for an indefinite period. The question whether a
workman is suffering continued ill health is a question of fact
which may be proved or disproved on either side.
 Condition for valid retrenchment

• He is given one month’s notice of it with reasons,

or one month wages in lieu of such notice.
Provided no such notice is necessary if it is under
an agreement specifying the date of termination of
service;
• He is paid compensation equivalent to 15 days
average pay for every completed year of
company’s service or any part of it exceeding six
months; and
• Notice is served on the appropriate government
or on such notified authority.
When retrenchment becomes void?
• Non- payment of compensation
• Not in accordance with the section
• Absence of notice
– Notice to appropriate govt. not mandatory
Objective of compensation u/s25F
– A retrenched employee to have 1 month time to
search for alternative employment.
– The workman to be paid compensation at the time
of retrenchment so that he need not go to his
employer demanding the retrenchment
compensation.(Pramod Jha V. State of Bihar)
 Retrenchment Compensation –
mandatory condition
• Under Section 25-F(b), payment of compensation is a
mandatory condition precedent for the validity and
operative effect of the retrenchment.
• If the compensation under Section 25-F(b) is not offered
within the notice period under Sec 25-F(a), such notice
though initially valid would become inoperative and
void and no effect could be given to the notice.
• Notice or wages in lieu of notice under clause (a) of Sec
25-F and payment of retrenchment compensation
calculated in the manner set out in clause (b) of Section
25-F are conditions precedent for retrenchment. Hence,
these clauses operate as a prohibition against
retrenchment until those conditions are fulfilled.
 Eligibility for compensation
• the workmen should have put in minimum of
one year continuous service during a period
of twelve calendar months;
1. 190 days work in the underground mine or
2. 240 days work in other cases.
 Chapter VB-
• SPECIAL PROVISIONS RELATING TO
LAY-OFF, RETRENCHMENT AND
CLOSURE IN CERTAIN
ESTABLISHMENTS

• Added by the 1976 amendment

• This amendment has no overriding effect over a
state act.
• Chapter VB applicable only in relation to certain
establishments referred to in chapter V-A
 Application of the chapter
• Applies to an industrial establishment
– Not of seasonal nature
– Atleast 100 workmen on an average working day in
the preceding 12 months.
– The appropriate govt. decides whether an industry is
of seasonal nature.
 Conditions precedent to retrenchment
of workmen sec 25N
• To be eligible for the protection under this
chapter the employee must have in continuous
service for not less than one year under an
employer shall be retrenched by that employer
•
 Notice
• 3 months prior notice
• Must be in writing
• Must cite reasons for the termination of
employment
• Or, or the workman has been paid in lieu of
such notice, wages for the period of notice
Permission from Appropriate Govt.
• The application must be in the prescribed manner to the appropriate
govt. or such authority specified by that Government by notification in
the Official Gazette (specified authority.
– Must clearly state reasons
– A copy should be given to the concerned employee{25N(2)}
• The govt. will make an enquiry, give a reasonable chance to be heard
to the workman and persons interested and take all other relevant factors
into consideration, 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. {25N(3)}
• Permission is deemed to be granted if the 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.
{25N(4)}
• The order is final, binding on all and remains in force for a period of
one year. {25N(5)}
 Review and Reference to tribunal
25N(6): The appropriate Government or the
specified authority may,
1. either on its own motion or
2. on the application made by the employer or any
workman,
review its order granting or refusing to grant or refer
the matter or, cause it to be referred, to a Tribunal
for adjudication:
• Provided that the tribunal shall pass an award
within a period of thirty days from the date of
such reference.
 Effect of refusal of permission or
absence of permission request
• 25N (7)
1. such retrenchment shall be deemed to be illegal from the date on
which the notice of retrenchment was given to the workman and
2. the workman shall be entitled to all the benefits under any law for
the time being in force as if no notice had been given to him.
• 25N (8)
The appropriate Govt. may also exempt certain undertakings from the
procedures u/s 25N(1),in exceptional circumstances as accident in the
establishment or death of the employer or the like, it is necessary so
to do,
• 25Q
Punishment for non-compliance of sec 25N is imprisonment for a
term which may extend to one month, or with fine which may extend to
one thousand rupees, or with both.
 When permission is granted-
Compensation to workman
• 25N(9) Where permission for retrenchment has
been granted or where permission for retrenchment
is deemed to be granted,
• every workman who is employed in that
establishment immediately before the date of
application for permission under this section shall
be entitled
– to receive, 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.]