2023 (2) TMI 45 - HC - Insolvency and Bankruptcy

Termination of employment - breach of service contract by terminating the services - recovery towards arrears of service contract, compensation, encashment of leave amount, gratuity COLA/DA, damages with interest. Salary in lieu of notice - HELD THAT - The definition salary was modified during the time when respondent was in appellant s employment. Clause 8(d) of Exhibit 49 defines what is salary in case respondent s services are terminated without notice. But that underwent a change when in March 2002 the salary and allowances payable to him was restructured. There was no COLA. Moreover, there is no evidence to indicate that basic pay mentioned in the revised compensation following the restructuring included COLA. That one has to only surmise. There is no cross examination of respondent also on this aspect. The Trial Court has not erred in applying the annual cost to company while determining the compensation in lieu of notice. It is also noted that if appellant had given 3 months notice for termination, appellant would have certainly paid respondent the entire compensation as payable under the cost to company formula. Damages - HELD THAT - The court felt that the person, whose employment has been summarily terminated, would naturally suffer mental trauma. So also his family, and suddenly they would have no income also to survive. It is for that reason the appointment letter itself provided for 3 months notice or salary in lieu of 3 months notice. Appellant was duty bound to hand over the severance pay along with the letter of termination and not waited for two and half months to make that payment. Therefore, Trial Court was justified in granting the amount of Rs.2,50,000/- as damages. Perhaps, this would work as deterrent to all corporate employers that they cannot target a helpless employee by using its own muscle and money power. A sum of Rs.3,20,807/- together with proportionate interest be reduced from the decretal amount deposited in the Trial Court. That would leave us to decide what to do with this amount of Rs.3,20,807/- plus accumulated interest thereon. Appeal allowed in part.

Summary

Issues Involved:
1. Breach of service contract by terminating employment.
2. Justifiability and legality of declaring the employee inefficient.
3. Entitlement to arrears of service contract, compensation, leave encashment, gratuity, COLA/DA, and damages with interest.
4. Entitlement to accumulated provident fund with interest.
5. Entitlement to reliefs as prayed for.

Issue-wise Detailed Analysis:

1. Breach of Service Contract by Terminating Employment:
The respondent, a former employee of the appellant, challenged the termination of his employment, claiming it was unjust and sought various compensations. The Trial Court found in favor of the respondent, stating that the appellant committed a breach of the service contract by terminating his services. The court noted that the termination was not justified under the terms of the appointment letter, which required a three-month notice or payment in lieu thereof.

2. Justifiability and Legality of Declaring the Employee Inefficient:
The Trial Court ruled that the declaration of the respondent as inefficient by the appellant was not unjustifiable or illegal. The court did not find sufficient evidence to support the respondent's claim that the declaration of inefficiency was wrongful.

3. Entitlement to Arrears of Service Contract, Compensation, Leave Encashment, Gratuity, COLA/DA, and Damages with Interest:
The Trial Court rejected the respondent's claim for Rs.5,49,45,488/- towards arrears of the service contract and other compensations. However, it granted the respondent:
- Rs.4,82,112/- towards three months' salary with 18% interest from the termination date until realization.
- Rs.9,24,006/- towards leave encashment with 18% interest from the termination date until realization.
- Rs.2,50,000/- towards damages.

The appellant contested these amounts, arguing that the basic salary considered for the three months' compensation was erroneous and that the leave encashment amount included a double payment of Rs.3,20,807/-. The appellant also claimed that the damages awarded lacked a basis and that the interest rate was excessive. The court, however, upheld the Trial Court's decision, stating that the salary definition had changed during the respondent's employment and that the compensation calculation based on the cost to the company was correct. The damages were justified due to the delay in payment of the termination package.

4. Entitlement to Accumulated Provident Fund with Interest:
The Trial Court rejected the respondent's claim for Rs.4,44,017/- towards the accumulated provident fund. The court did not find sufficient evidence to support the respondent's claim for this amount.

5. Entitlement to Reliefs as Prayed For:
The Trial Court partly decreed the suit with costs, awarding the respondent the amounts mentioned above. The appellant's appeal was partly allowed, with the court directing that Rs.3,20,807/- (the double payment towards leave encashment) along with proportionate interest be reduced from the decretal amount. This amount was to be paid over to the respondent to cover the bill of costs plus interest.

Conclusion:
The appeal was partly allowed, reducing the decretal amount by Rs.3,20,807/- plus interest. The remaining amounts were to be paid to the respondent within two weeks of receiving an authenticated copy of the judgment. The court emphasized that the appellant's delay in paying the termination package justified the damages awarded and upheld the interest rate as within the court's discretion.