Can a PSU Demand Ex-Gratia Refund if an Employee Joins Another PSU After VRS?

An employee took VRS (Voluntary Retirement) from a PSU in 2002. He worked in the private sector for 5 years. He saw an advertisement from a PSU in which there was no bar on VRS optees. He applied, mentioning VRS in his resume, and got selected, joining another PSU in 2007. The first PSU came to know about it and demanded a refund of the ex-gratia as per the application form he signed for VRS in 2002, in which it was pre-printed: "I will not be allowed to join Govt/PSU, and if I do, I will have to refund the ex-gratia received."

Now, the questions are:

1. Whether such a condition from a PSU is valid in view of section 27 of the Contract Act (restraint of trade is not valid)?

2. Whether the refund can be claimed as per the Contract Act, section 73 (no loss suffered by the first PSU due to breach of contract)?

3. Whether the refund can be enforced by the second PSU?

4. Whether disciplinary action can be initiated against the employee by the second PSU? There is no rule available to charge. The rule is clear: "Dishonesty against the company" is misconduct.

You cannot mix up the Contract Act conditions with the main service and gratuity act conditions. It is not a case of the Contract Act, but rather a case of termination of services and an extraordinary act of kindness, different from the usual conditions of termination from service by the employer or the employee by virtue of resignation. This allowed him to receive an ex-gratia amount from his employer PSU, who permitted him to retire on VRS when the usual retirement conditions were not fulfilled, except on resignation. Any kind of ex-gratia is not permissible for termination on resignation. They breached the specific terms of VRS, under which the ex-gratia was given as an act of kindness by the organization, not as an entitlement of the employee or under any section of the service contract act. The question is not whether there was any loss to the company or not, but there was a breach of faith and trust by the employee due to his doubtful integrity, which led him to cheat the employer. He is liable for disciplinary action, besides the recovery of the ex-gratia amount he claimed by false declaration, just to join another PSU to extract undue and illegal benefits from the other Government organization.

So, (1) the condition of the PSU was quite valid; (2) a refund necessarily becomes due to be recovered from the employee; (3) a refund can be enforced by the present employer to be remitted to the last employer; and (4) the second PSU can initiate disciplinary action against the employee for his unbecoming conduct as an employee of the PSU by hiding the information/facts of the case that he claimed the ex-gratia on the condition that he would not join any other Government/PSU in a bid to derive undue benefit from his past service. In fact, the employee proved to be a dishonest and unreliable person even for the present PSU.

Regards, Anonymous

Dear Sir,

Thank you for your opinion. I feel it is emotional, not legal. I (as well as the high court) feel that there is no possibility or justification for such a claim or disciplinary action. Please go through if you get the time.

http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/4520/1/WP27374-13-23-06-2014.pdf

1. He clearly mentioned in his resume about his first government job and VRS.

2. How can a 2nd PSU initiate disciplinary action against an employee for his unbecoming conduct by hiding information/facts of the case? The employee claimed ex gratia on the condition that he would not join any other government/PSU to derive undue benefit from his past service. In fact, the employee has proven to be dishonest and unreliable, even for the current PSU.

It is not an extraordinary act of kindness. They paid the ex-gratia to avoid paying future salary. They gained a lot by the person leaving the company and want the ex-gratia back as well. Where is the justification in that? They have not contributed to the person getting the job in the second PSU.

Many courts, including the Supreme Court, have held that such a condition is not valid. The Hyderabad division bench has held that a VRS person can join another PSU in open competition, and it is his fundamental right.

Regarding honesty, the person never misrepresented facts on his resume. The second PSU had not established any policy. How can they penalize a person for it? If they had clearly stated the condition in their advertisement or if the person had not disclosed it, then he could be penalized. Otherwise, how can he be charged?

Thank you.

I hope you understand that reading between the lines cannot bring perfection in knowledge. Had you read the Government/PSU Conduct & Disciplinary Rules, you would not have stated that my opinion was emotional, not legal. Rules of Government/PSUs are different from the CDA Rules of private companies. Whenever I say something about Government organizations or their PSUs, I don't try to mix Government Rules with private companies' rules or form opinions merely with reference to court judgments, ignoring the relevant rules, circumstances, and nature of the case. Any court judgment is case-specific, depending upon the characteristics, nature, and circumstances of the case, and does not have universal application on all cases of all organizations with different nature, characteristics, and circumstances.

In the specific case you referred to, you may not have noticed that the main challenge was with reference to the competence of the authority who initiated the disciplinary proceedings, not the organization that initiated the proceedings. Government/PSU Rules clearly state that an employee can be proceeded against for any offense related to their past service, even in another Government/PSU organization. The delegated competent authority in current employment, according to the status of the employee, acts as the disciplinary authority and decides the case, not the previous employer.

So, my advice to you is to re-read the judgment with specific reference to rules and delegations applicable in Government/PSU organizations. Any PSU, even if it operates as a company, cannot deviate from Government rules and regulations, besides following statutory rules meant for registered limited companies.

Regards

Dear Srinivas, probably you tried to do something else other than what you mentioned. In the first part of your question, you seemed to have questioned, "how can the 2nd PSU initiate disciplinary action against the employee for his unbecoming behavior by hiding information/facts of the case while claiming ex gratia on the condition that he would not join any other Govt/PSU in an attempt to derive undue benefit from his past service." However, in the second part of the same paragraph, you stated, "In fact, the employee proved to be a dishonest and unreliable person even for the present PSU." So, both parts of the second paragraph give a sense of contradiction to each other. I hope I clarified your point in my previous post in response to the supplementary post of the querist, explaining how the 2nd PSU can initiate disciplinary action against the employee.

Secondly, merely mentioning in his resume about his first government job and VRS does not absolve him of his irregularity in falsely declaring that he would not join any Government/PSU after VRS. Government rules, being of a statutory nature, are sacrosanct and must be followed scrupulously by employees of the Government/PSUs.

Regards

Legal Position on Employment Restrictions After VRS

The condition stating, "I will not be allowed to join another PSU. If I wish to join, I will refund the ex-gratia," violates Sections 27 and 73 of the Indian Contract Act.

Section 27: Agreement in Restraint of Trade

Every agreement restraining anyone from exercising a lawful profession, trade, or business is void to that extent.

Section 73: Compensation for Breach of Contract

When a contract is broken, the party suffering from the breach is entitled to compensation for any loss or damage caused by the breach, which naturally arose in the usual course of things or was known to be likely to result from the breach. Compensation is not given for remote or indirect loss.

In the Kerala High Court case, State of Kerala vs. United Shippers and Dredgers Ltd, 1982 KLJ 430, it was held that no compensation is payable if no legal injury or loss is suffered due to a breach of contract. Even if a breach is assumed, the previous PSU has not suffered any "legal injury" or loss, making their claim invalid.

Gauhati High Court: Oil India Ltd vs. Dilip Kumar Goswami

No employer can restrict the future job of an ex-employee. The employer cannot impose any term or condition to restrict the future avocation of an employee after retirement.

Clarification by the Department of Public Enterprises

The management of Public Enterprises is advised to exercise discretion while handling cases of voluntary retirement. The condition that restricts benefits if an employee takes a job in another PSU appears contrary to Section 27 of the Indian Contract Act.

Hyderabad Division Bench: S. Rami Reddy vs. Vice-Chairman and Managing Director, Andhra Pradesh State Irrigation Development Corporation Limited

There is no ban on VRS optees joining any other PSU through open competition. The condition requiring an undertaking not to seek re-employment in other Government undertakings is arbitrary and violates Articles 16 and 21 of the Constitution of India.

Supreme Court: Gouri Shankar Ghosh Hazara vs. Hindustan Copper

A VRS optee can join another PSU and will be eligible for all VRS benefits.

Gujarat High Court: Lalbhai Dalpatbhai & Co vs. Chittaranjan Chandulal Pandya

Restrictions on an employee after termination of employment are not valid. Employees lack bargaining power and must sign on the dotted line.

Supreme Court: Superintendence Company of India vs. Krishnan Murgai

Post-service conditions are not valid. Any contract restraining trade, whether general or partial, is void.

Supreme Court: Niranjan Shankar Golikari vs. Century Spinning

A negative covenant in a service agreement is void. Negative covenants after contract termination are not valid.

Supreme Court: Percept D Mark (India) Ltd vs. Zaheer Khan

Any condition after contract termination is invalid.

Supreme Court of India: Bank of India & Ors vs. O.P. Swarnakar

A contract of employment is governed by the Indian Contract Act unless governed by a statute or statutory rules.

Regards

I would like to add further to the discussion that if such were the case, no ex-serviceman could join any PSU or government jobs after taking premature retirement from the armed forces with F&F dues. So, restricting a PSU employee from pursuing any vocation after termination would amount to discrimination.

Ex Gratia and VRS Conditions

Was ex gratia paid to all those who took VRS? When you left through VRS, how many years of service did you complete? The prior condition that if you opt for VRS and take ex gratia, then you cannot seek employment in the State Government or PSU is legally valid. You will have to refund the ex gratia amount. You can quote various judgments, but specific details of why the judgment has come need analysis. I agree with the learned member Shri Dhingra in his opinion. Your current employer will take action when the previous PSU writes to them. The source of PSU finance is basically the Government, and the rules are, by and large, common.

Ex Gratia and Voluntary Retirement Scheme (VRS) Conditions

Was ex gratia paid to all those who took VRS? - Yes

When you left by VRS, how many years of service did you put in? - 16

The prior condition that if you opt for VRS and take ex gratia, then you cannot get/seek employment in State Government/PSU is valid legally. It is violating Contract Act 27 and a number of Supreme Court decisions (no employer can restrict an employee after termination).

You will have to refund the ex gratia amount. It is violating Contract Act 73 (no loss suffered by PSU 1).

You can quote various judgments, but specific details of why the judgment has come need analysis - yes.

I agree with learned member Shri Dhingra in his opinion - fine.

Your current employer will take action when the previous PSU writes to them. The rules state "dishonesty against the company and within company premises" is misconduct. If the employer is allowed to initiate disciplinary action for any problem outside the company, no employee will be safe (like housing loan default, credit card default, phone bill, house tax, etc. - which are all pertaining to Government agencies).

The source of PSU finance is basically the Government, and rules are by and large common - yes. But, any contract has to be signed as per legal provisions. Any contract violating the Contract Act is invalid and not enforceable.

Well, if you are so sure about the legal position, all the best. People have given opinions. Remember, PSUs also have their legal advisors, and no such term or condition will be approved by the respective State Government if it violates the law. This condition of refunding ex gratia is seen in VRS offers made by various state PSUs.

Thank you for showing concern for my health. I am recovering gradually. I shall view the link when I find it convenient and am comfortable sitting for long periods before my desktop. Currently, I can only say that the Contract Act is not only the basis for regulating all appointments but should also be considered a supplementary tool to the service rules.

Regarding the legal aspect of the case, it is rare to find similarities between cases, as this depends on the nature, characteristics, and the ground realities of the cases being compared.

Regards

I came across an article by an eminent SC lawyer, explaining in detail why an employer cannot enforce ANY condition on an employee after the period of employment (after retirement, resignation, dismissal, VRS, etc.). It is applicable for all cases of bond, undertaking, appointment order, or any other type of promise to do or not do something like not doing some business, not joining a competitor, not joining another PSU, etc. This article will be very useful for many people.

Mr. Sas,

You should not forget that the condition was imposed prior to leaving service and that the agreement of the employee with his employer was sacrosanct for the purpose of service laws read with the contract act. However, if you believe that an article by some lawyer can render the law as null and void, nobody prohibits you from doing so, provided you are able to convince the judge that there is no need to follow the law of the land in view of such an article.

In Section 27 of the Contract Act, there is an exception as well, which the article has referred to but which you intended to ignore. I won't make it easy for you by providing a ready-made answer to your academic query. I would only advise you to reread at least the full part of the paragraphs on the second page of the article that refer to Justice A.P. Sen's judgment.

Moreover, I have already clarified that in your case, the condition was imposed prior to leaving service and that the agreement of the employee with his employer was sacrosanct for the purpose of service laws as read with the Contract Act.

However, if you believe that an article by some lawyer can render the law null and void, that is a sheer misunderstanding. A judge in the case is not bound to follow the text of any such article. I stress once again, it is not any article written by any Supreme Court lawyer based on any judgment that could render the law of the land null and void. It is the reality of the situation, characteristics, circumstances, etc., attached to the case in particular that allow the law to be interpreted correctly in the courts of law.

Forget all the cases. Will the Constitution of India and contract law enacted by the Parliament hold a superior position to the circulars and guidelines formed by some persons or companies (possibly due to ignorance or ulterior motives)?

Central Government Act

Article 19(1)(g) in The Constitution Of India 1949

(g) To practice any profession, or to carry on any occupation, trade, or business.

Central Government Act

Article 21 in The Constitution Of India 1949

21. Protection of life and personal liberty: No person shall be deprived of his life or personal liberty except according to the procedure established by law.

Central Government Act

Section 27 in The Indian Contract Act, 1872

27. Agreement in restraint of trade, void: Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void. Exception 1: Saving of agreement not to carry on business of which goodwill is sold. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.

Section 73 in The Indian Contract Act, 1872

73. Compensation for loss or damage caused by breach of contract: When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

I have published the writ petition I prepared against my first PSU, which instigated my second PSU to take disciplinary action against me and caused my dismissal. I am demanding reinstatement due to non-payment of notice period salary and causing my dismissal. Please visit tiny.cc/sailwp when you are free. I have provided links to more than 40 cases where it has been held that an employer has no say on the employee after the termination of employment.

Just because an employee has countersigned an appointment order or given an undertaking, it does not become enforceable. It has to be reasonable and justifiable (like protection of trade secrets, protection from competition, etc.).

Regards

Legal Implications of Employment Agreements

You are free to assume anything. Nobody can prohibit you from doing so. If you feel that the agreement was violative of any constitutional provision, why not file a case in the competent court of law to get a judgment to confirm your perception? Also, if the employee is aggrieved by disciplinary action despite deriving undue benefits for no work from his previous employer, you may take up his case with the CAT/competent court to confirm your opinion. But if you insist on constitutional provisions and Sec. 27 of the Contract Act, do not forget that besides departmental disciplinary action, he can also be proceeded against under the provisions of CrPC and IPC for deriving undue profit without providing any service.

Rather, you or the said employee should be thankful to the departmental authorities for choosing only disciplinary action instead of filing an FIR with the police.

To be frank, if there is any truth in this case (not a hypothetical case) and had I been at the helm of affairs, I would have definitely taken action to put such a person behind bars under the provisions of the law. In that case, I would have liked to see how the Constitution of India or your interpretation of Sec. 27 of the Contract Act would come to the rescue.

You gave your views, which had only emotional content and not any legal basis, voluntarily. When your views are found to have no legal basis, you have started making personal accusations against me. I have already proved that I have done nothing wrong in the Karnataka High Court, arguing myself. If you have an open mind, please read the judgment in the link below. You may think you know more than the High Court Judge. Nobody stops you.

http://judgmenthck.kar.nic.in/judgme...23-06-2014.pdf

Lastly, I have started this discussion, and I am the owner of this thread. You might have held a post at the "helm of affairs," but your views need not always be right. If I had committed fraud, embezzlement, etc., there was nothing stopping my employer or previous employer from filing an FIR. The maximum that can be done against me was a civil suit for recovery, which will not even be admitted as it is well beyond the limitation period as per law (which was also confirmed by the Karnataka High Court).

Supreme Court of India

Olga Tellis & Ors vs Bombay Municipal Corporation & on 10 July 1985

Equivalent citations: 1986 AIR 180, 1985 SCR Supl. (2) 51

A 7-judge constitutional bench held:

"No individual can barter away the freedoms conferred upon him by the Constitution. A concession made by him in a proceeding, whether under a mistake of law or otherwise, that he does not possess or will not enforce any particular fundamental right, cannot create an estoppel against him in that or any subsequent proceeding. Such a concession, if enforced, would defeat the purpose of the Constitution. Were the argument of estoppel valid, an all-powerful state could easily tempt an individual to forego his precious personal freedoms on the promise of transitory, immediate benefits."

Article 19(1)(g) in The Constitution Of India 1949

(g) to practice any profession or to carry on any occupation, trade, or business

To work in any company is a fundamental right as per 19(1)(g). An employee cannot be denied this fundamental right by an undertaking forcefully obtained by PSU1 on payment of some money on the pretext of VRS or ex-gratia.

One more similar undertaking by the Government from an employee was quashed by the court:

"Dealing with an undertaking obtained from the concerned employee that he would not claim the salary of the higher post or any other benefit was held to be illegal by the Apex Court in Secretary-cum-Chief Engineer, Chandigarh v. Hari Om Sharma 1998 SCC (L & S) 1273. In paragraph 8 of the aforesaid decision, it was held thus:

Learned Counsel for the Appellant attempted to contend that when the Respondent was promoted in a stop-gap arrangement as Junior Engineer I, he had given an undertaking to the Appellant that on the basis of the stop-gap arrangement, he would not claim promotion as of right nor would he claim any benefit pertaining to that post. The argument, to say the least, is preposterous. Apart from the fact that the Government in its capacity as a model employer cannot be permitted to raise such an argument, the undertaking which is said to constitute an agreement between the parties cannot be enforced at law."

I filed an Original Application in the Central Administrative Tribunal, Madras bench asking to quash the claim of PSU-1 on me (based on my undertaking to refund ex-gratia amount on joining any other PSU). The CAT, instead of issuing an arrest warrant on me as suggested by a learned member of this group, has stayed the claim of the PSU-1.

[URL: https://drive.google.com/open?id=0BxP4Z8a7CqZGRG0xQTNlZ1FwOFk]

Hope to get justice some day.

Legal Implications of VRS Undertakings

Hyderabad division bench has squarely dealt with such an undertaking signed by a VRS Optee.

https://www.legalcrystal.com/case/43...nt-corporation

It should be noted that the impugned condition only prohibits the petitioners from taking re-employment in Government Departments/Public Sector Undertakings. They are not precluded from taking employment in private organizations or competing by way of direct recruitment to public offices. The apprehension of the petitioners that if they give an undertaking in terms of Clause 8(8) of G.O. Ms. No. 16, dated 22-3-2001, they would be barred from seeking employment in any organization, is misplaced. Even if they give such an undertaking, they would not waive their fundamental right to equality enshrined under Article 14 and the other fundamental rights guaranteed under Part III of the Constitution of India. If at any future point in time, the petitioners apply for employment and their cases for employment are rejected on the ground of their having undertaken not to claim re-employment, they are not entitled to claim employment. Then they would be at liberty to assail the same.

Judicial Precedents on Employment Conditions

I cited more than 40 cases where the courts held that an employer cannot enforce any condition after termination of an employee, by whatever name it is called, like a bond, undertaking, confidentiality, non-compete, training bond, etc. Anyone can read and understand the legality or otherwise of such an undertaking if they have an open mind.

https://docs.google.com/document/d/1...2BZx8vQEU/edit

A stay is rarely given by CAT unless the CAT is convinced that a gross illegality has been committed.

When the claim is quashed, an appeal can be filed. Does it make the quashing not correct? Once a stay is granted, the concerned party has to get it vacated. Until that time, the claim is null and void.

Let us talk on legal merits by citing judgments, not by what one feels. No offense meant.

Response to Legal Concerns and Queries

Q: Why do you feel that anybody should reply to your post when you serve a legal notice to the contributors who try to make you aware of the legal implications of a case?

Ans: Giving legal points and advice is always appreciated. However, throwing personal accusations like "fraud, cheating, misappropriation, you must be arrested, etc." is not in good taste from a senior member.

Q: Secondly, why do you think that you could have been arrested if your PSU has not filed any criminal case against you? I really wonder about your thought; if you consider any reply to your post at CiteHR as an FIR against you.

Ans: The worst that can be done against me was a civil suit for recovery. The arrest and putting behind bars were suggested by you, and the criminal offense was also suggested by you.

Q: Thirdly, do you believe that the CAT has the power to order the police for the arrest of anyone?

Ans: I am not a judge of the CAT, and I cannot answer this question. What I can say is that CAT could have refused to hear or could have refrained from giving a stay.

Q: Fourthly, do you think if a stay is granted that can be treated as quashing of the claim?

Ans: A stay is not granted just like that. Only if there is a prima facie illegality committed, a stay is granted. Moreover, the claim (of PSU-1) has already been quashed by the Karnataka High Court.

Q: I am not concerned with the rarity of a stay by the CAT on any matter or how many cases you could quote in your case.

Ans: This shows that you are not concerned about legality and merit but only about what you feel is right.

Central Administrative Tribunal Decision

The Central Administrative Tribunal quashed the "Refund of Ex-gratia on joining another PSU" on January 24.

Click the link to read the judgment on the CAT, Madras website: https://cis.cgat.gov.in/catlive/pdf/...pFMkxuQmtaZz09