Employment burden of proof after dismissal ‘on the employee’

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The Supreme Court, in the 24 September judgment of National Gandhi Museum v Sudhir Sharma, observed that whether an employee after dismissal was gainfully employed was within his special knowledge and, therefore, considering the principles laid down in section 106 of the Indian Evidence Act, 1872, the burden was on the employee to come out with a case that he was not gainfully employed during the relevant period.

The museum was appealing a 31 August 2009 Delhi High Court judgment that directed it to reinstate with back wages an employee who was sent into compulsory retirement.

The appellant submitted that the onus was on the respondent to plead and prove that he was not gainfully employed from the date of the order of compulsory retirement. The counsel submitted that, as the respondent has not discharged the burden on him, he was not entitled to claim back wages.

The court held that whether such burden was discharged or not was an issue to be decided on the facts of each case.

The background

On 24 December 1996, Sudhir Sharma was appointed as a museum assistant by the National Gandhi Museum. In 2002, an office order was issued by the museum cancelling the option of compensatory leave against extra attendance, and instead providing for extra emoluments for extra attendance. Objecting to the office order, Sharma, on 27 December 2003, allegedly assaulted the museum’s assistant director and committed misconduct. Sharma was served a charge sheet, which was challenged by him by way of a writ.

On 12 July 2004, Sharma’s writ challenging the charge sheet was disposed of and he was granted liberty to challenge the inquiry report. Pursuant to the submission of the inquiry report by the inquiry officer, Sharma was held guilty of acts of insubordination, creating a scene, causing disturbance to others in performance of their duty, and causing violence in the office.

The museum, by an office order dated 16 September 2004, imposed a penalty of compulsory retirement on Sharma. An application was also filed by the museum on 8 December 2004, in accordance with section 33(2)(b) of the Industrial Disputes Act, 1947, seeking approval for the imposition of the penalty. However, the museum applied for withdrawal of the application on the grounds that no necessary approval was required, since it was a case of compulsory retirement.

Sharma approached Delhi High Court seeking declaration of the penalty null and void on account of the museum’s failure to obtain approval under section 33(2)(b) of the Industrial Disputes Act. Delhi High Court, while disposing of the petition, directed the museum to reinstate Sharma in service with back wages. The museum appealed the judgment, which was dismissed by the Division Bench of the High Court. Even a review petition seeking a review of the judgment, and the order of the Division Bench, was rejected. The museum then approached the Supreme Court.

The appellant had made three submissions to the Supreme Court: (1) it is not an industry; (2) the onus is on the respondent to prove that he was not gainfully employed from the date of the order of compulsory retirement and he is disentitled to claim back wages; and (3) considering the misconduct proved against the respondent, it would be unjust to allow his reinstatement.

The respondent submitted that the appellant needed to seek approval under the Industrial Disputes Act, 1947, before ordering compulsory retirement.

Supreme Court judgment

With regard to Sharma’s reinstatement, the Supreme Court, after considering the aims and object of the museum and the serious nature of misconduct proved against Sharma, observed that there was a need to give the respondent compensation.

The Supreme Court observed that, considering the nature of the misconduct proved against the respondent, the grant of reinstatement would not be in the interests of justice.

The long gap of 17 years in this case was also one of the considerations for not granting reinstatement, especially considering the nature of the activities of the appellant and the conduct of the respondent. The respondent was liable to be given compensation instead of reinstatement because he had made no plea of dismissal of gainful employment, even in the counter filed for the appeals.

On the submission regarding the industry status of the appellant, the Supreme Court said: “For more than one reason, we are not inclined to consider the contention raised by the appellant that it is not an industry within the meaning of Industrial Disputes Act… The appellant cannot be allowed to agitate the same in the present appeals. However, we make it clear that the issue is not concluded, and the said issue will remain open, which can be agitated by the appellant in the event any proceedings are taken by any other employee.”

The court, taking into consideration the facts of the case, partly allowed the museum’s appeal by setting aside the order of reinstatement and of payment of back wages.

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Contract trumps act on disputed payments of interest

The Supreme Court, in Garg Builders v Bharat Heavy Electricals Ltd (BHEL), recently considered whether an arbitrator could grant pendente lite interest (pending the outcome of litigation) when the contract contained a specific clause that expressly barred the payment of interest, and if it is ultra vires (beyond one’s power or authority) in terms of section 28 of the Indian Contract Act.

The civil appeal arose from concurrent judgments passed by a single bench and division bench of Delhi High Court, where the pendente lite interest on the award amount was denied to the appellant.

The respondent had floated a tender for construction of a boundary wall, and the appellant submitted its bid, which was subsequently accepted. The parties then entered into a contract which, among other things, contained the interest-barring clause, stating: “No interest shall be payable by BHEL on earnest money deposit, security deposit, or on any moneys due to the contractor.”

Disputes arose between the parties, and subsequently the appellant filed a petition under section 11 of the Arbitration and Conciliation Act, 1996, before Delhi High Court, and a sole arbitrator was appointed.

The appellant in the claim petition, apart from claiming various amounts under different heads, claimed pre-­reference, pendente lite and future interest at the rate of 24% on the value of the award. The arbitrator concluded that there was no prohibition in the contract and letter of intent regarding payment of interest for the pre-­suit, pendente lite and future period, and consequently awarded pendente lite and future interest at the rate of 10% per annum to the appellant on the award amount from the date of filing of the claim petition until the date of realisation of the award amount.

The respondents challenged the award under section 34 of the act before Delhi High Court, where first the single bench and then the division bench held that the arbitrator fell in error in holding that the above-mentioned clause only prescribed pre-­reference interest, and not pendente lite interest, and in terms of section 31(7)(a) of the act, the power of the arbitral tribunal to award pre-award interest was contingent on the parties not agreeing to the contrary.

It further held that pre-­award interest included both pre­-reference interest as well as pendente lite interest and, therefore, the conclusion of the arbitrator that award of pendente lite interest was not prescribed by the clause in the contract was held to be not sustainable, and therefore it set aside the pendente lite interest.

The Supreme Court observed that the provisions of the act give paramount importance to the contract entered into between the parties, and categorically restricts the power of an arbitrator to award pre­-reference and pendente lite interest when the parties themselves have agreed to the contrary.

Section 31(7)(a) of the act states that if the contract prohibits pre-­reference and pendente lite interest, the arbitrator cannot award interest for the said period. It further held that in the present case, the clause barring interest was very clear and categorical as it used the expression, “any moneys due to the contractor” by the employer, which included the amount awarded by the arbitrator.

The next question that arose was whether the clause in the contract was ultra vires in terms of section 28 of the Indian Contract Act. According to section 28, a contract is void to the extent that it restricts absolutely a party from enforcing his/her rights by usual proceedings in ordinary courts, or if it limits the time within which he/she may enforce his/her rights.

Exception one to this section contains a rule that a contract by which two or more persons agree that any dispute which has arisen, or which may arise between them, in respect of any subject or class of subjects, shall be referred to arbitration and is not illegal.

No cause of action then accrues until the arbitrator has made the award, and the only amount awarded in such arbitration is recoverable in respect of the dispute so referred. Section 31(7)(a) of the act, which allows parties to waive any claim to interest, including pendente lite and the power of the arbitrator to grant interest, is subject to the agreement of the parties.

The court further discussed the provision of section 3(3) of the Interest Act, 1978, which explicitly allows the parties to waive their claim to an interest by virtue of an agreement. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is “barred by virtue of an express agreement”.

Thus, the division bench held that when there was an express statutory permission for the parties to waive claim on interest and the same was done so without any vitiation of free consent, it was not open for the arbitrator to grant pendent lite interest, and therefore the clause in the contract was not ultra vires in terms of section 28 of the Indian Contract Act.


The dispute digest is compiled by Numen Law Offices, a multi-disciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.