2007 (10) TMI 622 - SC - Indian Laws

Supreme Court rules in favor of employees in transfer dispute, deems clauses discriminatory and unenforceable

The Supreme Court set aside the High Court's order and allowed the appeals by the employees. The Court held that transferring employees from NTPC to BALCO ... Transfer of employment without consent - tripartite agreement - undue influence and Section 23 of the Indian Contract Act - Article 14 - equality and protection against arbitrary alteration of service conditions - enforceability of bipartite agreement against third party employees - maintainability of writ petition under Article 226 when pure questions of law ariseMaintainability of writ petition under Article 226 when pure questions of law arise - Maintainability of writ petitions filed by employees challenging transfer and construction of contract clauses. - HELD THAT: - The Court held that the writ petitions under Article 226 were maintainable. The dispute involved interpretation of clauses in the agreement, appointment letters and undertakings without disputed facts; the grievance related to transfer of employees from a public sector undertaking to a private management without consent which raised pure legal questions. The Court accepted the High Court's conclusion on maintainability, noting that alternative remedy under industrial law is a matter of discretion and not an absolute bar to entertaining the writs in these circumstances. [Paras 18]Writ petitions under Article 226 by the employees are maintainable.Enforceability of bipartite agreement against third party employees - Article 14 - equality and protection against arbitrary alteration of service conditions - Whether clauses of the bipartite agreement between NTPC and BALCO (notably clauses 8.2, 16.3 and clause 21.0 giving retrospective effect) can bind employees appointed by NTPC prior to the agreement. - HELD THAT: - The Court found that the bipartite agreement of 22.05.1990, made effective retrospectively from 29.06.1987 by clause 21.0, cannot be enforced so as to alter rights of employees who were not parties to the agreement and who were appointed before the agreement came into existence. Retrospective application to affect third party rights was contrary to principles of contract (Section 23 of the Indian Contract Act) and violative of Article 14 where it sought to change service conditions without the employees' consent. The Court observed that only those employees appointed by NTPC specifically on behalf of BALCO pursuant to a valid authority (e.g. power of attorney after the agreement) could be affected; appointments made earlier without such authority cannot be treated as made under the bipartite agreement. [Paras 21, 22, 23]Clauses of the bipartite agreement cannot be enforced to transfer employees appointed prior to the agreement; retrospective operation to alter their service conditions is invalid.Undue influence and Section 23 of the Indian Contract Act - transfer of employment without consent - Validity of clause 14 in appointment letters and the undertakings obtained from employees by NTPC. - HELD THAT: - The Court held clause 14 (purporting to make the appointment against posts sanctioned for BALCO and to render services transferable to BALCO/successor without option to remain on NTPC rolls) and the identical undertakings to be illegal. Those clauses were inserted and undertakings obtained at a time when no agreement empowered NTPC to recruit on behalf of BALCO; the clauses were in standard/stereotype form and imposed on economically weaker parties, amounting to undue influence and being contrary to public policy under Section 23 of the Indian Contract Act. Further, NTPC as an instrumentality of the State had a duty to act fairly and could not lawfully alter service conditions of recruits without disclosure and informed consent. [Paras 24, 25, 26, 27]Clause 14 and the undertakings are void/illegal and cannot be enforced against the employees.Transfer of employment without consent - tripartite agreement - Article 14 - equality and protection against arbitrary alteration of service conditions - Whether employees can be transferred from NTPC (a public sector undertaking) to BALCO (private) without their consent and whether a tripartite agreement was requisite. - HELD THAT: - Relying on established principle that a contract of service cannot be unilaterally transferred, the Court held that transfer of employment from one employer to another requires the employee's consent, which must be express or implied and contemporaneous with transfer negotiations; a tripartite agreement is the correct mechanism to effect such change. The employees had not consented; they were not party to any tripartite arrangement, nor given pre decisional hearing. Consequently, transferring them to BALCO (a private management) without consent offended Article 14 and principles of natural justice. The Court noted prior authorities confirming that no vested right of continued employment with the State arises from disinvestment alone, but found on the facts that these employees had established entitlement to continue in NTPC. [Paras 28, 29, 30, 31, 32]Transfer of the employees to BALCO without their consent is impermissible; a tripartite agreement and consent are necessary for valid transfer.Final Conclusion: The common order of the High Court dismissing the writ petitions is set aside. The impugned clauses in the bipartite agreement and the contractual clause/undertakings in appointment letters are not enforceable so as to transfer the employees appointed by NTPC prior to the agreement to BALCO without their consent; the employees are entitled to continue in NTPC and the appeals are allowed. Issues Involved:1. Validity of the transfer of employees from NTPC to BALCO.2. Applicability and enforceability of clauses 8.2 and 16.3 of the agreement dated 22.05.1990.3. Maintainability of the writ petitions under Article 226 of the Constitution.4. Impact of the agreement on the service conditions of the employees.5. Requirement of a tripartite agreement for the transfer of employment.6. Alleged discrimination between non-executive and executive employees.Detailed Analysis:1. Validity of the Transfer of Employees from NTPC to BALCO:The appellants, who were employees recruited by NTPC, challenged their transfer to BALCO, a private sector organization, following the disinvestment policy of the Government of India. The employees contended that their transfer to a private organization amounted to retrenchment by NTPC against their wishes, which is not permissible under law. The Supreme Court noted that the appointment letters and undertakings did not disclose that the recruitment was exclusively for BALCO. The Court held that the transfer of employees from NTPC, a public sector undertaking, to BALCO, a private organization, without their consent, was not justified and was bad in law.2. Applicability and Enforceability of Clauses 8.2 and 16.3 of the Agreement Dated 22.05.1990:Clauses 8.2 and 16.3 of the agreement between NTPC and BALCO provided for the transfer of non-executive employees to the successor organization in the event of a transfer of management. The employees argued that these clauses were illegal, arbitrary, and unenforceable as they were not parties to the agreement. The Supreme Court found that the agreement was bipartite and did not bind the employees, who were appointed before the agreement was executed. The Court held that the clauses were contrary to Section 23 of the Indian Contract Act and violative of Article 14 of the Constitution of India.3. Maintainability of the Writ Petitions Under Article 226 of the Constitution:The management argued that the writ petitions were not maintainable as the employees had an alternative remedy under industrial law. However, the Supreme Court upheld the High Court's decision that the writ petitions were maintainable, noting that the issue involved the interpretation of certain clauses in the agreement and appointment letters, and no disputed facts were involved. The Court emphasized that alternative remedy is a rule of discretion and not a rule of law.4. Impact of the Agreement on the Service Conditions of the Employees:The employees contended that the unilateral changes to their service conditions, particularly when they were not parties to the agreement, were not sustainable. The Supreme Court observed that the terms and conditions of the agreement dated 22.05.1990, which had retrospective effect from 29.06.1987, were not enforceable against the employees. The Court held that the service conditions of the employees could not be altered without their consent and that the employees were entitled to the benefits and privileges of NTPC, a public sector undertaking.5. Requirement of a Tripartite Agreement for the Transfer of Employment:The employees argued that the transfer of their employment required a tripartite agreement, which was not in place. The Supreme Court agreed, citing the principle that a contract of service cannot be transferred unilaterally and requires the consent of the employee. The Court held that the transfer of employees from NTPC to BALCO without a tripartite agreement was not permissible.6. Alleged Discrimination Between Non-Executive and Executive Employees:The employees contended that clause 16.3 of the agreement was discriminatory as it applied only to non-executive employees, while executives were transferred to other establishments of NTPC. The Supreme Court found that the non-executive employees, who also possessed special knowledge, were being treated unfairly compared to the executives. The Court held that the discrimination was violative of Article 14 of the Constitution and that all employees should be retained by NTPC and posted in their various units.Conclusion:The Supreme Court set aside the common order dated 25.03.2004 passed by the High Court of Chhattisgarh and allowed the appeals filed by the employees. The Court held that the transfer of employees from NTPC to BALCO without their consent was not justified and that the impugned clauses in the agreement were discriminatory and unenforceable. The employees were ordered to be retained in NTPC.