Dear Sir,
I would like to share the legal position with respect to the condition that "I will not be allowed to join another PSU. If I wish to join, I will refund the ex-gratia"
The above condition violates the Contract act section 27 and 73.
27. Agreement in restraint of trade, void.—Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. —Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.
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.
Kerala High Court – State of Kerala Vs United Shippers and Dredgers Ltd, 1982KLJ430, due to breach of contract, the government did not suffer any legal injury or loss, so no compensation is payable as per contract act. Even if it is assumed that the person has breached the contract, the previous PSU has not suffered any “legal injury” or loss (but gained enormously). So, their claim is invalid.
“7...If the breach has not resulted in any harm, loss or damage to the other party, the question of recompensating him or restoring to him something he has lost would not arise.
8.....section 75 would necessarily indicate that the party who complains of a breach must have really suffered some loss or damage apart from being faced with the mere act of breach of contract....If in any case the breach has not resulted in or caused any loss or damage to a party, he cannot claim compensation”
Contract act section 27
Gauhati High Court – Oil India Ltd Vs Dilip Kumar Goswami, (2000)IILLJ415 Gau, No employer can restrict future job of an ex- employee.
“The employer cannot prescribe any term and condition in order to restrict future avocation of an employee after retirement. The bar for appointment after retirement may suit the employment policy of the Public Sector Undertakings and they may by way of policy decide not to appoint any retired employee of any other Public Sector Undertakings.
13. The clarification given by the Department of Public Enterprises in Column-5 shows that the Management of Public Enterprises have been asked to exercise its own managerial discretion and prudence while disposing of the cases of voluntary retirement. The clarification further requires the Management to invoke the powers of office memorandum dated December 14, 1982, January 25, 1998 and June 23, 1998 (sic) issued by Department of Public Enterprises if they find that an employee seeking voluntary retirement has opted for a job in any other Public Sector Undertaking. This condition also appears to be contrary to the provisions of Section 27 of the Indian Contract Act. An employee going on voluntary retirement and not taking any job in any Public Sector Undertaking will be entitled to full benefits under the Voluntary Retirement Scheme, but the said benefits will be restricted to certain amounts only if such employee takes fresh employment after retirement. The clarification given to this effect cannot be said to be in keeping with the spirit of the provisions of Section 27 of the Indian Contract Act. The Company while disposing of a request for voluntary retirement cannot discriminate in respect of benefits to which an employee is entitled to on such retirement on consideration that the employee concerned was going to take over a job in some other company. A bare reading of the guideline/circular shows that this was issued without any authority of law and against the basic principles behind 'voluntary retirement'.”
Hydrabad Div Bench – S.Rami Reddy Vs Vice-Chairman and Managing Director, Andra Pradesh State Irrigation Development Corporation Limited, 2003(4)ALD609. There is no ban on VRS optees to join any other PSU in open competition
“31. According to the learned counsel, Clause 8 of G.O. Ms. No. 16, dated 22-3-2001, which requires the identified employee to give an undertaking to the effect that he would not seek re-employment in other Government undertakings, is arbitrary and illegal for it violates the provisions of Articles 16 and 21 of the Constitution of India, and in support of this submission, he placed reliance on the judgement of the Gauhati High Court reported in Oil India Ltd. v. Dilip Kumar Goswami, 1999 (7) SLR 494.
76. The effect of the other contention advanced by the learned counsel for the petitioners that the condition in the impugned notice insofar as it mandates the identified employee who opts for VRS to give an undertaking that he shall not be eligible for re-employment in any Government Departments and Public Sector Undertakings, which is in consonance with sub-clause (8) of Clause 8 of G.O. Ms. No. 16, dated 22-3-2001, is arbitrary inasmuch as it takes away their right to livelihood enshrined under Article 21 of the Constitution of India, is also liable to be rejected, inasmuch, the learned single Judge of this Court, having considered this contention, in the above judgement, held thus: In the considered view of this Court, Clause 8(8) of G.O. Ms. No. 16, dated 22-3-2001 suffers from no infirmity. It does not deprive persons, who have opted for Voluntary Retirement Scheme from competing by way of direct recruitment to any Public Office.
77. 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 compete by way of direct recruitment to public offices.”
Supreme court – Gouri Shankar Ghosh Hazara Vs Hindustan Copper, 8-5-2001, A VRS optee can join another PSU, he will be eligible for all VRS benefits
“It is clear that there was as such no embargo on an employee of a public sector undertaking being employed by another public sector undertaking”
Gujarat High Court – Lalbhai Dalpatbhai & Co Vs Chittaranjan Chandulal Pandya, AIR 1996 Guj 189. Restriction on employee after termination of employment is not valid. Employee does not have any bargaining power and has to sign on dotted line.
“9....If it is not going to benefit ”the employer in any legitimate manner, the court would not injunct the employee from exercising his skill, training and knowledge merely because the employee has agreed to it”
Gujarat High Court – Sandhya Organic Chemicals P Ltd Vs United Phosphorous Ltd, AIR 1997 Guj 177. as per contract act, service covenant beyond service period is not valid.
“16....The supreme court has also ruled that under section 27 of the contract act, a service covenant beyond the termination of the service is void”
Supreme court – Superintendence Company of India Vs Krishnan Murgai, AIR 1980 SC 1717. Post service conditions are not valid. Even partial condition is not valid. Inequality of bargaining power with employees. Harsh and oppressive conditions.
“29.A contract, which has for its object a restraint of trade, is prima facie void....whether the restraint was general or partial, unqualified or qualified, if it was in the nature of a restraint of trade, it was void.
32.....If the agreement puts a restraint even though partial, it was void and therefore, the contract must be treated as one which can not be enforced.
53....Not a Indian Decision has been brought to our notice where an injunction has been granted against an employee after the termination of his employment.
58....If the covenant is to operate after the termination of services, or it is too widely worded, the court may refuse to enforce it.
59....there is inequality of bargaining power between the parties, indeed no bargaining may occur because the employee is presented with a standard form of contract to accept or reject... ”
The Chairman has held in Annexure A, that the language of the undertaking the petitioner is clear (Annexure-C), whereas, it is a pre-printed format which the petitioner had to sign under compulsion of retrenchment.
Supreme court – Niranjan Shankar Golikari Vs Century Spinning, AIR 1967 SC 1098, negative covenant in a service agreement is void. Negative covenant after termination of contract is not valid.
Supreme court – Percept D Mark (India) Ltd Vs Zaheer Khan, AIR 2006 SC 3426, any condition after termination of contract will be invalid.
“55. On the pleading contained in the arbitration petition, there can be no escape from the conclusion that what the appellant sought to enforce was a negative covenant which, according to the appellant, survived the expiry of the agreement. This, the High Court has rightly held is impermissible as such clause which is sought to be enforced after the term of the contract is prima facie void under section 27 of the contract Act”
268. Supreme Court of India : Bank Of India & Ors vs O.P. Swarnakar Etc on 17 December, 2002, Bench: H Sema, S Sinha on the topic of VRS
..... It is difficult to accept the contention raised in the Bar that a contract of employment would not be governed by the Indian Contract Act. A contract of employment is also a subject matter of contract. Unless governed by a statute or statutory rules, the provisions of the Indian Contract Act would be only applicable at the formulation of the contract as also the determination thereof.