Court’s Decision
The Delhi High Court quashed the termination of a senior managerial executive from a public sector company, holding that the order was arbitrary, devoid of procedural fairness, and violative of both natural justice and employment law principles. The Court ruled that the employer’s justification of “loss of confidence” could not override the mandatory requirement of a proper inquiry when termination is founded on alleged misconduct.
The Bench held:
“The expression ‘loss of confidence’ cannot become a carte blanche for employers to short-circuit due process; confidence must be based on facts, not conjecture.”
The Court directed the reinstatement of the employee with full back wages and continuity of service, while also clarifying that disciplinary proceedings can be re-initiated if the employer so chooses, but only in strict compliance with law.
Facts
The petitioner, a senior executive employed in a public sector undertaking engaged in logistics and warehousing, was terminated after an internal audit found discrepancies in certain tender and procurement processes. The management, citing “loss of confidence,” issued a termination letter without conducting a formal inquiry or affording the petitioner an opportunity to respond.
The petitioner challenged the termination, contending that it was punitive in nature and, therefore, could not be sustained without following the due procedure prescribed under Rule 25 of the Certified Standing Orders and Principles of Natural Justice.
The employer, however, maintained that the termination was “simpliciter,” based on the employer’s subjective satisfaction that the continued presence of the petitioner was not conducive to organizational trust. The dispute culminated in a writ petition before the High Court, where the petitioner sought reinstatement with full back wages.
Issues
- Whether the termination order described as “loss of confidence” amounted to a punitive dismissal requiring a disciplinary inquiry.
- Whether the employer was justified in dispensing with the principles of natural justice while terminating the petitioner.
- Whether reinstatement with back wages was warranted in the facts of the case.
Petitioner’s Arguments
The petitioner contended that the termination was camouflaged as “simpliciter” but was, in fact, punitive, as it was based on alleged misconduct. The letter of termination, while not explicitly stating charges, referenced “acts that have eroded managerial trust,” thereby stigmatizing the employee’s record.
It was argued that termination based on loss of confidence is not truly “non-punitive” when it is founded on alleged acts of impropriety or irregularities. Reliance was placed on the Supreme Court’s rulings in Chandu Lal v. Pan American World Airways (1985) 2 SCC 727 and Kamal Kishore Lakshman v. Pan American World Airways (1987) 1 SCC 146, where similar terminations were held illegal for bypassing due process.
The petitioner emphasized that no show-cause notice, inquiry, or hearing was held and that the so-called “audit findings” were never disclosed. The unilateral action of the employer violated Article 14 of the Constitution and amounted to “dismissal through the backdoor.”
Respondent’s Arguments
The employer argued that the termination was non-stigmatic and within the terms of employment, which allowed for termination with notice. It contended that the decision was taken in the company’s best interest, citing that managerial confidence was irretrievably lost due to the petitioner’s “conduct inconsistent with organizational ethics.”
It was further argued that courts should not interfere with employer discretion in cases involving trust-based employment, particularly in managerial and supervisory roles, where personal confidence and integrity are paramount.
The respondent relied on Air India Corporation v. V.A. Rebello (1972) 1 SCC 814 and Jaswant Singh Gill v. Bharat Coking Coal Ltd. (2007) 1 SCC 663, asserting that “loss of confidence” has been recognized as a valid ground for termination of managerial employees without formal inquiry.
Analysis of the Law
The Court analyzed the distinction between termination simpliciter and punitive termination, observing that the true nature of an order must be determined by its substance rather than its form.
It referred to Article 311(2) of the Constitution and the Industrial Employment (Standing Orders) Act, 1946, holding that when termination is based on misconduct, it cannot be justified as an administrative action. The Bench noted that the employer’s reliance on vague audit remarks amounted to a finding of misconduct without inquiry, thus rendering the action punitive.
The Court further cited State Bank of India v. Palak Modi (2013) 3 SCC 607, which clarified that “loss of confidence” cannot substitute for disciplinary proceedings where allegations of wrongdoing exist. The ruling reaffirmed that an employer’s discretion is subject to judicial scrutiny if exercised in a manner inconsistent with fairness and reasonableness under Article 14.
The Court also underscored that the right to livelihood under Article 21 encompasses procedural safeguards against arbitrary termination, especially in the public sector where employment is an extension of the State’s constitutional obligations.
Precedent Analysis
- Chandu Lal v. Pan American World Airways (1985) 2 SCC 727 – The Supreme Court held that “loss of confidence” cannot be a pretext for dispensing with due process; termination based on alleged misconduct is stigmatic and punitive.
- Kamal Kishore Lakshman v. Pan American World Airways (1987) 1 SCC 146 – Reaffirmed that termination without inquiry, even if worded as “loss of confidence,” is illegal when founded on alleged wrongdoing.
- State Bank of India v. Palak Modi (2013) 3 SCC 607 – Distinguished between bona fide administrative dissatisfaction and punitive termination; held that any inference of guilt necessitates an inquiry.
- Jaswant Singh Gill v. Bharat Coking Coal Ltd. (2007) 1 SCC 663 – Cited by the employer but distinguished by the Court; it applies only where no element of stigma or misconduct is attributed.
- LIC of India v. R. Suresh (2021) 8 SCC 687 – Applied to reinforce that non-speaking termination orders cannot withstand judicial review if they mask punitive intent.
The Court relied on the above precedents to conclude that the petitioner’s termination was stigmatic in effect and, therefore, void for non-compliance with natural justice.
Court’s Reasoning
Justice C. Hari Shankar, delivering the judgment, held that the employer’s invocation of “loss of confidence” was neither genuine nor procedurally sustainable. The Court observed that the management had effectively adjudicated guilt without inquiry, which the law expressly forbids.
The Court further noted that no material evidence was presented to show why the petitioner’s continued employment was detrimental. Instead, the decision appeared to stem from a subjective assumption of impropriety, unsupported by any disciplinary finding.
In a strongly worded observation, the Court stated:
“Confidence, once claimed to be lost, must have a factual basis. To remove an employee on mere suspicion is an affront to fairness.”
The Bench rejected the respondent’s argument that managerial positions enjoy lesser procedural protection, emphasizing that the higher the responsibility, the stricter the procedural standards required to remove the person from office.
Conclusion
The Delhi High Court quashed the termination order, declaring it illegal and unconstitutional. It directed reinstatement of the petitioner with full back wages, continuity of service, and all consequential benefits.
The Court, however, clarified that the employer was free to initiate fresh disciplinary proceedings in accordance with the rules and principles of natural justice, if it believed there was genuine misconduct.
The judgment reaffirmed that “loss of confidence” is not a magic phrase to circumvent the law, and procedural fairness remains the cornerstone of employment discipline.
Implications
This decision reinforces judicial scrutiny over arbitrary dismissals in both public and private sectors. It re-establishes that termination based on allegations of misconduct must always follow a formal inquiry, irrespective of the employee’s designation or rank.
The ruling sends a clear message that employers cannot rely on vague expressions like “loss of confidence” to justify punitive actions, thereby protecting employees from stigma and career prejudice. It also sets a benchmark for future employment disputes, ensuring greater accountability in organizational decision-making.
FAQs
1. Can an employer terminate an employee for “loss of confidence” without inquiry?
No. The Court held that if termination is based on allegations or insinuations of misconduct, an inquiry is mandatory. “Loss of confidence” cannot be used as a shortcut.
2. Does this judgment apply to private companies too?
Yes, the principles of fairness and natural justice apply universally, especially where termination is punitive or stigmatic in nature.
3. What relief can an employee seek if dismissed without inquiry?
The employee can seek reinstatement with back wages, or compensation, depending on the nature of the employment and the Court’s discretion.
