Monetary Compensation Prevails Over Automatic Reinstatement for Illegally Terminated Contractual Workers

Comprehensive Commentary on MPMKVV Co. Ltd. & Ors. v. Surendra Kumar Gupta
(High Court of Madhya Pradesh, 12 June 2025)

1. Introduction

The matter in MPMKVV Co. Ltd. & Ors. v. Surendra Kumar Gupta revolves around a contractual steno-typist whose services were orally terminated in 2009 after several years of engagement with the Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited (“MPMKVVCL”). The employee succeeded before the Labour Court, which ordered reinstatement with 25 % back-wages. The employer approached the High Court under Articles 226/227 of the Constitution challenging that award. At stake were two primary questions:

1. Whether the Labour Court correctly held the termination to be illegal under the Industrial Disputes Act, 1947 (“ID Act”).
2. Whether reinstatement with back-wages is the appropriate remedy for a contractual/daily-wage employee whose termination is illegal for violation of s. 25-F of the ID Act.

Justice Milind R. Phadke affirmed the finding of illegality but substituted the remedy of reinstatement with a lump-sum monetary compensation of ₹ 5,00,000, thereby aligning State jurisprudence with the evolving Supreme Court line that prefers compensation to reinstatement for short-tenure or non-regular workers.

2. Summary of the Judgment

• Finding on Illegality: The High Court agreed that the employer had failed to disprove the employee’s 240-day continuous service; hence the oral termination without compliance with s. 25-F amounted to illegal retrenchment.
• Reinstatement Reversed: Following recent Supreme Court precedents (Bharat Sanchar Nigam Ltd. v. Bhurumal, Jeetubha Khansangji Jadeja et al.), the Court held that reinstatement with back-wages is not automatic in such circumstances.
• Substituted Relief: The worker was awarded a consolidated compensation of ₹ 5 lakh payable within six months.
• Partial Allowance: The writ petition thus succeeded in part—illegality stood, but the quantum and form of relief were modified.

3. Analysis

3.1 Precedents Cited and Their Influence

1. Bharat Sanchar Nigam Ltd. v. Bhurumal (2014) 7 SCC 177
   Clarified that compensation can replace reinstatement when termination is illegal solely due to procedural defects concerning daily-wage employees. Justice Phadke heavily relied on para 33 of this case to justify shifting away from the “automatic reinstatement” orthodoxy.
2. Jeetubha Khansangji Jadeja v. Kutch District Panchayat (2022)
   Reaffirmed that reinstatement of daily-wage workers after long delays is often impractical; monetary compensation suffices.
3. Union of India v. Ex-Maj. Sudarshan Gupta (2009) 6 SCC 298
   Cited by the employee. Established adverse inference for non-production of best evidence—used to uphold the Labour Court’s factual finding on 240-day service.
4. O.P. Bhandari v. ITDC (1986) 4 SCC 337
   Early statement that courts may sculpt relief; reinforced discretion to grant compensation rather than reinstatement, especially for higher-level or contractual staff.
5. Jayant Vasantrao Hiwarkar v. Anoop Ganpatrao Bobde (2017) 11 SCC 244
   Approved compensation in lieu of reinstatement where only one year’s service was proved.

3.2 The Court’s Legal Reasoning

“Looking to the date of termination, the nature of service as contractual, and the length of service which is about eight years, the Court below should have directed payment of monetary compensation of ₹5,00,000 in lieu of reinstatement and 25 % back-wages.” – Justice Phadke

The reasoning unfolds in two independent but sequential steps:

1. Verification of Illegality (Jurisdictional Fact):
   • Employer failed to produce attendance/pay records.
   • Adverse inference drawn; statutory pre-condition of 240 days therefore deemed satisfied.
   • Non-compliance with s. 25-F renders termination void ab initio.
2. Choice of Relief (Discretionary Remedy):
   • Re-employment after 16 years (termination 2009, case decided 2025) would be disruptive.
   • Contractual employee never held a sanctioned regular post.
   • Supreme Court trend favours “monetary compensation will meet the ends of justice.”
   • Assessing equitable amount, Court sets ₹ 5 lakh—approx. 2-3 years’ wages at likely steno-typist rates, balancing fairness and deterrence.

3.3 Impact of the Judgment

State-level Precedential Value

• Affirms at High Court level that MP Labour Courts should consider compensation as the default remedial measure where tenure is irregular/contractual.
• Encourages employers and employees to weigh monetary settlement in conciliation, reducing prolonged litigation.

National Ripple Effect

• Although not binding across India, it contributes to the growing consistency among High Courts in implementing the Supreme Court’s compensation line, helping crystallise a de facto rule.
• Provides a quantified template (₹ 5 lakh for eight years) which future tribunals may analogise, promoting predictability.

Policy Considerations

• Deters government departments from keeping workers on long-term “contract” rolls without due process, as they still face financial consequences.
• Simultaneously, prevents distortion of regular recruitment by automatic absorption of irregularly appointed staff.

4. Complex Concepts Simplified

Section 25-F (ID Act, 1947)

A mandatory procedure before retrenching workmen: issue one-month notice or pay in lieu, plus retrenchment compensation (15 days’ wages per completed year). Non-compliance = illegal retrenchment.

240-Day Rule

If an employee works 240 or more days in the preceding 12 months, they earn “workman” protection; dismissal without s. 25-F compliance becomes illegal.

Adverse Inference

Evidence law principle: when a party withholds best available evidence, the court presumes that evidence would have gone against that party.

Reinstatement vs. Compensation

Reinstatement restores employment with back-wages and continuity; compensation pays lump-sum money instead. Supreme Court’s modern approach prefers compensation for daily-wagers/contractuals to avoid destabilising public administration.

5. Conclusion

The Madhya Pradesh High Court’s decision in MPMKVV Co. Ltd. v. Surendra Kumar Gupta squarely places monetary compensation—rather than automatic reinstatement—at the forefront of remedies for illegal termination of contractual workers. While affirming workers’ statutory protections under the ID Act, the Court harmonises relief with pragmatic industrial realities and Supreme Court guidance. For practitioners, the case underscores two critical lessons:

1. Employers must meticulously maintain and, if required, produce employment records; failure will trigger adverse inference on continuity of service.
2. Even when illegality is proven, relief is flexible; courts will calibrate remedies to balance fairness to labour with functional viability of public enterprises.

Going forward, litigants in Madhya Pradesh can expect a stronger trend toward lump-sum compensation in similar disputes, thereby shortening litigation cycles and aligning state practice with the Supreme Court’s modern jurisprudence.