Executive Order contrary to Law
The nation is discussing the “Regularisation of slaughter of animals” right now. I am giving below another similar case where the executive branch invented a method to restrict the workmen illegally after giving VRS.
In 2001, the Govt decided to turn around sick and loss making Public Sector Units (PSU) by offering VRS on a massive scale. Budgetary support was provided to offer “Golden Handshake” and reduce the manpower in PSU’s. Lakhs of employees opted to take VRS.
One of the conditions for obtaining VRS contained in the below circular 2(32)/97/ DPE(WC) /GL-LVI dated 6-11-2001 in para 1(d)
http://dpe.gov.in/sites/default/file...line-266_0.pdf
“Once an employee avails himself of VRS from a PSU, he shall not be allowed to take up employment in another PSU. If he desires to do so, he shall have to return the VRS Compensation received by him”
This first part of condition was violation of Contract act 27 and violation of fundamental right as per article 19(1)g of the constitution. The second part is violative of Contract act section 73.
Contract act section 27 : Agreement in restraint of trade, void.—Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void
Article 19(1)g : to practise any profession, or to carry on any occupation, trade or business
Contract act section 73 : Compensation for loss or damage caused by breach of contract.—When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him
A number of courts have struck conditions imposed by the employers on employees which restrict the employees after termination of employment. Despite such a legal position, the Department of Public Enterprises have issued such an illegal circular.
This circular has adversely affected the professional life of lakhs of workmen who were not able to work in other PSU units by using the skills learned in their present companies.
The above circular, which is ultra vires the Contract Act and the constitution was a mala fide exercise of power and wholly untenable in law and thus liable to be quashed. The impugned circular has no nexus whatsoever with the objects sought to be achieved by the Voluntary retirement Scheme, by which the manpower was targeted to be reduced resulting in long term gain for the PSU by paying a small sum upfront.
Following judgements are relied :
legalcrystal.com/736656 Maganlal Rambhai Gandhi Vs. Ambica Mills Ltd., Ahmedabad AIR1964 Guj 215; (1963)IILLJ522Guj
13. In my opinion, under Article 19(1)(g) of the Constitution, every citizen has the right which is unqualified except by Clauses (2) to (6) of that Article, to practice any profession or to carry any occupation, trade or business in any manner he likes in any part of India. The issue of an injunction restraining a person from serving any person or any firm except that of the plaintiff during a certain period would clearly offend the right given by Article 19 of the Constitution.
https://indiankanoon.org/doc/165273/ Sodan Singh Etc. Etc vs New Delhi Municipal Committee & ... on 30 August, 1989 Equivalent citations: 1989 AIR 1988, 1989 SCR (3)1038
25….. The guarantee under Article 19(1)(g) extends to practice any profession, or to carry on any occupation, trade or business. 'Profession' means an occupation carried on by a person by virtue of his personal and specialised qualifications, training or skill. The word 'Occupation' has a wide meaning such as any regular work, profession, job, principal activity, employment, business or a calling in which an individual is engaged.
As per the above two verdicts, the condition mentioned in the VRS application stating “I also understand that I will not be allowed to take up employment in any other PSU or Govt organisation in future” violates the constitution.
Supreme Court of India Olga Tellis & Ors vs Bombay Municipal Corporation & ... on 10 July, 1985 , 1986 AIR 180, 1985 SCR Supl. (2) 51, https://indiankanoon.org/doc/709776/, a seven judge constitutional bench held
"No individual can barter away the freedoms conferred upon him by the Constitution. A concession made by him in a proceeding, whether under a mistake of law or otherwise, that he does not possess or will not enforce any particular fundamental right, cannot create an estoppel against him in that or any subsequent proceeding. Such a concession, if enforced, would defeat the purpose of the Constitution. Were the argument of estoppel valid, an all-powerful state could easily tempt an individual to forego his precious personal freedoms on promise of transitory, immediate benefits."
The above verdict makes it clear that the undertaking obtained by a PSU from workmen on the garb of giving Ex-gratia is void as it is violating the fundamental right as per article 19(1)g of the constitution.
No Rights to PSU after separation on VRS as per Contract act section 27
The condition of ban of future employment in another PSU after VRS coupled with undertaking to refund the VRS Ex-gratia have been repeatedly quashed by various courts. Only some important verdicts are mentioned below
Verdicts specific to VRS
Supreme Court : In Transfer Petition (civil) 8 of 2000 A.K. Bindal & Anr. Vs Union of India & Ors. On 25/04/2003, Bench: S. Rajendra Babu & G.P. Mathur, it was held :
Page 16 : ..... a considerable amount is to be paid to an employee ex-gratia besides the terminal benefits in case he opts for voluntary retirement under the Scheme and his option is accepted. The amount is paid not for doing any work or rendering any service. It is paid in lieu of the employee himself leaving the services of the company or the industrial establishment and forgoing all his claims or rights in the same. It is a package deal of give and take. That is why in business world it is known as ’Golden Handshake’. The main purpose of paying this amount is to bring about a complete cessation of the jural relationship between the employer and the employee. After the amount is paid and the employee ceases to be under the employment of the company or the undertaking, he leaves with all his rights and there is no question of his again agitating for any kind of his past rights, with his erstwhile employer including making any claim with regard to enhancement of pay scale for an earlier period. If the employee is still permitted to raise a grievance regarding enhancement of pay scale from a retrospective date, even after he has opted for Voluntary Retirement Scheme and has accepted the amount paid to him, the whole purpose of introducing the Scheme would be totally frustrated.
The above judgment makes it clear that no claim whatsoever can be entertained after the employee-employer relationship has come to an end. This is applicable for employee as well as employer.
Gauhati – Oil India Ltd Vs Dilip Kumar Goswami, (2000)IILLJ415 Gau.
“The employer cannot prescribe any term and condition in order to restrict future avocation of an employee after retirement.
” 13. The clarification given by the Department of Public Enterprises in Column-5 shows that the Management of Public Enterprises have been asked to exercise its own managerial discretion and prudence while disposing of the cases of voluntary retirement. The clarification further requires the Management to invoke the powers of office memorandum dated December 14, 1982, January 25, 1998 and June 23, 1998 (sic) issued by Department of Public Enterprises if they find that an employee seeking voluntary retirement has opted for a job in any other Public Sector Undertaking. This condition also appears to be contrary to the provisions of Section 27 of the Indian Contract Act. An employee going on voluntary retirement and not taking any job in any Public Sector Undertaking will be entitled to full benefits under the Voluntary Retirement Scheme, but the said benefits will be restricted to certain amounts only if such employee takes fresh employment after retirement. The clarification given to this effect cannot be said to be in keeping with the spirit of the provisions of Section 27 of the Indian Contract Act. The Company while disposing of a request for voluntary retirement cannot discriminate in respect of benefits to which an employee is entitled to on such retirement on consideration that the employee concerned was going to take over a job in some other company. A bare reading of the guideline/circular shows that this was issued without any authority of law and against the basic principles behind 'voluntary retirement'.”
Hydrabad division bench– legalcrystal.com/436364 S.Rami Reddy Vs Vice-Chairman and Managing Director, Andra Pradesh State Irrigation Development Corporation Limited, 2003(4)ALD609. There is no ban on VRS optees to join any other PSU in open competition
“31. According to the learned counsel, Clause 8 of G.O. Ms. No. 16, dated 22-3-2001, which requires the identified employee to give an undertaking to the effect that he would not seek re-employment in other Government undertakings, is arbitrary and illegal for it violates the provisions of Articles 16 and 21 of the Constitution of India, and in support of this submission, he placed reliance on the judgement of the Gauhati High Court reported in Oil India Ltd. v. Dilip Kumar Goswami, 1999 (7) SLR 494.
76. The effect of the other contention advanced by the learned counsel for the petitioners that the condition in the impugned notice insofar as it mandates the identified employee who opts for VRS to give an undertaking that he shall not be eligible for re-employment in any Government Departments and Public Sector Undertakings, which is in consonance with sub-clause (8) of Clause 8 of G.O. Ms. No. 16, dated 22-3-2001, is arbitrary inasmuch as it takes away their right to livelihood enshrined under Article 21 of the Constitution of India, is also liable to be rejected, inasmuch, the learned single Judge of this Court, having considered this contention, in the above judgement, held thus: In the considered view of this Court, Clause 8(8) of G.O. Ms. No. 16, dated 22-3-2001 suffers from no infirmity. It does not deprive persons, who have opted for Voluntary Retirement Scheme from competing by way of direct recruitment to any Public Office.
77. It should be noted that the impugned condition only prohibits the petitioners from taking re-employment in Government Departments/Public Sector Undertakings. They are not precluded from taking employment in private organizations or compete by way of direct recruitment to public offices. The apprehension of the petitioners that if they give an undertaking in terms of Clause 8(8) of G.O. Ms. No. 16, dated 22-3-2001, they would be barred from seeking employment in any organization, is misplaced inasmuch as even if they give such an undertaking, they would not waive their fundamental right to equality enshrined under Article 14 and the other fundamental rights guaranteed under Part III of the Constitution of India. If at any future point of time, the petitioners apply for employment and their cases for employment is rejected on the ground of they having undertook not to claim re-employment, are not entitled to claim employment, then they would be at liberty to assail the same.”
Supreme court – Gouri Shankar Ghosh Hazara Vs Hindustan Copper, 8-5-2001, A VRS optee can join another PSU, he will be eligible for all VRS benefits
“It is clear that there was as such no embargo on an employee of a public sector undertaking being employed by another public sector undertaking”
Cases where ban on future employment (by whatever name it is called like confidentiality, non compete, non disclosure, secret formula, special training, undertaking, bond, affidavit, promise etc) were quashed
https://indiankanoon.org/doc/647033/
Wipro Limited vs Beckman Coulter International ... on 11 July, 2006 Equivalent citations: 2006 (3) ARBLR 118 Delhi, 2006 (2) CTLJ 57 Del, 131 (2006) DLT 681
47…...
2) Negative covenants between employer and employee contracts pertaining to the period post termination and restricting an employee's right to seek employment and/or to do business in the same field as the employer would be in restraint of trade and, therefore, a stipulation to this effect in the contract would be void. In other words, no employee can be confronted with the situation where he has to either work for the present employer or be forced to idleness;
4) The question of reasonableness as also the question of whether the restraint is partial or complete is not required to be considered at all whenever an issue arises as to whether a particular term of a contract is or is not in restraint of trade, business or profession.
https://indiankanoon.org/doc/65671346/ M/S Stellar Information ... vs Mr Rakesh Kumar & Ors
11. Mr Santhalia further submitted that the Defendants could not be restrained from carrying on their business or approaching the customers as any such restrictive covenant in the Agreements would be void by virtue of Section 27 of the Indian Contract Act, 1872. In support of its contention, he relied on the following decisions:
(i) The decision of the Madras High Court in Lister Technologies Private Limited v Mukundhan Dakshinamurthi & Ors.: 215(5) CTC 830.
(ii) The decision of a Coordinate Bench of this Court in Ambiance India Pvt. Ltd. V. Shri Naveen Jain: 122 (2005) DLT 421.
(iii) The decision of the Bombay High Court in VFS Global Services Private Limited v. Mr Suprit Roy: 2008 (118) FLR 419.
(iv) American Express Bank Ltd. v. Ms. Priya Puri: 2006 (110) FLR 1061.
Gujarat – Lalbhai Dalpatbhai & Co Vs Chittaranjan Chandulal Pandya, AIR 1996 Guj Restriction on employee after termination of employment is not valid. Employee does not have any bargaining power and has to sign on dotted line.
“9....If it is not going to benefit the employer in any legitimate manner, the court would not injunct the employee from exercising his skill, training and knowledge merely because the employee has agreed to it”
Gujarat – Sandhya Organic Chemicals P Ltd Vs United Phosphorous Ltd, AIR 1997 Guj 177. as per contract act, service covenant beyond service period is not valid.
“16....The supreme court has also ruled that under section 27 of the contract act, a service covenant beyond the termination of the service is void”
Supreme court – Superintendence Company of India Vs Krishnan Murgai, AIR 1980 SC 1717. Post service conditions are not valid. Even partial condition is not valid. Inequality of bargaining power with employees and harsh and oppressive conditions make the contract invalid.
“29.A contract, which has for its object a restraint of trade, is prima facie void....whether the restraint was general or partial, unqualified or qualified, if it was in the nature of a restraint of trade, it was void.
32.....If the agreement puts a restraint even though partial, it was void and therefore, the contract must be treated as one which can not be enforced.
53....Not a Indian Decision has been brought to our notice where an injunction has been granted against an employee after the termination of his employment.
58....If the covenant is to operate after the termination of services, or it is too widely worded, the court may refuse to enforce it.
59....there is inequality of bargaining power between the parties, indeed no bargaining may occur because the employee is presented with a standard form of contract to accept or reject... ”
Supreme court – Moti Ram Deka Vs East Frontier Railways, AIR 1964 SC 600. If a contract is not valid as per contract act, the fact that it was signed by the employee is of no avail as decided by 7 judge constitutional bench.
“31....it is well known that if the contract is void, as for instance, under section 23 of the Indian contract act, the plea that it was executed by the party would be to no avail....”
Supreme court – Niranjan Shankar Golikari Vs Century Spinning, AIR 1967 SC 1098, negative covenant in a service agreement is void. Negative covenant after termination of contract is not valid. https://indiankanoon.org/doc/452434/
“This was a case of a negative covenant not to serve elsewhere for three years after the termination of the contract. In this case the court applied the test of what was reasonable for the protection of the plaintiffs' interest. It was also not a case of the employee possessing any special talent but that of a mere canvasser. This decision, however, cannot assist us as the negative covenant therein was to operate after the termination of the contract. Herbert Morris v. Saxelby(3) and Attwood v. Lamont(4) are also cases where the restrictive covenants were to apply after the termination of the employment. In Commercial Plastics Ltd. v. Vincent(5) also the negative covenant was to operate for a year after the employee left the employment and the court held that the restriction was void inasmuch as it went beyond what was reasonably necessary for the protection of the employer's legitimate interests.
The result of the above discussion is that considerations against restrictive covenants are different in cases where the restriction is to apply during the period after the termination of the contract than those in cases where it is to operate during the period of the contract. “
Supreme court – Percept D Mark (India) Ltd Vs Zaheer Khan, AIR 2006 SC 3426, any condition after termination of contract will be invalid.
“55. On the pleading contained in the arbitration petition, there can be no escape from the conclusion that what the appellant sought to enforce was a negative covenant which, according to the appellant, survived the expiry of the agreement. This, the High Court has rightly held is impermissible as such clause which is sought to be enforced after the term of the contract is prima facie void under section 27 of the contract Act”
Supreme Court of India : Bank Of India & Ors vs O.P. Swarnakar Etc on 17 December, 2002, Bench: H Sema, S Sinha on the topic of VRS
..... It is difficult to accept the contention raised in the Bar that a contract of employment would not be governed by the Indian Contract Act. A contract of employment is also a subject matter of contract. Unless governed by a statute or statutory rules, the provisions of the Indian Contract Act would be only applicable at the formulation of the contract as also the determination thereof.
The above judgement makes it clear that the provisions of contract act are applicable in VRS.
Supreme Court of India L.I.C. Of India & Anr vs Consumer Education & Research ... on 10 May, 1995 ; 1995 AIR 1811, 1995 SCC (5) 482
58. .... Imposition of conditions including the one struck down by the High Court are, therefore, unconstitutional and Impermissible.
Therefore, the imposition of condition of refund of VRS ex-gratia is liable to be struck down.
In Madras High Court, in R.Babu vs Ttk Lig Ltd on 1 March, 2004, The Hon'ble Mr.Justice K.GOVINDARAJAN and The Hon'ble Mr. Justice N.KANNADASAN O.S.A.No.6 of 2003 and CMP No.693 of 2003, http://indiankanoon.org/doc/447682/ it was held
“6. ….. submission viz., violation of Section 27 of the Indian Contract Act with regard to the negative covenants of the agreement dated 1.5.1990. Even though the learned counsel for the respondent has contended that the relevant portion in Krishan Murgai's case relating to the violation of Section 27 of the Indian Contract Act was delivered by the learned single Judge, viz., His Lordship A.P.SEN, J., who according to him dissented with the majority of the two other learned Judges of the Bench and as such, the same is not applicable, we do not agree with the said argument. A perusal of the said judgment discloses that no injunction can be granted against an employee after the termination of his employment, restraining him from carrying on a competitive trade. In fact, even though the above proposition of law was laid down by the learned Judge, finally all the three learned Judges held that the judgment of the Delhi Bench was correct and dismissed the appeal. Hence, the judgment of His Lordship A.P.SEN, J., cannot be construed as a dissenting judgment. It is a case in which two learned Judges of the Bench did not dealt with the question while the third learned Judge dealt with and also declared the law. The dictum of His Lordship A.P.SEN, J., is undoubtedly the law declared by the Supreme Court as contemplated by Article 141 of the Constitution of India and it shall be binding on all Courts within the territory of India and there is no escape from that conclusion.”
In Madras High Court http://indiankanoon.org/doc/16422195/ Unknown vs M/S.Secan Invescast (India) ... on 1 February, 2013, the division bench has dealt with restrictive covenants extensively citing more than 5 judgements of the SC. As per this judgement, the condition not to serve any other PSU for life time in any part of the world is absolutely not permitted as it is not reasonable.
“20. As per various judicial pronouncements, the reasonable restraint is permitted and does not render the contract void ab initio. Reasonable restrictions can be placed in the following ways:- 1.Distance: suitable restrictions can be placed on employee to not practice the same profession within a stipulated distance, the stipulation being reasonable. 2.Time limit: if there is a reasonable time provided in this clause then it will fall under reasonable restrictions. 3.Trade secrets: The employer can put reasonable restrictions on the letting out of trade secrets. 4.Goodwill: There is an exception under section 27 of the Indian Contract Act on the distribution of goodwill.Reasonableness of restraint depends upon various factors, and the restraint in order to prevent divulgence of trade secrets or business connections has to be reasonable in the interest of the parties to ensure adequate protection to the covenantee.
45. Referring to the decisions of ((1895) 2 Q.B. 315 Robb. Vs. Green, AIR 1967 SC 1098 Niranjan Shankar Golikari case and AIR 1995 SC 2372 - M/s.Gujarat Bottling Co.Ltd. Vs. Coca Cola Co. and others, the learned single Judge rightly held that the negative covenant of the agreement can be enforced only during the period of contract and that the same cannot be enforced after the expiry of the agreement period. We do not find any error or illegality warranting interference with the order of the learned single Judge and this appeal is liable to be dismissed.”
The “refund of ex-gratia” is illegal as per the Kerala High court which held in State of Kerala Vs United Shippers and Dredgers Ltd, 1982KLJ430.
“7...If the breach has not resulted in any harm, loss or damage to the other party, the question of recompensating him or restoring to him something he has lost would not arise.
8.....section 75 would necessarily indicate that the party who complains of a breach must have really suffered some loss or damage apart from being faced with the mere act of breach of contract....If in any case the breach has not resulted in or caused any loss or damage to a party, he cannot claim compensation”
When a workman joins another PSU, there is no loss incurred by the first PSU. Therefore such a condition of refund is completely illegal.
From India, Salem
2The nation is discussing the “Regularisation of slaughter of animals” right now. I am giving below another similar case where the executive branch invented a method to restrict the workmen illegally after giving VRS.
In 2001, the Govt decided to turn around sick and loss making Public Sector Units (PSU) by offering VRS on a massive scale. Budgetary support was provided to offer “Golden Handshake” and reduce the manpower in PSU’s. Lakhs of employees opted to take VRS.
One of the conditions for obtaining VRS contained in the below circular 2(32)/97/ DPE(WC) /GL-LVI dated 6-11-2001 in para 1(d)
http://dpe.gov.in/sites/default/file...line-266_0.pdf
“Once an employee avails himself of VRS from a PSU, he shall not be allowed to take up employment in another PSU. If he desires to do so, he shall have to return the VRS Compensation received by him”
This first part of condition was violation of Contract act 27 and violation of fundamental right as per article 19(1)g of the constitution. The second part is violative of Contract act section 73.
Contract act section 27 : Agreement in restraint of trade, void.—Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void
Article 19(1)g : to practise any profession, or to carry on any occupation, trade or business
Contract act section 73 : Compensation for loss or damage caused by breach of contract.—When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him
A number of courts have struck conditions imposed by the employers on employees which restrict the employees after termination of employment. Despite such a legal position, the Department of Public Enterprises have issued such an illegal circular.
This circular has adversely affected the professional life of lakhs of workmen who were not able to work in other PSU units by using the skills learned in their present companies.
The above circular, which is ultra vires the Contract Act and the constitution was a mala fide exercise of power and wholly untenable in law and thus liable to be quashed. The impugned circular has no nexus whatsoever with the objects sought to be achieved by the Voluntary retirement Scheme, by which the manpower was targeted to be reduced resulting in long term gain for the PSU by paying a small sum upfront.
Following judgements are relied :
legalcrystal.com/736656 Maganlal Rambhai Gandhi Vs. Ambica Mills Ltd., Ahmedabad AIR1964 Guj 215; (1963)IILLJ522Guj
13. In my opinion, under Article 19(1)(g) of the Constitution, every citizen has the right which is unqualified except by Clauses (2) to (6) of that Article, to practice any profession or to carry any occupation, trade or business in any manner he likes in any part of India. The issue of an injunction restraining a person from serving any person or any firm except that of the plaintiff during a certain period would clearly offend the right given by Article 19 of the Constitution.
https://indiankanoon.org/doc/165273/ Sodan Singh Etc. Etc vs New Delhi Municipal Committee & ... on 30 August, 1989 Equivalent citations: 1989 AIR 1988, 1989 SCR (3)1038
25….. The guarantee under Article 19(1)(g) extends to practice any profession, or to carry on any occupation, trade or business. 'Profession' means an occupation carried on by a person by virtue of his personal and specialised qualifications, training or skill. The word 'Occupation' has a wide meaning such as any regular work, profession, job, principal activity, employment, business or a calling in which an individual is engaged.
As per the above two verdicts, the condition mentioned in the VRS application stating “I also understand that I will not be allowed to take up employment in any other PSU or Govt organisation in future” violates the constitution.
Supreme Court of India Olga Tellis & Ors vs Bombay Municipal Corporation & ... on 10 July, 1985 , 1986 AIR 180, 1985 SCR Supl. (2) 51, https://indiankanoon.org/doc/709776/, a seven judge constitutional bench held
"No individual can barter away the freedoms conferred upon him by the Constitution. A concession made by him in a proceeding, whether under a mistake of law or otherwise, that he does not possess or will not enforce any particular fundamental right, cannot create an estoppel against him in that or any subsequent proceeding. Such a concession, if enforced, would defeat the purpose of the Constitution. Were the argument of estoppel valid, an all-powerful state could easily tempt an individual to forego his precious personal freedoms on promise of transitory, immediate benefits."
The above verdict makes it clear that the undertaking obtained by a PSU from workmen on the garb of giving Ex-gratia is void as it is violating the fundamental right as per article 19(1)g of the constitution.
No Rights to PSU after separation on VRS as per Contract act section 27
The condition of ban of future employment in another PSU after VRS coupled with undertaking to refund the VRS Ex-gratia have been repeatedly quashed by various courts. Only some important verdicts are mentioned below
Verdicts specific to VRS
Supreme Court : In Transfer Petition (civil) 8 of 2000 A.K. Bindal & Anr. Vs Union of India & Ors. On 25/04/2003, Bench: S. Rajendra Babu & G.P. Mathur, it was held :
Page 16 : ..... a considerable amount is to be paid to an employee ex-gratia besides the terminal benefits in case he opts for voluntary retirement under the Scheme and his option is accepted. The amount is paid not for doing any work or rendering any service. It is paid in lieu of the employee himself leaving the services of the company or the industrial establishment and forgoing all his claims or rights in the same. It is a package deal of give and take. That is why in business world it is known as ’Golden Handshake’. The main purpose of paying this amount is to bring about a complete cessation of the jural relationship between the employer and the employee. After the amount is paid and the employee ceases to be under the employment of the company or the undertaking, he leaves with all his rights and there is no question of his again agitating for any kind of his past rights, with his erstwhile employer including making any claim with regard to enhancement of pay scale for an earlier period. If the employee is still permitted to raise a grievance regarding enhancement of pay scale from a retrospective date, even after he has opted for Voluntary Retirement Scheme and has accepted the amount paid to him, the whole purpose of introducing the Scheme would be totally frustrated.
The above judgment makes it clear that no claim whatsoever can be entertained after the employee-employer relationship has come to an end. This is applicable for employee as well as employer.
Gauhati – Oil India Ltd Vs Dilip Kumar Goswami, (2000)IILLJ415 Gau.
“The employer cannot prescribe any term and condition in order to restrict future avocation of an employee after retirement.
” 13. The clarification given by the Department of Public Enterprises in Column-5 shows that the Management of Public Enterprises have been asked to exercise its own managerial discretion and prudence while disposing of the cases of voluntary retirement. The clarification further requires the Management to invoke the powers of office memorandum dated December 14, 1982, January 25, 1998 and June 23, 1998 (sic) issued by Department of Public Enterprises if they find that an employee seeking voluntary retirement has opted for a job in any other Public Sector Undertaking. This condition also appears to be contrary to the provisions of Section 27 of the Indian Contract Act. An employee going on voluntary retirement and not taking any job in any Public Sector Undertaking will be entitled to full benefits under the Voluntary Retirement Scheme, but the said benefits will be restricted to certain amounts only if such employee takes fresh employment after retirement. The clarification given to this effect cannot be said to be in keeping with the spirit of the provisions of Section 27 of the Indian Contract Act. The Company while disposing of a request for voluntary retirement cannot discriminate in respect of benefits to which an employee is entitled to on such retirement on consideration that the employee concerned was going to take over a job in some other company. A bare reading of the guideline/circular shows that this was issued without any authority of law and against the basic principles behind 'voluntary retirement'.”
Hydrabad division bench– legalcrystal.com/436364 S.Rami Reddy Vs Vice-Chairman and Managing Director, Andra Pradesh State Irrigation Development Corporation Limited, 2003(4)ALD609. There is no ban on VRS optees to join any other PSU in open competition
“31. According to the learned counsel, Clause 8 of G.O. Ms. No. 16, dated 22-3-2001, which requires the identified employee to give an undertaking to the effect that he would not seek re-employment in other Government undertakings, is arbitrary and illegal for it violates the provisions of Articles 16 and 21 of the Constitution of India, and in support of this submission, he placed reliance on the judgement of the Gauhati High Court reported in Oil India Ltd. v. Dilip Kumar Goswami, 1999 (7) SLR 494.
76. The effect of the other contention advanced by the learned counsel for the petitioners that the condition in the impugned notice insofar as it mandates the identified employee who opts for VRS to give an undertaking that he shall not be eligible for re-employment in any Government Departments and Public Sector Undertakings, which is in consonance with sub-clause (8) of Clause 8 of G.O. Ms. No. 16, dated 22-3-2001, is arbitrary inasmuch as it takes away their right to livelihood enshrined under Article 21 of the Constitution of India, is also liable to be rejected, inasmuch, the learned single Judge of this Court, having considered this contention, in the above judgement, held thus: In the considered view of this Court, Clause 8(8) of G.O. Ms. No. 16, dated 22-3-2001 suffers from no infirmity. It does not deprive persons, who have opted for Voluntary Retirement Scheme from competing by way of direct recruitment to any Public Office.
77. It should be noted that the impugned condition only prohibits the petitioners from taking re-employment in Government Departments/Public Sector Undertakings. They are not precluded from taking employment in private organizations or compete by way of direct recruitment to public offices. The apprehension of the petitioners that if they give an undertaking in terms of Clause 8(8) of G.O. Ms. No. 16, dated 22-3-2001, they would be barred from seeking employment in any organization, is misplaced inasmuch as even if they give such an undertaking, they would not waive their fundamental right to equality enshrined under Article 14 and the other fundamental rights guaranteed under Part III of the Constitution of India. If at any future point of time, the petitioners apply for employment and their cases for employment is rejected on the ground of they having undertook not to claim re-employment, are not entitled to claim employment, then they would be at liberty to assail the same.”
Supreme court – Gouri Shankar Ghosh Hazara Vs Hindustan Copper, 8-5-2001, A VRS optee can join another PSU, he will be eligible for all VRS benefits
“It is clear that there was as such no embargo on an employee of a public sector undertaking being employed by another public sector undertaking”
Cases where ban on future employment (by whatever name it is called like confidentiality, non compete, non disclosure, secret formula, special training, undertaking, bond, affidavit, promise etc) were quashed
https://indiankanoon.org/doc/647033/
Wipro Limited vs Beckman Coulter International ... on 11 July, 2006 Equivalent citations: 2006 (3) ARBLR 118 Delhi, 2006 (2) CTLJ 57 Del, 131 (2006) DLT 681
47…...
2) Negative covenants between employer and employee contracts pertaining to the period post termination and restricting an employee's right to seek employment and/or to do business in the same field as the employer would be in restraint of trade and, therefore, a stipulation to this effect in the contract would be void. In other words, no employee can be confronted with the situation where he has to either work for the present employer or be forced to idleness;
4) The question of reasonableness as also the question of whether the restraint is partial or complete is not required to be considered at all whenever an issue arises as to whether a particular term of a contract is or is not in restraint of trade, business or profession.
https://indiankanoon.org/doc/65671346/ M/S Stellar Information ... vs Mr Rakesh Kumar & Ors
11. Mr Santhalia further submitted that the Defendants could not be restrained from carrying on their business or approaching the customers as any such restrictive covenant in the Agreements would be void by virtue of Section 27 of the Indian Contract Act, 1872. In support of its contention, he relied on the following decisions:
(i) The decision of the Madras High Court in Lister Technologies Private Limited v Mukundhan Dakshinamurthi & Ors.: 215(5) CTC 830.
(ii) The decision of a Coordinate Bench of this Court in Ambiance India Pvt. Ltd. V. Shri Naveen Jain: 122 (2005) DLT 421.
(iii) The decision of the Bombay High Court in VFS Global Services Private Limited v. Mr Suprit Roy: 2008 (118) FLR 419.
(iv) American Express Bank Ltd. v. Ms. Priya Puri: 2006 (110) FLR 1061.
Gujarat – Lalbhai Dalpatbhai & Co Vs Chittaranjan Chandulal Pandya, AIR 1996 Guj Restriction on employee after termination of employment is not valid. Employee does not have any bargaining power and has to sign on dotted line.
“9....If it is not going to benefit the employer in any legitimate manner, the court would not injunct the employee from exercising his skill, training and knowledge merely because the employee has agreed to it”
Gujarat – Sandhya Organic Chemicals P Ltd Vs United Phosphorous Ltd, AIR 1997 Guj 177. as per contract act, service covenant beyond service period is not valid.
“16....The supreme court has also ruled that under section 27 of the contract act, a service covenant beyond the termination of the service is void”
Supreme court – Superintendence Company of India Vs Krishnan Murgai, AIR 1980 SC 1717. Post service conditions are not valid. Even partial condition is not valid. Inequality of bargaining power with employees and harsh and oppressive conditions make the contract invalid.
“29.A contract, which has for its object a restraint of trade, is prima facie void....whether the restraint was general or partial, unqualified or qualified, if it was in the nature of a restraint of trade, it was void.
32.....If the agreement puts a restraint even though partial, it was void and therefore, the contract must be treated as one which can not be enforced.
53....Not a Indian Decision has been brought to our notice where an injunction has been granted against an employee after the termination of his employment.
58....If the covenant is to operate after the termination of services, or it is too widely worded, the court may refuse to enforce it.
59....there is inequality of bargaining power between the parties, indeed no bargaining may occur because the employee is presented with a standard form of contract to accept or reject... ”
Supreme court – Moti Ram Deka Vs East Frontier Railways, AIR 1964 SC 600. If a contract is not valid as per contract act, the fact that it was signed by the employee is of no avail as decided by 7 judge constitutional bench.
“31....it is well known that if the contract is void, as for instance, under section 23 of the Indian contract act, the plea that it was executed by the party would be to no avail....”
Supreme court – Niranjan Shankar Golikari Vs Century Spinning, AIR 1967 SC 1098, negative covenant in a service agreement is void. Negative covenant after termination of contract is not valid. https://indiankanoon.org/doc/452434/
“This was a case of a negative covenant not to serve elsewhere for three years after the termination of the contract. In this case the court applied the test of what was reasonable for the protection of the plaintiffs' interest. It was also not a case of the employee possessing any special talent but that of a mere canvasser. This decision, however, cannot assist us as the negative covenant therein was to operate after the termination of the contract. Herbert Morris v. Saxelby(3) and Attwood v. Lamont(4) are also cases where the restrictive covenants were to apply after the termination of the employment. In Commercial Plastics Ltd. v. Vincent(5) also the negative covenant was to operate for a year after the employee left the employment and the court held that the restriction was void inasmuch as it went beyond what was reasonably necessary for the protection of the employer's legitimate interests.
The result of the above discussion is that considerations against restrictive covenants are different in cases where the restriction is to apply during the period after the termination of the contract than those in cases where it is to operate during the period of the contract. “
Supreme court – Percept D Mark (India) Ltd Vs Zaheer Khan, AIR 2006 SC 3426, any condition after termination of contract will be invalid.
“55. On the pleading contained in the arbitration petition, there can be no escape from the conclusion that what the appellant sought to enforce was a negative covenant which, according to the appellant, survived the expiry of the agreement. This, the High Court has rightly held is impermissible as such clause which is sought to be enforced after the term of the contract is prima facie void under section 27 of the contract Act”
Supreme Court of India : Bank Of India & Ors vs O.P. Swarnakar Etc on 17 December, 2002, Bench: H Sema, S Sinha on the topic of VRS
..... It is difficult to accept the contention raised in the Bar that a contract of employment would not be governed by the Indian Contract Act. A contract of employment is also a subject matter of contract. Unless governed by a statute or statutory rules, the provisions of the Indian Contract Act would be only applicable at the formulation of the contract as also the determination thereof.
The above judgement makes it clear that the provisions of contract act are applicable in VRS.
Supreme Court of India L.I.C. Of India & Anr vs Consumer Education & Research ... on 10 May, 1995 ; 1995 AIR 1811, 1995 SCC (5) 482
58. .... Imposition of conditions including the one struck down by the High Court are, therefore, unconstitutional and Impermissible.
Therefore, the imposition of condition of refund of VRS ex-gratia is liable to be struck down.
In Madras High Court, in R.Babu vs Ttk Lig Ltd on 1 March, 2004, The Hon'ble Mr.Justice K.GOVINDARAJAN and The Hon'ble Mr. Justice N.KANNADASAN O.S.A.No.6 of 2003 and CMP No.693 of 2003, http://indiankanoon.org/doc/447682/ it was held
“6. ….. submission viz., violation of Section 27 of the Indian Contract Act with regard to the negative covenants of the agreement dated 1.5.1990. Even though the learned counsel for the respondent has contended that the relevant portion in Krishan Murgai's case relating to the violation of Section 27 of the Indian Contract Act was delivered by the learned single Judge, viz., His Lordship A.P.SEN, J., who according to him dissented with the majority of the two other learned Judges of the Bench and as such, the same is not applicable, we do not agree with the said argument. A perusal of the said judgment discloses that no injunction can be granted against an employee after the termination of his employment, restraining him from carrying on a competitive trade. In fact, even though the above proposition of law was laid down by the learned Judge, finally all the three learned Judges held that the judgment of the Delhi Bench was correct and dismissed the appeal. Hence, the judgment of His Lordship A.P.SEN, J., cannot be construed as a dissenting judgment. It is a case in which two learned Judges of the Bench did not dealt with the question while the third learned Judge dealt with and also declared the law. The dictum of His Lordship A.P.SEN, J., is undoubtedly the law declared by the Supreme Court as contemplated by Article 141 of the Constitution of India and it shall be binding on all Courts within the territory of India and there is no escape from that conclusion.”
In Madras High Court http://indiankanoon.org/doc/16422195/ Unknown vs M/S.Secan Invescast (India) ... on 1 February, 2013, the division bench has dealt with restrictive covenants extensively citing more than 5 judgements of the SC. As per this judgement, the condition not to serve any other PSU for life time in any part of the world is absolutely not permitted as it is not reasonable.
“20. As per various judicial pronouncements, the reasonable restraint is permitted and does not render the contract void ab initio. Reasonable restrictions can be placed in the following ways:- 1.Distance: suitable restrictions can be placed on employee to not practice the same profession within a stipulated distance, the stipulation being reasonable. 2.Time limit: if there is a reasonable time provided in this clause then it will fall under reasonable restrictions. 3.Trade secrets: The employer can put reasonable restrictions on the letting out of trade secrets. 4.Goodwill: There is an exception under section 27 of the Indian Contract Act on the distribution of goodwill.Reasonableness of restraint depends upon various factors, and the restraint in order to prevent divulgence of trade secrets or business connections has to be reasonable in the interest of the parties to ensure adequate protection to the covenantee.
45. Referring to the decisions of ((1895) 2 Q.B. 315 Robb. Vs. Green, AIR 1967 SC 1098 Niranjan Shankar Golikari case and AIR 1995 SC 2372 - M/s.Gujarat Bottling Co.Ltd. Vs. Coca Cola Co. and others, the learned single Judge rightly held that the negative covenant of the agreement can be enforced only during the period of contract and that the same cannot be enforced after the expiry of the agreement period. We do not find any error or illegality warranting interference with the order of the learned single Judge and this appeal is liable to be dismissed.”
The “refund of ex-gratia” is illegal as per the Kerala High court which held in State of Kerala Vs United Shippers and Dredgers Ltd, 1982KLJ430.
“7...If the breach has not resulted in any harm, loss or damage to the other party, the question of recompensating him or restoring to him something he has lost would not arise.
8.....section 75 would necessarily indicate that the party who complains of a breach must have really suffered some loss or damage apart from being faced with the mere act of breach of contract....If in any case the breach has not resulted in or caused any loss or damage to a party, he cannot claim compensation”
When a workman joins another PSU, there is no loss incurred by the first PSU. Therefore such a condition of refund is completely illegal.
From India, Salem
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
Job Work-outwork employees.docx