Holding

When termination of service is illegal, reinstatement with back wages is the normal relief, and the Labour Court's denial of reinstatement was based on irrelevant considerations; compensation was accordingly modified.

Summary

Two loaders, Sant Raj and Itwari Lal Sherya, were terminated by their employer, a foreign air‑transport company. The Labour Court held the termination to be retrenchment and illegal because the employer had not complied with Section 25F of the Industrial Disputes Act, 1947, and awarded them one year's wages as compensation instead of ordering reinstatement. On appeal, the Supreme Court observed that when termination is illegal, the normal relief is reinstatement with full back wages, and the Labour Court's discretion to deny reinstatement must be exercised on reasonable grounds. The Court found the Labour Court's reasoning contradictory—labeling the termination both bonafide and illegal—and therefore held the discretion was exercised on irrelevant considerations. Consequently, the Court modified the award, granting each appellant Rs 2,00,000 as back wages for twelve years in lieu of reinstatement, and directed that they be entitled to relief under Section 89 of the Income Tax Act.

Issues considered

Whether the termination of service of the two workmen was illegal under the Industrial Disputes Act, 1947.
Whether reinstatement with back wages is the mandatory relief when termination is illegal.
Whether the Labour Court correctly exercised its discretion to award compensation instead of reinstatement.
Whether the appellants are entitled to relief under Section 89 of the Income Tax Act, 1961.

Legislation cited

Income Tax Act, 1961s. 192, s. 89
Income Tax Rules, 1962s. Rule 21(A)
Industrial Disputes Act, 1947s. 25F, s. 2(oo)

Subjects

Industrial Disputes Actretrenchmenttermination of servicereinstatementcompensationLabour Court discretionIncome Tax reliefSection 89back wages

Judgment

623

SANT RAJ & ANR.

v.
O.P. SINGLA & ANR.
B
April 9, 1985

(D,A. DESAI AND RANGANATH MISRA, JJ.]
c
Industrial Disputes Act, 19-17, Section 25Fread with section 2(00)-Tenni-'
nation from. service-Validity of-Termination 1f held illegal-Reinstatement
follows-Inexpedient and i1nproper to order reinstaternent-Discretion of Court
to grant compensation.

Income Tax Act, 1961, Section 89 and lnco1ne Tax Rules, 1962, Rulr, 2!(A) D
Compensation and back wages-Caurt ordered payment in· lump sum -Reiief of
Income Tax-Power f!f Court.

The services of the appellants-workmen who were employed as loaders in
a foreign air-transport company was terminated by the respondent-employer. On
a reference made by the Secretary (Labour) Delhi Administration the Labour
Court held that the termination of services of the appellants constituted retrench. E
ment within the meaning of s. 25F read with Section 2(oo) of the Industrial
Disputes Act, 1947 and as the provisions of s. 25F have not been comi:)iied with
the termination of service would be bad and illegal. It was further held that
even where s. 25F of the Act is not complied with and the termination of serviCe
is illegal and invalid, there is certainly a discretion with the Labour Court
whether to order rein~tatement of the w'orkmen or not. While quantifying the
compensation, the Labour Court observed 1hat the termination of services F
of the two workmen was bonaftde and not a colourable exercise of power in
accordance with the service rules and awarded one year's wages as compensa-
tion for the failure of the employer to comply with the requirements of s. 25F.
The workmen appealed to this Court.

Partly allowing the Appeal.
G
HELD ; 1. Ordinarily, where the termination of service is found to be
bad and illegal, in the field of industrial relations a declaration follows that the
workman continues to be in service and has to be reinstated in service With full
backwages. The Labour Court has however, the-discretion to award compensa-
tion in respect or reinstatement if the circu1nstances of a particular case are
\J.Oµsual or exceptional so as to make reinstatement inexpedient or improper. H
(625H; 626A-BJ
624 SUPREME COURT REPORTS [1985) 3 s.c.R.

A 2. Whenever il is said that something has to be done within the discre·
tion of the authority then that something has to be done according to the rules
of reason and Justice and not according to private opinion, according to Jaw and
not humour. It must not be arbitrary vague and fanciful. [6260]

Hindustan Tin Works Pyt, Ltd. v. Employees of Hindustan Tin ff'orks
B Pvt, Ltd. [1979] I SCR 563, M/s. Hindustan Steels Ltd., Rourke/av. AX. Roy
& Ors. [1970] 3 SCR 343, Sharp v. Wekfie/d, [1891] AC 173 & S.D. Jaisinghani
v. Union of India & Ors. [1967] 2 SCR 703, relied on.

3. Having regard to the facts and circumstances of the instant case, the
reasons given by the Labour Court for declining to grant the normal relief of
c reinstatement are not tenable. The order of the Labour Court is, however,
upheld. The award giving one year wages as compensation is modified to
the effect that each appellant should be paid Rs, 2,00,000 as and by way of
back-wages in lieu of relief of reinstatement. [626B·C]

4. The Labour Court while declining to grant the relfof of reinstatement
which should have ordinarily followed, consequent upon its finding that the ter-
D mination of service was bad and illegal, in exercise of its discretion awarded one
year's wages as compensation in lieu of reinstatement on the ground that 'the
termination Or service of each of the appellant was bonafide and not a colour-
able exercise of power in accordance with service rules'. There is thus an error
apparent on the face of the record, inasmuch as if termination of service was
according to service rules and was bonafide it could not be simultaneously held
to be illegal and invalid. Therefore, th;! discretion was exi~rcised on irrelevant
E and extraneous considerations or considerations not gern1aine to the tC"rmina-
tion. [626P·H; 627A)

5. The appellants are entitled to relief under s. 89 of the Income Tait
Act, !96l read with Rule 2l(A) of the Income Tax Rules, 1962 because com-
pensation herein awarded includes salary which was in arrears for 12 years
arid is being paid in one lump sum under orders of Court. Respondent cn1p~
F toyer shall assist the appellants for obtaining the relief. [628E·F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 650 of
1982.

From the Award dated 6.3.1981 of the L·1bour Court Delhi
G in ICID No. 41of1979.

P.N. Tewari and S. R. Srivastava for the Appellants.

Dr. Y.S. Chitale, Ashok Grover and David Frey for the Re£-
• -,·~· .-·•:r>z;i,~

pendent.
H
SANT RAJ v. O.P. SINOLA (Desai, J.) 625

The Judgment of the Court was delivered by A

DESAI, J..Secretary (Labour) Delhi Administration referred
the following industrial dispute between the management of M/s
Lufthansa German Airlines and its workmen Shri Sant Raj and
Shri Itwari Lal Sherya for adjudication to the Labour Court .at B
( Delhi. It reads as under :

"Whether the termination of service of S/Shri Sant
Raj and Itwari Lal Sherya is illegal and/or unjustified
and if so to what relief are they entitled ?"

The Labour Court after an exhaustive and in-depth exami-
'· c
nation of rival contentions held that termination of services· of the
afore-mentioned two workmen constituted retrenchment within
the meaning of Sec. 25F read with Sec. 2(00) of the Industrial .
Disputes Act, 1947 ('Act' for short) and as the provisions of Sec.
25F have not been complied with, the termination of service D
would be bad and illegal. The Labour Court then proceeded to
examine whether the relief of reinstatement should be granted
or compensation in lieu of reinstatement should be given. The
Labour Court held that 'even where Sec. 25F of the Industrial
Disputes Act is not complied with and therefore the termination
of service is· illegal and invalid, there is certainly a discretion E
with the Labour Court whether to order reinstatement of the
workman or not.' We have our serious reservations ·about the
statement of law but it is not necessary to deal with it in the present
case because instead of granting reinstatement, we propose to
award adequate compensation taking into account both the back-
wages as well as compensation in lieu of reinstatement. F

The Labour Court while proceeding to quantify the compen-
sation observed that 'the termination of services of the two work-
men was bonafide and not. a colorable exercise of power in
accordance with the service rules and then proceeded to award
one year's wages as compensation' for the failure of the employer G
to comply with the requirements of prov1s10ns contained in
Sec. 25F of the Act. The workmen have filed this appeal by
special leave.

Ordinarily where the termination of service is found to be -
H
626 SUPREME COUllt REPORTS (1985] 3 S.C.R.

A bad and illegal, in the field of industrial relations a declaration
follows that the workman continues to be in servicea and has to be
reinstated in service with full backwages. (See Hindustan Tin
Works Pvt. Ltd. v. Employees of Hindustan Tin Works Pvt. Ltd.(').
The Labour Court has, however, the discretion to award compen-
B sation instead of reinstatement if the circumstances of a particular
case are unusual or exceptional so as to make reinstatement in- 11'1'
expedient or improper.(See M/s Hindustan Steels Ltd., Rourke/a v.
A.K. Roy & Ors.(2 ).

In the present·· case, the Labour Court having held that the
c termination of services of the appellants would constitute retrench-
ment and as the pre-requisite for a valid retrenchment having
not been satisfied, the termination of service was bad, yet in the
-r
facts of the case in his discretion declined to grant the relief of
reinstatement. Whenever, it is said that something has to be done
D within the discretion of the authority then that something· has to be
done according to the rules of reason and justice and not accor-
ding to private opinion, according to law and not humour. It is to
be not arbitrary, vague and fanciful but legal and regular and
it must be exercised within the limit to which an honest men to
the discharge of his office ought to find himself. (See Sharp v.
E Wekfie/d('). Discretion means sound discretion guided by law.
It must be governed by rule, not by humour, it must not be
arbitrary, vague and fanciful. (See S. D. Jaisinghani v. Union of
India & Ors.(').

The Labour Court while declining to grant the relief Of reins
F tatemcnt which· should have ordinarily followed, consequent upon
its finding that the termination of service was bad and illegal, in ~.rl.
exercise of its dis.cretion awarded one year's wages as compensa- ,r
tion in lieu of reinstatement on the ground that 'the termination
of service of each of the appellant was bonafide and not a clo-
rable exercise of power in accordance with service rules.' There
G is thus an error apparent on the face of the record of the case in
asmuch as if the termination of service was according to service

(I) [1979] l SCR 563.
(2) [1970] 3 S.C.R. 343.
(3) [1891] A.C. 173.
(4) [1967] 2 S.C.R. 703.
H
SANT RAJ v. o.P. SINGLA (Desai; J.) 627 A
• I
rules and was bonafide it could not be simultaneously held to be
i"legal and invalid. Therefore the discretion was exercis 'd on
irrelevant und extraneous considerations or considerations not
germane to the determination. As a necessary corollary, we would
have granted the normal relief of reinstatement.
B
Dr. Chitley, learned counsel who appeared for the respon-
dents attempted to take us through the evidence with a view to
persuading us that the _employer even if it acted contrary to law,
should noi be burdened with reinstatement because it had lost
confidence in the appellants. The employer is a foreign air-
transport company. The workmen were loaders posted at Delhi c
Airport. In this far-fatchcd hierarchical relationship, loss of
confidence if it is tO' be considered a relevant •factor would have
hardly fmpressed, us. However, as the workmen are out of job
from August 30, 1973 i.e. roughly for a period of 12 years, it is in
their own interest, that instead of reinstatement in service under an
unwilling if not a hostile em~loyer, adequate compensation D
would meet the ends of justice. Therefo~e, in the special facts
and circumstances -of this ease, though disagreeing with the rea-
sons given by the Labour Court for dee! ining to grant the nor-
mal reHef of reinstatement, we uphold the same but the meagre
compensation awarded by the Labour Court namely one year's
E
wages requires to be rdequately and properly modified.

Dr. Chiley gave us information about the last wages drawn
by each of the workmen. That does not take care of over-time
allowance or bonus or other benefits that they enjoy. Roughly,
the monthly pay· packet of each workman appears to be around
Rs. 1,000. Each one of them was a loader which means doing F
manual job. Each one of ihem is entitled to backwages ii) full
_for a period of J 2 years. Each one was therefore entitled to get
Rs. 1,50,000 towards back-wages. Adding to it the compensation
in lieu of reinstatement in the amount of Rs. 50,000, we are of
the opinion [that a total compensation in the amount ·of G.
Rs. 2,00,000 to each appellant would meet the ends of justice.

Before we conclude this judgment, we would like to
make it abundantly clear that the compensation of Rs. 2,00,000
H
awarded to each appellant includes backwages for a period of
628 SUPREME COU!i.T REPORTS [1985] 3 S.C.R.
•
12 years. Now that the amount is being paid in one lump sum,
A
it is likely that the employer may take recourse to Sec. 192 of the
· Income .Tax Act, 1961 which provides that when any person res-
ponsible for paying any income chargeable under the head 'Sala-
ries' shall, at the time of payment, deduct income tax on the
amount payable at the average rate of income-tax computed on
B the basis of the rates ill force for the financial year in which the
payment is made, on the estimated income of the assessee under
this head for that financial year. If the.refore the employ·er pro-
ceeds to deduct the income.tax as provided by Sec. 192, we would
like to make it abundantly clear that each appellant ·.vould be
entitled to the relief under Sec. 89 of the Income Tax Act which
c provides that where, by reason of any portion of assessee's salary
being paid in arrears or in advance or by-reason of his having
received in any one financial year salary for more than 12 months
or a payment which under the provisions of clause (3) of Section
17 is ·a profit in lieu of salary, his income is assessed at a rate
higher than that it would otherwise have been assessed, the
D Income-tax Officer shall on an application made to him in this
behalf grant such relief as may be prescribed. The prescribed
relief is set out in Rule 2l(A) of the Income-tax Rules. Both the
appellants are entitled to the· relief under Sec. 89 because com-
pensation herein awarded includes salary w~ich was in arrears
for I2 years and it is being paid in one lump sum under the order~
of this Court. Therefore, the salary has to be spread over for a
period of 12 years as also the compensation in lieu of reinstate-
ment and the relief should be given as provided by Sec. 89 of the
Income-tax Act read with Rule 2l(A) of the Income-tax Rules.
Both the appellants are entitled to the same. If any application
F is necessary to be made, the same may be made to the compe-
tent authority and the respondent-employer shall assist the appel-
lants ifi each case for obtaining the relief.

When the hearing concluded and we indicated that we were
inclined to award compensation for backwages and in lieu of
G reinstatement, we requested Shri S.R. Srivastava, learned counsel
for the appellants to give us in a tabulated form the compensation
to which each appellant would be entitled with a spread over from
the date of the order of termin~tion of service till the end of the
present year. The tabulations have been supplied in respect of
H each of the appellants. We have gone through the tabulations and
SANT RAJ v. O.P. SINGLA (Desai, J.) 629
we are satisfied that they represent the correct state of affairs A
and they are taken on record and are being treated as part of this
judgment.

Accordingly, this appeal is partly allowed and the award
giving one year's wages as compensation is modified to the effect
that each appellant should be paid Rs. 2,00,000 as and by way of B
backwages and in lieu of relief of reinstatement. As we have
• awarded adequate compensation, it is not necessary to award costs.
We order accordingly. ·

c

A.P.J. Appeal partly allowed.