Legal Action Against Company - CiteHR
Saswatabanerjee
Partner - Risk Management
Nathrao
Insolvency N Gst Professional
Sushilkluthra@gmail.com
Consultant In Legal Matters
Chethan.bsc
Lead Executive
+1 Other

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Hi All,
One of my friend has got an offer from a company. The offer letter has sent from the company's official email address.
She is on notice period in her current company, Now HR from the new company has sent an email that we revoke your offer as they lost a expected new business
She doesn't want to withdraw her resignation in her current company as it's a matter of dignity and to avoid office drama with her managers.
Is there any way we can take legal action against the company which made the offer.?
Looking forward to hearing from you.
Regards,
Chethan
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The new company having offered you the job and after that if you have communicated acceptance thereof to the employer then that offer cannot be revoked under section 5 of the Contract Act. You can seek damages in civil court against the company for revoking the contract.
Thanks
Sushil
Law is fun. It has to be understood in the context of laws applicable. Since it is settled that general principles of contract are applicable to master and servant relations (vide Shriram Piston and Rings vs TS Mogha case) decided by Delhi HC in 2012 extracted below the breach of contract committed by employer by not allowing prospective employee to join renders him liable for damages under sections 73 and 74 of the contract Act.

Delhi High Court

Shriram Pistons & Rings Ltd. & Anr. vs Shri T.S.Mokha on 25 January, 2012

21. ….observation made by Justice Bhagwati (as his Lordship then was) in the concurring judgment in Executive Committee of Vaish Degree College, Shamli Vs. Lakshmi Narain (Supra) in para 31, which is extracted below :-

"31. ............... The law in such a case, therefore, adopts a more realistic posture and holds that the repudiation effectively terminates the contract and the employee can only claim damages for wrongful breach of the contract.”

If agreement was for specific period, one can recover damages of salary for that period (SS Shetty case decided by the Apex court) or it depends upon relevant statutory enactment e.g. Industrial Disputes Act or Shops and Establishment Act of specific State and terms and conditions of appointment..

Extracts of relevant judgments are given below:

In SS Shetty’s case the Supreme Court held that if the contract of employment was for a specific term, the servant would in that event be entitled to damages, the amount of which would be measured prima facie and subject to the rule of mitigation in the salary of which the master had deprived him and that servant would then be entitled to whole of the salary benefits etc. which he would have earned had he continued in the employment of the master for the full term of the contract, subject of course to mitigation of damages by way of seeking alternative employment. It was held that the position as it obtained in the ordinary law of master and servant was quite clear and that the master, who wrongfully dismissed his servant, was bound to pay him such damages as would compensate him for the wrong that he had sustained.

a) Delhi High Court

S.M. Murray vs Fenner (India) Ltd. on 27 February, 1986: AIR 1986 Delhi 427

(21) In S.S. Shetty v. Bharat Nidhi Ltd. , the Supreme Court held that if the contract of employment was for a specific term, the servant would in that event be entitled to damages, the amount of which would be measured prima facie and subject to the rule of mitigation in the salary of which the master had deprived him and that servant would then be entitled to whole of the salary benefits etc. which he would have earned had he continued in the employment of the master for the full term of the contract, subject of course to mitigation of damages by way of seeking alternative employment. It was held that the position as it obtained in the ordinary law of master and servant was quite clear and that the master, who wrongfully dismissed his servant, was bound to pay him such damages as would compensate him for the wrong that he had sustained. The Supreme Court referred, with approval, to Chitty on Contracts, 21st Edition, Vol. (2), p. 559, para 1040, and to Collier v. Sunday Referee Publishing Co. Ltd., (1940-4 All. E.R. 234 at p. 237(A)).

(28) In the present case before me, the term of the service agreement was to expire on 16-2-1986. The plaintiff stated that he did not take up any alternative employment though he had been making attempts and no suitable employment was being offered to him. In these circumstances, I am of the view that the plaintiff is entitled to damages calculated in terms of his salary and other perquisites for whole of the period of his employment from the date of wrongful termination of the service agreement, i.e. 21-4-1984, till it was to expire in its normal course, i.e. 16-2-1986. This comes to Rs. 2,56,776.64.

In public employment, the appellant was paid a lumpsum amount of Rs. 2 lac by the respondent-ISM towards cost of litigation as well as to secure ends of justice as admittedly the appellant was wrongly denied appointment as Registrar, ISM:

b) Delhi High Court

Dr. Samarendra Mohan Mukherjee vs Indian School Of Mines on 20 December, 2007

15. In view of above, we feel that the appellant should be paid a lumpsum amount of Rs. 2 lac by the respondent-ISM towards cost of litigation as well as to secure ends of justice as admittedly the appellant was wrongly denied appointment as Registrar, ISM. This will be also in accord with the Order dated 17th April, 1995 passed by the learned Single Judge that in the interest of justice the appellant would be compensated and granted necessary relief in case he was to succeed in the writ petition. Restricting relief to the difference in pay scales for a period of one year would be unfair and unjust to the appellant. Even if it is presumed that the appellant would have been on probation for a period of two years, it does not necessarily follow that he would not have been confirmed and appointed regularly after the expiry of the probation period. The impugned order passed by the learned Single Judge is accordingly modified and respondent-ISM is directed to pay compensation of Rs. 2 lacs to the appellant. The aforesaid amount will be paid to the appellant within a period of 2 months, failing which the respondent shall be liable to interest @ 10% per annum from the date of this order.

c) The right under section 5 of the Contract Act as extracted below is statutory right:

Section 5 in The Indian Contract Act, 1872

5. Revocation of Proposals and acceptance.—A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. —A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards." An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards….."

According to the apex court statutory right under Section 5 of the Contract Act is conferred. Section 5 says a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer.

d) Supreme Court of India

State Of Haryana & Ors vs M/S Malik Traders on 17 August, 2011

10…It is true that as per Section 5 of the Indian Contract Act, 1872 (hereinafter referred to as "the Act"), a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer. It is also true that before receipt of the letter of acceptance dated 26.11.2008, the respondent had sent a letter dated 15.11.2008 withdrawing its offer. However, admittedly, in paragraph 8 of the written offer/bid, the respondent had agreed to keep the bid open for acceptance upto 90 days after the last date of receipt of bid. The respondent had also agreed that it shall be bound by the communication of acceptance of the bid dispatched within the aforesaid period of 90 days. Hence, the respondent could not have withdrawn the bid before the expiry of the period of 90 days. It is not disputed that the acceptance of the respondent's bid was communicated to the respondent within the said period of 90 days. Therefore, the respondent was bound by the said acceptance of the bid, despite its withdrawal by the respondent in the meanwhile…..

Under the cover of the provisions contained in Section 5 of the Act, the respondent cannot escape from the obligations and liabilities under the agreements contained in its offer/bid. The right to withdraw an offer before its acceptance cannot nullify the agreement to suffer any penalty for the withdrawal of the offer against the terms of agreement. A person may have a right to withdraw his offer, but if he has made his offer on a condition that the Bid Security amount can be forfeited in case he withdraws the offer during the period of bid validity, he has no right to claim that the Bid Security should not be forfeited and it should be returned to him. Forfeiture of such Bid Security amount does not, in any way, affect any statutory right under Section 5 of the Act. The Bid Security was given by the respondent and taken by the appellants to ensure that the offer is not withdrawn during the bid validity period of 90 days and a contract comes into existence. Such conditions are included to ensure that only genuine parties make the bids. In the absence of such conditions, persons who do not have the capacity or have no intention of entering into the contract will make bids. The very purpose of such a condition in the offer/bid will be defeated, if forfeiture is not permitted when the offer is withdrawn in violation of the agreement.

e) Supreme Court of India

The Union Of India vs Kishorilal Gupta And Bros on 21 May, 1959: 1959 AIR 1362

“…..though such repudiation ends the liability of the parties to perform the contract, it does not put an end to their liability to pay damages for any breach of the contract. The contract is still in existence for certain purposes.”

EXTRACT OF AN ARTICLE RELATING TO HR:

transform-hr.com >Withdrawing an offer of employment

October 2007 Issue 22

Withdrawing an offer of employment

Did you know that if you withdraw an offer of employment after having received an acceptance of the offer, it will constitute a breach of contract, even though the prospective employee has not yet started work?

Withdrawing an offer of employment



Did you know that if you withdraw an offer of employment after having received an acceptance of the offer, it will constitute a breach of contract, even though the prospective employee has not yet started work?



What is an offer of employment?



Firstly, it is important to remember that a job offer can be verbal or in writing. It is strongly advised that when you make an offer, that you put it in writing to avoid any future disputes. Applicants have the right to raise a claim at an Employment Tribunal with regards to the recruitment process - specifically, they can raise discrimination and breach of contract claims. More information on breach of contract claims is given further on in this article.



At the point an offer is made, the offer is known to be an expression of willingness to be legally bound. It is important to realise therefore that at this stage there is no legally binding contract. The point in time where the offer (whether this is verbal or written) becomes a binding contract is when the offer has been accepted.



When is an offer accepted?



Legally, an acceptance must be in the form of a positive act, taken by the successful applicant. This could be for example where your applicant has handed in their notice to their current employer and have agreed a start date with your organisation. It could also be in the form of a written response to your job offer, stating their intentions to commence work as per the offer of employment.



When can an offer of employment be withdrawn?



If business circumstances lead to the organisation needing to withdrawn an offer of employment, the time that this needs to be carried out, without incurring any penalty, is prior to acceptance. It is important to understand however that a withdrawal is only complete when it has been received by the applicant.



This legal point means that it is vital that any withdrawal made is submitted in writing and forwarded to the individual via special delivery mail. You can then be assured, once proof of delivery has been obtained, that it has been received by the applicant. Your HR Department, or Northgate HR Advice Line for all Northgate HR clients, can produce this correspondence for you, should you be in the position of needing to withdraw an offer of employment.



What happens if I need to withdraw the offer but the offer has already been accepted?



If the applicant has already taken positive steps which result in there being a binding contract between the two parties, for example they have agreed a start date with you, signed an acceptance letter, handed in their notice with their current employer, this does not mean that you can not withdraw a job offer. In this situation, it simply means that you have to take a different course of action to ensure that you do not face a breach of contract claim at an Employment Tribunal.



As the applicant would be entitled to sue for damages as a result of there having been a breach of contract between the two parties, you will now need to look at compensating the applicant with an amount that corresponds to the notice period they would be entitled to receive had they commenced work with your organisation.



In most cases, this will be a minimal amount, given that it is fairly common practice to place new employees on a one week’s notice period during any probationary period. However, where it could become more costly to the organisation is where the situation involves the appointment of a more senior employee. The more senior the appointment, the more likely it will be that they have a greater notice period, of for example three or six months.



I hope the above legal position make the fog on comprehension clear!!

Thanks

Sushil
In continuation of above, it needs pointing out that concealment of a material fact renders invalidity of provisional appointment.

In the case of Arun Vs. District & Sessions Judge in W.P.(C) No.5880/2012 decided on 26.7.2013 by Delhi HC it was so held:-

"2. Therefore, the issue is not of confirmation of the petitioner after completing probation in the post but of invalidity of appointment because if the appointment is obtained by misrepresenting a fact, then, the contract of employment was voidable at the option of the respondent. Section 17 of the Contract Act, 1872 defines fraud and Section 18 defines misrepresentation. Concealment of a fact falls under both. Once the contract of employment is obtained by fraud or misrepresentation, then, as per Section 19 of the Contract Act, the contract is voidable at the option of the party against whom fraud or misrepresentation is committed. Respondent/District & Sessions Judge was thus entitled to and hence rescinded the contract thereby terminating the employment of the petitioner."

Thanks

Sushil
Sushil,
Thanks for the amount of time spent in research on this topic.
Few people take the efforts.
I will read them in details
However, both the cases were for fixed term employment. The matter in question here is not fixed term. So max what he will get is one months notice period......
The other judgement was for a public employment. Which I think is a creature of a different species.
Revoking of job offer is legally incorrect.

Offer and acceptance are complete here and contract is deemed to have been entered into between employee and employer.

The affected person should clearly tell the company that legal action would be taken against them for breach of contract and damages will be sought in addition to other reliefs.

Points raised by learned member Shri Sushil K Luthra are indeed valid and shows depth of knowledge.

My sincere thanks to him for enlightening us on these aspects.

Cases reffered by him indicate case law.

Whether it public employment or fixed period employment-basis of contract is the same.

One cannot make an offer and then withdraw the offer after acceptance in accepted fashion just because some contract/project has not come through.The fact that is noticeable is the employee has given notice and will suffer due to this sudden change/withdrawal of job offer.

It is yet another matter that legal battles are expensive and time consuming,but with whatever is written in the query, the legal rights of the person are affected and he /she has legal recourse.
Reference query of Mr. Benerjee, the aggrieved can argue to seek damages up to three years wages in terms of the Apex court decision in Kayastha Pathshala v Rajendra because of wrongful termination of contract by termination of services.
Thanks
Sushil
Sushil, great effort useful insight.
Exact opposite would be interesting discussions. Where, employee accept the offer and agree joining date writing and does not join. May be using the offer for cross negotiating the pay elsewhere.
Contract Act applies to both parties. One thing is clear that there will be breach of contract and damages ensue. But quantification of damages sustained by employer will be different and depend from case to case. But one thing may not be forgotten that employer carries a better shine than employee. Any shriek by a prospective employee in media may bring the shine down to a great extent. In the eyes of employees the employer will be blacklisted and brilliant employees will think twice before applying for job openings before such employer.
Thanks
Sushil
I went through the case. It does not apply to the circumstances referred to in this thread.
That decision of the court was for a very specific case where someone was the terminated after having worked for certain number of years, with multiple suspensions and circumstances that looks like the action is Mala fides


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