Are you removing few persons because of poor performance or retrenchment? It appears that you have confused both the terms. To know more about conditions under which retrenchment is done, click the following link:
If you are removing few persons because of their poor performance then where is the question of salary hike? Salary hike is given provided employees meet the performance requirement. If they fail to meet then they are ineligible for the salary increase as well.
It appears that you have confusion in the Policy on Performance Appraisal. Why performance appraisal was done after 13.5 months? Generally it is done quarterly or half yearly. Therefore, on completion on their employment if the appraisal is done and if the rating is below the expected level they are liable for removal from employment.
There is no legal binding on salary increment as long as wage are above minimum wages. However, the important thing from legal standpoint is proper communication on the continuation of employment vis-a-vis their performance. Have you done that?
19th September 2015 From India, Bangalore