RESIGNATIONS AND THE DEFENCE OF FINANCIAL CRUNCH – ATTENTION, GOVERNMENT COMPANIES

On 1 June 2021, the Delhi High Court (“Delhi HC”), in the case of Arjun Ahluwalia vs Air India Limited held that government-owned enterprises cannot afford to terminate employees using the defence of financial distress and also dealt with issues relating to the withdrawal of tendered resignations, relying upon a catena of judgments.

Background

The Directorate General of Civil Aviation requires all employees of Air India to be governed by the Air India Employees’ Service Regulations (“Regulations”), and the pilots, specifically, are governed by the Civil Aviation Requirement (“CAR”). Clauses 3.3 and 3.4 of the CAR mandates that any pilot working in an air transport undertaking must serve a six-month notice period showing their intent to discontinue their services and resign. Accordingly, the pilots, and the plaintiffs in this case, did so but withdrew their resignations before it was accepted by Air India.

However, Air India addressed the withdrawal of these resignations in a rather haphazard manner; while some employees were reinstated hassle-free, others were either left unattended or were communicated the acceptance of their resignations following the acceptance of their withdrawals.

The point of contention was the acceptance of already withdrawn resignations by the airline. To boot, Air India was also accused of having encashed excess bank guarantees to recover the training costs of the employees serving on fixed-term contracts (“FTC”). In the writ petition filed before the Delhi HC, the aggrieved employees requested an order of reinstatement, payment of wage arrears, and recovery of the excess bank guarantees encashed by Air India.

Dealing With Tendered Resignations

The general and settled law of resignation is that once a resignation is tendered, it can be withdrawn only before it is effected i.e., accepted by the employer or a Competent Authority. The effectuation of the same would be subject to the regulations or the distinctive terms and conditions of the post or office in question.

However, the Supreme Court of India has carved out two exceptions to the said rule –

  1. “In the absence of anything to the contrary in the provisions governing the terms and conditions of the office/post or ― in the absence of a legal contractual or constitutional bar, a ‘prospective’ resignation can be withdrawn at any time before it becomes effective” as held in Union of India vs Shri Gopal Chandra Misra And Ors
  2. “If, however, the administration had made arrangements acting on his resignation or letter of retirement to make other employee available for his job, that would be another matter” as held in Balram Gupta vs Union of India & Anr

In the present case, after distinguishing between the concepts of unilateral and bilateral resignations, the court referred to the case of Moti Ram vs Param Dev And Anr and held that “A contract of employment, however, stands on a different footing wherein the act of relinquishment is of bilateral character and resignation of an employee is effective only on acceptance of the same by the employer. Insofar as Government employees are concerned, there are specific provisions in the Service rules which require acceptance of the resignation before it becomes effective.”

The Supreme Court in the case of Raj Kumar vs. Union of India held that until the resignation has been accepted by the Competent authority, the public servant would, rightly have locus poenitentiae, but not afterwards.

Attention was drawn to Balram Gupta vs Union of India & Anr, where it was held that an application for voluntary retirement could be withdrawn before the same was accepted and that the permission for withdrawal was not ipse dixit of the Competent Authority, for they were expected to act rationally and reasonably. In the given case, too, no provision in the CAR or the Regulations mentioned the acceptance/rejection of withdrawal of resignations or even the need for prior approval.

If an already withdrawn resignation was to be accepted by the employer, the same would be non-est and non-existent in law.

Further, it was held that the personal and/or professional motive of the employees behind tendering resignations could not be held against them, and as such, could not be used as a ground for accepting resignations. In the past, too, the Supreme Court, as well as various High Courts have rendered judgments in favor of the employee. For this, the court placed reliance on Balram Gupta vs Union of India & Anr.

As far as the present case is concerned, the petitioners had withdrawn the floated resignations within six months of serving the notice period (Clause 3.4 of CAR) and before the acceptance of the same i.e., before the conclusion of the jural relationship between the employer and the employee, and as such, the resignations were prospective as opposed to being in praesenti.

Therefore, the court allowed for the withdrawal of earlier tendered resignations, as the same was well within the stipulated Rules and held that the same could be done till the last day of the notice period but before the communication of its acceptance.

The Defence of Financial Crunch for State-Owned Companies

One of the arguments put forth by Air India was how Clause 3.3 of CAR dealt with the issue of resignations as a matter of “public interest” and was therefore inclusive of the financial distress that the airline was in. Simultaneously, reliance was also placed on the Supreme Court’s judgment in Air India Express Ltd. vs Capt. Gurdarshan Kaur Sandhu to state that public interest would countermand private interest and that the acceptance of the resignations would have to be assessed on the fundamental principles of CAR.

The Delhi HC reasoned by saying that it was the reason behind the compulsion of serving a six-month notice period that was in public interest (owing to the chaos caused by sudden resignations and the long time taken to train the Pilots), and that nothing either in the aforementioned case indicated the inclusion of the same. Thus, it failed to link their reasoning of financial distress to the doctrine of public interest and said that the Court would not choose to alter the Rules or Policies formulated by the Government. Simultaneously, it was also held that the partial acceptance of the withdrawals was discriminatory and arbitrary, and hence, violative of Article 14 as well.

Besides, the law clearly states that the State or its Agencies as mentioned in Article 12 of the Constitution cannot rely upon financial distress as a reason for dispensing with the services of its employees, especially in the manner adopted by the airline. Article 19(1)(g) and Article 21 of the Constitution mandate a responsibility for the State to ensure the security of the rights of livelihood of its citizens. Thus, Air India, falling within the definition of State under Article 12 was not allowed to use the defence of financial crunch for accepting the resignations and thereby, terminating its employees.

Enforcement of Employment Contracts

The Delhi HC took cognizance of Article 226 and held that the jurisdiction and scope of judicial review under the same did not permit it to direct the renewal of employment contracts, however, since the action of Air India was found to be in conflict with Article 14, it issued directions to consider the continuation of the services of those whose FTCs were yet to expire, and to also give regard to the renewal of the same for serving the second-term.

Additionally, the Delhi HC directed for the refund of excess bank guarantees previously encashed, payment of back wages and the grant of arrears within six weeks.

Conclusion

The surge in COVID-19 cases and the resultant financial dip has compelled companies, globally, to adopt extreme and desperate cost-cutting measures, and one of the seemingly viable options to that end is that of reduction of staff. However, if such a decision is not thought through, it may become counterproductive and result in disputes and harm the reputation of the company. Additionally, not following the law could put the employer at the risk of paying punitive damages. Further, the Supreme Court in Sanjay Jain v. National Aviation Company of India Ltd., held that the decision to resign and discontinue from one’s services is the right of an employee and that they cannot be forced to serve, provided there are no rules or appointment terms that stipulate otherwise or a due disciplinary proceeding is expected to be dodged by resigning.


Sampoorna Chatterjee, a 3rd-year student at Amity University, Kolkata

Picture Credits: Economic Times


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