More Stories

Informist, Wednesday, Sept. 24, 2025

 

NEW DELHI – The Bombay High Court has held that it is "undesirable" and "inequitable" to ask employees of a company to deposit retrenchment compensation with the court as a condition for challenging their retrenchment. The right to receive retrenchment compensation is a statutory right of employees whose services have been terminated, and they may be forced to withdraw their plea challenging their retrenchment because of their failure to deposit this amount due to financial constraints, the court said.

 

The high court has set aside an Industrial Court order asking Agrofab Machineries (I) Pvt. Ltd.'s former employees to deposit their retrenchment compensation as a condition for appealing against their termination in court. The high court directed restoration of complaints filed by the former employees of the company in the Industrial Court.

 

If an employee accepts voluntary retirement and then challenges it, it is desirable that the amount received by the employee under the voluntary retirement scheme be deposited, said the court. However, in the case of retrenchment, the master-servant relationship is not severed at the behest of the employee, said the court. In such cases, if the employee challenges the termination and even if the challenge fails, he/she will be entitled to retain the amount of retrenchment compensation, the court added.

 

In 2014, Agrofab Machineries had terminated the services of the petitioners by way of retrenchment. Retrenchment is the termination of an employee by an employer for reasons other than the employee's fault such as cost-cutting, financial difficulties, business restructuring, or changes in business needs. The petitioners had challenged their termination by filing complaints in the Industrial Court. However, the Industrial Court directed the petitioners to deposit the retrenchment compensation as a condition precedent for hearing the case.

 

The petitioners argued that in view of Section 25(F) of the Industrial Disputes Act, 1947, payment of retrenchment compensation is a condition precedent for retrenchment of any employee. The petitioners contended that even if the complaints are dismissed, the employee will be entitled to retain the retrenchment compensation and therefore, directions for depositing the said amount could not have been issued.

 

The company argued that the master-servant relationship is severed by the act of retrenchment and if the employee seeks to assert that the relationship should continue, it would be appropriate that the amount of retrenchment compensation should be secured. By issuing directions to deposit the retrenchment compensation, the Industrial Court has balanced the equities, the company had said.  End

 

Reported by Surya Tripathi

Edited by Nishant Maher

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.