Chanda Kochhar May Have Lost Battle But Not War Against Her Termination

Last week, the Hon’ble Supreme Court declined to entertain Chanda Kochhar’s plea against her alleged illegal termination by ICICI Bank,  maintaining that it was a contractual matter between a private bank and its employee. It could, therefore, not be addressed in a writ petition.

The top court also refused to interfere with the order dated March 5, 2020 passed by the Bombay High Court. A close reading of the order suggests that Kochhar has lost only on technical grounds.

Para 18 of the order states that “When employments in a private entity is regulated by contracts, the courts do not exercise the writ jurisdiction”.  Kochhar is free to take her battle to the appropriate forum.

Simply stated, writs are issued to public authorities in cases which involve a public law element.  This not being the case, both the courts refused to intervene.  The Bombay HC has also observed in  para 20 of its order that “the grant of approval by Reserve Bank does not mean that the action of termination is valid in terms of service dispute”.

Critical Issues

This article is not about Chanda Kochhar.  Rather its focus is on the larger issue -- the legality of termination, especially for any ordinary private sector employee. It attempts an analysis that is devoid of legalities but which views the issue from the prism of good governance, fair play and equity. And not to lose sight of the fact that most private sector employees do not have the wherewithal to fight an illegal termination.

Two critical questions merit consideration. First, whether it is legally mandatory for an employer to accept an employee’s resignation. Second, is it legally tenable for any private sector employer to issue a termination letter after an employee has submitted his/her resignation? Does it serve any meaningful purpose?

The answers could have a significant impact on the  career, livelihood, freedom of vocation, reputation of not only an employee but also of his/her family and could also affect the interest of the society at large.

Appointment Vs Resignation

Contracts of employment are governed by the Indian Contracts Act, 1872. The offer of employment must be accepted by the prospective employee to turn it into a valid contract. The law is clear: it takes two to tango to make the employment contract enforceable.

Most employment contacts contain clauses specifying that either party can terminate the contract, without assigning any reason, by giving notice of certain specified days (generally 90) or making payment in lieu thereof. Acceptance of resignation by an employer is, therefore, not a legal pre-requisite.

However, as a good corporate practice and to complete the process of due diligence, a new employer generally insists that the incoming employee should submit a letter from the previous employer accepting the resignation. 

Rarest of Rare Cases

Termination from employment is a very dirty word.  For this reason, it is rarer than the award of death sentence for the most heinous crime. Even when an employer has objective and reasonable grounds for termination, say, poor performance, professional misconduct, etc., an employee is generally counselled to submit his/her resignation. 

This is also because the cost of termination is extremely high for both the parties.  The Tatas/Mistry case comes to mind immediately. Both parties generally prefer to play by the maxim: if you can’t be friends, at least part as friends.

Malicious Use of the Power of Termination

Resignations happen for a variety of reasons, which include desire to move to greener pastures, challenging assignments, foreign postings, desire to pursue different interests, etc.  

No employer likes to lose a good resource.  Immediately after an efficient employee tenders his/her resignation, they are cajoled with promises of accelerated increments, bigger roles etc. Yet, many employees tend to stick with their decision to move on. Good employers wish them luck and accept the finality.

Yet, there are some employers who feel offended or like to use the opportunity to settle personal scores.  They go to any length to ensure that employee’s reputation is maligned and/or his/her career is ruined.

This can be simply achieved by issuing a termination letter, no matter whether it is illegal. Would any new employer then touch such an employee?  The answer clearly is a big NO. The employee’s career and reputation would be.  Who would like to hire a cook whose previous employer alleges, rightly or wrongly, that the cook tried to poison her?

Purpose of Termination

The purpose of termination of an employment contract is to sever the relationship between an employee and the employer.  It is immaterial who makes the first move.

Even if some unacceptable facts come to light after an employee has tendered his/her resignation, an employer must certainly take things to their logical conclusion in accordance with the law to set a strong deterrent for others. Issuing a termination letter at this stage serves no meaningful purpose, and should therefore be infructuous and  illegal.

Fundamental Rights

The larger impact on society must not be missed either. Afraid of the retaliation and illegal use of the potent weapon of termination by employers, employees are reluctant to blow the whistle on the wrong doings of their employers.  Three decades after the Harshad Mehta scam, financial scams   continue to increase in size and by numbers. Ultimately, it is the common man who bears the brunt.

Article 19 of the Constitution bestows on every citizen a right to practice any profession or to carry on any occupation, trade or business. Right to live life with dignity is an inseparable part of Article 21.

Clearly, fundamental rights could be violated if employers are allowed to sabotage an employee’s career by issuing a termination letter after an employee has tendered his/her resignation.

Conclusion

Let 10 guilty persons go scot free but not one innocent should be punished, so says criminal jurisprudence.  Likewise, let no employee’s career be ruined for life  by a revengeful, irresponsible employer by maliciously issuing a termination letter after an employee has tendered his/her resignation.

Clarity on legal issues and fast-tracking of such cases would be a boon for employees and the society at large.

The writer is a senior finance professional who has earlier worked as CFO of Tata Telecom and Pricewaterhousecoopers (India). The views are personal.