Supreme Court Grants Continuity of Services and Back Wages in Retrenchment Case with No Bona Fide Intent


Decided On: AUGUST 11, 2022


Welcome to the official blog of the Law Offices of Kr. Vivek Tanwar Advocate and Associates, where we are dedicated to providing litigation support services for matters related to Wrongful Retrenchment. In today’s blog post, we aim to shed light on the prevailing issues surrounding Wrongful Retrenchment, the legal framework for their protection, and the steps we can take as a society to combat these acts. Join us as we explore this critical subject and empower you with the knowledge to protect your rights and safety.

In a significant ruling, the Supreme Court of India recently affirmed the principle that retrenchment does not automatically grant employees continuity of services; it must be followed by a bona fide intent. The lack of bona fide intention by the employer paved the way for the court to award continuity of services and back wages to the affected employees.

Legal Precedent

On August 11, a division bench of the Supreme Court presided over by Justices B.R. Gavai and P.S. Narasimha, delivered a crucial judgment. The court held that if an employer’s retrenchment of employees, followed by an offer of re-employment under new terms, is not conducted in good faith, the retrenchment orders can be annulled, entitling employees to both continuity of service and back wages.

Case Background

  • Cooperative offered services like transportation, housekeeping, and security.
  • The dispute began with 55 drivers seeking pay raises and permanent employment status.
  • Initial conciliation proceedings in 2007, followed by a strike by drivers.
  • Cooperative claimed the strike was illegal; the tribunal granted interim relief.
  • Drivers returned to work but were retrenched in March 2007, citing business closure.
  • Drivers received compensation under Section 25F.
  • Rashtriya Mazdoor Sangh filed a complaint, alleging the retrenchment was illegal.
  • Cooperative offered to reinstate the drivers during this time.
  • In September 2017, the Industrial Tribunal ordered reinstatement, deeming the retrenchment punitive and lacking bona fide intent.

Legal Interpretation

According to Section 2(oo) of the Industrial Disputes Act, ‘retrenchment’ is defined as the employer’s termination of a worker’s service for any reason, except as a disciplinary measure. This definition excludes cases of voluntary retirement, non-renewal of a contract, and similar situations. In this particular instance, the tribunal determined that the termination amounted to a punitive action, casting doubt on the legitimacy of the retrenchment. As a result of the tribunal’s decision, the drivers were reinstated with uninterrupted wages and 75% of their back wages, with the exception of eight drivers who had secured gainful employment after their retrenchment

Challenging the Tribunal’s Decision

The cooperative filed a writ petition in the Bombay High Court challenging the tribunal’s award, and the Rashtriya Mazdoor Sangh also approached the high court to challenge the denial of back wages for the eight drivers. However, the high court upheld the tribunal’s findings. Subsequently, the cooperative appealed the high court’s decision to the Supreme Court.

Supreme Court’s Legal Rationale

  • Cooperative presented four arguments countered by the Supreme Court’s division bench, led by Justice Narasimha.
  • First argument: The Cooperative claimed illegal strikes by drivers justified contract termination and retrenchment. However, the Supreme Court found the retrenchment resembled a business closure and lacked genuine intent, causing drivers to forfeit accrued benefits.
  • Second argument: The Cooperative argued a temporary shutdown for business reorganization. Supreme Court saw it as punitive and unnecessary for the entire business to close due to strikes.
  • Third argument: The Cooperative said re-employment was lawful under Section 25H of the Industrial Dispute Act. Supreme Court clarified this rule applied to bona fide retrenchment, which didn’t apply here.
  • Fourth argument: The Cooperative questioned the 75% back wages, citing the need for drivers to declare unemployment. Supreme Court deferred to the tribunal’s thorough examination and noted that 27 drivers had confirmed their unemployment post-termination.

Significance of the Judgment

  • This ruling carries significant legal consequences for the increasing occurrence of staff reductions and job terminations in the Indian job market, highlighting the necessity of adhering to established procedures. It serves as a cautionary message to employers, urging them to exercise prudence in their employment-related choices.
  • Concurrently, the judgment strikes a balance in the relationship between employees and employers, emphasizing that the right to strike is not absolute and can be reasonably constrained by governmental and judicial authorities. This verdict reinforces the principle that retrenchment must be executed in good faith to be legally legitimate.
  • At a time when workplace conflicts and workforce reductions are becoming more common, the Supreme Court’s position reinforces the requirement for a just and impartial approach to labor interactions and disputes.


This ruling has profound legal implications for the growing job cuts in the Indian job market, emphasizing the need for adherence to procedures, employer caution, and a balanced employee-employer relationship while reinforcing the importance of fair labor practices during an era of increased employment disputes and layoffs.

We are a law firm in the name and style of Law Offices of Kr. Vivek Tanwar Advocate and Associates at Gurugram and Rewari. We are providing litigation support services for matters related to Wrongful Retrenchment under the Industrial Disputes Act, 1947.

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