Employment Newsletter (May – June 2025)

Application for closure of business can only be accepted/rejected by the appropriate authority, who must adequately reason the decision reflecting an independent application of mind. If no order is made within 60 days by the appropriate authority, the order is deemed to be passed.

Harinagar Sugar Mills Ltd. v. State of Maharashtra, 2025 SCC OnLine SC 1303

Harisagar Sugar Mills Limited, Biscuit division (“HSML”) manufactured biscuits for Britannia Industries (“BIL”) under Joint Work agreements (“JWAs”) for 3 decades. BIL terminated the JWAs in 2019. HSML filed an application for the closure of the biscuit division under Section 25-O of the Industrial Disputes Act, 1947. The Government of Maharashtra (“Maharashtra Government”) rejected the application, citing the absence of cogent reasons and directed HSML to resubmit. HSML furnished additional reasons, emphasising that since HSML had exclusively manufactured biscuits for BIL, the latter had supplied the necessary plant and machinery until the JWAs were operational. Termination of JWAs implied the impossibility of continuing manufacturing operations. However, the Maharashtra Government found applications made during resubmission to be incomplete and sought a fresh application for the third time.

HSML did not accept this as valid communication by the appropriate authority. The Maharashtra Government, being the appropriate authority, has delegated its power specifically to the Minister of Labour. Accordingly, by virtue of Section 25-O (3), HSML claimed not to have obtained an official communication of acceptance/rejection within 60 days from the appropriate authority, and thus it deemed the order to be passed

The Supreme Court of India held that the Minister of Labour (in the current scenario) is duly authorised to accept/reject closure applications. Rejection of a closure application is an administrative order, which requires the appropriate authority to provide reasons by application of mind. An undisclosed, subordinate officer's rejection order, which cites absence of 'adequate reasons' as the cause for rejection, and is only endorsed by the Minister, does not make such an order valid. The Supreme Court held that Section 25-O (3) would apply, and HSML would be deemed to be closed because the Minister of Labour failed to communicate acceptance/rejection of the closure application within 60 days. Post BIL's termination of JWAs, HSML lacked manufacturing avenues, and the sustenance of manufacturing operations became impossible, creating compelling circumstances warranting closure. To safeguard workers' interests, the Supreme Court enhanced the total sum payable to workmen from INR 10 Crores to INR 15 Crores.

Maternity Leave is a constitutional right, irrespective of the number of children a woman might have. Discrimination against women based on their choice about the number of children when claiming maternity benefits is legally prohibited. The objective of controlling population and providing maternity benefits is not mutually exclusive and must be harmonised.

K. Umadevi v. State of T.N., 2025 SCC OnLine SC 1204

K Umadevi joined government service in 2012, having 2 children out of first wedlock, which dissolved in 2017. Out of the second wedlock, she conceived a child and claimed maternity leave for 9 months. Her application was rejected under the Fundamental Rules of the Tamil Nadu Government, applicable to government employees in the state of Tamil Nadu, which enable women to claim maternity benefit only if she has less than 2 surviving children. A Single Judge Bench of the Madras High Court ordered the grant of maternity benefits. The Division Bench, however, set aside the Single Judge Bench's order, stating that maternity leave was not a fundamental right but a statutory right subject to conditions of service.

The Supreme Court held that 'life' under Article 21 of the Indian Constitution includes the right to a meaningful life, which includes the choice to freely and autonomously exercise reproductive rights. Multiple international conventions have held that states must not interfere with women's reproductive right but employ state finances to enable women's access to adequate healthcare, education and maternity benefit.

The Supreme Court emphasised that women enjoy equal rights as men to freely and responsibly decide the number and spacing of children. The availability of maternity benefits cannot be made contingent on the number of children a woman chooses to have. The Supreme Court juxtaposed the public policy of population control with the state's responsibility of securing maternity benefits, affirming that both goals are not mutually exclusive and must be harmonised. The Supreme Court adopted a purposive interpretation of Section 5 of the Maternity Benefit Act, 1961 which provides maternity leave to women having two or more children to render invalid Tamil Nadu's service conditions and granted maternity benefits to Umadevi.

Restrictive covenants, including indemnity bonds, in employment agreements are valid if operable during the employment period and do not affect future employability. Such covenants align with public policy by enabling employers to retain skilled professionals in a competitive globalised market.

Vijaya Bank v. Prashant B Narnaware, 2025 SCC OnLine SC 1107

Prashant Narawane joined Vijaya Bank in 1999. In 2006, Vijaya Bank issued a recruitment notification to hire experienced and skilled officers. Clause 9(1) of the recruitment notification stated that selected candidates would be required to execute an indemnity bond of INR 2,00,000, obligating them to indemnify Vijaya Bank if they left service before completion of 3 years. Aware of this condition, Prashant applied for the position of Senior Manager-Cost Accountant and was selected. Prashant joined the post on September 28, 2007, and executed an indemnity bond. However, before the completion of 3 years, on July 17, 2009, Prashant tendered resignation to join another bank. On resignation, Vijaya Bank sought to enforce the indemnity bond. Prashant filed a writ petition claiming that the enforcement of the indemnity bond was opposed to public policy because it was an unreasonable restraint of trade.

The Supreme Court framed two issues: whether an indemnity bond, as a restrictive covenant, (a) amounts to restraint of trade; and (b) is opposed to public policy. On the first issue, the Supreme Court referred to Niranjan Shankar Golikari v Century Spinning and Manufacturing Co. (AIR 1967 SC 1098), holding that a restrictive covenant operative during the period of employment is not a restraint of trade. Since the indemnity bond sought to disincentivize Prashant's choice to resign, it was effectively applicable when the employment agreement subsisted. Since it did not impact future employability, it was held not to be a restraint of trade under Section 27 of the Indian Contract Act, 1872.

On the second issue, the Supreme Court observed that modern economies are characterised by evolving employer-employee relationships, technological advancements and trends of skill-based specialisation in employees. For public sector undertakings like Vijaya Bank, survival in a competitive market requires increased efficiency in operation, recruitment and retention of a highly skilled workforce. The Supreme Court found that a minimum service tenure and indemnity bond was not unreasonable, unfair or unconscionable, and is not violative of the public policy of India under section 23 of the Indian Contract Act, 1872.

Disciplinary proceedings can continue after employee retirement due to the presumption of deemed employment, during which terminal benefits cannot be claimed. Gratuity can be forfeited to recover employer dues if the employee signs an undertaking to this effect before retirement.

Dharmapuri District Coop. Bank Ltd. v. Appellate Authority, 2025 SCC OnLine Mad 2536

G. Pushpam, joined service in the petitioner bank in 1992 and retired in 2016. Prior to retirement, she had taken a loan of INR 5,00,000 from the Co-operative Thrift and Loan Society and provided a written undertaking dated January 28, 2016, allowing adjustment of her terminal benefits against outstanding dues of INR 4,97,795. She submitted additional letters dated January 30, 2016, and February 14, 2016, confirming her agreement to this arrangement and also that if any surcharge was imposed on her during the pending inquiry proceedings under Section 81 of the Tamil Nadu Co-operative Societies Act, 1983 (“TNCS Act”), the same could be recovered from the terminal benefits payable to her. Thereafter, the Deputy Registrar, appointed under the TNCS Act in furtherance of Section 81, determined that the respondent was liable to pay INR 7,25,000 to the society.

However, the respondent filed an application before the Controlling Authority claiming gratuity payment for INR 6,24,259. The Authority held that since the respondent had signed an undertaking to allow adjustment, this undertaking superseded her statutory right to claim gratuity. The Appellate Authority awarded gratuity and held that an undertaking cannot defeat an employee's statutory entitlements under the Payment of Gratuity Act, 1972 (“PG Act”).

The High Court dealt with two issues: (i) whether the inquiry proceedings under Section 81 of the TNCS Act can continue after the respondent’s retirement, and (ii) whether the respondent’s gratuity can be forfeited and adjusted against her liability towards the petitioner bank based on an undertaking. On the first issue, the High Court held that proceedings under Section 81 of the TNCS Act can continue. The Court cited Mahanadi Coalfields v. Rabindranath Choubey (AIR 2020 SC 2978), where the Supreme Court held that if an employee superannuates during disciplinary proceedings, he cannot be entitled to receive service benefits until proceedings conclude. The presumption of deemed employment allows an employer to not only retain benefits when the employee retires but also forfeit gratuity payable as a punishment under Section 4(6) of the PG Act if such employee is found guilty.

On the second issue, the Madras High Court held that the respondent’s liability towards the petitioner bank did not lapse. Since the respondent had voluntarily furnished a written undertaking to allow adjustment of dues owed to the Bank against terminal benefits, the petitioner bank's action was held to be valid. The Madras High Court affirmed that once an employee makes an undertaking of this nature, she cannot resile from the terms of her own representation. Such an undertaking takes precedence over statutory entitlement to gratuity. Hence, the Madras High Court set aside the order passed by the Appellate Authority and held that the respondent was not entitled to claim gratuity.

Restrictive covenants in employment agreements cannot prevent employees from securing employment with clients or business associates of their former employer after termination.

Varun Tyagi v Daffodil Software Private Limited, FAO 167/2025 & CM APPL. 36613/2025

The appellant, an information technology engineer, was initially employed with an affiliate of Daffodil Software Private Limited (“Daffodil”) and was later transferred to the respondent, Daffodil itself, on January 1, 2022, under an employment agreement.

The respondent company was under contract with Digital India Corporation (“DIC”) through various letters of intent to supply software professionals for a government project titled “POSHAN Tracker,” aimed at improving national nutrition outcomes. The appellant was assigned to this project in January 2023 as a full-stack developer and, over time, was promoted to a leadership role owing to the significant investment made in his training. On January 6, 2025, the appellant resigned from the respondent company and, after serving a 3 month notice period, formally left on June 7, 2025. On the very next day, June 8, 2025, he joined DIC as a Deputy General Manager in the Full stack Development Department for the same project. Aggrieved by what it considered a violation of the non-compete clause, the respondent company filed a suit before the District judge seeking a permanent injunction and damages, which was granted.

The non-compete clause prohibited the employee from engaging in business activities with the respondent company’s business associates or affiliates for 3 years following cessation of employment. The clause also restricted offering services, undertaking employment or soliciting employees related to the respondent company’s business assignments.  An appeal was filed by the appellant employee against the order of the trial court before the Delhi High Court. After considering the jurisprudence on Section 27 of the Indian Contract Act, 1872, the Delhi High Court held that no restraint of trade is permitted after the termination of employment unless it falls under the sole exception concerning the sale of goodwill.

The Delhi High Court remarked that “an employee cannot be confronted with the situation where he has to either work for the previous employer or remain idle. An employer-employee contract, restrictive or negative covenants, is viewed strictly as the employer has an advantage over the employee, and it is quite often the case that the employee must sign a standard form contract or not be employed at all. Further, reasonableness and whether the restraint is partial or complete are not required to be considered at all when an issue arises as to whether a particular term of contract is or is not in restraint of trade, business or profession. In view of the above, it is clear that any terms of the employment contract that impose a restriction on the right of the employee to get employed post-termination of the contract of employment shall be void, contrary to Section 27 of the ICA.”

The Court further held that the clause in the employment agreement which attempted to prevent an employee from working with any business associate of the employer post-employment constituted a restraint of trade and was therefore void. The fact that the restraint was limited to DIC and National E-Governance Division did not cure the illegality. It further held that any apprehension of the appellant misusing proprietary information was misplaced because the respondent had no ownership over the intellectual property related to the POSHAN Tracker project, which belonged entirely to DIC. Therefore, there was no possibility of confidential information being leaked by the appellant to DIC.

Denial of legal representation to employees in domestic enquiries violates natural justice when the enquiry officer is a legal practitioner, creating an unfair advantage for the employer.

The Mathrubhumi Printing and Publishing Company Ltd. v The General Secretary, Kerala Union of Working Journalists & Anr., WA No. 262/2025

The appellant newspaper establishment terminated C. Narayanan, their chief sub-editor, following a domestic enquiry for allegedly abusing the news editor. The Kerala Union of Working Journalists raised an industrial dispute challenging the termination, which was referred to the Industrial Tribunal. The company argued that Narayanan was not a "workman" under Section 2(s) of the Industrial Disputes Act, 1947, as he performed supervisory duties, and that the enquiry was conducted fairly without requiring legal representation. During the disciplinary proceedings, Narayan requested permission to engage a legal practitioner to defend him, but this was denied by the company. Instead, the company offered assistance from a co-worker, but the appellant could not secure such help as none of his colleagues were willing to stand against the management. The lower courts ruled in favour of the employee, holding that he was a workman and that the denial of assistance of a legal practitioner to the delinquent employee is unfair and a violation of the principles of natural justice.

On appeal, the Kerala High Court upheld the findings of the industrial tribunal and dismissed the appeal filed by the company. The Kerala High Court observed that "the limited amount of supervision and control conferred on a chief sub-editor is common and general in nature and is incidental to the nature of the main work as a sub-editor. The term 'mainly' used in the definition of workman in the Industrial Disputes Act means the ultimate power of control or supervision in regard to recruitment, promotion, etc."

The Kerala High Court further held that when a senior legal practitioner is appointed as enquiry officer while the presenting officer is an experienced regional manager, denying legal assistance to the charged employee constitutes a violation of natural justice principles. Relying on Professor Ramesh Chandra v. University of Delhi, (2015) 5 SCC 549, the Court emphasised that fairness requires providing adequate opportunity for defence when the employee faces legally trained personnel conducting the enquiry. The Court distinguished attempts by other high courts to limit this principle, noting that "whether an employee has to be permitted to engage a legal practitioner to assist him or her in the departmental enquiry is basically a question of fact to be decided on the basis of the seriousness of the allegations and nature of such allegations, the legal acumen of the enquiry officer and presenting officer." The Court emphasized that when the enquiry officer possesses legal training and experience, "the conduct of the enquiry proceedings and appreciation of evidence will also be of a high level. In such circumstances, the delinquent also must have an opportunity to present his defence in the same qualitative level to satisfy the rules of natural justice."