The Delhi High Court affirmed that terminating workmen engaged on successive short-term contracts does not invoke the exemption under Section 2(oo)(bb) of the Industrial Disputes Act, 1947, and therefore modified the Labour Court award to a lump-sum compensation instead of reinstatement.
Background & Facts
The Dispute
The petitioners, the Institute of Human Behaviour (the employer), engaged two workmen as peons on a series of fixed-term appointments of 89 days each. The respondents, the workmen, claimed that their services had been continuous for almost two years and that their termination without compliance with Section 25F of the Industrial Disputes Act, 1947, was illegal. The Labour Court had awarded reinstatement with continuity of service and full back wages on 02 September 2004.
Key Facts
- 22.05.1995: Office order appointing the first workman (W.P.(C) 18083/2005) for 89 days.
- 16.08.1995: Second appointment letter for the same workman.
- Subsequent appointment letters for the same workman:
- 23.11.1995 (22.11.1995 - 18.02.1996)
- 23.02.1996 (21.02.1996 - 20.05.1996)
- 16.05.1996 (23.05.1996 - 19.08.1996)
- 27.08.1996 (24.08.1996 - 20.11.1996)
- 28.11.1996 (26.11.1996 - 22.02.1997)
- 27.09.1994: Office order appointing the second workman (W.P.(C) 5362/2005) for 89 days.
- Subsequent appointment letters for the second workman:
- 28.12.1994 (19.12.1994 - 89 days)
- 16.03.1995 (22.03.1995 onward)
- 14.09.1995 (22.09.1995 - 19.12.1995)
- 28.12.1995 (23.12.1995 - 20.03.1996)
- 20.03.1996 (23.03.1996 - 19.06.1996)
- 27.06.1996 (23.06.1996 - 19.09.1996)
- 25.09.1996 (24.09.1996 - 21.12.1996)
- 02.09.2004: Labour Court award granting reinstatement with continuity of service and full back wages.
- 21.03.2011: Order impleading the legal representatives of the deceased workman in W.P.(C) 5362/2005.
- 20 August 2026: Delhi High Court judgment delivered.
Procedural History
- 02 September 2004: Labour Court passed award of reinstatement and back wages.
- 20 August 2026: Petitioners filed writ petitions under Article 226 challenging the award; the High Court heard arguments and delivered the present judgment.
The Parties' Positions
- Petitioner (Employer): Asserted that each appointment was a fixed-term contract; termination was merely the expiry of the contract and therefore fell within the exemption of Section 2(oo)(bb), relieving the employer of the procedural requirements of Section 25F.
- Respondents (Workmen): Contended that despite the nominal 89-day periods, the appointments were successive, creating an almost continuous service of two years; termination therefore amounted to retrenchment and required compliance with Section 25F.
Relief Sought
- Petitioner: Asked the Court to set aside the Labour Court award, holding that the exemption applied and that no reinstatement or back wages were warranted.
- Respondents: Sought confirmation of the award, reinstatement with continuity of service, and full back wages.
The Legal Issue
What is the correct interpretation of the exemption under Section 2(oo)(bb) of the Industrial Disputes Act, 1947 when a workman is engaged on successive 89-day contracts, and does such termination obligate the employer to follow the procedure prescribed in Section 25F? Additionally, should reinstatement with back wages be ordered where the termination is held illegal?
Arguments Presented
For the Petitioner
- The petitioner argued that each appointment was a distinct contract of a fixed duration, invoking the exemption in Section 2(oo)(bb) which excludes termination on expiry of a contract from the definition of retrenchment.
- Cited the principle that the burden of proving the applicability of the exemption lies on the employer, and that the contract terms expressly provided for expiry-based termination.
- Relied on S.M. Nilajkar v. Telecom District Manager (2003) 4 SCC 27, asserting that the four conditions for the exemption were satisfied.
For the Respondent
- The respondents maintained that the successive appointments, with only a few days’ break, amounted to continuous service of nearly two years, thereby failing the “temporary project” requirement of the exemption.
- Emphasised that the work performed (peon duties) was not of a temporary or irregular nature and that the employer repeatedly exercised its power of appointment to avoid continuity.
- Pointed to the Labour Court’s finding that the termination was illegal and that the workmen had not completed the 240-day continuous service test because of the employer’s artificial breaks.
The Court's Analysis
The Court began by reiterating the limited scope of interference under Articles 226 and 227, noting that the present petition was confined to the legality of the Labour Court award, not a re-appreciation of evidence. It examined the definition of “retrenchment” in Section 2(oo) and the specific exemption in sub-clause (bb).
"reinstatement with full back wages is not automatic in every case where termination/dismissal is found to be not in accordance with procedure prescribed under law and that the relief can be moulded depending on the facts and circumstances of the case."
The Court held that the burden of proof on the employer to establish the exemption was not discharged. It observed that:
- The work of a peon cannot be characterised as a temporary project; the nature of duties was permanent and ongoing.
- The appointments, though formally for 89 days, were repeatedly renewed, creating an almost continuous tenure of two years, contrary to the requirement that the employment be for a specified temporary scheme.
- The employer failed to demonstrate that the workmen were aware at the commencement that their engagement was limited to a specific project.
Consequently, the termination fell within the definition of retrenchment and the employer was required to comply with Section 25F. The Court affirmed the Labour Court’s finding of illegal termination.
However, the Court also clarified that a finding of illegality does not automatically mandate reinstatement. Citing Allahabad Bank v. Krishan Pal Singh (2021) 19 SCC 227, it noted that reinstatement is discretionary and must consider factors such as length of service, age, and feasibility. Given that the workmen had been out of service for nearly three decades, reinstatement was deemed impracticable.
The Court therefore exercised its equitable jurisdiction to award monetary compensation in lieu of reinstatement, setting the amount at Rs 3,00,000 per workman, payable within eight weeks, with a penal interest rate of 12 % per annum for any delay.
The Verdict
The Delhi High Court upheld the Labour Court’s finding that the termination was illegal, rejected the employer’s reliance on the Section 2(oo)(bb) exemption, and modified the award. Each workman was granted a lump-sum compensation of Rs 3,00,000, to be paid within eight weeks of the judgment; failure to pay attracts interest at 12 % per annum. No reinstatement or back-wage award was granted.
What This Means For Similar Cases
Exception Under Section 2(oo)(bb) Is Not Presumptive
- Employers must prove that the work is for a genuinely temporary project and that the employee was aware of the limited tenure at the outset.
- Successive short-term contracts with minimal breaks will be treated as continuous service, defeating the exemption.
Reinstatement Is Not Automatic
- Even where termination is held illegal, courts may mold relief based on the employee’s age, length of service, and the passage of time.
- Practitioners should be prepared to argue for monetary compensation as an alternative when reinstatement is impractical.
Monetary Compensation As Discretionary Relief
- Courts can award lump-sum compensation in lieu of reinstatement, specifying a clear payment timeline and penal interest for non-compliance.
- Draft relief clauses that include interest rates and strict deadlines to avoid future litigation.
