To realize the context and purport of the topic here, a small briefing on the Employees’ Provident Funds and Miscellaneous Provisions Act 1952 is called for:
It was in the context of declining nature of joint family system, there arose a crying need to provide pension products to the employed groups. The Employee Provident Fund Scheme is the most important mandatory retirement scheme applicable to large number of working people in India. As per Preamble to the Act, the EPF Act is enacted to provide for the institution of provident funds, pension fund and deposit lined insurance fund for employees in factories and other establishments. The mandatory schemes cover provident fund, family pension fund and deposit linked insurance in factories and other establishments for the benefit of the employees.
The Employees’ Provident Funds and Miscellaneous Provisions Act is a social security legislation to provide for provident fund, family pension and insurance to employees. Apart from factories, the Employees Provident Funds and Miscellaneous Provisions Act, 1952 applies to establishments wherein 20 or more persons are employed and also for units for which the Centre has issued notification for coverage under Section 1(3) of the Act.
Under the scheme of the Act, Employee has to pay contribution towards the fund. Employer also pays equal contribution. The employee gets a lump sum amount when he retires, which may be useful to him or his family after retirement/death. The Act covers three schemes i.e. PF (Provident Fund scheme), FPF (Family Pension Fund scheme) and EDLI (Employees Deposit Linked Insurance scheme).
Nowadays, PF contribution by the employer is also presented as a part of CTC( Cost to the Company) when MNCs and other Private companies offer positions in their concerns. However, it is true that the Act prohibits the employer from deducting any amount from the pay of the employee towards the employer’s PF contribution.
The EPF Act contains basic provisions in respect of applicability, eligibility, damages, appeals, recovery etc. The three schemes formed by Central Government under the Act make provisions in respect of those schemes.
Applicability of the Act - The Act applies to (a) Every establishment which is a factory engaged in industry specified in Schedule I to the Act and in which 20 or more persons are employed and (b) any other establishment or class of establishment employing 20 or more persons which may be specified by Central government by notification in official gazette. -Central Government can also apply provisions of the Act to any establishment even if it employs less than 20 persons. [Section 1(3)].
In RPFC v. TS Hariharan 1971 Lab IC 951 (SC), it was held that temporary workers should not be counted to decide whether the Act would apply.
Even if the provisions of PF Act are not applicable in a particular establishment, if employer and majority of employees agree, the Central Provident Fund Commissioner can apply the provisions to that establishment by issuing a notification in Official Gazette. [Section 1(4)]. Once the provisions of Act become applicable, it continues to be applicable even if number of employees fall below 20. [Section 1(5)].
Coverage of Act - The Act cover extensively to almost all establishments. The provisions of the Act have been extended to all Factories and Mines other than coal mines.
Other non-factory establishments covered - Besides factories, other establishments employing 20 or more persons can be covered under the Act u/s 1(3)(b). Various notifications have been issued extending the provisions of PF Act to non-factory establishments. Some major among them are -plantation of tea, coffee, rubber [Tea factories in Assam have been excluded under EPF Scheme], mines, coffee, hotels and restaurants, cinema and theatres, trading and commercial establishments engaged in purchase/sale or storage of goods, laundry, canteens, establishments of exporters/importers/advertisers/stock exchanges, establishments of attorneys/ CA / ICWA/engineers/contractors/ architects/medical practitioners, hospitals, Banks doing business only in one State, General Insurance, other financial establishments (other than IFCI, UTI, IDBI, SFC and banks), travel agencies, expert services, clubs and societies rendering services to their members, agricultural farms, building and construction industry, poultry, university, college, schools, scientific institutions etc. ,
The Act has been extended w.e.f. 1.4.2001 vide notification dated 22.3.2001, to courier services, Aircraft or airlines other than aircraft or airline owned or controlled by Government, Establishment engaged in rendering cleaning and sweeping services.
Transitory provisions when Act is extended - It is possible that when PF Act is extended to certain establishment, some PF scheme may be already in existence. Such scheme will continue and the balance amount in such scheme to credit of the employee will be transferred to the Provident Fund under statutory scheme of PF Act. [Section 15].
Establishment to include all departments and branches - Where an establishment consists of different departments or has branch¬es, whether situate in the same place or in different places, all such departments or branches shall be treated as parts of the same establishment. [Section 2A]. - Thus, if factory is covered, the head office and branches will also be covered under the Act.
Where PF Act is not applicable? - Section 16(1) of the Act excludes certain establishments from the applicability of its provisions. Accordingly the Act is not applicable to the following establishments—
(a) Factories or establishments employing less than 20 employees. However, once Act becomes applicable, it continues to apply even if subsequently, the number is lower than 20.
(b) Banks doing business in more than one State,
(c) Coal mines,
(d) Units established under Cooperative Societies Act employing less than 50 workers and working without aid of power,
(e) Other establishments belonging to Central Government or State Governments or under control of them by virtue of a statute and whose employees are entitled to benefits of contributory provident fund or pension;
(f) Tea factories in Assam Exemption granted by Central Government by a special notification.
Administration of the Fund – The Act clearly spells out how the Fund is created and how it is administered. Both employer and employee have to pay contribution at prescribed rates. These amounts are credited to a fund. The fund vests in and is administered by Central Board. [Section 5(1A)].
Employees covered under the scheme – Important highlight of the Act is the definition it has given to the term Employee. As per section 2(f), “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment, and who gets his wages directly or indirectly from the employer. It includes any person - (i) employed by or through a contractor in or in connection with the work of the establishment (ii) engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 or under the standing orders of the establishment.
Thus, (a) Persons employed through contractor in connection with work of establishment are covered (b) Apprentices employed under Apprentices Act or under standing orders of establishment are excluded, i.e. they are not employees. [The model standing orders merely state that an ‘apprentice’ is a learner who is paid an allowance during the period of his training].
ELIGIBILTY:
The Employees drawing salary/wages at the time of joining upto Rs. 6500/- (w.e.f 01.06.2001) are presently governed under the provisions of the Act. However, an employee at the time of joining if happens to be a member of PF with earlier establishment, then in such case he shall be made member of the PF subject to maximum Salary of Rs. 6500/-. The employees drawing salary above Rs. 6500/- can also be brought under the purview of the Act at the discretion of the management and by furnishing a joint undertaking to the Provident Fund authority.
Non-Eligible employees under PF –
i. Employee whose ‘pay’ is more than Rs. 6,500 per month are not eligible. (It may be noted that limit of pay was Rs 5,000 upto 31.5.2001 and Rs. 3,500 upto 30th Sept., 94)
ii. Apprentices as per certified standing orders or under Apprentices Act
iii. Casual employees. However, employees employed through contractors are also to be covered under PF.
When an employee shall join PF: Every employee employed in or in connection with work of a factory or establishment to which the Act applies is entitled and required to become member of Provident Fund, unless he is an excluded employee. An employee who is drawing ‘pay’ above prescribed limit (presently Rs 6,500) can become member with permission of Assistant PF Commissioner, if he and his employer agree.
A person who is already a member continues to be a ‘member’ even if his ‘pay’ exceeds Rs 6,500. However, the contribution is limited to Rs 6,500 only.
Contribution by employer and employee - As per section 2(c) “contribution” means a contribution payable in respect of a member under a Scheme or the contribution payable in respect of an employee to whom the Insurance Scheme applies.
As per section 6, contribution shall be paid by employer @ 10% of his pay ‘Pay’ here means basic wages plus dearness allowance plus retaining allowance.
Equal contribution is payable by employee also. This contribution can be increased to 12% by Central Government and in fact, has been increased to 12% in most of the cases.
Exception to general rule
Lower contribution is permitted in certain exceptional cases although as general rule the employer's and employee’s contribution is 12% each. This excemptions are applicable any establishment registered with Board for Industrial and Financial Reconstruction (BIFR) as a sick company. In such case the lower rate of contribution continues till its net worth is positive. Any other establishment which has accumulated loss equal to or more than its assets and has also suffered cash loss in last two years can also claim such exemption. In the cases of Jute industry, Beedi industry, Brick industry, Coir industry other than the spinning sector, Guar gum factories the contribution is only 10%.
Employees Provident Fund Scheme
This is the main scheme under the Act. Both employer and employee have to pay contribution to Provident Fund. The employer has to deduct contribution of employee from the salary of employee towards employee’s contribution and has to pay both employees’ contribution along with employer’s mandatory contribution by a challan in prescribed form. The amount has to be paid in approved bank.
Employer has the liberty to deduct employee’s share from his salary and pay the same in EPF scheme. However he has to actually make payment of his contribution to EPF. That means to say he cannot deduct his contribution from wages of the employee. Further while deducting employees contribution also, deduction can be only from the wages pertaining to period for which contribution is paid. However, if there is accidental omission, the amount can be recovered later. Amount deducted from salary of employees is held in trust by the employer or contractor.
Option for Employees to pay higher contribution
Employee has to contribute 12/10% of his 'pay' as contribution in consonance with the employer’s contribution. However, the employee is free to voluntarily make higher contribution above the stipulated statutory rate. Neverthless in such cases, employer need not have to match the voluntary contribution, over and above the statutory rate.
Contribution with regard to contract employees
The Principal Employer is liable to pay contribution of his own employees as well as employees employed through contractor. However, Principal Employer is entitled to recover from contractor the amount paid by him on behalf of contractor. The contribution in such cases from both sides also would be the same 12% of ‘pay’ i.e. basic wages, plus dearness allowance, cash value of food concession and retaining allowance. By specific agreements nd covenants in contract, the burden of contribution can be shifted from the employer to contractor. However in case of a claim, the principal employer would not be fully absolved from his liability to ensure PF contributions as per the statute.
Schemes- how employer keeps PF in trust for the benefit of employees
Out of employer’s contribution of 12/10%, the Employer’s contribution of 8.33% will be diverted to Employees’ Pension Scheme. The balance will be retained in the EPF scheme. Thus, on retirement, the employee will get his full share plus the balance of Employer’s share retained to his credit in EPF account. [This diversion is only w.e.f. 16th November, 95. Earlier Employer’s contribution to their credit will continue to remain to their credit].
The Employee Provident Fund Scheme is broadly divided into two parts
a) exempted Provident Fund Scheme and
b) unexempted Provident Fund Scheme.
EXEMPTED PROVIDENT FUND SCHEME.
Under section 16A of the Act central Government upon application by an establishment can authorise to maintain provident fund accounts by itself. By virtue of the powers under section 17 the government can exempt such establishments from the provisions of the Act and scheme framed by the Government there under. In such Exempted Provident Fund Scheme, the employer forms his own Provident Fund Trust for benefits of his employees. The employer executes the Trust Deed, prepares the Provident Fund Rules and nominates the trustees amongst its employees for administering and managing the trust. On formation of Provident Fund Trust the employer has to obtain recognition to the Provident Fund Trust from the Commissioner of the Income Tax and thereafter apply to the office of the Regional Provident Fund Commissioner for granting exemption from the Provisions of the Employees' Provident Fund and Miscellaneous Provisions Act 1952 and the Schemes framed there under. Such recognised and exempted Trust is a separate legal arrangement. The employer pays its monthly contributions to the Trustees who are in charge and responsible for day to day management and administration of the trust including that of doing necessary investments as per the pattern laid down in Rule 67 of the Income Tax Rules 1962.
Notwithstanding such exemption granted, as per Sec. 17 provisions of Sec. 6, 7A, 8 and 14 (b) of the Act would be applicable with respect to the Employer in such exempted scheme also. Section 7A deals with adjudication, Section 8 is mode of recovery of money from Employers and Sec. 14(b) is the power to recover damages by Central Government from the Employer.
The important issue concerned with the Act is with regard to the definition and purport of the term Basic wages used in it. It is perhaps controversial to see this aspect in detail
BASIC WAGES
Basic wages is defined under Sec. 2(b) of the Act, as follows.
Sec.2 (b): “basic wages” means all emoluments which are earned by an employee while on duty or [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include—
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash payments by whatever named called paid to an employee on account of a rise in the cost of living) house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any presents made by employer;
Production bonus is outside the definition of basic wages since the word “bonus” in clause (ii) of sec.2 (b) has been used without any qualification. Bright & Roof Co. (1) Ltd. V. Union of India 1962 II LLJ 490.
Overtime is something does not on time but thereafter. If extra work is done on time, it would not come within the definition of overtime. In other words extra payment for work done beyond the fixed norm and done during normal hours is wages.
While the definition excludes Dearness allowance, interestingly under Sec. 6, Dearness allowance is included for the purpose of computing the contribution to be made by the Employer.
As per the definition given in the Employees Provident Funds & Miscellaneous Provisions Act, 1952, as amended through EPF Amendment (Scheme 2001) excluded employee means, an employee whose pay at the time he is otherwise entitled to member of the fund exceed Rs.6,500/- per month. In the explanation, it is said “pay includes basic wage with DA, retaining allowance if any and cash value of food concessions admissible thereon”. Wherever exempted scheme is available and is operated by the Employer as authorised under Sec. 16 and 17 of the Act, it is open to the Employer to fix the aforesaid sum. However, it would be mandatory that such sum shall not be less than Rs.6,500/- as Rs.6,500/- is the stipulated amount as per the scheme framed by the Central Government. Hence, keeping the ceiling amount, the sum more than Rs.6500/- will not have any effect on the validity of the scheme. Even under the Central Government Scheme, it says that the Member of the fund shall continue to be a Member until he is exempted under Sec. 17 or he withdraws the entire amount.
This would mean that it is optional for the Employee and Employer to make a scheme applicable to such an employee receiving more than Rs.6,500/-. However, it says under the Central Government Scheme that the contribution from the Employer in such a case of Member would be limited to the amount payable on a monthly pay of Rs.6,500/- including DA, Retaining allowance if any and cash value of food concession. BEML has adopted the contents of the Central Government Scheme under its PF Trust Deed and has made applicable almost all the provisions under the Central Government scheme to its PF scheme. Accordingly, the excluded employee as per BEML PF Trust also remains to be those who receive a pay below Rs.6,500/- and while there is no bar for other employees whose pay exceeds Rs.6,500/- remaining to be a Member of the scheme, the contribution by BEML has to be restricted as per the provisions of the Trust Deed on contribution payable of Rs.6,500/-.
The definition of wages, under Sec. 2(b) of the Act, and Sec. 6 of the Act, has been subject to examination by various Courts of the Country, including Supreme Court.
The same has been settled through the order of the Supreme Court in Manipal Academy of Higher Education –Vs- PF Commissioner in Appeal No. 1832/2004 decided on 12.3.2008 which was against an order of Karnataka High Court. The said case while overruling the decisions of the Karnataka High Court and Bombay High Court in Hindustan Lever Employees' Union v. Regional Provident Fund Commissioner and Anr. (1995 (2) LLJ. 279) has relied on Bridge & Roof Co., (India) Ltd., -Vs- Union of India 1963 (2) SCR 978 and Jay Engineering Works Ltd., & Others –Vs- Union of India & Others 1963 (3) SCR 995 and has clarified that even though the statute is for the benefit of the Employees, concept of beneficial interpretation can only be applied when there are two views possible and as the statute and its intend is clear from the provisions, the same has to be strictly applied to. The ourt reiterated that the concept of beneficial legislation is misplaced philanthropy where the statutes and principles underlying it are clear and the question is no longer res integra (Jay Engineering Works Ltd. and Ors. v. Union of India and Ors. (1963 (3) SCR 995).
The dispute in the MAHE case is whether the amount received by encashing the earned leave is a part of "basic wage" under Section 2(b) of the 'Act' requiring pro rata employer's contribution. In the case the Regional Provident Fund Commissioner (RPFC) held that the amount received on encashment of earned leave has to be reckoned for the purpose of Section 2(b) of the Act. Accordingly, demands were raised. Appeal was preferred before the Employees Provident Fund Appellate Tribunal ('Tribunal') which held that it is not part of basic wages. However, it was observed that a different view was taken by the Bombay High Court and, therefore, the respondent in the appeals i.e. the Commissioner should take up the matter before the Karnataka High Court. Accordingly, Writ Petitions were filed before the Karnataka High Court. A learned Single Judge allowed the Writ Petitions and set aside the impugned orders. The Writ Appeals before the Karnataka High Court were also dismissed which was challenged before Supreme Court.
After analysing various judgements from High Courts finally the Supreme Court came to the conclusion that “the term 'basic wage' which includes all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in accordance with the terms of the contract of employment can only mean weekly holidays, national holidays and festival holidays etc. In many cases the employees do not take leave and encash it at the time of retirement or same is encashed after his death which can be said to be uncertainties and contingencies. Though provisions have been made for the employer for such contingencies unless the contingency of encashing the leave is there, the question of actual payment to the workman does not take place. In view of the decision of this Court in Bridge Roof's case and TI Cycles's case -TI Cycles of India, Ambattur v. M.K. Gurumani and Ors. (2001 (7) SCC 204), the inevitable conclusion is that basic wage was never intended to include amounts received for leave encashment”.
Supreme Court highlighted its decision in TI Cycles of India, Ambattur v. M.K. Gurumani and Ors. (2001 (7) SCC 204) were it was held that “incentive wages paid in respect of extra work done is to be excluded from the basic wage as they have a direct nexus and linkage with the amount of extra output. It is to be noted that any amount of contribution cannot be based on different contingencies and uncertainties. The test is one of universality. In the case of encashment of leave the option may be available to all the employees but some may avail and some may not avail. That does not satisfy the test of universality”. The court also referred to its observation in Daily Partap v. Regional Provident Fund Commissioner (1998 (8) SCC 90) where the test was arrived as uniform treatment or nexus under- dependent on individual work.
The Apex Court therefore held that no contribution is to be made on encashed leave amounts either from employees or employer as leave encashment amount does not fall within the purview of the wages as per the Act.
In conclusion, it could be said that the Employer is at liberty to join his Employees as Members to the PF scheme if it has exempted PF scheme which provides so. However, if the Employer is covered under the Central Government PF scheme, there is nothing necessitating joining such Employees to the scheme.
The Supreme Court in MAHE case relies on the Bridge Roof's case in which the basic principles as laid down on a combined reading of Sections 2(b) and 6 as follows:
(a) Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages.
(b) Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages. By way of example it was held that overtime allowance, though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment but because it may not be earned by all employees of a concern, it is excluded from basic wages.
(c) Conversely, any payment by way of a special incentive or work is not basic wages.
In the wake of the judgement of the supreme court in MAHE case, it is still not clear why the ‘basic wages’ is defined so under section 2(b) of the Act as the Section 6 even though clearly manifest the purport does not conform to such definition. Hence it can be concluded that this is an anomaly crept in the Act and has to be corrected by way of amendment and it does not matter whether courts recognize it so or not.
Thursday 17 April, 2008
Friday 29 February, 2008
MOUs and MOAs
I have seen people wondering about, when they reach a situation where they have to ink a document. They get confused what the document could be and what is it called and why it is called so and so many questions alike. Here we would try to decipher the import of MOU and MOA two very usual documents in the business/commercial arenas.
What are MOU’s And MOA’s
MOU stands for Memorandum of Understanding and MOA stands for Memorandum of Agreement.
MOUs and MOAs are both written agreements between two parties. If that be so what is the difference between the two?
There is no established legal difference. Many a times it has been seen the two terms used interchangeably. As in the case of MOA because it contains the word “agreement”, and as per definition in Indian Contract Act 1972 a contract is an ‘agreement’, some people believe that an MOA signifies a more significant commitment than an MOU. So if you are having difficulty with entering a partnership using an “MOA”, then see whether your potential partner wants to sign an “MOU”.
However, if the document whatever way it is named, if does not contain ingredients of an agreement or contract, then it will remain as a mere understanding and can be aptly called MOU rather than MOA.
In MoU, there would not be any default clause or dispute cause. Whatever issue arose upon the document will have to be settled mutually without obligations on either party. Whereas in an agreement usually the obligations will be clear and consequence of default and what liability the parties will have will also be clear. In this view the MOU and MOA can be differentiated and the nature of document can be understood.
To elucidate this a clause from MoU can be quoted here as follows:
“Both the Parties shall carry their own responsibilities and liabilities under this document without any recourse to other Party”
Whereas in an agreement it will be provided as follows:
In case of violation of any of the terms of this agreement by a party, the other party will have a right to terminate this agreement and shall be entitled for penalty as provided herein; notwithstanding his rights to sue him for the loss suffered by such party.
So the differences here are mainly threefold:
1 there is no strict liability to fulfil obligations under MoU but MOA obligations are binding
2 the party not fulfilling his obligations would be still caught free without any consequences under an MOU, but the violation of an agreement will entail penalisation.
3 MoU is not treated as a contract but only as an informal agreement to enter into a contract
Why Use MOA's and MOU's?
If you are signing a contract with someone, whatever it is called, whether MOU or MOA, make sure that the contract has been legally reviewed and that you understand what your obligation is.
An MOU is like an agreement, but it doesn’t have to carry the same legal weight. That is because this kind of an agreement doesn’t need to be intended as a legally enforceable arrangement, but a “Contract- MOA” always is intended that way. However, an MOU can include any or all of a contract’s terms and conditions. If it includes all of them, but is just titled an MOU, it can carry as much legal weight as a contract. Most often, an MOU is just a statement of cooperation or understanding about a specific or general topic between two (or more) parties. It is often used to clarify the roles and responsibilities of each party in a shared situation of interest. For example, when both the A company and B Company want to undertake a critical study on project as assigned by the Authority, they can write an MOU stating that they will cooperate together in making that happen. If none (or just some) of the standard “terms and conditions” are included, an MOU can be an attractive option to a standard contract or MOA, because it will be simpler to use. And it can avoid the potential insult, resentment, or distrust that can result from asking someone to sign a fully-provisioned contract, rather than accepting that they honour their word. Usually, the point to MOU is building a cooperative effort. So an MOU is useful when both (or multiple) parties have developed, or would like to establish, a partnership based on a level of trust, rather than just legal obligation.
Even in a work situation, if the parties have an established working relationship and trust each other, an MOU can be used in lieu of a standard work contract, and serves simply to clarify the work plan or scope of work. MOUs are good ways to start off a formal, recognized partnership with someone. They can contain as little or as much obligation as both parties are willing to sign, and be as specific or general as needed. In the end, even a general and short MOU can be the start of working towards a more meaningful relationship or goal. As a community, the more MOU you can show funding agencies and other potential partners, the better. MOU and demonstrated partnerships will help to bring you the services or funds that you lack for the work you want to do.
However, regardless of how an MOU is used, without the standard contract terms and conditions, MOU doesn’t offer the same legal assurances or protections. If there is a substantial obligation that is being committed to that involves a significant amount of funds or services and if there is distrust or different goal motivations between the signers, then you should consider a standard contract or MOA with the full range of standard contract terms and conditions-- or at least as many that make sense for your situation.
Guidelines for signing documents
Before entering into any of the above documents, the following points may be considered:
Purpose of the document
Does the document link to the plans and objectives
What are the benefits of the document ie what will be delivered to youl
Does the document comply with all of the legal formalities which may be required
What are the commitments/liabilities/resources
What are the main risks associated with the document and can they be insured
Is legal opinion required
Whether the other party has the authority or entitlement to sign the document
What would be the consequences of not signing the document
What other potential partners may get precluded by virtue of this association
How does the relationship enhance and sustain among the parties
What is the scope of the default clause and confidentiality clause in the document
For assessment of the risk associated with the document, consider;
Is the document necessary in order to receive the benefits
What commitments will this document require and over what time period
What due diligence checks have been carried out on the other party or parties to the document
What would the consequences of not signing the document
Is there adequate insurance cover - if not, or not clear, refer to advice
Are there commercial implications of the document
Undertake a risk assessment
Is the initiative high/extreme risk and related
Does the document require the granting of an indemnity or guarantee
Are there any legal issues which require clarification
Are there any financial implications which require consideration
Are there any intellectual property implications
What are MOU’s And MOA’s
MOU stands for Memorandum of Understanding and MOA stands for Memorandum of Agreement.
MOUs and MOAs are both written agreements between two parties. If that be so what is the difference between the two?
There is no established legal difference. Many a times it has been seen the two terms used interchangeably. As in the case of MOA because it contains the word “agreement”, and as per definition in Indian Contract Act 1972 a contract is an ‘agreement’, some people believe that an MOA signifies a more significant commitment than an MOU. So if you are having difficulty with entering a partnership using an “MOA”, then see whether your potential partner wants to sign an “MOU”.
However, if the document whatever way it is named, if does not contain ingredients of an agreement or contract, then it will remain as a mere understanding and can be aptly called MOU rather than MOA.
In MoU, there would not be any default clause or dispute cause. Whatever issue arose upon the document will have to be settled mutually without obligations on either party. Whereas in an agreement usually the obligations will be clear and consequence of default and what liability the parties will have will also be clear. In this view the MOU and MOA can be differentiated and the nature of document can be understood.
To elucidate this a clause from MoU can be quoted here as follows:
“Both the Parties shall carry their own responsibilities and liabilities under this document without any recourse to other Party”
Whereas in an agreement it will be provided as follows:
In case of violation of any of the terms of this agreement by a party, the other party will have a right to terminate this agreement and shall be entitled for penalty as provided herein; notwithstanding his rights to sue him for the loss suffered by such party.
So the differences here are mainly threefold:
1 there is no strict liability to fulfil obligations under MoU but MOA obligations are binding
2 the party not fulfilling his obligations would be still caught free without any consequences under an MOU, but the violation of an agreement will entail penalisation.
3 MoU is not treated as a contract but only as an informal agreement to enter into a contract
Why Use MOA's and MOU's?
If you are signing a contract with someone, whatever it is called, whether MOU or MOA, make sure that the contract has been legally reviewed and that you understand what your obligation is.
An MOU is like an agreement, but it doesn’t have to carry the same legal weight. That is because this kind of an agreement doesn’t need to be intended as a legally enforceable arrangement, but a “Contract- MOA” always is intended that way. However, an MOU can include any or all of a contract’s terms and conditions. If it includes all of them, but is just titled an MOU, it can carry as much legal weight as a contract. Most often, an MOU is just a statement of cooperation or understanding about a specific or general topic between two (or more) parties. It is often used to clarify the roles and responsibilities of each party in a shared situation of interest. For example, when both the A company and B Company want to undertake a critical study on project as assigned by the Authority, they can write an MOU stating that they will cooperate together in making that happen. If none (or just some) of the standard “terms and conditions” are included, an MOU can be an attractive option to a standard contract or MOA, because it will be simpler to use. And it can avoid the potential insult, resentment, or distrust that can result from asking someone to sign a fully-provisioned contract, rather than accepting that they honour their word. Usually, the point to MOU is building a cooperative effort. So an MOU is useful when both (or multiple) parties have developed, or would like to establish, a partnership based on a level of trust, rather than just legal obligation.
Even in a work situation, if the parties have an established working relationship and trust each other, an MOU can be used in lieu of a standard work contract, and serves simply to clarify the work plan or scope of work. MOUs are good ways to start off a formal, recognized partnership with someone. They can contain as little or as much obligation as both parties are willing to sign, and be as specific or general as needed. In the end, even a general and short MOU can be the start of working towards a more meaningful relationship or goal. As a community, the more MOU you can show funding agencies and other potential partners, the better. MOU and demonstrated partnerships will help to bring you the services or funds that you lack for the work you want to do.
However, regardless of how an MOU is used, without the standard contract terms and conditions, MOU doesn’t offer the same legal assurances or protections. If there is a substantial obligation that is being committed to that involves a significant amount of funds or services and if there is distrust or different goal motivations between the signers, then you should consider a standard contract or MOA with the full range of standard contract terms and conditions-- or at least as many that make sense for your situation.
Guidelines for signing documents
Before entering into any of the above documents, the following points may be considered:
Purpose of the document
Does the document link to the plans and objectives
What are the benefits of the document ie what will be delivered to youl
Does the document comply with all of the legal formalities which may be required
What are the commitments/liabilities/resources
What are the main risks associated with the document and can they be insured
Is legal opinion required
Whether the other party has the authority or entitlement to sign the document
What would be the consequences of not signing the document
What other potential partners may get precluded by virtue of this association
How does the relationship enhance and sustain among the parties
What is the scope of the default clause and confidentiality clause in the document
For assessment of the risk associated with the document, consider;
Is the document necessary in order to receive the benefits
What commitments will this document require and over what time period
What due diligence checks have been carried out on the other party or parties to the document
What would the consequences of not signing the document
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Monday 25 February, 2008
Dismissal without enquiry
Dismissal from services is the greatest punishment an employer can inflict on an employee. It is believed that such an ultimate weapon would be used by an employer only in case of gross violation of the rules and employment contract. It is cardinal to the natural justice principles that wherever the employee is dismissed, it is done after conducting a detailed enquiry and based on the findings thereon. Not only does this give the employee an opportunity to mount a defence, it is also good for the employer for better implementation of such a dismissal order. Let us examine whether a dismissal is possible without an enquiry.
STATUTORY PROVISIONS AND RULES OF THE COMPANY
Article 311 of the Constitution of India stipulates that without contemplating an enquiry proceeding, no employee of the Government shall be dismissed, except under certain exceptional circumstances as provided under the proviso of the said Article. However, the employees of a PSU cannot avail of Article 311 of the Constitution. Nevertheless, under Article 14, 16 and 21 of the Constitution, the employees of PSUs can claim the same kind of protection, claiming the right of equal treatment and safeguard against arbitrariness.
Labour legislations do not strictly prescribe any enquiry proceedings as a pre-requisite for the dismissal of an employee. However, these statutes state that without fair hearing and complying with the principles of natural justice, no employee shall be dismissed. Further, the Fifth Schedule to the Industrial Disputes Act, providing the details of practices covered under the definition of Unfair Labour Practices under s. 2 (ra), under item No. 5 include To discharge or dismiss workmen (a) by way of victimization; (b) not in good faith, but in the colourable exercise of the employers rights; (c) by falsely implicating a workman in a criminal case on false evidence or on concocted evidence; (d) for patently false reasons; (e) on untrue or trumped up allegations of absence without leave; (f) in utter disregard of the principles of natural justice in the conduct of domestic enquiry or with undue haste; (g) for misconduct of a minor or technical character, without having any regard to the nature of particular misconduct or the past record or service of the workman, thereby leading to a disproportionate punishment, also as an unfair labour practice.
If an employee is dismissed from service, that will become a cause of action for him to move the Labour Court having jurisdiction as per the Second Schedule to the Industrial Disputes Act, read with s. 7. The consequence of this provision is that in the event of dismissal of an employee, with or without an enquiry, he can seek reinstatement before the jurisdictional Labour Court and if reinstated, it will be deemed that dismissal never took place.
An employee is also under contract with the employer as per the Indian Contract Act, and his conditions of employment would be the terms of the contract between them. Accordingly, the Standing Orders or CDA Rules will operate as a contract between the employer and employee, the violation of which may lead to remedies contained therein. As the Standing Orders or CDA Rules prescribe and envisage certain circumstances under which the concerned employee can be dismissed without any enquiry proceedings, in such circumstances, the Disciplinary Authority would be entitled to take such an action.
RULES OF A COMPANY AND PRINCIPLES OF NATURAL JUSTICE
The purpose of enquiry proceedings is to comply with principles of natural justice, which include, the right to be heard and defend oneself against arbitrariness or colourable exercise of powers or discretion by an authority. Unless the enquiry is conducted, there is no occasion for the management to find the employee Guilty and hence any punishment without such enquiry, leading to a finding of guilt, would be bad in the eye of law in natural circumstances. However, there exist exceptions to this rule, under article 311 of the Constitution, preventing the Government from dismissing an Employee without an enquiry in which he has been informed of the charges against him and given a reasonable opportunity of being heard in respect of those charges, provide that, such an enquiry is not necessary where the dismissal is on the ground of conduct which has led to his conviction or a criminal charge or where the authority empowered to dismiss or remove a person if satisfied, that for some reasons, to be recorded by that authority in writing, is not reasonably practicable to hold such enquiry; or where the President or Governor, as the case may be, is satisfied that in the interest of the security of the State, it is not expedient to hold such enquiry. It is also provided under the Article that it will be the decision of the Authority empowered to dismiss, to determine whether it was reasonably practicable to hold such enquiry.
As these detailed exemptions are provided, it is open to the employer to have the said exceptions incorporated in its Bye Laws or Rules stipulating the disciplinary rules for its employees.
In Workmen of Hindustan Steel Ltd. vs. Hindustan Steel Ltd., AIR 1985 SC 251, the Standing Order conferred powers on the General Manager that on his being satisfied that it is inexpedient or against the interest of security to continue to employ the Workman, then for reasons to be recorded in writing, the workman can be removed or dismissed from service without following the detailed procedure of enquiries for dealing with cases of misconduct.
The Supreme Court observed that the Standing Order that conferred such arbitrary, uncanalised and drastic powers to dismiss an employee was violative of the basic requirement of natural justice. The Court took the view that reasons for dispensing with a enquiry and reasons for not continuing to employ the workman, stand wholly apart from each other and the standing order did not obligate the General Manager to record reasons for dispensing with the Enquiry. However, the Honble Supreme Court also upheld the power of the employer to dispense with enquiry where the exercise of his power is held to be strict and in exceptional circumstances only.
In Workmen of Hindustan Steel Ltd, the Supreme Court laid down the test as follows:
.when the decision of the employer to dispense with enquiry is questioned, the employer must be in a position to satisfy the Court that holding of the enquiry will be either counter productive or may cause such irreparable and irreversible damage which in the facts and circumstances of the case cannot be suffered. This minimum requirement cannot and should not be dispensed with to control wide discretionary power and to guard against the drastic power to inflict such a heavy punishment as denial of livelihood and lasting stigma without giving the slightest opportunity to the employee to contravert the allegation and even without letting him know what is his misconduct.
In another case, Avinash Nagra vs. Navodaya Vidyalaya Samiti, 1997 (2) SCC 534, the Supreme Court held that in a case where it is deemed hazardous to have such Enquiry, considering the vulnerability of the witness, the same can be dispensed with and punishment of dismissal can be imposed. The High Court of Delhi further in Dayachand vs. National Thermal Power Station, 2004 (IV) LLJ (Suppl) 168, held that
where a disciplinary enquiry is dispensed with on the plea that it was not reasonably practicable to hold one, the Court must be satisfied that it was not a colourble exercise or malafide action of the Employer. The Employer was to satisfy the Court that good and objective reasons existed showing both proof of misconduct and the reasons for dispensing with the enquiry. This minimum requirement cannot and should not be made to suffer.
In this case, the Court upheld the action of the National Thermal Power Station dismissing an employee without holding enquiry, as it was not practicable to hold an enquiry and as a provision for such action existed under its Clause 23(ii)(c) of the Certified Standing Orders.
DISMISSAL WITHOUT ENQUIRY
It may be discerned from the above that:
1) An Enquiry can be dispensed with while dismissing an employee on the following circumstances:
a) An expressed provision exists in the Rules/Standing Orders of the Company.
b) The dismissal is in consequence of conviction of an Employee after due process before a Court.
c) The Disciplinary Authority is of the opinion that the conduct of such Enquiry will have hazardous effect or will be counter productive or will cause irreparable or irreversible damage.
d) Where the Disciplinary Authority opines that it will be expedient in the interest of security.
e) When in the circumstance Disciplinary Authority reasonably apprehends that the Enquiry is not practically possible.
2) However, the Enquiry cannot be dispensed with even under the above circumstances unless it is provided under the Rules/Standing Orders.
3) Further, the Disciplinary Authority has to record in writing under what circumstance the Enquiry was dispensed with before imposing the punishment of `Dismissal on the employee.
4) The act of dispensing with Enquiry before dismissal can be challenged before the appropriate Labour Court at the instance of the Employee.
5) As the action of dismissal without Enquiry will be subjected to judicial review the Disciplinary Authority shall be able to prove that it was not done on colourable exercise of his right or with malafides and that the action was with good and objective reasons under exceptional circumstances.
Accordingly, while it is most desirable/advisable that punishment of dismissal on some employee may be imposed only upon a properly conducted enquiry, it is concluded that by strictly following the above guidelines and if so provided as per CDA Rules, the Disciplinary Authority can dispense with the enquiry proceedings and dismiss an Employee for any of the reasons, as stated above. However, if the Standing Orders do not stipulate any reason to remove or dismiss an employee from service without following the procedure laid down, it is felt that the Disciplinary Authority may not be empowered to dispense with enquiry under any other circumstance. However, if it is most expedient, the enquiry can be dispensed with by complying to all other requirements of principles of natural justice enshrined by the various decisions of the Courts, provided with adequate precaution taking into consideration that the Court may struck down such a dismissal, unless the employer is capable of proving exceptional circumstances and due compliance to the various requirements, including that of natural justice.
Where the terms of the contract of service, i.e. the CDA Rules/Certified Standing Orders, does not provide for dismissal without enquiry, the action of an employer to dismiss so, would become a breach of the contract. However, as under the Law of Contract, a Service Contract cannot be specifically enforced and accordingly the claim of an employee for reinstatement may not sustain and at the most the employer may only be entitled for damages for the breach of contract committed by him.
Under s. 33 of the Industrial Disputes Act, no protected workmen can be dismissed without the approval of Competent Authority. However, the consequence stipulated only is a complaint against such an action by the employee.
However, s. 11A of the Industrial Disputes Act specifically stipulates that a Labour Court/Tribunal in an Industrial Dispute referred to it, relating to the dismissal of a workman, in the course of adjudication proceedings, if finds a dismissal unjustified, can through an award set aside such dismissal order and in the course of proceedings shall not take any fresh evidence in relation to the matter and shall rely only on the materials on record.
Sec. 11A of I.D. Act - Powers of Labour court, Tribunal, and National Tribunal to give appropriate relief in case of discharge or dismissal of workmen : Where an industrial dispute relating to the discharge or dismissal of a workman has been referred to a Labour Court, Tribunal or National Tribunal for adjudication and, in the course of the adjudication proceedings, the Labour Court, Tribunal or National Tribunal, as the case may be, is satisfied that the order of discharge or dismissal was not justified, it may, by its award, set aside the order of discharge or dismissal and direct reinstatement of the workman on such terms and conditions, if any, as it things fit, or give such other relief to the workman including the award of any lesser punishment in lieu of discharge or dismissal as the circumstances of the case may require.
PROVIDED that in any proceeding under this section the Labour Court, Tribunal or National Tribunal, as the case may be, shall rely only on the materials on record and shall not take any fresh evidence in relation to the matter.
The proviso here would mean that in a case where no enquiry has taken place before dismissal, the employer would be prevented from leading evidence for establishing the guilt of the employee, for which he was dismissed. However, the Supreme Court in the Management of Panitole Tea Estate vs. The Workmen (1971) 1 SCC 742, held that even if no enquiry is held by the employer, the Tribunal in order to satisfy itself about the legality and validity of the order, had to give an opportunity to the employer and employee to adduce evidence before it. It is open to the employer to adduce evidence for the first time justifying his action, and it is open to the employee to adduce evidence contra.
In The Workmen vs. Fire Stone Tyre and Rubber Company Ltd., 1973 (1) SCC 813, interpreting the materials on record in the proviso held that the same will take in the following:
1. The evidence taken by the Management at the enquiry and the proceedings of the Enquiry.
2. The above evidence and in addition any fresh evidence led before the Tribunal.
3. Evidence placed before the Tribunal for the first time in support of the action taken by an Employer as well as the evidence adduced by the Workmen contra.
Delhi Cloth and General Mills Company Ltd., vs. Ludh Budh Singh, 1972 (1) LLJ 180 SC, the Apex Court emphasized that when no enquiry has been held by the employer or when the enquiry has been found to be defective, the employer has got the right to adduce evidence before the tribunal justifying his action.
In another case of Bharat Forge Company Ltd., vs. Zodge, 1996 (2) LLJ 643 SC, where the Tribunal rejected the employers request for permission to lead evidence before the closure of the proceedings, although the High Court of Bombay upheld the decision of the Tribunal, the Supreme Court setting aside the order of the Tribunal as well as the High Court, upheld the right of the employer to lead evidence.
In the latest judgment of Amrit Vanaspati Co. Ltd. vs. Khem Chand and Another, 2006 SCC (6) 325, going through various earlier decisions, broad principles with regard to the subject was summarized and it was inter-alia held that the effect of an Employer not holding an enquiry is that the Tribunal would not have to consider only whether there was a prima-facie case. On the other hand, the issue about the merits of the impugned order of dismissal is at large before the Tribunal and the latter, on the evidence adduced before it, has to decide for itself whether the misconduct alleged is proved. In such cases, the point about the exercise of managerial functions does not arise at all. A case of defective enquiry stands on the same footing as no enquiry. Further, it was also enshrined in the said decision that it has never been recognized that the Tribunal should straightaway, without anything more, direct reinstatement of a dismissed or discharged employee, once it is found that no domestic enquiry has been held
The said ruling of the Supreme Court also enables the employer to furnish fresh/further/additional evidence. It is also laid down by the Supreme Court that where an enquiry is conducted and it is vitiated, it will be as good as no enquiry was conducted. The decision in the above case, lays down also that the Labour Court has to consider the entire evidence before it, before arriving at a decision. Practically, this would mean that in a case where no enquiry has been conducted before dismissal, the Labour Court has to look into the entire set of facts and circumstances and evidence led by both the parties before arriving at its conclusion. In short, it could be deemed that, where Enquiry is not conducted, and if the employee challenges such action before the Labour Court, the Labour Court has to enquire into the entire affair, whereby it would conduct an enquiry proceeding as such, in substitution of the employer who was supposed to have conducted such enquiry before imposing any punishment and only the distinction is perhaps that where the enquiry has been conducted before dismissal, the Court has to be satisfied that it is vitiated before arriving at a decision regarding its admissibility. Whereas, in a case where no enquiry was conducted, the admissibility of the matter may be established for the simple reason of non-existence of domestic enquiry proceedings without going to the merits of the case.
STATUTORY PROVISIONS AND RULES OF THE COMPANY
Article 311 of the Constitution of India stipulates that without contemplating an enquiry proceeding, no employee of the Government shall be dismissed, except under certain exceptional circumstances as provided under the proviso of the said Article. However, the employees of a PSU cannot avail of Article 311 of the Constitution. Nevertheless, under Article 14, 16 and 21 of the Constitution, the employees of PSUs can claim the same kind of protection, claiming the right of equal treatment and safeguard against arbitrariness.
Labour legislations do not strictly prescribe any enquiry proceedings as a pre-requisite for the dismissal of an employee. However, these statutes state that without fair hearing and complying with the principles of natural justice, no employee shall be dismissed. Further, the Fifth Schedule to the Industrial Disputes Act, providing the details of practices covered under the definition of Unfair Labour Practices under s. 2 (ra), under item No. 5 include To discharge or dismiss workmen (a) by way of victimization; (b) not in good faith, but in the colourable exercise of the employers rights; (c) by falsely implicating a workman in a criminal case on false evidence or on concocted evidence; (d) for patently false reasons; (e) on untrue or trumped up allegations of absence without leave; (f) in utter disregard of the principles of natural justice in the conduct of domestic enquiry or with undue haste; (g) for misconduct of a minor or technical character, without having any regard to the nature of particular misconduct or the past record or service of the workman, thereby leading to a disproportionate punishment, also as an unfair labour practice.
If an employee is dismissed from service, that will become a cause of action for him to move the Labour Court having jurisdiction as per the Second Schedule to the Industrial Disputes Act, read with s. 7. The consequence of this provision is that in the event of dismissal of an employee, with or without an enquiry, he can seek reinstatement before the jurisdictional Labour Court and if reinstated, it will be deemed that dismissal never took place.
An employee is also under contract with the employer as per the Indian Contract Act, and his conditions of employment would be the terms of the contract between them. Accordingly, the Standing Orders or CDA Rules will operate as a contract between the employer and employee, the violation of which may lead to remedies contained therein. As the Standing Orders or CDA Rules prescribe and envisage certain circumstances under which the concerned employee can be dismissed without any enquiry proceedings, in such circumstances, the Disciplinary Authority would be entitled to take such an action.
RULES OF A COMPANY AND PRINCIPLES OF NATURAL JUSTICE
The purpose of enquiry proceedings is to comply with principles of natural justice, which include, the right to be heard and defend oneself against arbitrariness or colourable exercise of powers or discretion by an authority. Unless the enquiry is conducted, there is no occasion for the management to find the employee Guilty and hence any punishment without such enquiry, leading to a finding of guilt, would be bad in the eye of law in natural circumstances. However, there exist exceptions to this rule, under article 311 of the Constitution, preventing the Government from dismissing an Employee without an enquiry in which he has been informed of the charges against him and given a reasonable opportunity of being heard in respect of those charges, provide that, such an enquiry is not necessary where the dismissal is on the ground of conduct which has led to his conviction or a criminal charge or where the authority empowered to dismiss or remove a person if satisfied, that for some reasons, to be recorded by that authority in writing, is not reasonably practicable to hold such enquiry; or where the President or Governor, as the case may be, is satisfied that in the interest of the security of the State, it is not expedient to hold such enquiry. It is also provided under the Article that it will be the decision of the Authority empowered to dismiss, to determine whether it was reasonably practicable to hold such enquiry.
As these detailed exemptions are provided, it is open to the employer to have the said exceptions incorporated in its Bye Laws or Rules stipulating the disciplinary rules for its employees.
In Workmen of Hindustan Steel Ltd. vs. Hindustan Steel Ltd., AIR 1985 SC 251, the Standing Order conferred powers on the General Manager that on his being satisfied that it is inexpedient or against the interest of security to continue to employ the Workman, then for reasons to be recorded in writing, the workman can be removed or dismissed from service without following the detailed procedure of enquiries for dealing with cases of misconduct.
The Supreme Court observed that the Standing Order that conferred such arbitrary, uncanalised and drastic powers to dismiss an employee was violative of the basic requirement of natural justice. The Court took the view that reasons for dispensing with a enquiry and reasons for not continuing to employ the workman, stand wholly apart from each other and the standing order did not obligate the General Manager to record reasons for dispensing with the Enquiry. However, the Honble Supreme Court also upheld the power of the employer to dispense with enquiry where the exercise of his power is held to be strict and in exceptional circumstances only.
In Workmen of Hindustan Steel Ltd, the Supreme Court laid down the test as follows:
.when the decision of the employer to dispense with enquiry is questioned, the employer must be in a position to satisfy the Court that holding of the enquiry will be either counter productive or may cause such irreparable and irreversible damage which in the facts and circumstances of the case cannot be suffered. This minimum requirement cannot and should not be dispensed with to control wide discretionary power and to guard against the drastic power to inflict such a heavy punishment as denial of livelihood and lasting stigma without giving the slightest opportunity to the employee to contravert the allegation and even without letting him know what is his misconduct.
In another case, Avinash Nagra vs. Navodaya Vidyalaya Samiti, 1997 (2) SCC 534, the Supreme Court held that in a case where it is deemed hazardous to have such Enquiry, considering the vulnerability of the witness, the same can be dispensed with and punishment of dismissal can be imposed. The High Court of Delhi further in Dayachand vs. National Thermal Power Station, 2004 (IV) LLJ (Suppl) 168, held that
where a disciplinary enquiry is dispensed with on the plea that it was not reasonably practicable to hold one, the Court must be satisfied that it was not a colourble exercise or malafide action of the Employer. The Employer was to satisfy the Court that good and objective reasons existed showing both proof of misconduct and the reasons for dispensing with the enquiry. This minimum requirement cannot and should not be made to suffer.
In this case, the Court upheld the action of the National Thermal Power Station dismissing an employee without holding enquiry, as it was not practicable to hold an enquiry and as a provision for such action existed under its Clause 23(ii)(c) of the Certified Standing Orders.
DISMISSAL WITHOUT ENQUIRY
It may be discerned from the above that:
1) An Enquiry can be dispensed with while dismissing an employee on the following circumstances:
a) An expressed provision exists in the Rules/Standing Orders of the Company.
b) The dismissal is in consequence of conviction of an Employee after due process before a Court.
c) The Disciplinary Authority is of the opinion that the conduct of such Enquiry will have hazardous effect or will be counter productive or will cause irreparable or irreversible damage.
d) Where the Disciplinary Authority opines that it will be expedient in the interest of security.
e) When in the circumstance Disciplinary Authority reasonably apprehends that the Enquiry is not practically possible.
2) However, the Enquiry cannot be dispensed with even under the above circumstances unless it is provided under the Rules/Standing Orders.
3) Further, the Disciplinary Authority has to record in writing under what circumstance the Enquiry was dispensed with before imposing the punishment of `Dismissal on the employee.
4) The act of dispensing with Enquiry before dismissal can be challenged before the appropriate Labour Court at the instance of the Employee.
5) As the action of dismissal without Enquiry will be subjected to judicial review the Disciplinary Authority shall be able to prove that it was not done on colourable exercise of his right or with malafides and that the action was with good and objective reasons under exceptional circumstances.
Accordingly, while it is most desirable/advisable that punishment of dismissal on some employee may be imposed only upon a properly conducted enquiry, it is concluded that by strictly following the above guidelines and if so provided as per CDA Rules, the Disciplinary Authority can dispense with the enquiry proceedings and dismiss an Employee for any of the reasons, as stated above. However, if the Standing Orders do not stipulate any reason to remove or dismiss an employee from service without following the procedure laid down, it is felt that the Disciplinary Authority may not be empowered to dispense with enquiry under any other circumstance. However, if it is most expedient, the enquiry can be dispensed with by complying to all other requirements of principles of natural justice enshrined by the various decisions of the Courts, provided with adequate precaution taking into consideration that the Court may struck down such a dismissal, unless the employer is capable of proving exceptional circumstances and due compliance to the various requirements, including that of natural justice.
Where the terms of the contract of service, i.e. the CDA Rules/Certified Standing Orders, does not provide for dismissal without enquiry, the action of an employer to dismiss so, would become a breach of the contract. However, as under the Law of Contract, a Service Contract cannot be specifically enforced and accordingly the claim of an employee for reinstatement may not sustain and at the most the employer may only be entitled for damages for the breach of contract committed by him.
Under s. 33 of the Industrial Disputes Act, no protected workmen can be dismissed without the approval of Competent Authority. However, the consequence stipulated only is a complaint against such an action by the employee.
However, s. 11A of the Industrial Disputes Act specifically stipulates that a Labour Court/Tribunal in an Industrial Dispute referred to it, relating to the dismissal of a workman, in the course of adjudication proceedings, if finds a dismissal unjustified, can through an award set aside such dismissal order and in the course of proceedings shall not take any fresh evidence in relation to the matter and shall rely only on the materials on record.
Sec. 11A of I.D. Act - Powers of Labour court, Tribunal, and National Tribunal to give appropriate relief in case of discharge or dismissal of workmen : Where an industrial dispute relating to the discharge or dismissal of a workman has been referred to a Labour Court, Tribunal or National Tribunal for adjudication and, in the course of the adjudication proceedings, the Labour Court, Tribunal or National Tribunal, as the case may be, is satisfied that the order of discharge or dismissal was not justified, it may, by its award, set aside the order of discharge or dismissal and direct reinstatement of the workman on such terms and conditions, if any, as it things fit, or give such other relief to the workman including the award of any lesser punishment in lieu of discharge or dismissal as the circumstances of the case may require.
PROVIDED that in any proceeding under this section the Labour Court, Tribunal or National Tribunal, as the case may be, shall rely only on the materials on record and shall not take any fresh evidence in relation to the matter.
The proviso here would mean that in a case where no enquiry has taken place before dismissal, the employer would be prevented from leading evidence for establishing the guilt of the employee, for which he was dismissed. However, the Supreme Court in the Management of Panitole Tea Estate vs. The Workmen (1971) 1 SCC 742, held that even if no enquiry is held by the employer, the Tribunal in order to satisfy itself about the legality and validity of the order, had to give an opportunity to the employer and employee to adduce evidence before it. It is open to the employer to adduce evidence for the first time justifying his action, and it is open to the employee to adduce evidence contra.
In The Workmen vs. Fire Stone Tyre and Rubber Company Ltd., 1973 (1) SCC 813, interpreting the materials on record in the proviso held that the same will take in the following:
1. The evidence taken by the Management at the enquiry and the proceedings of the Enquiry.
2. The above evidence and in addition any fresh evidence led before the Tribunal.
3. Evidence placed before the Tribunal for the first time in support of the action taken by an Employer as well as the evidence adduced by the Workmen contra.
Delhi Cloth and General Mills Company Ltd., vs. Ludh Budh Singh, 1972 (1) LLJ 180 SC, the Apex Court emphasized that when no enquiry has been held by the employer or when the enquiry has been found to be defective, the employer has got the right to adduce evidence before the tribunal justifying his action.
In another case of Bharat Forge Company Ltd., vs. Zodge, 1996 (2) LLJ 643 SC, where the Tribunal rejected the employers request for permission to lead evidence before the closure of the proceedings, although the High Court of Bombay upheld the decision of the Tribunal, the Supreme Court setting aside the order of the Tribunal as well as the High Court, upheld the right of the employer to lead evidence.
In the latest judgment of Amrit Vanaspati Co. Ltd. vs. Khem Chand and Another, 2006 SCC (6) 325, going through various earlier decisions, broad principles with regard to the subject was summarized and it was inter-alia held that the effect of an Employer not holding an enquiry is that the Tribunal would not have to consider only whether there was a prima-facie case. On the other hand, the issue about the merits of the impugned order of dismissal is at large before the Tribunal and the latter, on the evidence adduced before it, has to decide for itself whether the misconduct alleged is proved. In such cases, the point about the exercise of managerial functions does not arise at all. A case of defective enquiry stands on the same footing as no enquiry. Further, it was also enshrined in the said decision that it has never been recognized that the Tribunal should straightaway, without anything more, direct reinstatement of a dismissed or discharged employee, once it is found that no domestic enquiry has been held
The said ruling of the Supreme Court also enables the employer to furnish fresh/further/additional evidence. It is also laid down by the Supreme Court that where an enquiry is conducted and it is vitiated, it will be as good as no enquiry was conducted. The decision in the above case, lays down also that the Labour Court has to consider the entire evidence before it, before arriving at a decision. Practically, this would mean that in a case where no enquiry has been conducted before dismissal, the Labour Court has to look into the entire set of facts and circumstances and evidence led by both the parties before arriving at its conclusion. In short, it could be deemed that, where Enquiry is not conducted, and if the employee challenges such action before the Labour Court, the Labour Court has to enquire into the entire affair, whereby it would conduct an enquiry proceeding as such, in substitution of the employer who was supposed to have conducted such enquiry before imposing any punishment and only the distinction is perhaps that where the enquiry has been conducted before dismissal, the Court has to be satisfied that it is vitiated before arriving at a decision regarding its admissibility. Whereas, in a case where no enquiry was conducted, the admissibility of the matter may be established for the simple reason of non-existence of domestic enquiry proceedings without going to the merits of the case.
Service tax on Technology Transfer
Under Sec. 65 (55b) of Finance Act, 1994 and under Sec. 65 (55b) of the Finance Act, 1994 Intellectual Property Services is defined as
(a) transferring temporarily or
(b) permitting the sue or enjoyment of, any intellectual property right.
Sec. 65 (55a) Intellectual Property Rights (IPR) as any right to intangible property, viz., design, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright. Further it says since the service provider has no Office in India, the recipient of the service has to bear the service tax.
However in the case of transfer of technology this may not attract service tax for following reasons:
(a) There is no IPR permitted temporarly. The transfer of technical information and know-how is not temporary. It is a transfer of technical know-how, which means permanent transfer of ownership.
(b) The technical know-how or technical information does not fall within the ambit of definition of IPR under Sec. 65 (55(a)) of the Finance Act, 1994.
Further for deriving an opinion on the meaning attributable to technology in "Technology Transfer" we may refer to the Research and Development Act 1986 and as per Section 2(h) of the said Act, '"Technology" means any special or technical knowledge or any special service required for any purpose whatsoever by an industrial concern under any foreign collaboration, and includes designs, drawings, publications and technical personnel.' Here the technology transferred is not any services but is Technical Information. In such case and even otherwise if at all service tax is chargeable, it may fall under scientific and technical consultancy or as a franchisee and not under IP service is worth noting.
A few decisions on this issue are cited below:
a) Hon'ble CESTAT, West Zonal Branch, Mumbai, has held in the matter of Rubco Huat Woods Pvt. Ltd., -Vs- the Commissioner of Central Excise, Calicut 2006 (4) S.T.R. 603 (Tri. - Bang.) and Volvo India Ltd., -Vs- the Commissioner of Service Tax, Bangalore, 2007 (7) S.T.R. 600 (Tri. - Bang.) that transfer of technology do not attract Service tax.
b) In a similar judgment of CESTAT, West Zonal Branch, Mumbai, 2007 (8) S.T.R. 501 (Tri. - Mumbai) SIKA (I) PVT. LTD.Versus COMMISSIONER OF C. EX., GOA it was held that payment of Royalty cannot be stated to be for a Service and therefore the Service tax cannot be levied on Royalty.
c) Another case of 2006 (3) S.T.R. 397 (Tri. - Mumbai) Navinon Ltd., -Vs- Commissioner of Central Excise, Mumbai, it was held that recipient of technical know-how from foreign company against payment of royalty could not be fastened with service tax liability. It was held in the said case that royalty for technical know-how is not a payment for any service and its payer cannot be liable to service tax.
4 On analysis, it is very clear that the technical know-how/technical information in respect of certain products for enabling someone to produce such products by itself and a specified percentage of net selling prices paid as royalty for such produced products will not pave way for leviablity of Service Tax. The term 'technical know-how' was discussed by CESTAT in a case of Indian Farmer Fertilizers Co-operative Ltd., -Vs- Commissioner of Central Excise. In this case, the know-how was interpreted as a proprietary series of practical, non patented knowledge, derived from the owners experience and tests, which is secret, substantial and identified. Accordingly, the same cannot be equated with IPR. Even if it is IPR, under any law for the time being in force "know-how" is not included into the definition of IPRs. Even if it is assumed that the same is included under IPRs, the transaction does not envisage "Intellectual Property Services" as the IPR is not transferred temporarily or it is not a permission for enjoyment of any IPR. However even in case of such technology transfer service tax would be leviable if :
i) there is a provision for Supervision and Training and technical fee paid is also towards this services.
ii) it states that the ownership of the all patents and other IPRs continues with the owner.
How so ever, the matter is still not resolved. It leaves so much vacuum once we reach here. It definitely points to the fact that there would be much more to deliberate regarding service tax concepts and practice in our country.
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