Employee Need Not Deposit Retrenchment Compensation As Pre-Condition To Challenge Termination: Bombay High Court

The Bombay High Court has held that an employee cannot be compelled to deposit the amount of retrenchment compensation as a condition for challenging his retrenchment. The Court observed that retrenchment compensation under Section 25F of the Industrial Disputes Act, 1947, is a statutory right of the employee and is intended to provide subsistence during unemployment. Making its deposit a precondition for litigation may force employees to withdraw challenges due to financial hardship.Retrenchment is the termination of an employee by an employer for reasons other than the employee's fault, such as cost-cutting, financial difficulties, restructuring, or changes in business needsJustice Rohit W. Joshi was hearing writ petitions filed by two retrenched employees, challenging orders of the Industrial Court which had directed them to deposit retrenchment compensation with the Labour Court as a condition for pursuing their complaints. The petitioners argued that Section 25F makes payment of retrenchment compensation a condition precedent for retrenchment itself, and therefore, even if their challenge ultimately failed, they would be entitled to retain the amount. The employer, however, contended that since the relationship of master and servant stood severed by retrenchment, securing the compensation amount would be appropriate.The Court distinguished the precedents cited by the employer, noting that they related to voluntary retirement and closure compensation. Retrenchment, however, is imposed by the employer and not voluntarily opted for by the employee. In such cases, even if the retrenchment is upheld, the employee remains entitled to retain retrenchment compensation. The Court observed that an employee should not be made to deposit the retrenchment compensation as a condition for challenging the retrenchment. It observed:“… although the employer has paid the retrenchment compensation to the employees, there is no settlement between the employer and the employees. Even if the employees fail in the challenge, they will be entitled to retrenchment compensation… it is undesirable to direct the employee to deposit an amount of retrenchment compensation with the Court as a condition for challenging the retrenchment.”The Court emphasised that an employee may be forced to withdraw the challenge to retrenchment on account of failure to deposit the amount of retrenchment due to financial constraints. “… the right to receive retrenchment compensation is a statutory right of an employee whose services are retrenched. It will be, therefore, inequitable to direct the employee to deposit the amount of retrenchment compensation as a condition for contesting the retrenchment,” the Court observed.Accordingly, the Court quashed and set aside the Industrial Court's orders dated 13 December 2018 and 23 January 2020.Case Title: Surendra v. Agrofab Machineries Pvt. Ltd. [Writ Petition No. 5656 of 2021]Click Here To Read/Download Order

Employee Need Not Deposit Retrenchment Compensation As Pre-Condition To Challenge Termination: Bombay High Court

Saksham Vaishya

Tags